Building an On-Demand Manufacturing Platform with Joseph Heller of The/Studio

Joseph, welcome to the show.

Thank you very much for having me.

Yeah, great to have you on. And there's a couple of your companies to talk about, but the studio and then also Supplied. I love to hear just what are you doing with those companies today? What do they do for people who aren't familiar?

Yeah, sure. So kind of like a little bit of background. I've always been an entrepreneur. I've actually never had like a real job, like, and both of my grandparents were both sides of my grandparents were entrepreneurs. So it was like very natural to me. Um, when I graduated college, I went to China to teach English for a year. I kind of saw it as like an adventure. Um, ended up starting a business in manufacturing. Basically, we worked with like larger retail stores to help them out with their sourcing in China, kind of basic like consulting company. Um, and then I felt there was an opportunity to help small businesses connect with factories in China. So I created the studio like 2013, 2014, bootstrapped the company, actually like went pretty far, like over 100 employees, and I bootstrapped that. But then I felt like it was time to raise money. So we raised institutional money. We kind of skipped like the angel and seed, went straight to Series A. Because we had sizable revenue. And then we started Supplied in the middle of COVID Supplied is, it's the same thesis, which is connecting SMBs to factories, but Supplied enables people to buy from factories wholesale, where the Studio allows for custom manufacturing. The customer's a little bit different in each business, but the high-level thesis is the same.

Yeah. And with that too, one of the things you mentioned there, going from the bootstrapping to then raising an $11 million round of venture venture funding, and you had like $10 million in revenue, I read, at that point in time. But what made you decide to go the venture route? Because it's definitely not for everyone. I'm curious with you and where the business was at. Take me through that situation of wanting to raise venture at that point.

Yeah, so, so I took the decision pretty lightly at the time. Like, I thought of raising venture as kind of like a badge of honor, like that I had to do. And so I do actually really recommend that founders think about, you know, is raising venture right for them? Ultimately, I still feel it's aligned with my goals, which is to build a big impactful company. You can do it bootstrap, but it's really, really hard to do. And I think what institutional capital helps you to do is it helps you to move quicker, hire, hire like a better caliber group of people that you couldn't attract. When you're bootstrapping the business. So yeah, I think a lot of people don't understand the implications of raising VC money. I didn't at the time, but I still think long-term it was the right decision for us.

Yeah, there's a lot to go through with that. And being at a venture firm now and us talking with a lot of founders on a week-to-week basis, it's just like there's a lot of them that just, they don't really know the options for funding necessarily out there. And to your point, what are the implications of raising venture capital and the expectations associated with that in terms of growth metrics and everything and getting to that next round. And there's so many more things that people don't necessarily know about where some businesses you just need a loan, honestly, or even, yeah, different types of things as well. And with that too, so at that point in time, grew the business to sizable revenue, raise venture capital. But from reading about that experience, it was quite the journey to raise $11 million in venture capital. Take me through some of that, how you approached the process, how that went for other founders. I think they'd be curious.

Yeah, so I was living in China at the time when I first started thinking about raising VC money. And so I actually tried the China circuit and talked to Chinese VCs. We actually even got the term sheet, but, and I don't know, like things change all the time in venture and especially in China. This was like 5 years ago. At the time, like, the term sheets were pretty ridiculous. Like, there were like clawbacks and stuff like that. And it was not founder-friendly at all. And so I said like, okay, like, let me just kind of apply to YC. I actually applied to YC twice. The first time we didn't get in. The second time we did get in. We actually decided not to get in, not to do YC. It's like, very few companies get in and decide not to do it.

Yeah.

Yeah, I'm sure it's like, they were like pretty like shocked that we decided not to do it. In retrospect, I don't know if it was a good idea. I actually think YC does add a lot of value, but I felt like we had sizable revenue. We weren't, and I just felt it was unfair. Like, so one criticism of YC is like, They're not flexible at all. So they'll treat a pre— like, they'll treat like a pre-revenue company the same as like a company that's been around for like 5 years bootstrapped. So I think they could show some more flexibility there. But anyway, they've been largely successful, so I don't think they need to listen to me. But anyway, so I just felt like the optics didn't make sense there. So I thought, okay, we'll go raise money on our own. I ended up having one friend from college that was in a VC fund. And so one thing that I definitely give Silicon Valley a lot of credit for, and I think it's super awesome, is like people are very open to like making introductions. Like, and it's pretty crazy, like you can meet billionaires that will take an introduction, which is like there's really nowhere else in the world that has that type of culture. So I think that's super cool. But I did run up against a lot of obstacles. I think so. And a criticism about the VC world, and I do think they're starting to open up because of COVID they're like, they pattern match ridiculously, right? So we had like lots of things going against us. One, we're a manufacturing business. They didn't understand that. We had engineering was overseas, which is like, now, like, everyone's having engineers overseas, but at the time they were like, you have— your engineers are not in San Francisco, that's like a bad thing. And now I think people perceive that as good. And I also do think the fact that I did not have that Silicon Valley kind of pedigree and network, and I do think that race did play some issue as well. So I think given all those things, it made it really hard to raise money. Took me 18 months, but eventually we got it done. And yeah, here we are.

Yeah. I mean, at that time you obviously had revenue coming in, so it wasn't dire, like you couldn't do anything without the money necessarily. But obviously that was part of the plan is to raise capital to do what you wanted to do. To that point, there's definitely at this point, that was 2018 or something around there. Now there are a few more Emerging managers and definitely more more venture firms focus on early stage, focus on some different types of investments, focus on minority founders. All those different aspects of the venture world that are evolving, but it has a long way to go. No doubt about it in terms of where we're at right now with it. One thing is with with why common here going back to that, I can't just gloss over that. So take me through them apply and then you said obviously not you didn't want to go, but. Why apply in the first place? Or what'd you expect, that they would maybe change their rules around how much they invested? Or what were you thinking through that?

Yeah, so I applied. It was kind of like my bridge into getting back to the US, right? And so I applied, we got in, and then when I just started thinking about it, I started talking to people and they're like, no, you don't really need them. You can raise the money on your own. You've already built a strong business. And so, yeah, like in retrospect, I think I would've joined YC. I think it helps you with fundraising, right? And I think that 7% that they require is like worth it because it's painful. It took me 18 months to raise a Series A, and I would rather just give up that equity and like get my business started. So, I tried negotiating with them and they laughed at me.

And there's, I mean, there's something to be said for the time it'll take for sure. Like the time you spend building the business and then having to raise it at that time. Like, yeah, you could have had it, but yeah, hindsight's 20/20, Joseph, of course. Exactly. So that's what you go through. One thing I'm curious though, with the business, obviously you bootstrapped for a while before that. If you say you launched in 2013, what were some of the things you were doing to acquire your kind of first customers after you had this idea for the company. Take me through that side of things in terms of getting your first customers and how you grew from that point. I mean, getting to $10 million plus in revenue.

Yeah. So we basically did paid marketing. Paid marketing was a lot cheaper back in the day.

Yes.

Yeah. That's a problem everyone's running up against now. Yeah. And I think it's good and it's bad, right? I think it's requiring companies to be more creative and focus like more on product now, which I think is a positive. But like, I also think it's unfortunate, like since Google and Facebook, I don't think there's been a lever out there where it's like you can affordably just kind of like get, kind of kickstart your business. Like there really, that hasn't been replicated yet. So yeah, we just kind of built it off of Google AdWords. And that's kind of how we got the business started. It was a lot cheaper back then. So I don't think I'd recommend you getting your business off the ground today with Google AdWords.

Yeah, I think it's at this point now, it's a good thing to still test it with in terms of if you're testing copy, if you're testing some of the basic demand stuff. But to that point, it's really hard in terms of the prices. I remember running basically Facebook ads and stuff for an e-commerce company back in 2015 to 2018 and even seeing the increase in prices of Facebook ads and everything in that amount of time. We're just like, what is going on on these conversions and everything? You're like, why is it so much more expensive? We're getting so much less on our return on ad spend. And it is kind of wild how that progresses over time. And a company that comes to mind actually is LSX. Richard Mensah is the founder there. They're kind of matching up media companies with then brands who want to obviously get more exposure and find different ways to acquire customers. There's another one too. I think it's Ampjar. I interviewed Pete Davis from Ampjar. They're a company I think based in Australia and they do some of those same thing in terms of like matching companies with opportunities for getting eyeballs, which is all you're kind of doing and with Facebook and everything. And so finding those kind of creative ways to do that with these startups now who are seeing that exact problem of, okay, how do we go beyond AdWords and Facebook and Instagram? You have to find some other ways. There are some companies out there doing that, which is curious. As time has progressed for you with your companies, have you still kind of rode that train of Google AdWords? How have you changed your acquisition strategy as you've grown from those early days when it was much cheaper than now in 2021 and beyond?

Yeah. So, I mean, no, so don't get me wrong. Like you still need those as tools. Like I think it's very hard to kind of scale a business without Google AdWords and Facebook. It's also very nuanced, right? Like if you're selling to a business customer, which we are, you can still kind of afford AdWords and Facebook. So, so like one thing we've done is just got more efficient over time. Like that's one thing that you have to require of your marketing team is just to get more and more efficient and more clever. Email marketing obviously is becoming more and more important because it's like, okay, like I can't change the fact that Facebook and Google, Google are gonna get more expensive, but I can get better at email marketing and connecting with the customer. One thing that we've done with supply that I think is super exciting and like I would never build another business without it, is we've built a community. And so we're basically using Facebook groups and we're going to also build communities in other areas. We're working on a Reddit community, TikTok. That's super helpful because again, it's like, and that's one thing that I've seen is back in the day, you didn't actually have to be that good or you just had to be very, very numbers driven. But now you have to think about your brand holistically. So it's like, okay, like someone's going to touch my brand on Google. How do, how do I improve my onsite optimization so I can get their information? How do I touch them via email? How do I get them into my community? So it's made us have to be a lot more sophisticated really quickly to, to be able to, and, and I think long-term actually it creates better quality companies. But it is challenging.

Yeah, I want to dive into that in a second. But one thing I think the similar thing on community with, with us at Vitalize, like we, we launched our angel community about 3 months ago or so publicly, we launched about a month ago. But that is so we can invest in kind of this pre-seed companies and our fund invests in the seed round. And so you get to see all these companies that normally it's like, oh, you're just too early for us, what do we do? Now we have this angel community at pre-seed where it's like, oh, you're a fit for this angel community, we can invest out of that there and then follow on with the fund. In the next round. And we're seeing that same thing in terms of community and people wanting that and needing that from a lot of different companies. Career Karma always comes to mind in terms of companies that are community-driven. They use the community for their developers and helping people get jobs into tech. For you with your community, did you automatically know it was going to be Facebook groups? Did you hire a community manager? Take me through some of those things logistically of building community for your company.

Yeah, so we built community first supplied. We— which is our newer business. We, we actually haven't really done it for the studio yet. Um, it's on our roadmap to do it, but it actually just started off like— there's a few like YouTube kind of influencers that I follow, and I saw the community that they created, and I thought like, this is really cool. Like, just— and I felt they, they truly created like a really cool community, and I, I just liked what they created. And For Supplied, our customer was like very like, so I think one thing, if you're creating a community, like you have to be very specific who your customer is or else like the community's not gonna be relevant and people aren't gonna be engaged. But for Supplied, actually like 95% of our customers are women founders. So, and they're mainly from like the South and Midwest, a little bit kind of back East. They had a lot in common, like similar kind of age demographics. So I was like, you know what? Like, we have like pure intentions, which is to like help them to create better businesses. So can we create content in a community around that? And we're very clear, this is like what we're here for. This is like the type of customer that we're building this community for. And it worked. Like we, so my chief of staff, like I was like, look, I have this idea, can you just get it kicked off? And she killed it. And then we brought in someone else, actually my old assistant. We brought her in to run that full-time. And yeah, it just worked for us and it continues to work.

That's awesome. And one thing we have to definitely talk about is just the business model behind what you're doing. How does that work today in terms of the business model? And has that evolved since when you started to then now? Been 8 years, I guess, in this time. Take me through some of that as well.

Yeah, so the studio and supply, kind of similar business models, but the studio is a more involved marketplace. So basically it's custom. So the problem that we're solving, it's hard to customize products, right? Like it's really, really hard and no one solved this problem. Like you go onto Alibaba, And it's like so much pain. And the thing is, like, SMBs can only afford to produce smaller quantities, right? So like manufacturing was built around very large production, so you could waste a lot of time and kind of like travel, communication, setup to produce a product because you might produce like 500,000 pieces or 100,000 pieces, whatever it is. But if you're an SMB, like, you can only afford a few hundred, and there's like just a lot of wasted effort on both the factory side and the customer side to make this like product. And a lot of times it ends up being wrong. And so basically we kind of built like kind of end-to-end software that helps our customer manage the project, and then it helps the factory manage the project. Um, and then we also have like a call center and, and support infrastructure to help the customer when they need help. But basically we take a cut of the transaction, um, and it's pairing, you know, the SMB with the factory. And our promise is it's, it's like a managed marketplace. Like we're very involved in the process and we basically kind of manage the factory, um, and train the factory to produce up to like small business American standards. So that's kind of that business. So that, that's how we make money. Supplied is similar model. We take a cut of the transaction, but Supplied honestly is a much easier business to run because, and that was kind of like a problem we were running up against. So when you take VC money, like the requirement is that you scale rapidly and it's, you can kind of tell it's like a very manual kind of, no matter how much software we put in, in place, like customized manufacturing is hard. And it's hard to scale at like VC speed. That's why we created Supplied. It's a 2-sided marketplace. The factories have already produced the product. So it requires a lot less of our involvement. So it's not really a managed marketplace on that side. Like, it's basically like Amazon for buying inventory from factories in China.

With those things then, with these, with both of these companies, so that's, that's kind of the business model behind it. What are the hardest logistics with that? I mean, getting factories on board, how have you gone through that process of it? Because I mean, it seems like a lot to manage and obviously you've been in China for a bit. So I'm curious though, like logistically pulling that off, tell me more about how you've, how you've done that and targeted factories and everything with that too.

Yeah. So, so yeah, it's challenging. Like working with factories is challenging, right? There's language barriers. Even like factories aren't— even factories in the US aren't preconditioned to provide good customer service. And there's an expectation on the small business side that they're gonna get good service. And so there's a lot of friction when people are trying to work with factories. And so basically, so on the studio side, we have a very small group of factories. And what we try to do is bring them enough business so we can totally take up all their production. So they end up building out their processes around our business. And also they realize they kind of end up relying on our business to bring them customers. And so they see there's this like tipping point after a while. They find that it's actually easier to just work with us because we're bringing them all this business instead of them having to go find customers on their own. Definitely like a learning curve. On the supply side, like I said, it's easier because the inventory is already created. Our job there is to basically just get as many factories onto the platform as possible. And then we just use ratings to kind of like flesh out who's a good supplier and who's not a good supplier. But yeah, it's very challenging, but that's why we're in business is to kind of take that challenge away and reduce friction.

Absolutely. That's the problem you're solving for people, make it much easier. And I was doing research on this, just looking through both websites and seeing everything and just like all the ideas that came to mind for companies to start then, or businesses to start off of what you're doing, because you can see how much easier it makes it, you know? Um, which I thought was really intriguing as people are thinking about, you know, different stores they want to create or whatever. And like, how do you actually get those products? And it is just the initial thought is like Alibaba, go there, you figure it out somehow. I've talked to a few founders who have, you know, have physical goods. They had to do the same thing. Some of them actually went to China themselves. Like that's a whole nother level of complexity, uh, to go through.

Yeah.

Which is probably not needed for most of them, I would imagine.

Exactly.

But yeah, where is the business then today? So I know that you mentioned at one point you were like 100 employees and like $10 million revenue online reported. Just anything you can share around where the company is today, you know, versus where, you know, when you started in 2013. I'm curious as to the company now.

Yeah, so the studio is growing like 20-30% year over year. It's profitable too, which we're very proud of. And on supply, like, we've actually grown that business 10x in like 10 months.

Jesus.

And it's growing. Yeah, it's growing at a really nice pace. We have about 300 people globally now. And also on the supply side, which is really exciting, we've actually built out, and we can talk about that for a few minutes, but like, we've built So one thing that we've realized is like we can't just sell inventory to our customers. We also need to figure out how to support their business. That's why we created the community. We've also created software now that's kind of helping like the solopreneur to like manage their inventory, sell like on Facebook Live and just kind of sell on other channels. So yeah, that's kind of where the business is at. And yeah.

How do you think about that in terms of serving the customer and what more you can offer them? terms of what you wanna do? You mentioned the community, and then because of that, I imagine you're just getting so much feedback from people around what they're struggling with, what they need. How are you prioritizing that in terms of what you build out, where you focus your efforts? 'Cause there's so many things I imagine you could do. Take me through that process just in terms of how you evaluate that.

Yeah, so I mean, one thing, so marketplaces are challenging, right? And I think one thing that, so And also, like, I'm probably more of a conservative founder where, like, you know, I've seen some founders that honestly don't have great businesses and can really raise, like, hundreds of millions of dollars. Like, I'm not banking on being able to do that. And so I wanted to make sure that when we do go out to raise more money, that our unit economics really look good. And so like there's a lot of wholesale marketplaces. So I do think B2B marketplaces, there's going to be a lot of VC money going into that space in the next 10 years because like B2C marketplaces, like that's already been well established for the last 20 years. There's been very few B2B marketplaces that have been successful. And so clearly like there's gonna be a lot of money pouring into that area. And I felt like there's a lot of like wholesale sites out there. And I wanted to differentiate ourselves by really deeply solving customer problems. And like, if you actually look at like a lot of marketplaces, they end up coming up with, maybe it's a paid SaaS, sometimes it's a free SaaS, but they end up doing more to empower their customer to really create that stickiness. So there's like tons of examples of that, like Thumbtack, like they ended up having to create tools to support the handymen on their platform, because they knew just like connecting the two wasn't enough. Like, you have to make the customer successful. So yeah, it was mainly a consideration on like, how can we deliver more value for our customer and improve our margins?

Yeah, there's a lot that goes into that and those decisions. And I love talking with founders about it, because everyone has a different kind of viewpoint. But it does provide at least some context around how you're thinking about strategically moving forward and how you advance your business based on where you want to get to and what you focus on, because you obviously can't focus on everything. But it's an exciting business. It's interesting what you guys have done already in the last number of years and the progress you've made. And I can see the use of it for sure. And what is the best way for people to get in contact with you or also then learn more about what you guys are doing?

Yeah, for sure. So obviously they can check out thestudio.com. They can check out suppliedshop.com. So that just kind of gives you high level what we're doing. And also for me, you can find me on LinkedIn, you know, just type in Joseph Heller, The Studio. Also, people can email me to joseph@thestudio.com.

Awesome. Joseph, thank you so much for taking the time to come on the show today.

Cool. Yeah, I had a lot of fun. Thanks for your time.