Welcome to a new episode of Made It. This week we're talking about consumer hardware with our guest, Matteo Franceschetti, the CEO and co-founder of Eight Sleep, a company that describes itself as aiming to improve quality of life through sleep. It's not the easiest thing to describe Eight Sleep, but I'd think of it as a brand of smart mattresses. They have a product called the Pod, which is actually a topper that goes on top of the mattress and has sensors inside that track sleep with super precise metrics and features that allow you to optimize sleep performance, like cooling or heating the mattress depending on your preferences, but also depending on the data collected to help people get perfect sleep. And I have to say, what they manage to do is pretty impressive, and especially the success they've had. They're also famous for being used by many professional athletes, including, for example, among the athletes, tennis player Taylor Fritz, Formula 1 drivers, Olympic athletes. There are also Elon Musk and Mark Zuckerberg. Eight Sleep was founded in 2014 in New York. Matteo founded it with his wife, Alexandra Zatarain, who takes care of marketing today, and his friend, Massimo Andreasi Bassi, who is the engineer who came up with the product. And at the time, the other co-founder was Andrea Ballarini. I say 'at the time' because he's no longer at Eight Sleep, but he was the former COO of the company. In this episode, besides asking Matteo many questions to really get into how they managed to have so much success with a company in consumer hardware, which as we know is a complicated sector, we also asked him many questions about performance in general, because you'll see that Matteo is obsessed with performance and has a lifestyle that is, I must say, quite impressive and ironclad. He has habits that I won't reveal, and I invite you to discover them and then tell us what you think. Could you have habits like that? Do you think it's important to have good habits to be successful? And in general, let us know in the comments or wherever you want what you thought. [Music]
Matteo, welcome to Made It. On this podcast, we always like to start a bit from the beginning to discover what kind of person you are before we get to talk about the company you created. And we'd like to start this conversation from what you describe as your obsession with performance, starting with sports. When you were young, you skied, played tennis at a competitive level, and you also became a go-kart driver, racing internationally. What did you learn from these sports, and why this obsession with performance?
The most important thing I learned is the ups and downs, right? So, like every athlete, you have moments when you're performing in a certain way and other moments when you lose performance, which usually then unlocks better moments that will come later, and so you have to keep going. But at the same time, particularly in sports, if you train a lot, you have to be very focused on how you can recover and how you can recover faster than anyone else. And so that's when I started thinking about my performance. At the time, I didn't have much knowledge, I didn't know too much, I was going more on instinct. Now, obviously, 20 years, 20 years later, and I have a bit more knowledge. By the way, I'd say it was an excellent school and gym to then become an entrepreneur, since it's a continuous roller coaster. But have you ever wondered a bit where, where this love of competition comes from? Were you pushed by your parents to excel in sports, or is it something you cultivated yourself personally, also in your studies? Because then when you did your law degree, you graduated with the best grades, so you're clearly someone who likes to excel.
Well, on one hand, I believe that everything comes from my father, who has always been into sports. My father was a lawyer, but from a young age he always did sports at a high level, and so I grew up a bit with that mindset. At first, maybe when I was younger, I might have thought it came directly from that, but today I realize it's really part of my character. In everything I do, if I don't have a goal, I become uninterested, which was a problem I had at school originally. But once I have a goal, I'm pretty good at being super consistent and working super hard, probably harder than anyone else. But I'm like black or white, and now I know my character and I know how to motivate myself in different situations.
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The time came to decide what to study at university. You chose to study law, which, reading a bit about your story, wasn't something you always wanted to do. It came a bit later. Why did you decide to study law, and what pushed you to follow that path? Did you experience university in a very competitive way too?
Yes, something changed in my life there, because in high school I was okay. I was the typical student who was smart enough to get by, but I didn't really care much, and so I was the typical student that the teacher would say, as my mother used to say, 'the smart boy, but he doesn't apply himself too much.' And I did a lot of sports, so all my focus was there. And so probably the first six months of university were similar, and so probably it was a good average. And then one day my mom brought home a magazine from Il Sole 24 Ore that talked about these law firms, these international law firms that do IPOs, stock market listings, and finance. And I was never convinced I wanted to become a lawyer, to do the same thing my father did, not because it's good or bad, but simply I didn't have that much passion. And to get into these law firms, you essentially need two requirements: you have to graduate with honors and you have to speak English. And at the time, I didn't even speak English, so essentially I was a bit screwed. I had average ratings at school and I didn't speak English. But that's where my brain clicked. I said, 'Okay, if this is what's needed to reach that goal, damn it, I'll make it happen.' And so from there, essentially everything changed, and I started getting 30s with honors in the majority of my exams. I graduated with 110 cum laude, I launched a mini startup at the time that made me enough money to move to America. I went to San Diego for a year, I learned English, I applied to these law firms, these international law firms, and I got into Freshfields, Bruckhaus Deringer, which is considered one of the four largest law firms in the world.
To go back to this thing about motivation, once you had this click of understanding, 'Okay, I need to achieve this result,' besides motivation, was there something that helped you perform at that level, do you think, or was it just simply motivation? Because there are people who are motivated to study but can't get good grades, for example. So I don't know if there was something, a method you found for yourself.
There is a method in how I do things once I'm super determined. But being determined or not determined depends on a bigger vision, on a bigger goal. And so if I'm not motivated, I'm the typical person who, if you force me to do something and I don't understand why, I don't put in the effort. But the second I know why I'm doing something and the goal I want to achieve, I'm able to keep a pace, a rhythm of intensity that is very, very high for a prolonged period of time.
You just mentioned that you went to San Diego to learn English, which was the second step to get into these mega law firms. And by the way, when you were in San Diego, you also managed to get an internship at the National Conflict Resolution Center when you didn't speak English that well yet. How did you do it, and do you have any advice on how not to give up on 'no's and how to convince others that we're capable of doing something, maybe even before we actually are? Because there are people who set limits on themselves and don't even try.
This is another characteristic of my life. When I applied to this center, they rejected me because they essentially didn't need people. But I kept insisting, I told them I would do it for free, and I insisted to the point where they accepted to take me. Something similar happened with Y Combinator. Y Combinator is a bit like the Harvard of startups, and Eight Sleep was rejected, I think, twice until we were accepted the third time. And today we've become a use case of Y Combinator for founders who never give up and keep progressing until we reach the goal we set for ourselves.
Let me interrupt your journey. So we said you went to Freshfields, you stayed in law firms for three years, and then you decided to leave. You were doing a bit of two things at the same time, and then finally you decided to leave the legal world because you had founded your first business, which was in the renewables sector, and it was 2008. The business was called Global Investment Renewable. Can you tell us why you decided to change direction and not continue in the world of big law firms, which had been your primary goal just three years before, and what pushed you towards this more entrepreneurial path?
I did five years in law. I did three years at Freshfields, then my boss became the head of finance at Allen & Overy, and so then I did two years at Allen & Overy. But something else interesting happened there, which I always tell my team: it was 2008, and so I was used to working in these law firms super hard, because you know, you go to work at 9:00 and many times you finish at 10:00, 11:00, midnight. But in 2008, the big crisis hit, the amount of work dropped, and so I started to get bored. I started to explore other things on the side with what would then become my co-founder. And essentially for a year before leaving the law firm, we started working on this side project, and this side project started to make enough money to guarantee us a salary equivalent to what we were making in the law firms, even a bit higher. And so I reached that point. My family couldn't support me. I had just lost my father, so my mother absolutely didn't want me to become an entrepreneur. You know, in Italy sometimes, you have a job, you're doing well at work, your boss supports you, you're crazy to go in this direction. But at that point, we had enough data that what we were doing could work. We had generated enough cash, because it was impossible, at least for us it was impossible, to raise money in Italy at the time. And so at that point, I did the math that there was enough money to guarantee me at least a year of living, even if I had left the law firm. And I counted on the fact that if I failed within a year, my boss would probably take me back, because he was happy, he was happy with how I worked. And so that was my bet.
And how did it go? Once you left the job and launched full-time, obviously you never looked back, because you kept doing it until you sold this company and then created others. What was the thing that made you realize that was a more right path for you? How were those years? What did you love about entrepreneurship?
What I love about entrepreneurship, which is the most particular thing about the startup world in tech, is that it's the closest thing to sports that you can have in a professional world. Because as we said before, there are highs and lows, things keep changing. It's like the equivalent of having an injury in sports and then you have to come back and return to peak levels. There are no excuses. You always have to be at top performance. And so that adrenaline and dopamine, that part gives me energy every day. But you have to have a mentality where you're okay with having these highs and lows, because it's really a continuous roller coaster. Even when, I don't know, if you look at Eight Sleep today, if you zoom out and look at where we are, okay, everything seems beautiful and rosy. But when you're inside, in the trenches, every day you have to solve problems.
Continue your story a bit, because then you decide to... you managed to sell Global Investment Renewable and you decided to move to New York after thinking about a few options to recreate the same business but in the United States. And there's also an important personal encounter there, because you meet a girl who will become your wife and also your co-founder at Eight Sleep. So definitely an important encounter. How did meeting Alexandra change you? Did you immediately realize you would do something together? Did she bring out other ideas in you, or together did you manage to create other ideas? Can you tell us a bit?
Yes, we met on a work trip to the United States with my co-founder. We came to Miami where she was studying, and we met on Halloween night. It's all very random. And then for the first year, she went back to Mexico, she's Mexican-American, and I was still in Italy. And then we moved to New York, I moved to New York and then she followed. Before Alexandra, I had a rule with my previous co-founder that we would never work with our partners. And I believe that applies 99% of the time. But with Alex it's a bit different, because the way we started was that on weekends we were bored, and so we started doing projects, mini hackathons, just the two of us, where we were coding, building things, and launching projects. And so we did that for about a year, working on different projects. And that's how, very simply, we started working together. And when I had the idea for Eight Sleep, we built the first product with the other co-founder, whose name is Max. We needed someone to put together the first presentation, on one hand marketing, and so for me it was logical to ask her to do it, also because we needed it in a couple of hours. And from there, everything started. And today, Alex is still in charge of all the brand marketing and our revenue.
I'm very interested in this period you described, where on weekends you worked on projects, as you said, I think apps and businesses that you hoped would take off, but maybe they never took off for one reason or another. But you kept iterating new ideas. Did you work on two, three, four different ideas in that year? Can you tell us a bit, because it's an interesting phase. Can you tell us what your motivations were? Were you trying to build something big, or was it something to pass the time? Were you ever discouraged that things weren't going forward, or did you know that at some point you would arrive at something? I'm interested to know what your thoughts and motivations were, because obviously it's a period that many people go through before having the big idea that they will then dedicate themselves to full-time.
That's a nice question. When I look back, many times in my life I think about how naive I was in how I did certain things. In the sense that we didn't have this intention of 'we have to build this company.' It was literally, 'Oh, I have this idea, what do you think? Oh, it seems cool. How long does it take to build it? Maybe we'll put in Saturday and build it.' Something like that. But it wasn't like we were thinking, 'We want to build the next unicorn, the next billion-dollar business,' blah blah blah. But we were doing things. And how do you do them? And maybe you see other people or meet other people, you hear that there are initiatives. In the United States, obviously there are many more angel investors or investors. A small step at a time, maybe you go and present this project. The first times, you build something at home on Saturday, on Sunday you launch it and it ends there. Other times, maybe, 'Oh, but there's this presentation at New York Angels,' I remember, and so we went and presented it. And they told us, 'Thanks, it's nice, but we're not interested.' But they're all micro steps. And for us, it was always about learning. So it wasn't, 'Oh, these guys passed, okay, because they passed on the investment because they're not interested, good, learned. What can we do next weekend?' And then after that, Eight Sleep came along. And at the time, I had my second company, so I wasn't really looking for stuff. What I was looking for was, I wanted to get into tech, because I came from finance first, and then my two companies, even though they were startups, weren't in technology, because they were in solar. So in solar, and they were still very finance-oriented, because they were private equity funds buying solar plants. And so I moved to the United States, I started to see all this interest in tech, I started to invest with the money I had made, so I became an angel investor, and I started playing around.
What problem were you trying to solve, and if so, obviously what problem were you trying to solve?
Yes, we started working with Max on a different project in 3D printing. So in the, what's it called, in 3D printing. It was an idea that Alexandra and I had, and so we had started making jewelry that was made in a customizable way, so personalized with 3D printing. And we started involving Max. Then Max was in San Francisco, then Max comes to New York, he was left by his girlfriend that day, and we go out to dinner. And while we're out to dinner, we start talking about some ideas I have, one of which is in sleep. And I start asking myself, why, Elon Musk is taking me to Mars, and I still spend a third of my life on a piece of foam, how do you say it, foam, rubber foam, where in the mattress there's no technology. We have technology in all the other parts of our day, but in the mattress there's nothing. I lie down, I expect to wake up eight hours later refreshed. And at that point, we say, okay, why don't we build a prototype? And so I fly to San Francisco with Max. Max in his garage builds the first prototype with sensors that turn lights on and off and that have temperature. And we have a pajama party. And for this pajama party, we want a presentation, which is the one I mentioned before, where I call Alex and say, can you put together a presentation? And we call five, six friends to try it, who come in their pajamas and everything, they try it. And one of these, Simone Brunozzi, who is still a friend of mine, after the pajama party, comes to me and gives me a check for $25,000 and says, 'This is a very nice idea. Can I be your first investor?' I say two things: one, no, we weren't really thinking of starting a company here; two, we don't have a bank account; and three, we don't have a company. So there's literally nothing. I was selling my second company. He says, 'No, I think you should try.' And essentially he gives us the check, and a few days later we open the bank account to cash the check, and from there everything starts.
So actually it was someone else who believed in your idea before you were even convinced, because maybe you saw it as another one of the things you were doing with Alexandra that were maybe more just to see what would happen. But in this case, it happened immediately. Usually when money follows an idea, it means the idea is good. And let's go back a bit to the prototype idea. How did you work on it? Max worked on it. What was the solution? So you said a smart mattress. What was the initial idea to improve? So you said not just a piece of foam, but you wanted to insert some data collection. What were you trying to change in the world of sleeping?
It was a cover, so it wasn't a mattress, it was a cover that you could install on a mattress, it goes under the sheets, and this cover was able, it had sensors, so it was able to track your sleep, track your biometrics, it saw when you were in bed or not, and so it connected to other WiFi-connected products, so if there were smart lights, it was able to turn them on and off based on whether you were or weren't in bed. And it could heat you, but not cool you. And so that was the first prototype. From there, Max built it in three or four days. In a couple of hours we did the presentation, and from there we started to see all this interest. We decided to work on a crowdfunding campaign, so one of those campaigns where you sell pre-orders that we would then launch a few months later on a platform called Indiegogo. And in pre-orders we sold 8,000 units.
You launched a product that was already based on technology back then, so highly technological, but still a product that had to be sold, what's it called in jargon, D2C, so direct to consumer, a product sold directly to end consumers. And often this is a model that scares entrepreneurs themselves, but investors especially, who prefer B2B models. How did you experience this? Did you think beforehand that it might be harder to scale with that type of model? And then working with it, I don't know if you have any advice for someone thinking of launching a D2C business and is a bit afraid of how to scale.
Selling physical consumer products is one of the hardest businesses you can choose. We were naive, and I return to the point I made before, in the sense that we didn't think about it too much. We had this idea, we liked this idea, we said let's do it. But if I look back, we chose one of the hardest paths. And even the partners at Y Combinator confirm this to us. In the history of Y Combinator, the majority of the companies that became successful are purely in software, and most of the time in B2B software. So if you want to take the hardest path in the world, do consumer hardware that you sell D2C. It's very difficult in the initial phase of the company because you need a lot of money to build the product before you sell it. And it's very difficult in the initial part of the company to have good margins, because for the technology to reduce costs, it needs scale, and at the beginning you don't have it. But if you look at Tesla, Apple, once you manage to make a leap and reach a certain threshold, that's the opportunity to become a very, very big company and a global iconic brand, which is what we're aiming to do.
One particular thing about your business is that, and maybe it's something you've thought about a lot, but you're a product that once you've bought it, you don't buy a second product the next day, because the price is very high. So what I mean is that there isn't much repeat purchase, which in consumer they usually say the first product doesn't make you anything, but it's from the repeat that you start to earn. So I imagine you calculated this in your margins, and that's why the cost of your products is also very high. I don't know if you can tell us, having worked a bit in the consumer brands world myself, I know this was a very important thing for us.
There are two factors. One, with our product there's a subscription, so there's a recurring cost for all the software part we offer, so all the data part. And so that helps a lot. Second, an interesting effect, particularly in the United States, even though our price is premium, many of our customers are very similar to the Apple customer with the iPhone. And so we actually see a high number of repeat purchases every year when we release the new Pod, which is our technology, or every two years. And so it's a business much more similar to an iPhone than what you would normally see in the sleep sector. So there are people who upgrade, so when you launch a new improved product, people upgrade.
Great. And you said before you participated in Y Combinator, the most famous startup accelerator in the world. How much would you say the program helped you, and what did you learn from that experience?
It helped us a lot at the time in a few different ways. The first, they give you this mindset where you have to ship. So every week you meet partners and they ask you what you did last week, how much progress you made. And so it creates this mental intensity.
...in which you have to make progress — no, you can't have excuses. Second, it's a very important template for then raising money, because we had raised about a million dollars before Y Combinator, and then on Demo Day, in a single day, we raised about six million dollars, which is what gave us the finances to build the first batch of units and then, today, to be part of the...
...community of YC has an immeasurable value, both with the partners and with all the other YC founders, because fortunately some of the most successful YC founders all use our product, so they know us well. And so these are people from Brian Chesky, the founder of Airbnb, to the founder of Coinbase, with whom you can have a relationship whenever you have a problem or want a point of view.
I was thinking that your product, I imagine, is part of your success. It's interesting because it's exactly the type of product that an investor, an entrepreneur would want in their own life, so I imagine it was easy to convey the value of what you were selling once you had a functional, high-level product. But it's interesting that sometimes someone tries to sell something that investors don't get, and in your case I'm sure you had a much more receptive audience.
What we were trying to do at the time, hardware was very much in vogue. If we had done the same thing two years later, we probably wouldn't have raised a penny, a cent, because two years later the majority of investors had realized that consumer hardware is extremely difficult.
In fact, I heard you say in another podcast that most of the consumer hardware businesses that had launched around the time you launched ended up failing because of all the complications and difficulties you've told us about.
Can you tell us a bit about the key moments of Eight Sleep's growth, in terms of how many products there were and how much time it took you before launching the Pod, which is your final product? You've told us about the cover of the first version; now it's much more evolved, and above all I know there's an even more advanced version that you want to launch in the future. Can you tell us about this evolution as well, also of the business?
Yes, when we made the first cover — the one I told you about, which had the sensors, that connected via WiFi with other devices, and that had the heating part — and when I was doing what's called customer discovery, talking to potential users, everyone said: 'Ah, this is really nice, but do you also do cooling? Do you also cool?' And the answer was no, because we didn't do it.
The cooling part is very difficult, and doing all the R&D and development is extremely expensive. And so for our first phase we didn't have the money to do it, but literally every user I spoke to, every potential customer asked me about cooling.
And then at a certain point we managed... I pitched this idea to Khosla Ventures, to Keith Rabois, who was part of... no, of PayPal, he was the CEO of Square, one of the founders of Opendoor, which went public. And at that point they gave us the money. We did our, what's called a Series A, I think it was around 8 million, 8-9 million, something like that, and at that point they gave us the money to build the Pod.
We developed the Pod in 2018 and launched it in 2019, mid-2019, and it went from zero to hundreds of millions of dollars in revenue in a few years. And that's exactly what I was telling you before: this concept of finding something the consumer really, really wants, and if you find it, at that point — no, at Y Combinator they say 'growth will take care of everything', meaning growth and revenue will cover everything else you need. But if you don't have that click with the consumer, it's very hard to scale as a consumer business.
Yes, I'll underline again the importance of what you said, because you found out about this cooling thing, of how much it was a feature users wanted, by talking to users. Often you might think about what they want — you make assumptions about what people want — but actually until you talk to them, and they're the ones paying, you can't know. This was also a turning point in your business. By the way, I'll add that for all pregnant women, etc., cooling is essential, because... I found myself this summer, like, I was pregnant, with the house at 12 degrees and him under 50 layers. So we absolutely need Eight Sleep in the next house where we have room, we'll make this transition, because it's essential.
From a marketing strategy standpoint, in order to grow, I imagine it's also a very word-of-mouth product, so I don't know whether you also did what's called... like when you give discounts and invite a friend, for example. I don't know if you did strategies like that, or advertising, influencers, other channels — what were your strategies, the ones that really worked?
Yes, word of mouth is very big for us, because it's about 20-25% of our revenue. There is a discount, there's a code you can give to your friends to buy, but it happens regardless of that. Some use it, some don't, but it's literally one of those things people talk about when they go out to dinner with friends and say: 'Look, I found this product.'
Usually the typical case is similar to yours: there are two partners and, for different reasons, one wants a warmer environment, the other wants a colder one. And this can be at a standard moment, it can be during pregnancy, it can be during menopause, it can be that one of the two is super into fitness and trains a lot. Also cancer, which we didn't expect: with cancer you have what are called hot flashes, and so we see a lot of people going through chemotherapy buying our product. So there are all these different needs — also if you've had alcohol, for example, if you've been drinking — and so people talk about it.
And for one of these reasons it immediately clicks and they understand: 'Oh, then I need it.' And if it's an audience that right now can afford the cost of our product, they buy it within a few days.
