#72 How Niche Is Too Niche?

Today on the show, we’ve got a different kind of pitch. This is an entrepreneur who’s just starting out. In fact, this is her very first pitch to venture capitalists. 

At this stage, the VCs are looking for something specific. There’s less of a formula. More of a gut feeling. They’re not so concerned about valuation or even revenue. They just want to figure out, Could there be a big enough market for this new business to flourish? 

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

We’ve got some new investors on the show today:

I’m Jenny Fielding

Jenny is the director of Techstars NYC and a prolific angel investor. She’s backed over 130 startups so far.

I’m Elizabeth Yin

Elizabeth is a managing partner at Hustle Fund. And so far she’s has invested $30M in over 250 startups. One example, a company called Nerdwallet.

I’m David Goldberg

David is a general partner at Corigin Ventures, where they’ve invested $38M in over 50 companies so far.

I’m Sheel Mohnot

Sheel has sold 3 startups for over $50 million dollars. Now he’s an angel investor and he’s invested in several companies worth billions today.

I’m Charles Hudson

Charles started Precursor Ventures, where he’s invested $45 million in over 100 startups to date.

Okay. On with The Pitch.

Sheel: Hey, I'm Sheel.

Orion: Orion. Nice to meet you.

Charles: Hi, I'm Charles, nice to meet you.

Orion: Nice to meet you, Charles.

Jenny: Hey, I’m Jenny.

Orion: Well, my name is Orion Brown. I am the founder and CEO of The Black Travel Box. We’re a personal care products company for travelers of color. A few years ago, I’m a certified diver, and I went on my you know open water dive test in Mexico. And I was so excited. It was so relaxing, it was beautiful. I conquered the ocean. I go back to my hotel room and I’m wearing my hair natural, and I realize I need to shampoo. I have not actually packed the shampoo that I normally take and pour in the little bottle. Now, I’m at a nice resort, so I decide, I’ll just use what they have here. Fast forward five minutes, I am no longer relaxed and happy. My hair is so matted it, no joke, needed to be cut. It was a really horrifying moment for me. And for millions of travelers like me, black travelers and travelers of color, this is a challenge. Because the products that are out there that are mainstream travel-ready products, are not inclusive in how they’re actually formulated. So that’s where the idea and the impetus for The Black Travel Box has come from -- from my experiences as a traveler.

This is a textbook example of what you’re supposed to do. Orion has identified a specific customer with a specific need that’s not being met. Women of color who need hair care products for travel. And she thinks, if she can meet that need, she can build a big business.

Orion: There's really a big opportunity here. Looking at a $48 billion beauty and personal care category. Women of color make up about 40% of that. So we're very disproportionately active within the category. So what we do. All of our products are in forms and formats that are meant to travel well, get you through TSA without a hassle, so no fuss, and are actually formulated for a variety of um hair textures. We launched with five products to kind of just test and see, am I the only person that’s crazy? Or are there other people in need? And so far it’s been going really well. And so I’m here today to ask for $350,000 to scale up, get out of soft launch, build a kickass team, I don't know if I can kickass, sorry.

Sheel: You can.

Orion: Build a kickass team. Um and uh you know really focus on both scaling up the operations side so that we can meet demand.

Sheel: Cool.

Jenny: Can we see the box?

Orion: Yes. Yes!

Charles: It's a nice size black box we got here.

Orion: Yeah. So I'm going to show you guys an example of the bars. These bars are solid. So they're anhydrous. You go into the shower, you wet them, you rub them through your hair. We have a shampoo, we have a conditioner and a co-wash.

Orion is showing the investors what looks like a bar of soap -- it’s a solid instead of a liquid or to use Orion’s term it’s “anhydrous.” Which is what makes it great for travel especially for her target market.

Orion: One of the biggest things that women do they'll take the top off and put a piece of plastic on top, like Saran Wrap, and close it back up, because they leak. Or you've got three zip lock bags around it to make sure it doesn't leak. So when you're talking about anhydrous products, you don't have that product issue. For women of color who typically use three to four times the amount of product, this is perfect. Because using a 3 and a half ounce bottle is just impossible to get enough for a trip that's more than a weekend.

David: Are you innovating on product or on form factor and size?

Orion: I would say that the true innovation is on form. The thing that’s really, that, that makes us stand out is that we're not putting existing products into small containers. It's like, well, what is the travel experience? What are the travel pain points? And how do you design a product around that?

David: So pardon my naivete here. What’s the, what are the issues and pain points with smaller containers of the same product?

Orion: Yeah. So you know the first, the first issue just from the smaller container standpoint is you're just not going to have enough. So for women who are using 3 to 4 products on wash day, and you're like, but I can use Pert Plus 2-in-1. We can't do that! So it's a very different animal for us.

David: Neither can I.

Orion: Okay. There you go. You have lovely hair, too. I mean, you've got this swirl. I like it. 

Orion: Um.

Charles: How many, how many trips per item? Like, what's your model? Like should a bar like that last me for? This is a huge issue in our family. So you have me on the market size already in that particular, because this is an issue in our household. I won't say more than that. But um what, what's your model for how often someone should replenish it? And what your customers expect in terms of uses per turn?

Orion: Yeah. So it was interesting. When I actually modelled this out I said, look, realistically speaking, looking at the subscription box model and the behavior there, even though we're not a subscription box, most folks fall off at about 2.6 turns, like in terms of getting new product. And so I said, okay, you know what, three times. We'll just say three.

Elizabeth: What are the, the COGS and the price point for this?

Orion: Yeah.  Basically we sell a starter, our starter kit that has a smaller version of each of the bars so you can kind of sample and try them out. That is at a $38 price point. The actual cost for that is right around 6 bucks. So there’s a ton of room there and a ton of space.

The investors are trying to figure out, if Orion can sell enough boxes to enough people, to make enough money to make this business work.

David: I'm doing some back of the envelope math. If this lasts three to four turns, let's say. I don't know how many trips the average person goes on, I can't imagine it's many more than that, is someone just buying this once a year?

Orion: No. So, so if we're talking about how frequently they're travelling, the numbers are somewhere around 11 million, in terms of our target market, of folks that are actually traveling uh three to four times a year. At least two of those being international. And those are like big trips. But what I can tell you is, is on average, we have about 18% return customer rate. People that are buying, they're buying 2, 3 and 4 times. And so. 

David: Over what period of time is that?

Orion: So right now, it's like a 60-day period. Because we haven't had them that long. So we haven't even seen a year. But that 18% that's returning, they're returning more than two and a half times.

So 82% of Orion’s customers are trying the product once, and not coming back. Maybe they didn’t use it, or didn’t like it. Maybe they just don’t know what to do with shampoo when it comes in a bar instead of a bottle.

Jenny: Just a clarifying question about the bar, is that something, is that a product that your um demographic is already used to using? Or is that a change that they’re used to using a liquid?

Orion: It’s a good question. So it actually is a change. And so one of the things I’ve learned is that at first people were like, I see that it says conditioner, but I don’t know what that means. And then you talk to them about it and you educate them and they’re like, This is the best thing ever. I can’t believe I haven’t seen this before.

Sheel: I'm thinking about my ex-girlfriend of color, she wanted to use her products with her, like, the same product when she traveled. And I feel like this is a big leap of, like, I'm going to try a new product just for travel and then go back to using my other product.

David: Right.

Sheel: That's, that’s the hang up I have.

David: I almost feel like you need to own the whole customer.

Sheel: Exactly.

David: Right. Because the risk of switching products back and forth is, is higher.

Orion: Well, they're already switching products back and forth, to some extent. Right. So here's what’s actually happening. And I actually didn't know this until I started the company, I'm talking to women and they're telling me, Oh no, no, no! I don’t even try to bring my stuff. So you know what I do? I go to the grocery store when I get there and I get grapeseed oil. And I put that in my hair, and I hope that, you know, that's enough to hold me down. Um. And this is, this isn't just like five people. This is prevalent. the idea of, Hey, you don't have to do this anymore, is really, really compelling to them.

Charles: So I should just be honest. I have a waterless shampoo company in my portfolio, I have a black travel company in my portfolio, and I also have a natural hair care salon grade product company in my portfolio. So I am probably like triply conflicted out of this. Based on those conflicts, I'm going to have to pass.

Orion: I love that you're an advocate though.

Charles is out early because he already invested in a few startups that could be competition for The Black Travel Box.

But when we come back, the other investors try to figure out, if Orion’s idea can really take off. But that can a bit tricky. With a company so new.

[BREAK]

Welcome back.

Orion only has 150 customers to date. That means there’s not a lot of evidence yet, that The Black Travel Box could become a huge business. So David’s going to try to figure it out another way.

He wants to know, if there are successful companies that are similar.

David: Are there comps of other brands who have done really well in the travel market? Just my initial concerns are people aren't going to buy enough because they don't travel enough. 

Orion: I mean, there's 771 million people travelled through TSA last year. And then also, linking to travel is a great entry point. You want to get them on the travel, on the trip. But then you want them to come back afterwards because they love the product. 

David: So I fully, I already am sold on the opportunity for this high spending large demographic that is underserved. I think the part that I'm not fully understanding is this sub-niche of traveler. I don't know if it's necessary. 

Orion: Yeah, I mean, I don't think that there's a brand that's really done travel specifically um in a meaningful way within the marketplace. But when you look at the growth of travel within sort of the travelers of color community, it’s a movement. Ten years ago, most people who were my age at that point did not actually have their passports. They were not going outside of the country, they weren't doing, we didn't backpack in Europe, we didn't do those types of things. And so now there's a growing market that people haven't seen yet. And 75% of black millennial travelers in particular say that they want brands that talk to them and they're not seeing it. 53% say they're willing to pay more for it. So the travel piece is something where we're not being reflected, we're not really seeing it. And we have a hankering to be seen there.

Orion’s got stats and they show that her growing market isn’t yet being served. But she can't point to another company that's done something similar to what she’s trying to do. And it’s not a given that people will even find her product, because in beauty, marketing and branding are everything. And that raises a big question for Jenny.

Jenny: Can you talk us through um your customer acquisition strategy? You know, after the launch, and really how marketing is going to play out.

Orion: There's three different areas that we really want to focus on. One, because this customer is very social and they're very socially based,  all of the aspirational stuff that they're looking at, are happening in the social space. So we really want to focus on content there. Then there's also the influencer piece, particularly in the beauty space it's actually very helpful to see a person that looks like you do, using the products that you want to use. Because it's a test case. And then finally looking at the advertising side. I want to err on the side of content and then influencers should be next important. And then really the ad spend should be last because we should be acquiring customers at a much lower rate, rather than you know just shoving a bunch of cash out there to get them. 

Elizabeth: And have you done any advertising testing?

Orion: Yes. We did some testing. The best CAC that we got to on paid was about 44 bucks. thinking about a five, item product line, that’s actually pretty decent. 

David: What do you underwrite your average customer in terms of what are you hoping the CAC looks like, what do they purchase? How often do they purchase it? What kind of LTV does that look like?

Orion: Yeah. So in terms of um the CAC I would like to get it down to probably about $35. So right around the price of that starter box. They would come in with the box, try different things, go, Ooh, I love this, this and this. And then they would come back and individually purchase those items. Umm. And so in terms of a lifetime value, right now I have it ticked at about $180.

David: Over what period of time?

Orion: Over a period of about a year. 

Sheel: I, I understand that there’s a need in this space. Um. Like no doubt. For me the sort of travel piece within multicultural CPG I think is, is too hard for me to wrap my head around. People don’t travel that often, and for them to buy a specific product that is different than the product they’ve been buying just for travel doesn’t make sense to me. And it’s probably because I don’t understand the market well enough. But because of that I’m going to pass. 

Elizabeth: I’ve looked at a lot of black hair products. And I know that it can be incredibly competitive. But I love actually how unique your form factor is. I have not seen that. I think the tricky thing then is, well, to Sheel’s point, how do you then target the travel market? It happens so infrequently and people really only think about their trips when they’re about ready to go on their trips and they don’t really plan, you know, months in advance. And for that reason, it feels kind of tight to me, and so I’m a pass.

Orion: Yeah. 

Jenny: I would build on that and just say, I I think there's probably more room for you to come into this category and own the category and have travel be you know a great wedge into it. But I think you know the vision, I would like to see a little bit bigger. So for that reason, I'm also passing.

David: I’m trying to put, I have a lot of different thoughts together. There’s a lot about this I like.

Orion: I want them.

David: And I have some concerns also.

Orion: Okay.

David: I think you’re on to something here. I think you have a very unique insight into a specific demographic and their user patterns that is truly underserved today. I think the story needs to be cleaned up a little bit.

Orion: Okay.

David: I think you're hedging your bets a little bit. Right. I think you need to go all in on brand, at least to start, with one specific story. 

Orion: Yep.

David: When I think about consumer products, I’m typically looking for one of two behaviors; either one, a high enough purchase where you will be significantly profitable on first purchase. Think mattresses. 

Orion: Yep.

David: Right. Or something more like a subscription box like razors where you can point to a six to 12 times a year. And I think here, we can have arguments about travel. Maybe it’s twice a year, maybe it’s four times a year. But even that $180 number, I don’t know if that’s exciting enough over a 12-month period of time. 

Orion: Yep.

David: So I’d love to track this and start to understand how do you either do really, really well with keeping CAC low, or what can you do to maybe increase frequency and LTV with different products. 

Orion: Yep.

David: Um. But for today, I’m going to pass.

Orion: Okay.

Sheel: Thank you so much.

Orion: I appreciate your guys’ time. I appreciate it. Thank you. Give me my box back!

Orion leaves the room with no more cash then she came in with. The investors agreed, that she hadn’t figured out how to turn this very real problem into a very big business.

Sheel: I think it’s just, the travel makes it tough.

Jenny: The targeting on that. 

David: I still don't fully understand the travel. And I think, right, if she were to come out here and say, Listen, like, there's also this really good travel company that doesn't fit my demographic, here's how well they're doing. Clear white space. Like, okay, I can put two and two together. But this was a couple iterations out.

Sheel: I think you need to have.

Jenny: Forget the travel. Just build the, just have those bars. Like, that’s awesome.

Elizabeth: I get why she’s doing it.

Sheel: What is there, is there a leading black shampoo company?

Charles: Yeah.

Elizabeth: It’s so competitive. There are a lot of black shampoos.

Sheel: What’s the leading one? 

Jenny: Yeah there are a few. 

Elizabeth: That’s why she’s doing this, to try to weave that niche, right. Like and that makes it hard on the marketing side to target like travelers.

Sheel: I feel like you want to use the same brand that you’re using anyway. I don’t see people like switching just for travel.

Elizabeth: But if they don’t have a choice right now, then they would.

Sheel: Yeah, sure.

Elizabeth: And I could buy that.

Sheel: But then like...

Jenny: But I would just have them create a brand where they're switching, but this is their on-the-go. 

David: Right. There's something there.

Jenny: You can use it when you go to the gym. You can use it when you go to the, you know, on your weekends.

David: For the active woman. There's something much bigger.

Jenny: So it could be travel, but it’s just like on-the-go. And it’s a bar. And it comes in a really cool case. Just a case that doesn't leak with that thing, amazing.

After the break, we’ll find out if Orion is ready to make the changes that will make the venture capitalists happy.

Back in a minute.

[BREAK]

Welcome back.

Since The Black Travel Box is such a young startup, Orion doesn’t have a lot of experience making her pitch. I mean, this was her very first pitch to venture capitalists. 

Producer Heather Rogers asked her about how she prepared for that.

Orion: I had a conversation with someone who, who basically said, You know you're very niche. And you really need to demonstrate that you can address the mass market. And your best bet is to make your product be less about the travel experience and more about out-of-home usage. And could you own the entire out-of-home beauty market. That's really the pie that you want to look at. 

Heather: And when she said that what were you thinking?

Orion: You know the thing that went through my mind when she said it was Oh crap now how do I figure out a good way to articulate this umm, and quickly, that I believe.

Heather: Especially because it wasn't something that you'd done before, positioning it that way?

Orion: Correct, yeah. So then it's like don't say what you've been saying for the last six months because you're going to accidentally say it so don't say it don't say it. It's like you have a word in your head it's like don't say Cookie. Don't say Cookie. Oh I said Cookie. Cookie. So that's, that's, that's how I felt the whole time was like, Don't say it. Don't say it. Yeah.

Hmm, Orion was getting the exact same advice from her advisors that she got from the investors on our show it seems like all signs are pointing to her widening her market.

But she didn’t really do that.

Heather: So it’s still travel. 

Orion: I think travel still is the road. I've hit something on the head because I found a very specific customer. And, and that's something that enduring brands really do well, is finding a customer and speaking to them well. But um, you know, I get it. How are you going to make a billion dollars off of a minority that people aren't necessarily convinced travel that much? 

Heather: Mm hmm. 

Orion: Niche is the first thing you're going to hear when you're focusing on particularly minority customers. And it's sort of one of those things that it would have been helpful for me to be able to walk in that room and say, Well you know we've been selling these products for the last three years and this is what our run rate looks like. Um. 

Heather: You need more data?

Orion: You need more data because the idea won’t sell itself.

So Orion put her fundraising plans on hold. She wants to come back armed with enough evidence to prove she has a business that's big enough for venture capitalists. 

She’s spending her days now talking to customers about what they like and don’t like. And she’s reading up online about how to make her company more venture backable. But one thing she isn’t doing is giving up on her original vision for The Black Travel Box.

Orion: I may end up being the headline of like the most stubborn founder. But I haven't seen it, like. Uh. My thing is, I'm a hypothesis-driven person, right. But a hypothesis by definition needs to be tested. Now I'm like OK, I need to create some clear benchmarks that say this will signal that that is either true or false. If we don't hit the benchmark you guys were totally right, it's too niche. 

Heather: Mm hmm.

Orion: But if we do. You know. Read ‘em and weep. Right. Um. So I'm, I'm not stubborn in the sense that I am somehow delusionally just pushing forward. No this is gonna be the biggest business we're gonna make 30 billion dollars! I, I’m hungry for a test. I'm hungry for a test. And it may be when we dig into these customers they go you know what. There's just no way I would buy this more than twice a year. Got it. Cool. I really did come into to to, to challenge a specific issue. So if that's not something that can be figured out then that, that's fine and I'm willing to accept that. But I want to see. I want to see the test and I want to see the data.

Heather: OK. You have a plan!

Orion: I do. I do.

Orion does have a plan. And you know, if she figures it out 150 customers could grow into 15,000 customers pretty quickly. And something tells me that's precisely when the investors would come knocking on her door.

Because that’s often just how the cookie crumbles. Dang it, I said cookie. AHHH!

Our show is hosted by me, Josh Muccio. Produced by Heather Rogers and Kareem Maddox. We are edited by Sara Sarasohn and Blythe Terrell.

Theme music by The Muse Maker. Original compositions from Breakmaster Cylinder, Bobby Lord, Peter Leonard, Billy Libby, The Muse Maker and Names Are Hard. We are mixed by Enoch Kim. 

Lisa Muccio planned the recording of this pitch.

Thanks to helloalice.com, a resource for entrepreneurs, for connecting us to today’s founder.

And here’s a quick reminder, no offer to invest is being made to or solicited from the listening audience on today’s show.

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We’re coming at you with a new episode, next week. See you then.