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Matteo Franceschetti he heard a whole lot of “no” when he first pitched the idea for “Eight Sleep.” The concept of a temperature-controlled smart bed that dynamically heats and cools to optimize sleep seemed too outlandish for most investors to take seriously.
“It sounded like a crazy idea. Who really wants this?” he told me in a recent interview on the One Day podcast. “You keep hearing no and no and no and no. Even if you are really confident in your small business, obviously these people aren’t silly, so they begin mentioning all the company’s weaknesses.”
Y Combinator, one of the world’s most prestigious startup accelerator programs, rejected Franceschetti’s vision three times.
However, Franceschetti, who also competed in Formula 1 races, stayed the course without losing any sleep as a consequence of initial anxiety.
“You have to be resilient and keep working until you find someone who really understands your vision,” he says. “You have to get 99 no votes to get your first check.”
It has received quite a few checks since its early days of fundraising, most recently an $86 million Series C investment that valued the company at $500 million, and just last week it surpassed its largest each day revenue record by 60% on launch day on the latest version of sleep technology, Pod 4. Investors like Valor Equity Partners, Khosla Ventures, and eventually Y Combinator also woke as much as the idea of sleep fitness.
The company also received unexpected but welcome support from Mark Zuckerberg and (*99*) Musk. “The only thing they agree on,” Franceschetti jokes.
This is good
— (*99*) Musk (@elonmusk) February 28, 2023
What turned these initial doubters into motivated investors? Here are some of the secrets to Eight Sleep’s success.
Focus on the customer
Franceschetti admits that the Eight Sleep business idea could appear a bit impractical. Why should people pay more for a temperature changing pod? However, when he adapted the concept to the client’s needs, he found the answer to this query.
“If you ask people what their biggest problem is when sleeping, everyone will say, ‘I argue with my partner about the temperature,'” he explains. One is too cold, the other is too hot, and then it escalates.
It pitches Eight Sleep as a “painkiller that lowers your temperature at night,” solving the need for a bed that regulates heat and cold on each side of the bed.
I do not agree with the naive
Startups will get a lot of rejection – it’s all a part of the process. But it’s the way you deal with negativity that may separate those that survive from those that quit.
For Franceschetti, this meant refusal. Instead of taking the criticism to heart, he said, “I really don’t agree with it. You have your opinion, I have mine. Let’s see who will be right in two or three years.”
Durability is also key. Even if an investor passes the test the first time, be aware that it may take two or three years to convince them to change their mind.
These days, Franceschetti enjoys meeting with investors who rejected Eight Sleep early on. “One of the best things they can say to me is: ‘Matteo, I think I made a mistake passing. You said you would deliver A, B and C. I didn’t believe it, but it happened.»”
“Be a painkiller, not a vitamin”
One of Eight Sleep’s biggest mistakes early on was poor unit economics. Underpricing the product and overspending on customer acquisition was unsustainable.
“The mistake we all make is trying to get the lowest price possible so we can move more units, but that’s not a sustainable business,” he says.
Franceschetti advises latest business owners to initially discover a large market and then discover problematic solutions for it. Price your product to attain a healthy margin from day one.
Hire as little as possible
Franceschetti says focusing on “stupid growth at all costs” will be costly. One of the biggest mistakes many startups make is hiring as many people as possible in order to scale the business. That’s not the point.
“The quality of the people you hire is extremely important,” he says. “But above all, hire as few employees as possible. This is one other mistake we made.”
Looking back, he believes it only takes three to 6 trusted people to begin a business. It’s simple arithmetic. Every person you add after three people shall be taxed and business will decelerate.
“So stay small, save money where you can prove it works, and then maybe pick out a few additional roles to add to your team.”
Discover the power of sleep
Franceschetti is a big believer in healthy sleep habits – and not only because his company is based on this idea.
He is critical of entrepreneurs like himself in the old days who pride themselves on how little they sleep and how much they work. “Sleep deprivation is the smoking of the 21st century,” he says.
“If you want to perform at your peak during the day, you need to take care of your health, which means three things: sleep, nutrition and physical fitness,” he says. Sleep is really key because if you begin sleeping two hours a night, you will not go to the gym and you may start eating junk. There is no doubt of a healthy weight loss program.
“It all starts with a dream.”