Courier Weekly Friday 4 September 2020

We’re with Mike Mayer from Windmill and Lucas London from Lick Home, who are each trying to grow companies in traditionally old-school industries – paint and air conditioning.

Courier Weekly Friday 4 September 2020

Courier Weekly Friday 4 September 2020

We’re with Mike Mayer from Windmill and Lucas London from Lick Home, who are each trying to grow companies in traditionally old-school industries – paint and air conditioning. 

DANNY GIACOPELLI: Hey guys, welcome back to the Courier Weekly. I'm Courier's Editorial Director, Danny Giacopelli. Today on the show we're with two founders: one in London; the other in New York. We're trying to grow companies in industries that traditionally have been a bit tired and uninspired. We'll find out why Mike Mayer and his team at Windmill decided to take on the cut-throat world of air conditioning of all things, and why it's a super-interesting sector.

First, we talked paint. Here in London, a company called Lick Home launched with what seemed like the worst possible timing: the day the UK went into lockdown, but the situation quickly changed as remote workers looked at their shabby new office environments, and decided to do some spring cleaning. Paint and wallpaper became a hot commodity. The global paint and wallpaper market is really big, about $93bn. In the US, well-branded, digitally focused direct-to-consumer paint brands aren't exactly new. Recent years have seen the rise of companies like Backdrop and Clare. Lick's co-founder, Lucas London, saw an opportunity to go beyond paint and look at home decor more broadly, which may be worth $200bn in Europe alone. Here's Lucas.

LUCAS LONDON: So I joined Airtasker, which was a marketplace to find gardeners and handymen. It was an Australian business and I was there for two years. We started to centralise the team back to Sydney. We had had huge success in the UK, and I was leading international expansion. Sam, and I just didn't want to move back to Sydney. I think it might be something we'll definitely regret because it's a wonderful way of life out there. After spending about 350 hours on a plane, it just wasn't the move that was right for either of us, and we had this idea to start Lick that we were really excited about.

Our main introduction to decorating was at Airtasker. We became aware that you had this absolutely enormous industry, in particular in Europe, that was predominantly online. There's a huge demographic that's engaged, that's young, and that's into decorating, interior design and colour; yet customers tend to then put their phones in their pockets and go into a hardware store on the weekend to buy the product. It's one of the few industries that's still offline, and not for good reason. It's not like customers are having a great experience online. We thought we could solve that problem, and it was an exciting one, given the size of the market, and how wonderful the industry is from a content and engagement point of view.

DANNY: Was there one data point that really jumped out, and that revealed this was an underserved market?

LUCAS: I started my career as an ad listener at a hedge fund, so we really dived deep into the problem and why that was the case. The one thing that was definitely key, was the qualitative feedback, the frustration of people walking around a DIY store, and having no brands that resonated with them, and having too many choices. Basically, everyone had a miserable time on a Saturday in a hardware store. So there was definitely that reason, but we couldn't understand why that was the case. 

It became very obvious that it was more of a structural problem. Paint manufacturers were relying on third-party retailers as their biggest customer and didn't have a direct relationship with the customer, so just weren't looking to solve that. The only companies that were, were these very high-end home-decor brands that alienated a big part of the demographic. It was there we started to conduct a number of surveys in order to understand the frequency of people decorating, how they were decorating and the frustrations they faced. 

In the funding round, every time we would explain what we were trying to do, everyone said the same thing, that they hated going to the store on the weekends. That's when we knew we were onto something. 

DANNY: Lick launched the day that the UK went into lockdown. We obviously know the company survived, because you're here talking to us. I know it's survived partly because of the convergence of a few different trends. You guys just happened to be in the right place at the right time, in some manner of speaking. But at first, you didn't know that all these people would be decorating their homes and ordering things online. 

LUCAS: It was definitely a nice distraction. The truth is, at first, we were in complete panic. I emailed all shareholders saying not to worry, that we didn't plan to spend a penny in marketing, that we planned to go into lockdown and would see how long we could last to get through this because at that point, we had no visibility.

We were very aware of the situation though, because a very small part of our supply chain was in China, and when they just stopped answering the phone, we knew it was getting pretty serious. But then very quickly that twisted and we then emailed shareholders saying, we're going for it. We saw a number of things happening, one was that people were bored at home, and wanting to decorate. You don't really build a business off that, but it was a great way we could get a good start. Most importantly, we saw online adoption go from 4% to 100%, because people couldn't go to stores, and then the focus on the home increased, because of remote working. Both of those dynamics were definitely here to stay in some form. So we saw just an acceleration of our thesis, really. It was great in many ways, and then in others it was challenging because our supply chain really slowed down and ground to a halt. 

We didn't forecast the level of demand that we got, and we were also being very careful with our working capital so we didn't invest in a huge amount of stock, because we had very short lead time. There were lots of positives, and we're now back up and running properly. We're definitely taking advantage of these new circumstances, but there was a huge amount of luck in that timing.

DANNY: You guys raised some money a couple months later in August. £3m from Felix Capital. For years, the rules governing the DTC playbook have been to launch a cool brand that meets a demand, raise a load of cash from VCs, spend ungodly sums of money on marketing, maybe not worry about making a profit and then exit to some larger company that could gobble you up. Has that all been changed by Covid? I'm not saying that you're following that path, but has that kind of time-honoured path been changed?

LUCAS: It's a really interesting question in terms of how that DTC market has changed. When I started at the hedge fund, I really learned what an investable public company needs to look like. And then I spent the last six or so years working in startups, learning how you can use venture capital to accelerate and scale, but also the massive pitfalls with that: valuations going too high, too much money on paid acquisition. It was really Sam and I's passion to create a sustainable, high-margin business and a profitable one; to definitely use venture to scale. 

We didn't want to get into this issue of becoming a DTC paint brand, where the big problem is in creating a business where the customer doesn't differentiate you from its competitors, and you're all acquiring customers online, digitally. We saw instances of this in the mattress markets, and examples of other DTC brands moving into new verticals. It was our desire to really create a home-decor brand from day one. 

DANNY: That starts with paint. 

LUCAS: That starts with paint, because it's the colour that influences a lot of the other decisions you make around the house. That definitely resonated with Felix, and I think if we had gone out to the funding round and tried to raise as a DTC paint brand, I don't think we would have had a huge amount of success.

DANNY: So, built into the deck was a platform for all sorts of home decor.

LUCAS: Yeah, we were Made.com for home decor, essentially. The UK venture capital landscape is more reserved than the US, which feels fearful of DTC. It made sense to us to build a multi-vertical brand. We raised £850k from some really smart investors last year, and were close to running a profitable company, so we didn't need a huge amount more to get there, but we decided to accelerate the funding round, and Felix was the perfect partner in our eyes. The market dynamics meant it was such an interesting opportunity, and the kind of growth opportunities like multi-verticals in Europe made sense to us, rather than just raising more money, or buying a huge amount more customers. 

DANNY: Have the market conditions made you use that money differently, or think about using that money differently? Whereas, back in the good old days, you would just blow it on 50,000 ping pong tables or something, now you're putting some away for a rainy day?

LUCAS: I’m petrified of building a business where you are raising money to pay wages or to buy more customers. For us, the most important thing is to build a brand that consumers love and a user experience that consumers love, especially in an industry where they're used to quite a negative one. We just feel that that's the most important point, rather than tracking the revenue line, and that's what's also been most successful about our launch; the way our community has taken to the products and the brand, and the user experience in general. It definitely shows that if we keep on how we are, we'll get in a good place. You've seen how the likes of Gymshark have done that, so exceptionally well. What I'm seeing in the press of the moment is a focus on building community, rather than just winning a race. 

DANNY: What are those adjacent categories that you might be moving into immediately? I know you might want to become a platform that has tons of different product categories, but what would be the first beyond wallpaper and paint? Is it wall art, is it sofas?

LUCAS: We tend to think of our spaces post construction and pre furniture. We're currently focused on walls, and we'll be launching blinds and window coverings very soon. So that's our main next category. It's an interesting space because we don't have a key pipeline of timings of when we'll launch the new verticals; that's partly because paint alone is an absolutely enormous industry, and wall coverings equally so. We're starting to focus on those three, and then we'll see what else. There's definitely other opportunities for flooring in the future.

DANNY: What are some of the hardest parts of running a brand like yours?

LUCAS: Stock is definitely a challenge, that's the biggest learning out of this experience. It's a huge amount of commitment. At Airtasker, I had exposure to that because I was hired as the GM to build the UK business and because of the time difference, it meant I had full autonomy. It was sort of like my own business. You're all in, really. Luckily, I've got a great co-founder who is hugely supportive and great to work with, but it's never to be underestimated. If you take venture capital money, you know the targets of what you're trying to achieve will dramatically change from being a lifestyle company. It's a huge amount of pressure and a huge amount of work.

DANNY: So work-life balance and a mental health thing?

LUCAS: Yeah, I mean, that's definitely true, especially in these circumstances. Luckily we're living in a time where we're more aware of that as a balance. We have a set number of holiday days that we encourage, we have very relaxed environments for taking as many as you want. We encourage people to take a few days off after stressful periods, and try to be very aware of remote working first, to encourage a place where it's not a sprint, it's a marathon. How we can all enjoy the journey is hugely important. It's really tricky with remote working, because it's hard to know how employees are in the circumstance, but it's definitely a key focus. 

DANNY: Is there anything that you wish you knew before you launched this thing? Obviously, nobody would have foreseen Covid. Is there anything else integral to the company and the business model itself that you've learned in the past few months that you wish you knew?

LUCAS: Building a business seems to just be constant problem-solving all day, every day. It's been extremely smooth in terms of how the launch has gone and how well we've grown. But that's hiding the fact that every day there's a huge amount of problems you need to solve and get around. So it's been thousands of things and little learnings that have been constant throughout this period. I've got a can on my shelf about the fireplace, and it was our first can that arrived from China. It looks like it's been run over by a truck. That's a great example, when we first received our cans from the supplier, they were all destroyed on transit, so we had to very quickly work with the supplier to learn how to transport them safely and not have any damage. That happened 1,000 times over the last, six, nine months. The biggest learning is how to solve those small problems and how to keep going and not let them trip you up.

DANNY: Speaking of behind you, I mean, it seems like your wall is quite white. You're not using your own product, or is that your product?

LUCAS: To be honest, this wall changes colour pretty much once a week. My fiance hasn't been too pleased. We've painted a huge amount over the last nine months, but I keep repainting over it to hide the patches. I think we're set for another change soon. But if you go to my other bedrooms, it's all very colourful.

DANNY: Lucas London there from Lick Home. From paint to air conditioning, Mike Mayer and his brother Danny saw that the air conditioning market was a bit old and tired. So they teamed up with their longtime friend Ryan Figlia, whose family manufactured, installed and serviced AC units in New York City for more than 60 years. The result was a new direct-to-consumer company that sells beautifully designed eco-friendly AC units. The brand is called Windmill. When they launched this summer, they had a waitlist of more than 7,500 people, and they sold through their 2020 inventory in the first week. Mike, the co-founder and CEO, joined me from his home in New York.

MIKE MAYER: My older brother and one of our mutual friends, Ryan had been kicking around business ideas for quite some time. None of them stuck out. It wasn't like oh, this is the idea that we have to roll with. That was until my brother moved apartments in New York. Moving in New York City is horrible, but to make matters even worse, when we got up to the apartment there was this really ugly old, yellowing window AC sitting in the window. It was as bad as it gets. We thought, how do we even go about taking this out, recycling it, getting another one? And luckily, Ryan, who I mentioned has been in air conditioning for many, many years. His family started an air conditioning business back in the sixties.

So we called Ryan, and we asked him what to do. He sent two of his professional technicians over, they hooked my brother up with a couple nice units, they installed it, they brought the old one back. We were just thinking: how do we provide that experience for other people who don't have a Ryan? After that day, I had lunch with my brother, and we were like, this is it. This is the thing we've been looking for this whole time. We were off to the races. We went through Ryan's factory that his family had been working with for decades, and we pitched him the idea. Then we were off.

DANNY: Obviously, Ryan was still heavily involved in his family business, which did this for a living, right?

MIKE: At the time, Ryan was managing his family business with his brother full time, but slowly and surely, I stole him away. Now we're cranking full time on Windmill, although they have a warehouse in Manhattan, which is incredible to have that infrastructure already set up. I work out of there, we fulfill orders out of there for Windmill, and so we kind of share the space. His family has been very generous with all of their infrastructure and space.

DANNY: When you guys decided to go into this area, it's such an unusual and some people might say boring area to go into, right? It's not like this super sexy thing, which also makes it attractive, because I suppose there's not many modern players in the air conditioning space. 

MIKE: Almost none. I mean, depending on who you ask, I think it's sexy. But if you ask somebody else, they're like: oh, this isn't like Instagram or another TikTok that's going to blow up and have billions of users.  It's a complex piece of machinery, it has its challenges. But those challenges create a moat around this category; to your point, there aren't a lot of competitors. This isn't something where you can just call up a factory from Alibaba and source socks or a T-shirt and start a clothing brand. That's more commoditised now with Alibaba and Shopify, but for something like this, you have to have the infrastructure, not just the factory, but also warehousing space, technicians and trucks. There are complex processes and systems built around a complex product. But that's why I think it's sexy, because it's hard to get into, but once you're in, there's a lot of opportunity.

DANNY: You guys launched this summer with a quite a large waitlist of people, and you blew through all of your inventory within a week or two, right?

MIKE: We actually had them reserved in a couple of hours, and then we cut it off because we didn't think we could handle that many this year given everything with Covid. It's just such a weird year. But we had almost 10,000 people on our waitlist very quickly, and then from that, we didn't do any paid advertising or anything, just from the waitlist we sold out.

DANNY: How does it work? With your co-founder coming with generational experience in this industry, how does that help or hurt what you're doing? Are there bad habits you've brought in from decades of the air conditioning world, or are you taking a different point of view on things?

MIKE: Certainly, we're taking a different point of view. We're refreshing the design, and the function of a machine that's been around for a very, very long time. The thing is with Ryan's family and their institutional knowledge, we did leverage that to not make stupid mistakes. There are parts of this thing that work, and we didn't want to reinvent the parts that were doing their job and that were functional. There's a couple of professional installers that work at Ryan's family business, and we used them all the way back when we were prototyping, and we ran prototypes by them, which they picked apart. Without that knowledge, we would have made some dumb mistakes, we probably still have. You can't start a business, especially a business like this, without making mistakes. That's part of the entrepreneurial journey, but having the reassurance backed by years and years of experience in this industry and product category was certainly helpful. 

DANNY: What mistakes have you made? You just pointed out that you probably have made mistakes since you guys launched relatively recently. What's gone wrong?

MIKE: I make mistakes every day. It's hard to say looking back what went completely haywire, because my personal philosophy is that you have to trip up to move forward. There are so many little things along the way, decisions you make with a vendor on a certain colour, which look terrible. We did that many times during the prototyping process, or putting the screw hole here versus here, and then you can't change it back. Those are very small examples. I'm sure there are bigger ones, but it's the process and that's how you learn, and that's how a product gets made. More so, that's how a good product gets made. We've been doing this for two years, nobody can start a business like this and look back and say everything went well. It's just not reality.

DANNY: Previous to when you guys launched, 99.999% of air conditioning units and products, were they all made in factories in nameless large cities in China?  Or were they made in Germany and Switzerland, these small alpine towns? 

MIKE: Almost all were made in the same region in China, which from our perspective is great. The supply chain is so consolidated, you can get parts quicker. If they were made in Germany, a lot of the parts still would be coming from China, and the supply chain just gets longer and longer as you wait to ship parts. The one thing I'll say, too, is that we have a really close relationship with our factory because Ryan's family, 15 years ago, taught them how to make air conditioners. They were already making air conditioning parts, but Ryan's family went in, their engineers went in, and set up this factory to make air conditioning units for their business. There's this really tight relationship and  I've gone there now, four or five times for Windmill, and feel pretty close to them as people. It's just really special to have that relationship. 

We went to other factories. We had one meeting with a large factory owner. We told him what we wanted to do, we pitched the idea, he got so excited, and then when he asked what we wanted to change – he laughed at us, at our rounded edges, our suggestions of a 60-second autofade. He said that we'd never find somebody to make those changes. Ryan and I looked at each other at that point, and just smiled. The point is that you can go take a unit from one of these factories off the shelf and make a couple modifications and stick a new name on it, but at the end of the day, if you want to transform the aesthetic of these machines, you have to have a close knit relationship. We're very happy that these units are made in the same place, and we're very fortunate to have a close factory relationship.

DANNY: Where is the factory?

MIKE: It's in southwest China.

DANNY: Air conditioners have come under scrutiny for their sustainability creds. It's kind of a catch 22. It's really hot outside, so you need an air conditioner, which contributes to global warming, which means it's hotter outside, so you need an air conditioner. It's an endless loop. How do you reconcile that, launching a product in an era when the sustainability credits of companies are extremely important?  

MIKE: That's something that we talked about a lot when we were starting this business. Danny, my older brother, Ryan and I sat down and said we don't want to do this unless we're thinking about the environment. The reality is air conditioning isn't great for the environment. If you think about what the current players are doing, they're not thinking about it at all. We had to ask: what are the things we can do? 

First, can we use a refrigerant? That's a responsible choice, it's called R32 versus R410A, which is not good for the environment. The second thing is about making it smart. If you turn on your air conditioner, and forget to turn it off when you leave your house and then it's left running, that's pretty bad. So by having an app connected to it that actually works and is reliable, where you can check and turn it off if you forget is great. I've used that several times, and it’s saved a decent chunk of energy. The other thing I'll say is that when refrigerant leaks into landfills, it's the number one contributor to global warming. So we want to make it super easy for customers to find a recycling facility near them. If you go to our website windmillair.com/recycling, you can actually put in your zip code, and it'll find a facility near you. In New York City, they have a programme where they'll actually come and pick up old AC units and recycle them for you, which I would encourage everybody to use for their old units instead of just throwing them out. The last thing I'll say on this front is that we buy carbon offsets for every AC that's bought to offset the use of that AC.

DANNY: Finally, what are your views on the direct-to-consumer model, in general? A lot of people have said that the pandemic has flipped it upside down, depending on what industry you're in. Obviously, e-commerce is on the rise. Has the pandemic changed the way your business model would have run?

MIKE: I think this really depends on the product category.

DANNY: Yeah, air conditioners in particular, though?

MIKE: For air conditioners, not really. Our view on this is that DTC is one channel. It means you sell a product on your website. For air conditioning, 50% of people are buying them in retail. If we want to be a big brand, which we obviously do, we need to be available where people are shopping for these things. That means Amazon, it means big retail, it means specific HFAC distributors in and around the tri-state area, and obviously it means selling out on our website. Covid hasn't changed our strategy there.

DANNY: And that's it this week. If you've got any questions, comments or feedback about anything at all, you can reach me at daniel@couriermedia.co. I'm Daniel Giacopelli. The Courier Weekly is back again next week.

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