The Exchanges

Q You just, you just go on Amazon and send people air mattresses while they were waiting?

A Yeah. Up until Amazon canceled our account because they thought we were reselling them, which we weren't, but we were buying hundreds of these arrow beds just to help people sleep. And, you know, again, at this time, there were only, I think, seven people in the business, including the five co-founders. So we were all living and breathing the customer frustration. We were, you know, I was on live chat until I went to bed and was on live chat. The first thing I would wake up and trying to keep up with emails and answer phone calls and Trying to, you know, fly to Atlanta to get our, our manufacturer to produce more. Um, but you know, a big, a big manufacturer, they want to go make a run of 500 beds, a thousand beds, and we're like, no, we just need to ship out, you know, a dozen beds today, a dozen beds tomorrow, whatever it is, to try to catch up, and, uh, it was just, it was really tough to build our way out of the hole.

AI assessment note: “Yeah. Up until Amazon canceled our account because they thought we were reselling them”

Q I think in school, while you were in college, you started your first business, an e-commerce business, right?

A That's right. Um, you know, at the time, I didn't say, like, oh, I'm gonna go start my business. What should I start? It was more of, Well, I don't really want to get a traditional summer job and sit in an office all summer. What are ways that I could use the internet to make money, um, in a non-traditional way, I guess, at the time. And so I learned what dropshipping was. I learned about HTML and how to, you know, build websites, uh, using HTML. And so I figured out that if I built a website and could market the website online, others could do, uh, dropshipping to do the customer fulfillment. And that could be a way to make money. So just started messing around with that.

AI assessment note: “That's right. Um, you know, at the time, I didn't say”

Q So e-commerce still really early days. People still nervous about putting their credit cards online, but what did you, what did you decide to sell?

A Yeah, it was early days. This was kind of post the crash of the .com boom and bust, and so people were still very skeptical about it. You know, to me, though, there were people online searching for products all day, every day, and so I would look up what people were searching for. You know, you could see search volumes, and then I would go look for manufacturers that would ship directly to the customer if I gave them an order, and then, you know, the manufacturer would Charge my credit card and, and do the fulfillment. And I would charge the customer's credit card through my merchant account. And I worked with, you know, dozens of different manufacturers who would sell everything from window blinds where people would give us their measurements and, and it would be made to order eczema cream to help, uh, children with eczema, um, sofas or futons to how to play poker software, uh, all the way through to mattresses. Um, so I've actually been around the mattress side of things, uh, since the early 2000 as well. But at the time, it was really just anything I could find where I could figure out that people were searching for it, and I could find a manufacturer who would do the fulfillment. I could do the rest from my dorm room.

AI assessment note: “sell everything from window blinds... eczema cream... sofas or futons to how to play poker software”

Q So, so why, and why was it that the margins on mattresses were so high? What explains it?

A Yeah, so that's where I, I dug into the industry and just started to learn the dynamics, which is that for the last several decades, it's been a very tightly controlled industry, and when, when things are an oligopoly or a duopoly or a monopoly, that's when you're able to really protect pricing, protect margins, and you see it in other industries. You see it in the razor blade business. You see it in the eyeglass business. Very tightly controlled on the manufacturing side. It's a business that private equity had loved to own, loved to protect. It was very predictable from a volume side. And so that's what allowed them to have big margins and, and brands mattered here. Um, and so brands also drove higher margins. Sealy, Serta, Simmons, these brands have been around for a hundred plus years and that, that allows you to take margin over time.

AI assessment note: “when things are an oligopoly... that's when you're able to really protect pricing, protect margins”

Q So what does click to call search mean?

A So, um, at the time, if, if you searched like Houston tow truck driver, um, you, you could click directly from that search using a Google ad and be connected to a local tow truck company. You could go in and do that yourself and work with Google and set up your ads. Um, but our idea was to make the technology super easy and do it in more of a, a full service model. So we would set up everything for you. We would record the calls so you could audit them. We would give you a dashboard so you had analytics around the leads that you were getting. And instead of paying per click, which is how Google would charge you, we would just charge you on a per lead or per call basis. And so we, we tried to make it as easy as possible for a local advertiser to embrace, um, mobile advertising, which was still pretty nascent at that point.

AI assessment note: “click directly from that search using a Google ad and be connected to a local tow truck company”

Q How did you come up with, with the name? Is it connected to the ghost? Friendly ghost?

A No connection to the ghost, um, We were all working out of, you know, wherever we could from time to time, and so we would often work out of Luke's apartment in Brooklyn, and Luke had an extra bedroom that he would rent out on Airbnb, and Luke's roommate at this time when we were working on Casper was a six-foot-six German guy whose name was Casper with a K, and we would always, for whatever reason, whenever we were over at Luke's, he was there sleeping, and he did not fit on his twin mattress at all, Um, and it was always a funny sight to us, and so, again, we, we kind of gave ourselves a deadline on the branding. We had a list of a million names, and, and when we ended up voting on the name that we all liked the most, Casper won the day, um, because I, I think we all got a good laugh out of Casper's, the visualization of Casper sleeping on a twin mattress, and so he, he was our inspiration for the name. Uh, we ended up going with a C instead of the K. Uh, we gave him a free Casper mattress

AI assessment note: “No connection to the ghost, um... he was our inspiration for the name.”

Q Wow. And were you guys, were you profitable?

A Uh, you know, we had our ups and downs, uh, towards the end, the business got very tough from a profitability standpoint. And, you know, one of the areas that I always personally focused on was our online marketing and our customer acquisition strategy. And what I saw was just every year customer acquisition costs went up. Uh, I think one of the brilliant parts of the Google invention is just the auction based model for buying ads. And so, uh, You just saw ad rates and, and unique visitors and cost per clicks go up, uh, very steadily. And so over time, it just got harder. We, we realized we didn't have kind of enough of a moat around the business to have, you know, a defensible way to, to run the business profitably. Uh, and it, it's all lessons learned, you know, learned a ton in the early days and all the way through when things got tougher.

AI assessment note: “we had our ups and downs, uh, towards the end, the business got very tough”

Q And what, what was gonna make your mattress different? Because you could buy memory foam, you could buy latex. What, what were you gonna make it out of?

A So ours was a all foam mattress with memory foam on top. Um, but what we had worked on for months was just how do we construct it to be super comfortable? And this goes back to, you know, Jeff is a brilliant industrial designer. It's all about a user tested design. And so we would bring our friends over to an apartment to lay on different prototypes and get feedback. What's the right level of bounciness and What bed sleeps the coolest throughout the night? And, uh, you know, what bed feels kind of universally the right firmness, uh, knowing that they're, that firmness was very subjective. And so we, we went through dozens of different prototypes to get to the, the Casper mattress that we launched with.

AI assessment note: “ours was a all foam mattress with memory foam on top.”

Q I imagine that with that rapid success, it, it started, you started to attract more potential interest from investors that year in 2014, because I think you did, would go on to raise, to series A in 2014, you raised like thirteen million dollars or more than that, a little more than that. Was it now, with the initial success you had, was it easier to raise that money?

A Very much so. So one of the common objections we heard from investors was, uh, you know, just too early. Come see us when, when you're live and, and we'll check back in. And I think at that point, you know, most, I think that's just what investors say to push you off. And when we were able to come back and be like, oh yeah, we, you know, we did a million dollars in our first 28 days. Um, you know, I think that was fairly unprecedented. And so that, that, That caused a lot of interest into the business. You know, we, we went from, you know, the, the ugly stepchild to the bell of the ball very quickly, and it was all new to us. And so, you know, we were, we were trying to be deliberate, trying to take it all in, trying to be thoughtful, because you're picking, you know, a lifelong partner. And the joke we heard from a lot of founders was, it's kind of like marriage, but without the divorce option for your, your Series A investor. So We wanted to pick the best partner we could, and, um, that also just meant thinking about, like, what do we want to go do with this business? Do we really want to swing for the fences? Do we want to run it as more of a lifestyle business? And, um, it was a crazy time that was awesome and, you know, different and overwhelming, but we ended up with a great partner.

AI assessment note: “Very much so. So one of the common objections we heard from investors was”

Q So do you sort of feel like, you know, hey, guys, where, where'd you go? I mean, I know you, you earlier mentioned you're good friends with everybody, but do you sort of wonder, like, hey, wait, why, why, why, what's, what's going on here?

A No, I, I don't. I think these things, like, just take their, their natural progression, and some of my co-founders are younger than me, and, and earlier in their careers, and, you know, wanted to move on to new challenges, and, you know, totally accepting of that, and I, I think early on, we said, Um, let's be mindful that, like, you know, none of us signed up for this to be our forever job until we retire, but let's always make sure we put Casper first in our decision making, but also just be realistic that, you know, if, if one of the founders wants to go on to do something else, like, let's just prepare for it and talk about it and, and do right by, you know, the rest of the team, and that's kind of how it played out.

AI assessment note: “No, I, I don't. I think these things, like, just take their, their natural progression”

Q So what, what does that mean to be, to go big?

A Yeah, so the, the way we talked about it and continue to talk about it is we want to build the world's first sleep brand. We want people to think of Casper when they think about getting a better night of sleep. Um, that could mean buying a mattress, but it could mean any other number of products or services or experiences when it just comes to Getting the best night of sleep possible. And just like you think of Nike, when I say, you know, going out for a great run or Whole Foods, when I say, you know, go buy organic foods, we want people to think Casper when it comes to getting a better night of sleep. And so it was just taking the money and start to build a product pipeline, start to build a distribution pipeline. We knew we weren't going to be just digital. So we started doing pop-ups. Um, we wanted to build a global brand of business. So eventually we launched in Europe. And so that's where we just started to Think about what does this business look like down the road and let's see how fast we can get there.

AI assessment note: “we want to build the world's first sleep brand”

Q have honest reviews, they're, they're hugely influential in what mattresses people buy. Like, before I started researching for this interview, I had no idea how important they are to sales. And some of these review sites have not been charitable to you, to Casper. And, and you guys actually sued Some of these sites saying that they were being unfair, but I mean, wonder why, why did you sue them?

A So it's, has nothing to do with the content of what they were writing, and it has everything to do with the way that they were representing themselves to consumers, and what we quickly saw happen in this industry was that people were creating content, they were highly, highly compensated by certain companies, and For that content to be very favorable, and that's fine. As you said, it can be the opinion of someone, but where we draw the line is if they misrepresent what they're doing to consumers, which has to do with disclosure. There are some companies and some sites out there, especially at the time when we were litigating against this, that did not represent themselves as being paid by these advertisers, and they represented themselves as independent and unbiased, and that just wasn't reality, and so Not having proper disclosures is what we, we litigated about, and I think today we have a better ecosystem for consumers in the industry because you see more disclosures.

AI assessment note: “Not having proper disclosures is what we, we litigated about”

Q from what I understand, started to look at you as a potential acquisition, and, and you guys started to talk pretty deeply. And now, knowing what I know about acquisition talks, that is, they're very intense. You got to open up all your book, It's, you gotta stay totally secret. You can't talk about it with anybody. It's, I mean, you, you, you sort of entered this process with Target?

A So I, I wouldn't say we got as far as, as you're alluding to in the process. Um, Target had taken a keen observation to what Casper was doing. They saw what our partnership was at West Elm. And Target wanted to push more into the wellness side of things. They, uh, wanted to make a bigger push into sleep, uh, into the mattress side of things. They had a big bedding business. They wanted to do more in their pillow business. Brian Cornell, the CEO, who I was introduced to, and he said, like, the commercial opportunities are huge. I think we can build a big business together. Yeah. And that's where we sat down. You know, we, we talked, um, you know, amongst our board and, and, you know, the founders and the management team, and we said, what's the best way to work with Target today? And we said, if they want to make an investment and, and take a, you know, minority position in Casper, and if they want to help us More importantly than the investment, if they want to help us commercially, and the investment will help catalyze that, then great. That's the win-win.

AI assessment note: “I wouldn't say we got as far as, as you're alluding to”

Q And investors essentially value the company at the end of that, that IPO at five hundred million dollars, half or less than half of what your valuation was when you raised money. And, um, you know, today it's, it's about a little over three hundred million dollars and it's the market cap valuation. And so what is the story you tell yourself about that? Um, how do you process that?

A That is the reality. Um, and I, I would say, you know, I'm comfortable saying it's not good. You know, the, the last thing I personally would ever want to do is, is lose an investor who, you know, I think of it as investing in me as, as much as it is investing in the company. The, the last thing I would ever want to do is, is lose an investor money. And so it, it doesn't feel good at all. And it's, it's not good. Uh, and so I, it is a very motivating factor to me to, uh, Get our stock price up and to have our investors make money. That said, I do truly believe it's a moment in time. I think we did have unfortunate timing when it came time to tapping the public markets. We were the first, I think, visible high profile company to go public post WeWork, which meant there was a ton of negative sentiment around companies that were investing capital into their business and around, you know, these, the startup And side of things. And we were really one of the last, uh, visible companies to go public pre-pandemic, which just means that, that people immediately started to focus elsewhere as they should. But, um, you know, you, you live with the timing that you have in life. And so, you know, it's going to take time to work our way out of where we are. Um, but it's definitely a reality that we're dealing with and that I feel a lot of responsibility for.

AI assessment note: “I'm comfortable saying it's not good. You know, the last thing”

Q So at what point did somebody, one of those three guys say, hey, Philip, you, you know about mattresses, you sell mattresses, Maybe we should, do you want to, like, join, should we join together and do something around mattresses? Like, how did that conversation even start?

A Well, you know, we, we would sketch out like, how would this business work if we wanted to do direct to consumer and mattresses? And what were the things that would, that would entail? And, you know, so you have to go build a brand, you have to go create the product, you have to create a website, et cetera. And after it felt like we sketched a lot of this out, we all looked at it and we're like, yeah, this seems like pretty reasonable. Like we're probably missing something. Um, And so we, we then went and sat down with Jeff Rader, uh, one of the founders of Harry's, the razor company. And Jeff was also a founder of Warby Parker. And we're like, thank you so much for making time. We know you're crazy busy. Like, we really appreciate it. Just five minutes. Here's our idea. What are we missing? And he like, you know, he thought about it. And I remember him being very contemplative and asking great questions. And he was like, no, I think this could work.

AI assessment note: “we would sketch out like, how would this business work”

Q So the story I just said is not true?

A No. So the narrative that was behind the story, again, so there are good operators in this ecosystem, and there are bad operators in this ecosystem, and in our view, uh, Jack Media was a good operator. They wanted to buy this site, and And we talked to them about financing that acquisition so that they could operate it, and they had complete, independent editorial control, and they ran their business. We were just a, a financing partner for them. And today, we're, we're fortunate. There are a lot of very good actors providing content around mattresses, providing content around sleep, and the ecosystem is much better than it was back when we were forced to litigate. I mean, litigation's always a last resort. Um, but if, if, If the NAD, you know, if the advertising standards that the law says and that the independent advertising bureaus are saying are not being upheld, and that's misrepresented to consumers, we, again, just felt it was, you know, an obligation upon us to take action to let the good actors build their business, and there's a great business to be built on the content side and on the advertorial side of the mattress industry and of the sleep category. Um, so long as you do it with proper disclosures, which is what's going on, and so we, again, it's the narrative behind it, I think, that was a little off.

AI assessment note: “it's the narrative behind it, I think, that was a little off.”