April 15, 2020

#88 How Startups Can Succeed in a Pandemic

by The Pitch

In the last few weeks, COVID-19 has changed just about every business in the country. Investors everywhere are scrambling to help their startups survive the pandemic. On today’s show, investors Elizabeth Yin and Charles Hudson take calls from listeners. They advise founders on how to pivot to a remote-friendly model, how to survive the losses in the hospitality industry, and how to navigate the new fundraising landscape. 

If your business is in crisis because of this pandemic, and you could use sound advice from our investors, call 833-748-2448 and leave us a voicemail.

Transcript

From Gimlet, this is The Pitch. I’m Josh Muccio.


In the last few weeks, we opened up the phone lines several times to hear from many of you. And what you told us, in no uncertain terms, is that the effects of the coronavirus pandemic are far reaching, and at a scale that is completely unprecedented. In mere weeks, the virus has made its mark on just about every business in the country. 


And so founders are asking hard questions like: Should I change my whole business model now that everyone is stuck in their homes? Should I be aggressive while everyone else is being conservative? And what do I do when all my best laid plans for 2020 have been laid to waste? 


But when our investors got on the line to help, their answers were surprising, even counterintuitive at times. And something else was different. It wasn’t a critique of the business. It was more like everyone was sitting down at the table together, trying to figure out how to make this work.


So today we’re going to play you some of our favorite calls. Joining me is longtime friend of the show and investor in over 150 early-stage startups, Charles Hudson. And investor in, as she puts it, hilariously early founders, Elizabeth Yin. 


Elizabeth and Charles both called in from their homes in California.


Charles: Josh, are you in Florida? Are you in Florida right now?


Josh: I am in Florida and they just issued the shelter in place order for all of Florida.

Charles: Welcome to the club, buddy!

Josh: Ah! I know.

Charles: You and Lisa are safe? Kids are good?

Josh: Yeah. Yeah. We're, we're good. Nobody in our family has it yet.

Charles: I just talked, got off the phone with an entrepreneur who had COVID. And had to reschedule our call 'til, 'til today. He's like, it's not fun. 

Josh: Ah, man. 

Charles: That made it very real. 

Josh: Mm. Hey, Elizabeth!

Elizabeth: Hey, Josh. Hey, Charles.

Charles: Hey, Elizabeth!

Elizabeth: Charles, that sounds horrible.

Charles: It was really, it was really bad.

[Phone Ringing]

Josh: All right. First caller coming up. 

Laura: Hello?

Josh: Hello! 

Laura: Hi!

Josh: Who’s this?

Laura: This is Laura Alotaibi.

Josh: Hi Laura. Welcome to the call in show with investors Elizabeth and Charles. 

Elizabeth: Hey, Laura.

Charles: Hey! 

Josh: Well why don't, why don't you start off by telling us the story of your business and how things were going leading into COVID.

Laura: So I started my business, Venues N More, because I, uh, struggled booking birthday parties for my kids. And I have triplets. I only have one party to plan and I still hated planning it. And I just, I hated calling the venues, you know, a teenager calling me back and credit cards over the phone. And so I decided to quit my job and focus solely on providing a solution or a marketplace for parties. And so in late 2018, started working on this project and it's been growing. I was on track to make a profit in March. We had had around 20 bookings a month. And now we're down to, uh, two this month. 

Josh: Oh wow. Not great.

Laura: Not great. 

Elizabeth: Mm-hmm. Laura, let me ask you this. Um, how are you thinking about your business now? What do you think you're going to do? 

Laura: I a hundred percent believe in this and I am willing to kinda do what it takes to make my company survive.

Elizabeth: Mm-hmm.

Laura: And one of my questions was, you know, would now be a good time to kinda look for a new source of revenue or should I think about pivoting at all my focus? Because I, I do wanna make sure that Venues N More continues to grow. 

Elizabeth: Mm-hmm. Well people are still having birthdays despite the situation. And people still wanna...

Laura: Absolutely.

Elizabeth: ... celebrate. Do you think that there are things that you can do in this new world, even if people can't go out to venues? Uh, is there a way that people can have their birthday parties at home in a special way?

Laura: Um, yeah. And actually I just sent out an email today to all of my vendors saying, um, Hey, why don't you put a virtual party listing on Venues N More? And let's kinda test it out and see how it does. I haven't got any feedback about the idea yet. So I, I wanted to kinda get your feedback on it. 

Charles: Yeah. I mean, I guess, uh, my sense is you're in a unique position 'cause you're sort of sitting at the intersection of people who want to plan these parties and experiences. And then the experience providers themselves who, like you, I'm sure, are seeing a tremendous loss in revenue and opportunity. Imagine if you can find the one formula for a five-year-old birthday party with ten friends that seems to work pretty well. I bet you there's a lot of parents out there. So maybe instead of trying to figure out how to make a hundred different things work well, maybe you can find a way to make four or five really great virtual or digital experiences and just lean into marketing those instead of trying to make a lot of things work kinda well.

Laura: Okay. Okay. 

Elizabeth: It's funny as you were describing this very seemingly bleak situation, I was actually thinking, "This is so exciting!" You actually have a lot of amazing opportunities-

Laura: (laughs)

Elizabeth: ... ahead of you, to Charles' point, right, you can expand your market. In addition, you also have less competition in a sense. Like I think in the, in the old world, in some sense you were competing against other venues and certainly other venue marketplaces or whatever. But now, nobody's figured it out! And everybody still has birthdays. My niece's birthday is actually this Saturday and she's not gonna be able to have a party. I don't know what, you know, to do. Is it that all of her friends should get cupcakes delivered to their door or balloons or should there be a virtual Zoom party? Or should there be a clown on Zoom or all these things. I think the possibilities are kind of endless and it's more, to Charles' point, about experimenting to figure out maybe there are interesting party packages here that nobody's thought about, nobody's tried. This is a great chance for you to try it and actually be a thought leader in this new world. 

Laura: Got it. I love that advice.

Charles: You might come out of this with a business that's actually more interesting to you and your service providers. Like even when things return to normal. If you can crack this digital piece, I wouldn't be surprised if it ends up becoming a chunk of your business even once things snap back to normal.

Laura: Right. Right. Um, I felt like I was holding my breath for a while, like hoping like, oh, things are gonna return to normal. And, and once I just realized they're not, I, I just felt like it's time to adapt and, and really change my mindset. I just need to figure out a way to make it happen.

Josh: Awesome. Thank you, Laura. 

Laura: Thank you so much. 

Josh: Of course.

Elizabeth: Thank you.

Charles: Thank you. 

Josh: Bye.

[Call Ends]

Elizabeth: I actually think it'd be really exciting to brainstorm virtual birthday parties. 

Charles: And like, there's so many people I know whose businesses are primarily in real life. And one of the more interesting things I was gonna mention to her but I, I didn't think about it, like, if you're a clown, you gotta pack up all your stuff, drive to that family's house, set up, perform. So you could maybe do one show a day.

Elizabeth: Yup, yup.

Charles: Or two shows a day. So you had to price based on like, that factored in all that stuff. And that all goes away if you're live streaming.

Elizabeth: Mm-hmm (affirmative). And you could do six shows a day.

Charles: I could do six shows a day.

Elizabeth: Yeah.

Charles: Yup.

Elizabeth: Yeah. I was at, um, my daughter's friend's birthday where they brought in Elsa. "Elsa." And, uh talked with her manager and you're right-

Josh: Elsa's manager-

Elizabeth: Yeah. Elsa's manager.

Josh: (laughs)

Elizabeth: Yeah, she has one. (laughs) Um, she could only do two shows a day. 'Cause she was like-

Charles: That's right.

Elizabeth: ... driving around the Bay Area and to your point, she can do shows in Connecticut and start at six in the morning. Or whatever-

Josh: Yup.

Elizabeth: ... in Texas. And, you know, all the way to night if she wanted to. Just like, back to back to back. And Elsa didn't stay very long at the party either. And she-

Josh: No!

Elizabeth: ... and frankly speaking she didn't do very much. Yeah.

Josh: Yup. She's gotta get back to the woods.

Elizabeth: Yep. (laughs)

[Phone Ringing]

Josh: Alright, here we go next caller 

Daniel: Hi.

Josh: Hello.

Daniel: Josh?

Josh: Yes, this is Josh. Who's this?

Daniel: Uh, Daniel. Hi, how are you?

Josh: I'm doing well. I'm joined by Elizabeth and Charles. They're here, too.

Elizabeth: Hi, Daniel.

Charles: Hi.

Daniel: Hi, Elizabeth. Hi- hi, Charles.

Josh: Why don't you start by telling us, uh, a little bit about your business? Tell us the backstory leading up to this year.

Daniel: Well, we are, we're called Uno Punto Cinco, we are based in Mexico City, but we have a few customers in San Francisco and Miami. And we're a SaaS that reward and train waiters in order to upsell consumer brand products. Uh, our first customer was Heineken. So right now, uh, during the crisis, we're a little bit affected because we strictly depend on the movement of our restaurants. Uh, so we launched this ...

Josh: Hey, Charles, Elizabeth. Do you guys understand this business?

Elizabeth: Uh, actually it'd be great if you could elaborate a bit more about how- how do you, let's say, get a boost in sales on Heineken in a restaurant?

Charles: Yep.

Daniel: Sure. I can make an- an example. If you go to a restaurant, and if you ask for a wine recommendation they maybe suggest you a specific brand of wine that is paying us to reward the waiter for upselling or for pushing that sale instead of another brand.

Elizabeth: Ah, I see. And you are working with the restaurants or with the waiters, or...

Daniel: Working with the waiters. 

Elizabeth: Oh, okay. 

Josh: So how, uh, help me understand what happened when coronavirus hit. You, I don't know what the situation is, um, where you're at exactly, but how did that affect your business?

Daniel: Okay, well, (laughs) it's, uh, it... The last few weeks were, like, uh, first we were really stressed because of the situation here in Mexico, right now everything is locked down. It will remain locked down at least for the next 30 days or more. Every restaurant is closed.

Josh: Right.

Daniel: And after talking with most of the restaurants' owners whom we were with, they are worried about one thing, and one thing only. It is they will need to fire their staff. 

Elizabeth: Mm-hmm (affirmative). 

Daniel: So, um, taking a few steps back on how do we add value to the waiters. We realized that at least 30% of them will be... will, will lose their job during the next few weeks. So we launched a job exchange platform and that's when, uh, uh, I can tell a little bit of the magic began because, um, 

Josh: So this is a brand new product? Like you just like created this new thing, a job exchange website. 

Daniel: Yes, totally. We realized that the delivery platforms, uh, in the US and in Mexico are struggling because they increased their demands right now. The, the demand increased but not the staff So, uh, we have more than 4,000 waiters in our database that we know that they have every single document that these delivery platforms need-

Elizabeth: Mm-hmm (affirmative).

Daniel: ... in order for hire them. So the new product right now, and it’s like.. the intention is to… We will use one of our waiters to, to give the delivery and we charge a fee for that service.

Elizabeth: Mm-hmm (affirmative).

Daniel: So that's a new product.

Elizabeth: Great.

Daniel: So what will happen if this actually works and works even more than the, than the previous model? We decide to just focus on this model and kill the other one that has traction, that has customers, that has two years of work.

Charles: For what it's worth, I think your new model is way better than your old one. I mean, your old one, it was so complex. Thank you for Josh for jumping in and asking if we understood it 'cause I was a little lost. And I think the instant you explained the new model, it was very obvious to me how it would work. You have a real advantage with the supply that you built from your previous business. And I think in times like this it's very easy to get attached to what you were doing before. But I don't think investors give you credit for persisting with something that probably won't become a big idea. So I think if the goal is to sort of work on the thing that has the biggest upside for you, the new idea to me it seems like it's a much more straightforward business that could get large. It meets a current need. It takes advantage in a good way of the relationships and audience you already have from the old model, and with the beginning model I had like a million questions about just how complicated it was, whereas the second one strikes me as like remarkably simple.

Daniel: Yeah, absolutely. Actually the, the reason we are bootstrapped is because we don't have a lot of attention from, from investors, but we were able to have some revenue. So that's why we kept going. 

Josh: What do you think, Elizabeth?

Elizabeth: I actually would not really care about what investors think, and especially in this market or environment. You know, to be quite frank, I don't think there are many investors who are even, you know, spending a lot of time investing in new companies to begin with. 

Josh: Right now. You're talking about the investment environment right now with COVID.

Elizabeth: Right now. That's right. Your mission is to help waiters and waitresses. This very much aligns with that. You have the supply. You can make money. It makes perfect sense and I agree the delivery opportunity is there. I would just go and do that. And then you can worry about the fundraising story later when the market comes back. But I think, you know, it's hard to say when that will be. And so I would just do what it takes now.

Daniel: Okay. Perfect. Thank you, Josh. Thank you Elizabeth. Thank you, Charles.

Charles: Thank you.

Elizabeth: Thank you. 

Josh: Bye. 


After the break, a chocolate company that opened up just two weeks before the economy shut down.


BREAK


Josh: All right. Here we go. Next caller. 

[Phone Rings]

Josh: Hello? 

Ben: Hey.

Josh: Who's this?

Ben: This is Ben Snyder. 

Elizabeth: Hi Ben.

Ben: Hey, how are you?

Charles: Hi. 

Josh: Ben, why don't you start by telling us the story of your business leading up to the pandemic.

Ben: Sure. So I am one of the founders of Lumineux Chocolate. We are a small batch bean to bar chocolate maker-

Josh: Mm-hmm (affirmative).

Ben: ... based in Greenville, South Carolina. My wife and I founded this company back in November of last year, with the plan to launch our product line in February. We ended up getting pushed back about a month and, and ended up having to launch, uh, about two weeks ago. So we had counted on being able to do tastings and events, and we had a lot of events lined up for March and April and then the coronavirus pandemic hit and everything got canceled. It is the worst timing ever.

Josh: Ah, that sucks.

Ben: Yeah. 

Josh: So have you tried selling it at all like online or on social? Like have you gotten any orders? 

Ben: We've done some, a few promotions through Instagram which haven't resulted in any sales and very minimum followers on Instagram. We're still only at 60% of our projections for March, and April is not looking good. 

Josh: Yeah.

Elizabeth: Can you tell us a little bit about the chocolate? 

Ben: Yeah. So our chocolate is unique from a lot of the chocolate you find in the stores. we're buying cocoa beans from six different countries in Africa And it's really unique in that being able to taste the chocolate from different origins. For instance, we have a 75% dark chocolate with beans from Tanzania, which is super, super fruity and bright. And then we also have a 67% dark chocolate from the Ivory Coast, which tastes just like cinnamon toast. 

Josh: God, I should, I could really go for some chocolate right now. Like I really need some chocolate after that. 

Charles: Out of curiosity how much chocolate do I need to taste to get a flavor for the differences? Can I... Is a square or a small amount sufficient or do I need a large amount to fully appreciate it.

Ben: Just by tasting a small square of each you can, you can really appreciate it. 

Charles: Is it possible to sort of make that sampler experience something that the consumer could try and home at a cost that's not prohibitive to you but that would give them some sense for the product?

Ben: Yeah, yeah I think that’s a great idea and we had even talked about doing some virtual tastings, um, through like Instagram live. 

Charles: I know a number of wineries that are doing that right now too. And it seems to, it seems to be working pretty well. It seems to be popular.

Ben: Cool.

Elizabeth: Yeah. On top of that, you know I, I think it'd be so cool actually to see your factory. I don't know if part of your tasting could incorporate that, but it sounds pretty unusual. And frankly speaking, being in California, I wouldn't be able to go in person. You can actually reach a market that you wouldn't have been able to have reached before. 

Ben: Yeah, I think that's a great idea. 

Josh: Cool, Ben. Keep us posted. Let us know how everything goes.

Ben: Yeah, I will. Thanks again for your time.

Elizabeth: Yeah.

Charles: Thank you.

Josh: Bye, Ben.

Ben: Bye.

[Call Ends]

Josh: I mean, should people just give up on food businesses right now?

Elizabeth: (laughs) No, actually. People are eating and drinking more than ever.

Charles: Not at all.

Elizabeth: I'll bet people would like, just stuff their face with chocolate in this day and age.

Josh: (laughs) Yeah, I don't think I've ever craved chocolate more than that moment.

Elizabeth: (laughs)

Charles: But we- we, I just brought that up because we have a few companies in our portfolio where, what they realized is, the cost of fulfilling a sample was cheaper than buying a customer through digital.

Josh: Oh.

Elizabeth: Mm-hmm (affirmative).

Charles: And it had the added benefit of the person actually tried your product, so it was better to just find a way to get the product in the hands of people who wanted it. Rather than try to acquire them on Facebook or Instagram, get them to come to your site, get the, it was just, it just turned out to be a better experience for them.

Josh: Yeah.

Elizabeth: Mm-hmm (affirmative). 

Josh: All right, uh, well, I think we have time for one more caller. 

[Phone Ringing]

Dylan: Hello?

Josh: Hello!

Dylan: How's it going?

Josh: It's going well. This is Josh. Who's calling?

Dylan: Uh, this is Dylan Sena from, uh, DraftBuff. 

Elizabeth: Hi, Dylan.

Charles: Hey, Dylan.

Dylan: Nice to meet you guys.

Josh: Well why don't you start out by telling us, uh, tell us about your business, why you started it, just tell us the story kinda leading up to  COVID. 

Dylan: Yeah, sure, so DraftBuff is a free and social fantasy e-sports platform. And so we're basically most similar to your ESPN Fantasy Football, except for professional e-sports. I actually started it while I was working at Amazon two years ago. Fast forward to today and I quit my Amazon job in August. And I've been doing DraftBuff full time. we launched our app in late November. And the growth has been fantastic. we got over 35,000 downloads in three months. 

Josh: That's awesome.

Dylan: Yeah. It's basically a free-to-play mobile app in terms of monetization. So we have some quirky avatars that you can basically purchase in the app.

Elizabeth: Yep.

Dylan: So we have like a virtual currency called bananas and you can basically use your bananas to get more, like, emotes and all these, you know, fun little quirks.

Josh: Wait, wait, hold on. Hold on a second. You created a virtual currency and you just named it bananas?

Dylan: Yeah. (laughs)

Josh: (laughs)

Elizabeth: (laughs)

Josh: Why? I mean...

Charles: Why not, Josh?

Elizabeth: (laughs)

Josh: I mean, yeah, there's also that, but-

Dylan: There- there- we wanted something that's sort of true to our nature, just like fun, quirky, and, uh, my gamer name is like, King of Bananas, so we thought it was fitting.

Elizabeth: (laughs) And so at the moment, can you as a user buy more bananas, or some of these premium things? Or not yet?

Dylan: Uh, at the moment, you can only earn bananas by, like, referring people or doing certain activities. Um, but we will be able to, uh, give the option to purchase them pretty soon. 

Josh: Alright, so then what happened when  COVID started happening?

Dylan: You know, the nice thing about gaming is it's doing well. 

Josh: Right, 'cause there's no sports. Like there's no-

Dylan: Yeah.

Josh: Like physical sports playing anywhere, so like all you have are video games. 

Dylan: Yeah, in fact, one could argue that it is like, Esports was this- this second thought, and when sports goes away and Esports is the only thing, it almost becomes too legitimate.

Josh: (laughs)

Dylan: And we're worried that some, you know, traditional brands are gonna start to enter our space. 

Elizabeth: So, um, what would be helpful to chat about?

Dylan: Yeah, um, you know, I think one thing that we're trying to figure out is how conservative or how aggressive we should be in terms of our acquisition strategy. and- and, we have you know, a budget and, you know, we can either extend that for, six months, 12 months, or, you know, 18, and so, we're just trying to figure out, what the fundraising scene is going to look like and how, uh, conservative we need to be. 

Charles: Yeah, I think in this environment, it's probably better for you to validate that the business model works before you step on the gas too hard.

Dylan: Yeah.

Charles: I- I would say like, we've probably shifted a bit, and this is I think independent of like, whatever your fundraising plans are. Just for your own peace of mind.

Dylan: Right.

Charles: I think we've kind of shifted from an environment where it's, I'm pretty sure this will work, give it the benefit of the doubt to one where it's more trust but verify, and I would say the advantages to you of testing this out sooner are that if it works as well as you think it can, you'll have plenty of customer revenue to use to invest in growth and acquisition. And if for some reason it doesn't work as well as you think it will, you won't be leaning into spending to acquire a bunch of users under a flawed premise. So I- I would encourage you to at least get some preliminary data on how well the monetization performs relative to your expectations-

Dylan: Right.

Charles: ... before you start dramatically ramping up spend.

Dylan: Yeah. 

Elizabeth: So first off, I think even in a world without COVID, for a consumer app like this, I think VCs are very cautious just in general for consumer apps.

Dylan: Yeah.

Elizabeth: There are only a handful of VCs that want to do them at an early stage, and I think in particular when VCs do invest in those companies at that early stage, they want to see amazing retention and engagement. 

Dylan: Right. I think this is very good advice. 

Josh: Well, cool. Dylan, thanks for calling in.

Dylan: Thank you so much for, uh, for taking the time to chat with me. I hope you guys are all staying safe and washing your hands.

Josh: (laughs)

Elizabeth: Thank you.

Josh: Thank you.

Elizabeth: You, too.

Josh: My knuckles are cracking.

Dylan: (laughs)

Josh: All right.

Dylan: Bye.

[Call Ends]

Josh: Well, his business is bananas.

Elizabeth: (laughs)

Charles: I mean, it is weird, like we have companies in our portfolio that are growing through this. And they’re, they're in a slightly different position than him. Like they're growing and they're trying to figure out, in a world where everybody else is cutting, how responsible is it to step on the gas? Or should we just, like, take the demand that's coming? And for a few of them, I have actually told them, "I think this is your moment."

Josh: Hm.

Elizabeth: Mm-hmm (affirmative).

Charles: And like, particularly like we have some companies in, um, online education that are kind of like, virtualize the classroom-

Elizabeth: Mm-hmm (affirmative).

Charles: ... so to speak.

Elizabeth: Yeah.

Charles: And I'm like, the biggest... People have been telling me-

Elizabeth: (laughs)

Charles: ... they won't do it for so long, the status quo was so convenient, and now they're forced to use products like yours. I can't envision a time where your marketing dollars or energy would be better spent than right now.

Josh: Right.

Elizabeth: Yeah. You should do it. (laughs) 

Josh: Are we, I was just thinking like, is this finally gonna be the thing that finally gets people to use VR? (laughs)

Elizabeth: (laughs) 

Charles: Oh no. Well it's interesting, I talked to a couple of VR companies that I know well. I said, "This must be boom time for you." They said, "If only the supply chain for headsets-

Elizabeth: Mm-hmm (affirmative).

Charles: ... wasn't so backed up-

Josh: Ah ...

Elizabeth: Yep.

Charles: ... the answer would be yes." And so I've like, VR is like, VR can't catch a break, it feels like.

Elizabeth: (laughs)

Charles: And so you've got all these people at home, looking for an escape. And 

Josh: They're settling for Zoom. 

Kid: Dad?

Josh: Whose kid just went in and said, "Dad"? Is that mine?

Elizabeth: That was mine, sorry.

Charles: Not mine.

Josh: Whoa, no, it's okay. I was like, is that -

Charles: Mine's napping.

Josh: It actually sounds like my six year old.

Elizabeth: It's my six year old. 

Josh: Well, cool. Thank you guys so much. This, I thought was really fun. I think it went super well.

Charles: This was great. Thanks.

Elizabeth: Yeah, thank you. 


Thanks to everyone who called in, and to Elizabeth and Charles for taking the time.

We really enjoyed making this episode. It feels like the best thing we can be doing right now to help. 

So, if you’ve got a problem, something you could use some sound advice on, call us anytime at 833-748-2448. And leave us a voicemail telling us what’s going on. Again that number is 833-748-2448.


The Pitch is hosted by me, Josh Muccio. Produced by Max Gibson, Heather Rogers, and Chris Neary. We are edited by Sara Sarasohn.

Scoring from The Muse Maker, Breakmaster Cylinder, and Emma Munger. We are mixed by Enoch Kim. 

Thank you so much for listening. We’ll be back next week on Wednesday. See you then.