#91 “If We Don’t Get the Money by Friday …”

Hey everyone it’s Josh.

Before we get into today’s episode, I just want to acknowledge what’s been going on in this country over the last week and a half, particularly for the black founders who listen to our show. 

And I also want to say that the racist structure that led to the senseless death of George Floyd and so many others, that same structure exists in VC. It’s why black founders tend to raise considerably less money than their white peers.

I can’t tell you how many black startup founders I’ve spoken to for the show, who struggled to raise money from investors, and yet they can name a white competitor, who’s raised millions of dollars even though their product isn’t that far along.

We don’t have the answer. But we want to do a better job on this show to elevate black voices in the startup world. Because it’s our job as a team. To educate ourselves so that we can do the hard work that’s ahead.

Here’s our show.

As a startup founder, when you walk in the pitch room, you have one primary objective. Convince investors that you can build a world-class product that people will actually want to use. And hopefully those investors will give you the money you need to build that product.

But as the founder on our show today discovered the hard way, after you get the money, and after people start using your product and the business starts to actually work... there's another big, unavoidable challenge: managing the people you've hired.

On today’s episode, the story of one founder’s struggle with being the boss, how in the world do you keep from laying off your employees, when a pandemic forces 99% of your sales to evaporate overnight.

That’s coming up, in just a moment.

[break]

I first met Cody Candee when he came on our show back in 2018… he was pitching Bounce as a place to stash your stuff for a while when you’re out and about in the city. But he had a hard time explaining that to the investors.

Cody: What the product looks like today is you open the app and you can find a space to leave your things all over the city. So the goal is on every block of the city.

Nicole: So like a storage solution?

Cody: Yeah, that's right. So a lot of travelers will use us to store their luggage. A lot of folks will use us before going to, say, an event at Madison Square Garden. All kinds of use cases.

Jillian: So..

Nicole: Sorry Is it sharing economy? Or are you using…

Cody: Yeah, so we’re storing things in small businesses that have extra space. We have 65 store locations between New York City and San Francisco. 

We partner with small businesses that have extra space that they're not using. 

Phil: So it’s a storage app? A storage company? You’re enabling people to store things temporarily? 

Cody: That’s right.

Michael: And tell us about the business model. What kind of revenue are you generating? How does it all work?

Cody: So there’s two value props for the stores. One is extra foot traffic. Our customers, we estimate more than half of them buy from our small business partners. The second value prop is we do a revenue share with them. So basically we charge $6 per bag per day with the current model, and we give $3 now phasing that to $2 per bag to the store partners. So they win on both of those value props.

Phil: And is the $6 charge regardless of the size of the item?

Cody: That’s right. As long as you can pick it up with two hands. So we do backpacks, suitcases, work bags, gym bags, all kinds of things. 

Michael: How long have you been doing this for?

Cody: We started last October.

Michael: Ok. And how fast are you scaling on revenue? What’s going on?

Cody: So basically we’ve been in product development mode, came out of that in February, and since then we’ve been growing 50% month over month. So last month we did $8,500 in revenue.

The investors went back and forth with Cody for a little while. But then Michael Hyatt passed on the deal, and one after the other, all the investors said no. But Cody just stayed in there and kept pitching.

Cody: So in addition to the money, one of the things we’re looking for in this investment around is partnerships. So folks who have a lot of retail connections and they can help us flip some of these connections really, really fast.

Jillian: Yeah. Like a chain.

Cody: If we could get one of these big guys… 

Michael: I’m not convinced a big retailer is going to do this with you. I think it’s the Ma and Pa stores that don’t have to go through... I mean the amount of stuff that you’re going to have to go through, in insurance and probably with a 7Eleven is just, I don’t know, I’d be shocked if they would do it.

Nicole: It's going to be an 18 month long sales cycle.

Michael: You're telling me a big chain is signing you up?

Cody: We actually had Kmart reach out to us and say, hey, we're interested.

Michael: Kmart?

Cody: Yeah. Brick and mortar is dying. 

Nicole: They’re still alive?

Cody: They’re losing all their customers. And so they’re desperate for traffic. So they come to us and UPS. They have all kinds of add-on services, like passport photos, and fingerprinting services. They’re looking for these add-on businesses. 

Nicole: You like it. 

Michael: I do like it.

Nicole: I know you do.

Michael: I like it.

Jillian: I actually do too. I’m killing myself here.

Michael: I like him. And I like it. Like this is one of these things where...

Jillian: Okay. 

Michael: You want to go in, don't you?

Jillian: I want to go in.

Michael: Yeah, don't you? I know you do. I know you're changing your mind.

Jillian: I am. You know one person said to me that the businesses that you roll your eyes at right? are the ones that ultimately are the best. The people that have uh the most ridiculous ideas are the ones you should pay attention to the most. Um Ergo, Airbnb and all those others. I’m going to reverse because everything we’ve brought up, everything that we’ve hit you with you’ve seen all these different issues. I’m going to go in for $100,000.

Cody: Thank you.

Michael: Great

So Cody walked out of the pitch room with a win!

And then, about a month later, another investor who initially passed in the room, ended up coming in. Michael Hyatt! He invested of 50k on top of the $100,000 from Jilllian. By the end of 2018, Cody and his co-founder Alex had raised over a million dollars. 

But it was there, when Cody started to put that money to work, where he faced his biggest challenge yet. 

I called Cody a few weeks back, and he told me that with the fresh $1M in the bank. They got straight to work on the product. They hired a new developer in late 2018. And then by April of 2019, they had a team of four working out of their San Francisco office. Their scrappy little team worked well together, Cody says. 

Cody: 2019 was an amazing year for us. We grew 6X throughout the year. And then by the end of the year, we were all over the US and we're storing five figures amounts of bags per month. 

Josh: That’s crazy.

Cody: We found ourselves sort of totally just fixing problems and making things more scalable as we go, there was no room to do anything else. So we had to sort of take a step back from this nonstop amount of work and then use that time to hire and then hope that those people would get on board fast enough to help us reach the next levels of scale.

And to reach the next levels of scale, Cody needed someone to develop a sales team at Bounce. And by mid-2019 they found the perfect person. Someone who had worked at a huge tech company in Silicon Valley.

Cody: So I was telling our investors and the rest of the team, this is really exciting. You know, we, we get to literally hire people who have done a much more scaled-up version of this kind of role before. 

Josh: Yeah. 

Cody: So, we were just so excited about what that meant and maybe how many shortcuts we could take in terms of getting a whole system up and running with // um, one person who has that amazing experience. 

Josh: So, you like basically you tell your investors, like "This person is going to make us go from zero to a hundred real fast because they've done this before." And what did they say in response?

Cody: Yeah. Exactly. That, that sounds like a great hire! 

But it quickly became clear that Cody’s exciting new hire wasn’t settling-in at Bounce. At first, it seemed like the problem was just that they weren’t really used to working at a young, scrappy startup.

Cody: I think they were just used to having a lot of great resources around them from, you know, if you need to hire someone, you email the H.R. department and you know, write the job rec and the role is hired um, if you come on to Bounce from that kind of environment now, all the sudden you are trying to figure out how to do -  how to get leads. You're also making phone calls and trying to figure out how to get stores on board and then in addition to that, you're also onboarding. And then when it's time to hire more folks, you don't just email H.R., you actually, you know, ‘hey, which job board do we use?’, ‘Oh, I don't know. Like, you figure that out.’ 

Josh: You are H.R.. 

Cody: Yeah. Yeah. Exactly. Exactly. So it was just a lot of this sort of, um,  a lot of the just mismatch of what people were expecting and the sort of realities of a startup. And that led to a lot of friction. 

Josh: When did you realize, like, oh, God, like this is like something's wrong here. Do you remember the moment? 

Cody: Yeah. I remember my co-founder has been really adamant about, you know, let's bring the team together. So, we decided to do a team trip to Seattle. We're gonna keep it really casual. So not like an official team trip, just a, you know, five friends hanging out kind of thing. And it was kind of a disaster. Um, iIt went to the extent that folks would go out together without us and like specifically not respond to our texts to say, hey, ‘what are we doing tonight?’ ‘Should we all get together?’ It was clearly going to be them together and not us there was sort of a divide between us and everyone else. And Alex and I were just looking at each other and we were like, "What have we done?" And-

Josh: It’s like getting booted out of a friend group that you created. 

Cody: Yeah. This whole, the whole extra element of boss versus employee is a whole new element. And I always ignored that. I thought I want to be friends with everyone who I work with and I'm going to treat everyone as an equal, treat everyone as a peer. But for a lot of people, it's just weird to treat your boss the same way that you treat your friend. Sometimes it's just. There's just a power dynamic that might just naturally come about that you just can never get rid of. 

How Cody decided to fix that power dynamic is coming up after the break.

[BREAK]

Welcome back. Cody was really excited to bring new talent into bounce. But for the first time he was feeling friction between the founders and the employees. So Cody and his cofounder decided to make some changes.

Cody: We decided to do two things. One, is get really, really clear on our culture and our values. What kind of culture do we want to live by? And how do we enforce that culture with our team? 

Josh: Does that mean you made a value statement? 

Cody: Yeah, we wrote down a few things. One of them is be scrappy. But yeah, Alex and I did that. And then and then the other thing we did was we, you know, took a look at each employee and talked with them about what we wanted things to look like. And previously, conversations were more around, "How do we work together to make this the best it can be?" And then umm this time, iit was much more of a, "I don't think this is going to work." Ultimately we basically reset the team. We let go of one person, another person quit, and then another person we moved to a contractor status with the idea to terminate a couple of months later. 

Josh: What was the reason? Like you...like that’s so much of your team to let go.

Cody: Yeah, basically how we felt was a few months ago, everyone woke up, everyone came to work and everyone was thinking about how do we build the business. And now so many of the conversations we were having, some of these things that we needed to focus on as a company were how to make everyone happy, how to solve for this little thing here and this little thing here. And how do we get the culture back on track? And it was just really depressing to think about spending more than half of my day, so many days in a row, on non company building activities, on nothing that actually moves the needle forward. And so umm I feel like the...

Josh: But isn’t that the name of the game in scale, at a certain point as the founder that people act and like managing people and all their quirks and culture and all of this. Like as messy as that is, that is your job.

Cody: Absolutely. It absolutely is. But unfortunately, given the size that we are being so small, we Alex says this best with with junior engineers. We're not running a school here. We don't have six months to teach someone to get up to speed on an average fundraise gives you 18 months of runway to try to get to you know profitability. And so though, I believe that, you know, every human is uniquely talented and can do great work. But when we're a startup, we need to find the right people who are aligned in the right ways  and we’re doing the right things to align them and we’ve brought the right folks into the fold where everything is just going to click and work. Maybe not from day one, but at least day 30.

Even with everything going on with the team. The business continued to grow all through 2019. And by January of 2020 Cody and Alex had hired three new people to fill the open positions and then they signed a huge partnership with a company that would put Bounce on the map. Literally. this company would put bounce in 5,000 of its retail stores in the US. 

Cody: Early 2020, we were like, "Holy cow, this is going to be such an incredible year. We have so many good things lined up. We have this Fortune 500 partnership that we're rolling out that'll give us coverage all over the country." We have such an all-star team that also works so effectively together.There were so many big, big dominoes lining up, and 2020 - we were just going to tip them all over and achieve so much stuff. 

Josh: And when did you first hear about COVID?

Cody: So it was early March that we'd get a case here or there in the U.S., and what we were thinking, what I was thinking, was this could impact international travel. This could dampen our growth a little bit, but we're growing so fast that maybe it's okay. It seems like we can outgrow anything. 

Even as things got more serious, Cody stayed optimistic. Other countries were in crisis, but Cody was holding out hope that the closures would be short in the U.S., and that Bounce could ride out the storm. 

Cody: As soon as cities started going into lockdown and travel bans started going into place, things went from full speed, basically to zero overnight for us. 

Josh: To zero?

Cody: Yeah we were we were doing like, I don't know, maybe 10,000 bags in a month. So that would be a couple of thousand bags in a week. And then thenext week maybe would be like one hundred. And then the next week it was like one.

Josh: What?

Cody: Yeah. 

Josh: So you went from going like we can like 5x this year to like -  let's divide our business by 10 and then divide it by 10 again. 

Cody: Exactly. Exactly.

So Cody sat down with his co-founder Alex. And when they looked at their bank account, they realized that if they didn’t make some serious changes. They only had enough money for a couple more months.

Cody: I told the company we can weather any three month storm. Um, but if this is going to last longer than three months, we're really going to have to rethink what we do in the short term here. 

Josh: Rethink what we do. Meaning lay some people off. 

Cody: Yeah, I think that's ultimately it. 

Josh: Yeah. 

Cody: I feel like layoffs are something where you avoid them as long as you can. So it's really important to just kind of move forward as fast as possible until things seem more and more inevitable. 

Josh: I mean that’s one way to look at it. I’ve heard the opposite. 

Cody: Which is? 

Josh: I’ve heard a lot of people saying you need to take quick decisive action. And if you think you might need to do layoffs in a few months, you just need to do them now. Because you can’t wait until you’re running out of cash to do then layoffs. Then it’s too late. You can’t even keep the business around. There’s nothing to come back to.

Cody: Yeah. But each new day that we waited brought in so much new information to help us best understand the big question we had to answer, which is how long is this going to last? And so waiting a day or two days would add to the confidence that we can make the right decision. But obviously, if you wait one day and another and another week.

Josh: Yeah. 

Cody: And another week. Yes, you can run yourself all the way out of money. And so maybe a week or, so of kind of paying attention to things and seeing what we needed to do was when the... we learned about the PPP -  when the paycheck protection program was announced. 

Josh: Yeah. 

Cody: And basically it was the government saying, ‘hey, businesses, we know you're struggling. But tell you what. Don't let anyone off. Don't make any salary cuts. We're going to give you capital to operate for two months.’ We saw that opportunity as one to delay any tough personnel decisions by two months. We said, if we get this, we can use that time to better predict how long this storm is going to last. And if we think we can get out of it in another month or two after that, we're gonna be golden. 

So Cody got right to work. Trying get that PPP money. He was hoping that would be enough to delay some tough personnel decisions. In particular, Cody had a two person sales team that he would have to let go if the PPP money didn’t come through. So when he had all the necessary documents ready, he hit submit on the PPP loan application.

Josh: Then what happens?

Cody: Then we waited and waited and waited.

Josh: And just nothing.

Cody: We certainly got the confirmation that said this has been submitted, but we were hearing of the first day, so many funds were disbursed and all the speculation was that these funds were going to run out. So I was getting nervous. I said, "We're counting on this lifeline, I'm delaying decisions because of this lifeline." I said to the team, like, every day that we're waiting, we're burning money and driving ourselves closer to a demise of the whole company. And, you know, we need to reduce burn. And so I said, ‘OK. This week is going to be the final week. if we get it this week then we’re good. If we don’t get it this week. We can't keep waiting. Then we're gonna have to furlough if we don't get it this week. If we don't get it by Friday. Here is the plan.

Josh: How many people had you told: ‘You will lose your job on Monday if we don’t get the money by Friday.’

Cody: Yeah, there were two jobs that were going to go on furlough. 

Josh: Both in sales

Cody: Both in sales. Yeah, we said if we don’t get the money by Friday then this is what’s going to happen. And we got the money on Thursday. 

Josh: Wow, it’s like they knew.

Cody: Somehow it all just came together at the very last moment.

Josh: So you got the money, so you didn't have to lay the people off.

Cody: Yeah, we got the money. I was so excited. I was so excited to share it with them. I said, "Hey guys, here's what it's looking like.“ And I said, "Okay, now our jobs are secured for two months, but let's look ahead. It's not just about these next two months. It's about what happens afterwards, what happens during this time." I said, “We need to turn the business around in two months” And this may be in our control or it may be out of our control.” 

What Cody realized is that even though he now had enough money to pay allof his employees for another 8-weeks. There was another problem with the business that he hadn’t really addressed. Their two person sales team, weren’t making any sales. And their sales lead was telling Cody...

Cody: Businesses aren't answering the phone right now.’ ‘We're set up for failure.’ And, uh,  yeah, he was telling me basically this isn’t going to work,. Sales is also taking a big hit because other commissions, part of their salary is supposed to be commissions and commissions are pretty close to zero right now. So Alex and I made the really difficult decision over the weekend to have a chat with the sales leader and say, ‘I think we need to make this this change on the team.’ 

Josh: And so bottom line what did you end up doing?

Cody: Yeah. We we we we let him go. 

Josh: So you decided to let one of the two people go, even though you got the PPP money.

Cody: Correct.

Josh:  How are you able to do that? Isn't the point of the money to… like don’t you have to use the money to keep the employees like that's the whole point of it. 

Cody: Yeah, it is. It is. So the purpose of the PPP alone is to not cut salaries and not cut headcount. And so in terms of headcount, we would be going down by one there. Um and we have two months to figure out how we can sort of restructure the team in a way where we're still fulfilling the goals of the PPP.  

Josh: OK. So you basically laid off one person in sales knowing that you would try to hire somebody else in a different role - like engineering or customer service - something like that. And that you’d keep your headcount number the same, even though you’re... you’re switching up a couple of employees. 

Cody: Yeah. That's right. For us, it felt more important and more or the right thing to do to not just maintain the team during the PPP period and then make cuts after that. But to really think about how this can be a lifeline into the future and how we can have a team through the PPP and beyond. 

To be the boss. Sounds awesome right! I am the boss. But I’ve actually found that it can be hard to be a good boss. Sometimes your employees need you to be a friend and just listen, other times they really need, and want you to be their boss. By pushing them to be better and teaching them along the way. But that is just the beginning of your job description when you’re also a founder. 

Because not only does the founder have to be a competent manager, but they also have to lead and inspire. Casting the vision for the entire company. 

All this while remembering that at the end of the day, you still gotta bring home the bacon.

The Pitch is hosted by me, Josh Muccio. We’re produced by Chris Neary, Heather Rogers and Muna Danish. We are edited by Sara Sarasohn

The original pitch was produced by Kareem Maddox, and Molly Donahue. With editing from Blythe Terrell.

Lisa Muccio coordinated the recording of the original pitch. 

Theme music in this episode by The Muse Maker. Original compositions from Breakmaster Cylinder, Emma Munger, Peter Leonard, and The Muse Maker. We are mixed by Enoch Kim. 

Thank you so much for listening. We’ll be back with a brand new episode. In three Weeks, on July 1st. See you then.