Babylist: Natalie Gordon. How a new mom used nap time to build a $500M business.

29:43Stay with us. I'm Guy Raz and you're listening to How I Built This.

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33:04Hey, welcome back to How I Built This. I'm Guy Raz. So it's around 2012 and BabyList is getting some traction and Natalie is getting instant feedback from users by doing all of the customer service herself. I remember getting an email from someone and she was just like, this is so confusing. And I think the thing that was really confusing was how do you say that you want any amount of a product? So let's say for diapers, I don't need to say I need five boxes of diapers. Just keep buying me diapers. Keep that on the registry as long as people are buying it. And that I emailed her back the same day and I was like, hey, which of these phrases do you think actually would work better?

33:54And one of them was no limit. One of them was any quantity. And she was like, oh, I think it's that one. And then I remember just updating the code, emailing her back five minutes later and saying like, oh, now that actually is live on your registry. It was stuff like that. Even today, I think that those early years of just talking to users and customers every single day was really, really important for how I show up to my job today. I mean, I just think it's awesome that you had this goal and you're working on it. So it's like getting, you know, it's a cliche now. It's like getting 1 % better every day, right?

34:361 % better every day. Probably every month, maybe getting 10 % bigger. So it was really growing. And in the summer, it was like, okay, I'm going to take some of the money that this is actually making and I'm going to pay a babysitter. And I would go around the corner to a coffee shop for three hours. I would do that, I think, two days a week and then three days a week. So then I had these three-hour blocks now to actually work on it with my laptop in a coffee shop. Wow. All right. So you're working on this. And by the one-year mark, February 2012, Max is a year old, BabyList is a year old, you start to see some, you know, like not just$100 or$200 a month, but like$3 ,000 a month.

35:22I mean, that's real, especially given that your costs were pretty low. I guess they were pretty low, right? You had some server costs. Like what did you, because this was all self-funded, right? Yeah, costs were pretty low. Truly, the only real expense would have been to hire software engineers. And me and Lindsay were both working for free. You didn't need to hire an engineer. You're the engineer. Yeah, exactly. So yeah, it was a high margin business. business and the 3 ,000 really represented something, which was I was going to get a job. Like I was going to go back to work. This was going to be a side hustle.

36:03Yeah, this was going to be a side hustle. I was going to go interview four jobs, get back in there. And I think August and I in conversations, we set the number 3 ,000 where we said, okay, okay, well, if in a year this is making$3 ,000 a month, like this is really working. And that's the thing that I should actually go to full time. So can I ask you a question about that number? This is 2012. That's$36 ,000 a year. Not a lot of money, but why was that the number that you wanted to hit? It was a magic number. I don't know why. It wasn't coming from a spreadsheet. and it wasn't coming because it's actually the salary that I wanted to make or we could live on.

36:51It was really just representing this business is actually really going to work. This is going to be the thing. I'm not going to go get a full-time job. This is now my full-time job. And it was about this time period. We had never really gotten comfortable in Vancouver and we visited friends in the Bay Area in San Francisco and absolutely loved it. And so we moved to San Francisco when Max was one year old. And that's when I went to BabyList full time. Was there any part of you that was worried that it was risky or were you feeling like, no, I think or I see that this is going somewhere? At that point, it didn't feel risky or scary.

37:36It was still just me. So if it didn't work out, I would be able to just shut it down quietly. like what we had done with Languajero. And you had hard skills, right? You could always go back and get a job as an engineer somewhere. Yeah, and I had this thing to show for it. I could say, oh, look at this thing that I built. What it actually felt like I think that year was, now that I have all this time, I'm not actually sure what I should be doing to make this successful. I'm like stuck in my living room and I'm doing customer support. Like, what is the right path for this next stage? And it doesn't sound like you had this sort of, okay, now I'm going to get to this point and then I'm going to go and raise venture money and then I'm going to do this.

38:27Like you weren't thinking or were you thinking that far ahead? I was absolutely not thinking about raising venture funding. It didn't make sense because the business itself was making money. So it didn't make sense to me. It didn't feel like the hardest thing was having money to spend. There was like this other hardest thing, which was like, how do I make this grow? But still, I guess at this point to get some support and a bit of money, you decided to apply to an accelerator program in the Bay Area called 500 Startups, I think. And you got in, you were accepted. So how did that go? Like, what was it like to be part of that?

39:07Yeah, they give you$50 ,000 for a percentage of your company. So it was really that first funding round. And life was going to get really busy. And I was going to drive now from San Francisco to Mountain View every single day. and I've been asked the question like what was it like going through that program with a toddler and that part was fine it was really hard though going through the program as a solo founder it felt like I might have been the only solo founder and so it felt like I was the only person with a company of one person. And there were teams with five founders, or at least with three founders.

39:53And so you want to take advantage of every part of this program. And everything's set up because they're kind of acting like you're three or four people. Plus, I'm literally still doing all of the customer support for BabyList. So it felt like completely overwhelming to be doing it all myself. And I had this new$50 ,000. And so it was really, really clear that I had to, for the first time, had to bring on new people. And when you kind of talk about, like, was it scary to go to a full time? I don't think it was, but it was really scary to say, oh, you're now going to join me, I have this real responsibility to you as an employee.

40:41And what about raising money? Because up until this point, you hadn't raised money. Now you're in an incubator. So how did you go about starting to think about bringing in some significant money to start building the, you know, hiring people? I found it a really, really, really difficult decision. On the one hand, I really liked that I hadn't raised money. I liked that I didn't have investors who had expectations. But on the other hand, I was like, I think if I raise money, like, it's going to really turn this into a real business. I really, I made the decision to raise a seed round. And my actual framing was like, I think I will learn much more by doing this path, even if it's the more difficult path.

41:34Like it felt like it was really adding like a new part of my job, which would be managing investors, having other people really own parts of BabyList and really wanting it to succeed. And I also didn't know if I could raise money. Like it's something I had never done before. And what it really felt like was like people were doing me a favor by investing in this business. It didn't feel like I did not have the vision and the confidence to say, like, this business is going to be a hundred million dollar business. It was really hard for me to say. And then like, this is actually how big this company will get.

42:17So how did you tell me about the process? I mean, raising money is hard, right? Because You've got to ask people for money. How did you handle that? I created a pitch deck and I remember it had a slide that was like, pregnant women need a lot of stuff that was so basic, but like is so true and the core of like why this business works and described really our current traction, which was really impressive. People would sign up and they would actually really use the service. That was really important. Then as part of the accelerator program, you have these demo days where you get up on stage, you pitch for five minutes, and then investors can choose to talk to you.

43:05Out of that, it had some real interest from great seed investors and ended up raising$600 ,000. All right. So$600 ,000. And with that, you were able presumably to hire, I think you hired about five people. Yep. Hired about five people. The real goal was we need to build an iPhone app. And like that was going to require hiring an iPhone engineer. That's something I didn't know how to do. Hiring our first marketer. I think at that point, actually, with the five people, we all still did the customer service. I felt like it was that important. Yeah. So I read that you felt like you had a hard time.

43:49It was really hard for you to hire. You just didn't really know how to look for or what kind of person to hire. Yeah. It felt so hard to say, like, this is the job that, like, I need to have done. This is the person and the experience they're bringing. And, like, here's how I'm actually going to interview them. And here's how I'm going to convince them that they want to come work with me. It was really difficult. I had during the accelerator, I brought on someone first as a contractor. She was a generalist. She was able to do a lot of things. I really wanted her to join full time. And I gave her a job offer that she was really unhappy with.

44:34She really saw herself more as a co-founder than an employee. And so it came down to the amount of equity that she was being offered. And she decided not to join BabyList. And I was devastated. I remember crying in a stairwell and just feeling like, oh, this is now back to just me. Like, I guess I'll just go back to work. And that time, I think the only thing I did for the next week was I just did customer support. Like for the week, I didn't try to do other things. And it was really grounding where I was like, well, like our users are still so wonderful. They still really care what we're doing.

45:18I'm going to get back out there. So tell me a little bit more about the challenges of hiring, because this is really hard. Like we don't, most of us aren't trained on who to look for. And in most cases on how I built this, when people talk about challenges, mistakes, errors, or just, it's hiring because we often trust our intuition or we like somebody and sometimes it's not enough. The other thing that's really hard about hiring is you're hiring someone to do something better than you could do it. Yeah. And so even evaluating, can they do this better and how do I evaluate whether someone's a great marketer?

46:00If I don't really understand marketing, it's incredibly difficult. You're also probably even if you hire someone, how do you set them up for success in such a early stage environment where things are really changing day to day? And then like, I remember the very first person I let go and it was agonizing. It felt so horrible and that we were in this co-working space with no privacy. Like, how do I actually like have this terrible conversation with this person face-to-face? I had never managed anyone in my life. And now I was managing them as the CEO of this startup. I think I was terrible at it for a few years.

46:51And I ended up getting a coach. And the coach, she came in and she interviewed everyone around me. and she gave me a seven page PDF. And the first three and a half pages were like, here's all the ways Natalie is like truly great at what she does. I felt great. And the second three and a half pages were like, here is just all of the ways that Natalie really needs to improve. And she was very goal oriented. And she's like, at the end of our engagement in six months, like, how would it feel if we hit these three goals that really pertain to the feedback and the anxiety I was feeling. And one of them was in the moment, you'll be able to give someone quick feedback without it feeling emotionally charged.

47:44And I was like, oh my God, if we could do that, that would feel so good. And I think she gave me like the most basic tools. We would meet every single week And I think I actually really transitioned to like being a like a pretty good people manager and like a pretty good leader with like these very basic skills and coaching. All right. So you've got this team and and tell me a little bit about about how the brand is growing. Are you spending money on advertising? Are you how are you getting more and more people to become aware of it? So, yeah, BabyList was continuing to grow. We were continuing to make the product better.

48:25We launched the iPhone app, but we actually didn't really figure out marketing until 2015. And then we really figured it out. And it was a very big inflection. I think kind of in those first couple of years, that was the one thing we needed to have work. And it was really the one thing that wasn't really working. So people were using it. People were hearing about it from their friends. and more people were using it every year. But the growth was pretty slow, kind of slow and steady. But the beauty of it is that it is viral, right? Because once one person uses it, well, 20, 30, 40, maybe more people are going to engage with the site and buy something on it.

49:15So it has that like inbuilt virality. Yeah. At the very beginning, we would describe it as slowly viral. So 30 women would all use it. They'd all go to your baby shower. Maybe then like two would get pregnant the next year and use BabyList. And so it was slowly viral, unlike maybe some social network where everyone's signing up every day. And Pinterest, out of all the social media sites, you really, from what I read, you really targeted like Pinterest. You optimized the site so that it would work with Pinterest. How did you tell me how you did that? Yeah, so Pinterest was really up and coming and then scaling with exactly our demographic.

49:58With women, about the ages of women who are having babies. And BabyList was absolutely growing organically on Pinterest. A really important thing happened in 2015. And that's that Pinterest opened up their platform for advertisers. And so they had the Pinterest promoted pins where you could pay them like any other advertising platform. And they would show your pins more often to more people. We finally got into the program. We put money in on the first day and many people signed up. And the key thing about BabyList is it's free to sign up. And hopefully three months later, actual people will start coming to your registry.

50:49And that's when we actually make money. And the business just actually had that hockey stick growth by like actually figuring out this first paid growth platform. That year, 2015, I think you also had your second child as well. Yeah. 2015, I had Ben. So you were living this. I mean, you were literally creating this new model for Baby Registry and you yourself needed to be a consumer of this product. Yeah, that's true. And I also at this point, I had been so steeped in all of this. I knew all of the products that were out there. I think I did have some good ideas for the business by going through the experience that time.

51:34That year, it was just so important. And I had a team where the team themselves could really continue to run the business as I took a couple of months off. I wonder how you were getting, I mean, the sort of the affiliate programs with Amazon and Target and others. That's you just kind of plug that in. But then you started to work directly with smaller vendors, right, that maybe weren't at Target and Walmart and on Amazon. was a lot of that traffic incoming people starting to connect with you guys saying hey can you sell my stuff too so at this point we were never selling stuff directly we had this really really big decision where more and more people are using baby list and we're like what's next like what's the next big thing that baby list is going to be and the really obvious choice was like we should now go into a wedding.

52:35We're this tech company. We've created this fantastic baby registry. The technology would apply to wedding registries. That's what we are. We're this tech company. And the other option was the most valuable thing we've really created is this trust and engagement with women and parents when they're having a baby. And everything we do should be really serving them in more and more ways. This was a big decision. I think I learned a lot about weddings. I talked to a lot of people and really made the clear decision, we're not doing that. We are going to be this company. Everything we're going to do is going to be for expecting and new parents, which really then opened up.

53:24So like, what is Babyless going to be? When we come back in just a moment, Natalie takes a big risk by shifting away from affiliate marketing to selling inventory directly to consumers. Stay with us. I'm Guy Raz, and you're listening to How I Built This.

53:53Hey, welcome back to How I Built This. I'm Guy Raz. So it's around 2016 and BabyList is branching out in new directions. The company's starting to create content, articles and videos about parenting and baby products. We hired an intern and her job was to create this very first version of our content. She sent out a survey with all of our users to say, what are your most loved products? From that, she would create like the best stroller guide, the best car seats, the best bottles. And at this time period, if you were searching Google for these, you would just get slideshows. And we put them up.

54:39They started to do well in Google, particularly like the best bottles guide, which has been my experience in Babies R Us. It is the most confusing category, even though it's not that expensive. And I think it was really the beginning where BabyList was this company for expecting parents and new parents, like not just this baby registry. One of the things that I, from what I understand, around by the end of 2016, so you're now, you know, at least four years into this more, almost five. You have about 20 employees at that time. And so you're still relatively small, but growing quickly. 80 % growth.

55:26Is the majority of your revenue coming from essentially affiliate fees? Because you guys were not, you didn't have like warehouses of stuff, right? This was basically you would order, but then whoever you're ordering from is sending you the product. Yeah, we actually were making almost all of our revenue from a handful of retailers. And it felt really risky to hire more people. It felt like if any of these relationships with retailers change, like I'm not going to be able to make payroll. And very naively, we were like, well, we can be a retailer. Like we can actually sell this stuff. And so this very first test we did, it was very lean startup.

56:15We were like, does anyone, would they ever even buy from BabyList? And so I went to Buy Buy Baby and bought a bunch of products, like put it in the trunk of my car, drove back to the office. And for all of these products, we would now show, like, buy it from BabyList on people's registries. And we were so naive about how hard it was actually going to be to do the logistics side of this business. Our current CFO, Jocelyn, she interviewed, I think around this time, maybe a couple months after we had really started to launch this e-commerce. And we gave her a presentation to do. And her presentation started with, here's all the ways e-commerce is terrible and we should not be going into it.

57:05You have to collect sales tax on like for every state. You have to deal with returns. You have to deal with products that are being discontinued. Like she had a list of 40 things that were all so difficult and so outside of our skill set as like a tech only company. And it took years before it actually paid off in any way. But then in retrospect, as our retailer relationships changed and as the company grew, it became like the actual core part of our business model. but in the very beginning no one would sell to us they really wanted you to have a store if you were going to sell their products so I would get on the phone with CEOs of companies and say please like please take this bet on us our first warehouse was our office and so between everyone's desk we had bassinets piled to the ceiling so you couldn't see anyone that business just like It was so painful to grow.

58:09It's so much harder to do than digital. With code, you can fix a bug and things work. With actual physical products, you need many trucks and people to move those products. It's actually so difficult to fix when things are going wrong. But why did you decide to shift into that? Essentially, you were going to warehouse products. You were going to hold inventory, which is risky. And I guess it's because in the long term, the margins are better. Yes. So this original business model was affiliate. And it was actually a very good business model. It was just so risky. And so the decision to actually do this e-commerce ourselves and really change what the business was going to look like had to do with controlling our own destiny.

59:03So as you start to make that transition, when, I mean, because I think today you still, of course, don't, right, you don't, not all the things you sell you're holding in warehouses. But what's the sort of the break, the percentage breakdown? Is most of the stuff that you sell that's sold through BabyList held in warehouses that you guys control? It's really, really important for our user experience that we are universal. And we do something no one else does, which is when we sell a product and Target sells the product, we're actually going to show Target as a buying option, just like we show BabyList as a buying option.

59:43People absolutely love that. It's why they actually use BabyList. We don't share the split, but the largest part of our revenue is absolutely us actually selling the products we sell as an e-commerce retailer. So you've got this sort of transition, right, to this model or kind of a hybrid model. And then COVID hits. And this is really when you're starting to sell directly. Tell me about COVID. Because on the one hand, I would think that, I mean, it's scary. But on the other hand, I would think that maybe this would have been a huge moment for BabyList. That all of a sudden people are at home and people are still getting pregnant.

1:00:28There's still baby registries. There might not be baby showers in person, but people still want to support a friend who's expecting. When COVID hit, I had been running the business for nine years. I felt like I was the world expert in baby showers and baby registries. And I actually had no idea what people were going to do because baby showers. It's an in-person party with a vulnerable population. And I actually was not sure that people would need baby registries without a baby shower. I thought that this actually would decimate our business for potentially years. That March, all of our numbers completely plummeted.

1:01:11We implemented a hiring freeze. But then exactly what you're saying happened. There was this shift to online. People wanted to help you more. They want like if you are the person in the circle of friends having a baby right now, people were like more generous to send you gifts. Now they were buying them all online. Our business actually grew more than we had expected that year. Yeah. And you guys were sort of on a roll at this point, right? Because I think the next year, which is 2021, you were able to raise a substantial amount of money in another fundraising round, like$40 million. Yeah. So again, just like our seed round, I like was not sure I was going to be able to do this, but it was the right time.

1:02:01It felt like a really important maturation and like inflection point for the business. So created a pitch deck and this was all over Zoom because it was this COVID time period. So without meeting anyone, I would meet them over Zoom and I would give them the pitch and they would all start with no. They would, the investors would be like, we don't, it would be a really soft no. Like we don't really ever invest in anyone. We're meeting for the first time, but it'd be great to hear what you're up to. I ordered the pitch in this very specific way that was like the very first slide was our revenue. And I'd be like, here's our revenue.

1:02:40In that year, it was going to be$250 million. And they'd be like, oh no, you mean this is your GMV, which is your gross merchandise value, like what you're actually sending to other retailers for their sales. And I was like, no, this is our revenue. And they would lean in. They'd be like, oh, I have to get my partner on the call. And so the process, it absolutely had rejection. The investor we eventually went with was actually it's Norwest Venture Partners. and I've seen companies raise too much money. And I think part of it is this wishful thinking of like, how is the business now going to grow?

1:03:22And with Norwest, we were like very aligned in like what are our expectations for how the business is going to grow. It really forced us to really grow up, get serious about our finances, saying what we're going to do and then doing it. So tell me a little bit about the vision for, I mean, you've got obviously registry is still the main thing that you do, but there are all these other sort of verticals and revenue streams that you've created in the last few years. One is like helping people get breast pumps, which I think is insurance. Some insurance covers it. In some cases, it's Medicaid if people are eligible for Medicaid.

1:04:07So that's a revenue. That's a new vertical that you offer. And give me a sense of what the sort of vision of what you want BabyList to be moving forward. Yeah, I think it's actually all about making families better families. like helping grandma be a better grandma, helping families stay more connected. Like that's truly the baby list that we're building, which feels very meaningful. In 2019, I was eight years into building the company. And it was the first time I really saw like how big this could be. It was the first time I actually thought this could be a billion dollar business. And then in 2022, we really started doing the thing you're naming, which is like, what else can we offer new family, like new parents?

1:05:06And so us getting you your breast pump for free, that's what we call baby list health. So I think there's this opportunity for us to really be a health platform. When you're having a baby, like health is the thing you care about, like much more than the stuff. all of the health and wellness aspects to that time period. Yeah, that's definitely where we're leaning in. When you think about, you know, where you are now and the journey you took, you started this in 2011, basically. And it's, you know, I think it's one of the biggest baby registry sites, if not the biggest in the U.S. How much of that journey do you attribute to the work you put on the grind?

1:05:48And how much do you think had to do with just luck and timing? I think the initial idea and like the lessons I had learned and me being able to code, all of this kind of coming together when I myself was having a baby is like total luck. I think where though the grind comes in, I think it's been a lot of really hard work that I've had to put in to really make the transition from founder to CEO. And I think I really have put in that work. And I don't think that that work is like luck. I actually think that has been like grit and hard work. That's Natalie Gordon, founder and CEO of BabyList. By the way, you can see photographs of their entire team on the company website.

1:06:38And if you move the cursor over each photo, you will see what each executive looked like as a baby.

1:06:47Hey, thanks so much for listening to the show this week. Please make sure to click the follow button on your podcast app so you never miss a new episode of the show. And if you're interested in insights, ideas, and lessons from some of the world's greatest entrepreneurs, please sign up for my newsletter at gyros.com or on Substack. This episode was produced by Kerry Thompson with music composed by Ramtina Rablui. It was edited by Neva Grant with research help from Carla Estevez. Our engineers were Patrick Murray and Jimmy Keeley. Our production staff also includes Alex Chung, Elaine Coates, Casey Herman, J.C.

1:07:20Howard, Chris Messini, Sam Paulson, Ramel Wood, and Andrea Bruce. I'm Guy Raz, and you've been listening to How I Built This. And don't stop the podcast just yet, because right now you're about to hear an amazing small business story that you don't want to miss. This segment is presented by American Express. With a business platinum membership, the best just got even better. And this week's story starts back in 2009, when a former Dell engineer named Peter Mann set out to solve a very personal problem. My son struggled with asthma when he was an infant. He would have an asthma attack to where he would change colors and not breathe.

1:08:02And it was really distressing not being able to do much for him. As he was a little bit older, more middle school age, he would have an asthma attack just sitting on the couch. Peter learned that one of the big triggers for those asthma attacks were allergens and other particles in the air. So he started looking into air purifiers, and he was pretty underwhelmed at what he found. It's almost like bulletin board looking terrible websites. And some of them are selling these same products with just different logos on their product. Peter came from the world of tech, so he knew how to develop a product and market it online.

1:08:40And he thought, why not just do this myself? So he hopped a flight to Hong Kong, negotiated a deal with a manufacturer, tested some samples. And about six months later, Peter's own air purifier, which he called Aronsi, arrived at his door. I remember opening it and plugging it in and turning it on. And within about 15 or 20 minutes, the air just felt different. And his son's scary middle-of-the-night asthma attacks? They went away. It wasn't waking him up, which wasn't waking us up. It was just a huge win-win. Customers loved the product, too. And Aronsi's sales grew steadily over the next decade.

1:09:21When COVID hit, demand for Peter's air purifiers skyrocketed. But so did competition. It just got to the point where it was oversaturated. So Peter decided to pivot and focus instead on the technology inside the device, specifically the electric motor. He merged with a partner, bought a huge factory in Virginia, and built an air purifier in-house from scratch as a way to validate the technology. Now, Peter's setting his sights on a much bigger market with a seemingly endless demand for cool, clean air. AI data centers. Now, around the same time he made that pivot, something happened in Peter's personal life that completely changed how he looked at his business and himself.

1:10:10In 2022, my wife was watching CBS Morning Show. And in April, they do profiles of people that are autistic. And she's like, oh, you need to see this. And I watched it and I was like, oh, my gosh, I didn't know it. Like now so many things make sense. Peter thought, that's me. The hyper focus, the ability to build systems and some of the social challenges he'd experienced as well. Sure enough, at age 55, he was diagnosed with autism. I did a LinkedIn post and I said, you know, hey, I was recently diagnosed. If anyone that's autistic that, you know, is going through interviews or navigating the workplace wants to talk, I'd be happy to talk.

1:10:54And wow, I had video calls with dozens of autistic adults. Probably 75 percent of them were just struggling with the interview process. So he's spending more time thinking about ways his company can set people up like him for success. This kind of hit me like my son's asthma did. By the way, the son whose asthma attacks inspired Aronsi to begin with? Peter says he's doing great. He seems to have largely outgrown it. He still has an air purifier all these years later. That's Peter Mann, the founder and CEO of the air purifier and now electric motor company, Aronsi. His small business spotlight was presented by American Express.

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