David has proven that his COVID-friendly recreation business – on-demand table tennis – can thrive in one of the most expensive cities in the world: New York. Now, it’s time to scale. So what’s the best way forward? Is it real estate investment, franchising or something completely different? Tune in to hear how Marc plays it out.
Episode transcript
| Speaker | Timecode | Transcript |
|---|---|---|
| Marc | 0:05 | It's not a very compelling sale to say, "Why don't you buy this franchise, and I don't know, it might work." It's like selling someone, a model airplane with 6,000 parts and no instructions. Hey everyone, I'm Marc Randolph, and welcome to That Will Never Work. I've been an entrepreneur for a long time. Netflix, which I co-founded, it was actually my fifth startup. And since leaving there, I've had the opportunity to work with scores of early-stage companies and talk to thousands of aspiring entrepreneurs from all over the world. On this podcast, I speak with folks who are at every stage of building their own businesses, whether they're leaping from side hustle to self-employed, or are already generating revenue and ready to take things to the next level. My goal is to draw out their biggest challenges and then try to nudge them a little further down the path toward realizing their dreams. If you've been told "that will never work" as much as I have, you've come to the right place. Together, we'll prove the naysayers wrong. |
| Marc | 1:10 | On today's show, we'll hear from David, whose nascent business PINGPOD embraces a social activity that's actually COVID-friendly, ping pong, or as he prefers, we call it table tennis. The first branch of his no-contact ping pong parlor is an early success, and in one of the most expensive cities in the world, New York. Now it's onto some important next steps. Scale his idea and convince investors to support his attempts to do so. |
| Marc | 1:41 | So, first of all, David, thank you for joining me today. I've been looking forward to this, from almost the minute that I listened to your recording, two things struck me. The first one, of course, was I go, "That's a really cool idea." And we'll, of course, explain more about what that cool idea was. But the other one was you use the term ping pong, and I didn't think you were allowed to use that anymore. I kind of thought that was like Kleenex or Frisbee, that now you had to call it table tennis or something, but you don't do that, do you? |
| David | 2:15 | That's a great point. We try to make our customers into converts, and bring them on the journey from ping pong to table tennis. So ping pong is... |
| Marc | 2:26 | There you go, that's a good point. |
| David | 2:28 | The colloquial term, it's what you think of in the basement of their fraternity house. And so there's a big misperception in the United States about the sport of table tennis. And that's probably our biggest mission is to get people to understand the merits and the beauty of the sport of table tennis and bring them on the journey from ping-pong to table tennis. |
| Marc | 2:46 | So before we confuse everyone even further, why don't you take a second and give us the quick elevator pitch on what it is you are building? |
| David | 2:53 | Sure. So PINGPOD is building the world's first network of autonomous table tennis pods. So to deconstruct that sentence a little bit, by table tennis pods, I mean physical brick and mortar locations that can hold between two and five tables for playing the physical sport of ping-pong. And by autonomous, I mean the pods are self-sufficient, meaning there are no employees actually working on site, and by network, we hope to build many dozens, if not hundreds of pods in urban areas throughout the country. And for just a quick bit more context, it's worth noting that before PINGPOD, table tennis could typically be found in only hardcore training facilities for more competitive athletes or in these giant bar restaurant formats where food and alcohol is abundantly sold in order to make the economics work. But by ripping the variable labor out of the equation, we believe PINGPOD is the key to unlocking the supply side for ping-pong, which is an amazingly popular sport in the U.S. and beyond. |
| Marc | 3:56 | Since I actually don't know a lot about table tennis, I mean, I do have a table tennis table at our house and we do play fairly aggressively, although I'm sure for an expert you'd consider us total hackers, but I'm interested because you were talking about the supply side, making sure there's enough facilities to play table tennis. Is there a demand side? |
| David | 4:16 | There is. |
| Marc | 4:16 | Are there people who are actually clamoring for a place to play table tennis? |
| David | 4:20 | So that was the biggest question for us as we were entering the business and had our hypothesis and our big idea. And of course, that's one of the main questions that our investors and stakeholders ask. And now that we have our first location up and running since about February, of course, with COVID having interrupted for a few months, we can say that the demand is pretty striking. We are basically full from 7:00 AM until 10, 11, 12, midnight, right? And then, even, we're open 24/7. We have people coming in at 1:00 AM, 2:00 AM, 3:00 AM. There is a ton of demand for this sport in the urban areas. And as a millennial myself who lives in New York city, I am starving for more things to do, more activities to do that aren't all centered around alcohol. So that was one of my thesis points going into this business is we just need to build more recreational activities for people. |
| Marc | 5:15 | There's one running, which is great because we can kind of talk more specifically. So let me try and understand how this works. This is a physical space that you've leased a room or a somewhere in Manhattan, is that right? |
| David | 5:26 | That's right. A property, more than a room, like 2,500 to 3000 square feet. So enough to fit three to five tables. |
| Marc | 5:35 | The one that you have running is that size? |
| David | 5:38 | It's 2,600 square feet with four tables, correct. |
| Marc | 5:41 | Four tables. Now, if somebody wants to play, how do they set this up? How does this work? |
| David | 5:45 | Yeah, so we're trying to make it as easy and simple as possible. You simply go on the web app on your phone or your computer. You make an account within seconds and you book a reservation as you would book a hotel room, an airline seat, or a Zipcar, is a lot of comparisons we get. And then you physically show up to the location and you use your phone and your reservation to just tap a button and the door unlocks, and you're in. |
| Marc | 6:13 | That gets you into the building and you what, you have an hour slot or a half hour slot or a certain amount of time? |
| David | 6:19 | The shortest slot is 30 minutes, and you can book as many 30 minute intervals as you'd like. |
| Marc | 6:24 | A specific table assigned to you? |
| David | 6:26 | We have an algorithm that efficiently assigns you to the available table, or you can book a premium table for a little bit extra. And the premium tables have a little bit more space. In fact, three out of four of the tables are premium. There's only one "standard" table with just a little bit less room, but it at least gives people the ability to pay less money, if they so choose to just kind of hit a ball around and they don't need the additional space or choose to have that premium table. |
| Marc | 6:55 | You want them to actually experience table tennis the way it's experienced by most of us, where you have a frigerator at one corner and a piano kind of stacked against the other and a desk lamp on a wall. It's like having the home court advantage or the local baseball field with the short right field. Okay, so these three premium tables, the one regular table. How about the paddles and the balls. You supposed to bring your own like professional bowling people who have a little case? |
| David | 7:20 | That's a great comparison. I would say that many of our customers do bring their own equipment and they own their own premium, custom paddles. And there's a whole world of table tennis equipment. We're pretty nerdy when it comes to selecting the blade and the rubber type and the thickness and pips versus normal. And there's a whole world, but many of our customers also use our house equipment, which are very quality paddles and balls. |
| Marc | 7:49 | They're sitting there on the table waiting for you? |
| David | 7:51 | Basically. They're in a locker that is unlocked and you just go and grab them. And we haven't had any theft or anything like that. |
| Marc | 7:59 | People return pedals when they're done, and that's working out, so fine. Okay, cool. I get it. So it's kind of like Airbnb for ping pong tables. |
| David | 8:08 | That's right. |
| Marc | 8:08 | If I [inaudible 00:08:09] to that one. All right. Pretty cool idea. And actually, it's kind of funny because I lived in New York years ago, I had this crazy idea, very similar, which was, I wanted to do indoor miniature golf, which of course, I think they have that now, but I was going, "This would be great." But as opposed to you who is saying, "Oh, these entertainment venues have alcohol and food." I was saying, "Oh, all these miniature golf places don't have alcohol and food." So I was kind of going in the opposite direction. But anyway, the idea resonates with me as this kind of ability to provide a service inside. So let's talk about how things are going, and you have just one location so far? |
| David | 8:44 | So far one. We just signed a lease for our second location. |
| Marc | 8:48 | Congratulations. |
| David | 8:49 | Thank you. |
| Marc | 8:49 | Okay. So tell me how you promoted the first one and what the usage ramped up and what the usage is looking now. I want to kind of understand the user dynamics here. |
| David | 8:58 | Yeah. So we picked a very visible location in Chinatown on Allen and Hester street. Floor to ceiling windows, two stories, and we have one table on the ground floor and then three tables on the second floor. And that was at the heart of our vision was to take table tennis out of the basement and bring it onto the street and to the people to see how cool the sport can be. It's so typically hidden away in these basements and environments. And the real estate has been doing a lot of the marketing for us, which was, of course, the hope. It was just a hope, and it's basically been coming true that the majority of our new customers found out about us by driving, biking, or walking by this busy thoroughfare in Manhattan. Other than that, we have been doing some light SEO, Google optimization, stuff like that. |
| David | 9:50 | We've been just testing the waters when it comes to digital ad campaigns, Yelp, Facebook, Google, but just throwing some pennies at those things. And that's something I'd like to pick your brain about, but that's kind of where we're at. And we have been seeing, to answer the heart of your question, really nice traction in terms of capacity utilization, volume, and... |
| Marc | 10:11 | What's your utilizations? Let's do the math. You have 96 available hours per day? |
| David | 10:16 | That's right. |
| Marc | 10:17 | What's your utilization of the 96 hours? |
| David | 10:19 | It's little less than 96, because the three tables upstairs close at 2:00 AM because it is a condominium building. So I can't do that quick arithmetic, but it's something like 70-ish hours. And I would say that capacity has been about 40% of that. |
| Marc | 10:34 | No, that's good. |
| David | 10:36 | Call it a roughly 30 hours a day, seven-ish hours per table across four tables. |
| Marc | 10:41 | 40% is pretty reasonable. What do you charge per half hour? |
| David | 10:44 | We charge anywhere between 15 and $30 per hour, depending on the time of day. That goes to $40 per hour, if it's a premium table. |
| Marc | 10:53 | All right. So I'm going to try and do this quick. It's about $1,200 a day in gross revenue? Am I...? |
| David | 11:00 | I probably gave you a little bit of inaccurate inputs there, but the output is that we're doing about 800-ish dollars of revenue a day. Yep. |
| Marc | 11:08 | You said it's about 30 bucks per... |
| David | 11:10 | Per hour. |
| Marc | 11:10 | Half hour or hour? I missed that. |
| David | 11:12 | Per hour. |
| Marc | 11:13 | Okay. So I get the idea. So it's 25 to 30 hours total per day. |
| David | 11:19 | That's right. |
| Marc | 11:19 | Across the... Those numbers are per day, right? Okay. |
| David | 11:22 | Yep. |
| Marc | 11:22 | And not to get too dorky, I'm just getting a rough sense, but you have upside there. It's much busier, I assume, on the weekends. I assume it's much busier from the five to 11 window. Is that kind of a basic? |
| David | 11:34 | You'd think, but actually the weekdays tend to be very busy, especially over the summer. People tended to leave the city. And then in the fall, the weekends have been getting closer to parody with the weekdays, but the weekdays are really our core constituency of loyal ping pongers who make it part of their daily routine, and of course, COVID having totally shaken up the work hours makes it so that there is no traditional during the day. People come at all times because they're working from home. The weekdays have been a little busier than the weekends, actually. |
| Marc | 12:06 | Interesting. Okay. So I can go on forever about all these little details. Last question before we then dig into some of the questions you have, which will then raise more questions. Tell me a little bit about the users. So for example, do you have a rough sense of, is there a repeat business here? Are most people using it once and then... Is most of this usually is driven by different people every time, or do you have a core group who's coming back over and over and over again? |
| David | 12:31 | We do have that core group of loyal patrons who we just rolled out membership, so we've starting with 30 members. And so, of course, those 30 people are very recurring, but we do have plenty of just one-off kind of birthday party situations, or date night is becoming a big use case for us. But in terms of demographics, it really runs the gamut. I'm having a hard time putting my thumb on who is the average customer in terms of demographics. But I would say it's about 30% member recurring, loyal customers and 70% more one-off, a couple of times a month or just one and done type of customers. |
| Marc | 13:11 | Yeah. Because the one and done piece, that ratio is what influences your decisions about what kind of marketing dollars you spent. So that's one thing that's kind of interesting to eventually have a pretty good handle on. Okay. I think I've got a rough idea. Of course, what's the rent on the space? |
| David | 13:28 | It's $14,000 a month. |
| Marc | 13:31 | Wow. |
| David | 13:32 | New York City, yeah. |
| Marc | 13:35 | So, yeah. Okay. So what's that, $500 a day? Yeah, it's about that. |
| David | 13:38 | Yep. |
| Marc | 13:40 | And you're grossing about $800 a day in rent. So you're ahead. Any significant expenses? Cleaning? Ping pong ball replacement? |
| David | 13:48 | We do have cleaning. Besides the rent, which makes up the bulk of our operating expenses, we have cleaning every single day, insurance utilities. But after that, it's nothing because we don't have the variable labor, which is typically the bulk of the cost for most retailers. So we at least ripped that out. And yeah, Marc, we're doing about $25,000 of core sales every month, and we're doing roughly 19 or $20,000 of operating expense. So we're already eking out a nice 25% operating margin. And then, of course, we have corporate revenue, like we sell equipment, we sell merchandise and apparel, and that brings our total revenues up to like $30,000 a month. But we don't really count that when talking about the unit economics. |
| Marc | 14:33 | Perfect. Fantastic. Okay. And so you're opening your second one, and that's going to be nearby? Different part of the city? |
| David | 14:37 | Different part of the city. We wanted to limit cannibalization. So that's going to be Midtown West. |
| Marc | 14:43 | Okay. All right. So what can I help you with? |
| David | 14:46 | So I kind of have two buckets of questions. There's the first bucket is high-level strategic and culture-based questions. And the second bucket are a little bit more random one-offy questions. So maybe I'll start with the high level strategic stuff first? |
| Marc | 15:01 | Sure. |
| David | 15:01 | It's a plan? Okay. We are thinking about how to expand and what the most efficient way to build more pods should be. And so franchising naturally pops up on our radar. So we've been grappling with, do we franchise, does it make sense for us? When is the right time, right? Are we too early to be franchising? We currently have one location. As you know, we're building the second location. Both of those are going to be fully company owned, but are there any pros and cons that you can help us consider as we work through this mental math? |
| Marc | 15:35 | Sure. And I'll jump into the franchising in just two seconds. But the first thing is a congratulations on how far you've gotten so far. I mean, I applaud the fact that you had this idea and then you went out and tried it and figured it out. And lo and behold people are actually using it, and, I would guess, surprising you in the fact that how many people are actually doing this and that this thing is actually turning out to be economically viable. So that's a pretty significant accomplishment out the gate, especially in a city which arguably has some of the highest rental rates in the world, if not the United States. So it's kind of this feeling that, well, if you can make it here, you can make it anywhere, as the old song goes about New York. The thing about either raising money, franchising, any of these paths is that generally those come when you either understand your business or understand pretty clearly what you know and don't know about your business. |
| Marc | 16:37 | And certainly franchising is pretty far down the path of, you had better really understand your business because I think, and again, I have not run a franchising business, but a franchise largely is giving someone else a semi-turnkey operation, where stuff is figured out. And what they're doing is buying a viable operation. It's not a very compelling sale to say, "Why don't you buy this franchise, and I don't know, it might work," or "You'll have to figure out..." It's like selling someone a model airplane with 6,000 parts and no instructions. That's not going to sell very well. What you're trying to do is come in and go, "We have the advertising dialed down. We have the acquisition cost dialed down. We know what your unit economics are, you know how to negotiate the lease properly. Here's some example leases. All you have to do is have the ability to write a check and then follow our playbook." |
| Marc | 17:34 | As I hope you agree, you are a long way away from that point, because what you have done, and I'm not diminishing this accomplishment, but you've gotten it to work in one location, in one city, and in one time, and I'm going to underline the word one time, meaning you're doing it in the midst of COVID, which I think you would agree is a very, very unique time for business. And part of what you have to demonstrate, especially if you're doing franchising, are considering franchising, that's going to be doing something which could go on into the future post-COVID, is have some confidence that all of these things you're going to be laying out for somebody will still work in a post-COVID world. That you're not seeing this artificial demand by the fact that, quite frankly, there is nothing else to do since we can't go to bars, we can't go to restaurants, we can't go to concert venues, we can't go to gyms. |
| Marc | 18:29 | What's left? Ping pong. I'm not saying that's the case, but I'm saying that you're going to need to have a pretty solid understanding of that before you take that step. My gut feeling is not a chance in hell that you're going to be able to franchise this now. That said, there might be some other types of interesting models you could use. Let's talk for one second, and I'll shut up in a moment and let you squeeze a word back in edgewise. Let's say you're thinking about, I really want to expand more rapidly. I want to go from one, two, four, eight, 16, 32, whatever the growth rate you think you guys can handle. That's going to take money. Anyone you're going to for fundraising has to have a similar risk profile to what the reality of the situation is. |
| Marc | 19:09 | So it requires you to be able to very clearly understand, what do we know and what do we not know? And then position the fundraising based on that. For example, you could say, "We've got a huge accomplishment," and I'm just making it conversational, although in a pitch would be somewhat different, but the conversational piece of it, "We've learned a lot. We've learned, A, that people are going to do this, that they enjoy it, that they're willing to not steal our balls and our rackets," et cetera, et cetera, et cetera, all the things you have demonstrated, you can then say, "Part two, we've got a reasonably good sense of consumer economics here. How many people come, what the repeat rate is, what the lifetime value of a customer is. We have this model, we convert people to members, and here's the ancillary merchandise revenue on top of that." You have a lot of things that are known. |
| Marc | 19:57 | And then you'd have to say, "We're raising the money not just to expand, but to do the next level of discovery," which was, how does this work when you're in different locations, do other locations behave the same way? And then the big question is, and what will the world look like in a post-COVID time? Will we see the exact same economics or similar economics? Or what will the economics look like in that post-COVID time? What's interesting is, back in the day, five, 10 years ago, you'd see a lot of companies launching, I'm out in the Bay Area, San Francisco Bay Area. And you see a lot of companies launching out here and getting tremendous traction. |
| Marc | 20:36 | And they'd come into the VCs and go, "Just look at this amazing business." And they'd say, "Well, yeah, it works in San Francisco, where everyone is a geek and everyone's accustomed to this new wat to do business. But how is this going to work in Indianapolis? And how is this going to work in Fort Lauderdale?" And you realize that you need to demonstrate that there's this there in other places than here. And I think yours is the similar thing. You have a challenge of saying not only is it going to work with multiple stores, is it going to work with multiple locations, then the big one, is it going to work in multiple cities, and what size city can actually support this, what's the geography? |
| Marc | 21:13 | My quick answer to your question is, wow, do you have a lot more questions to answer. Okay, one more thing, you can see, once I finally grok it, I can't help it, I [crosstalk 00:21:25]. |
| David | 21:24 | No, that was super interesting and helpful, because we've gotten a lot of conventional wisdom of, wow, this concept is working during a really difficult time. But I think that your approach, which I tend to agree with is we are operating under a potentially advantageous time for our unique business model. And most people don't actually see it that way. They say, "Oh, well when COVID blows over, I can just imagine that there's going to be hidden demand layers that are going to come out." And there's some truth to that, right? We know that there are people 75 plus who normally play table tennis who aren't coming back to the sport just yet. But I also think that there are plenty of people who are coming to play because, to your point, there's nothing else to do. |
| Marc | 22:10 | Listen, again, if I hadn't called the book, That Will Never Work, I would have called the book What Do I Know? What do I know? But wow, it certainly feels completely self-evident that you're getting a COVID lift. I mean, not just from the fact that all the other ways that people would be spending their time are not available to them, but you have street-level floor to ceiling window retail space in New York city. And do you think that you're getting it at a premium? Maybe you think you are, but I have a feeling that that person's going, "Oh my God, I can't believe I suckered these ping-pong guys into taking my space." And they're delighted about it. Again, if and when street-level retail returns, you're going to see a challenge in perhaps getting the type of spaces, especially if, as you said, you're reliant to some degree on having that street-level visibility as your advertising and your marketing and your customer acquisition. |
| Marc | 23:04 | Let's segue into one more quick thing. Now you're going to regret call this guy. Can't get him to shut up. There's an interesting thing here, which is this hybrid franchise model, which is maybe the people who may want to do this are people who have space and who are looking for ways to utilize it. So that could be this interesting investment vehicle. There could be a type of investment where you don't structure it using a classical franchise model, which is one way to structure raising money, so to speak, with a revenue share. And then of course, if you look at venture financing, there's no revenue share, but that equity in the company, there might be some way of doing some form of, basically people are putting money in, in order to help open the business in exchange for a share of the revenue. So it's some sort of different kind of investment structure you could put together. |
| David | 23:55 | Would those investors be landlords themselves, potentially? People who own property, who then invest in the business and we work out a deal that way? |
| Marc | 24:05:00 | Sure. And I hate to even bring it up in the same breath, but you look at what WeWork did, and WeWork was a way for landlords to lease out space for alternative uses that they weren't equipped to deal with. And this could just be a nice way of landlords taking the risk along with you to some degree. That you're pitching them as, here's an opportunity for you to have space, which rents out at this certain lease, but even better for you because you're taking some of the upfront risk with me. I don't know, these are all things you'd have to experiment with, but it's kind of a different model, since the great majority of money that you'd raise is going to go toward startup costs. |
| David | 24:46:00 | That's right. |
| Marc | 24:46:00 | Once these things are running, they sound like they do pay their rent. But of course, it might take you six months, nine months, for you to take a new location and bring it up to the point where it can be a self-sustaining, which probably is one of the metrics you're going to have to also learn before you begin rolling this out at scale is, what does that timetable look like? |
| David | 25:05:00 | That's right. And luckily the first pod took us about three months to equip and get from signing the lease to operational, because it really is a very simple concept at least, just throw in some rubber flooring and some table and some lights. The upfront costs are also capital light, so that is good news. But I was wondering, do you have any thoughts, perhaps, on buying real estate and then operating in a property that we actually own, if that is even economically feasible, which I don't think it would be, especially not right now, but if it were, do you have any thoughts on that? |
| Marc | 25:45:00 | Run as fast as you can in the opposite direction is my thought on that. Well, first of all, talk about capital intensive. I mean, okay. If you think that I almost slid off my chair when you said $14,000 a month, imagine how I'm going to feel when you say, "Oh, no, it's only $2.7 million for each to open... Each location." Even more ridiculous. You'll never pay those things off. But this, and that's geeking out of the numbers, and that's not the point. The point is, what are you good at? And what it sounds like you're good at is, and you're going to have to be good at, is managing an experience. You're going to have to be really good at customer acquisition and customer satisfaction and customer management. You're going to have to be really good at finding, launching, promoting locations. That's hard enough. |
| Marc | 26:35:00 | To think that you're also going to be good enough...I do a lot of work with a retail company, I'll leave it at that, who went into retail and they weren't. Initially they were direct to consumer via the web, and they wanted to experiment in retail and began opening stores. The learning curve was unbelievably steep about what were the right locations? You open them and then you close them and you get these short leashes and you pay exorbitant fees to get the short lease because it's so critical to really understand exactly what it is. It is location, location, location, especially since you said a lot of the attraction for this comes from people walking by the window and seeing it. And so you want the flexibility. Let someone else deal with the fact that the boiler broke or that the air conditioning doesn't work or deal with the fact that there's a crack in the sidewalk. You have enough problems. |
| David | 27:30:00 | So if we go away from the idea of franchising and far away from the idea of buying real estate, so we stick with continuing to lease locations and continuing to learn as we do in different areas of the city and different property types that aren't as visible, which will be the case with the second location. We need to think about our next fundraising round and event, because to give you a little bit of context, we've raised a million dollars pre-seed from family and friends, and that is enough for two locations to build and operate and have some cushion. So we are rapidly, as you would expect, depleting those funds as we've built the first one, are building the second one, are operating and dealing with corporate overhead. What are your thoughts on timing for raising maybe a true Series A or some other type of funding round, maybe outside of the realm of VCs, even. And also not just when timing question, but if you have any thoughts around how to approach institutional investors. |
| Marc | 28:32:00 | My gut is that you probably could raise money now. And whether it's an A or just a series seed, essentially a friends and family extension, depends on how well you really understand what you're doing. And we haven't had time to really dig into it, but you have a lot of questions about the scalability of your concept. What you're doing in any raise is being very explicit about what you know and what you don't know, because the raise is designed to prove specific things. Because the people that put the money in in one round are counting on the fact that there'll be a step up in value with their money. That if there's an A, that you're going to learn enough in the A to then raise at the B. And rule of thumb, maybe they want to have a 3x change between what they put it in and what's next. |
| Marc | 29:23:00 | So the point is, what you want to be able to say clearly is, "We really understand one location. Now the risk is, we're not sure how this scales to multiple locations, and this round is designed to take us from one to six or two to 12," or you think that right number is and that right amount of money, but don't get ahead of yourself. Don't go, "This is to go from one to a hundred." You don't know enough. You have to raise too much money. And don't forget, the valuation is low, and every time you raise money at a lower valuation it's dilution, so you want to raise as little as you need to get to that next proof point. And my gut feeling is that your next proof point is, it works in one, can it work in multi? And the question that comes back is, what will that cost you? |
| Marc | 30:11:00 | And you should be able to tell me. I mean, not this instant, but it might be, for example, to go from one to six is going to be $2 million, and have an operating history on the six of at least 12 months, that's going to be a million and a half, or $2 million, or whatever the number is. And that's going to tell you who you need to raise from. And if you can do it for $2 million, it probably is a seed extension. If you need six, then you're going to need to do an A, but you're going to need to ask yourself, that might be too big of a jump to go to a real A round with real institutional investors. So that's the thing to ask yourself. What's the next big learning for me, and what will it cost for me to learn that, with a little buffer? And now take that number and cut it in half because I've probably overestimated, but you get the idea. |
| Marc | 31:01:00 | And I think again, right now, we're speaking at you're at a great, great point because you do have something which is running at you at an economic cashflow positive. Wow, fantastic. You're right. You got to cover your overhead. Those stores are going to take you X months to bring to that point. You've got to fund that. You're going to have to find out what it costs to acquire customers when you can't afford the big plate glass, ground floor, high-traffic neighborhood window, it's going to be an interesting haul. And then the next thing you're going to have to do is show that you can do it in Boston or Philadelphia or wherever you think the next satellite city is from here. And that could be what you use to go from your seed to your A. |
| Marc | 31:42:00 | We proved we can do it with six stores, and then you decide, well strategically, is the next step going to 24 in New York, or is it from six to 12 in New York, and we launch our first two in Philadelphia and two in Boston? That's what's so fascinating about startups, is there is no prescribed path. You're constantly feeling, what do I know, what I not know, what's the next opportunity? How do I demonstrate it's there? How do I get someone on the outside to buy into it so they'll fund me? |
| David | 32:10:00 | So true. I have a billion more questions on this topic, but I do want to have the chance to talk to you about marketing. You really hit the nail on the head with our first location being very unique and not every location is going to have that level of visibility. And it does concern and scare me, to a degree. Do you have any thoughts on, if you were in our shoes, how else would you be going about marketing the concept? Something we grappled with is, do we want the whole city to know that PINGPOD exists and what it is and where it is? Or do we want to take a more targeted approach, even though we don't have an exact target demographic, as I mentioned briefly in the middle there. It's a particularly tough question for those reasons. |
| Marc | 32:59:00 | You don't want the whole city to know about this. That's the best possible way to squander all your money. You're going to have a key metric here, and it really is going to be the startup costs for a location. And that is going to be this factor of the rent, obviously, but it's also going to be the acquisition cost to begin to bring in enough customers, to make a location viable. And that's going to be some ratio of how many you have to bring in to have enough repeat business. Because again, if someone comes in and spends $30, you can't spend $30 to get them. You have to go to get them at some lower price, but if you can get them to come in once, and once they're in once, they end up going four times a month or eight times a month, now they're worth $240 a month to you and you can spend a lot more to get them. |
| Marc | 33:41:00 | So part of it is figuring that out. What's my budget? How effective can I be at identifying someone who will be repeat user? What ratio of my customers are repeat to non-repeat? What's my real lifetime value of a customer? And then I'd also be really saying whatever I can to minimize the cost to acquire someone. And that's going to require, at first, experimentation. Your idea is not to build your brand right now. Your objective is to figure out what works, figure out how do I find that needle in the haystack? How do I find these people who may resonate to that? Is it on social? Is it on other types of advertising? Is it local? I mean, are you buying local advertising? Are you buying subway? I mean, there's a million different ways, but you at this point want to experiment and see what works. |
| Marc | 34:30:00 | And the last thing I'll say about this is, you do have one resource that you can go to right now, who can tell you pretty clearly the best way to reach customers and they want to use your service is, go to the people who were already using it. Figure out how they found out about you, figure out how they make decisions on other things. Look at that demographic and try and understand where that demographic shops and makes decisions about what to do. Again, this goes back to our first one. You've got a lot to figure out, but you're on the right track. I do have to say I'm really actually really pleased with what you're doing. You guys are exactly doing the right things. I love the design. I love the fact that it's low overhead. And most importantly, I love the fact that you did one and you're seeing what works. You're at that most fun place right now where you're going, "Wow, we've got something that's working, now where do we go from here?" And it's the kind of thing that makes me wish I was sitting around the table with you. |
| David | 35:21:00 | Thank you so much, Marc. If you're in New York City, can we count on you to stop by the pod? |
| Marc | 35:27:00 | Oh, absolutely. And I'll make a reservation and everything. But is betting allowed? Because that's an important component to get my competitive spirit up. |
| David | 35:34:00 | Sure. |
| Marc | 35:34:00 | Okay. Just making sure. |
| David | 35:36:00 | Absolutely. Thank you for this opportunity. |
| Marc | 35:38:00 | So dude, best of luck, and make sure you keep me informed how you're doing. |
| David | 35:42:00 | Thank you very much. |
| Marc | 35:45:00 | Clearly David's a savvy entrepreneur and he's focusing on all the right factors. But before he goes too far down the road with any business model, be it buying real estate, yikes, or establishing a franchise program, hmm, he needs to learn a lot more about his target audience. The good news is, he's already proven That the idea's profitable and even habit-forming for a strong percentage of his customers. And those are the very folks who will help them chart his course. Well that's all for today. But before we go, I do want to thank David for entrusting his business to me for a bit, and I look forward to hearing back from him in a few months to see if my advice helped. But if you want to discuss your business challenges with me, I would love to hear from you, just visit me at markrandolph.com or call me at one-eight-eight-eight-MARKPOD. |
| Marc | 36:43:00 | That's +1 888-627-2763. Together, we'll figure out your best next steps. In the meantime, if a 30 minute podcast is too much for you, you can check out my short-form, ramblings on Twitter at @mbrandolph, or see it all prettied it up on Instagram at thatwillneverwork. Of course, you can check me out at LinkedIn at, oh, shit, you can figure that out yourself. Thanks again for listening. If you liked the podcast, don't forget to smash that like button and leave us a review at Apple Podcasts. If you didn't, well, thanks for listening to How I Built This. No, I'm kidding. I'm kidding. This is the That Will Never Work podcast. Thanks again, and I'll see you next time. |
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