Advice Line with Niraj Shah of Wayfair

23:57We'll be producing again this fall. And we have two new product lines coming out, a sport line and a women's line, so we can protect the whole family. And so have you broken like$50 ,000 in sales yet? We have. Thank you for asking. We have. Yeah. Nice. Okay, great. And before I forget, what's your question for us? Okay. My question is, I am fortunate enough to have an in-house cosmetic chemist. And that allows us to come up with products quickly. And I have a whole bunch of products I'd like to deliver to the world. The challenge is the cost of production is very high. And at our current growth rate, I can only sustain maybe one or two product lines a year.

24:33And then because I'm self-funded, the marketing budget is, of course, lower than I wish it was. So my question is, as a founder, what are the key indicators I should be looking for to know when it's time to seek investment and give up maybe some equity, which I really don't want to do, versus continuing to bootstrap and grow a little bit more slowly? All right. Great questions. Neera, do you want to bring you in? What do you think? I mean, she wants to expand this thing, but she needs the money to do it. Yeah. In terms of selling the items, you mentioned you sell directly on your own website, you sell on Amazon.

25:09Have you discussed with any major retailers potentially carrying it? And what I was thinking there is potentially if you have someone who likes getting in early, they might be willing to give you a purchase order for the kind of quantity they want. even if it's a modest test rollout in their sense, it could be quite a decent volume. And those purchase orders from the larger companies you can get financing against. That sometimes is a way, you know, kind of to get financing. But to your point, you're not selling equity. You're not selling equity for that. Yeah, that's a great idea. I haven't explored regional or national distribution quite yet, because I frankly can't afford it quite yet.

25:43I'm hoping my business plan is for 27. That would be the earliest I would hope to be in some regional and national distribution. And at this point, yeah, I would have to either finance, take out a second mortgage, something like that, bet on myself, which is a scary thing to do, or find someone who's willing to do it with a small, small piece of equity, which is pretty hard to find. Yeah. And there's also, I mean, I completely agree with Neeraj here. I mean, there's, you know, there are also ways to like revenue based financing that some of these lenders, Clearco is one, Shopify actually is one.

26:20They make small loans, right, against a predictable sales and an SBA loans. But back to something that Neeraj asked, which I think is critical. If you want to scale, when you want to get into the targets and the Sephoras, that's when you really need to raise money. And if that's where you're headed, then it may be worth thinking about a seed round of friends and family now, a small seed round,$300 ,000,$400 ,000,$500 ,000 to see what you can do with that money to get you closer to the next level. where you would need to raise a lot more money at that point. Yes, this is a good idea. It's something that's crossed my mind on a very regular basis.

27:04And with seed rounds, you're not giving equity necessarily, you're just giving interest, or you can choose? Neeraj, I mean, there are many ways to do it. You can get convertible notes. You can pay people back. I mean, there's a bunch of ways to do it. Normally, convertible notes just translate into stocks. But Neeraj, what do you think? Yeah, I think a convertible note is what I have heard of and seen as most common. And what that is is instead of deciding at what value those investors are buying equity from you, they're giving you the investment. They hold a convertible note. And what that means is that when you raise your next round of capital, their money converts into equity but at a discount to what that round ultimately gets priced at.

27:43So if you're able to take the money from them now, you're able to invest it very productively and grow the business nicely and then ultimately raise a round at a good price. These investors get the benefit. They're converting 20 % less or 30 % less than that. So they're getting that value for being early. But you're also not necessarily having to price the company based on your current sales and where you are now. Because that would be hard if you just do it off your current revenue. And if you start talking about the product pipeline and the vision you have, it becomes maybe a big debate as to what the price should be.

28:12So a convertible note, I think, is often an easy way to do it. And ultimately, those investors and the friends and family around, they are going to get equity at a good price. But it makes it an easy way to raise the money quicker. Okay, great. And I know that you bootstrapped for a long time. You guys didn't take investment money for a while, if I'm remembering correctly. Do you have regrets? Are you glad you did? So we're glad we did. So what we were able to do, and I do often recommend to folks, don't take the money until you're really ready to. And what I mean by that is, for some reason, there's a lot of prestige in raising money.

28:44But the truth is, you'd rather not raise money if you can get to the next level without it. And so even if that means you might move a little slower, often that's a better decision. And when the time is right to raise money, it'll be because that money, you have a very clear use for that money that you know will get you to the next level. And without the money, you're going to be unable to do the thing you want. So in our case, we were able to bootstrap the business. The big use of money that we were able to avoid in our case is we didn't buy the inventory And instead, we drop shipped the orders from suppliers using their open stock inventory.

29:19So we didn't buy the item until we had already sold it. That's what let us kind of go a long way. And then the reason we raised money, it was 10 years in, was we wanted to launch the Wayfair brand. But we didn't have the ability to fund building a brand with the amount of cash we were generating for the business. And so we then raised equity. And so I think that's the trade-off you need to balance. Yeah. And I like the idea of waiting for the POs. I feel like I can carry it until the POs come in. But say I got a PO for 50 ,000 units, that would be probably the time to jump in and find some help.

29:50Yeah. And you mentioned that you were in some stores, right? And what about just seeing if you can get the product in front of a Whole Foods buyer, for example? Guy, I would love that. You know anybody? Send them my way. Well, I mean, they've got, you know, regional buyers. It would be worth cold, you know, going on LinkedIn and just finding someone's name and just cold emailing them because that's their job. Their job is to find interesting locally made products. We just did an episode on poppy, you know, poppy soda. It started out as a vinegar soda at a farmer's market in Dallas and it was picked up in the Whole Foods in Dallas.

30:26That really does happen. And part of it is find that we've had so many episodes in the show where people go to a Whole Foods buyer and a retail buyer and then it gets into two, three, four Whole Foods and Whole Foods will work with you. They want you to succeed. Whether you can get purchase order financing, they're also, as you know, they're right there, these groups that will lend you money if you've got the orders. Yeah. For the right percentage of return, they sure will. There's plenty of people willing to give you money. It just is trying to find the smartest way to go about that. Yeah. I think the issue here, you got to bet on yourself.

31:03That's the, right. You're scared, You're worried because it's scary. But you have a great, it looks like you have a great product. So you've got an in-house chemist. I mean, somebody's working with you to develop this stuff. You've cracked the code on the white residue on the face. I mean, it sounds really promising. Thank you. Yeah, I quit my job. I mean, I was a professor in the PA department here at my university, at Utah Valley University. And I quit my job in January. And I'm all in on this. So yeah, betting on myself for sure. Yeah. Wow. Any final words, Neeraj, for Bree? You know, I would say that just figure out what your next step is and don't worry about four steps at once, you know.

31:43And I wouldn't be scared of some of these larger national chains because a lot of them, they want to find new innovative product and test it in a small local way. And that could be an exciting thing to try while you're growing the existing distribution you already have with your two new products. And so you can take things one step at a time. Yes, I love that very much. Yeah, that's the dream that's on the goal board, right? Whole Foods, Sprouts, Sephora, all the places, yeah. For sure. The brand's called Daily Shade. Bree Van Leeuwen, thanks so much for calling in. Good luck. Thank you. I love your show, by the way.

32:15I think as a founder, it's so scary and so hard. And sometimes when I'm in my dark moments, I turn on how I built this. And it does. It helps you get through it and push through when you hear the story. So thank you for all you do. It's why we do what we do. And thank you for saying that. Good luck. Thank you so much. All right, we're going to take another quick break, but we'll be right back with another caller. Stay with us. I'm Guy Raz, and you're listening to The Advice Line right here on How I Built This Lab.

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34:17Welcome back to the advice line on how I built this lab. I'm Guy Raz and my guest today is Neeraj Shah, co-founder of Wayfair. And we're taking your calls right here. Hello, caller. Welcome to the show. Hi, Guy. Hi, Neeraj. Thank you so much for having me on. My name is Tess Milholen. I am based near San Antonio, Texas, and I'm the founder of Her House. Her House is an app community of solo women travelers who are background checked, who host each other for free, creating safe, affordable stays and a supportive network of women around the world. Wow. Cool. Tess, thanks for calling in. So, okay, so this is a website and an app, and it's basically designed for solo female travelers.

35:00It's like a network where if you're in it, you can connect with somebody somewhere around the world who's in this network who will let you stay at their home when you're traveling around the world. Yeah, you got it, guys. So we have three ways to stay with each other inside of her house. They can connect with other members and ask for accommodation while they're traveling and they're in a new city or a new country. We also have opportunities to home swap with others and then home sit for each other as well. So there's three ways to stay, but we really have a wonderful, beautiful community of solo traveling women who are just looking for adventure, but they don't want to be totally alone when they're out abroad.

35:42Yeah. And obviously, I'm sure the safety and all kinds of things are a big part of it. Tell me how is it? I mean, what's your business model? How do you make money? Yeah, so we are membership based. So we have a monthly and a yearly membership. And that gives the user like full access to the community and unlimited free accommodation within our community. So basically, if you are a member, you also have to be willing to provide free accommodation for a solo female traveler? Ideally, some of the women are like nomads, and they actually don't have a home base. And they're on, they're not able to host at the time or, but a lot of them are still willing to get together with you if you're coming to their city, you know, grab a coffee, go to the beach, so that like, when you're solo traveling, you can go to another country and, you know, have an immediate connection, and an immediate girlfriend in the area.

36:41Nice. How many members do you have right now? So currently we have around 150 members across 20 countries. And how did you get this idea? I'm assuming it started with your own travels. Yeah. So I solo backpacked through Australia in 2017 after I got out of college. And while I was over there, I'm kind of a natural networker. I'm really good at making friends. So I was able to connect with a lot of women while I was over there. find accommodation. And I found that as a solo woman traveler, people just opened up their homes to me all the time. It was like this amazing experience. I'm like, I didn't even know that people do this.

37:19And I had all these amazing experiences with local people. Like I really immersed myself in the culture. And so when I got back to the States, my friends were like, how did you do that? How did you find these people? How did you know that they were safe? And I was like, oh, wait, like it was easy for me to do this, but maybe it's not that easy for everyone else. So it's like, wouldn't it be great if we had an app, you know, a space where we could all connect and we're all background checked. It's all safe because safety is the number one concern for solo female travelers. So that's where it all kind of stemmed from.

37:56All right. Interesting idea. Tell us your question. Yeah, so I am a solo founder, and I've been building this on the side of a full-time job in software sales. And I'm starting to realize that I cannot do both while also being a mom and a wife. And my question is, when should a new founder make the jump to running their startup full-time? Is there a specific income threshold or signs of a healthy business that will give me the confidence to make that jump? All right. Interesting questions. By the way, do you travel for that job? Not a whole lot. I work remote, so I handle all of my sales calls and stuff remotely at my house.

38:35All right. So you've got a full-time job, software sales. This is really, it sounds like your passion, but you need to know if you're going to do this full-time, what signs should you be looking for? Neeraj, I want to bring you in. Any questions before we tackle Tess's question? I have one question, which is, Tess, say the scenario was such that you could focus on her house full time. Do you have a vision as to the activities you would then focus on full time that would kind of fill all that time and you feel like would have a high return? Or is that one of the things you'd have to figure out?

39:07It's like, you know, what would I then, you know, instead of spending X amount of time, I can now spend a multiple of that. What would I go do? you? That's a good question. I think that, so I get up super early in the morning to work on her house, like for a few hours before I log in for my regular day job. And, you know, whenever I need to, you know, stop working on her house, I'm like, I feel like I have like so many things to do. You know, I, my to-do list is just keeps compiling. And I was like, man, if I could spend more time on this, would it really move more of the needle? It's hard to say.

39:42Like, I feel like it would, but it's not financially in a place where I feel comfortable, like, putting my family in the place to, I can't depend on it quite yet. Yeah, I mean, I would sort of start out by saying, I don't think there's any, quote unquote, right income threshold. It's really, it's such a personal decision, right? I mean, I'm assuming, you know, as a software sales rep, You're probably getting commissions. You probably get benefits as well. It's probably a pretty good job from that perspective. Am I right or wrong? No, you are right, Guy. And that's also the hard thing. Like I have a really good job and it's well paid.

40:21I have great benefits. So that makes it even more scary to try to like let go of something that I actually have worked really hard to achieve. And I do like my job. It's not like I don't like my job and I want to quit it. But I'm just feeling so stretched, so thin between my passion and my love for her house and wanting to see it grow and then a very demanding job on top of it. Yeah, Neeraj, I'm curious. I mean, there's really no universal answer for when to jump ship. I mean, there's some things I think people should pay attention to. But like if people say, how do you know? How do you know when to leave your day job?

41:02Do you ever know? You know, what occurs to me is there's sort of like two questions in there. You know, so one is, have you been able to progress her house to a point where you feel like it's worth the risk and the effort of making it your full-time vocation, where you feel like, you know, you have a vision of what you want to do and the odds of it working is high enough that you have that conviction that it would be a good use of your time and that it would progress things in the way you want. And the second is that pragmatic financial question. Are you in a position financially where you can afford to take that risk?

41:34And if you can't and you still want to, then through a friends and family round or through some method, can you financially bridge it somehow where you can sell some equity and get enough? And maybe it's not the same amount of money as you're making now, but it's enough that you feel like it's worth doing. So I would try to break those two apart in how you think about it and focus on the first where you're not thinking about the money side. You're just saying like, hey, how much conviction do I have that this – if I put myself at this full time, I'm going to be able to get this where I want. And if you say you're very convicted, then I would kind of try to think through the money piece and figure out if there's a path that makes it – I think of it as a no-regret decision, meaning even if it doesn't work, you'll be happy that you tried it.

42:16Can you get to a scenario where that would be the right answer? Because often if you don't pursue something you want, you'll have regrets. But obviously if you do something reckless, you could have different regrets. So you want to make sure it's not reckless as well. But can she do that? Because I agree with you, but I would say she should really try to do that while keeping her job, as tough as that's going to be. Well, I think you've got to start there. And then if you're like, hey, I just need X amount more time, I think one of the other questions I have, which I was going to get into, is, you know, is there an in-between?

42:44So often in something like software sales where it's commission-driven and it's outcome-based, if you're doing a great job for the company, if you say, hey, is there a halftime role or some such thing? If it's like that kind of variable comp type thing, they might say, hey, we don't want to lose you. So we might be willing to do that or something like that. But yeah, I wouldn't give up the job too quickly for sure. And then what I would guide to your point, like given the flexibility you have, it's remote, you're not traveling for it. Can you do both? And then to a degree, you can't do both. Is there something different than an all or nothing?

43:17There's a thought I had because, I mean, again, there's some things that they're sort of quote-unquote green lights, right? Like do you have recurring revenue? What do the renewals look like? Like I do think it's worth asking those questions. What kind of growth are you looking at, right? What kind of validation are you getting from the outside? But is there a way that maybe you hire a part-time community manager to do some things that you want to do that may be a modest investment of an hourly person helping you? Is that something you've looked at or thought about trying? Yeah. It's actually interesting you bring that up, Guy, because I actually did hire a community and social media manager this year.

43:59actually within this past like month because I was just like I can't do all of this and I'm not present on social media and I just don't have time so she's been helping me quite a bit and I'm really trying to figure out ways to take these things off my plate that I don't really need to be directly involved in for sure is that person also in San Antonio are they remote She's remote. Yeah. Choose a referral, but she's based in the Philippines. I mean, look, it's a first step, right, is bringing somebody in. Because, again, I think that you want to keep one foot in your day job as long as possible because the money and the benefits are going to be really helpful.

44:44And it may mean you're going to have to grind a little bit more on the other side. But, again, with somebody helping you out part time, it could be a game changer. Yeah, exactly. And especially with my current situation, I can afford to have someone help me out with that, but I really can't afford to let go of my job. But I really like your idea, Neeraj, about potentially going half time or something in the future. And I also think, you know, you mentioned the person you hired in the Philippines through referrals in just the last month or so. So I think it's probably early in figuring out what type of leverage you might get from that.

45:19So there's things that as you're working on this, I think you might start seeing how do I get some leverage while not spending more money than I can afford, but get the growth trajectory of her house up, move in the right way. And then to Guy's point, you know, can it grow to a size where it can support what you need and whether that's halftime or what have you eventually full-time. Awesome. The brand is called Her House, Tess Milholland. Thanks so much for calling in. Good luck. Thanks, guys. Thank you. Yeah. I mean, it's kind of crazy because you guys are running such a big business, right? But I mean, there was a time where you're, you know, you and Steve are just grinding it out just to getting through the day.

46:03I mean, you probably still have long days, But it's different. It's a different kind of experience at this point in your life. Yeah, I remember those early years. We were working effectively nonstop in the early years. But it was interesting when Tess described she's not balancing just a full-time job and her house. She's also balancing being married and having a young child, I think she said. So that's a lot you're balancing. And so I think we had the good fortune. We ended up starting early. But there's all these things you've got to balance and tradeoffs. And I do think the ability in her case where you're remote, that gives you some flexibility.

46:38And so can you organize in a way that does give you that leverage to kind of advance it so that it does lend itself sometimes to creative options? Neeraj, before I let you go, if you could go back to when you and Steve were just starting out, you know, building these like just one product web pages, and you could go back and say, all right, you know, given what you know now, what do you think would be helpful? What would you say? What would you tell that person? What would have been helpful for you to know back then? I think, you know, nothing's ever linear and up to the right. So, you know, sometimes when stories get told, you know, it's like all the high notes get told.

47:13And so you just feel like it, geez, it should just string right along. And I think when folks tell you the details of the story, you realize there's real ups and downs and a real journey that ensued. And I think that's the reality. And so often I think folks can be in a rush to get to that success point. And I think the journey – this is why you need to do something you enjoy so that hopefully the highs and lows are still – you're pursuing something you really love. But I think just taking your time and how you go about it and just being very disciplined in how you pick your priorities, what you do, that's the key.

47:45And you just need to keep going and learn from the things that don't work well. And often those learnings lead you to the next aha moment. And so – because I think if you kind of go in with that mental model, it becomes clearer why you need to pick something you love. and also from an expectation standpoint, trying to rush your way to the big win, that's really not a thing, I don't think. Yeah, for sure. Neeraj, thanks so much for coming back on the show. Thank you, Guy. It was great to do it. Nice to see you. You too. That's Neeraj Shah, co-founder of Wayfair. And by the way, if you haven't heard that episode, go back and check it out.

48:15We'll put a link to it in the show notes. It's so good. You've got to listen to it. Here's one of my favorite moments from that episode. So, all right, I'm going to read some of the websites that you guys launched because I just think they're amazingly straightforward names. Hotplates.com. I'm assuming that sold hot plates. Yeah. Yes. Okay. Allbarstools.com sold barstools. What do you think that sold? Yes. You're doing good. You're doing good. All right. Mydinnerplate.com. I'm assuming sold dinner plates. That's a classic. Yeah. I love this one. Everygrandfatherclock.com. A very hot category online.

48:52Painful to ship. Who knew people were searching for that? We did. Hey, thanks so much for listening to the show this week. And by the way, please make sure to check out my newsletter. You can sign up for it for free at GuyRoz.com or on Substack. And of course, if you are working on a business and you'd like to be on this show, send us a one-minute message that tells us a little bit about your business and the questions or issues that you're currently facing, because we would love to try and help you solve them. You can send us a voice memo at hibt at id.wondery.com or call us at 1-800-433-1298.

49:30Leave a message there and make sure to tell us how to reach you and we'll put all of this information in the podcast description as well. This episode was produced by Alex Chung with music composed by Ramtin Ereblui. It was edited by Andrea Bruce. Our audio engineer was Sina Lafredo. Our production staff also includes Chris Messini, J.C. Howard, Casey Herman, Sam Paulson, Carrie Thompson, Catherine Cipher, Rommel Wood, Neva Grant, and Elaine Coates. I'm Guy Raz, and you've been listening to The Advice Line right here on How I Built This Lab. If you like How I Built This, you can listen early and ad-free right now by joining Wondery Plus in the Wondery app or on Apple Podcasts.

50:13Prime members can listen ad-free on Amazon Music. Before you go, tell us about yourself by filling out a short survey at wondery.com slash survey.