May 13, 2020

#90 How Startups Can Succeed in a Pandemic 2

by The Pitch

Background show artwork for The Pitch

COVID-19 has pushed many founders to attempt risky pivots with their business. Other founders are hoarding cash. And many of them are seeing VC money dry up. On today’s show, investors Sarah Downey and Phil Nadel advise four worried founders on how to keep their businesses afloat.

Transcript

Phil: Hey, Sarah, it's Phil.

Sarah: Hello.

Phil: Hi. I'm trying to get the... the video to work. I see the... the video icon, video camera icon, I'm clicking on it, but it's grayed out. Any tips?

Josh: Phil, do I need to teach you how to use your computer? 

Phil: Uh, no.

Phil Nadel may not know how to set up a video call, but he sure knows how to advise startups in a crisis. And over the last few weeks, we've heard questions from founders from all over the world, from just about every kind of business. 

I’m Josh Muccio, and today on The Pitch we’re taking calls where we talk about manufacturing, investment, even whether or not to list a restaurant on door dash. What I love about this, is we’re hearing from people we wouldn't normally hear on this show.

And we ended up with a pretty clear picture of just how hard it is to be running a business these days. 

Joining me on this call-in show are two investors, two listener favorites, the inimitable Sarah Downey with Accomplice and, someone who’s been with our show for so long, he’s become somewhat of an institution, Phil Nadel.

They’re taking your calls and hopefully offering some advice, right after this quick break.

Josh: How are you both doing? 

Sarah: I mean, I haven't worn real pants in probably three months, and I'm... I love it.

Josh: Some people are really thriving in this environment. Are you one of those?

Sarah: Oh, yeah. I think if... yeah, if you're... I think the three main factors are, are you an introvert? Do you not have kids who are young?

Josh: (laughs)

Sarah: And, uh, do you... no, that's pretty much it.

Josh: (laughs)

Sarah: Like, I... I don't have kids, and I'm an introvert, and I have a house that I've invested a lot in... in wanting to be a place where I spend time, so I literally have two PlayStations, an Xbox, a Nintendo Switch, an Oculus. I mean, I literally don't have to f***ing go outside ever.

Josh: That's amazing. That's amazing.

Sarah: So, like, yeah, like, I realize that, you know, it's a terrible time for a lot of people, and we’ve been doing a lot with the nonprofits in the area and our portfolio companies and like I... I get all the negatives of it, caveat. But that aside, like, me being in my house in sweatpants for three months, I'm... I'm in my prime.

Josh: (laughs) Phil, what about you? Are you just playing video games 24/7 now?

Phil: Umm, nothing's changed for me. I go to the office every day, the only thing that's different is there's no one else in the office pretty much, so… 

Josh: That's our first caller You guys ready?

Sarah: Yeah, I guess. 

Shannon: Hello, this is Shannon.

Josh: Hi, Shannon. This is Josh, and Sarah, and Phil.

Shannon: Hi, Josh, and Sarah, and Jill. Nice to meet you.

Phil: It's actually Phil, but you can call me Jill.

Shannon: Phil, sorry.

Sarah: He goes by Jill in the off hours.

Phil: You can call me Jill.

Josh: I like Jill better than Phil actually.

Shannon: (laughing) Got it.

Josh: Shannon, why don't you tell me about the business. 

Shannon: Sure. So, we actually started out as an in-person presentation and event software with a built in sales enablement component. And so we take the presentations from the big screen, push them out to audience devices so they can interact in real time and let you convert them to customers, donors or fans before the presentation's over. 

Josh: So you’re taking what's on the powerpoint during a presentation and putting it on everyone's phone in the audience?

Shannon: Yeah. So, what we do is we push your slides out in real time to all your audience devices. Whether it's a mobile phone, a tablet, a desktop, a laptop, whatever it may be. And, the attendees can see the slides in real time. They can interact with those slides by taking notes, bookmarking them, giving anonymous feedback, via an emoji set. And, we also have integrated polling and calls to action.  

Phil: That sounds really cool. 

Shannon: Thank you. So we had been in beta pretty much all of 2019, where we had about a thousand users on the platform. At the end of last year wrapped that up, and we were moving into like, "Go to market now", right? And, we had landed a big, partnership opportunity with TechDay, where we were gonna be debuting our software to a 15,000-person conference. And, there were a lot of other customers that we had been talking to that said, "this goes well, we're very interested in what you're doing, but we wanna see it live".

Josh: Yeah. This is your moment.

Shannon: This is our moment. And then, of course COVID hit. And, we are a product for in-person presentations and events. And so everything ground to a halt.

Josh: Jeez.

Sarah: Oof.

Phil: I'm sorry to hear that. That's really tough, tough, tough timing. 

Sarah: Yeah, and it also sounds like something that is ideal for digital I mean, everyone is in these video chats. It's like I've been in some with hundreds of people. It's just like mind-blowing how we've all just adapted to this like, I know you built it for in-person events, but what you just described...

Josh: Yeah.

Sarah: ...is so handy.

Shannon: Yes.

Phil: What about using it for, for companies, start-ups that are actually pitching online? All these demo days now have gone online. 

Josh: Or, these just regular events. Like Web Summit. 

Phil: Sure, sure.

Josh: ...they're all trying to make their conference happen online now. And, I don't think they're just gonna be like, "Yeah. Join our Zoom call". 

Sarah: Yeah.

Shannon: Yeah. (laughs) We had some investors that were pretty interested in us. One that had actually even started the due diligence process.

Josh: Right.

Shannon: Right before all of this hit. And, once this happened, most of the investors just went radio silent. Um, the one that was in the midst of due diligence has kind of been in touch, but not, not as regularly as I would like. So, what's a good way we could continue to engage those investors, or keep them interested during this time?  

Phil: I think it's just a matter of reframing the business. And, and it's not exactly a pivot. It's the same basic software. You're just adding a few extra features to make it more appropriate for online use. 

Shannon: Mm-hmm .

Phil: ...I don't think you wanna continue pitching, the in-person component. Because everyone's taking a pause on that and see where that shakes out, you know, in a few months, post COVID. 

Shannon: Okay.

Sarah: Yeah when you do reframe it, I would make this part of the story. Like, don't, I think a lot of people get, uh, kind of worried about the history of, of the company, and they try to, uh, airbrush everything to look like success from the beginning. And, no, no story looks like that, especially with companies.

Shannon: Um-hmm.

Sarah: So, like your story is you made this in-person event software, crisis hit, and you have the resilience and the grit to, to change it into what the world needs now. And, that is part of what will make you appealing to investors.

Phil: I agree a hundred percent, Sarah. I mean, investors love that.

Shannon: Mm-hmm.

Phil: We love to see that.

Shannon: Mm-hmm (affirmative)

Sarah: Yeah, and I think people are writing checks right now. It's definitely slowed down to be clear. But, we as investors are in the business of funding companies we think are gonna be great. That's what we do. And so, I would, I would suggest that you, you tailor the story as we've, we've suggested, but also increase the, the funnel in terms of the number of investors you are reaching out to. Like, you mentioned you were in diligence with one. Just from my experience, you're gonna need to be in diligence with a bunch more than one to get to the check.

Shannon: Mm-hmm (affirmative)-

Sarah: So, uh, don't feel bad about going ask, going, going after people asking for their time right now, because this is what they do as investors. 

Shannon: Okay. Sounds good. I will definitely do that. 

Phil: Go get them, Shannon. You're doing great.

Shannon: Yeah, absolutely. Thank you. (laughs) Thanks everybody. 

Sarah: Thanks, Shannon.

Josh: Thanks, Shannon.

Shannon: Bye.

Josh: Bye.  

[ring ring]

Josh: Alright, next caller. 

Krystin: Hello? 

Josh: Hello, this is Josh. Who’s this? 

Krystin: Hey, Josh. This is Krystin. How are you?

Josh: Hey, Krystin. I'm well. Uh, Phil and Sarah are here, too.

Krystin: Hi, Phil and Sarah.

Sarah: Hey, Krystin.

Phil: Hi.

Krystin: Hi.  

Josh: Well what's- what's going on? what you calling in for?

Krystin: So, just to give you kind of like the quick and dirty about me ... so I'm a single mom of two. And I started a company called CoTripper which is an all-in-one, community and family travel booking platform for single and solo moms. um inspired kind of just by my journey traveling as a single mom. So we basically, we would partner with travel companies ... specifically in like sustainable, small group tours. So pre-COVID, I landed our first customer with Intrepid Travel. We had a pilot that was going to roll out in spring and summer of this year and COVID kind of just put an end to all of that. So, I've been in extreme pivot mode since then 

Sarah: Yeah, travel is especially tough to be in right now.

Phil: Very tough space right now.

Krystin: Yeah.

Phil: So what are you thinking about in terms of pivoting?

Krystin: So a big part of our platform is the community portion so we've pivoted to just solely focus on how to help single moms navigate through COVID and the new normal now that we're kind of all navigating through that. So kind of like a- a place where they can go. We have a weekly Zoom, kind of standing meeting where I'm just trying to figure out what their pain points are, what they need, and figure out how we can, as a company, best serve those needs for now.  

Phil: You know, it, it seems to me that you have an opportunity now to build the community and don't think about, you know, earning revenue today, but think about building community online of single moms and expand the size of that community so that ultimately, let's say even six months down the road, when people are starting to really travel again, once you turn that on, you're going to have a lot more community members to, to earn commission on for the travel.

Krystin: Yeah. Yeah. And that's exactly kind of where I was going with this pivot. Um, and I'm, I'm happy that you said don't worry about like making money right now 'cause that's kind of like where I'm at, but I wasn't sure if like that was acceptable to be at that place. (laughs)

Sarah: Oh, it's, it's so acceptable. Yeah

Phil: And what you're doing is building trust and goodwill with them because you're not trying to sell them anything for now.

Krystin: Yeah. 

Josh: Are you able to do that though, Krystin? Not making money and like just building the product and like investing in the future makes sense. But like do you have the money to, to do that?

Krystin: Well, since COVID and before I kind of contract as, I'm an accountant. So like I'm okay. I think the only thing that I worry about is that I'm a solo founder, so managing working and kind of like ramping up the community, it definitely will be a challenge. Um I was hoping to kind of like get investment by summer, so my plans are kind of derailed. (laughs)

Sarah: Yeah. I mean I don't know about you Phil, but if, if I were looking at this as an investment, I would be way more excited about a big community of engaged people than a pilot.

Phil: A hundred percent. I mean you want engaged users, size of community if they're not engaged doesn't matter as much. But also I want to point out that by engaging the community now and sort of putting the travel piece on hold is that you may discover other opportunities, other needs that they have and want that you can satisfy, you can organize for them. So while it may not be travel, it could be something else that you'll discover when you start engaging with a lot of these single moms, you may find out they need something entirely different and then you'll be in a position to take advantage of that because you won't be married to the idea, no pun intended single moms, (laughing) won't be married to the idea of, of travel. You know what I mean?

Phil: You, you can pivot to any kind of, um, revenue opportunity at that point because the asset you have is the community who trusts you and with whom you're engaged. So I think that's the real approach. In terms of the, the size of the community, it's more important that the number of people who are engaged and really into it.  

Krystin: Well, that's actually what I needed to hear because I'm kind of in here toggling between do I need to be focused on revenue, but my heart is really in serving this community right now like wholeheartedly. So I think that this is confirmation Um-

Phil: Yeah.

Sarah: Yeah.

Phil: Go with your heart.

Krystin: And I think that's really important. Yeah. Yeah.

Sarah: You really should. I mean-

Phil: Go with your heart.

Sarah: ... you are serving a real need right now. Like you can tell that these women really need this community and so do you, and that's the kind of thing that investors are going to really respond to  

Krystin: Awesome. Awesome. 

Krystin: Thank you so much. Oh, you guys are great.

Josh: Thanks Krystin. 

Phil: See you Krystin.

Krystin: You guys take care and be safe.

Phil: You too.

Sarah: You too.

Krystin: Thanks. 

We’re going to take a quick break. When we come back. More callers. Including a founder who’s having second thoughts about manufacturing in China.

[ad break]

[ringing]

Josh: Okay, Here we go.

Dan: This is Dan.

Josh: Hey, Dan, this is Josh and Phil.

Dan: Hi, Josh. How you doing?

Josh: And Sarah.

Dan: Hi, guys.

Sarah: Hello.

Phil: Hey, Dan.

Josh: Where are you calling from?

Dan: Smack- smack- smack dab in the center of California.

Phil: What do you do out there, Dan?

Dan: I'm a lineman for a utility. Um, I work on, work on high voltage and power poles and whatnot. 

Josh: Oh, wow. That sounds like an essential service.

Dan: It is very essential, yes. I, uh, I-I'm scheduling work for the crews so I- I don't have to be out in the field quite as much as I used to, but, um, uh, it- it's definitely something that needs to continue happening.

Josh: Yeah. Wh- what are you calling in for today?

Dan: Well, um, I have a product that I've been working on. it's a, uh, hardware product. Um, had an idea when I walked out in my garage about four years ago and, uh ... it was, basically I had a bunch of plastic storage totes stacked up against my wall taking up all my nice space in my garage that I wanted to do other things, and um, this idea sort of popped into my head to, uh, create a product that would allow me to store those on the ceiling of my garage in a really easy and accessible way. Um, and, uh,

Josh: this is basically a product that allows you to make use of the space between your ... the height of the person in the garage and the ceiling. Like you're basically utilizing the space below the ceiling as storage space?

Dan: Yes, that's correct I filed. I was granted four utility patents on it. Um, I've pursued it with all of my own capital all-in with prototypes and patents and everything, I'm about $200,000 into it. 

Josh: Whew.

Dan: ... and, yeah, it's a, you know, and- and, uh, it's been one of those things where at every step I've- I've seen encouragement. Um, I- I was sort of testing the- the market with these Facebook ads and they got picked up by this, um, large social media aggregate site called Cheddar. 

Josh: Heard of it.

Dan: They put it out ... okay. So they put it out on Cheddar Gadgets and, uh-

Josh: (Laughs)

Dan: ... it got like 600,000 views, and my Facebook page that I had set up exploded and I had a lot of people asking where they could buy it and whatnot.

Josh: Yeah, I was gonna say ... it- was it, was the product live at that point?

Dan: No, no (laughs) Um, so, essentially I was just getting ready to press the button and send over my capital to- to these factories in China that I had been working with to have the molds cut open and start actually producing. And then all of this hit. And my question for you guys is, I'm- I'm afraid to send all of my capital to a place where I feel like potentially tomorrow, if somebody decides to enact a policy that makes it more expensive, that's it. My capital is gone and, um, I have to sell part of my company then.  

Josh: Mhmm

Phil: Yeah. Dan, I think you're insightful for- for having that as a concern because, you know, I hear the same rumblings Our portfolio companies that have- that sell hardware, many of them shifted their supply chain, uh, or their factory sources out of China when the tariffs went into effect, uh, you know, a while ago. A lot companies are finding that the made in America message is resonating with customers, uh, in this time and….

Dan: Uh, and that's really interesting that you say that because I have gotten five messages today from people saying, "Is this made in the U.S. because if it's not, I don't know if I'm interested."

Phil: What would the difference be for you in price to- to manufacture it domestically?

Dan: Uh, about double.

Josh: Oh, wow.

Dan: And that's sort of after the cost of molds, which are far more than double. And, you know, just as an entrepreneur who's doing this myself with, you know, a day job and- and a family and everything, the mold costs are- are a huge barrier for me.  

Josh: How much?

Dan: Uh, in China, I- I'm looking at about $33,000 for the cost of-

Josh: For the molds to get set up?

Dan: ... for the molds, yeah. And, um, Stateside, I mean, you're- you're talking probably $150,000 I would imagine, if not more.

Sarah: Damn.

Phil: Wow, that's tough.

Josh: Damn.

Sarah: But I think with the made in America message, you have to really research what that is worth to you in the business because a lot of people will say buy American, you know, build in America but then when it comes time to buy a product, like, they're going to buy based on price.

Josh: Right.

Dan: That's exactly right.

Sarah: And you have to figure out ... you have to figure out what you're willing to do around that.

Dan: Right.

Phil: Have you considered or thought about trying to partner with a manufacturer who could maybe contribute the molds as some equity and then own a piece of the company? Or own a revenue share? as a way to defer your... or to defray, I should say, your, um, your initial investment in the molds? 

Dan: N- no, and that's really interesting because, you know, you're saying that, uh, I hadn't thought about it that way but they would probably also have access to distribution and ins with, you know, retailers and whatnot. So that's- that's a really interesting thought. Um, I don't really know how I would start pursuing that exactly but... 

Phil: Just- just start calling. Just start calling them and telling them about your idea. Get them excited about it ... it's like pitching anyone else. 

Sarah: and they do expect this. They see this like they would be a strategic investor in what you're doing and this is the kind of thing that they are used to. I think the one thing to think about there is if you are bringing in a strategic investor, there are pros and cons sometime. So you might be ... let's say you partner with one manufacturer, you might be blocking partnerships with others who compete with that manufacturer. So just think about those in- in addition as you're navigating this.

Phil: Good point.

Dan: Right. That's a great point.

Phil: And one last thought- one last thought that might help you is you can use the patents with the manufacturers as sort of collateral ... and say to them, hey look, if you know, if you put up the money and make the molds for us, uh, if we end up going out of business we'll give you the, you know, the patents.

Dan: Interesting. That's a great idea.

Josh: All right, well thanks Dan.

Dan: All right.

Phil: Good luck.

Dan: Thanks, guys. Love the show.

Sarah: Thank you.

Dan: Bye bye.

Josh: Bye.

[Hanging up sound] 

Phil: I think he's right about the potential for tariffs now coming back.

Sarah: Yeah. And like, general xenophobia being what it is right now.

Josh: Yeah.

Phil: There's going to be a whole move to on shoring lots of different products.

Josh: Yeah. Should this founder though just wait it out then? And just like maybe pause for a bit?

Phil: No.

Josh: You don't think so?

Phil: No, I think he should find a domestic manufacturer.

Josh: Even if that means he has to sell his product for double what he would have otherwise. 

Phil: I don’t think he’d have to sell it for double especially if he’s not incurring a cash cost for the molds. 

Sarah: It does also seem like a really good time for the made in America message and like, plenty of people are stuck home organizing their garages.

Phil: Oh, my wife has done exactly that.

Josh: Alright. Uh, last caller. 

Chris.: Hello?

Josh: Hello. This is Josh and Phil and Sarah. Who's this?

Chris.: Hi, this is Chris Murphy.

Josh: Hey Chris, 

Phil: Hi Chris. 

Josh: Where are you calling from?

Chris.: I am from Cleveland, Ohio. 

Josh: Well what’s going on?

Chris.: Um, about two years ago, my husband and I decided to open up a cafe in our hometown here. uh it's a coffee crepe and a small thrift shop called Brewella's. Um, so over the last- 

Josh: Coffee and crepes?  

Chris.: Yeah.

Josh: That’s awesome. We’ve never had a restaurant on the show before. 

Chris.: And collectibles. Yeah. So the whole idea was creating this character named Brewella, this old lady, grandma figure who, um, you know, opens up a creperie or opens up a cafe and sells her trinkets in the shop. So-

Sarah: I love this so much by the way, and is she related to Cruella Deville at all?

Chris.: Yeah. She's very inspired by Cruella Deville, but like coffee instead, you know, and crepes.

Sarah: Oh my God. Coffee instead of dalmations pelts

Josh: Instead of skins on the wall?

Chris.: Right, exactly.

Sarah: (laughs)

Chris.: So the shop seats about 20 people. Um, it's kind of cramped and cozy and cluttered. We have one wall of just all these like golden mirrors. We have another wall with this big uh, hand painted, just like black and white stripe mural with shelves and on knickknacks on that, Very colorful, very unique and very kind of vintage thrifty. So it's, we, we've had a really successful year and a half. Um, unfortunately, obviously, in the middle of March, we ended up closing our door. We have not opened for delivery or to go yet because I have no infrastructure or logistics or understanding of that. Um, so I'm trying, you know, I've had a little bit of time and I'm trying to understand now if this can be an opportunity instead of a set back, and I'm trying to like, brainstorm and figure out ways to bring that experience to the customer in this new kind of medium for us.

Phil: You know, I’m just...when I hear about your, your business, I'm just afraid of,  what the restaurant industry is going to be like even post-COVID, right? So firstly, so you're talking about a relatively small restaurant, most cities are going to impose social distancing requirements in restaurants saying you have to leave certain tables openly, certain number of, a certain distance between tables.

Josh: Like after they reopen?

Phil: That means... Yeah. Once they reopen, then you know, your, your capacity of 24 may go down to 12, and it's tough-

Chris.: Mm-hmm (affirmative).

Phil: ... to get by when you only have seating of, of 12, but more so I think there's going to be a trend where people are going to continue to be afraid to go into restaurants for some time, and they're already ordering more online. And I think that that is going to continue. And I think, you know, small restaurants are going to have a really tough time making it, because sentiment has shifted and, and regulations will, will make it even more difficult. 

Chris.: Mm-hmm (affirmative).

Sarah: I, I think like if I were you, I would research hard what it would take to get on Uber Eats or DoorDash or one of these platforms and like does it mean converting more of the space to a kitchen so you can serve more people? Um like what, just, just figure out what it would entail.  

Chris.: Gotcha. So part of the thing that I wanted to kind of ask you guys too is when it comes, is, is there any way of bringing the experience kind of to the delivery circuit? Like is that worth my time to think about what it's like when these crepes come to somebody's house and trying to engage them that way?

Phil: Well I think-

Sarah: I think it is. Yeah. 

Phil: I guess I would just be a little more cautionary and say that the food delivery business, that when you rely on third party delivery companies like Uber Eats and, and DoorDash, it's a very low margin business. Um, because the Uber Eats of the world take a big chunk of your margin.

Chris.: Okay. 

Phil: Did you give any of the, the government, you know, money like from the PPP Program or EIDL?

Chris.: No. So we app- we applied for the PPP, um, we didn't get in any of that. We ended up crowdsourcing just in the area through GoFundMe and we raised about $3,000 which covers our rent for a few months and that's great. And it kind of gives us a little capital to start back up again.

Sarah: Yeah.

Phil: You might also want to ask your landlord for some rent deferral.

Chris.: Yeah, yeah. I think it's all these, I, I've been trying to figure out which venue is like worth the biggest like chunk of my time.  To me, I feel like we should all be brainstorming more to kind of crowdsource ideas, and that's what I feel like I'm missing in our community.

Sarah: Hmm.

Josh: Yeah.

Sarah: I feel for you-

Phil: I do too.

Sarah: ... I mean this sounds like it's like such a reflection of you and it was all going so well and it sounds delightful and I would love to teleport to Cleveland to come get some Brewella, but it sounds like you're being thoughtful about you know, how to survive and I think that's really what it is is like survive until things get back to normal and unfortunately nobody knows-

Chris.: Hmm. Right.

Sarah: ... again, like do what you need to do.

Josh: And if you can hire some of your people-

Chris: Yeah.

Josh: ... back and like get them working again-

Chris: Mm-hmm (affirmative).

Josh: ... you know, like that.

Chris: Okay, great. Honestly just talking to you guys and listening to the podcasts and stuff before, it's such a like boost for energy for me anyway, so I really appreciate it. I definitely I'm taking a lot of this to heart and, and very thankful for all the advice.

Josh: Oh, thanks.

Phil: That's nice of you to say Chris. Thanks.

Josh: Yeah, thanks Chris.

Phil: I hope you hang in there.

Josh: That means a lot.

Sarah: Good luck.

Chris.: Thank you. All right, thanks guys, have a good one. Bye 

Josh: Bye. 

Josh: It's bad. Like I have a favorite like coffee shop that I used to go to like two to three times a week, and even though it's, it's right there and they're still open and they're doing delivery, like I don't go.

Phil: No.

Sarah: Yeah.

Josh: And I feel horrible.

Phil: I am telling you thi- things are gonna change even after people aren't going to rush back into these small restaurants-

Sarah: Yeah.

Phil: ... like that.

Josh: Yeah. 

Phil: All right kids, this was fun.

Sarah: Thanks dad.

Josh: Bye.

Sarah: Bye. Have a good one-

Well that’s our episode today. If you are a founder or small business owner and you’ve got problem with the business that you’re trying to figure out. Give us a ring. The problem, could be big, like covid, or small and completely unrelated to COVID. Just call us anytime and leave us a voicemail at 833-748-2448. Alright, talk to you again soon.

We’ll be back with another episode on Wednesday, June 3rd.

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

Scoring from Emma Munger. We are mixed by Enoch Kim. 

Thank you so much for listening. We’ll see you soon.