You build a company that is worth $20 billion. But just put that in perspective. That is more than if you add up the entire market cap of Wendy's, Under Armour, Hertz rental car, Harley-Davidson, American Airlines. Also, isn't that bananas when you hear that?
Yeah. I think it's absolutely nuts.
What I find interesting about you is that you went from a guy who's a kid who was working in a deli, almost failed out of high school, to now you've built a company that is worth $20 billion.
In all honesty, I try not to focus on the number because if you focus on it, you sort of see it and then you're like, well, I've done a lot already, I'll pat myself on the back. But I think we're pretty early in what we're doing. And so I just try not to think about it and just sort of look at the problem ahead and put one foot in front of the other. And yeah, we started this thing six and a half years ago. There's still a lot of work to do.
Yeah, I remember because you may not remember this, but we were on a phone call and I was like, hey, this is a great idea. I'd love to invest. And you were like, I don't know, we got like kind of it's already full. And I was like, oh, but I'm such a great guy. And then you were like, we'll see. And I didn't follow up. And that not following up cost me dearly.
I wrote it down in my diary that day.
Grant, what happened from your perspective?
Yeah. Yeah, you tell the story.
Yeah. So, what happened? I mean, whenever you're like one of the like we've had rounds where we've been a hot company and we've had rounds where we've not been a hot company. Sort of like seeing the full spectrum of things. And once the round's closed, all we really want to do is go back to work. So, I remember talking to Sean and you know, I'm like, 'Oh, I should probably follow up with him.' And then I just got busy with work and didn't. And I think I sort of felt bad because I think I should have done something, but I don't know.
Well, listen, I've been a fan. I was a fan before. I'm still a fan now. Now I'm just a bitter fan, which is a unique place to be in. And we should explain what the company is, right? You're the founder of Whatnot. What's amazing is you've built a large company in a space that I think most people would have found very small and unusual. It's almost like a stack of unusual behaviors. We'll just give a kind of quick summary, which is if you open up Whatnot today, the app, you will see people selling all kinds of things. It started off with collectibles and you know, like these little Funko dolls and then opening up packs of cards and stuff like that. But now you could buy anything. Shaan, I don't know if you know this. You could buy crazy on Whatnot. I bought a crab this morning. It was like a fisherman fishing and he's like, I got these crabs. And he's like, you can buy this crab right now. I bought a crab. He's like, great. It's going to be sent in the mail to you. Congratulations, Sean. And there's a crab coming my way now. And that's I don't know what just happened, but I have a crab coming in the mail.
The seafood's incredibly good, to be honest. Like, I actually eat it. I eat it like very regularly. It's my favorite.
It better be because I'm telling my wife I bought internet crab and I don't know if she wants that to be in the house, but I got internet crabs coming my way.
You saw where it came from. You don't know what you're getting if you go to the supermarket.
That bad thing came off the boat.
The person who was doing it, their profile shows like how many they've sold and it says 3,300. Her username, shout out to I Love Crabs. So I love crabs. She sold 3,300. Yeah, this crab pack I bought when it was $34. She's made over 100 grand selling crabs on the internet. Like, this is unbelievable.
Yeah. Last week I had a full crab boil brought to you by Whatnot.
I can't tell if Tim is dumbfounded or his internet connection has dropped. He's made the same face for the last 30 seconds.
I want crab, but I don't understand how on earth you could start something like this because a marketplace like this seems like probably the hardest business to start. I think marketplaces are probably the most durable and also the most challenging. And when Sean originally told me this idea, it might have been 4 years ago. You might have been 2 years in. I'm like, 'Yeah, that sounds cool, but these are impossible.' How did you get your first, let's say, 1,000 sellers to even use the thing? Because I'd imagine that's harder. Sellers, not buyers.
Yeah. I mean, in the early days, it was all sort of hard. I think for us, the reason we did it is because me and Logan who started it, we'd only ever spent our careers in consumer internet and working on two-sided platforms and marketplaces. So, and the idea of starting a B2B business sounded way more painful than starting like a consumer marketplace to us just because of what we knew. When we first got started, we didn't even have the live component. And so, we had to get like immensely creative. And so initially we had a value prop of we'd authenticate whatever was sold.
Can you do it like a movie scene? So you and Logan, you're sitting somewhere, you have an idea. Who says the idea? Where are you? What happened? And then how long from there did the first go live?
So there's sort of like two founding stories depending on if you talk to Logan or you talk to me. They're both technically true. So, I'll go back to the first one because Logan will be annoyed if I don't tell it, which is Logan and I are in Japan over like the holidays and we were both sort of fed up with our jobs and we both built companies before so we prefer to sort of like focus on building things and we're drinking in a bar in Tokyo. We're like let's start a business and we bought like 50 domains and we knew we're going to we're like let's start marketplace business and we bought all these like random domains.
Did you have an idea or just straight to the domain?
You know, you're drinking at a bar. And so it's like one of our initial ideas, which we did actually sort of do for a couple weeks, was we'll build like a better full-service Craigslist, which is a horrific business idea, by the way. But that's what we initially started with.
That's like in the starter pack of entrepreneurs, like Craigslist is so ugly. I could do better.
Yeah. The unit economics just don't make any sense, right? And so you're selling all these used goods that are basically worth nothing, but you need to be able to spend a bunch of money in order to make the user experience of Craigslist better.
I'll give you an example. I've talked to hundreds of entrepreneurs on this podcast and I've got a bunch of takeaways, but one of the big ones, one of them that shocks a lot of the people out there who are product nerds, which frankly I am myself, is that often times in order to turn something that's going kind of good into something that's absolutely amazing, is to fix the marketing, not the product. And in particular, fix how many people know about the product. That's like the big thing. It's called attention. Say it with me, attention. And so this team at Starter Story, they put together a free guide. They call it the $1 million attention guide. It's this pretty amazing 39-page document that's filled with 15 tactics to get eyeballs on what you are building. And so there's even a 30-minute recording from Pat who's the founder of Starter Story. He has interviewed hundreds and hundreds of entrepreneurs. So he's able to put this together, do a bunch of research and experience. And so if you're interested in getting more attention, which frankly you should be, everyone should be, then you should click the link below in the description or scan the QR code right here.
You know, we're in Tokyo. We buy these domains. Some of the domains are like random domains we're going to use to like SEO hack like used Peloton and you name it. Like we had like 50 domains. We were sort of growth hacking our way into the business even at that stage. So anyways, then it comes to sort of like fall of 2019 and we're sort of like all right, we're going to make the plunge. Logan left his job, started to work on what became Whatnot. And the early division of labor was sort of like Logan's going to build it and then I'm going to like do everything else. And so like all right, we're on the full-service Craigslist. And one of the bits of full-service Craigslist was going to be like we're going to be able to do deliveries. And so I'm like, 'All right, let's go figure out.' I did like the envelope on an app and be like, 'Yeah, yeah, maybe there.' And then I start calling all the delivery companies. So I go on LinkedIn and I LinkedIn all these people who run delivery businesses, like the guy who runs delivery at Bob's Discount Furniture, the guy who runs delivery at like all these other companies and they take calls with me. I'm like, 'How much does a delivery cost at scale?' And so like, 'How much is each leg and how efficient is it?' And they were nice enough. They sort of told me and after doing two of those calls like this just doesn't work like the cost per delivery relative to the value added on the used item is just there's no margin there for the business then like oh need to find something else to do and at that point in time it was Logan we brought on an engineer already and then we had half a designer so the team list was sort of like three and a half people.
Can you give a little perspective to your financial situation because we have a lot of entrepreneurs who listen but we have a lot of people want to start so like how you're talking about hiring people already. Did you have funding or did you just have like $100,000 saved up? What was your financial situation to do that?
Yeah, probably I don't know $100, $200,000 in the bank.
Did you wire that over to the company and you're like, 'All right, now we have $200,000. That's what we could hire with.'
Check by check, you know, you just sort of go like, 'I the the the implicit agreement was I'd be willing to spend up to that amount of money doing the business before we raise money.' And so like what we did early on, so our first engineer was actually based in Brazil. It was a guy that Logan used to work with and had known really well who was who's like super talented, but you know, he's in Brazil and so it's much more cost-effective there. He's kind of difficult to work with. So he's, you know, he's like really talented, but really challenging to work with. So you can get him on the cheap and then you give him some good equity. And then the designer, we just gave him equity. We were like, 'Do the branding, do all of our designs, we'll give you equity in the business,' which obviously has turned out well for both of those folks. And so, yeah, we're sort of doing that 24 hours into like doing diligence on delivery costs. Like, oh we have to change this business. And by the way, they're building it. So, we have even to this day, we try and have an immense bias to action because you just learn things by doing things. So even if you're wrong, as long as you're willing to admit you're wrong and then change direction, it's totally fine. So Logan and Gustavo were building the back end like the order system and some of the front end and go everyone, hey everyone, I don't think this idea is going to work. I'm going to try and find something else. We're like, it's okay. We can we got to build a payment system anyway, so as long as we're doing a marketplace, we'll keep building. She like, all right, yeah, we'll still do that. And then I was just going around the internet looking for other marketplaces that I thought were really broken. And I kept coming back to eBay, which is, you know, back in the day I used to sell on Yahoo auctions and eBay. It was like pre-payment processing online. It was Pokemon cards.
You recognize this bad boy.
I don't know if you can see it.
Is that the Ch? Is that the holographic chy?
You guys did your diligence.
I bought this off 20 years ago. Our paths crossed.
Yeah, I remember that $10 money order. Definitely one of those like making money as a first time when you're a kid and like something special about that. Yeah.
So I kept on you know going through marketplaces and what going back to eBay and then like everything that was trending on eBay was collectibles and I could see all my friends were getting back into collectibles and then me and Logan start making trips to all of the comic book shops in LA and they're like packed. They're full of Funko Pops. And so I go, 'Everyone, I got this amazing idea. We're going to go and change and build a collectibles marketplace and let's focus on Funko Pops.' And here's all of the reasons.
Well, what were the reasons? Because the way that you're describing this is very unsophisticated. And maybe it was at that unsophisticated because like if a normal person, they'd be like, 'Well, eBay seems like they're doing collectibles pretty good.' Like a marketplace is, I would imagine, all about liquidity, meaning the perfect amount of buyers and sellers. And there's stuff there and so like what was the metric or the signal where you said this is actually attainable or was it just I want to build a business this might work let's just see what happens.
It was probably a little bit of both. The initial sort of data or research we used to inform it was at that point in time you could pull the sales by every single category on eBay there was a tool I think it was called Terapeak and we went across every single collectibles category and plotted the sales and collectibles through time and how it was growing and every one of these categories was like going gangbusters. So there's clearly a broader trend happening in the market and when you looked at it then there were more Funkos being sold on eBay than comic books which is one of the reasons we ended up choosing comics or sorry Funkos over you know say comics or a bunch of the other categories. It was between Funko and Pokemon were the first two categories. There's demand. People want to buy used Funkos.
Yeah, there's huge demand. And then the sort of taste element of it was we just felt like the product hadn't changed in 20 years materially and it felt like it should. And when we thought there was something around social, we didn't really know what it was, but we just sort of felt there was a with sort of this broader trend in collectibles, which was really driven by people our age who had money getting back into things that were nostalgic from childhood, and the fact that there just hadn't been a lot of innovation in the space that probably should have had more innovation. And we could sort of squint and imagine there's a much better social experience around this where you discover new things where you chat with people that who are into the same things as you. And then yeah, we just took a leap of faith. When we started the company, one of the things we always said is we're not a sort of vision-driven company. We're a user-driven company. So we were never beholden to like our idea needing to be like the idea. We were always going to try the thing, make sure we were building a great user experience, and if users didn't love it, we were always willing to just change.
Why do you think that's important? Because I think, you know, the media, movies, TV, magazines, they love the visionary founder, the one who saw it before anybody else. And it's sexy as the founder. You also want to be the visionary founder. And the most iconic founders, you know, Steve Jobs was, you know, I would say that was like the attribute that was associated with him was this sort of like taste. You know, people don't know what they want, but I will see what they want. I know what I'll do. I'll put a thousand songs in their pocket. That sort of thing. Why do you think it's important to kind of highlight the other way?
When we said we were sort of a customer-driven versus vision-driven company, it didn't mean that we didn't think there wasn't any value in having an idea for how you want to build the future. You have to know which direction you're heading in. It was more of this idea though that no matter what it starts and begins with the customer. If you have this amazing idea for something and customers do not want that, you're dead to rights. And so if you're thinking about you know stack ranking these things in terms of like what matters and what is of greater importance of course it's the customer no matter how great your vision is. And I think as a you know one of my lessons that's been even more solidified from running Whatnot is stories are sort of BS. You know, a lot of stories in terms of like business are really a mechanism to convince people to follow you versus something of like real substance. Like the things that matter actually have much much much more depth to them. And so I think the you know the visionary founder just sounds good.
What would be an example of a kind of popular myth but the actual substance is something different. What would be an example?
I'll give you some in the context of Whatnot were things that just like in the early days sort of feel better but actually if you dissect these things they sort of work in a different way. So one of the things like really early on with Whatnot was investors were very nervous to invest in a Funko Pop company. So there was a point in time when we launched our first live auctions product and you know we're growing like 100% month over month and we talked to a lot of the you know the well-known investors and they're like Funkos I don't know about that that's a small market you know investors want to invest in these big giant markets and look at how big Apple is and Google is but the reality is when you dissect history all of those companies started in an incredibly small area and almost every great company starts an incredibly niche or small area and then takes that and catapults it forward because if you're a four-person company like we were in the early days, you can't compete in a mass market. It's almost impossible to drive a ton of consumer value in a mass market. So instead what you have to do is you have to compete in a small market, build a really great user experience for a smaller subset of people and then expand out.
Isn't that how eBay also started? Like wasn't the first thing like a PEZ dispenser but then wasn't it like weren't they also very niche at the beginning?
They were incredibly niche. I think that the real story from what I've gathered from folks so there's two founding stories there too. One is allegedly made up for PR which was the PEZ dispenser one. The real one was like the first item sold on eBay was a broken laser pointer sold to a broken laser pointer collector and the PR just didn't want eBay to be known for like broken junk and so you know told the PEZ dispenser story, but yeah, if you sort of like there's a lot of these things that like at surface value a thing sounds good, but actually there's a lot of specificity to doing it right. So, don't go after big markets. Don't hire big fancy executives. Don't necessarily hire people because they've worked at big fancy companies. There's all these things that sort of at surface level sound good, which are actually largely incorrect.
The PayPal story is kind of like this, right? So, you have Elon has this vision for X. And he's like, 'It's going to do everything a bank does on the internet. It's going to be, you know, lending. It's going to be mortgages. It's going to be checking accounts, savings accounts.' And that's what the vision was for that. And then here was PayPal, this little tool for eBay sellers, you know, it's like this kind of the niche within the niche. And he kind of resisted it actually for a little while. And then they finally kind of gave in was like, well, that's what the users that's where the demand is. That's what the users want this for. And like of course now PayPal can do a lot more than it did when it started, but it went after that very small market initially and finally rejected the founder vision idea going in. There's always exceptions to the rule. So I never say, you know, definitively that's the way to do it. But I can tell you in that every consumer success case that I'm aware of, the pathway looked like that.
I'm looking at the March 2020 web archive. I think how into the company are you in March 2020?
It's like four months in.
Okay. I'm looking at the website on web archive. Looks pretty good. It says browse fandoms. So I guess that means like different niches of Funkos. So you can look at sports Star Wars Star Wars Rick and Morty. And if you click on it, I'm not sure if it will show you, but it looks like you have sellers on there. You're only four or five months in, but it looks like a lot of sellers are on there actually. And it even has staff picks. Like you guys are curating some cool ones. How many sellers were actually on there and how did you convince them? And also feel free to admit if there's any black hat tactics there. There's a statute of limitations.
There's yeah, there's some unique tactics at play. I think by March 2020, we probably did have in the hundreds or maybe a thousand sellers at that point. So the way we got things going is so classically with a marketplace you have a chicken and egg problem. How do you get sellers if you don't have buyers? How do you get buyers if you don't have sellers? So the way you solve that is you solve for one side of the equation. And so we were initially the seller on Whatnot. And so all of the early inventory was us. Now obviously we can't own 28,000 Funkos. So what we did is we would go and authenticate them and by doing that that gave us additional value to add to the customer and then we would when someone would purchase them we'd go and buy it from a number like a hundred different stores online. I had like a team of people in Brazil who would help me hunt down the right Funko Pops.
Oh. So they didn't exist then. It was just photos of them and you're like but I'll go out and find them and I'll buy them.
Yeah. I mean, it was a little more, you know, there's a little bit more to it than that. So, one of the things that we did, I don't know, there's like 100,000 Funko Pops out there. There's like an obscene number of Funko Pops. And so, you do have to be able to secure them and secure them at a reasonable price and be able to price them at a reasonable price. And so, we ended up having to build like a pricing algorithm. Basically scraped all of the sites that had various Funko Pops and then looked at the amount of liquidity in each version of the Funko Pop and based upon like we'd sort of set a liquidity floor because if that thing had like one liquidity, you know, one sold over a 90-day period, you're never going to be able to secure it. I forget what the liquidity floor was now, but let's just say you had to sell 10 over a 30-day period. We'd use the past 10 sales plus the amount of liquidity per item to then be able to price it at a reasonable price such that we could then go and resell it authenticated and then make sure we could actually secure it from one of the sites.
And then did you buy Google ads for the buyer? Were you buying Google ads or posting on Reddit or something to get the buyers?
There was two tactics that we initially used. So tactic number one was we partnered with a bunch of the Funko Pop influencers on YouTube. So you know I can remember in December calling up every Funko Pop influencer and they're like, 'Who is this company? I don't trust you.' I found someone that I knew from prior world to work with. And that was sort of the starting place. So that was tactic number one. Then tactic number two was we built this sort of viral Funko Pop giveaway mechanic in the app. So, if you're into collecting anything, the thing that you most want to collect are like the Grails or the Chases. So, if you're into sports card, maybe that's you know, rookie tops chrome, LeBron. If you're into Funko, maybe that's like the Tony the Tiger flocked Funko Pop. And what we would do is once a week we'd give away like a $500, $1,000 Funko Pop. And in order to be able to enter, you would have to share. And we sort of built these mechanics where you could sort of have like unlimited sharing. So someone could sign up with your referral link, someone could sign up with your code. You could share it on Twitter, you could share it on Instagram, and each time someone used your link or your code, they would get an extra ticket in the raffle. So it gave this like it sort of encouraged everyone who wanted to win it to share it with everyone that they knew and keep on sharing it.
Right? And so we basically took over all the Funko Pop subreddits, Facebook groups, etc. because every we were giving away the best stuff. This is basically stuff like this is gritty internet entrepreneurship stuff that everyone Sean and me, everyone listening who's has an internet business, everyone has done something where it's like, we're just going to like do this and do this. And maybe I won't want to tell everyone like 10 years looking back. So, it's really cool to see that. That was only six years ago. Now you're worth 20 billion dollars.
It even extends. We had Mike Posner, the music artist who did I Took a Pill in Ibiza on and he's he, you know, I think a lot of people didn't even listen to the episode because it's like, oh, it's like a musical artist on our business show, but he had this amazing story that was just like any other entrepreneur where he was in college when he was trying to be an artist. So, he realized he could post onto he wanted to be on the top of the charts of iTunes, but that's where like, you know, Jay-Z and Rihanna, whoever were at the top. He realized iTunes had a iTunes U section for like college lectures. So, but he's a student. So, he called the guy, he hustled find the guy who like controls that board. He's like, 'I'm a student. Can I upload audio to that?' And he became the number one on iTunes U. Then he emailed all these campuses being like, 'I'm number one on iTunes.' You know, people didn't realize the distinction. He got booked for gigs. And then he had all his friends at other colleges and in fraternities. He was in a fraternity. He said, 'Great. Everyone in this same fraternity in every college on this day change your profile picture to this picture just to create some mystery like what is that?' And then people went and hunted down that oh it's about this album release and that was the start of his music career. He growth hacked his way to success there too. And I love these stories as a founder like you know the front door is not always the only way in.
Yeah. My theory has always been the same, which is if you try and copy the obvious pathways, you're basically going to get stonewalled because you don't have the resources. In the early days, everyone wants to spend a ton of money on paid ads. You know, we spent virtually no money on paid ads in the early days. It was never going to be an effective acquisition channel for us. We spend an obscene amount of money on paid ads today.
But you have to get your way there and each step of the way, you know, sort of unlocks new and interesting things. But I do think in the early days you have to find unique advantages that other people aren't going to be able to leverage.
Do you remember when you first started doing the Grails giveaway? Because you know some part of you has got to be nervous. You're giving away things that are worth thousands of dollars. Did it work right away? Did it take you know a few tries? I guess do you remember the math the first time it worked? Were you like, 'Holy we just this is like 10 cents a user or whatever.' You know, like could you take us back?
Yeah, I do remember. The first one was definitely a flop. So, we give away this like $500 item and I think 104 people there were 104 entries total in the raffle, you know, maybe that's like 30 or 40 accounts or something like that and no one purchased anything. You're like, uh-oh. And we didn't we had like, you know, no money for the business back then. It was like all coming out of my bank account. So, like, oh, this is painful. And I'm not working. So, like, you know, the bank account's dwindling at that point. Yeah. I think there's always just a sweet spot between when do you know a thing's actually when have you proven a thing wrong that it's not going to work and when have you given it enough legs to make it work. And so for us it was like okay well now we have all those accounts who joined and we can send a push notification and when we do the next one and then the next one they're going to be encouraged to share out to more people and so if we can see that in the next one we can go from like 100 to 300 maybe there's a pathway there. And so I think I forget what the second one is. 250 sort of rings to mind. So maybe it wasn't exactly 3x, but it was 2 and a half x. And so you started to get this like exponential on it. And then you can sort of make the math work.
Was the number of sellers like the metric where you're like we need more sellers, more sellers, more sellers.
Well, back then it was just us as the seller. And what we were trying to do is we were trying to build the buyer base because we couldn't add any seller other than us because no one was going to purchase anything from any of the new sellers and they weren't going to stick around. And so the early days were about getting enough demand on the platform such that we could open up selling. And so I think we you know we launched the platform I think December 2019 was when we launched our app. And then we didn't open it up to our first seller until I think towards the end of February was when we started to have enough demand in the marketplace. And even then we did another hack which was anytime a seller would come on Whatnot they'd get our audience and then we figured out a way to crosslist it across other marketplaces using our Whatnot account.
Which is like another classic thing, right? That's what Airbnb did. That's what a lot of people did. That's what I did when I had a miniature marketplace. You post on Craigslist.
Yeah. And so between our demand plus the demand for other marketplaces, we got to a place where we were able to retain sellers and then slowly get that flywheel spinning.
And it probably didn't take a lot. It's probably like if you just get a sale within the first x hours or days, you'll stick around. Is it Did you find some metric like that?
I think our data was too sparse and we were just like, I don't know. Let's just try and get them as many sales as we can such that people stick around. It took us a long time to get the precision around the metrics that mattered and retained and kept people coming back. We definitely weren't that sophisticated back then.
How many transactions happened in the first 12 months? And did that account for any meaningful revenue to you guys at all?
So sort of the journey for us was December 2019 we started it and I bet you we did 30 sales, you know, like pretty grim numbers.
