When Mark Marmo took over as the CEO of Deep Well Services, the company was losing $2 million per year on $9 million in revenue. Six years later, Deep Well Services was making $30 million in net income on $110 million in revenue.
Mark accomplished this by focusing on bringing an innovative & efficient service to the market, building a healthy company culture, and trusting his data analysts to make good decisions.
In this conversation, Aaron and Mark discuss the standard he has implemented, the challenges of 2020, and the plans Mark is making for the future.
Deep Well Services’ mission is to help make North America energy independent and his team is proud to be working toward that end.
Their clients include Ascent Resources, CNX, Chevron, Shell, XTO Energy, Hess Oil, Eclipse Resources, Range Resources, Gastar, Arsenal, HG Energy, Gulfport, Rice Energy, and Southwestern Energy.
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Mark Marmo’s Challenge; Find a mentor. Build your network. Get into a firm with a great culture.
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Deep Well Services Website
If you liked this interview, check out episode 425 with Matt Wieszczyk where we discuss land rights, gas prices, and the Marcellus Shale formation.
Frank Augustine is the founder of ILLEGAL apparel.
Frank and his brother created the brand, and associated company, in their parent's basement back in 2013. He has spent the last 7 years scaling production, opening a store on the South Side of Pittsburgh, and learning many lessons about entrepreneurship.
He’s gotten the business off the ground via a relentless commitment to sales and a willingness to experiment with designs. Not bad for someone still in his early 20s.
In this episode, Aaron and Frank discuss the way he has positioned the brand, how Frank sold shirts in the early days, and the hard lessons he’s had to learn along the way.
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Frank Augustine’s Challenge; Be grateful and be positive. Check out Earl Nightingale and Positive Mental Attitude.
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If you liked this interview, check out episode 451 with Will Dzombak where we discuss managing Wiz, marketing in Hip Hop, and launching a cloud kitchens restaurant.
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Pete DeComo is the chairman and CEO of ALung Technologies. ALung is developing an artificial lung for patients suffering from Acute Respiratory Failure and has raised over $100 million to bring their product to market.
ALung’s Hemolung Respiratory Assist System is a dialysis-like alternative or supplement to mechanical ventilation that works by removing carbon dioxide directly from the blood. The medical device, which has been approved for use in 35 countries outside the U.S., has proven relevant during the 2020 Pandemic.
Prior to running ALung, Pete was the founder and CEO of Renal Solutions. Renal Solutions developed of similar product focused on kidney dialysis and was sold to Fresenius in 2007 for $200 million.
In this conversation, Pete discusses the arduous process of getting a medical device approved by regulators, how he has raised over $140 million for his companies, and his advice for all entrepreneurs.
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Peter DeComo’s Challenge; Don't be afraid to take some risk.
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If you liked this interview, check out episode 405 with Matt Kesinger where we discuss the development of his life saving medical device and episode 413 with Dr. Gordon Vanscoy where we discuss his startup which serves as a pharmacy for treating rare diseases.
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Watson: Well, Pete, thanks for coming on the podcast. I'm really excited to be talking with you.
DeComo: Exciting to be here as well. Aaron, thanks for the invitation before to the discussion.
Watson: So I am, self-admittedly not a biotech expert, a healthcare minded character. It is something where it seems like, you know, the whole world is half, has had to become familiar with, you know, phase one phase, two phase three trials and FDA approvals and all this other stuff because of 2020.
But to start things off, maybe we can build up from a relatively complex, but hopefully simple explanation. Your company, ALung, it says it focuses on respiratory dialysis through extra corporeal, low flow, CO2 removal. What the heck does that mean?
DeComo: Yeah, that's, that's pretty good for not knowing the vocabulary.
You did well. Extra corporeal means we take blood out of the body and we treat it in some manner and we put it back in a, of course, respiratory failure means that an individual, in our case, a patient, has something afflicting their lungs and it can be a chronic disease like emphysema, chronic bronchitis, which progressively gets worse as time goes on for that particular patient. And that can lead to what's referred to as chronic respiratory failure. And then there's acute respiratory failure as well, basically meaning that an individual suffer some trauma to the lungs, and prior to that trauma had really nothing wrong with their lungs or a very little long wrong with their lungs. And so that trauma, for example, could come from, injuries due to smoke inhalation, aspiration of gastric contents, you know, patients that frankly overdose and then get sick and then vomit, and then inhale that vomitus into their lungs.
It's acidic, as you might imagine, coming from the stomach and that burns the lungs. It could be blunt force trauma to the chest. For example, in a car accident, when the steering wheel hits the chest, it could be due to a war injury or something like that, where you have what's called an acute injury to the lungs and that's called acute respiratory failure.
Of course, what we've created at a long is a technology, which is an artificial lung. Actually the name ALung stands for artificial lung and we have this artificial lung that sits outside the body. It's was conceived at the McGowan Institute for regenerative medicine at the University of Pittsburgh.
ALung spun out of the university back in 1998 and we created this technology, from that original conception. And, it's now treating patients all over the world. It is the only device that's been conceived, developed, manufactured from the ground up to this particular therapy.
It's meant to be minimally invasive, very safe, and very effective in terms of, sort of supplementing the native lung by sitting outside of the native lung, at the bedside, if you will, and doing up to 50% of the work of the native lung to remove carbon dioxide and to provide a little bit of oxygenation.
So that's what extra corporeal means. And that's what we do at ALung.
Watson: And so I think that people can make a pretty easy jump to the relevance for, you know, some of the symptoms that people have heard about associated with COVID-19 in the present, but you've been at this for 11 years and I'd hate to ever call something like a pandemic, an opportunity.
But there is a degree to which what seems like, you know, someone kind of seizing a moment. Is often years in the making. So, specifically within the context of ALung, can you talk about the state where it was back in 2009 when you joined and what the last decade or so has looked like in terms of the different approvals and research and development that's gone into it.
DeComo: Yeah, that's a good question. We often joke at ALung that we're the oldest startup in the region being 22 years old now and spinning out of the University of Pittsburgh. You know, I've been an entrepreneur for a while and my prior company was also in the extra corporeal space, but it was in the kidney dialysis space.
And we can come back to that later, but that resulted in a successful exit. And, and then I got recruited to come over to ALung by some of my previous investors, because of my extra corporeal experience. And in addition to that, it's just coincidental, I started my early, early career as a young respiratory therapist at the University of Pittsburgh medical center at Presbyterian university hospital, where I worked in critical care medicine.
And I was on the school of medicine faculty in critical care, teaching respiratory therapists, nurses, and physicians, how to use respiratory devices to treat respiratory failure. I certainly left that field for most of my career and then circled back to ALung and had to sort of dust off all the cobwebs of my old textbook and revitalize the brain in terms of my respiratory knowledge.
But, I love the field it's done well for me. And it's brought me back to ALung, but, it's long history, has been a challenging one. It's been a difficult one and, You know, the story will not sound strange to many entrepreneurs who have gone through the same thing. Medical device is not a popular area for investors to invest in, especially what we call institutional investors like venture capital firms.
They've moved so much later stage that they want you to be FDA approved. They want you to be in the market. They want you to demonstrate some recurring growth and an attraction in terms of selling your device. Well, ALung, because we touch blood and because we're the first of our kind, the FDA classifies us as a class three device.
What that really means is in the eyes of the FDA it's the most high risk category you can be in for a respiratory or for a medical device. And that throws you into having to do what's referred to as a PMA trial, a pre-market approval trial, which is typically a very large trial.
So pre COVID we were involved in this PMA trial, very large trial here in the United States. We had 40 clinical trial sites all over the country, attempting to enroll patients for us into this trial. And, we were doing quite well. And then COVID came along and this was back in the February, March, April timeframe of 2020.
And basically hospitals were flooded with COVID 19 patients. And as you know, From the news, these patients were admitted to intensive care units. They were critically ill. They were put on ventilators and their mortality rate was as high as 80, 90% at the beginning of this pandemic. And the ventilator was causing a lot of harm to the lungs of these patients, as you, as you heard in the news as well.
Well, two things happened first of all, our clinical trial came to a screeching halt. Because clinical research was deemed non-essential in these hospitals, clinical trial personnel were sent home and we were stuck in the water. We were basically treading water. We couldn't go forward. And that stalled our efforts with the FDA to become FDA approved in the United States and be able to bring our technology to market and actually sell it.
It could have been the demise of the company to be very honest. But as you pointed out, sometimes these problems create opportunities, and I've been using a quote most recently as a result of my discussion around this topic. And that's a quote by Alexander Graham bell, who said that, you know, when one door closes, another door opens, but oftentimes we spend so much time focused on the door that's closed and we miss the opportunity by the door that was opened.
And so COVID 19 actually opened a couple of doors for us. First of all, I went back to the FDA and said look, our trial is dead in the water, but we can help with COVID-19. Because we had just concluded a trial in the United Kingdom, on a respiratory failure for work refer, what is referred to is acute respiratory distress syndrome. ARDSM as it's called. And COVID-19 manifests itself in ARDS or acute respiratory distress syndrome. That trial was 412 patients and 204 of those patients were enrolled in our technology. So the FDA said, well, why don't you submit an application for emergency use authorization for COVID-19 the same that the vaccines are going through right now.
And three weeks later, the FDA had approved, approved us for emergency use authorization in COVID 19. Since that time now keeping in mind, we're a small company and we're only producing enough product to, you know, utilize in our clinical trials. We're not a large organization that can produce thousands of these machines and thousands of the artificial lungs that go on these machines.
But we had 40 clinical trial sites that were already rubbed up and running. They knew our technology, they were treating COVID 19 patients. So they were our first priority. And many of those clinical trial sites who had put the clinical trial aside, were now treating COVID 19 patients. In addition to that, we've brought on board about 10 new hospitals that were not our clinical trial side hospitals and were treating patients with COVID-19 in those hospitals, as well. As I said, we're small, but we've treated at now at this point 58, COVID 19 patients worldwide. We've also treated nine in the United Kingdom and in Ireland because we had a clinical trial going there and some of the hospitals there wanted to treat COVID 19 patients.
So the door that closed was our clinical trial door. The door that opened was the ability to treat COVID 19. That's brought us a lot of notoriety and visibility in our space, to be honest about it. I also went back to the FDA and said, look, we can't complete our trial. It's impossible under these circumstances, no clinical trial has been completed at this point in time.
We needed an alternative pathway to FDA approval and the FDA consented to an accelerated pathway for our device called a Denovo 5 10 K, basically, meaning Denovo, meaning a new device with no predicate device to claim substantial equivalency to a Denovo 5 10 K does not require a clinical trial.
And we're in the process of that application right now. And in fact, we could be approved in the United States for commercial sale in mid 2021 if all continues to go well with the FDA and their review of our application. That cut about two years of clinical trial work off of our timeline because having to complete that clinical trial would've meant we wouldn't be in the marketplace until mid 2023.
We will continue that trial when the pandemic slows down a bit and our clinical trial sites can continue to screen and enroll patients, but for now we're pursuing the Denovo 5 10 K. And frankly, that is really a huge door that's opened for us relative to getting to market sooner rather than later.
Watson: So part of the story that you've just illustrated there is, and you almost said it like the way you would knock on your neighbor's door for like a cup of milk or something, but you're talking about going to one of the largest government agencies, right? That has at least to the outsider's perspective or just in general, regulatory bodies have this reputation for being bureaucratic for being a Byzantine, for being difficult to understand.
And even some of the nomenclature that you use there. But it wasn't the tonality in the way that you said it you've made it seem like passe, like it was something that was highly attainable. So can you maybe piece that apart from you a little bit more? I'm sure that to some degree, it's you having been through the ringer before with other products to kind of know the lay of the land, but maybe there's relationships, maybe it's the extenuating circumstances of 2020. Help me make sense of that.
DeComo: Yeah well, that's a good question, Aaron, and you're very astute in pointing out some of the things that lead to success with the FDA. In my prior company, I was involved with the FDA, clearly a different team, and then prior to that, I was also involved with the FDA because I was in the pharmaceutical drug distribution business, and that required interaction with the FDA as well.
And you can tell by looking at me, I'm not a young man any longer out, although I joke around a bit about, this is what entrepreneurship does to you at the age of 30, you start to look like this, but, the reality of the situation is that, you know, it's like any other relationship, whether you're calling on a customer when you're, whether you're dealing with a another company and you're trying to do a business venture together, it's all about establishing trust and credibility and establishing a relationship that allows you to have open Frank diplomatic dialogue about the issues in front of you.
And what I've learned in that process is that you've got to make it a win-win for whatever individual you're talking to or whatever organization you're talking to. The win-win in this particular situation is we have been involved with this FDA review chain for over 10 years now, it's been a very stable team at the FDA. And while they are very bureaucratic, our device is known as, or has been designated as a breakthrough device by the FDA, meaning it's novel in terms of what it does. And there are no alternatives to what it does in the marketplace.
And then you get this novel breakthrough nomenclature attached to you, and long with that comes a team from the FDA who gets assigned to you because they want to get this novel technology to market as soon as possible. Now, as soon as possible, in the eyes of the FDA is not a nomenclature in my language.
It's not equivalent to getting it to market as soon as possible my eyes, but for the FDA, they've been very collaborative, very compromising, in terms of working with us on getting this technology to market. And the win win is we get the technology to the market sooner. And the win for them is they've recognized a novel technology that can be beneficial to patients when there's nothing else out there that can be, and they want it to get to market as quickly as possible.
And in the case of COVID-19, they want anything out there in the market that can have the potential of being beneficial. To these patients. And certainly having worked with the FDA on this particular project for the last 10 years, they recognize the potential benefit of our device in treating not only COVID-19, but any patient with respiratory failure where you've gotta be able to bypass the lungs if you will, that are malfunctioning and have gas exchange take place in the blood vessel itself, versus having to go through the lungs to get to the blood vessel. And so that was a win-win, but yes, to your point, you become comfortable having these discussions with organizations like the FDA, when you go through it over numerous years, number one, and number two, when you really get down to the heart of the matter.
It's really my team sitting across the table with the FDA team and we're all human beings and the common good is trying to develop and get technologies to market that can be beneficial to patients. And certainly you've got to demonstrate safety and you've got to demonstrate efficacy to the FDA, but along that pathway of doing that and doing it right, you gain credibility with the FDA.
And even though you've got to cross the T's and dot the I's, when you do it in a manner that the FDA understands that you're trying to do it and do it right, you gain credibility with them and you establish a little bit of trust, and you can move this process through the FDA a little faster than you normally would.
Watson: So at a, I guess this is a question you can answer on two different levels at the. Pete Tacoma level. And at the ALung level, which is sustaining, you talked about it as being 22 years in the making the technology, but even the 11 years, since you started informed by your past experiences, bringing medical devices to market, how do you manage that process over such a time horizon?
What I mean by that is, in terms of your own patients, because at some point, you know, when they were these investors that brought you in were pitching you on the idea, like you did your own snooping around, like, is this legit or is this baloney? And so you've reached the light bulb of like, this thing is real versus I need all these other people to realize that, and then simultaneously, and you can correct me if these numbers are wrong, you raised about $80 million in capital for this entity has, has, has been brought in and, you know, with big investors. And they also have their like, itchiness to get a return because that's the venture capital mindset. Like how do you, you know, satiate them and stay, you know, relatively like low expense as you're proceeding? Just take me through the strategy of that, because that's not a position, many people get to be in.
DeComo: Yeah. Well, I'm not sure, you know, certainly there's strategy behind it all. There's strategy related to everything we do. And then we strategize as a team at ALung every day and every week. And you know, one of the unique characteristics of startups, especially life sciences startups, is that when you're in the business of innovation, you don't know what you don't know.
And a wise old man told me one time, you know, if you don't know what you don't know, but you don't know that you're in real trouble. And in the process of innovation, we oftentimes don't know what we don't know. You know, it's a process of creativity, and trial and error. And sometimes you're going down a path and you hit a roadblock and you've got to make a determination of that.
Make a left, make a right or turn around and go back or whatever the case may be. And one of the things I've learned about entrepreneurship as sometimes a decision is better than no decision. Even if you don't know if that decision is right or not. So quit procrastinating, make a decision, even if it's the wrong decision, at least you've learned something from that and you can move forward and ultimately get to the right decision.
The other thing I tell young entrepreneurs when I lecture at, at Pitt or CMU, is that to me, the one trait that is most important for entrepreneurs in order to lead to success is perseverance. And perseverance means that, in my mind, that you never know you give up, you keep trying, but the, the ultimate goal, can't be futile.
In other words, you've got to have clear sight to success, and have a recognition that your device, your technology, whatever you're creating, has a place in the world and can do something. You know, people oftentimes use a perseverance and persistence interchangably. And to me there's a clear difference between perseverance and persistence. Persistence sometimes sort of indicates stubbornness when it's futile. In other words, you don't have a clear vision of where your technology fits in the world. You don't know whether it works or can work. You don't know whether there's a market for it, et cetera, et cetera, but you continue to persist when the ultimate goal is oftentimes futile. And entrepreneurs need to recognize, when an endeavor is gonna end in futility.
Clearly, ALung is not a futile effort, in terms of the technology and the place it has in treating respiratory failure. It could lead to futility if you can't continue to raise money. You brought up 80 million. It's actually, since I've been with the company, we brought in North of 100 million dollars in this company.
And thank God our investors in the region are supportive because they also understand the value of this technology in terms of the treatment of respiratory failure, including COVID 19. And by the way, COVID 19 will not be the last respiratory virus we ever deal with. And I've been telling that story for 10 years as well.
And not until COVID 19 comes along, do people realize, Oh my God, Pete knew what the hell he was talking about from the beginning. And so, you know, it stimulated interest in the company, but you've got to persevere. You can never, ever, you know, let the rejection that you receive as an entrepreneur deter you from the mission that you have in front of you.
And that's completing whatever the project is you happen to be working on. The other thing is, and it didn't come easily to me and I'm sure it doesn't come easy to most entrepreneurs, but you have to be open and Frank and conversive with your board of directors, your shareholders, those individuals that are taking money out of their pocket to fund you.
And you have to have credibility with those investors. So I've sort of practiced being an open book in my 30 year career as an entrepreneur, if you have a question as a shareholder or you have a question and as a potential shareholder, Do not hesitate to call me, do not hesitate to email me. I am always available to you.
And there's no dumb question. And look, it's frustrating for an investor, especially our early investors that have been in this company, writing checks for 22 years, to not have an exit at this point in time. And oftentimes certain investors will look at that experience of taking longer and costing more and attribute blame to the management team.
And my comeback to all of that, and my sort of response to that is that what you really need to look at in your management team and your CEO who who's formed that management team is what challenges have they been presented with? And have they mitigated risk worked or problem solved and worked around those challenges? Because it will always cost more and take longer than what you originally believe it will be.
And if I'm not mitigating risk, and if I'm not problem solving and getting around those challenges with my team, then you have something to pick on. Then you have something to criticize. Then you may need to consider getting rid of your CEO and some of your management team, butALung is a company that historically has been presented with so many regulatory challenges, so many funding challenges, so many technology challenges that if you're not a person who can persevere and work around those things, you'll have a hard time being successful as an entrepreneur.
Watson: And I would also imagine, you know, the $100 million raised for this, and the fact that you were recruited to join this company that was already in existence, and these investors knew that, or had the belief that you were someone who could execute speaks to the fact that some people were listening to you when you were talking 10 years ago, but also the track record that you had already built led to this opportunity.
So preceeding ALung, you'd helped build renal solutions for eight years, you raised $40 million there, a $200 million exit. So can you talk a little bit about what has been similar versus what's been different between those two experiences and how that kind of laid the groundwork for the position that you're now in?
DeComo: Sure. You know, when I started renal solutions, it was year 2000. And then you're probably too young to remember this, but some of your listeners may, but we were just coming out of the tech bubble burst thing at that point in time. And it caused a significant shift in how venture capital looked at investments, investments in technology, be it information technology or medical technology.
Very, very difficult time to raise money. There was a great contraction by venture capital in terms of raising money. And so I had to raise angel money at that point in time as well, but much less angel money that I've had the raise at ALung, and venture capital was quite different back in the early 2000s than it is now.
Venture capital to me means, it's a firm, an institution that's willing to take risk and invest early venture capital really doesn't mean that any longer. So to give you an example, my series, a round of investing that renal solutions was a syndicate of eight venture capital firms at $21 million in the company in a round based on a business plan without even a prototype of the technology at that point in time. You contrast that with ALung today, you can't raise venture capital money in an A round a B round or a C round. To be Frank about it, venture capital has become more growth, equity investment. In other words, they want to invest in you when your technology is far beyond proof of concept that you have FDA approval and you may have even have a revenue stream at that point in time.
And so life has changed when I joined ALung in 2009. You couldn't raise venture capital. Our entire A round was angel investors, high net worth individuals in the Pittsburgh region. And of the $100 million plus that I've helped to raise over the last 10 years, probably 65 to 70% of that is angel money, high net worth individuals, not venture capital.
Although we've had some smaller regional venture capital firms from the Western Pennsylvania area, Eastern Ohio area that have invested in us, but for the most part, it's been angel money. And, you know, most recently we've gotten some intention from strategic investors as well. So, you know, technologically, I would tell you both being extra corporeal devices.
The renal solutions device was much more complicated than the ALung device. And we got both CE Mark approval in Europe, and we also got FDA approval in the United States. And we were pre-revenue when a large strategic came in and bought us for $200 million. And, that will never happen today. We're much further along in terms of human use and validating safety and efficacy with the ALung device than we were with the renal solutions device, and yet we cannot attract strategic buyers primarily because we're not FDA approved yet, and we're not in the market yet. We'll gain a lot more interest once we are FDA approved and in the market. And that's why we struggle so hard to get there.
But, you know, back in the renal solutions days, You could find a strategic buyer on a pre-revenue basis on a, on a pre FDA basis, and in today's world, that's highly unlikely for that to happen. And things happen much quicker in the renal solutions days. From the time I raised my A round, which I'll never forget, entrepreneurs don't forget these things, I raised my round and we closed on November 27th , 2002 and the company was sold and the deal was closed on November 27th, 2007, five years to the day after we raised. And here at ALung we're 22 years old, and we still have not been acquired. And we have a much larger market, a much more developed technology than we did in those days, but it's the way the world works.
And we've got to deal with it. And that's again, why perseverance is so important as an entrepreneur, because who would have thought 22 years later, a valuable technology like this would still be struggling to get FDA approval and be acquired by a larger strategic.
Watson: That's wild, and it really says a lot about you and your entire team's composition to be able to continue to persevere through all that.
You've been so generous with your time. I want to get to our last couple of questions, but before we do that, you seem perfectly positioned to maybe create some more clarity around the larger, I don't know if we want to call it healthcare or biotech startup space, generally, not just because of the past companies that you've helped build and run and sell, but also your role with Pittsburgh life sciences greenhouse, which incubates other similar types of startups.
And I'm going to basically pause it. My hypothesis or my understanding from my vantage point. And then you can poke holes in it or tell me where I'm misaligned, but there's a lot of experimentation kind of in small labs or like universities where this stuff gets maybe funded, or kind of first developed in like an academic setting, it gets spun out, and you know, whether this is through university technology transfer or these other startups, or the professor that found it deciding, Hey, I want to try to commercialize this thing myself. But very, very few get through the FDA process and very few get the funding that they need to even see it through that entire arc.
But once they go to market, it is very likely that the end result will be something more like an acquisition by one of the large players in the space, perhaps as opposed to an IPO, because there's this real gap between like what even a relatively well capitalized startup can do from actual production distribution relationships, with all the different insurers and every nuance and nook and cranny of all these different markets, but simultaneously those large strategics.
Those large kind of players in this space, they can't necessarily take on the risk of trying to start something from its infancy through that process. So they leave those startups to kind of be the, the wild West, the Darwinistic evolution, like whatever comes up from the primordial ooze.
And then, you know, they compete with one another to pick off the most promising startups once they've made it through that kind of survival alley, so to speak.
DeComo: Yeah, yeah. Again, a very astute observation, Aaron. That gap that you talk about, we call the Valley of death and you know, that Valley of death can be just that for so many startups that, you know, spin out from the bench, whether it be a university or an R and D house somewhere. You know, one of the issues that we deal with here in the Pittsburgh region that has been present for decades, going all the way back to the late nineties and early two thousands is the lack of capital. And that creates that Valley of death. We don't have a strong venture capital community here in the Pittsburgh area. The support infrastructure is extremely positive.
I mean, you've got the University of Pittsburgh, Carnegie Mellon, Duquesne, these organizations, are in the creative process, in the innovation process. And they want to get these technologies patented, licensed, and spawn out, they've got executives and residents that support young entrepreneurs.
Many of these executives and residents become entrepreneurs, spin these companies out and they take them out. Yeah, the one of the other strong attributes of the Pittsburgh region is there's early stage money. You can find grant money from the state. You can find early investment from organizations like Pittsburgh life sciences greenhouse innovations works and others, but it's beyond that where the Valley of death comes in because you can find this early stage money, but oftentimes that early stage money isn't enough to get you through the evolutionary process, and to a point where that strategic is interested in investing in you or that venture capital firm is interested in investing in you. And that's where a stronger base of venture capital in the region would be helpful, and there are some new venture capital firms that have been formed.
They're smaller in nature, but they're there. The Pittsburgh life sciences greenhouse has a venture fund. Innovation works as a venture fund. Blue tree angels has a venture fund, but we need more and we need larger venture firms. Without them what we're reliant on in Pittsburgh is having to attract money from the East coast or the West coast.
And that's very challenging to do. Some do it, but most don't. And, you know, venture capital firms like to be close to home, they like to be close to the companies they're involved with. It takes a very differentiated technology with a very large market to attract big venture capital into Pittsburgh and other metropolitan areas.
And that's where the Valley of death comes in. So there, there are good technologies to great technologies that are dying on the vine. Because they're stuck in this Valley of death and they can't raise more money. And then the other problem, Aaron, is that because strategics have moved so far later stage in acquiring a company, they may invest sooner, but they've moved so far later stage in a corner or your company.
They don't want to take on the burn, the cash burn that the company has, especially if they're involved in large clinical trials. And if they're a publicly traded strategic, they don't want that to affect their earnings per share. So they would rather invest in you, help you develop the technology, build the infrastructure, get you to market, and then acquire you later on when you're revenue producing.
And again, that sort of contributes to the Valley of death because you gotta be able to get to the point where that strategic has some interest in you and is willing to invest in you. To bring that product into their portfolio of products, which could be beneficial to them in terms of enhancing their revenue in future years.
And you've got to find the right company as well. You've got to find a company where your product is synergistic to the product portfolio that they already have. And that's sometimes not easy to do. The good thing for us, as life sciences companies and medical device companies in general. Is that a lot of these strategics do not have strong R and D pipelines.
So they're relying on companies like ALung to be the innovators in the world, and they're willing to help you get to a certain point and then acquire you at the right time. The R and D pipelines, even though these companies are typically strong in terms of the cash they have on the balance sheet, for whatever reasons, not many of these companies are investing in R and D and innovation. And one of the things about entrepreneurial based companies like ALung is we typically can move a lot faster. We have less bureaucracy, the development process happens faster. The regulatory process seems to happen faster.
And so a lot of these larger strategics, like to keep the small company separate and distinct and allow them to go through their process, and get to market much faster than they can do it internally.
Watson: Makes sense. I'm glad that people like you are doing this type of work, and it does seem like, you know, if it is that COVID breaks the dam that hopefully changes some of the speed or the attention, or the appetite for capital will be allocated these spaces, I guess that's, you know, maybe the silver lining or the opportunity that comes from a problem like this, that gives me some hope. Maybe that's just youthful naivete, and I'll get that beaten out of me in time.
But Pete, I do appreciate you coming on the show and I do want to ask our standard last two questions. Anything else though, that you were hoping to share that I didn't give you a chance to?
DeComo: Yeah. You know, I like to always point out to entrepreneurs, not only should you persevere, but also always remember that your, your best teacher is your last mistake.
Don't be afraid to make mistakes. That's what entrepreneurship is all about. If it were easy, everybody would be doing it. If they were easy to create an artificial lung, there'd be thousands of companies out there doing it. You know, don't be afraid to make a mistake. It will help you move through the process much quicker.
Watson: Amen. Well, for folks that want to keep up to date with ALung, with you, Pete, where can we point them in the digital world to do so?
DeComo: Well, you can certainly go to our website, which is www.alung.com. And my email is first initial P for Pete. Last name Decoma D E C O M PDeComo@Alung.com.
Watson: Awesome. We're going to link that in the show notes. You can find it for this and every episode of the show in the podcast app, you're probably listening to this right now, or at goingdeepwithaaron.com/podcast. In those show notes, we have a bunch of other characters around the Pittsburgh medical scenes, so we've spoken with Matt Kessinger from Forrest devices. We've spoken with Dr. Gordon Vanscoy from Panther Rare pharmaceuticals. Those episodes will pair nicely with the conversation we just had with Pete. But before I let you go, Pete, I want to give you the mic one final time to issue an actionable personal challenge for the audience.
DeComo: Don't be afraid to take some risk. I got to be an entrepreneur in the circuitous way. But don't be afraid to take some risk and, and start your entrepreneurial ship career much earlier than I did. And, for me, I worked in a lot of big companies before I decided to be an entrepreneur, and before the term entrepreneurship was popular, but get out there and do it. If you've got an interest in a passion in creating something, go do it. And if I can help you in any way, don't feel hesitant to contact me.
Watson: Beautiful. And I think that your career epitomizes that same idea of the stair-step approach, where you kind of build a little bit of a competency, you're able to stomach a little more risk, and then you kind of understand how to hit that next level.
Once you've gotten that under your feet, but you'll never get to the third step without hitting the first in the exactly. Awesome. Well, Pete, thank you so much for coming on the podcast. I learned a ton from speaking with you. I really appreciate you sharing some time.
DeComo: Well thank you, man. It was a pleasure. Take care and stay safe out there.
Watson: We just went deep with Pete DeComo, hope everyone out there has a fantastic day.
Michael Mayer is the co-founder and CEO of Bottomless, a company that uses wifi connected weight sensors to do automatic home restocking. Their first, and only, offering is fresh roasted coffee.
Every customer pays an annual fee (like an Amazon Prime membership) and receives a coffee scale. The scale measures the amount of coffee remaining in your bag and automatically sends you the next one when you’re running low.
Over time, Bottomless learns your coffee preferences and sends you personalized selections.
This is not a paid endorsement.
Bottomless was founded by Seattle-based by Mayer and his wife Liana Herrera in 2016. In 2018, they were admitted into the Y Combinator accelerator program.
In this episode, Aaron and Michael discuss the constraints Bottomless has had to overcome, the future products that Bottomless might sell, and what he learned at Y Combinator.
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If you liked this interview, check out this interview with Dr. Timothy Wong where we discuss reducing the cost of visiting a doctor and fundamentally rethinking medical care.
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Mayer: In the long run, you're going to see people reinventing, essentially every single grocery vertical for the people that happens really care about that vertical. And so that's, that's sort of like our long-term vision is we're going to be sort of connecting those sellers to you in a way that is a lot more durable and consistent than a subscription.
Watson: Hey, everyone. Welcome back to going deep with Aaron Watson. I am really excited about today's episode with Michael Mayer. Michael is the co-founder and CEO of a company called Bottomless. I've been a customer of bottomless and think that it is both a fascinating company, an interesting product, and a very likely revolutionary model for thinking about commerce.
As you'll hear in this interview, Michael has been tinkering with the company idea for more than four years. He has taken it through Y Combinator and has seen some really exciting growth over the last year as it starts to catch on. But in this conversation, we also talked about the business strategy.
His lessons learned from Y Combinator and Y a slower form of e-commerce is crucial, not only for lowering the price of the goods that we buy every single day, week, and month, but also for reducing the environmental impact of those things on our world. This is a powerful idea. Pay close attention. Here is Michael Mayer.
Watson: Mike, thanks for coming on the podcast, man. I'm excited to be talking with you.
Mayer: I am excited to be on.
Watson: This is perfect timing alignment of the stars. I got an email this morning, 5:03 AM. Your fresh coffee has been ordered Ethiopia Costa gate. I'm going to say around Costa geish is going to be coming to my house here in the next couple of days.
And the reason that that's occurring is I have a wifi connected scale in my kitchen and on it sits my bag of coffee, and it is being monitored so that when it hits some threshold for a low weight, it triggers an automatic order of my coffee to be delivered here. You are the man, the founder, the CEO behind the firm that makes that happen.
So maybe we can start off by just, what did I miss out of the explanation of the service offering and where did the initial ideas started to come from?
Mayer: Okay. So, I mean, it is fairly simple. You set up this wifi scale once. It lasts for a year on a single charge and you just start your coffee on top and then you just get more coffee in the mail whenever you need it.
Basically, we just fixed the e-commerce subscription, starting with coffee. I guess another piece of the puzzle for the listening audiences that we don't try to market this scale device. So you, we essentially market you coffee, we sell you coffee and the scale just sort of comes with the coffee. So we're taking a different approach than the few other sort of like automatic reordering concepts that have been tried in the past.
Where did the idea come from? My co-founder and I, we definitely did not sit there thinking how can we make the most kick ass coffee subscription ever like that, that was not the Genesis. We basically were sitting there and every time we went to the grocery store, we would forget something important.
So it started with this German of an idea of like, why am I buying the same stuff over and over from my house manually? If the seller knew how much I had and how fast I was going through it, like they could just ship it to me, and at the same time I had signed up for a subscription.
I don't know if everyone knows what swelling is. It's basically like you can think of it as like a protein powder thing. And like, I had so much piled up that I could have survived an apocalypse and I canceled it and then eventually I ran out of it after like six months later, sort of like realizing, okay, well, the reason why I don't have everything set up automatically shipped to me is like the best service model for that right now, the subscription, it doesn't work at all.
So we sort of just had this thought experiment. What would it look like? What would a service look like that actually sent to me at the right time? And we sort of had an epiphany one day that weight is a really good source of truth and you could sort of over time figure out consumption patterns.
It was such a crazy concept to be perfectly honest. And I really wondered if there was a good reason why nobody had tried this before. But we just went ahead and tried it anyway. It seemed to work. And here we are.
Watson: And if we talk about those subscriptions, there's been some subscriptions forever people that subscribe to the news, a newspaper, and it was a novel piece of paper delivered to your doorstep every single day.
But in the digital age, there was this new idea. I don't even know if it's necessarily connected to that, but there was either the Harry's razor subscription or there was like the box, like your quarterly box, or your monthly box and suffice to say that those were relative to this arrangement dumb because they don't have that actual feedback in any real way once the box gets in your home or, well, once the package gets in your home, other than that, it's been delivered, like that's where the kind of a wall of data stops being collected. And so the fact that you can establish a beachhead effectively in your customer's homes collecting this data, and that's a brand positioning thing. That there's a lot that kind of goes into that. That's a hardware device. There's so many different things is really, from my vantage point, that kind of core insight, and the primary proposition where eventually this isn't just a coffee company. This is another company that kind of, as you're talking about, like, forgetting things at the grocery stores, replacing these disposable goods, that to some degree, rely on freshness that people order with regularly.
Mayer: Yeah. I mean, the general concept is there's a lot of stuff that you have in your house. You might be like in particular, we're starting with coffee because it's something that's not very good from the grocery store, right.So the best products for bottomless in the future are going to be the type of products that you really want to get straight from the producer. Right.
And we have this whole grocery store supply chain just to get things really close to you. And it's very limiting in terms of freshness, but also selection, quality, there's many, many things that are limited by that sort of gating factor. If only having a couple of slots on a shelf and also needing products to be able to last for a long time and also really address a large market.
So right now you see in the DTC e-commerce play, space, like a lot of different companies popping up out of nowhere, selling all kinds of different things. You never would have imagined. Like when I started this business, I never thought anyone would buy cereal DTC because it costs like $3 a box.
Like how are you going to get that shipped to you? And since we started bottom line, we're seeing all these companies doing these like specialty cereal concepts. And so my theory is that in the long run, you're going to see people reinventing essentially every single grocery vertical for the people that happen to really care about that vertical.
And so that's, that's sort of like our longterm vision is we're going to be sort of connecting those sellers to you in a way that is a lot more durable and consistent than a subscription.
Watson: And it also, you're not necessarily holding inventory, you need inventory of the scales, but really you're the connective tissue between these specialty coffee roasters.
Like you don't need to build the expertise in roasting. You need to build the stable of demand for the coffee or whatever the future product might be. And then basically play that connective tissue, almost like a drop shipper of coffee, so to speak.
Mayer: Yeah, exactly. And the interesting, we sort of flattened the world of coffee, right.
It used to be, if you were a small roaster in the middle of nowhere, you could not address the whole United States market. I mean, you could do a really good job of marketing and get your subscription going, but subscriptions really do not retain people very well. And so you're really stuck to your like local grocery stores are opening coffee shops and this is a real world example right now.
Our number one, roaster by volume is out of billings Montana. And he's a one man operation. And he's beating out these huge companies and San Francisco and New York, that have a huge staff on and she just has better coffee and is more consistent at shipping. So, it definitely flattens the world.
There's a story here about being able to address a bigger market from a smaller sort of like existing footprint.
Watson: Right on. So let's talk about that monitoring and the algorithms. So like, another thing I can do is I can go to your website and it has this like data screen of my weight day by day of the coffee grounds and two.
So we're not giving a ton of thought, never having to actually get hands on with it. It seems relatively like, okay, we know that below six ounces is time to ship, but like, I'm sure there's a lot more complexity to it than that. Can you talk a little bit about outside of just the monitoring of the weight, like what else is going on behind the scenes that informs when that coffee gets shipped?
Mayer: Yeah, I mean, like, as a company, we're kind of like a dock, everything looks really simple and smooth above the surface, but underneath we're paddling, like hell to figure it all out. Like all the restaurants have their own sort of fulfillment performances, there's the postal service has different performance for different parts of the country for distances.
And then every user has their own sort of consumption pattern. And so we do a lot to sort of combine all of that information to get you your coffee at the right time. It's definitely not like if you hit six ounces, we're going to order for you. You can imagine that you might drink a bag every month in which case that'd be really early when you're halfway through. And your next door neighbor might drink a bag every week. In which case we need to be ordering fairly quickly, probably earlier than six ounces. So yeah, we have a lot of sort of like magic hidden behind the scenes.
Watson: And that gets easier as you guys get more customers and more data feeding into kind of see what works for them.
Mayer: Yeah, absolutely. I mean, the more cases we have us ordering and seeing if the coffee arrives at the right time, the better we can get, the more we can improve our algorithms and also just sort of, what would you call like anecdotal improvements from customers reaching out and saying, hey, this isn't really working for me.
So we really are discovering all of these sharp edges all the time and continuously improving.
Watson: So one of, I think that that causes all sorts of headaches that you do have to kind of solve these problems from the ground up. And you can't go to some repository, but at the same time, it's your edge and that you don't have a ton of competition and you are getting to learn this stuff right on the ground.
I'm curious about how you got from 750 customers to 6,000 customers in a single year. Because one end of the spectrum, I love this. Like, I'm not someone I'm relatively minimalist. I don't spend a lot of money. I kinda got my routines and all this stuff. And I found myself talking to friends about my coffee subscription service.
And I'm like I never spend time talking with them about things that I buy. So on one end of the spectrum, it seems highly referrable. But at the same time, there's probably concerns about like who's monitoring me. Like, I, we don't have Amazon echoes. We don't have like big tech cameras set up in my home so they can watch me.
So there is like the other end of the spectrum that might make people uneasy having this type of stuff monitored.
Mayer: Yeah. It's really interesting. I mean a lot of the state-of-the-art right now for automatic restocking is vision-based, you see Amazon go and you see that there's a YC company I think standard cognition. And very early on, I said, this started from this concept of how do you do reordering? We thought about all these different form factors of cameras originally of how to mount cameras in home. And we would not have been comfortable with that ourselves. I don't want a camera in the home. I don't really trust the company to tell me that they're not actually looking at the cameras.
And so one of the beauties of what we're doing is honestly, like, do you really care if the whole world knows your coffee level? It's like, I mean, I personally don't like if my coffee level, God forbid, if there was some sort of horrible leak, somebody could figure out my coffee level.
I probably wouldn't lose very much sleep over it. So, people's addresses are probably a lot more sensitive than even the coffee level. That's just like traditional normal e-commerce. So that's kind of cool. I mean, people do have to trust that we don't have anything else in the little black box than a weight sensor, but people can take those things apart if they want.
And if we had a secret listening device, people would know by now. So, essentially it's like a really low invasion way to figure out when to reorder for you, in my opinion, I believe there was a second part of your question, not focused on the monitoring aspect.
Watson: Yeah, just the growth and the fact that like the way it was perfectly framed up. You've referenced Y Combinator here, Paul Graham, the founder of Y Combinator retweeted the whatever public disclosure of going from 750 to 6,000 customers. And these are recurring customers. That's kind of the presumption baked into the business model. And he goes, I previously would've went, met 6,000 customers, but this is an eight X in one year, which is when people talk about growth rates. Pretty exciting if you extrapolate a deep deepen a little bit. So, what is, how is that occurring? What is the driver or the impetus behind that from your vantage point.
Mayer: Yeah, we got to meet Paul, actually. We went through Y Combinator. In a certain number of companies, have office hours with him. And he was one of the fastest people to sort of into it what we were doing.
Well, he said like immediately was like, wow, this is streaming for stuff. Which I think is such a great way to conceptualize what we're doing, but in terms of the growth, our retention is dramatically better than a normal subscription. And so when you play that out, each person is a potential promoter, right.
And if you have five times as many customers after nine months or whatever, you really have five times as many promoters. And if it's something fundamentally unique in somebody's lives, it's not very often, you get a new product that really feels magical. And so it really is something that prompts a lot of word of mouth, even though I do think in the future, this is going to be a utility, right?
So like, right now, if you order something online from Amazon and it shows up at your house, You're not going to tell all your friends, holy crap, I've made an order on the internet and it just showed up. But originally, you order a book and it shows up you're going to be telling everybody you ever met.
Cause it feels like magic. So I think there's definitely a similar thing here, where this is just a fundamentally new service. And since so many people seek, there's more promoters. And since it's something magical, they tell their friends about it. So that's really been driving a lot of our growth.
We do a little bit of paid ads on top, but probably fewer than a typical like subscription company that has grown this much, just because, we really don't have to acquire so many customers to keep our customer base consistent and growing it.
Watson: Yeah. And there's also a degree to which this is any product, but particularly something like coffee, it's very hard to be able to make like a broad statement or proclamation about the purchase that you're making.
I mean, maybe you're holding the Starbucks cup or maybe you're holding the Dunkin cup and that tells other people something about you and how you want to be understood. But otherwise you're making at home, in your kitchen, away from other people and unless someone is visiting and you're like making coffee for them and you're showing them like, I, this is a special blend and a grounded being and blah, blah, blah.
It's very hard to like get the status games that we all want to play as human injected into it. And so by being, and I'm just being transparent, my own experience that we've talked about this, but it is this way of like, Hey, I found this new thing. I'm a very discerning consumer. Like, let me tell you something about myself and simultaneously something about the product.
Mayer: Yeah, for sure. I think that's a good insight. And that's something that frankly, if you have any ideas of how to make bottomless something more of a signaling good. I'm all ears. Right now we basically just focus on delivering the product as best we can. And then a couple of ways, like customers that have been with us for awhile have a heat map that they can share stuff like that.
But right now we're just sort of banking on the concept itself to carry us, which it seems to be doing an okay job.
Watson: Yeah. I'd imagine that at the very least, like some sort of reward program for your 20th bag or what have you, that's like a bottomless mug that would remind me a lot of the morning brew cause they have their referral system and it's probably also be tied into the referral system that you guys have, but the ability to get something for referring, like small and tangible.
It could just be sent any ways in the box or the shipment that you already making. But doing that in forms of swag that other people would be like, proud, represent, like I have a little sticker on my laptop, but other things that like the new thing came in and here's my bottomless mug with my new bag of coffee.
Seems like a relative no-brainer.
Mayer: Yeah, no, I love that. We do have these mugs by the way.
Watson: I haven't seen those yet. Very nice.
Mayer: Yeah. This is not going to translate on audio, but, yeah, I mean, it's definitely a good idea right now we basically have like shirts or mugs that we give out as referral bonuses.
So we're doing a little bit of that, but I sort of wonder what else we can do, free coffee forever. If you get a bottom most. Maybe.
Watson: Yeah we'll see how many of those convert
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Watson: So let's talk about the future of something like this. Because to even get into Y Combinator, but also candidly from the way that you've talked about this company in the past, or even comparing yourself to an Amazon versus comparing yourself to Joe's diner down the street implies an audaciousness, implies a potentiality that frankly, most people don't even bake into their company or spend the time to pursue.
So when you look further, years down the line. What do you see if you're talking about it being utility? Like what kind of world do you envision this being underpinning.
Mayer: There's this interesting thing where I feel like building a multi-billion dollar company is only like five times harder than building a successful restaurant down the street.
So, being crazily ambitious actually has really high ROY. It's better in a sense to be a tech investor because you get to diversify, I'm meant to actually be the entrepreneur. But, it's definitely fun. One thing is like I feel a lot of people, they get into the VC backed startup industry without fully understanding and internalizing what it means to do a VC back startup, right? Like when you take Venture Capital money. They're banking on one company having like a 30 X return. So you kind of have to be terrifyingly ambitious by definition.
If this is the type of the way you want to fund your company and the way you want to grow your company. So I would just say that from the baseline that's we almost are terrifyingly ambitious as a result of the way in which we're building this company. But we are also sort of like were terrifyingly ambitious from the beginning and that sort of like, so there's sort of like a co-evolutionary thing about ambition and way of building a company that can sort of like build off of itself. But I think from the beginning, we've sort of recognized that when you make a whole new service model, there really is a lot of explosive potential.
And the reason why we picked this idea amongst like dozens of other startup ideas that we had, whether it's just that there's really no limiting factor to growing a company like this. It's something brand new. It's kind of hard to do. It's going to be a little bit hard to copy, at least in the beginning.
And a huge portion of the global economy is like repeatedly purchased goods. So it would be crazy for us to not be insanely ambitious with this sort of this sort of solution that we're working on it, I guess.
Watson: Yeah, I think what would be super educational, but also just like kind of an insight into how you think about building something like this is maybe over the last two years, or maybe just from the inception of the company, if you could like almost sequentially go through the different constraints that you've faced.
So like one of the presumptions is, there's never enough time to do all the things that you want to do if you're that really audacious, have that audacious ambition, but otherwise. You run to the constraint of capital. Sometimes you run into the constraint of people or technical expertise what have you. So can you kind of like talk through those sequence of obstacles and constraints and kind of maybe a little bit of how you came them? Sometimes it's going to be obvious that it's just like the check from Y Combinator.
Mayer: Okay. So before even starting the company, the biggest constraint was probably ego and fear.
Nobody really talks about this. They sort of assume that it's a high status thing to do a company, but it absolutely was not. I was working as a developer, making a good salary and to sort of quit that and starting a company with no track record, doing companies. Sort of automatically put me into a much lower status level.
When you have no customers, no funding and you're a single person doing, you know, the only full-time person working on a company. People sort of put you in the same bucket as somebody who's unemployed. So first of all, you have to be willing to take the status hits and not really care about what people think about you.
So I would say that was the initial constraints. I was lucky enough to have my co-founder who funded the company, from her salary and also sort of was involved from the beginning. Definitely helped make it easier to start the company. And frankly, if it was just me by myself, maybe I would have never done it.
So that sort of removed some of the very initial funding constraints. Although, I would say, I lived on less than a minimum wage salary for the first, at least year of doing the company. And so that's another thing that a lot of people may find to be a constraint in the beginning Then, in the very beginning, the biggest constraint was can I even build an initial pilot for this?
And, nobody's going to give you money. If you go in and say, Hey, I have this genius idea to put coffee on scales and reorder. Like, you really have to prove that it works and you can build it. So definitely, just that was sort of a deficit that we had, but I was able to figure it out and build out the initial pilot.
Okay. So then we had the initial pilot running, we got like 15 customers using the device. A lot of people also don't know this part of the story. After that, when I had 15 customers, I felt that, I had proved that it was working like of those 15 using very janky stuff that I had had together out of a apartment.
You know, 10 of those people bought coffee for like a very long time. And like we're buying almost as much coffee in like month 12 as they were buying in month one. And so, I thought, Hey, we've really proved this out now. Like this actually does work. If you actually look at the sample size, like 10 out of 15, and look at like the confidence in our poll, like, you know hat there's like a 99.9% chance.
This is better than a subscription, which would be like two or three people out of 15. So then I went out and tried to fundraise and nobody wanted to give me money. So that was a lesson that I had to learn, which is that investors do not see the same thing that you see everyday. All they see is you talking to them for an hour or more honestly like 30 minutes twice, if you, if you're lucky to impress them enough in the first call.
So, you can tell them that, Hey, these 15 customers are all real and all this data is real. And this thing really works. But, that isn't enough, you actually have to prove it. And so there was a little bit of like a gut wrenching period of bottomless his life, where I had quit my job.
I sort of bootstrap this with my partner funding it. And then I had proven that it would work sort of like beyond all odds, building out the first version, and then nobody gave us money. Yeah, I was sitting there and I knew that this worked really well. Because I knew that all the customers were real and I hadn't like pressured them to use the product. And they weren't like secretly my friends or you know what I mean?
Watson: Your mom and your aunts or something like that.
Mayer: Yeah, exactly. What I got like five people that were my friends originally, but I didn't even include them in the data. And then I got 15 people that I didn't know online, but so there was this gut wrenching moment.
It's like, do I keep doing this? This thing that appears to be extremely low status and feels extremely low status and low pay. And do we keep, does my partner keep funding this? So also like a big decision for her to really get this to the point where investors are going to actually take this seriously.
I remember going on several long walks and just discussing like, Hey, this works so well. Do we keep doing this? We just did it. We decided to do it. It took us another, I think year after that failed initial fundraising to get up to something like 150 customers. And we did all kinds of crazy stuff. Like we bought two 3d printers and put them in a closet and just had them running constantly to crank out like 3d prints of the scale and like turns the apartment into like an assembly line factory.
And I listened to the entire history of her own podcast, which is like 150 episodes, like three times just building scales and just doing all this crazy unscalable stuff. But then once we had about 150 customers, we went out to fundraise again and the evidence was just undeniable and we were able to get our first pre-seed funding.
So up until that point, manpower and funding was the biggest constraint, right. So this is kind of a good question. I'm sorry, I'm going on, but I can continue. So after
Watson: No, I love it. That's it. That's exactly what we're looking for is, is the way this stuff pieces together. Cause people who I've never done something like this never built something like this.
There's the like the mistake of what did this one breakthrough and then it'll go. Or like this one, there isn't one. There are moments. But they have to be strung together over a long period of time with each little breakthrough, kind of giving you the, the key to unlock the door, which takes you into the next room, which has another lock door.
And so that's kind of, it, it's a really helpful model to hear you talk through this. And it's probably a trip down memory lane as well.
Mayer: There were two, there were basically two holy shit moments and neither of them actually resulted in real world progress for the business externally until way later. The first holy shit moment was when I hocked together, the first one of these, and it was terrible. I had to hand deliver it because I didn't believe it would survive the mail. And, the person set it up in their house and like, then I started seeing the data and I saw it go down, down, down. And like I bought a coffee for them online on like some Shopify store. Right. That's like what I did in the beginning to test this out.
And then the first, holy shit moment was seeing their weight jump up.
Watson: They put the new bag on.
Mayer: Yeah. I was like, holy crap. It actually works. And then, the next holyshit moment was those 15 initial customers like looking at the retention. Like spinning up a graph and seeing how much coffee we were selling, like after they'd been on for like six months, that was just like a mind blowing moment.
But again, it didn't translate to any real worlds, real-world benchmarks. In a sense, like when you read fundraising announcements or you hear about people having success in a startup, it's a real trailing indicator of the progress that they've made.
Watson: Makes sense. So after the funding and also kind of just validation co-signing like even being in Y Combinator immediately.
Like, I know that it happens here in Pittsburgh is if any company here has been has sniffed Y Combinator, they're all of a sudden way more relevant to the relatively small angel network and other investors here in town. So, what did that do? And then what became the kind of new constraints?
Mayer: Yeah. So we raised the pre-seed like a pre-seed round, right before we went into Y Combinator, but yeah, what can I say?
An interesting thing happened when you go through Y Combinator and you raised some money, your idea goes from like this insane thing that nobody believes to like an inevitability almost. So the narrative around the company very quickly shifted from like, I don't like, this is crazy.
Wow. This company is doing something really innovative. So, what was the constraint? First I can say a note on Y Combinator people sort of assume getting into Y Combinator means that your company is going to be a success. But in fact, it's like a wild dash. You get into Y Combinator and you need to make this insane amount of progress in order to sort of rise to the top of the pack or at least you don't need to be in the top and you maybe need to be in the top 25 percentile to sort of come out of YC with enough momentum to raise significant follow-on capital. So, during, from the moment we got into YC, until we raise our post splicing money. The only constraint was just the personal energy and time of my co-founder and I, and at that point she had joined full-time after a pre-seed capital.
So before we got into it YC. The the biggest constraint by far was just like how much energy can we pour into it? And I think we averaged something like eight or 9% weekly growth during that time. And we were still using like 3d printed hack together hardware. So that was just an insane. That was an insane period of time where we were just like waking up and working nonstop and trying to keep up with the pace.
Basically it's a, Y Combinator is a bit of a competition. Even though it's not frequently acknowledged. And so just sort of trying to prove this and take advantage of the opportunity then after we went through YC, we had grown, we were able to raise a decent amount of money.
I would say the constraint after we raised that money was essentially hiring. What's a big constraint. Hardware was also a big constraint because we had been sort of like hacking together this hardware manually. And that can, you can scale that to a thousand customers, but you can't scale it to 10,000.
So we had to really build out like a real manufacturable product. And then we also, we couldn't do it just the two of us anymore, either again, you can get a company up to a thousand with two people, but not to 10 tasks. And, so just hiring people for an early stage startup can be a bit of a puzzle.
And so, yeah, that's been, that was like the year after we got into YC was finding the right people to work with us and getting a manufactured product. We went to Shenzhen, China, we met a guy there that was great. He now works with us full-time and actually helps us produce our hardware and improve it.
So, yeah. And then, I don't know what the constraint is now. The constraint is just keeping the machine running as you grow as a company, it's like you don't grow linearly. Like the complexity doesn't grow linearly with size. It's like the surface area of a balloon or something you're pushing out this frontier more and more complexity.
So it's just sort of like managing the chaos and writing what sort of feels like a bucking Bronco, I guess.
Watson: And I would imagine also like from a decision-making or a prioritization standpoint it becomes. In addition to that complexity, just the list of potential priorities, the list of potential focuses.
So like, one of the obvious questions is it's a coffee company right now, the same way Amazon started as a book company, and then they start to diversify out of that and it becomes that balancing act of do we just deepen? Do we add to our bench of copywriters that we partner with, and market exclusively as this, or do we start to branch off into different directions? And that can't be an easy call.
Mayer: Yeah. It's one of those things where I feel like we could double our valuation immediately if we were selling more things. Because investors don't want to invest in a coffee company, I guess, they want to invest in the next Amazon.
And so it always is a temptation for us, right. To start selling the next stuff. And frankly, like, we didn't start. I should be, I don't want to trash the coffee business because it's actually pretty awesome that people can get freshly roasted coffee shipped to them straight from the roaster.
But it is a temptation always to do more things. I think what we, our perspective is really like, do we think that what we're doing right now is as good as it can be? And I don't think it is. We still have the flavor from an early stage company in a lot of ways and an early stage product.
And I think, we're only halfway there to really fleshing this out and I'm doing the best we could be doing. And so we just keep that as our north star. And since we're talking a lot about business strategy on this podcast, I would just say that. There's an element of like the person with the most amount of customers is going to win the game.
And we want people to experience this sort of service model with us. And so the more people we can get, trying to service model out, the better it's going to be for our company. And it doesn't really matter if they buy two things from us, five things from us, or one thing for them to really trust bottomless as like the best service provider in what I think is going to be a huge market in the long run.
So we really want to get as many people on board as we can before we sort of distract ourselves and we want to give them the best experience that we can too. So, that's really our north star.
Watson: Yeah. That makes of sense. It's the probably hardest task, but it is also the long-term most beneficial because I knew I'd be tickled if there was like one other thing that I could potentially not have to think about ever ordering ever again, but that'll be there in years to come.
Mayer: Yeah, no for sure. And, it's just, it'll be that much more impactful. If we have a hundred times more customers, it's going to be so much more impactful for so many more people. Once we actually decide to do.
Watson: It also seems so, so there's a nonprofit here in Pittsburgh, that's focused on food waste.
So you basically have this issue of stuff has to be shipped from the farm or wherever to the grocery store and then picked up at the grocery store and brought home. And if it even is the smallest inkling of being past due or a little rotten or whatever, it gets, let go, but then there's also just people that like won't take home a yellow banana.
They only take home a green banana because they want it to ripen once they get at home. And their basic thing is they take it from the grocery store and then they deliver it directly to food banks and other people with food insecurity as a kind of solution. To almost a thing that's like fun. It's fundamentally broken.
If you take it back to the source of the issue in the way that you'd be addressing. So I would imagine that the opportunity, and this is like when you start pitching a bigger fund one day, like that's also part of it, like from a, like a sustainability standpoint, finding these things that can just be a fundamentally better experience if the supply chain and the logistics of it's delivered to the end consumer becomes more efficient.
Mayer: Yeah. I mean, that's exactly right. The fundamental eligibility of consumer demand drives a lot of inefficiencies in the market. Like, there, you can think of like tons of examples, but like the whole, the whole reason, like grocery stores have to have like really stale stuff is because the supply chain needs to be like there for you to pull at any moment. They're not able to sort of know your demand in advance and push it to you more slowly. So I think, when it comes to efficiency and, even like climate change in the long run, in the efficiency of distributing goods, This sort of solution I think is going to make a really good impact because, slow shipping has to be like two or three times less resource intensive than fast shipping.
Like you think about like door dash and they have an individual person driving to your burrito and then delivering it to you with one guy. Like if they knew you were going to have a burrito three days in advance. They could literally make the burrito in an extremely efficient manner in like, you know, on an assembly line and then slowly get it to you and like deliver all the burritos to your neighborhood at once, tight.
And so that's without going into too much detail, there's the sky sort of the limit in terms of making things cheaper and more efficient with this sort of technology for the consumer and for the world. So that's another thing we're excited about. I think that's kind of like the coolest thing about doing this company is like we can go down so many rabbit holes about the impact of something like this.
And it's because we're making something really important available to the internet. Like when smartphones came out, they made all of these things, all of these important pieces of information available to the internet. Like your location, just the visual surrounding around you, like being able to take photos. And then that translates into Instagram and QR codes and all sorts of stuff. So, we don't have the advantage of a whole new computing platform coming up for us, but we sort of created our own by making these scales and putting them out there and getting this one really important piece of information and just fundamentally making it available to the internet.
So that's something that really excites us. And I think just the basic level. Like, I hope that we can succeed at least to the point where this sort of technology for rates through the economy in like a commercial settings and industrial settings. I C J M.
I know it's not the best handle ever. M I C J M. You can just search Michael Mayer. I don't think I'm the most famous Michael Mayer, but you can scroll down until you find me.
Watson: Right on. I'm going to link that in the show notes. It'll be easy for everyone to find how hard was it to get the bottomless URL and a handles.
Mayer: Oh, that's a great, that's a great question. I haven't talked much about my co-founder in this, but I'm sort of like head in the clouds type of guy. I'm always coming up with different thoughts and, usually they're terrible, but sometimes they're very good and she's just sort of like the get stuff done, incredible executer type.
So we just decided we wanted to get the bottom list.com handle and we didn't have a lot of money and she somehow pulled it off. It's pretty nuts. I don't know if I want to divulge her tactics, but she made it.
Watson: Yeah. I have a friend with a potentially similar story that I'll share with you once we're off the recording here, but that'll all be linked, like I said, in the show notes.
And before we let Mike go, we're gonna give him the Mike one final time to issue an actionable personal challenge to the audience.
Mayer: Okay. So, when one piece of the bottom of the story that I didn't really talk about is I have some pseudonymous, like Twitter accounts that are followed by a lot of people in Silicon valley.
And that sort of helped me bootstrap it network to be able to fundraise. And, people always ask me like, how do you come up with things to post? Like how do you have insights? And I always tell them, like, I'm not some sort of super advanced algorithm. Like, I'm not that smart. I really focus heavily on curating my informational inputs.
So in a lot of that is pruning. So, during this last election, anyone who post. Posted more than once a day about politics. I just unfollowed them. So I would say like the some political stuff is good, so don't worry. But, anything that you come across. In your social feed or in your just typical information consumption that you think to yourself, this can't possibly be a building block for thought for me, it's like, I can't see this piece of information being a good premise in some argument in my head that I'm gonna build. Just cut it because it's not adding any value to your life. And there is in the modern world, like an infinite plethora of information sources, so it's not scarce. So the actionable thing I would say is the next time you look at your Facebook feed, Instagram feed, Twitter feed, maybe less Instagram. Cause I'm not sure watching somebody eating a burrito or something is going to be a great input for thought.
But if you aspire to be. I think they're in any way, just unfollow any, anything that isn't going to be a good building block for you.
Watson: Yeah, I would say if you're going to do Instagram curate artists, the art on there can be staggering. And it's not the exact same type of intellectual stimulation, but it is definitely going to take in a better direction than a lot of the other stuff on that.
Mayer: Oh, sure. And that might be a good tip for me because bottomless is at an interesting point right now where we have to start developing our visual identity. And brands and I feel really clueless about that sometimes. And so maybe I just don't have enough input of high quality aesthetics.
So maybe I'll go and set up my Instagram follow artists. Maybe you can send me a couple.
Watson: I'm happy to, but I can tell you as someone whose business partner is much more aesthetically talented than me, it's also a great thing to just find someone else who has that competency. Busted them.
But I'm totally with you, unfollow. I use the mute function on Twitter as much as possible for the thoughtless stuff and sign up for bottomless.
Mayer: Yeah. Sign for bottomless. Be a part of the future.
Watson: Thanks so much for coming on the podcast, man. I really enjoyed talking with you.
Mayer: Thanks Aaron. This was a blast.
Watson: Hey, I really hope you enjoyed that interview with Michael. If you found it interesting, and you want to try the product, there's a link in the show notes for this episode for you to get your first bag of coffee free from bottomless. You can find it in the show notes here. It is very easy to cancel if it turns out to be something that you're not interested in, but if you're a coffee lover like me, they have a fantastic selection.
It is definitely opt my coffee game and it will do the same for you. This is not a paid endorsement. It is just a product and a model that clearly I am a big believer in, and I think you will be as well once you try it. Check it out and hit subscribe. If this is your first time listening, because we have a ton of other great interviews coming down the pipe, including next week's with Pete Dakomo.
Dakomo: And, one of the, 180 unique, characteristics of startups, especially, life sciences, startups, is that when you're in the business of innovation. You don't know what you don't know. And a wise old man told me one time. You don't know, if you don't know what you don't know, but you don't know that you're in real trouble.
Thanks for listening. Connect with Aaron on Twitter and Instagram at Aaron Watson, 59.And for your bananas and all sorts of stuff is, is really the dream.
And whether it's us or somebody else, like, I think it's going to be a dramatic improvement.
Watson: I'm rooting for you. I'm going to keep ordering and drinking the coffee and I've got my list here. I don't know if you want to go. Maybe this is taking the eye off the ball here, but I had like a couple of different items and I wanted to see if you would give them a grade for the likelihood or the ease at which they could be converted to this model, because I'm sure that there's functions of like things that people actually do care about.
Like you were kind of surprised by the DTC cereal things that they do care about. And that from like a actual shipping standpoint, it would be a disaster or not a disaster. So the first one was eggs. I think that fresh eggs, like what I found, I was like these eggs are treated so that they can sit safely on the shelf versus some egg that was laid within the last couple of days by a chicken.
That could be delivered directly to your home. So if you were to start meeting with the grade for a delivery via bottom list, if I had a little scale underneath my eggs, what do you think of that?
Mayer: Well, that's a fun one because you can sort of think about reinventing the whole egg supply chain, right?
When you travel internationally, they don't actually refrigerate eggs, right. And so I still remember like seeing eggs, like out in a supermarket, like in China, at least. And I was just terrified, like, I wouldn't eat those eggs, but, it has to do with the processing, right?
Like, so American industry processes eggs in a certain way, such that it actually lasts longer than the fridge. But if you don't process it that way, it lasts a really long time unrefrigerated so I don't know. Eggs could actually work pretty well, right. Like how much is a dozen eggs, like four or five bucks.
If you've really, really care about eggs, you might be willing to pay more for like really good, fresh eggs. So I think I could see it.
Watson: Yeah. Yeah. Definitely not, definitely not the next one though. Take a little bit more, more stuff. Go to the egg delivery safely. It would be the biggest variable there.
Mayer: And then the science project, it gets me excited because I think it would be really fun to like to design like a USPS mailer for eggs. Milk is harder because this is a very low price point. You kind of have to figure out things that people that cost enough coffee is a beautiful thing because, it's sort of concentrated.
It gets it's gets diffused into water. So in a sense, it's like a chem, it's like a concentrated thing already. So, $15 bag of coffee is actually not that expensive on a per cup level, it's like 50 cents per cup. So, milk. Milk is one of those ones where we would have to figure out how to batch it with other items, which it's really something we could do in the long run.
But yeah, another, I would expect that in 2030.
Watson: And then serial was actually at the top of my list. So it's funny that you came up with DTC serial here on your own.
Mayer: I used to tell, like,if you go back and you find somebody that I pitched in. Like the pre-seed or even the failed pre pre-seed round for bottom list. I would have told them we'll probably never do cereal, right.
And I was wrong. So, all of these verticals that you can ask me about, like, somebody is gonna figure out how to do it. Bottomless really is a new way to like connect buyers and sellers of repeat stuff. And I think the world hasn't really understood that yet. And somebody will, somebody will figure it out for the people that actually care about it.
There are going to be enough weirdos that care about pretty much anything. That they'll want to get it in the mail.
Watson: It's almost like the byline of the internet.
Mayer: Yeah, it is. I mean, that's the original Amazon thesis, right? Like what kind of weirdos are going to buy things online and like, oh, okay books.
Sure. Like books is books. People are going to buy that online because there's a big assortment that you can't get in a bookstore, but nobody's going to buy a microwave online. And now I bet like half of microwaves are sold online.
Watson: Yeah, totally. Mike, this has been awesome. I want to aim towards wrapping up and asking our standard last two questions.
But before I do that, anything else you were hoping to share today that I didn't give you a chance?
Mayer: I don't think so. No, I can't think of anything now. I can't think of any agenda other than just talking and prof preaching the word of bottomless. I think I've been doing that this whole time. So this has served me nicely.
Watson: Wonderful. So for the folks that are converted, what digital coordinates can we provide them to learn more follow along and try it out?
Mayer: Well, we're at bottomless.com. We also have the bottomless handle on Facebook, Instagram, Twitter, if you want to follow me personally, I'm on Twitter at M