467: Accelerate Your Marketing Efficiency with Manuel Mueller of Emma

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2:42Hey Founder fam, welcome back to another episode of The Founder Podcast. Today we're sitting down with Manuel Mueller. He's the founder and CEO of Emma, the sleep company, which is the world's leading direct and consumer sleep brand with mattresses, beds, and pillows sold in over 30 countries to 4 million customers. This is a great interview covering product R &D, battling the competition, and really how to expand into new markets and how to bootstrap your company. Please welcome to the founder podcast, Manuel Mueller. first question i ask everyone that comes on is how did you get your job aka how do you find yourself doing the work you're doing today that's a very good question and i'm in this industry so to say already for more than 20 years so i started my first company when i was 19 uh because i couldn't find an apprenticeship back then so i became quite practical and dived into the mattress industry and then what i'm doing nowadays is just it just evolved into it so to say over the 20 years.

3:45Yeah. So tell us about Emma. Is this your first business? Tell us around how you came up with the concept. Yeah. So as I just said, like Emma is not my first business. I started my first business when I was 19 and it was a business for medical mattresses. So the German medical system was like under high pressure cost wise. And I tried to come up with something that relieves a bit of pressure and step into that that's that business and then over time like besides running that little company was a very small company five to seven people i did my mba and at that business school in germany there were there were a lot of these digital entrepreneurs who then started companies in germany which nowadays are very big like zalando and and all these all these guys and so i just transferred my conservative mattress business so to say in what is being called emma nowadays.

4:35So it was a pivot, so to say. Got you. And so when did you start your first business? What year was that? That was medical mattresses. So I was selling medical mattresses to nursing homes and hospitals back then. When did you make that pivot to Emma? That was actually nearly 10 years ago. So when I did my MBA, I met my co-founder, Dennis, who was with McKinsey back then and I was still in that small mattress business yeah and then seeing all these successful digital entrepreneurs at that business school but also having some chats with Dennis with my co-founder yeah it was time for that pivot back then yeah I see and so what what what can you talk us through that like what exactly happened like how did you like how did you transform the business and and how did you know you hit product market fit yeah actually i was never very happy with the it was a b2b business that i had and it was never very happy because in b2b it's not always you don't always succeed if you have the best product or if customers love your product it's more about like sometimes like having the best network and connections and all that and so then really getting into a business where you can test products with the consumer like sending like first mattresses sending them via our webshop to consumers and getting the actual feedback and then iterating on that products so that that was like the very beginning right but also in the very beginning we didn't start with emma back then 10 years ago but we had a um it was a web shop for mattresses like third-party brands that already existed and we just took them online right so we had a very big portfolio of different mattresses like mattress brands in germany maybe even the largest one and then selling those mattresses to consumers we over time figured out i mean we have like a huge portfolio but in the end many of these guys they need like 90 could use the same product if you build it in a special way right so very progressive high quality on a decent price level.

6:53So we tried to consolidate the entire portfolio. And then two and a half, three years later, we came up with Emma, which was then a pivot again, so to say. Yeah, got you. So you basically had your general store, which sold all the different mattresses and mattress brands. And you effectively, did you speak to customers a lot to work out what would be than Emma and the Superior product? Yeah, we did. We did. In the beginning, Dennis and I also did customer service. So we talked to a lot of customers. We already had this 100-night trial. So if you buy a mattress in our online store, you can test it 100 nights.

7:35And if you don't like it, you can send it back. You can just return it, get your money back. So it was in our interest also to give a proper consultation and really to see what product will fit the consumer. And doing that for two years, we then recognized that there should be a solution where you create one mattress in a very specific way so that it really caters to 90 or 95 % of those consumers. Yeah, I see. And so when you launched Emma, how long did that take to get that product ready? Can you talk us through that? there's there's there's not a single question answer to it um because we started with a product which wasn't the perfect one and there is a consumer organization in germany which is comparable to choice in australia so it's an independent organization and after three months only we were being bought and we only got a decent grade so the very first emma mattress wasn't the wasn't the perfect product back then but we learned a lot from the feedback from customer feedback from the feedback of that organization and then over time and still until today we are reiterating our products and testing products in order to to improve yeah i see and so um you launched the emma mattress you we would say probably 2017 2016 the first version of it yeah right yep and then uh Like how were sales?

9:06Like you guys are one of the fastest growing sleep innovation companies now in Europe. And you have over 4 million customers. When did growth really start to take off? It took off way quicker than what we expected. So I just told you like 10 years ago, we started with this multi-brand online shop, which we called Domando. And so we had all those different mattresses. and we were like, I wouldn't say we were stuck, but it wasn't growing fast. So after the third year, we might do, we did 3 million euros in revenues. And we were already working on a TV commercial for Domando and like did got a lot of customer insights, customer research in order to create that commercial.

9:54But then when we started with Emma on the side, we decided to use all the insights that we just gathered for the TV commercial and to use it for Emma because we thought maybe it's more crisp if you only cater to one product. Like conversion will be better, customers don't get distracted. So we were running Emma on the side besides having the multi-brand online shop. And when doing the first TV advertisement, it really went super well. So I think it took us three months until Emma was already bigger than business that we had before. So it scaled massively from the very beginning. Yeah, I see. And you've invested like millions of dollars into research and development.

10:38How would you suggest a new startup like approach R &D? Honestly, I mean, we didn't start with a lot of research in the very beginning, but the first products were very intuitively built and tested with our consumers. So we didn't have that money that we have nowadays really to invest millions every year into R &D. And I also wouldn't recommend this to founders. because in the end, if you just apply an 80-20 principle in a way that you try to get 80 % of the product quality with maybe 20 % the invest, you already in many industries sometimes have a product which is better than that of your competitors if you think about it in a very smart way.

11:27And then over time, like when you become bigger and you have the funds, you can try to get those remaining 20 % and maybe even leapfrog and get your product to a very next levels. Hey, FounderFam, I want to talk to you about something super exciting. We're officially partnered with OmniSend, the email marketing and SMS platform built specifically for e-commerce founders. We've been recommending OmniSend to founder students for a while now because it just works. Whether you're launching your first store or you're scaling the seven figures, it really helps you automate your marketing and get real results.

12:01Did you know on average OmniSend customers make$68 for every$1 they spend, which is an insanely good return on investment. And because you're part of the founder community, you get 50 % off your first three months with the code founder50. Just head to OmniSend.com forward slash founder without the E to get started. All right, now let's jump back into the show. Yeah, I see. So like when you guys launched, Emma, that was kind of during a pretty big boom time of direct-to-consumer mattress companies. What do you think really separated you guys from the competition? It's a very fair question. And Dennis and I, we had to think about this a lot.

12:47Because if you look into our industry, a lot of the variables in between our company and the companies of our competitors, they're the same. So in many instances, like we use the same marketing channels. Sometimes we even have the same suppliers. We have the same carriers. A lot of stuff is the same. But what's really the differentiating factor is the mindset and the DNA of the company. And referring to the mindset, I think it helped us a lot that we didn't have the money in the very beginning. So we just didn't get funding. So we weren't one of these startups that maybe overpromised a lot, but we were very conservative in our planning.

13:27So we didn't receive any VC funding. And not having the money, we had to tackle all the problems that we had way smarter. And we couldn't just solve problems with pouring money into it. And that became part of the DNA and the mindset that we still have until today. So we try to be way more excellent along the entire value chain, being it development, the production, the logistics, customer service, whatever you like, however you name it. And we try to be, yeah, just way more efficient and pragmatic in many instances, which in the end help us to be very lean and capital efficient and grow massively.

14:10Yeah, I see. So why did you make the strategic choice to not raise any money if that's what your competitors were doing? Wouldn't that be intimidating and scary? Yeah. So after we saw the first funding rounds, I remember a funding round of a US competitor. Like in the end, they nearly got half a billion. I remember that I was talking to Dennis, to my co-founder. I told him if these guys come over to Europe, they're going to eat us for breakfast. like we won't even survive three months right but the good thing was when they came over we saw that for a lot of competitors we were tracking their performance we were tracking their sales we were tracking their spends in different marketing channels and what it turned out is they were so far off from our marketing efficiency like they had to invest several times more, five, six, eight times more to acquire a customer according to our Excel sheets that we recognize that this is not a sprint but it will be a marathon in the end.

15:19It will not be who has the most money but it will be who will survive in the end. So we just proceeded doing what we did trying to be very lean and efficient scaling profitably and essentially looking at the others wasting a lot of money until they run out of money. and that's what happened for many of these guys. And why didn't you want to go and raise money like if you knew that that was the case? I mean if you're raising money you're diluting yourself in your own cap table, right? And as we were very efficient already and we saw that we could grow faster than many competitors we didn't see a big of a need to raise money.

16:05I mean, the sake of raising money shouldn't be raising money, right? So we had a very good internal financing. So we were profitable already and we were very happy with the growth. So there wasn't any need anymore. Yeah, that makes sense. That's fair. So I'm curious, like what kind of growth are we talking? Is it 10%, 20%, 20 % month on month? Is it 100%, 200 % year on year? or putting it reinvesting back into the business while still profitable? Can you give us a range? It very much depends on the country that you're looking into. I mean, we have an overall growth rate, so to say, as a company, which is roughly 30 % to 40 % a year.

16:54But then if you narrow that down into different countries, so we are operating in more than 30 countries, than the smaller countries where we have less market share. Obviously, they grow much faster than those countries where we might already be the market leader overall, like not only D2C or online, but overall the market leader within our industry where then we have a way lower growth rate. So in the end, it's a blend. Got you. And so one thing I'm gathering from our conversation, Manuel, is the mindset and the culture and the ethos at Emma is really extremely data-driven and extremely resourceful.

17:38So you said, you guys, your marketing efficiency was seven to ten times more efficient than your competitors. Why? Like why was that the case? What did you learn? How did you work that out? How did you, yeah. I mean, we have a team that's only focusing on data and attribution within our marketing team. Meaning we came up with attribution models, like manual models that humans are working on. But we also have AI-driven data models for marketing cost attribution. So in order to be very efficient in marketing, you need to, in the end, decide where to spend the euro or the dollar, like the last euro or the last dollar, in order to be still efficient across all those channels within the marketing that you're doing, like being at TV, out of home, digital formats, etc., etc.

18:43and you need to make small decisions and yeah if you do that properly if you attribute that properly then you can scale profitably yeah and at what stage in terms of spend would you say that you need to dedicate from your experience having a data attribution team like is it spending five million a year 10 million 1 million 2 million half a million like at what stage did you start building out a data attribution team and what did what did that structure look like yeah um i mean we are we are in this already for let's say five six years so we started when we were a company that was doing 100 million euros uh with a marketing spend of maybe 30 million so back then the ratio was maybe 30-35 % revenues as compared to marketing, whereas nowadays it's 20%.

19:42So if you're doing, let's say, a billion in revenues, which we did last year roughly, then you have 200 million in marketing. And that ratio should become more efficient over time, but also the bigger you're getting, the more granular you're becoming in all your attribution activities because you will also like need to get into further channels you need to get deeper in those channels so the team is growing but i'd say you you should start pretty early as a as a single digit million company already at least making up your mind that this is important and maybe do that with an excel and and make up your assumptions yeah so if you were speaking to an early stage startup founder now, small founding team, they've got a media buyer.

20:36At what stage would you need a data scientist or an analyst to start building out these models and really getting much more granular in attribution? Or are there tools that can do this? In the very beginning, I wouldn't get into rocket science, but like everyone who's familiar with Excel can calculate the ROI of the different channels and then try to attribute accordingly. Like when you put all your marketing activities into an Excel sheet, you see what's the ROI per channel and then make proper decisions, but also try to better understand how do those different channels influence each other, right?

21:13Because it's like many conversions will not only come from one channel, but sometimes people switch from channel to channel and getting into that is something that you can still try to do by let's say doing a checkout poll um talking to your customers like how did you find us which channel did you use and then doing a little bit of excel magic which could be done even if you're not like a real data geek so to say got you because yeah look attribution is a nightmare like like um i know what i'm say this i'm speaking for many especially since the changes with ios 14 attribution is quite the challenge so it's something i haven't talked about publicly interviewing someone but you know if you guys are spending a couple hundred million a year i'd be silly not to ask you guys how you guys approach this and tackle it um so i hope you understand my questions.

22:14Yeah, sure. It's true. And we are facing the same problem. We are facing the same problem. But what turns out to be very interesting is getting into checkout polls. And I didn't expect it to get reasonable answers from customers. Because I mean, if you buy your mattress and you're in the checkout and you're paying your mattress, you just want to wait for your mattress, right? And get into other stuff. But there are many consumers who then still give your reasonable answer that you can take into account for your own attribution activities interesting and so you use a checkout poll on the thank you page yeah for example yeah that's interesting because thank you page is incredible real estate like when it comes to the digital marketing or the funnel or the conversion process like when you have somebody on the thank you page that is a page that they definitely going to look at and there's always other opportunities right so you have to be very strategic where you what what you want the purpose of that page to do yeah right yeah okay awesome well that's interesting so you guys have found a lot of success with checkout polls i mean it's it's it's one of those touch points right uh but in the end i mean even with um the ios problem that you were just referring to you you still have also other solutions that you could get into i'm not that deep into those topics but i'm i'm very sure that the team found ways and workarounds still to make proper attributions.

24:08that are building right now and they're really in the early stages, but they're getting success, you should come and check out our new podcast From Zero to Founder, hosted by our community manager, Molly Flynn. These are in the trenches stories from our very own successful students that have gone through some of our programs. People just like you who are deep within the process of building their very own successful business. These are the founders of tomorrow. You can find the From Zero to Founder podcast on all platforms. And remember, it's founder without the E. All right, now let's jump in the show.

24:45Talk to us about like expanding into other markets. So what markets are you guys currently in right now? And talk us about the process that you guys have taken to go into new countries and how you've been successful there. More than 30 markets by now. So in many Western and Southern European markets, we're in Australia and New Zealand, then Southeast Asia is Philippines Singapore, China, Japan I'm just coming back from Japan flying in last night back to Frankfurt US, Canada, Mexico, Latin America, Brazil

25:28and to your second question getting into a new market maybe I'm giving you the example of Australia. And as you know, Australia and Europe, I mean, still a lot of the team is situated in Europe. Australia is quite far away from a European perspective. And so we didn't know whether Australians actually like our mattresses or if we can still step into that market because there was already some competition. So what we did is we just like build a very rough website approach. So we were copying, I think it was the UK website for Australia, got the domain, uploaded the shop and then did some sales. And those sales or those customers, we delivered the mattress from Europe actually by plane.

26:17Because in the very beginning, if you don't know if these guys like your mattress, you don't want to ship a full container. And in the end, you, I don't know, yeah, might have a lot of mattresses in your warehouse in Australia, but no one's want to have it. And so we were like really sending mattresses by airplane. And I think the shipment for each of those mattresses was two or three times more expensive than the mattress itself. But we did it in the very beginning just to find out, like to get customer feedback. and then after some weeks having that customer feedback like is the mattress too soft too firm do customers like the packaging any other recommendations then iterating on the product and only then shipping the first container yeah wow interesting and when it comes to feedback how are you collecting it were you booking calls with the customer were like how would you how do you collect the feedback and and and how much like coming into that market how many conversations how did you know when you spoke to enough customers yeah there are actually two feedback loops that we have with the customer um one is whenever we uh we ship a mattress in those countries that are very new to us uh we try to get in touch with the customer send them an email like if they stick to the product send them an email and ask them whether we can talk to them just to get some qualitative feedback on the product and the service so that's a very manual approach and And that is something that the business development manager and sometimes even the country manager of those very immature countries are doing with an Emma.

27:55The second feedback loop is the customer will approach you when he doesn't like, he or she doesn't like the product. So they send you an email and tell you, I don't like your product, just pick it up. And that's also a very good touch point to better understand what we should still improve on the product. yes love it and uh so you guys just have constant feedback loops this never stops yeah it's right and it's i mean in a perfect world there would be a perfect feedback loop but being a company that that serves more than 30 countries by now sometimes also switching suppliers um it's it's still very much part of the concept even though i need to uh i need to be honest as a company of our size you cannot be as close anymore as if you are a startup that is doing 10 or 20 million in revenues having a small team being very very close to the customer and this is something we still need to work on like how can we stay close to the customer even being a company of our size nowadays yeah that's interesting and so so a company that's doing 10 or 20 million you're saying that they're closer to the customer just because of just the size of the team and they're just the interactions and it's easier to collate all that feedback and work with it?

29:24You know, when you start a new country, and I remember starting back then Italy or the US, I was sitting with the country manager and you were waiting for the first order. I still remember the names of the first customers in those countries. So naturally, you have a very different relationship towards those customers and towards their feedback. Whereas if you're then like at one moment shipping hundreds or thousands of mattresses a day and getting those returns, it becomes less personal and that feedback becomes more of a data model, so to say. that you need to rely on in the end. And that's what I mean with, like personally I fear because I also very much trust my gut feel, it's easier to be close to the customer if you still know your customer.

30:20Yeah, that makes sense. So you yourself, you set up new countries. You didn't have a team that does that. You used to do that. Not anymore. But back then some years ago, I was still very much into that. But also until today, I'm working with the country managers of smaller countries where we just launched because I'm still Dennis and I but also other senior managers can still refer a lot of the learnings the early based learnings from countries that already existed five years ago within Emma to those new countries yeah I love it and so we're in challenging economic times however Emma continues to grow why maybe maybe you can see this from a different perspective last year we wanted to grow 50 to 70 percent but we only grew by 35 i think was 35 or 37 so um as a fast growing company um we are also facing that headwind we see that consumer trust is not at the highest level at the moment.

31:30And we feel that it's getting harder these days to really scale within our industry or overall within the consumer industry, which for us being a very ambitious company means we cannot achieve those very ambitious goals anymore. But we also need to live with growth rates like in the 30s or 40s these days. Answering your question when it comes to how we differentiate ourselves from competitors who might even not grow or show negative growth at the moment being way more efficient just as as i said in the very beginning helps us to step into those to to acquire market share from our competitors in many markets so what we see is especially given the current funding situation those competitors that weren't profitable some months ago, they need to reduce their marketing spend because they don't know when they will get the next cash injection from venture capitalists.

32:31And that helps us to gain market share from those competitors naturally. Are you hesitating to take the next step in your e-commerce journey? FounderPlus has you covered. With proven frameworks tailored to your business needs for fast results, a supportive community of over 30 ,000 like-minded entrepreneurs, and weekly live mentorship sessions, Founder Plus is your key to success. Try Founder Plus today for just$1 for seven days and start building your dream business with confidence. You can visit founder.com forward slash start dollar trial or click the link in the description to claim your trial.

33:06Yeah, it's a really interesting case study looking at your business, speaking to you, Manuel, because oftentimes there's this general consensus that especially these big, big direct and consumer e-commerce companies there's this general consensus that you need to raise a bucket ton of money and uh you're kind of proving against that um so it's really commendable what you guys are building and and how fast you've grown and scaled and and this this is something i was discussing a lot also with students over the last months um about the mrks and when when it comes to funding and you know nathan it can make a lot of sense to have a lot of money in the very beginning but only if only if you are in a winner takes it all game and the winner takes it all game means you might have customers that come back like maybe every month or at least once a year so you have repeating customers that you can even acquire unprofitable because they will pay off in the future but also if you're building something and that's what's being referred to as a winner takes it all game that if those customers are with you, but not with your competitors, you build an ecosystem and those customers stick to you.

34:26But all this is not true for our industry. So our customers only come back every, let's say eight to 10 years. So we don't have customers that come back on a monthly or yearly basis. So we need to be first order profitable with every customer with every order. but also customers are very let's say agnostic within our industry it's not that if i'm buying an mma mattress this year i will also buy the mma mattress in five ten or eight years maybe i'll buy something else um so it's it's it's not really a winner takes it all game like let's say a social network where if you are the best funded and you become the biggest in the very beginning that everyone needs to stick to you.

35:14So I'm curious, do you guys have recurring revenue in your business? We have recurring revenue, but it really depends on the country. It might be between 10 and 20%. And recurring revenue for us, I mean, recurring revenue in our industry doesn't mean you buy a mattress now and in 12 months you buy the next mattress, but it's rather you see that there are word of mouth effects. So if customers are happy with your product, they refer it, which then for us is something like a recurring revenue because we don't need to acquire those customers anymore. But also what you see is that customers do or that we can do cross-selling with customers.

35:59So for example, they might buy a pillow or bat linen, maybe a new bed in 6, 12, 18 months from now. Got you. But you do not have any repeat purchase subscription options for any of your products, right? No, we don't have that. And it's something that every company within our industry would love to get into. I know that there are companies who try to do, let's say, subscription for bed sheets or, yeah, other products but it's it's it's not that easy because in the end you are highly involved when you need a product like a mattress like then then the customer is really highly involved but once you've fulfilled your need it's a low interest product essentially so it's not that easy after 6 12 18 months to raise awareness again for our product category because it just like you just hide it under your bad sheet and if if you have a good product you're happy with the product but you don't think about it on an everyday basis like if you're using a car or like maybe an iphone yeah no that makes sense um okay so i'm curious around like the business has grown super fast what have been some standout challenges where you wish you knew the answers now and you'd like to share with our audience that might be valuable, some hard experiences or lessons learned in these past 20 years as a founder, especially these past 10 years scaling AMA.

37:42Yeah. I think the hardest lesson that we learn on an everyday basis with an AMA is you need to disrupt your company, and with company I mean your organizational structure, every 12 to 18 months. why is that because a company that does let's say a hundred million in revenues is a totally different company than if you're doing 300 million or 500 million in revenues you need different leadership structures you need different organizational formats different meeting formats you need to look into different kpis and i know especially for dennis because he's a super structured like he's one of these super structured mckinsey types who loves to build like a perfect machine so to say it's super frustrating for him from time to time that whenever he thinks okay now this this thing is running perfectly like like a like a motor right that we at the next stage again and the motor starts shivering and we need to distangle it and and rebuild it again and this is really something i mean it's a it's amazing and frustrating at the same time i can tell you yeah you make me think of like these stories that we often tell ourselves oh when we get here when we do this this will be amazing and then you get there and you forget and then you're in the next problem yeah yeah that's right that's right yeah awesome so um well look we'll work towards uh wrapping up manuel uh this is a really interesting conversation i'm curious was there any questions that uh you wanted me to ask you that i haven't asked you yet um not that i know i think we went we went pretty deep in in many areas so nothing nothing you think i've missed or anything to share with our uh our audience of early stage startup founders yeah i mean for early stage startup founders something that i can really highly recommend and that also helped us a lot um don't focus so much on acquiring funds but rather try to focus on acquiring a network and knowledge and and and try to get experiences from other founders so for example have the right business angels in your board and try to connect with people who can really help you in the end because funding is is from my perspective is a is a nice hygiene factor i mean in the end you need to pay your people and your rent but it will not be the differentiator for many many businesses from my perspective it's it's something else in the end yeah i agree and that's the whole ethos a founder like we find some of the greatest entrepreneurs of our generation and connect them with our community to get them to share their experiences, thoughts, lessons learned, because that's how you learn.