704: How One Pivot Turned My FAILING Startup Into a $300M Brand

0:00Hey founder fam, before we jump in, I want to take a quick moment to talk about our sponsor OmniSend, the email marketing and SMS platform built specifically for e-commerce founders. We've been recommending OmniSend to founder students and members of our platform for a while now because it just works. So whether you're launching your first store or you're scaling it to seven figures, it really helps you automate your marketing and get results. And did you know, on average, OmniSend customers make$79 for every$1 they spend, which is an insanely good return on investment. And if you're already on another platform, here's the thing.

0:35In just five days, you could actually be paying 35 % less without doing an absolute thing. OmniSend will move every flow across, list, and template. You just show up when it's done. And finally, 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 and that's founder without the E to get started. All right, now let's jump in the show. So when things started to take off, that was before Lehman Brothers and the global economy downturn or after? After, right after. So businesses booming online even during a global financial crisis.

1:18Okay, so we're about to fail. There was no traction, it was failing, and I myself was doubting myself. I was about to shut the company down, and I was really despondent. I have to tell you, it was a really depressing feeling. And every single day, I'd have to pick myself up and keep going. It just looked so bad. It just turned the corner, and then it started ramping really hard. That's Mariam Nafese. Her first company sold for$100 million in cash two weeks before the NASDAQ crashed. The one she nearly shut down now does$300 million a year. So I found an agency that sold remnants and I told them that I was going to be their buyer of last resort.

1:54And then things just took off like a rocket ship so badly that we had to sort of start suppressing demand. You always have to act like you have half the financing you have. And top line, 400 million per year? We've publicly said 300 million. What was the specific technological breakthrough that convinced you on-demand AI manufacturing was finally viable for mass commerce? Well, to be honest.

2:21Hear the stories, learn the proven methods and accelerate your growth and future through entrepreneurship. Welcome to the Founder Podcast with Nathan Chan.

2:35Hey, I have a quick ask. If you're loving these episodes, leaving a quick review is honestly the best way to support us. It helps the show grow and means we can keep bringing you the founder stories and insights you tune in for. Please share it with a friend. Thank you so much. Now let's get into it. Mariam, welcome to the show. In 1998, you co-founded a company, Eve.com. You had 120 employees. You scaled that business and in six months, you sold it to Idea Lab for over$100 million in cash and the NASDAQ crashed two weeks later. So that was a crazy run looking back, 24 months. What was the operational breaking point that made an early exit like the only viable path?

3:22There wasn't really anything wrong, going wrong. Our revenue was scaling very nicely. The first year of operation, and this is in 1999, we generated$10 million in sales, which made us one of the biggest e-commerce companies on the web at the time. because this is a time when before clothes were being sold online, before shoes were being sold online. And in fact, my partner, Varsha, and I, we went to see SoftBank. And SoftBank said to us, but guys, you know, women don't buy things online. Really? And so this is how early it was. Yeah, it was mostly things like software was being sold online. And we said, well, the reason why women aren't shopping online as much is that, you know, what women want to shop for is not necessarily available yet online, but they predominantly like to buy is not online.

4:10And so it was super early. And we thought that we were going to be selling replenishable like skincare products like, you know, creams and lotions, things that you had already tried once and you were replenishing. but when we opened our doors in 1989 what was surprising was that color cosmetics blushes eyeshadows eyeliners things of color that you would think you would need to try before you buy those things just started flying off the shelves and so we quickly we realized we realized that basically there were women all over the U.S. that were reading about small independent beauty brands and they didn't have access to them in their cities all over the U.S.

4:59So these little brands were forming. They were being covered by magazines like Allure and other beauty magazines. There was demand building, but nobody could actually buy these brands. And so we got a little lucky, honestly. There's always a little luck in entrepreneurship, right? We thought one thing, which is that this is going to be a skincare replenishment business, and instead it became a color cosmetics business mostly. We also got lucky. Something we didn't perceive was that, you know, we did this whole Michael Porter five forces analysis of the market, like good MBAs that we were, which is this like framework that helps you understand your, you know, the competitive, you know, attractiveness of entering a business.

5:40And when you looked at it, you know, there was a lot of consolidation on the supply side, which is a big no-no, a big red flag. Estee Lauder companies owned more than 50 % of the beauty business, and we could not get them to sign on as a supplier. And you would say that was a red flag, but we didn't understand. What's not obvious is that the reason they had such a big share was that they could afford the key money to get into department stores for distribution. The minute we opened up online distribution, smaller brands started taking share because we provided the access directly to those brands.

6:19You didn't have to go to the department store anymore. So that sort of opened up distribution channels and a completely different way of distributing cosmetics. Anyway, it was a dream. Revenue scaled in one year to 10 million. Things like Zappos and other companies started launching thereafter, like clothes and shoes. And then it became something which is so obvious. Of course, everyone would want to buy everything online. But back then, it was not a foregone conclusion at all. Yeah, so I want to talk about the side project that saved Minted and how Minted came about. But tell me about the domain name.

7:00So you spent$50 ,000 on eve.com. I actually spent, so I started founder, F-O-U-N-D-R.com. That was an aged five-letter domain. I spent$75 ,000 on that domain. And I had to go on a payment plan. I've bootstrapped this business, hasn't taken a dollar of money. But I knew the power of that. So how did you secure that domain? Tell me the story behind it, the equity, the promises to a five-year-old girl. Yeah. So first off, one thing to know is you can do almost anything to a name. So Eve at that time, I didn't love it because there was this product on the market that is a douche product called Mass Singles Eve.

7:47It's just this product in the U.S. And all I could think of was this product. And I thought, and the ads for it were very much like this woman running through a sunflower field. It was very like, it just wasn't really a name I loved. So we had to sort of steer the brand associations away from that. But in the meantime, I hunted down the person who owned it. It was a woman named Galinda Rogers, who is a programmer in Virginia. I gave her a call. I said, you know, I'm a Stanford Business School student. Second year, I want to start this business. Could you sell me, would you consider selling me your domain name?

8:26It turns out she bought the name for her daughter, Eve Rogers. She had two daughters, I think. One had a much longer name. And each girl had received their own URL. This was a very smart mom, computer programmer, who was very rarely. She's like, I'm sorry, I can't sell this to you because this is my daughter's name. You know, there's no way. this is a special present I got for her. So I kept calling her and she said, okay, I'm going to put you on the phone with my daughter. And if you can convince her to sell the domain name, great, it's yours. Cause I think she just wanted me off her back. So she puts her daughter on the phone.

9:01I just remember this tiny little voice who like, hello. And this is before I had, I had kids. So I had no idea. Really. I had no idea how to work with a five-year-old. I really had no idea how to deal with kids at all at this point. I now have two wonderful, awesome kids that I have much more experience. But at the time, it was clear that I said, you know, do you, can you sell me your domain name is what I asked her. And the five-year-old was like, what? You know, this conversation was comical. Clearly the mom, Glenda, was probably in the background laughing. It went nowhere. Little Eve Rogers didn't understand what I was saying.

9:46But then Bill Gross, our funder at Idea Lab, who really was possessed with this idea that we should get this name, he's like, step aside, let me show you how it's done. So he offered Eve, he got on the phone with Glenda, he offered her an honorary board seat for Eve, little Eve, 1 % equity in our company, a trip to Disneyland, and free educational software for life. And she said yes. And of course, there was a cash payment. I don't remember how much it was. And voila, we had Eve.com, and Galinda would show up once in a while. We were ensconced in incubating inside the Idea Lab offices in Pasadena, and Eve and Galinda would show up once in a while.

10:37They would just appear at the door. And Eve actually messaged me on Facebook when she was a grown woman. And we know each other now, which is so funny. Really? There you go. What'd she say? I mean, I think she was, I don't remember what she said, but we immediately knew, you know, obviously who each other were. And she's my Facebook connection now, which is funny. There you go. She's awesome. She's an awesome young woman. Hey, FounderFam. I want to take a quick moment to talk about our sponsor OmniSend, the email marketing and SMS platform built specifically for e-commerce founders. We've been recommending OmniSend to founder students and members of our platform for a while now because it just works.

11:18So whether you're launching your first store or you're scaling it to seven figures, it really helps you automate your marketing and get results. And did you know, on average, OmniSend customers make$79 for every $1 they spend, which is an insanely good return on investment. And if you're already on another platform, here's the thing. In just five days, you could actually be paying 35 % less without doing an absolute thing. OmniSend will move every flow across, list, and template. You just show up when it's done. And finally, because you're part of the founder community, you get 50 % off your first three months with the code FOUNDER50.

11:54Just head to omnisend.com forward slash founder, and that's founder without the E to get started. All right, now let's jump back into the show. Okay, so eventually, you know, sold Eve and then a few years later, you launched Minted. So that was in 2008. Your initial strategy was selling established stationary brands and that resulted in zero sales for an entire month and the company was running out of runway. How did a low-budget crowdsourced design contest end up saving the company from bankruptcy? And tell us about what happened. So I was sort of stuck between what I wanted to do, what my heart was telling me to do, which is to go a pure crowdsourcing model, and what my brain was telling me to do, which was hedge your bets and put known brands online and distribute them like you did in witheve.com.

12:59But there was a gut instinct telling me it's so much more exciting to open things up to artists all over the place and have these competitions and source new art. I bet something magical was going to happen. But both my investors were like, this crowdsourcing thing sounds very weird. Who's going to enter a competition? And I myself was doubting myself. And so I spent all the money I raised on building a site that was geared around selling existing stationary brands. And at night, I hired a guy on rentacoder.com, which is a site that I think got absorbed into another company. I found this guy and I said, at night, I'd like to build this competition code with you, this competition experience.

13:42And I didn't realize that he was like a college student you know and i you know he was very young but he and i built this thing together and um we only had maybe something like um 60 designs submitted in the first competition i went like found artists convinced them to enter the first competition through like establishing a prize that looked pretty attractive granted we are heading into the recession at this point There are a lot of unemployed young designers in San Francisco. I felt like the moment might have helped us a little bit too. But we managed to get people to enter the competition. And as the designs came in, I thought, you know, these look pretty good.

14:27We put them up for sale and we start getting maybe two orders a week. And these are for save the date cards that you send out when you're about to get married. and I had gone and found a printer and in the local area and he said, Mariam, you know, in our in our industry, people don't put their own picture on a save the date card. That's just not what people do. And I said, well, that's what's coming into the competition and that's what's getting voted to the top. So I don't know what to tell you, but that's what people seem to want to make and want to buy. So, you know, I don't know. And now today, I would say like 99 % of save the date cards have the couple's picture on them.

15:07There's almost nothing that does not, but we were the first company to actually do that because the crowd told us to. So I was very much enamored with this idea that you should listen very, very much hand the decision over to the crowd, to the consumer, and not think that you're like this magic merchant who, you know, kind of like the eye of God who is, you know, telling people what they should wear and buy, et cetera, et cetera. I think it should really be very customer driven. And that's the sort of ethos and the initial concept behind Minted. From that, we were still failing because we weren't getting enough traffic and orders.

15:49I was about to shut the company down and I was really despondent. I have to tell you, it was a really depressing, really depressing feeling. And the only way I could get myself going every day was to say, you just cannot care what other people think about you. You're doing this for yourself. You're in a little world of your own. Maybe someday someone will notice that what you're doing is good. But you just can't think about failure. And if you fail, who cares? Like, don't care so much about what people think. And every single day I'd have to, like, pick myself up and keep going at a time when it just looks so bad.

16:27And then I thought, well, you know, as a user myself, I really could use some better holiday cards. And I went to the store because I went to the store with my newborn daughter. I was launching this with my newborn daughter. and I had gone the year before with her to the stationery store and I was there for two hours with a newborn, which is really tough, you know, waiting for the, waiting to get a hold of the book, open up the book, find the design, start putting the customized information into a paper form, go get, you know, start waiting for the quote, all this stuff, it took a long time physically and I thought, there's got to be a better way and if I go online right now and look at Shutterfly and other sites, the designs are terrible.

17:16So why can't we get the online convenience but with great design? Let's do holiday cards. I went to my investors and they said, Mariam, you are losing focus. You started with weddings. You should focus on weddings. Of course, I paid no heed to this at all and being the slightly like, yeah, this is a little bit about me. It's like I definitely have my own mind. And I just went ahead and did my, did the holiday cards anyway. And I, I, I, it just took off and I'll explain to you what exactly made it take off. We, um, in the old days when people used to read magazines 20 years ago, um, paper magazines, um, at the back of a lot of these women's magazines, there were these like little remnant ads.

17:59They were like a quarter page, an eighth page or a half a page. And as I, and I would always actually look through them as I looked at women's magazines and I thought, I wonder if I can find out who sells these remnants. So I found an agency that sold remnants and I told them that I was going to be their buyer of last resort and they should call me if they could not move a space, if they had an extra space, call me and I'll make an ad in an hour. Like right before their print deadline, just call me if you have extra space, give me a massive discount and I will make you an ad in an hour. So they started doing that and we started getting like these incredibly cheap ads that were going out to millions of women through these magazines and we did of course a little bit of online advertising too and then things just took off like a rocket ship um so badly that we had to sort of start suppressing demand we had to start shutting marketing down at one point because um i came home one day and yes, I went to business school, but I hated operations class.

19:03Okay. I almost failed it. And sorry, my operations professor, hopefully he's not listening to this, but I really disliked that class. And I was not paying attention. And I came home one day and my husband, who we went to school together, went to business school together. He's like, well, have you hit your maximum throughput capacity yet? I was like, remind me again what that was. So he's like, gets a sheet of paper out. He's like, okay, let's just like, tell me these things. Tell me these things. He starts doing all these calculations. He's like, I bad, bad news for you. You just hit your maximum throughput capacity today, which means if you take any further orders, you will never catch up this holiday.

19:42You'll never be able to dig yourself out this holiday. You will fail at all these orders. That was the very single, that's the very same day. So thank God I had just had this conversation with him at the kitchen table that night. I go in the next morning, like, okay everybody turn off the search engine market and turn off all the cpc marketing turn it all off and we're still getting too many orders too many orders are coming through and then um um my uh director of finance had this bright idea to be like why don't we press discriminate and only take orders that are 50 cards or more and that way we can at least get bigger orders so we did that um but it was so crazy that um we had to get all everybody's spouses had to come into the office to help process everything.

20:27And I had to, my, you know, my team and I, we had to go to the printers ourselves, get on the line and start helping with the fulfillment of the actual orders, like pack them in the shrink wrap with the hairdryer and do all sorts of, I even delivered an order at like one in the morning to someone's house in my neighborhood, creeping up the stairs with the package and putting it in front of their door so they wouldn't get a late delivery. um so i personally delivered a package to someone in pacific heights in san francisco um but yeah it was um in that respect it went from like rags to riches or starvation to i don't know gluttony to indigestion it was crazy uh it just just turned the corner and then it started ramping really hard so this is before your series a or after okay so we're about to fail and then my friend helped introduce me to a firm I was planning to not take VC money I ended up taking VC money to save the company so that my friends and family money would not would would not lose their money essentially so I was forced to take VC to keep to keep us going so I did take a series a and right after that is when all this happened so they invested for no So, you know, essentially for no good reason except that I was running the company and I had had an exit at Eve.

21:50That's it. Otherwise, there was not a single reason to invest in this business. There was no traction. It was failing. And so when things started to take off, that was before Lehman Brothers and the global economy downturn or after? After. Right after. Right after. So businesses booming online, even though during a global financial crisis. That's right. And it's because we decided to focus on the upper end of the market, the premium end where people who were willing to pay$200 for a holiday card order were not really affected so much so that they could not afford these cards. So we were talking about like selling to, you know, very wealthy people their holiday cards who for them$200 that the market wasn't influencing that decision.

22:43And we were so early that when you start really, really early like this, when you're very, very small, you're not as subject yet to the swings. You still have enough new people, new business, people who've never, who really, really want your product that you're not quite as vulnerable yet to the swings. Yeah. And I guess because you are new, your OPEX is probably a little bit more contained. You're not as bloated as some businesses become over time. It's hard. You know you have to let people go at certain time periods, but you just don't because there's all this kind of being judged by others, not wanting to let other people down.

23:21Your self-worth contained into it all, right? That's right. And we didn't have that yet. You're right. We didn't have a very big team at all. All right. So you went viral overnight, basically, straight after the global financial crisis. Yep. You know, this business, you're now chairwoman, you're on the board and you chair this business. And top line, 400 million per year? We've publicly said 300 million. Yeah. 300 million top line. So incredibly successful business. talk me through that journey like because that is that has been uh you know a 15 plus year journey to build and now it's we're in the modern day era of d2c and shopify and you know founder we help people every day start d2c brands grow d2c brands it's very common but you're you're an early pioneer you know like so talk me through like that next 15 years what that looked like growing that business?

24:24Well, we were very, very customer-centric. Everything was built on customer research, customer interviews, customer focus groups, and measurement analytics. So that was very much the core on the one hand. On the other hand, it was really about being very true to a couple of principles that stayed true the entire time and are still true to this day. The provision of unique design, really unique design um with very very high quality materials and printing that is very customizable so the three the three things we provide to you are and you know you know design unique independent design that you won't see other places at very very high quality with customization and um we would just repeat that value proposition a million times over until how people really got that what was really different about us was we were a community of independent designers.

25:26So the job was to, on the one hand, go around the world, and I would go all over the U.S. personally, building up the artist community, convincing people to come on board, trying to build a value proposition for that side of the marketplace. And then on the other hand, master marketing so we could drive sales so that there would be this, you know, continuous virtual cycle where the artists were happy, more artists would come, the art would get better, and then the consumers would be happier. And so there was like this, a bit of this marketplace dynamic that we were building. Core to the success, I would say, are first, of course, we were able to convince really great artists to enter competitions constantly.

26:10And with every competition, the design would get better and better and better, and we'd never stand in their way of their creativity. It was like creativity unleashed and not being traditional merchants who make decisions on behalf of other people or decide that something's too weird to be offered. Like I remember this one day of the date card came and it was like, handsome groom, beautiful bride, bad dance moves, you in or what? And I was like, what's that? and and and and it was like this is like big type on top of a photo and i was like well that's a little weird but look it got it went viral that thing and um it just goes to show like you as a single person shouldn't make design decisions for everybody in the whole world right you're going to miss a trend so that was one core that was very successful on the marketing side the fact that we are viral the reason i picked stationary was that um i noticed that if you really like something from Shutterfly or something, somebody who's sending an online card, you turn it over and you can see the URL on the back.

27:20And so there was inherent virality built into this thing, which is what I didn't want to spend money the way I had at Eve.com, spending money on a customer acquisition. So to me, any product you launch as a consumer product, I personally don't like to start businesses unless I think there's going to be a viral, some sort of product-driven marketing, or even better, a viral loop. And so you had these people sending cards out to 200 of their best friends, and then you could track the virality because we found ways to track virality, basically. But that's really the premise of what drove the extreme growth was the fact that the card itself is viral.

28:07And so that is what really made us, marketing-wise, what made us content-wise is that the content, I mean, if it's a bad-looking card and it arrives, no one's going to turn it over and say who made this. It has to be a good-looking card, and that's where the beauty of bringing the artists, the really fantastic, talented people together with this mechanism works very well. And then the other means of success is, the other parts of success clearly is the internal team, which is where every founder's bread is really buttered is with your team. And what kind of people do you choose? What kind of, what do you emphasize in your recruiting process?

28:45What's really the unspoken rule about like who gets a job at the company? Like a lot of times there are all these things that are spoken, but like what's really the unspoken rule? Like what are people really looking for? In our case, you know, we're, one of the big things for us is everybody's very analytical at the company even the merchants were given um uh modeling tests financial modeling tests so even if you were going to be picking designs visually granted you'd be given a design eye test which i myself um made these like design tests for people to take to sort of see what people how people were whether they could pick on behalf of other people and curate and like be able to recognize talent etc but also whether they could build financial models um and then i myself subscribed to the customer feedback channel so i would literally get copies of all the inbound feedback from customers read all like read copious amounts of it every day especially in the first three four years um i would run customer service groups myself and i actually ran customer service itself for the first couple of years, meaning I, um, the first three Christmases, I managed the midnight shifts, wrote the customer service manuals and got on the phone with customers and did shifts and triage the inboxes and stuff.

30:07So I was very, very close to the customer too. I tried to be stay close to the customer, the artist and the team. And there you go. Okay. So a few things I'd love to unpack here. You guys, for the most part, are very seasonal, right? Yes. And I have a friend, his previous business, he exited to a ASX listed, so Australian Stock Exchange company. Very seasonal, very, very seasonal, makes a large proportion of sales Q4. Yeah. That's very stressful, especially for planning operationally and from a fulfillment standpoint and a temporary workforce flexing up and down. How did you fight that seasonality and make sure it meted out?