'People wanted to talk about waitlists': How a supply chain bottleneck helped DTC AC brand Windmill go viral

0:29Hello, everyone. Welcome to the Modern Retail Podcast. been expanding into things beyond the air conditioner. I'm really fascinated with just your general growth plan. You guys have seen some pretty great growth over the last few years. And also, the reason why I know about it is because you seem really good at earned media. And so I love to talk to people about earned media. But Mike, how are you doing? I'm doing great. Appreciate you having me on. And also, thank you for being a customer. Yeah, no worries. A nice little surprise to hear. Yeah, no, I think it was the wire cutter is the reason why I'm the customer.

0:59Amazing. But first, tell me, listeners, about yourself. How did you get into the air conditioning, air quality business? Yeah, so believe it or not, I was not an expert in HVAC and air conditioning. I actually worked for tech startups for about seven years before starting Windmill. But our third co-founder, Ryan, he's really our hook into air conditioning. His family has been in air conditioning in New York for almost 60 years now. Oh, wow. Oh, yeah. His grandpa started the family business in a station wagon, rolling around Manhattan, going up to people's apartments, taking out their window ACs and cleaning them in the back of his car, and then bringing them back up for like$8 a unit.

1:50And so he would just do that consistently. And then eventually his son, Ryan's dad, grew the business to be more of a full service repair installation and ultimately manufacturing business. And so when I was helping my older brother, who's also a co-founder, there's three of us. So now they're all introduced, my older brother and Ryan. When I was moving my older brother to a new apartment in Manhattan, we get up to his apartment, and there's just like the worst window AC you can imagine. It's like yellowing. It's cracking. The side panels are letting in air. It's loud. It's not really cool in the room, and we didn't know what to do with it.

2:32So we ended up calling Ryan to say, hey, what do we do with this thing? And also, can you bring new ACs up? And so he sent a couple of his technicians. they put in at the time what was like the top of the line unit. And we sort of, we had lunch after and we sort of stepped back and we were just like, this experience was super easy only because we knew a guy. And the unit that they put in was ugly. It didn't connect to an app. It just didn't feel like a modern experience. And given our connection to Ryan and his family's infrastructure, my background in tech startups, my brothers also in software and startups, we thought we were the team to do it.

3:18And if you look at the time, this was in 2018, other companies that I really admired like Casper, Quip, there were so many companies that were reimagining almost everything around your home or in your home, except for the AC. And so that was the aha moment. Sort of at lunch, after the move, we thought, hey, let's give this a go. Was your idea a question of aesthetics and, I guess, wireless technology? Or was there something else that you found that made your AC different from the AC I can get at Lowe's or Home Depot or whatever? For sure. So, I mean, we did a lot of customer research before we started the business, before we started the engineering process.

4:10And the two things that stuck out were design and installation. I know you didn't want to talk about your experience with the AC, but if you remember when you unboxed it, you didn't have to screw anything in to the AC. Everything was preassembled for you. So that wrap that goes around the AC, that's what we call the install kit. And we preassemble that for customers like you so you don't have to go and screw in a top bar and a bottom bar and the side panels and everything. Because it's a little risky if you don't screw it in right. So we just did everything for the customer already in the box.

4:48So it's ready to go. So we have that patent pending install kit, which is unlike anything in the market today. And then, of course, the design. We spent a lot of time finding the right industrial design partner. And that's something that customers aren't used to seeing, a window AC that looks good in their window. It's usually like, oh, that thing is such an eyesore. Or how do I cover it up? Versus people come over and they say, what is that speaker in your window? And you're like, no, it's not a speaker, it's a window AC. So those were the top two things. And then you also referenced the app.

5:25And that was something that, with other units on the market, they might have smart capabilities, but the app is horrible. And so we spent a lot of time customizing that experience and making sure it's top-notch. Got it. And so 2018 is when you were with your brother and your other co-founder and you came up with this idea. How long did it take to get to market? What was the go-to-market plan? Walk me through all that. Yeah, so the go-to-market plan was the summer of 2020, which the go-to-market plan sort of got annihilated by COVID, as did many, many things in the world at that time, unfortunately.

6:08And so we had to sort of think quickly. I mean, you know, it took us two years basically to get everything ready to go through the design and engineering and find a factory and the whole nine. And ultimately had a really awesome launch plan for 2020 that we had to scrap. And so we couldn't get units from the factory to the US, just given all the complications in the supply chain and also getting containers. You know, there weren't that many containers available. They were super expensive. And so we had to do sort of a beta launch in 2020. We still launched, but it was on a much smaller scale. And it was also after the summer.

6:56So imagine launching an air conditioning company during a pandemic in the fall instead of in the season. So we produced a lot fewer units and just got the concept out there. We did have a few hundred customers who were using the product and giving us feedback. And so we sort of turned it into a research beta versus a full-scale launch. I wanted to ask you about this because that was sort of the time when there were a few different, quote unquote, DTC air conditioning companies. And I feel like they all touted their waitlist and they all touted how like they were in it. But it had to do with supply chain, as you mentioned, also the fact that everybody was stuck at home and wanted things to be delivered.

7:38So were you able to use that sort of to your advantage to make a, what's the word I'm looking for? Like you had something that was in high demand, but short supply. And was there a marketing element to that that you found worked as well? Or were you just waiting until you were able to ship everything out and then do it en masse? So we stumbled upon that insight by accident. Like it was not my choice to have a wait list. And to, you know, the first few hundred people that signed up, we would ship a unit too. And then the rest, we were like, sorry, like we just literally don't have units, but you can preorder for next year.

8:14Like I didn't want to do that. It's not the cleanest way to launch a brand and a business, but you are right in that it did sort of stir up some buzz. And, you know, you mentioned Earn Media before. That was sort of the big, again, we sort of stumbled upon this sort of big insight that like people wanted to talk about wait lists. Like that was a thing. And we got a few articles literally just saying, you know, the AC company that has 10 ,000 people on their waitlist is finally launching. So we did use that to our advantage. But again, it was sort of by accident. Got it. So walk me through the couple years after the initial waitlist with growth.

9:01How has that gone? Was it pretty much just a steady growth up? Or how did it all go? Well, we're in an interesting business where it's fairly seasonal. Yeah. So, you know, we had from when we when we did the beta launch in the fall of 2020, we had basically the fall of 2020 until like April 2021 to really plan the actual launch in the first real season. So in a sense, looking back on it, it was kind of nice because we got to interview our first customers. We got to actually install. We installed the first 40 units for customers in New York. We got to see what the process was like, talk to people in real time, see the apartments that we were putting the units in.

9:53And so it was really helpful in terms of understanding our target customer a little bit more. And also we had time to sort of redo some things that we thought we messed up. I'll give you an example of that. We launched the beta in 2020 with a massive box. It was like one and a half times the size of the box that you probably got, which we did because we just were like fighting the clock to get something out the door. And we didn't have any other suppliers that were willing to work with us at the time. So we had this massive box and people were like, hey, I can't get the box through my hallway.

10:35So what should I do? And so that's one of those things where we're like, okay, we have to cut the box size. We still wanted to keep the install kit pre-assembled, which is why the box is maybe a little bit bigger than other units that you'd see out in the market, but it's because it's just an easier install experience. So we wanted to keep that, but we still had to cut the box size. So we did that. We had some other materials that better explain what the unit does and, you know, kind of reimagine the manual a little bit to be more like a children's picture book. But, you know, so we made those changes.

11:11And then, then, you know, it seems like in April of 2021, the floodgates sort of opened. We got a lot of a lot of earned media, mostly coming off the back of the of the waitlist. And finally, you know, the most beautiful window AC unit is now available. And so it's those kinds of titles that that really started to to hit. And there was a writer at Forbes who called us the iPhone of air conditioning in 2020, but he never got a unit. And so when he got a unit, he did a review and it was amazing. And so it was some nice continuity from the beta to the actual launch. And I guess EARN Media sort of lifted us up and we had a big year.

11:57We had a big year that first full selling season in 2021. How did the next year go after that? Yeah, we more than tripled growth in 2022 from 2021. And that's where we really started to expand our marketing mix. So it wasn't just sort of PR that was pushing us forward. We had to then have a healthier mix. So we started going bigger into Facebook and Google. and we experimented a little bit with TV, which we're now... Oh, yeah. I say experiment because this is the first time we've ever done it. We were sort of dipping our toes in the water. And now we have a little bit more experience with it. We kind of know what works and what doesn't.

12:50And so we're zeroing in on that this year. And so hopefully everyone sees us on their favorite streaming channel or TV at some point in the next couple months. I want to get into that more, but I want to step back a little bit because you mentioned sort of the expanding the marketing. Did you do any paid marketing in the 2021 year or was it all just earned media and you had sort of that lifting your tide? We did, but it was sort of later in the year once sort of the PR started fizzling out later in the summer. So I would say we spun up our first campaign sort of later in the summer in 2021, but it wasn't enough to really feel like we cracked the code.

13:40Got it. What made you do it so late in the season? Well, the heat and the PR were really carrying us through. So when we're talking about acquisition costs, we wanted to make sure that we were keeping those pretty low. And so we didn't want to spend a ton of money. If we were driving units and the velocity and the volume was there, we didn't want to mess with that. Can you talk about distribution expansion? Because I think of you predominantly as a DTC company, but that's because I think I bought on your website. But you're available in Home Depot and other places, right? Yeah, we're available on Home Depot, in PC Richard stores, you know, in the tri-state area.

14:22Also their website, Amazon, Walmart.com. We made a really big push in the beginning. This was in 2020. We started talking to buyers at retailers. I remember sending a presentation to a buyer that I found on LinkedIn at Home Depot with our picture, the picture of the unit and all the benefits. And we didn't even have a physical product yet at that time. But I knew it took a long time to sell buyers, especially as a new company. And so our strategy going in was always to be omni-channel, not just, you know, D2C basically means you have a website. and you can sell your product on your website. That's only one piece of the distribution puzzle, especially in this category, because a lot of people want to go to a trusted retailer to buy an appliance like this.

15:17I think it's changing with marketplaces and sort of the evolution of e-com. But still, if people want to go in-store, they trust Lowe's or Home Depot. We're launching on Lowe's.com this summer, actually. Congrats. Thank you. Yeah, so we're expanding our retail footprint, which has been huge for us. And we launched with Home Depot and PC Richard in 2021, and we're growing with them today. Is retail a bigger piece of the pie than your e-com sales? Or how does it all play out when push comes to shove? Yeah, it's about half our website and then half retail. That's a nice split. That is a nice split.

16:02When you say your website, does that include Amazon or is that something else or is that with retail? Yeah, so retail, I'm talking about sort of the traditional retailers. So you're right that it's, you know, when I say sort of like online, it's our website and marketplaces like Amazon. And then the other side of that is like the Home Depot, Lowe's, PC Richard. What is your price? I mean, do you have a pricing strategy for Amazon specifically so that you can make the economics work? Do you have, you know, you only have a couple of products, so it's not like you can have necessarily a curated strategy of certain things on there.

16:39How do you approach Amazon for this type of thing? Just taking a step back, I mean, we want to keep our prices even across the board. So we don't want Amazon to be lower than our website, you know, lower than Home Depot. So we're mapped. So we have a map policy. You know, this is how low you can go, but you can't go any lower, basically. And we talk to our retail partners about that. You know, we're controlling the price on Amazon. So we do that ourselves. and you know if we're doing a promo which you know we we haven't done a lot of but we're sort of testing different promo strategies again we'll we'll map that so we'll tell all of our retail partners in amazon hey we're doing a 30 promo in these five days those are the only five days you can drop 30 so that that's how we're trying to keep things consistent you know i don't i think you see some brands out there that you know you can find a i'm making this up you can find a cooler for$40 on this website and you can find that same cooler for$35 on another website.

17:38We don't want to play that game. We want to keep everything consistent across the board. Yeah, that makes a lot of sense. Do you wish more people bought it from your website as opposed to Amazon or are you agnostic as if they buy it, you're happy? Yeah, more the latter. We want to meet people where they are. If you want to shop on Amazon and that's the only platform you'll buy on, then great. And we want to be a top choice on that platform. If you want to go through our website and get the full experience, also great. Or if you want to go into a PC Richard & Son store and play with the unit and actually see it in real life, awesome.

18:16Because there's a lot of customers that want to do that before they buy something like this. So let's talk about the TV side of things, because that's a pretty hefty investment. And that means that you're going for real top of funnel, you know, brand sort of engagement. How are you approaching that? I was racking my brain before thinking about, have I ever seen an air conditioner commercial? And the only thing I can think of is like, I think the Kenmore man or something like that, like something from Sears, where like it was about the retailer, not necessarily the product. Maybe I'm wrong. You would know more than I.

18:47So how are you thinking about this, given that an air conditioner and like even if we go into the HVAC part of things like filters, they're not really branded often. You know what I mean? For sure. And I think that's the magic that we bring to this category is, you know, we have a brand. We have a personality, you know, in everything that we do. And so, you know, TV is no different. It was a big decision. You know, it is a big investment. It's not just not just buying the media, but figuring out the creative and and shooting something that's high enough quality to convert on on TV. And so, you know, we went to L.A., we found an amazing partner and I had a I had a blast coming up with concepts, you know, with it, with the team going over there and like actually seeing it all come, you know, come to life.

19:41That's like one of my favorite parts of the marketing journey so far. And then, you know, then it comes to, okay, well, here's the creative. Now it's like, well, how do we want to get it out there? You know, what are the right, where are the right places to put it? You know, there's sort of remnant linear where it's just like cheap spots at random times, but you can't really control where it goes. Then there's, you know, you can actually like say you want to put it on Hulu or, you know, any one of these streaming services. And so we, in the first year, we played around with it. We did a mix of things, you know, you can target certain households and certain geographies and, you know, we know our target customer pretty well.

20:23So we did a little bit of that, even though it's more expensive. And so now this year, we're really trying to dial that in. And it's not just sort of a spray and play approach. We have data on what worked. And so So we're just going to double down on those specific channels or geographies that worked for us last year. What did you find work? Was it, you know, did you target people like me, a millennial in a city in April and you found that that worked? Or what was the secret sauce? Yeah, for sure. There's two things. One is targeting and one is timing and getting lucky. You know, we started in March and April last year, and it didn't really get hot until mid-May.

21:07And so I'll tell you what didn't work was spending a lot on TV when it's not hot outside for a window air conditioner. And what did work was, one, targeting. So, yes, we did target sort of the young professional millennial in urban areas, although that was a little bit more costly. but conversion was solid. And another thing that was interesting was we got, you know, per like channel data. And so, you know, HDTV, I, you know, it sounds intuitive, I guess, right? People that are thinking about their homes and they want to watch renovations and, you know, they, they gravitated towards our product, you know, more than some other channels, you know, like ESPN, for example, which like didn't convert.

21:56So that's, you know, yeah. No, keep going. Sorry about that. No, I'm good. I was going to say that's sort of what we're doing this year is going channel by channel, figuring out what worked, who was watching, and then crafting a strategy around that. How are you approaching attribution when it comes to this? Because it seems like with linear, you can sort of do it, but not quite. Do you have QR codes? Are you doing a call to action to go to your site? How are you trying to quantify that? Yeah, super tricky to do, especially when it's your first year doing TV. I think what we've decided internally is that TV spend is part brand building and part performance.

22:38performance. I mean, we do have a platform that sort of directionally tells us what happened. And so there's, you know, some pixels on our site from this software company that helps us track if somebody bought, you know, at a certain time when the commercial was playing or, you know, visits the site. I think you have to be careful with those platforms because it's not so obvious. It's not like somebody clicks on an ad on Facebook, goes to your site, converts with the Facebook pixel, and you know with close to 100 % certainty that that came from that ad. But with TV, it's not. And so I think you have to take the conversion data directionally.

23:23And so we've just been pretty honest with ourselves on that. It's like, okay, we're going to spend, a lot of it's going to be brand to build the brand, and we'll get some directional conversion data that we can optimize off of, but we're not super sticklers about it right now. Got it. Makes sense. Let's talk about the expansion, because you guys are now doing HVAC filters, right? We are. Yeah, it's an exciting... We actually launched this week. Oh, wow. Yeah, it's a central air filter subscription business. Only 30 % of homes require a room air conditioner, a window air conditioner. So there's a massive part of the country that has central air, you know, that need filters consistently to keep, one, their system free of problems, and two, their air clean.

24:14And so, you know, our approach as a company is to help people live more comfortably. You know, we call ourselves a modern air care brand. We're not just a window air conditioner company. And so we were like, hey, we're building an amazing solution for part of the country. Let's build another amazing solution for the rest of the country. And so that's where the windmill filters business comes in. Yeah, it makes a lot of sense. I mean, like, I feel like Windows units, there are a lot of, you know, millions, probably tens of millions of people out there who have them. But also, you know, it's a demographic that does not really extend beyond major urban areas.

24:56what I find so fascinating about the HVAC part is that it is somehow even less branded than the window unit. At least I can walk down the street and point out and say, that's a windmill. I know what that is. It looks different than the usual one. You can't do that with a filter. So how are you thinking about that? Yeah, you're right. And I think this is where marketing innovation comes in to get us to break through in this category. I will say on the product side, at least, We're working with the number one media manufacturer in the world. They're really high-quality filters. I mean, there's a range of quality when it comes to buying filters.

25:38Yes, a lot of them look the same, but they're not necessarily built the same with the same underlying media. So that's one thing on the product side. On the brand side, we thought that very early on. And so we innovated around the buying experience and the digital experience around the filter. So we, you know, we call it the filters that text you. Because when you buy a box of our filters, we send you a text message when it's time to install your first filter. We have little prompts in there like, you know, type in four to get an air pun or an air joke. And so we're having fun with customer engagement.

26:24And when you tell us that you changed your filter, we'll remember that. And then when it's time in two months or three months, depending on the frequency that you wanted, we'll text you again. Hey, just checking in. It's time to change your filter. because 82 % of people in the country do not regularly replace their air filters, which is pretty bad. That's a large percentage of people that don't replace the filters. Again, it's bad for your system because you're clogging the air that's trying to get sucked through. And so your system is working harder to pull that air through a dirty filter, which is ultimately going to break it, which is going to cost thousands to fix.

27:10and also your air is not being cleaned properly. So it's really important that people do this. And so we want to make sure we're reminding people. And then the other part of the brand experience is when you get onto our website, windmillfilters.com, you can actually take a quiz and we'll tell you what you need. We'll tell you the level of filtration that you need. We'll tell you how often you should be replacing it based on some of the inputs. And so we're really excited. Again, we just launched it, and so we're now figuring out ways to break through from a marketing perspective. And I imagine we'll do similar things that we did with the AC.

27:54It's a little bit of a wider market, a larger market that's spread out versus consolidated in these urban areas like the window AC. So it'll be a fun marketing challenge to figure that out. Yeah, I wanted to ask, do you have a strategy set in place, or are you just doing small experiments and expanding from there? Small experiments for now. Before we go spend a lot of money launching the business line, we want to make sure we have the target customer and the right messaging. So, you know, for example, if we were just going to go take out billboards in Atlanta or like Atlanta suburbs, like what do we put on those billboards?

28:36Like we would just be like throwing darts at a wall right now. So we want to make sure we're learning what's actually converting and what the right message is before we go in and do some really cool stuff. Yeah, that was sort of the thing I was thinking about where it's filters are a really tough nut to crack because it's working well when you're not sick. And so that's hard to, like, you know what I mean? Like for, for, for people, they, if it's in a state of ease where they have no idea, they're not thinking about their air filters. You know what I mean? Totally. And I think, you know, that's a, that's a customer education problem because just because you can't feel it or see it, you know, doesn't mean, doesn't mean it's working.

29:18Like it's, you know, most, and I'm actually in an Airbnb right now and I checked the filter and it's caked with dust and probably a lot of other bad things that I can't see. And so I wouldn't know that unless I went to look at the filter. And so I think I would encourage people to just look at the filter. Don't trust that it's working. You'll see if it's gray and dark and coated with dust and all sorts of things. What is, and this is something I don't know because I've lived in an apartment for a decade now, what is the usual distribution model for air filters like yours? Like, is it usually retail or is it through, you know, an HVAC thing?