Andrew: Hey there, freedom fighters. My name is Andrew Warner. I’m coming to you straight from a Regus office in the heart of San Francisco. And one of the things that I love about this city is that people are not afraid to take on big competition, not afraid to have these big goals. And today’s guest is someone who I’ve admired for not just his ability to take on a big competitor, but actually, keep doing well. And I’ve just been freaking baffled and I’m so excited that I get to interview him today.
His name is Jerry Hum. He runs a site called Touch of Modern. How many people have you seen with a Shopify site that have wished that they were going to do e-commerce well and they were going to sell and get people to come to their website? And in reality, they can’t get people to come to their site, which is a real challenge. And if I asked them what their numbers are, they’ll tell me high revenue but they’ll also quietly tell me that most of it comes from selling on Amazon and that they’re not making any money there.
Meanwhile, Jerry Hum comes in after failing twice, has the nerve to come in with an e-commerce site in a world that feels like Amazon is dominating all of e-commerce, has not just a nerve to come in and do it, but to succeed in it, and to succeed in it with these products that I don’t even know how to describe them. He gave me a sense to describe his company that’s . . . Here’s what he gave me. It was something like “e-commerce site focus on discovery of unique and noteworthy products.” I could say that all day long. You won’t really understand it until you go to his freaking website and see that he’s selling a flamethrower that you can shoot from your wrist.
So it’s kind of an interesting site, but still I am really baffled, Jerry, by how you do this. I invited you here to find out how you keep growing, how you get all these sales. And I can do it, thanks for two sponsors. The first is a company that helps me hire phenomenal developers. It’s called Toptal. And the second is a company that I rent office space from. It’s called Regus. I’ll tell you guys about them later. Jerry, good to have you here.
Jerry: Hey, good to be here. Thanks for that . . .
Andrew: You know what? People are going to think . . . I think our connection just broke down there. There we go. People are going to think that I’m exaggerating. Why don’t we start with your revenue? What was your revenue last year, 2017?
Jerry: It’s about $120 million.
Andrew: A hundred and twenty million dollars. And why? I told you I don’t understand this. I looked on your site. I found a couple of products to compare, your phones on your site for other sites. I don’t see a huge price difference. I’m trying to figure out what is the thing that brings people to Touch of Modern and gets them to buy? Why do people buy from you? What draws them to your site? What’s the thing that gets you over $100 million in annual sales?
Jerry: So I’ll start from the premise of where we started, right? And 2012 when we kind of transitioned from our previous businesses to Touch of Modern, we took a look at some of the other e-commerce players out there at the time and we found that most folks were building an online outlet for the kind of things you would find in department stores. And I remember, the founders and I, the other three guys, we were kind of sitting in living room and we had a discussion about who made the best speakers, and our CTO has all this technical knowledge and made his argument for the best speakers and we’re all like, “Okay, obviously, you know more than we do about this topic and we all kind of concede to your choice.” Right?
And we realized that each of us have this obsession or hobby that we always feel like we’re the most knowledgeable person in the room and we do a ton of research before we buy anything related to those hobbies. And we often spend more than a typical person would after we’ve done research on those things, right?
And, for example, I’m an architect, and at the time, or I was an architect, at the time I would spend a lot on furniture and things and save up for it even though most people my age were buying IKEA furniture, right? We have a dentist who’s really into motorcycles and fishing and outdoor activities. And Jon who’s into kitchen and cooking and all that kind of stuff, right? And so there wasn’t really a destination for people like us who took the time to do the research and would buy from not necessarily like brands that were plastered all over the malls but things that really appeal to the enthusiasts, right? Things you’d have to read up on the forums about to kind of find out why something like this cost more because to us something that was worth it was not something that was cheap, but something that was like a good value for the money even though the price tag might be a bit higher.
Andrew: But still, so I can see that you guys have really nice earphone collections on your site. Couldn’t somebody still go and find them at Amazon, do research on blogs, do research online, and then go buy it on Amazon?
Jerry: So that’s funny that you asked that because actually the majority of our products are not on Amazon. And a lot of people ask like, “How do you compete and stay in the age of Amazon when you see, yes, e-commerce every year is growing but a large portion of that growth actually just comes from Amazon growing?” We found the way and the best way to compete with Amazon is to not do so, right? And for the things that are on Amazon, we actually always have the best price. So you see a lot of other phones . . .
Andrew: You know what?
Andrew: I’m sorry to interrupt, but it seems like I’m looking at just randomly HD1 over-ear wireless Ivory, you guys sell them for $349. I guess Amazon actually . . . No, they do. They have it at $258.
Jerry: Oh. Do they?
Andrew: But you know what? I take it back. That one might be certified, refurbished, and that usually is lower price. But what you’re saying is . . . And I wouldn’t be able to spend enough time doing research on this to confirm it. You’re saying specialty products that you can’t usually find on Amazon made for people who want to hunt down the best product for the dollar, the ones who are going to spend the time going . . . That was your focus.
Andrew: I always thought the focus was different, that it was a fun place to browse for things you couldn’t find anywhere else and you could actually just buy them. Like I’ll give you an example. Right now on your desk . . . Sorry. Right now on the homepage is something called a Smart Stock Tracking Sculpture. It’s basically like a seesaw with a bull and bear on one side. It has this classic vintage look, but also it’s a modern thing that I can’t imagine having existed 100 years ago. I’m never going to find it anywhere else. If I want something unique on my desk, that would be a place to go and find it, and if I just keep browsing through this, I’m going to come up with a bunch of different products like that. Was that part of the attraction too?
Jerry: Yes. So, I mean, in the beginning, that was the initial impetus was what I described earlier. And when you’re looking to kind of cater towards this group of people, right, who do the research for kind of at the cutting edge and they’re always learning about new things, you’re also going to find things like that sculpture . . . The products that are fresh out the Kickstarters to the things that you would find at trade shows. And so, yeah, it is broader than where we had started.
Andrew: Now, look at this. There’s like this audio equipment that just looks so good that as you were talking, I just started getting distracted by it. I’ve been looking for really good speakers, something that makes my Spotify account sound like it’s got a vintage record player feel, and that may not even be possible. But that’s what’s been attracting me. Okay. I get a sense of where you guys are coming from. I still don’t fully understand how you got here. Let’s go back in time and get to know you a little bit. You’re a guy who grew up, you told our producer, in an environment where you didn’t have a lot of money. In fact, you couldn’t even, like, buy your own toys. So what did you do growing up?
Jerry: I actually made a lot of my own toys, and so . . .
Jerry: Yeah. And I think this kind of from a very young age stayed through me into adult life. I still make a lot of my own stuff. And it started when . . . I’m not sure what exactly was that I had wanted. I think it was when I saw the first three Star Wars movies and I was really fascinated by the robots that they had, like the R2-D2 and C-3PO and Darth Vader, and I couldn’t afford the figurines, and a lot of my friends had them. And so I just started making them out of paper.
First, they were kind of like pretty rudimentary, like made out of like loose leaf paper, a three-dimensional, then I went kind of, like, add more and more detail. And I keep making these three things over and over again until they got really detailed at articulating joints and they were just like 3D models that were made of construction paper that were like . . . where I had actually kind of created this lamination out of it by stacking them and forming them. And so they got pretty detailed for paper models. And that . . . I don’t know. The notion of if I couldn’t have something, I would make it myself. It kept through me . . . It kept with me through adulthood. My career as an architect and in school I would make is models and then . . .
Andrew: I wonder why you became an architect. You’re a guy who in elementary school, like I did, you discovered baseball cards and the ability to buy them low or in one case buy them, get them for free, and then sell them high. You had that entrepreneurial instinct. In high school, you discovered the whole dot-com boom and you decided to jump in. Can you tell people what you did with the dot-com boom?
Jerry: Yeah. So, in high school, I think this was like around the web 1.0 days. I didn’t realize that’s what it was, but my father actually repaired electronics. So sometimes some people will drop stuff off and they would not pick it up or whatever and after a certain amount of time. I might take it back and take it home or something was like, kind of beyond repair and it was tossed out. Sometimes my dad would just find stuff on the side of the street and bring it home and try to fix it.
Jerry: And so we had our first computer and our first internet connection when I was pretty young. And I just started playing on the computer a lot. And obviously, because I was a creative person, I started playing around with like Photoshop and Illustrator. And around that time, there was a site called SitePoint. I think they’ve changed to something else now. But back then people would go on there asking for services, like, “Oh, I need a logo design. I need kind of a simple website made.” And I was like, “Well, this is great because you can do this without people realizing you’re like a 16-year-old.” And so I would make these logos and websites for people back then. And so that kind of started the little coding nugget too because I actually every now and then would kind of freshen up and see what was new.
In college I actually coded too for my projects because even in architecture, for me, it was never about the glass and steel and the concrete, it was always about how do you create an experience for somebody no matter what that medium was. And so even as the projects were often pretty out there.
And I remember from my thesis, there actually was no actual building. It was actually a series of robots that are kind of based on Kivas like the Amazon Kiva robots. And I would say, “Well, let’s build this kind of collection of restaurants where all the components of the restaurant and everything that made up the walls and the environment are put on top of these robots and then they would construct the space based on inputs from the certain variables and people that are using the space.” And so even then, I was coding and that was with Maya’s kind of own language that they had which is very similar to C++.
Andrew: You went on to be an architect. One of your frustrations was that you would design buildings, but they wouldn’t actually come to life, right?
Jerry: Yes. So around that time where I was practicing, it was a pretty bad time in economy, and so a lot of times projects would kind of come in as just like a contest or just as a . . . Okay. Let’s just kind of make some design and then it would never get funded, never go through completion. Also, even the projects that would get completed, I noticed that sometimes, like, you have an idea and a theory of how the space should work, and oftentimes it doesn’t end up that way, but as an architect you just kind of walk away, you never revisited, you never change it, and you never get to iterate on it.
And so I started picking up a book and started coding again, and it was “Ruby on Rails for Dummies.” Back then there wasn’t really like an incubator type of environment or a coding boot camp thing out there, and so it was just a paperback book that I would read on the subway and then whip out my own laptop and code during my lunch break or at night over the weekends and stuff. So I could find . . .
Andrew: I heard you got it from the Strand, that bookstore right in downtown New York. I used to love walking through there.
Jerry: Yeah. My office was pretty close by, and so I would pack my own lunch, and after I ate it because I eat pretty quickly I would just go there and read books. And every once in a while they put out like these racks of used books for $1 and the front rack was “Ruby on Rails for Dummies.” I didn’t even know anything about the language or the framework, rather, and I just picked it up, and, yeah, it just so happened to be a pretty useful one.
Andrew: You know what? That’s something that I don’t get today in online bookstores. I read all my books digitally and they’re all similar to each other because I’m seeing the same thing. I go to the same thing. Meanwhile, when I used to go to the Strand, I could just walk through there and spend a whole day but an hour easily just walking through it, discovering books that I never would have considered otherwise, the price was kind of fine, so who cares? Just take it. And I’d end up reading things that I never would have considered otherwise. I kind of feel like in some sense that’s what your site is about now. Touch of Modern is that kind of . . .
Jerry: Yeah. There is a bit of that, right? I mean, that’s why people come to our site and our app for the discovery aspect. And that’s really the thing that makes us the most different. Obviously, there’s other sites out there that sell interesting products. Most of them in whatever specialty they’re in, there isn’t a place that aggregates it all. But the proof point of like, okay. Yeah, we say we sell interesting products. What’s the proof of that? The proof is that, you know, if you look at 2017, for all the people who’ve visited Touch of Modern at all, 45% of them actually come back at least once a week, right? And for an e-commerce site, that’s pretty unheard of. And . . .
Andrew: Because it feels like a blog. It feels like a site where you just kind of clicking around, you end up looking at earphones and then before you know it you’re looking at underwear and you say, “You know what? This glow in the dark underwear might actually be fun. Let’s just get it. It’s only $12.”
Jerry: Yeah, yeah, yeah.
Andrew: It seems like that kind of experience. Okay. So that’s how you ended up with Ruby on Rails. Then you decided, “You know what? I’m going to get into this whole startup thing because architecture is not allowing me to create. It’s not allowing me to iterate.” From what I understand, you got to accepted into i/o Ventures before you even had an idea, that accelerator just took you and a couple of your co-founders in. Am I right?
Jerry: Yeah. Actually, that original idea was started by the other three guys. I actually was not part of that. I knew them when they were in New York, and I kind of had watched from the sidelines. So the way architecture works, it’s a five-year program in school, and so even though I knew the guys, they graduated a year earlier and I think they had already had that head start and I already been jaded by the brief stint in corporate life.
Andrew: Got it.
Jerry: [inaudible 00:16:35] I had just got my job and I was happy with . . . I mean, I still was happy with it by the time I had left, but I was still just kind of starting my new life. Right. Or at least a little bit longer. And so they had started with that idea and they came out to San Francisco after being accepted into an incubator. And one of the co-founders there, Dennis, actually just worked out of his mom’s house in Union City, which is where our warehouse is now, not at her house, but Union City.
Andrew: Okay. And was it true though, that they got accepted without an idea? I think I read that in Inc. Magazine a while back.
Jerry: There was an idea, but that idea had changed pretty quickly. The original idea was called Skyara, which was a peer-to-peer kind of like a marketplace for experiences, right? An example of that would be say, I remember this because I thought it was pretty cool, an Army ranger would teach like a ropes course in his backyard, right? And the difficult part with Skyara was that it was a double-sided marketplace, right? You had to get somebody to offer an experience, which is a huge ask, right? It’s not asking for someone for money. It’s not asking somebody to just give you like an object. It’s asking somebody to put a lot thought into this kind of experience and then alter their lives so they can offer this at a moment’s notice, right?
For example, like, I’m sure there was something else going on this guy’s backyard that wasn’t a ropes course that he had to turn into one, right? And then on the other end of it, you had to get people to come in as platform and book these experiences. And it’s hard because you have this chicken and egg problem as you do in all in marketplaces, because why are people going to offer experiences when there’s no one buying? And why would people come and buy them if there’s not enough people offering? Right?
And so the solve for that was Ravn, which is when I came on. I came on just before we had started that, and this was after they had raised their first seed funding after the incubator from Hillsven. And that idea was . . . We took out one side of the equation which was people offering experiences and we went with experiences that already existed and we just like, amassed this huge supply of experiences across the U.S. and then we built this discovery and booking engine around it.
And it was really interesting because it would learn what you would like and your interactions with the various things. So, basically, you would have this feed, which is actually not that different than our site right now, right, which is this feed of cool stuff, right? It’d be a feed of cool activities. It’d be like skydiving, hang gliding type of stuff, or scuba diving or even just really interesting tours, or whatever it was. It would just be a lot of things that were going on in your area that you didn’t know about.
And people would go and they would go and discover them, but they wouldn’t book because there was no real incentive to because at the end of the day if they were interested in something, they pick up the phone and call the activity itself and then book through them. And when we had decided to shut that down, we actually got a lot of people that were saying, “Oh, I just moved to San Francisco and this app really helped me get to know my city and find out how to get situated here.” Right? Which I thought was really nice, but at the end of day it wasn’t a good business for us because each one of these vendors or suppliers they were so limited just by their geography that there wasn’t enough margin in it to spend on marketing to hire sales team.
Andrew: Yeah. I mean, look at this. So I went back and I saw the site listed at Vagabond . . .
Jerry: And we had that conversation about the speakers.
Andrew: Sorry? The site had Vagabond Indie Craft Fair, spring 2012. If I would have seen that on your site and thought that was kind of interesting, I’d just go. I don’t need to register on your site and go. I just head out there and go. And then there are a couple of other things that I might need to buy tickets for, but I’d go, like you said, go to their site and buy tickets. I get it.
Before we move on, I get the idea for Ravn. I want to just kind of point out that Skyara was written up by Alexia Tsotsis in TechCrunch and she called it “Airbnb for Experiences,” which I think is so interesting because Airbnb now does have experiences that are so similar to what you guys did, but obviously, they don’t have the chicken and egg problem. They had a bunch of people who are coming into a new city looking for stuff to do. All they had to do was say to local people, “Why don’t you do some kind of event in your backyard or kayak and show [inaudible 00:21:27].”
Jerry: I think they had a better cash cow to fund the whole thing, right? And for us, we just never got started because financially it never made sense. And so by the time we started Touch of Modern, we wanted to make sure we stayed close to the transaction. And it wasn’t like, “Oh, we can prove out the business model if we get to this incredible size.” Right? And a lot of startups were doing that because that’s how Facebook did it. That’s how a lot of these big companies did it. We’re not going to be profitable until we’re just this huge juggernaut, right?
Jerry: I think the reality is that most companies can’t operate that way and most companies may die before they get there. And you only hear about the ones that make it. That’s just survivorship bias. Right? So we were like, “If we’re going to build a company responsibility because the reality is we’re not a Facebook or whatever, we have to stay close to the transaction.”
Andrew: All right. Let me take a moment and talk about my first sponsor then I want to come back and ask you about, how did you guys feel considering the two ideas didn’t work out? You need enough confidence as an entrepreneur to will something into existence. How do you have the confidence to do that after those two setbacks?
Let me take a moment though, and tell people that I actually had seen your office before. I rent from Regus, my sponsor, and I love my office here. I’ve said this before that I love that the receptionist just mailed out VR headset to somebody in Australia and I didn’t have to think about it. Do I feel like coffee? They have coffee here for me. Do I need some lounge area to get away from my desk? I’ve got that. I need high-speed internet? Got that taken care of. The whole thing. I did scotch night last week. Total space here just for me and my guests, people I interviewed, people I got to know to have scotch. I love all that. It makes me more productive to rent from Regus, but sometimes I want to get away from my office. And Regus has all these other offices throughout the city, throughout the state, throughout the country, throughout the world, really.
And so one day I said, “You know, I don’t want to be in an office. I want to go and experience some sunshine.” Regus has an office that actually has like an outdoor garden. I said, “Let’s go work from there.” I sat in their lounge when it was cold in the morning, and then in lunch, I went and I sat outside. And when I took the elevator from the top floor to the bottom, I happened to see that your office Touch of Modern. What’s that whole area called, one next to Whole Foods? Where do you guys work?
Jerry: The whole neighborhood?
Jerry: Potrero Hill.
Andrew: Oh, Potrero Hill. I never even know this stuff. But I know that I can just ride one of the city bikes over there. It was a beautiful environment. Good lunch, good space, good vibe. I spent a day there, and then I got back to my office the next day and I enjoyed it. If you’re out there and you want to be more productive, you should know that you will be so much more productive if you work out of Regus office because they’re set to give you that, to give you the quiet space where you can shut the door and work, to give you and your team high-speed internet, coffee, water, whatever it is that you need, space for lounges. There’s a courtesy conference room when people come in and have a meeting with me and so on and so forth.
But you should also take advantage of the fact that they have tons of offices all over, some that are in the same buildings as some of the best companies out there, I know because they only rent from . . . They only put up Regus offices in the best buildings. And so if you’re looking to rent from them, go to regus.com/mixergy. And don’t just rent, ask them to show you around. Ask them to show you two, three, even five locations until you feel the one that really will make you more productive and that’s the one you should rent from.
And if you want intro to our people . . . Someone this morning just emailed me and said, “Hey, Andrew, can you introduce me?” and I was happy to do it. So here’s the thing. Regus.com/mixergy if you want to do it yourself and set up your time to look at their spaces and just see if it makes sense for you. Or contact us firstname.lastname@example.org and my team and I will introduce you to our people that we work with at Regus. Contact@mixergy.com.
Jerry, did you feel like a failure? Did you feel like, “Hey, this is not going to work out. I’m sorry, investors, we failed you”?
Jerry: Yeah. I think that we actually said that exact thing to our investors. This was at the end of Ravn. We were running down to our last little bit of capital. I think we had maybe like a couple months left. And we were . . . Maybe not even a couple months left. And again, we were in that living room and we had the idea for Touch of Modern already, but we didn’t know if we should jump in with it. And I remember asking . . . Well, I think Jon actually asked the investors what we should do. There were few options, right? One is, just give the remainder of the money back and call it a day. Another one was, we just keep on the path and then we run out of money. And the other one was, we have this other idea that we’re really excited about, I’m not sure this is enough money to prove it, but maybe we should try that, right?
And our investors actually said all three of those options are good because they had invested in the team and not the idea and that when they had done so they accepted the risk that all the money might go away. What would not be a good option is just to pay ourselves the rest of the money and take off, right? There were horror stories out there and obviously that would never have crossed our mind.
But we were sitting around the living room and we were all kind of weighing the options together personally. And I remember there . . . I remember there was this article talking about entrepreneurs. And somebody was saying that entrepreneurs are not these crazy risk takers. They’re actually just people with . . . What’s the word? With safety nets, right, that they have trust funds and that they’re able to take these risks because they can always land on their trust fund or something.
I resented that because I’m sure there are people like that out there that are doing it, but that wasn’t the case for any of us. And I remember us saying that, like, “We all moved out here not knowing anyone,” and we just didn’t want to go back. We were like, “We can’t go back.” Like, “We can’t . . . ” Like, we would just be like hanging our heads in shame and we were like, “If we’re going to go out, we’re going to go out,” like swinging, right?
And so Dennis started testing the new idea without even having a website built yet. He would just start testing user acquisition costs and we just had assumptions for everything else after that down the funnel of what kind of metrics we needed to hit, and then we would just kind of prudent down the funnel. So he started with user acquisition costs, just running ads on Facebook. So he would . . .
Andrew: And can you acquire an email address at a certain price point? That was the goal.
Andrew: And then what would he offer somebody in exchange for the email?
Jerry: It was just “Something is coming soon” and a little bit about the story and basically, it was like, if you were that kind of early adopter person, you might give your email.
Andrew: I feel like . . . So I’ve seen some of the early landing pages. I’m looking at one right now. “Daily sales of modern designs up to 70% off.” There was beautiful furniture and the iPod because this was 2012, not 2018 where you might have an iPhone. TV I think that looked modern. It was this really nice design. So they were giving their email address to get access to these deals, right? And it seemed like you were kind of going after the same . . . You know how those design sites were coming up, the fab.com that I think closed down and a few others? It seemed like you were kind of going after that energy. Am I right?
Jerry: Yeah. A bit of that energy but with a very different aesthetic. And I think that came from my architectural background because I had seen them and I really didn’t like their aesthetic nor the way they were curating their products. And it seemed like maybe they started off good and then over time kind of degenerated because if product A does well and product B is kind of similar, and then product C is kind of similar to B, then eventually it just kind of devolves to pretty average stuff, right?
And so I had a different way of looking at it, and I thought that we could still stay fresh by kind of looking at all these products from an industrial design perspective and looking at them and kind of breaking down what is it about this product that actually resonates and how do we replicate that success rather than just bringing on kind of copycat products, right?
And so we started off with that and then Steven and I would build the first website, and Dennis and Jon were just hitting the phones calling vendors of things that we thought were cool, and saying, we want to be a part of this. And that’s how it started and it just kind of ran three test sales and just to prove out . . .
Andrew: Once you have the email addresses, you’re going to go to your site and offer some test sales. What’s the first product or the first three products that you put on the site?
Jerry: Oh, I don’t even remember exactly what they were, but I remember there was a clock that looked like gears on the wall that would kind of tell time as they turned. There was some really kind of unique [scissors 00:30:28] that had like, multi-functions on them. They were pretty much kind of like really cool home and desk objects, kind of the things you’ll find in the MoMA store. Those were kind of the first thing that . . .
Andrew: Where did you get them?
Jerry: From just various brands and we just call them up. And if we . . . We would be hitting like the blogs and design magazines and stuff and just like, “Hey, we think that’s cool.” We do our research and we find out who made it, call them with the idea and just brought them on board. And we just did this out of our apartment. We actually shipped all these things ourselves from our apartment. And we pissed off the landlord.
Andrew: I want to talk about the pissed off part, but let me just say that one of the things that I heard from you was that when you put the first products on the site, before you even emailed this list, because you’d spend a lot of time acquiring the list, before you even emailed it, you got a sale.
Jerry: Oh, yeah. This is the day before. The night before we just turned it live for like a minute just to make sure a live order would go through, like, outside of like a staging environment, right? And when it came through we were like, “Wait, this is a problem. There’s two orders. Wait. But the second order isn’t even the thing that we ordered in the first.” And then we looked at the name and then we saw this is an actual person who just stumbled on the site and made an order within a minute.
We were so excited about that because in our previous companies there would be days that went by and not a single order would happen. And just in a few minutes, we got one. We were like, “Whoa. We hope that this is . . . ” Like, foreshadowing of the next day were like which is going to be our first sale day. And in the first sale, yeah, we produced over $5,000 which is probably more than we had in the previous year. And then it was another five and I’m not sure what the third one was. And on the final sale that we launched was like 10, and so that was . . . It was clear that we had something there.
I think in the previous companies, we struggled a lot. We often thought, “Well, this is just what a startup is like? You’re just struggling and you grind it out?” And it was a struggle even after we started Touch of Modern, but it’s different kind of struggle because you have something to cheer you on, right, which was that the revenue was growing, people were coming and visiting, people were buying, right? And you can see, like, this could one day be a real business. It wasn’t like just leak kind of struggle.
Andrew: Oh, that is exciting actually. I get it. And so tell me if I’m understanding you right, if I’m following so far. The idea was, let’s just see if we can acquire email addresses on the cheap. People would see your ad on Facebook, they’d come to your landing page. And this was a time when it was totally understandable for people to give their email address to get exclusive deals. Groupon pioneered it, some of the design sites had done it. AppSumo in the software space was doing it. They gave you their email address, your ad buys was good.
You then started to put something on your site, some random guy bought. Chance, it’s not really proving your model or anything, but it’s kind of exciting. More importantly, once you started emailing your list, they bought the things that you hand-curated, you picked out. That’s the thing. And when it comes to the ads, what were you doing that worked with advertising? I see that you guys are really good at user acquisition. I’m trying to get a sense of the background. What was it that worked for you in the beginning or who was it who had the skills to do this of all the co-founders?
Jerry: It was Dennis. And the thing is, he was always the biggest risk taker out of all of us. I think he always wanted to believe in the things that were new in his past. This was way, way longer when I first knew him. He’s actually one of the most popular bloggers on Xanga back in the day. You remember Xanga?
Jerry: And so I think he was always in on, like, the ground floor of things. And so when we had our advertising, Facebook had just launched their ad platform. I think Dennis saw something in that. I’m not sure, like, if he could see . . . I’m not sure in his mind he already thought that we would be where we were today, but I think he just knew that this was something new and that . . . And maybe there were a lot of eyeballs on it. And he knew the power of social because that’s where his past was, and he just gave it a try. And it wasn’t like we did anything particularly different than what anybody would do advertising on Facebook nowadays, but we were just early. And a lot of the big competitors weren’t on there yet. They didn’t believe it yet. And so when you’re in early on something that groundbreaking, you’re just going to be able to capitalize on a very inefficient market.
Andrew: Got it. So it’s not so much that he had experience in advertising. I think his experience was in Wall Street. It was just that he said, “This new thing with Facebook, it’s got to work. I believe in us. Let’s make it work.” He did it. All right. You were starting to say that you guys started to take possession of the product in your house, you weren’t drop shipping from China, in your house. You were living in the Bay Area, right?
Jerry: Yeah. We were in an apartment in the Mission.
Andrew: In the Mission. Right. They don’t like a lot of things in the Mission. In fact, they don’t even like anyone in tech to live in the Mission anymore. What was the experience like when you suddenly had a bunch of stuff in your house and had to get it out? You got to tell people that story.
Jerry: We just . . . Like our apartment it turned into a fulfillment center. It looked like a hurricane that came through there. And it was like just boxes everywhere. We were sitting on top of boxes. And I remember at first, the first sale we ran, we just kind of held everything up in the lobby and we got a ton of complaints because it was probably a hazard and, at best, there was an eyesore. And so the next sale we ran, we knew when the FedEx guy was coming. And basically, we ran this kind of assembly line down the stairs. So, basically, we would just get it as quickly from our apartment to the door faster than he could put it on the truck.
Andrew: Just to make sure that nobody in your building saw that there were a bunch of boxes being shipped out of there.
Jerry: Yeah, yeah. Exactly.
Andrew: Wait. Those must have been really exciting times.
Jerry: Yeah. Kind of like during those old days when people or those firefighters just passed the buckets of water.
Jerry: It was packages going to the FedEx guy.
Andrew: All right. The first customers came from Facebook and that random person. What was next? What was the next big source of customers for you?
Jerry: We continued on with Facebook for a really, really long time. Probably for the next few years we were on Facebook only. And then we got Google to work as we got to a certain scale and we were getting a lot more products and stuff. It was a much more mature platform at the time. And so this is also why it’d be very hard for a new competitor to do what we did because Facebook now is a mature platform like Google is, right, and so it’s a lot more competitive and you can’t do it with just a few products the way we had done it back then. So, when we got to enough mass, we got Google to work and then probably the next biggest shift in marketing came from television and that just happened in the last year and now we’re running ads on television.
Andrew: You know what? Before we get to television, I saw something else as I was hunting through your traffic that I want to ask you about. But let me take a moment talk about my second sponsor. It’s a company called Toptal. Jerry, has hiring been an issue for you guys?
Jerry: Oh, it’s one of the biggest issues for us.
Andrew: Really? What’s the biggest challenge with hiring?
Jerry: It’s just finding great people, right? It’s very, very competitive out here. And it’s a big investment just to go through the interview process, to train folks, to get them acclimated, then if they don’t work out, you got to do it all over again.
Andrew: Yeah. What’s one tip that’s worked for you before I get into Toptal and how they solve this?
Jerry: One tip that’s worked for us in terms of hiring?
Andrew: Hiring and dealing with all this especially in this tough market.
Jerry: And you know what? You’ll have to market yourself as an employer. I think that’s like a priority shift. I mean, we market ourselves as a consumer product, but not as an employer and you have to do that work too.
Andrew: When you do that, what’s that like? What do you mean? Buying ads?
Jerry: No, no. A lot of that is going and actually even talking about your company in terms of a work environment. How do you think about employee growth and how do you think about career tracks for people, right, because that’s the thing that you market? It’s not just internal but it’s external as well. And then also attending things and hosting . . . What do you call those? Kind of like hacker meetups and all that with . . .
Andrew: Yeah, yeah, at your office. Yeah. Yeah. That makes sense. Really, if you’re going to do it, that’s a long game. That’s where you really start developing relationships with people in hiring. So I had a listener, Greg Archbald, he’s a longtime Mixergy listener and he needed an experienced developer for his new business, GreaseBook. GreaseBook is software for oil and gas industry. He had a hard time screening people, hard time finding people. When you’re just getting going, it’s a lot, like you said, a lot of dedicated man hours to do it, and then if you find someone and they end up going somewhere else, that’s all wasted and you’ve got to start over.
He realized that hiring local was especially tough for him, hiring a recruiter was going to be expensive. So what he decided to do was go to Toptal. Toptal has an international talent pool already set and ready to go. They’ve tested them. They’ve screened them. They’re all together in their database and all part of their Toptal community. And so he decided to give them a shot. And he knew that there was no recruiting fee, no, nothing to lose if it didn’t work out.
And he decided to focus on his business, go to Toptal. Toptal picked a few people for him to talk to, he ended up hiring through Toptal, and as a result of getting great developer, he ended up in an energy accelerator and his business is going well because of this.
If you’re out there and you’re listening to me, the thing that got Andreessen Horowitz and so many others excited about Toptal as an investment is they said, “Hiring is super tough. Everyone is doing it the same. Toptal is going to do it completely different.” First, screen people out, make it really tough for them to get in, so they’re going to want to be in the system, have this big database of the best of the best developers and then when a company wants to hire, introduce them to those developers and they could often hire them within a day or two.
Really, Andreessen Horowitz loves them. I love them. I’ve hired from them. And now Greg Archbald is a believer. If you want to hire, in fact, you too, Jerry, and anyone else listening to me, if you want to hire the best of the best, these guys are really proud of their network of developers, go to toptal.com/mixergy. When you go to toptal.com/mixergy, they’re not only going to help you find the best developers out there, they’re also going to give you 80 hours of Toptal developer credit when you pay for your first 80 hours and that’s in addition to a no-risk trial period of up to two weeks.
Let me just emphasize this. You go to this page that I’m about to give you, you hit the green button, you talk to somebody on their team, you tell them what you’re looking for, they then go to their network and they find one, two, three people for you to talk to. If you don’t love them, you don’t have to hire them. If you do hire them and you still don’t love them, you will not be billed. And then if you do hire them and you do love them which I found Mixergy people is that’s the experience they have, they’re going to give you 80 hours of Toptal developer credit after you pay for your first 80 hours.
This is an offer they’re not making to anyone else because they’re longtime Mixergy listeners, they’re supporting me and they’ve gotten really good results from our audience. So go to toptal.com/mixergy. Top as in top of your head, tal as in talent .com/mixergy.
All right. Let’s . . . Here’s the thing that I discovered. All right, Jerry. I was spending so much . . . I dedicated so much time because I just am fascinated by your company as you know. One of the things that it seems you do is you’ve got a partnership with Comcast where when people log in to Comcast and see that Comcast website, you guys are one of the options for e-commerce on there. Am I right?
Jerry: Oh, are we? I didn’t know that. I got to check this out.
Andrew: Yes. So I guess you’re at a place right now. When you’re doing $100 million, you’re not on top of every single ad spend, right?
Andrew: So the evolution was Facebook ads were working and then at some point, you were hiring a team of people to do more ad buys, is that right?
Andrew: Okay. And then the team of ad buyers went to Google. Did you guys get into SEO considering how many products you have?
Jerry: You know what? I would say we’re probably not the best at SEO. We do a little bit of it, but I think it’s an area that we can definitely improve a lot on.
Andrew: Okay. So SEO wasn’t. Did partnerships come next?
Jerry: We did have partnerships. Partnerships are always great because actually, they tend to be profitable channels. They’re just often hard to scale up because each one of those partners is not as big as a partner as Facebook or Google.
Andrew: Right, right. And so you’ve got to spend a lot of time finding them, nurturing them, first of all, convincing them, working special deals with them. What are some of the partnerships that you’ve had?
Jerry: Some of the partnerships that we’ve had?
Andrew: What did they look like in the early days, especially?
Jerry: Yeah. In the early days, we had just kind of . . . How would you call it? They would be like commissioned ad buys on design sites or they would kind of write a blog post about us and they would get like a referral fee, things like that. So, it wasn’t like a pay-per-click or pay-per-sign up, it was just like, pay for the exact revenue that you generate. And that was effective obviously because you don’t have like that . . .
Andrew: Affiliate deals essentially.
Jerry: Yeah. Affiliate deals, yeah.
Andrew: And you guys would internally go after them one at a time.
Andrew: And say to somebody, “You’ve got good audience. We’ve got a couple of products that would fit for you, etc.”
Jerry: Eventually, we found that there were folks that can aggregate those things and do it for us.
Andrew: Got it. Okay.
Jerry: This is [inaudible 00:44:07]. It’s hard to scale that.
Andrew: Yeah, yeah. I get that. And I also see the value of it in the early days. What I’m curious about is the evolution of the product. It seems like you guys went from that hot designed site to the site that can help you find things that especially guys would want but can’t find anywhere else. How did evolution of the product mix come about?
Jerry: A lot of it was just trying new things, right? So what’s really great about our model is that every day we email our users with stuff that is cool and interesting and they give us feedback by spending on it or not spending on it, clicking on it or not clicking on it, right? And so we track these things, like, “Okay, maybe this got a lot of clicks, not a lot of revenue, or maybe this got a lot carts but not a lot of purchases, or maybe just it did a lot of purchases.” Right? And so we would take that and every day we would synthesize it and be like, “Why did we think this did well?” and then we would try and replicate that success and just keep testing based on that.
And I remember we were doing like . . . We were finding early success with watches, and so we just started going higher end with them and that seemed to work, and then we started getting into vintage ones and that seemed to worked. We said, “Well, maybe people like the vintage thing. Maybe they like collectors’ items.” And so we started getting things that were just kind of rare. That’s kind of how we went first from just not thinking about that at all, just from design items, to kind of iterating on it and getting to this place where we’re a place for collectors as well.
Andrew: Do you still to this day buy inventory, store it and then send it out when you get a customer?
Jerry: We actually often . . . We actually usually don’t buy inventory upfront. Most of it is either . . . It’s called cross stock where basically we place like a bulk order and then they ship it to us and we break it down and ship it out. And a growing part of it is also consignment, which they give it to us, we sell through what we sell through and then we send the rest back.
Andrew: Got it. I see it. Yeah, I saw that you guys had a job listing looking for a new buyer, and I was trying to see “What is the job of a buyer?” And the thing that you guys were talking up at least in the ad was, “Do you want to see a bunch of cool things in person, experiment with them and try to figure out what’s going to sell?”
Jerry: Yeah, yeah.
Andrew: How much of it is actually taking possession of product, looking at it, and trying to figure out whether your people are going to get excited about it?
Jerry: That’s probably the hardest part of the job is to find these things and find the ones that resonate and can work within the model that we have, right? The hardest part is the sourcing. It’s not the closing. It’s not logistics of it. It is just the sourcing that is the hardest part.
Andrew: Just going online, looking around, making calls, seeing what’s going to work, making deals with them, that whole thing.
Andrew: Do you ever feel like, “Look at these guys in the digital space. They don’t have to do any of this. No possession, no shipping, no trying to figure out inventory”?
Jerry: We do ship it.
Jerry: We do ship it.
Andrew: You do ship. I know. I’m saying that the digital guys, the guys at the SaaS companies don’t have any of that. They just . . . It’s the pick . . .
Jerry: Oh. For sure. So, I mean, when we started with our first ideas like Skyara and Ravn, we always actually liked the product space, and even early in those days we would kind of fiddle with the idea that eventually became Touch of Modern, but we never wanted to do it because we just wanted to sit behind a computer and we didn’t want to touch real-world things and move real-world products and track things and do all that.
But learning the struggles of the first few businesses and how difficult they were to scale that were just fundamental to the business, we then realized that, like, the challenges with e-commerce were like known challenges, like, we could figure that out. They might not be like the sexiest problems to tackle, but there wasn’t anything there that fundamentally prevented us from scaling as long as we can figure out the lifetime value to cost of customer acquisition ratio. If you can figure that out, like, the other stuff will come.
Andrew: And it does feel like one advantage you have over other e-commerce sites is you immediately asked for the email address, immediately asked for that long-term relationship so that if they come to the site and don’t buy right away, there’s still a chance to introduce them to the next and the next thing, right? You smiled as I said that.
Jerry: Well, yeah, because it’s kind of like that. Yeah. Just the way you phrase it. It’s like, define the relationship right away.
Andrew: All right. You were starting to tell me about television advertising. That’s working for you.
Jerry: Yeah. A lot of our products are just highly visual, right, and I think they just beg to be shown on video rather than just on an image. And so we always had a hunch that it would work really well, and we’ve gotten to a size where it’s a viable channel for us and it’s also huge. The inventory there is deep. People still watch a lot of TV, so it just works for us.
Andrew: And I guess you hired an agency to figure it out to test it because you have so many products and such a data-based business that . . . You did, right? That you’ve got to find the right fit. What have you learned about buying on television?
Jerry: Learned about buying on television. I mean, we’re still learning every day. But the creative really matters, like, the actual spot. I think that’s actually probably one of the most expensive parts of it is not actually the buy. I think you know the buy. I mean, advertising online is expensive too, right? But creating a visual that works online is a lot cheaper than creating one that works on TV. So that’s the hardest part. So you have to make sure each one of those counts. And so that’s probably also why it’s a later thing because you need to iterate online with those kind of quick, cheap iterations first to kind of define your brand and figure out what you are. And then once you know what you are, you can go out with a strong message on television.
Andrew: So, on television, do you still get someone’s email address? Do you still start off with that?
Andrew: You do.
Jerry: We measure it the same way we measure online. It’s not like just say, “We hope this works. We hope our brand is elevated kind of thing.” It’s, we look at the signups that come on right after we air the spot.
Andrew: And look at this. I’m looking to try to figure out where you guys are buying ads. Basically, everywhere. You’re buying ads on msn.com, yahoo.com, Facebook, AOL, BackChina. You’re using display network, like, the ones I don’t even know, Criteo. You guys are buying a bunch from them. I never heard of them. This is all me using SimilarWeb to get a sense of it.
And one of the benefits of the way that you guys operate is, it’s not, “Hey, come to my site. Maybe you like this wallet, maybe you don’t. If you don’t buy it, then I’ve lost you.” Is, “Comes to the site, understand our value prop, enter your email address to immediately see all these deals, and if you don’t buy today which you probably won’t, you’re going to buy over time,” and now you guys know the lifetime value of a customer. This is growing.
Okay. So you told our producer things are going great. You keep on growing and growing and growing, but every time you start to hire, especially in bulk, things start to break. What do you mean by that?
Jerry: Every time we . . . Well, every time we go to the next state. It’s scaling. And I think as you hire more people, you yourself have to learn how to be a leader to those people, right? We didn’t . . . We’re not career executives and stuff. We started at the bottom and learned with our company. And so as the company goes through its stages, you have to shift your thinking along with it, right? The way you manage 20 people is not the same way you manage 120 people.
Andrew: What’s the difference? What have you learned as you grow?
Jerry: So, in the beginning, it is how do you get people to do the things you need to do, right? And so a lot of it is just like through sheer force of will, right? They’re staying late because you’re staying late. They’re doing the things because you need them to do the things, right? And you can be there with them as . . .
Jerry: And as you start growing, you might not necessarily be able to do that anymore, right, because you are now a much smaller percent of the organization. And people are not looking to the executive team to know when they’ve done their job. They’re just looking kind of across the table, I mean, like, “Well, if this person’s leaving, I’m leaving,” kind of thing, right? “If this person feels like it’s good enough, I feel like it’s good enough.” And so now you have to lead by creating a culture that leads itself rather than just saying, “I’m going to be there and make sure everybody does the thing.” Right?
And then as organization just gets older, your employees have longer tenures, right? And so when people are trying to hit that one-year mark, the two-year mark, three-year mark, four-year mark, what is their incentive to stay? Now you have to start thinking about, “Are they building successful careers here?” That’s one of the greatest joys for me coming to work is seeing people who started here on the first day that are still here that find their career here valuable and feel like they’ve grown and that they’re much more valuable in their positions out on the market than they were before.
Andrew: Is there someone who comes to mind when you think about . . .
Jerry: Yeah. Our first employee is still here. Alli.
Jerry: Alli, our first employee, she’s still . . .
Andrew: What did Alli start out doing?
Jerry: She started out as a buyer and is now our Director of Merchandise.
Andrew: Oh, okay. So now he’s the person who is leading all the buying and leading also imagining the way that it’s displayed on the site?
Jerry: Yeah. She’s helping out with new initiatives, anything that involves merchandising at all. She’s there.
Andrew: All right. I told you that your site is kind of fun to browse. If you saw me a couple of times kind of lose attention, it’s because I was looking at stuff. Like, I’m constantly hunting to test what you’re saying to see what it looks like. And then on your site . . . I do that with every guest, but on your site I then get distracted.
So, as you were talking about SEO, I want to see, “What is their SEO like? What happens if I type in links touchofmodern.com? Then I end up on a soda stream by an artist. I never seen this freaking soda stream. I love my SodaStream, but I like the design of the SodaStream, so then I start clicking on to that SodaStream to see what that would look like in my house. And then I realized, we’re in a conversation, I should get back into it.
All right. For anyone who’s interested, go check it out at touchofmodern.com. I remember hearing you guys on podcasts advertising and people there would talk about all the crazy stuff that they would buy. They wouldn’t just say, “Here’s the new advertisers, Touch of Modern. Here’s the crazy stuff that they bought.” Let me ask you that. Let me end with, what’s the most interesting thing that you have bought from Touch of Modern?
Jerry: That I myself have bought?
Andrew: Or that you have? You didn’t have to buy it.
Jerry: Oh. The interesting things that I buy, I’m not sure . . . They’re just so personally interesting to me, I’m not sure they’d be interesting to anybody else. But the flamethrower is probably one of the most interesting things that we’ve ever sold.
Andrew: What is a flamethrower? I couldn’t find it online right now. Wait.
Jerry: Yeah. I think we sold out of it, so we’re probably in the process of getting more. But it’s a little flamethrower you can strap to your wrist and it shoots out a tiny, little fireball. And it’s perfectly safe and it’s . . .
Andrew: Yeah. I could have sworn that I saw that before. And I kind of know you guys as the company that would have the balls to sell that. This is like before Elon Musk said this is possible.
Jerry: Yeah. I was very hesitant about it for a while. I was like, “It’s got to be legal. How do we know it’s safe?” And yeah, it’s like a little bit of flash paper that burns at a pretty low temperature, so, even if it like, hit something unless that thing also has a very low burning point, it won’t catch on fire. I’m probably butchering the scientific explanation, but that’s generally what it is.
Andrew: Basically, we’re probably not going to hurt anyone and probably not going to kill anyone, but it is the type of thing that really stands out.
Jerry: [inaudible 00:56:21] safety.
Andrew: I was hunting it down, I’d end up with a link and then it wouldn’t go to the flamethrower. All right, I get it. Touchofmodern.com for anyone who wants to check it out. And of course, they’ve got an app that’s doing really well too partially because people just love to stare at these products.
And I want to thank my two sponsors who made this happen. The first is the company that I’ve been renting office space from forever, regus.com/mixergy. Go check them out. And the second, if you’re looking to hire, if you’re really struggling, just give them a shot. What do you have to lose? Go to toptal.com/mixergy. Hit that big button, you’ll have a phone call with someone on their team, and you’ll see if it doesn’t make sense for you, don’t hire from them. If they introduce you to people and you don’t love them, don’t hire from them. If they introduce you to people and you do love them and you hire them and it still is not great, they won’t bill you.
And then if you do all that and you work with them for a few months and you still don’t love them, let me know. I want to make sure that I’m only introducing you guys to the best advertisers. My email address is email@example.com or I’m at the Regus office right at the heart of San Francisco, come tell me in person, 201 Mission Street, one of many Regus offices I work from.
Jerry, thanks so much for doing this and congratulations.