How to be competitive without lowering prices (Or cheapening a brand)

In this interview you’ll hear what today’s guest did to survive the “Y Combinator Effect,” the unsustainable bump that lead to unreal investor expectations.

Jeffrey Shaw is the founder of Underground Cellar, a startup that connects wineries with new online consumers.

Jeffrey is solving two pains–one for both buyers and sellers in the wine space–and bringing the wine industry online without cheapening it.

Jeffrey Shaw

Jeffrey Shaw

Underground Cellar

Jeffrey Shaw is the founder of Underground Cellar which is an internet technology startup using disruptive e-commerce platform to connect wineries with new online consumers.

roll-angle

Full Interview Transcript

Jeff: Yeah.

Andrew: Hey, before we officially get into this–I’ve been lately posting even the parts before the interview starts, but we don’t have to–before we officially get into it, I’m wondering if now is the right time in your business’ history for us to do this interview.

Jeff: I think so. I think we’re at a really good point. So, you know, we originally attempted to schedule this a couple months ago.

Andrew: Yes.

Jeff: And I sort of cancelled last minute. That was a time where it probably wasn’t the right time to do an interview.

Andrew: Why? What was going on?

Jeff: So, I imagine we’re on the record right now, right?

Andrew: You want to keep it off the record?

Jeff: No, either way, I’m an open book.

Andrew: Okay. So, what happened?

Jeff: So, I guess it’s potentially not unique to us. So I started this company and moved out to San Francisco, got a team together and before long, it was just taking off. So, we created something that people really wanted. We got the customers. We were getting revenue. Barbara Corcoran from “Shark Tank,” she invested in us last September, 2014.

Andrew: Yeah. Let me do a quick–I’ll say that you are the founder, Jeff Shaw, the founder of Underground Cellar just in case we decide to keep this in. I should get that out. Underground Cellar gives people incredible deals on wine without cheapening the brand of the wine without cheapening the brand by saying it’s offered at a discount. You’re a great hustler. We’ll hopefully, in the interview, get to talk about how you got to live in a place in San Francisco that’s stunning and you get to drink wine at work, which is a really good thing.

Jeff: Yeah.

Andrew: And just in case this actually makes it into the interview–and I’m not really sure this is the interview, but just in case, I should say this interview is sponsored by BrandBucket and I’ll tell everyone later about BrandBucket and by ContentPromotion.com, which I’ll talk about in the interview.

But here’s thing–yeah, you were struggling a little while ago. I sensed that when you asked to put the interview off. Frankly, you’re not the first person. Lots of entrepreneurs have. What was the problem? If you’re an open book what was going on?

Jeff: So, what happened was we moved the team out to San Francisco, all of a sudden started getting this traction–revenue, interest from investors. And then it was sort of like the Holy Grail. We got accepted to Y Combinator. For any early stage startup who’s trying to find out way here in Silicon Valley, it was huge. And so, as soon as we got into YC, we had all these investors that were trying to invest. They wanted to be a part of this.

So, what ended up happening was everything was slated for us to just blow up to be the next Gilt Group or high-end Groupon. What happened during the YC program is things caught on very well. We were able to grow. So, when we started the program, we did $50,000 of revenue per month is what we had sort of going in and then for that last month of the Y Combinator program, we did $300,000 in revenue. So, we 6x’d in like three months. It was fantastic. But in doing so, we realized that sort of this Y Combinator effect that occurred isn’t necessarily ongoing and realistic.

Andrew: So, the way I understand it, most people, just going into Y Combinator doesn’t get them customers. It does get them investors. It gets them employees. It gets them knowledge. It helps them figure out where to get their customers. But it doesn’t lead to customers. From what I understand with you, being in Y Combinator associated you with people who have money, who found out that they could get good wine at good prices from this new site, Underground Cellar. So, they went over.

Same thing TechCrunch–it doesn’t give people a sustainable bump. It doesn’t often give people a bump in customers. But for you, it did because apparently the TechCrunch audience was–who know? A wine buying audience and some of them bought. So, you’re saying this happened. It lifted you but it wasn’t sustainable because you can’t keep going on TechCrunch every day for free.

Jeff: Exactly. So, the people who invested in our company during the YC program and directly after just had this really high bar on what the expectations were. They expected this YC bump to occur month over month.

Andrew: Right.

Jeff: While we were showing double-digit growth month over month, it wasn’t that 600 percent that we had during the program. So, there was potentially perceived negative signaling. So, it ended up being hard to raise money. So, as such, it was hard to attract the team that we then needed to support this level of growth that we had.

So, what we just completed going through was really figuring out what is our company. Yes, we sell wine. Yes, we have great deals. People for $20 could buy a bottle of wine and have a $500 autographed magnum show up at their door. So, the product worked, but what it really comes down to is we had to figure out how to do it in a sustainable way.

Andrew: Wait, bottom line it for me–what was the problem that kept you from coming on a few months ago?

Jeff: So, the problem was that we were just struggling. We were under-staffed without the right team and we were in this state where we needed to raise funding, otherwise the company wasn’t able to continue to hit the goals.

Andrew: Really? So, after that incredible Y Combinator presentation that I saw that practically begged you to come on here, which showed that the numbers were huge–now we’re understanding why, that you got that huge bump–after that, you struggled to the point where you had to raise money or else?

Jeff: Yeah. So, coming out of Y Combinator, we were trying to raise money at a $15 million company valuation.

Andrew: Okay.

Jeff: It seemed reasonable because during the program before we had this 600 percent growth, we were raising at a $12 million valuation on convertible notes. So, it just seemed reasonable, “Let’s bump it up a bit.” So, what I didn’t quite have a grasp on was the investor marketplace. For an ecommerce company in a wine vertical, it was not easy.

Andrew: Right. Ecommerce is one thing. The problem with wine is it’s–frankly, I’ve tried to ship wine to people in different parts of the world. I just now got an email from someone where I tried to ship wine as a gift. They said, “Sorry, we’re rejecting you,” two weeks after I shipped it out because it’s a problem to get wine to people. There are legal issues associated with it. So, that’s the challenge. So, you’re saying investors were afraid because of that. Investors were afraid because the bump had gone away.

Here’s my concern. We can cancel the interview. You now I usually don’t let people cancel the interview. I know we didn’t officially start and everything. So, I’ll give you that option if you tell me. But here’s what I see. So, I started looking you up, just usual stuff that I do in preparation. I didn’t even do as much as I often do.

I started to see that you were on Crowdfunder. You’re on Wefunder, apparently, Crowdfunder with like raising money in a way that I can’t fully understand. Wefunder–I don’t know why you’re on there also. It kind of makes me feel like you’re now looking to raise money and you’re in a tough spot.

Jeff: So, your question is why didn’t Sequoia scoop in and just give us a few million bucks after YC?

Andrew: My question is are you still going through a challenge, in which case it’s not the right time to do a Mixergy interview or are you the company that you told our producer about, which has a $3.8 million a year run rate, which is phenomenal. Are you scraping by right now because times are really hard and I shouldn’t be asking you tough questions in an interview or are you doing so well that your $3.8 million run rate–which is it?

Jeff: So, the $3.8 million run rate are the metrics like after demo day, when with the YC bump and be able to deploy capital, we’re at a point right now we’re actually not accepting new investor money. So, we’re finally at a point where we’ve raised money and we’re good.

Andrew: So, you raised money since the last couple of months?

Jeff: What’s that?

Andrew: You raised money over the last couple of months?

Jeff: Since demo day, we’ve raised about $1 million.

Andrew: But that demo day was when? How many months ago?

Jeff: It was in March. It’s been about eight months and we’ve been able to raise some more money. So, it sort of comes back to this idea of the standard like seed round, where a company raises a seed round, they promise to earn metrics to the investors and then they take that money, they hit those metrics and then they go out and raise a series A.

I guess what happened was we raised money from the beginning of the company in small checks–$20k, $50k, $100k checks and we never had a big infusion of cash. So, we were hoping at after YC we’d have a series A and raise a few million bucks. What it ended up being was scraping together this Crowdfunder, Wefunder money from people who aren’t Sequoia, they’re not the Khosla Ventures, but people who got to know me and the team and what we’re doing and really understand it and love it.

The reason how we were able to make ourselves attractive again after having a YC bump and having what looks like on a chart a declining traction, was we really got to our core. When this company had the most growth was when a couple of guys sitting in a room late at night all hours and we just made it happen.

Andrew: All right. Let’s talk about how you built this business, then. All right. We’re into doing the interview. This is part of the interview. Here’s a part that I forgot to do for Joe because we were just chatting. There, the clapboard allows him to align the audio and the video. I should also introduce myself. I’m Andrew Warner, the founder of Mixergy, but let’s just move on here now with the story.

You’re a guy who before this, you had a couple of smaller businesses with what you consider to be small exits, right? What was the last big exit before Underground Cellar?

Jeff: Yeah. So, when I was in college, I started a company called ID Creator. It was a software-based tools where employers who needed to issue photo ID badges for their employees could use our free online cloud-based software and put the employee information, photos and then we would mail the cards out to them and code it for building access or what not. So, I start that in college and then after college focused on it and then we had a small exit.

Andrew: What was the exit?

Jeff: It was bought by some Fortune 500 company execs and they brought it in house and it still exists today. You could Google it and find it.

Andrew: What’s the name of the company?

Jeff: What’s that?

Andrew: Is the company Arcadia Enterprises?

Jeff: Yeah, Arcadia Enterprises.

Andrew: Okay. I saw the before the interview. So, how much money did you sell for?

Jeff: You know, I can’t disclose that. It was small.

Andrew: Okay. It didn’t make you a millionaire.

Jeff: …

Andrew: Oh, you can’t even say that?

Jeff: You know, I don’t want to disclose any numbers. But I can tell you, it gave me enough money to spend a couple of years and really find myself and what I wanted to do.

Andrew: I heard you spent some time hanging out in a hot tub.

Jeff: That is true.

Andrew: What do you mean to spend time hanging out in a hot tub?

Jeff: So, I was in Scottsdale, Arizona, where I started that company and where Underground Cellar existed when it first–

Andrew: When you eventually–just give me a taste. What do you mean when you said you were hanging out in a hot tub?

Jeff: Literally, I got into gardening. So, I built a big outdoor garden where I had artichokes and tomatoes and I had a hot tub. There’s something about being in a hot body of water, especially in Arizona where it’s already hot. It sort of gets the blood flowing. That’s where I came up with this idea for Underground Cellar and the upgrades.

Andrew: I see.

Jeff: It came from this last startup that I had. The revelation from that was that we were making this photo ID badges for companies and all the other players in the space, it was a chase to the bottom on pricing. So, if you need ID cards for your employee, you could find one for $0.50, $0.25, $0.10 no matter where you looked. We came into the space and said, “We’re going to charge the highest price. We’re going to charge $10 a card, but we’re going to give them free software, free customer support and it’s going to be awesome.”

We were able to get some significant traction on it. And then I realized that I didn’t really want to be in this ID card security world. My friends and I, we were getting into drinking wine all the time. I said, “For my next endeavor, I want it to be something that every day, I wake up and I love,” something I love as much as playing in my garden or in the hot tub. With wine, we found that.
So, we came up with this idea of upgrades, similar from back when we were doing with ID cards, the revelation that I had was people don’t necessarily want the lowest price or the biggest discount. They want the greatest value. With the ID card company, it was about giving them this great free online software. With Underground Cellar, you can buy a bottle of wine, but that winery is going to swap out half your bottles to a better bottle of wine.

Andrew: I see. You figured, “If we just cut the price on the wine, then we’re cheapening the brand. That’s not what people are looking for and we’re going to end up with straights to the bottom,” the way your competitors were racing to the bottom at the ID business. So, you said, “What if instead we give people for the same price, a surprise upgrade to better bottles.”

Jeff: Exactly.

Andrew: Did you copy that from another industry or learn it from somewhere else?

Jeff: Yeah. It came from the knowledge from the ID card business. I realized you don’t have to compete on price. You have to compete on value.

Andrew: Okay. But no one was doing these secret upgrades in the ID business. Where did that come from?

Jeff: True. No one was doing the upgrades, but it was the whole idea of the value proposition. For the consumer, for you to buy a bottle of wine for $20 and be able to get a $500 autographed six liter that shows up, as a consumer, it’s great. Why would you buy wine anywhere else?

But we were solving a real problem. The problem was on the suppliers. These wineries–a lot of them are making more wine every year than they can sell. A lot of them are making more wine than they can even store. It’s a little known fact. When I heard this fact, it’s when I decided I need to solve this problem. A family friend of mine owned a winery and they told me one day over dinner, they said every year we fill up a semi-truck with our unsold wine and they drive it to the dump and literally throw that perfectly good bottled wine away.

Andrew: Wow.

Jeff: The thought process was it’s better on their bottom line than flooding that wine to market at deep discounts because these wineries, if they’ve slashed the prices to a distributor or to one of these online flash sale wine websites like Groupon for wines, they can move this inventory. But what these wineries realized was once they liquidate their inventory by using discounts, it bastardizes their pricing structure, it trains buyers to expect discounts and it irritates everyone else in the supply chain.

Andrew: I see.

Jeff: The distributor who paid for that wine is going to demand better pricing if you’re undercutting them direct on the internet.

Andrew: Okay. So, I see the idea. You then had to find a way to implement it. You’re not a developer yourself, right?

Jeff: So, I am very technologically inclined. I did some light programming when I was younger. When I wanted to create Underground Cellar, you’re right. I didn’t have the skill set to actually sit down and hack this together my set. I did have previous companies, the ID card company before that, High School Humor, other websites. So, I understood how to make websites and I understood how to find people to help and how to do it on a budget.

Andrew: Where’d you find your developers, the first ones?

Jeff: So, it’s actually a really interesting story. So, it started out–I didn’t have a budget to hire, steal someone from Google or hire someone in the Bay Area. So, I used a website called Freelancer. I found a guy that was literally in Pakistan. For a year and a half we worked nights–well, my nights, form like 10 p.m. to 10 a.m. every night for like a year and a half. We just pieced it together and we built it.

I built it enough to where I had a working prototype. At the time, I still had my ID Creator money. I had some time in hanging out in the hot tub. So, I didn’t know if it was really a business at this point. I knew it was interesting. I liked wine. What I did was I invited my family and friends to try it out.

Andrew: Before you get to that, I’m wondering why did you have to spend so much time building out a shop from scratch? Why not use a Shopify or even a WordPress platform to just sell the stuff. The website doesn’t seem like that difficult to do, is it?

Jeff: You know, I appreciate the website doesn’t seem difficult. We spent a lot of time trying to make that perception.

Andrew: What did you want to do that was so different from a Shopify experience, for example?

Jeff: So, it’s the upgrades. So, what our company has become, it’s this technology development company where we’ve built technology for the wine industry, not only does the upgrades in this two-sided marketplace. So, wineries can list their inventory, create these bundled deals and then offer them out to our community.

Andrew: You wanted it to be a marketplace. You didn’t want to list it yourself and hold the inventory yourself. Is that it?

Jeff: We’re not. Exactly. This sort of goes to this compliance legal aspect you brought up earlier, where it’s very complicated to sell alcohol. So, the way we’re structured is we’re a marketplace. So, we sit in the middle, provide this technology for wineries to list their inventory in a sustainable way and then we have the consumers, wine lovers like me and my friends who come on this website to buy the wine.

In addition to that, we have our Cloud Cellar, where when you buy bottles of wine, you can store up to 500 bottles for free in our wine cellar in Napa Valley.

Andrew: Forgive me, let me just continue with this. Now I understand the different side of the marketplace. You then decided that you needed to find customers. That’s where you were going with it. Why don’t we go back to customers, but late me take a quick break here and first talk about my sponsor.

My sponsor for this interview is a brand new company called Content Promotion. The idea behind Content Promotion is this. You create a lot of content, but no one really links to it. No one comes to it. No one sees it. What if you could have a team of people who have incredible software and incredible real human beings who can contact the right influencers and get you links to your content, get you exposure to your content and help that content actually start to rise up online.

That’s what these people do. They’re fantastic at it. They will basically charge you per placement, which means that you’re basically paying for results. All you have to do if you’re interested in this is go to ContentPromotion.com/Mixergy. When you do, they’re going to take really good–don’t they have a discount on here for Mixergy? I saw it a moment ago. ContentPromotion.com/Mixergy–they’ve got to give me a discount, right? Otherwise, who’s going to care about the /Mixergy.

There it is. If you go to ContentPromotion.com/Mixergy, you’ll get a 15 percent discount on your first campaign. They’re going to take really good care of you. Go to ContentPromotion.com/Mixergy.

That’s a brand new sponsor. I’m not crazy about how I just did the read for them. What did you think of that?

Jeff: I thought you did a good job. It got the point across. It’s actually something that we could probably use at UndergroundCellar.com to help us find some influencers.

Andrew: How would use them? What would you do with Content Promotion?

Jeff: So, we’ve actually tried similar things before, but we’ve done it in house, where we had an intern that we said, “Go find us wine bloggers or these Instagram stars.” They sat down. They scoured LinkedIn and Instagram trying to put together this list and find them. And then it was like having to contact each one of them, try and negotiate some type of deal, some people thought that the WordPress blog could garner like $1,000 for a little ad and others just wanted some bottles of wine.

So, we used Content Promotion-type services where they actually go out, find the influencer for you, create the creative and then get you set up. So, if Content Promotion could do that…

Andrew: Frankly, I love it. For this interview, for example, you are a Y Combinator company. We should be reaching out to Y Combinator to ask them to help promote this. I don’t know if Y Combinator has a Twitter account, but if they do, we should be asking them to tweet it out.

We should be emailing other people who are big on Hacker News and saying, “This interview with Jeff Shaw from Underground Cellar, a Y Combinator alum, is now on Mixergy. Post this on Hacker News.” And then we should be emailing others and asking them to promote it. We should be doing all kinds of stuff like that, but it’s a ton of time.

So, that’s what ContentPromotion.com does. They find those influencers for you and help promote it. I should have just asked you instead of doing the commercial myself. All right. They’re a new sponsor and I’m grateful to them–

Jeff: I can read your next ad spot if you want.

Andrew: All right. I like it. You were starting to say–I actually will take you up on that–the site you built was a marketplace. You were starting to get people on it. You were starting to say that you were starting to reach out to friends. Who did you email and what did they do?

Jeff: Yeah. So, I reached out to my close friends and family and I was able to convince a winery to list some wine on our website. As soon as I blast it out to my family and friends, within the first day, all the wine that we had set aside from this winery was snapped up by my family and friends. And you know, family and friends, they want to support me. I get it. But as a part of it, I said, “You can each invite three other people as a part of your invitation,” sort of the Gmail rollout approach. That happened. And then within just a couple of months, there were like 10,000 people that had signed up for this. I’m like, “Oh my god, this could be a real company.”

Andrew: Speaking of the signup, I’ve been looking at screenshots of your early site that one of my researchers put together for me. It said something like that, “Coming September…” and then September, it said, “Coming November…” and then November it said, “Coming December 12th…” It feels like for a long time you were saying, “Coming soon…” What was that about?

Jeff: So, I think it sort of goes back to trying to create this website using the model that no one’s ever created. So, it’s not like I could just install WordPress or Shopify and start selling something. For a lot of companies, that’s perfect. That works. I totally recommend it. But you know, we were taking on this endeavor and saying, “Let’s do something radical. Let’s look at ecommerce in a different way. Screw discounts. We don’t need discounts. It’s horrible for the brand.”

Andrew: I see. You’re saying it took a little bit longer to build than you expected. That wasn’t part of your marketing.

Jeff: Well, I angled it as part of the marketing. This whole time, we were marketing many people on this early access list so that when we were ready, we would have an audience of people to open it up to.

Andrew: I see. So, the delay was real. It just took you a little bit longer than you expected. I thought it was part of your marketing. Here’s what was part of your marketing from what I can see. It doesn’t say, “Join my mailing list.” It says, “Enter your email address and request an invite.” I’d much rather get an invite to something that’s so exclusive that I can’t just come to the homepage and get than enter my name on a mailing list to be a part of some newsletter, which I’m probably going to want to unsubscribe from. I felt that little touch was smart, was clever.

Jeff: Thanks. I appreciate that. When I started this I said, “How do we set ourselves apart from all the other people in the space?” We said, “In the wine space, we will be exclusive, mysterious and fun.” So, in everything we do, we try and embody those three things. We’ve tried really hard to do that. It took a long time initially to build this out, not just to create a website where people can buy wine, but to solve this real problem in the wine space where these wineries had this inventory that they don’t know with it. They don’t want to throw it away. They don’t want to harm their brand image by flooding it with discounts.

And the second thing was this problem of shipping. So, in the wine space, shipping is a loss leader, where wineries and wine clubs are either eating the cost of the expensive shipping fees or they’re passing them along and having high shipping fees and high minimum order quantities. With Underground Cellar, you can buy as little as a single bottle of wine from any of the wineries we’re featuring and you could store that bottle in Napa Valley in your own cloud cellar for as long as you want. You can store up to 500 bottles.

Andrew: How does that solve the problem of shipping?

Jeff: What’s that?

Andrew: Wait, let’s not get into the commercial for Underground Cellar.

Jeff: I know maybe it sounds commercially.

Andrew: I want to get into how you built the business. Finish that thought and then lets continue with the story. How did that solve the problem of shipping? Eventually it has to come from the cellar that you’ve got in Napa to the customer who’s going to have to drink it and then at that point they have to pay shipping, no?

Jeff: No. So, in talking with wineries, they wanted a turnkey solution. They’re used to working with distributors that come pick up the palettes of wine and then they’re done. So, these guys, a lot of them are farmers. They don’t know the internet. They don’t know logistics. So, what we said is we’re going to create Cloud Cellar. We’re going to allow wineries to aggregate their bottles of wine with other wineries wines. So, you as a buyer, you can see the bottles you’re storing, pick and choose and then ship the on demand.

Andrew: I see. So, I get to save money on shipping by lumping a few bottles together and shipping them all at once as opposed to shipping them one at a time, is that it?

Jeff: Exactly.

Andrew: Let’s go back–sorry.

Jeff: Go ahead.

Andrew: I want to continue with how you built up this business because I’m fascinated by it. So, you got your friends and family. You gave them the option to invite their friends if they wanted to. Did that work? Did that help grow your sales significantly?

Jeff: It did. I think staying true to those three founding pillars of the exclusivity, mystery and fun, really made what we were doing exciting. People wanted to be a part of it.

Andrew: Okay.

Jeff: Then once the family and friends, you invited them, then we invited people on our waiting list to join and we were continually able to sell out these wine deals. We were able to attract wineries that would never use the discount web competitors that exist out there.

Andrew: Who made the calls to the wineries? Was that you?

Jeff: So, what I did was it was sort of a unique strategy. I didn’t have a lot of money. I didn’t have money to hire a lot of people. So, what I did was I posted Craigslist ads and I said, “We’re looking for commission, procurement reps,” we called them. We said, “If you know people in the wine industry,” we wanted to go door to door. So, I hired as contractors ten people that just had relationships with the wine industry and said, “Any winery that you can bring onto our platform, we’ll give you a few hundred bucks.”

The thing is, out of all ten of them, only two of them only got any wineries signed up. But those two people are still on the team today and they’re rock stars. I think you sometimes have to play that numbers game a bit. You don’t always have to raise a bunch of money. I was doing all this before we raised any money–built the prototype, got this team of people.

Andrew: You have wineries on board with you and now it’s time for you to start scaling up. What’s the first thing you did to get more customers outside of your friends and their friends?

Jeff: So, it started before the website had launched. It started with that. They request an invitation. So, we did things like we utilized Twitter a lot. So, we would wind influencers on Twitter, perhaps similar to how Content Promotion would do it. We found people on Twitter. We just started emailing them, “We’re launching our website in the next couple of months. Do you want access when it launches?” Who’s going to say no to that? A lot of people were excited. So, when it launched, we had people that are waiting and willing to buy.

Andrew: Who’s one person who’s name I’d recognize who accepted that opportunity and actually ended up buying?

Jeff: So, we’ve had a lot of high end people that have bought from the website. Let’s see… Naval Ravikant, the founder of AngelList is a customer of ours. Also Matt Van Horn, one of the original creators of Lyft is a customer of ours. We now have thousands.

Andrew: I see Naval on here on your AngelList profile, same thing with Matt. Did any of them come because you tweeted at them?

Jeff: So, Naval actually came when I was actually looking for–when we were at the point where I had already seen some traction, I called up a couple buddies and I said, “Let’s make this a real company.” I booked plane tickets to San Francisco. Before we had a place to stay, before we had too much fun, we just said, “If we’re going to make this, we’ve got to go to San Francisco and do it.”

This is me in Arizona having grown up in Arizona. I went to college in Arizona. I didn’t really know many people out here. But I just knew I had to come. I knew Matt Van Horn, actually, from college. He went to U of A with me. He was one person I came out here and just visited before I actually made the move.

Andrew: So, you came out here, no connections and then you told Naval, “We’re getting some traction,” and then did he meet with you because of that and end up buying?

Jeff: So, the story with Naval came when we were looking for funding once we were already here. What I did was I went through AngelList and by hand scraped. I copied and pasted 700 investors’ names into an Excel sheet.

Andrew: Okay.

Jeff: I then spent about three weeks just heads down finding their email addresses. Then I blasted out and said, “We’re this new wine startup in San Francisco. Do you like wine?” I didn’t even ask if they wanted to invest. I’m just like, “Here’s who I am.” So, I just started dialogues with people. It’s also one of the main reasons of how I got into Y Combinator.

So, I’d applied to Y Combinator four times and got rejected four times with this same idea before we ended up getting accepted. I think sort of the tipping point of what really helped was one of those 700 people was one of the partners at Y Combinator.

Andrew: Who was it, Steve or was it Alexis?

Jeff: So, the YC community is really close knit. So, I’m going to respect their–

Andrew: Oh, you can’t say the name of the person?

Jeff: I’m just going to respect their secrecy.

Andrew: Actually, hang on. Let’s finish the first story and then we’ll come back to Y Combinator. The first story was that you scraped by hand, you copied all the email addresses–you copied the names of 700 people. You got their email addresses. You emailed them and said, “I’m a new startup in San Francisco focusing on wine. Do you like wine?” What did that lead to.

Jeff: It led to a lot of people saying, “Heck yeah.”

Andrew: How did that lead to–what else happened from that?

Jeff: Then I offered then to try out the website, “Would you be willing to try out the website?”

Andrew: That’s it. Then they tried out the website and some of them bought.

Jeff: Then some of them started buying.

Andrew: I see. Did that lead you to getting investors also?

Jeff: Yeah. It’s what saved us. The 700-investor email blast was like when we were in San Francisco all cramped up in a tiny little apartment, didn’t really have funding. We knew that we had built something that would work. We just had to find believers. To find believers at this stage it’s like finding people that loved the product. It helps that we were finding people that loved the product that if they loved it enough could potentially be a position to invest.

Andrew: Okay. And then you got an investor through that. Who were the investors that you got from that, the AngelList emailing?

Jeff: Yeah. So, one of them ended up being Barbara Corcoran. You may recognize here from “Shark Tank.” She has something called Barbara Corcoran Venture Partners with her cofounder, Phil Nadel. They have a syndication on AngelList. So, she actually wasn’t on that initial 700 email blast.

Andrew: Yeah. So, let’s go back to that list. I want to come back to Barbara.

Jeff: I’m getting to it.

Andrew: Okay.

Jeff: So, who was on that list was Mark Cuban, also from the TV show “Shark Tank.” So, we had some witty banter with him, asked him if he liked wine. He said, “No, not really.” So, that sort of almost killed that lead. But we said, “Hop on your PJ, come out and visit us. You’ll be impressed.” And he said, “I pass.” He said, “I pass,” five times.

So, we said, “Let’s see if we can parlay this.” Then we emailed Barbara Corcoran and said, “Mark Cuban passed. Let’s prove him wrong.” She thought that was so funny and hilarious and she introduced to Phil Nadel who runs who runs here Barbara Corcoran Venture Partners syndicate on AngelList.

Andrew: And I heard you just were–she’s someone who when she was on Mixergy told me she was rejected from “Shark Tank” and was the only person who went to Mark Burnett and convinced him to say yes. I don’t know if you were rejected by Barbara, but I do know it took a lot of persistence to get her to invest.

Jeff: Three and a half months of just checking in every day. I think a lot of investors do this and it’s no fault on them. They’re trying to put their dollars into the best opportunities. By taking their time to really understand the companies and watching them over a few month period as they grow I think is a great way for them to do it.

Andrew: What’s the thing that you’re proudest of that you did that got her to invest?

Jeff: Proudest of that got her to invest? I think it really just comes down to my willingness to just take the risk. We were at this point where I knew that this could potentially be something. We just dropped everything. I called some friends. We just came out to San Francisco and did it and just started emailing people.

Andrew: But you were in that three and a half month period to try to persuade her. What got her to say yes?

Jeff: So, a lot of it was that we had customers that loved us. One of the things that they asked for in their due diligence was they wanted the names, email addresses and phone numbers of ten of our customers and they called every one. It was just great because at this point, we were so small that we had given amazing experience to all of our customers.

Andrew: I see.

Jeff: So, I think when they called the customers and the wineries and talked to them, they realized they were onto something really important.

Andrew: What about a hedge fund guy named Alex?

Jeff: Yeah.

Andrew: You got him through LinkedIn?

Jeff: So, Alex was our very first pre-seed investor. He invested before we had the prototype done. His money helped us finish the prototype that would get us to launch.

Andrew: How did you get him?

Jeff: So, he came also through AngelList. But this, I just simply put up a page on this site and his strategy at the time was to not sort by the companies that had the most traction, but to reverse sort by the companies that had the least traction. So, within minutes after posting this page, I had zero followers, zero likes, zero dollars invested. I get an email from him. I think it was the ability to quickly close.

Also, he was in London at the time. So, I was working on these Pakistani hours with this developer from Pakistan. So, I was awake when he was awake in London and I said, “Can you hop on a call?” I think that people try and hide behind their computers a lot, especially people that are in tech. I guess I’ll speak for myself. I wasn’t the most social person, but I think the willingness to hop on the phone and talk to someone has a huge amount of value.

Andrew: I see. This is Alex Gerko, right?

Jeff: Yeah, Alex Gerko.

Andrew: I don’t know the thing about the guy except anything I see online about him makes me feel like that guy’s got to be like a pisser who’d be maybe a bad Mixergy interviewees because he can’t say too much but one of the best guys to have wine with.

Jeff: He is awesome. He’s been one of our earliest believers. Any time I needed help, he was there.

Andrew: Where did he get his money? He’s investing in a ton of companies here.

Jeff: So, we were one of his very first investments. So, his idea is he can invest his money sort of in the open stock market or otherwise and it’s a crapshoot. If you’re going to invest in a crapshoot, might as well invest in a crapshoot of product you love that has potential to–

Andrew: That, you think, is his strategy because I see that he’s a got a ton of startups that he invested in according to his AngelList profile. I don’t see what’s similar about all these guys. It kind of feels like he’s saying, “This is a casino. I’m going in. This is not that much money to invest $25,000, $50,000 in a startup. I’m going to go spread some money around and see what happens.” That’s the way it feels to me when I look at those investments.

Jeff: Yeah. Since making his investment in Underground Cellar, he has definitely brought in and diversified his portfolio.

Andrew: Okay. So, what you’re saying is you were willing to just spend the time, make the phone calls, send the emails, follow up with people until they said, “Go away,” five times the way Mark Cuban did or, “Yes, you wore me down. I see your customers like you. I see these wineries like you. I’m in.” That was your way for getting money, right?

Jeff: Yeah. And not just bugging them constantly over like a week period, but to actually create real value. So, once a month, have your list of potential investor leads, follow up once a month and give them some meaningful update, just say hi. I think that goes a long way as people can see you develop over time.

Andrew: All right. Here’s my second sponsor. Tell me how you would promoting this company if they were your sponsor.

Jeff: All right. Let’s hear it. Let’s do this one.

Andrew: The company is called BrandBucket. What they do is for one price, if you’re looking for a company name, they give you the company name for that price. They give you a logo for that price. They give you the domain for that price. So, instead of searching endlessly through open domain names trying to come up with a clever name, the give it all to you and you’re ready to go and start with your new site, your new business, your new product. That’s what BrandBucket is.

Is that bringing anything up for you?

Jeff: You know, I think that would have been really helpful when I was first starting out. I think there is a lot of paperwork involved. I think one thing that founders should focus on is really staying focused to what their core competency is and filing paperwork and coming up with names and all that–not my core competency. I knew how to develop a product and how to market it, but as far as bringing in people to help, all for it. So, BrandBucket sounds like a great choice.

Andrew: I know when I was looking for every single company that I had, I know what I used to do. I would go to the domain sites and I would do a search. Then I would find those clever sites where you can type in 50 words and they’ll mash them up until they give you some combination of all the words that you like and none of them really made sense. Then I would spend more time asking friends for name. It takes forever.

Of course, once you do, for a long time for me for Mixergy, for example, I didn’t have a logo for years because I’m not a design person. I don’t know how to find the right design, frankly.

Jeff: Yeah. So, a tidbit about his, I’ll give you a little insider tidbit–so, UndergroundCellar.com wasn’t initially called UndergroundCellar.com.

Andrew: What was it called?

Jeff: So, during the prototyping, this, “Coming in November, December…” the name kept changing. The names I was coming up with didn’t hit the three pillars–the exclusivity, the mystery and the fun. Some of them hit too much fun. Some hit too much mystery. So, for example, here are some names of Underground Cellar before it was Underground Cellar. GreySaturday.com.

Andrew: Ooh, that sounds said.

Jeff: Like Black Friday.

Andrew: I see. You’re saying it’s not exactly Black Friday, but it’s the same kind of deal that you could expect on Black Friday only a little deluded.

Jeff: Number two, Liquify.com.

Andrew: That’s not bad.

Jeff: That was more like supplier-focused. Suppliers are trying to liquidate their inventory.

Andrew: You could get Liquify.com as a domain? That seems really expensive.

Jeff: So, it had a unique spelling to it.

Andrew: That’s another big one that we do. What’s one last one?

Jeff: So, the third one was CommunityVine.com.

Andrew: Community Vine. Okay.

Jeff: It’s sort of the community aspect. But a little too long and you know what? UndergroundCellar.com, I think it hits all the three pillars of exclusivity, mystery and fun.

Andrew: Yeah. So, let me tell you what one of my past interviewees did instead of just trying to bust his butt trying to come up with a great name. The guy’s name Collis Ta’eed. He discovered BrandBucket. That’s how I first found out about BrandBucket. He just went on there and started looking around the way you might if you were on Tinder looking for a girlfriend. He was looking for a name to marry.

He found one, Envato. Envato is easy to spell. Envato actually doesn’t have any negative connotations in different parts of the world, which is important because he wanted to be all over the world and he is. I think he’s in–where is he now? New Zealand is where he lives. But he wanted to be in the US. He didn’t want to offend people in France. He wanted to have a name that just worked everywhere. He did.

He bought the name Envato, built up this business. He’s got this multimillion dollar company that’s all marketplaces and tutorials. So, people that want to sell themes get to go to Envato’s marketplace and get to sell themes. Others like me who want to buy themes get to go there. The same thing happens for audio clips and video clips and so on.

He did it. He introduced me to BrandBucket. Now I’m introducing my audience to BrandBucket. Write their name down. If you ever need to find a name or know someone that needs to find a name for their business, you will be glad to have this on your notepad, BrandBucket.com/Mixergy.

If you go to the /Mixergy part, they will actually give you a $75 Envato Marketplace gift card, which means not only can you buy the domain from them, not only can you get the brand from BrandBucket, not only can you get the logo all for one price, but with that extra little gift by going to BrandBucket.com/Mixergy, you can even get the design for your site or many other things. I’m really grateful to BrandBucket for sponsoring. Cool. Thanks for jumping in there.

So, Jeff, now we’ve got a business that’s really starting to do well. It’s time for you to grow and get more customers. One of the things that I heard you do and I took a note on this–whenever I meet people or find out about what people did, I write stuff down just in case I have them on Mixergy. Here’s what I heard. You hired someone to call up office administrators and somehow pitch Underground Cellar to them. I don’t know exactly what you did. But you’re smiling, so you did do this. What was the process for calling office administrators?

Jeff: I’m smiling because I’m wondering how you found out that we were doing that?

Andrew: You know what? I got together with this guy, Solomon, who’s in my audience once. I just him out for drinks at a startup event. He must have gotten whiplash because we would go into the room, talk to someone, like I’d be really focused and engaged with them, and then I go, “Good to talk to you. I’ve just got to grab some air.”

He would walk out with me, Solomon would, and he’d see me talk into my Evernote and just have keywords, “Jeff Shaw, office administrator, calling up to make sales,” and just in case I ever need it, it’s in my Evernote. My Evernote is full of stuff like that and so is my address book. So, it’s one of those situations where I talk to someone. They tell me something. I write it down. I check, “Is it true?” Now you smiled. It’s true. What did you do?

Jeff: Yeah. When we were looking at marketing ideas, we were trying to find that one nugget that works and that nugget that can be scalable. So, the idea is if I can send an email to an office administrator at a company and the pitch is, “I have something for all your employees…”

Andrew: Oh, we did just lose the connection as he was doing the pitch, which is one of my favorite parts of a conversation, to see how people sell? We did. It’s paused. Oh, there we go. You’re back. You were saying, “The pitch is we have something for…” and then we lost you.

Jeff: So, I’ll just flip it over and reverse it. So, when we’re looking for marketing ideas, what we want to do is find that one nugget that can be scalable.

Andrew: Okay.

Jeff: So, the idea where if we find a marketing channel that works, we want to have a channel that we can just replicate it at scale. It sort of applies here to office administrator outreach that you mentioned, where if we can find that one influencer at a company–an example is Mixpanel. So, I sent an email to the office administrator at Mixpanel. I said, “Boy, do I have an offer for you. I’d like to give a bottle of wine to all your employees. Will you forward this offer to everyone at the company?”

So, the idea is I had to send one email, but that email without me doing any more work, replicated to like 400 employees. Within 48 hours, we had 50 new customers, which is huge for us. I’ll give you some more tidbits of data here. When a customer buys on our website, they spend $450 in their first 90 days. So, for us to get 50 new customers, especially people that work at Mixpanel that have high salaries, it was huge for us. So, we’re always looking at our marketing and everything we do from like, “How can we do something that scales?”

Andrew: So, you fond office administrators at Mixpanel and other companies and you started sending them those emails. They would pass it on to all the people at the company and some of those people became your customers.

Jeff: Yeah. It’s sort of this old idea of go door to door and drop off pamphlets in the break room. It’s sort of this old idea. We just sort of bumped up the modern age.

Andrew: So, I’m on LinkedIn right now. Do I just type in “office administrator” and do a search to find office administrators to invite?

Jeff: Yeah. That can be one way to do it.

Andrew: How did you do it?

Jeff: There are also other sources. There’s a brand new Y Combinator company that was in the current YC fellowship group called Legion Analytics. They do something very similar as well, where you can sort of tell them the types of people you’re looking for and using their algorithms, they will send you on a daily basis these leads.

Andrew: What’s the name of that company?

Jeff: It’s called Legion Analytics.

Andrew: Legion Analytics. Let me find them.

Jeff: There are other ones as well, LeadGenius, etc.

Andrew: Right.

Jeff: They help fill your sales cycle.

Andrew: What else did you do that’s like reaching out to office administrators? I saw a smile. Something came across your face. Don’t hold back.

Jeff: So, one thing that we do is we try and like keep it real. So, one thing that’s been really effective is meeting people in person. This sort of goes back to when I launched the company, how did we start?

Before I had a prototype built, before it was done, I booked Fort Mason, the General’s Residence at Fort Mason to have a 400-person launch party. I didn’t have a product yet. I didn’t sell a single bottom of wine. But I put a non-refundable deposit down on this place. I booked all the vendors because sometimes you just need a kick in the ass, like, “This is the deadline.”

I think the biggest piece of advice I could give to other entrepreneurs is when you’re trying come up with an idea–for Underground Cellar, we went through all these different names, all these different things. At some point, just pick something and do it because you can spend years of your life waiting for the right moment and you’ve just got to jump all the way.

Andrew: So, then you started inviting who to the event?

Jeff: It was all the people that had signed up on this early access list, the family and friends that I started to reach out to. But this was literally before the website was even done. So, before we had any sales, I booked this. We sold our first bottle of wine that night at the launch event.

Andrew: Fort Mason is pretty much in the heart of San Francisco–well, maybe not the heart of San Francisco, but it’s a spot that San Franciscans are willing to go to because it’s right by the Golden Gate Bridge and there are always interesting events that happen there. So, did you end up getting tech entrepreneurs to come over also?

Jeff: Yeah. I brought who ever could come.

Andrew: I see. But you didn’t know that many entrepreneurs at the time, right? You didn’t know that many investors.

Jeff: So, for this launch event, I flew in just a couple of days before. I didn’t know anyone out here.

Andrew: All right. Let’s talk about the place that you live then.

Jeff: Okay.

Andrew: You and I met, actually–I should say this–at a conference that I was speaking. It turns out your place, your office, your home, I don’t know what at the time was right next to my office. I think one Friday you just surprised me and came in here.

Jeff: So, the story to remind you–I met you at that event. It was Sam Parr and Neville Medhora. They put on this like Bootstrap Live or some bootstrap event that you were hosting. At the end of the event, I rushed up to the stage so I could meet you, shake your hand. This was still like I don’t know that many people out here. You’ve just got to put yourself out there. I told you about the idea. I said, “We do upgrades with wine.” You looked at me and pretty much all you said was, “You should do this with whiskey.”

Andrew: By the way, that is a thing I say because I like whiskey, but in retrospect, it’s a jerky thing to say. You’ve got this whole thing. You’re telling me about this passion, this business that you built that you’re spending everything on and all I did was come in and say, “How about doing it this other way just because I like it, just because I love whiskey so much that I have to tell you I like whiskey.” But you took it in stride. It was just kind of a fun way to say–I do regret saying it like that though.

Jeff: I’m glad you did. I took it to heart. One thing I realized is when I tell people about Underground Cellar and what I’m doing, people always have advice. I understand the context of their knowledge is limited than the context of my knowledge about my own company. So, just because someone gives advice that we should do whiskey. Well, compliance and laws on whiskey, we probably can’t do whiskey. But the fact that the wheels were churning, it was good.

Then what I did was the way that I met you, I took this idea you said, “Do it with whiskey,” and I printed up all the paperwork of how we work the winery. I did it with Johnnie Walker. So, I went to the store and we were still on like super startup budget, didn’t have a lot of money. I went to the store and bought a bottle of Red Label, Gold Label.

Andrew: You bought Black Label, Double Black Label and one other one that’s still sitting right here because I can’t bring myself to open it.

Jeff: Blue Label. Yeah. I did all the paperwork, showed all the metrics of how it works and I emailed you. Another little tidbit of advice for people that are watching–be succinct and brief. My email, all I said to you in my email and we had never emailed before, I only met you for two minutes at that conferences. I emailed and said, “Andrew, I have a gift for you. You’re going to want this. Can I stop by today?” And you responded and said, “Sure.”

So, I brought this. I had it boxed up. I had chilled shot glasses. We came to your Mixergy office. We all poured a shot of this Johnnie Walker.

Andrew: I remember. I said, “Hang on, guys. We’re not shooting this. Let’s sip it slowly.” I’m a scotch drinker. I can sip that slowly. I can understand that it would be a little harsh also. Then we went over to your place. We said, “Hey, check out where we’re working, where we’re living.” We went across the street. Talk about the office and home space you put together for the team. What was that?

Jeff: So, it was a small little apartment but in a nice building. The idea was when I moved the team out here to San Francisco, I said to myself, “What is this going to accomplish?” The point was to meet influential people in the tech scene, in the wine scene. So, I knew I had to be near Napa Valley. I knew I had to be near Silicon Valley. I needed a place where we could work out of, live out of and then I could bring people like Andrew Warner over to hang out.

Andrew: I feel like you’re underselling it. It’s not such a tiny place and it’s not just in any building. This might be the tallest residence in San Francisco. San Francisco is known for having short buildings because they’re really anal about their housing laws here. So, it was the tallest building, one of the most prestigious addresses–am I saying too much here? I don’t care.

Jeff: No. It’s fine.

Andrew: The apartment had like three bedrooms, gorgeous views, which you never see in San Francisco because everything is kind of short. You said, “Look, for the price of an office or maybe more than an office, I could end up with this home that’s beautiful and a place for us to work that’s more inspiring than just another startup office and as a result in living in one of the most prestigious addresses, I might get to meet some people who can help us with our business. That’s what you walked me into. That’s what I saw up there.

Jeff: Yeah. It was a risk. This was still we had to raise a lot of money. We maybe had six months of runway or less when we moved out here and decided to rent that place. But it was the right decision.

Andrew: It was a really–well, I don’t know, actually. What made it a good decision? I’m saying it was a great decision because I enjoyed coming over there and then we had poker at your place.

Jeff: Yeah.

Andrew: What made it a good business decision? What came out of it?

Jeff: Yeah. Here I am being interviewed by you.

Andrew: Did you meet anyone else?

Jeff: Yeah. We did those poker nights. So, from that one handshake to that one gift, it led into like a lot of my core relationships here in the Bay Area really came from initially meeting you.

Andrew: Interesting. I had no idea. I guess because we had lost touch because my wife got that job and we had the kid. But from that, I do recommend that anyone listening have an event like their event. I talk about this endlessly. Mine is scotch night. I used to do poker. I do feel like you need to have event. I think to some degree I was evangelizing that for you, saying, “You guys should do some kind of event. How about poker? If you do low stakes poker, people can sit there and not be angry at each other and they can have some time to talk.”

So, we did poker at your place and then I invited you over to my place for poker and we got to know each other a little bit through that. Cool. I didn’t realize you got to meet such good friends because of it.

Jeff: Yeah. I met Sachit through those poker nights, met a bunch of people. It sort of comes from this mindset, this whole thing of how I approached you and was willing just to email you and come up with a gift. I think a lot of people would have these inhibitions, like, “I don’t want to bug him. He’s like this popular webcaster. He’s got better things to do.

When I was initially working on Underground Cellar before it was built, I had the opportunity to go to Seattle with Noah Kagan and the AppSumo crew. I know Noah has been on your webcast before and at that weekend is when I realized that these successful entrepreneurs are just like you and me. They’re just people who are motivated and driven and had a good idea at one point in their life.

But they’re like approachable. If you email them, you’ll probably get a response. If you ask them for coffee or lunch, they may say no the first couple of times, but if you ask them like five, ten times, they’ll say yes and you can have lunch with like anyone, probably even like Mark Zuckerberg if you just find his email address and email him.

Andrew: It is kind of shocking how easy it is to do it, maybe not with any specific person, but with people who are inspiring and people who are doing incredible things who feel unapproachable.

All right. You were starting to say earlier about Y Combinator–you applied several times. You then got some help from someone who’s an alumni or a partner at Y Combinator. Frankly, in my experience, I’ve introduced several people from the audience to Y Combinator alumni or partners. They are really open. They are very helpful. They want to make it easy for you to come in. So, they helped you get in. You get in. How do they help change your business beyond helping you get more customers because of the name recognition?

Jeff: I would say the biggest thing they provided us was this idea that you just need to focus. Pick your metric and focus on nothing else beyond it.

Andrew: What was the metric that they helped you focus on?

Jeff: It’s different for every company. But our metric because we had already launched and had some traction, our metric was revenue. So, we started the program with $50,000 in revenue. By that last month, we got to $300,000. The way that they do it is in a very community-setting where you’re meeting with a group of other companies that are in the batch and you share about how everything is going.

So, you learn from each other. But you’re also holding each other accountable. So, at the end of the meeting, you’re like, “What do you hope to achieve by next meeting?” You work your butt off because you don’t want to let the other teams down. You don’t want to let the partners down because you really respect everyone in the community.

Andrew: Okay. So, they taught you to focus on that and they gave you the accountability of having to hit your numbers week to week or look like a punk in front of your peers, who you’re also kind of competing with, maybe not for money but for attention. I see that’s helpful. I see also that because as I said earlier, Y Combinator has followers who have money and interests, money to spend on wine and interest in it. So, that got you customers.

I was starting then to see where else you get your customers. As anyone who’s been listening to me lately knows, I love SimilarWeb. So, I went to SimilarWeb to see where you’re getting your traffic. They’re showing that your top referring sites are TechCrunch, AngelList and Product Hunt. That may not be 100 percent accurate, but that tells me you still haven’t nailed organic traffic yet, right?

Jeff: I would say the service you’re using probably doesn’t traffic, would it?

Andrew: What it’s saying is where are you getting your top sites. If you had something than these other one-hit tech things like Product Hunt or TechCrunch, then it would look more like some wine blog or some forum for wines or some partnership that’s an ongoing things and that would tell me that you found a partnership or found content or something like that. I could be wrong. They’re not 100 percent accurate here, but it feels like that’s where we are.

Jeff: It goes back to that little nugget that is scalable. So, for us, if you’re on TechCrunch, it was awesome. We had a ton of customers from TechCrunch. But really, where we’re getting our growth is inherent in the product. So, when you spend $20 and you get a $500 autograph magnum wine, you’re going to tell everyone. You’re going to have that as your mantelpiece by your wine collection. When you have friends come over, they’re going to ask, “Where did that come from?” So, by giving people a great user experience and product is where our customers are coming from.

Andrew: I see. That’s why I’m seeing that according again to SimilarWeb, 70 percent roughly of your traffic is direct as opposed to 10 or 11 percent coming from referrals. You’re saying that’s the reason. Your marketing is that word of mouth.

Jeff: Additionally, we’ve had success running Facebook newsfeed ads. Facebook has such a bad reputation, but everyone is on Facebook. They have great segmenting capabilities. So, we’re able to really drill down to the types of consumers we want to be in our community, you know, our wine buyers. They’re predominately 30 to 60 year old males from high income families that live in suburban neighborhoods. So, we’re able to drill that down through these Facebook ads and drive people directly to our offers.

Andrew: I see that. I saw that Facebook was really big. Actually because I watch you, I saw what your ads were. You had one ad on Facebook that said Screaming Eagle for like $32. What is Screaming Eagle and why is that so impressive that it’s $32?

Jeff: So, in the wine world, there are certain cult wines. These are wines that are so rare, hard to get that people just go crazy for them. Screaming Eagle is one of those wines.

Andrew: Is it?

Jeff: It’s a seven-year waiting list if you want to get a bottle from the winery. If you want to get one on the open market, they go for $2,000 to $3,000 a bottle. So, people who, for example, on their Facebook have an interest that they like Screaming Eagle, that means they’ve tried Screaming Eagle which means they’re someone we want to be on our website because they’re willing to spend beaucoup bucks on wine.

So, we bring in people through the offering. We’ve also featured Opus One, which is another of these cult wines.

Andrew: Opus One?

Jeff: Opus One. Not only do we have Opus One, but we had a three-year vertical of Opus One, a 1995, 1996, 1997 magnums of Opus One where you could buy into our deal for $45 a bottle and if you got lucky, for your $45, you could get this three-pack of these Opus One bottles that would cost $3,500 or more if you wanted to try to buy them from the store.

Andrew: Now I’m looking at WineSearcher.com checking out Screaming Eagle. We’re talking a minimum $1,000, but much more likely $2,000 is what it would cost to get it. That’s insane. So, how are you able to advertise it for $32?

Jeff: So, it goes down to our model of how Underground Cellar works. So, we don’t use discounts. So, we list all the bottles at the full retail pricing. So, you’re going to buy into that Screaming Eagle deal for $32. Half your bottles you buy are going to be a $32 bottle of wine. It’s not going to be that Screaming Eagle.

It’s going to be some other cabernet from Napa Valley, a great bottle of wine, but then the other half of your bottles are going to be swapped out for free to a higher price bottle. So, in that offering for the $32, half are going to be the $32 bottle. The other half will be either a $50 bottle, a $70 bottle, a $100 bottle or the $2,500 2012 Screaming Eagle bottle.

Andrew: I see. So, you buy it and there’s a chance that you could be one of the people that ends up with this really expensive bottle of wine at a super low price.

Jeff: Yeah. So, if you, for example, were to be a whiskey lover, you could buy a Johnnie Walker Red bottle of whiskey. What’s that go for at the store, $30, $20?

Andrew: Maybe even less than that depending on the store. So, $20, you buy your bottle of Johnnie Walker Red. But half your bottles will be swapped out to the Black, the Double Black, the Gold or the Blue. You as a buyer, you were willing to spend $20 for that bottle at the store, at least going to get the $20 bottle. So, there are no losers in this. It’s not like gambling where there are losers involved. You’re always going to get what you paid or better.

Andrew: I see. But we’re not necessarily getting the $32 Screaming Eagle.

Jeff: So, not everyone is. Someone is for sure going to get that.

Andrew: I had this guy Justin Winter on Mixergy who built a $1 million business. Is it $1 million a month? I think it might be $1 million a month. No, actually, we got that headline wrong. It’s not $1 million a month, it’s $1 million a year, basically selling candles with rings inside. Every once in a while, someone would end up with this hugely expensive ring.

I asked him, “Isn’t that gambling? Doesn’t that get you in trouble with gambling?” I remember years ago Topps Baseball Cards were potentially going to get in trouble for having essentially a lottery in their packs because some cards could potentially be worth a lot of money. People could spend $1 and potentially end up with this really expensive thing.

Jeff: Yeah. It definitely pulls the gambling strings that people are wired with because it’s fun. You can get something great. But if you look at a bottle of wine, it’s just grape juice. Depending upon however that winery chooses to price that bottle, that’s on them. You’re going to pay your $32 for a bottle of wine. You’re going to get a bottle of wine.

Just because some people are willing to spend $2,200 on the open market for that bottle, it doesn’t make it a lottery. Everyone is getting at least what they paid. There are no losers. So, if it was a situation where you could pay $32 and oops, there’s no bottle of wine, then that’s probably sounding like some type of lottery. But luckily we’ve got a good legal team and we’ve dotted our eyes. It’s just a fun way to experience trying some great wine.

Andrew: All right. What’s the best part of having built this whole thing?

Jeff: The flocks of ladies that are always around here. No.

Andrew: All I’ve seen is you and tech guys around you, frankly. Do you go out much?

Jeff: No, not really. It’s a lot of heads down, working hard, late nights. Literally I worked until 6:00 a.m. last night, slept for a few hours and then had a meeting at noon. But that’s the life. I love every moment of it. I was sitting in Arizona hoping for that next thing, “If only I could get an investor, if only I could get into YC, if only I could be interviewed by Andrew Warner on Mixergy, my life would be fulfilled.”

What I realized is there’s always that next thing that I’m always going to want. I have such high standards for myself and this company and the team I work with. But I love it. The fact that I wake up, look out my window and have this view, have this garden, I’m building something of value. I’m helping wineries move their product, protect their brands, get consumers bottles of wine they wouldn’t otherwise be able to try. I love every minute of it even though a lot of them are stressful and my hairs been falling out.

Andrew: Oh no, I just saw that. Wow.

Jeff: Did you? Do you have any sponsors from like hair growth or anything?

Andrew: We might need it considering. That’s got to bum you out.

Jeff: I think that would match up pretty well with entrepreneurs.

Andrew: I bet. That’s got to bum you out.

Jeff: No. Who needs hair? I’ve got revenue.

Andrew: How much revenue? You told me before what the run rate was and that was based on the Y Combinator days. What’s the revenue right now?

Jeff: So, we have sold–that’s the drumroll–$2.2 million of wine to our consumers.

Andrew: Since when?

Jeff: Since we launched. A majority of that has been over the past year and a half.

Andrew: Wow. So, if we were to say 2015, first ten months, what would that be?

Jeff: So, over the first ten months of this year, we’re averaging $150,000 of monthly revenue.

Andrew: All right. Way to go. When you say we, how many people at the company?

Jeff: So, right now, my cofounder, Ben Herila, he’s our CTO. And then we have another four people that are working on a dedicated basis and another three people that are part time.

Andrew: Are Brian and Brandan still with you guys, the two cofounders?

Jeff: We are friends and we stay in touch, but they are no longer with Underground Cellar.

Andrew: All right. But Brian Gallagher, Brandan–how do I pronounce Brandon’s last name?

Jeff: Zaucha.

Andrew: Zaucha and Ben, those are three other cofounders with you?

Jeff: Ben’s my cofounder. Brian and Brandan went through Y Combinator as a founder in YC, but they moved on to other endeavors. Doing the startup grind is really hard, especially when you go through the exponential growth we had during YC and then trying to plug all the holes afterwards. It can take a toll on people. They’re great guys and they’re off doing other stuff.

Andrew: All right. We just ended things with how your cofounders aren’t with you and you lost your hair. Let’s end on a high note. What do you do for fun now? What do you do for fun?

Jeff: Here, actually.

Andrew: Let me see.

Jeff: Here’s Ben.

Ben: Hello.

Andrew: Hey, who is that?

Ben: I’m Ben.

Andrew: Oh, hey, Ben.

Ben: Jeff’s cofounder.

Andrew: Yeah, I’ve been seeing your face a lot as I look through all the profiles you guys have.

Ben: Yeah. I didn’t want to barge in.

Andrew: What does Jeff do for fun? Does Jeff have fun anymore?

Ben: Jeff does shabu-shabu for fun.

Andrew: What’s shabu-shabu?

Ben: Go ahead.

Jeff: One of the craziest differences from when I moved to San Francisco from Arizona, there are all these new types of cuisine that I never even heard of before, one of which is shabu-shabu. What is that, Ben?

Ben: It’s the Japanese version of, I guess, fondue.

Andrew: So, you make it?

Ben: It’s similar to how you would go to a Swiss fondue place and they’d bring out a pot of hot oil and cheese to cook your meat and vegetables in, they’d bring out a pot of hot miso broth and you’d cook your raw meat in there and they’d bring it all with all noodles and vegetables.

Andrew: So, shabu-shabu, let me go to Yelp and see if I can have some shabu-shabu. I don’t eat meat. So, I’m not going to get to enjoy it as much as everyone else.

Jeff: There are vegetarian things you can dip in.

Ben: They’ve got noodles, vegetables, all sort of things.

Jeff: But one thing, so since Ben is here and you asked me what I do for fun, I like to hang out with people that I love and Ben is one of those people.

Andrew: All right.

Jeff: To give you a quick little anecdotal story–

Andrew: Hit me.

Jeff: When Ben was 11 years old, I met him on the internet on a website where you can like find people to like help on projects. So, we cofounded this company called High School Humor. We were 11–he was 11 and I was 13 years old. We stayed in touch. He ended up going to Brown University and becoming a program manager at Microsoft and then–

Ben: So, you heard Jeff mentioned he was in Seattle at the AppSumo conference, we actually reunited at the time because I was up in Seattle working at Microsoft

Andrew: And you guys lost touch at the time until then?

Ben: Actually, we had never met in person until then. We stayed on touch just sort of online. Jeff had tried to recruit me away from Microsoft a few months earlier. I was like, “I don’t know if this is a real thing or not.”

Jeff: It’s a funny story. So, when I was starting Underground Cellar–remember I told you I hired the guy from Pakistan to help–it’s because I first reached out to Ben who’s the smartest technology person I know and I said, “I will give you my life savings, all the money from my exit of the ID card company if you come join and be my cofounder and CTO.” At this point, he just got hired at Microsoft making six figures.

Ben: I said, “How could I take all his life savings?” I couldn’t do that.

Andrew: I could.

Jeff: So, it wasn’t until a few months later when Barbara Corcoran came on and we were interviewing with Y Combinator that Ben decided…

Ben: So, for a while before then, Jeff had gotten me on like–he had talked me into some sort of retainer thing, where I was being like a technical advisor. Don’t tell him how much we make.

Jeff: $20 a month to be the technical advisor.

Ben: It was a formality. I was trying to help him out. It was just a mess. There was this offshore team of Pakistanis that got replaced with an offshore team of Colombians. It was like spaghetti code. At some point, I was like, “Jeff is really serious about this. It’s going to be a real thing.” I was sort of looking for a new team at Microsoft at the time and the moons and stars came into alignment and I said, “I’m going to do this full time.”

So, I came out to San Francisco. Like Jeff mentioned, we went to Y Combinator. That was a fantastic experience. We’re literally rebuilding our entire technology stack from scratch using modern technologies and good code.

Jeff: We’re doing beautiful things. Ben’s figured out this system where we now know like we have the inventory in sync with our system. So, when that bottle hits the warehouse, the customer gets a notification that they’re able to ship it. Y Combinator, one of their mottos is, “Do things that don’t scale,” and it’s a little counterintuitive because you’re like, “Eventually we need to try and scale,” but the thought process is be scrappy.

Get your Pakistani, your Colombian guy, do what you have to do to make it work. Then once you have it working, you can try to optimize. Ben has been amazing at getting us to that, growing up from this pre-K into this real company, great systems that can be scalable.

Andrew: All right. And the website is UndergroundCellar.com. If anyone heard this interview and actually wants to meet Jeff, they should just reach out to you because you apparently have reached out to all kinds of other people and you got a response. I bet that you’d be an easy guy to get a response from.

Jeff: Email me at Jeff@UndergroundCellar.com. I’d love to meet up for coffee, have you over to our place. For all you guys in the Mixergy nation that’s watching, if any of you place an order on UndergroundCellar.com and then email me, you will receive a mystery gift. Now, what is in the mystery gift, you won’t know until you place that order, but trust me, it’s something that you’ll want.

Andrew: All right. I like the bag. It looks really mysterious, but also it looks high end. All right. Cool. And frankly, if anyone does it, please email me and let me know–I should just do it myself. UndergroundCellar.com is where we can go to get those deals on wine and to see how your business is doing. If anyone is in San Francisco, they should hit you up to see you in your office in person.

Ben: Absolutely.

Andrew: Cool, guys. Thank you so much for being on here.

Jeff: Thanks, Andrew.

Ben: Thanks for having it.

Andrew: You bet. Thank you all for being a part of Mixergy. My sponsors for this interview are–why am I not having my sponsors up on the screen? Where is that?

Jeff: It’s BrandBucket and it’s Promotion Notion…

Andrew: It’s BrandBucket and you’re right. The other company just changed on me. What is it called? ContentPromotion.com–that’s what it is. All right. We’ll be linking this up because if I forgot it in the interview, how can anyone else remember it. ContentPromotion.com, just click my face in whatever podcast app you have and you can always click onto whatever advertiser I had. Cool, Jeff.

Jeff: Great. Thanks, Andrew. I appreciate it.

Ben: Thanks so much.

Andrew: Thank you both. You bet. Bye.


Who should we feature on Mixergy? Let us know who you think would make a great interviewee.

x