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Matteo Franceschetti heard a whole bunch of no’s when he first pitched the idea for Eight Sleep. The concept of a temperature-controlled smart bed that dynamically heats and cools itself to optimize sleep seemed too outlandish for most investors to take seriously.
“It sounded like a crazy idea. Who really wants that?” he told me in a recent interview on the One Day podcast. “You keep getting no and no and no and no. Even if you’re really confident in your business, obviously, these people are not stupid, so they start putting all the weaknesses of the business in your mind.”
Y Combinator, one of the world’s most prestigious startup accelerator programs, dismissed Franceschetti’s vision three separate times.
But Franceschetti, who has also competed in Formula 1 races, stayed the course, not losing sleep over the initial trepidation.
“You need to be resilient and keep grinding until you find someone who really understands your vision,” he says. “To get your first check, you need to get 99 no’s.”
He has received many checks since those early fundraising days, most recently an $86 million Series C investment valuing the company at $500 million, and just last week surpassing their biggest daily revenue record by 60% on the launch day for the latest iteration of their sleep technology, Pod 4. Investors such as Valor Equity Partners, Khosla Ventures, and eventually Y Combinator also woke up to the idea of sleep fitness.
The company also received unexpected but welcome endorsements from Mark Zuckerberg and Elon Musk. “The only thing they agree on,” Franceschetti jokes.
It’s good
— Elon Musk (@elonmusk) February 28, 2023
What changed those initial naysayers into motivated investors? Here are some of the secrets to Eight Sleep’s success.
Related: The No-Excuse Approach to Sleep and Work Performance for Entrepreneurs
Focus on the customer
Franceschetti concedes that Eight Sleep can seem somewhat impractical as a business idea. Why would people pay more for a Pod that changes temperature? But when he drilled down the concept to customer needs, that question was answered.
“If you ask people what their biggest problem is when they sleep, everyone will say, ‘I fight with my partner about temperature’,'” he explains. One is too cold, one is too hot, and it escalates from there.
He pitches Eight Sleep as a “painkiller that tackles temperature at night,” solving the need for a bed that regulates hotness and coldness on both sides of the bed.
Related: Regaining Control of Your Sleep Life…From a (Recovering) Insomniac Entrepreneur
Disagree with the naysayers
Startups will receive a lot of rejection—it’s all part of the process. But it’s how you handle the negativity that can separate the survivors from the quitters.
For Franceschetti, that meant saying no to the no’s. He stood his ground rather than taking the criticism to heart, saying, “I truly disagree. You have your opinion; I have my opinion. Let’s just see who’s gonna be right in two years, three years from now.”
Persistence is also key. Even if an investor passes the first time, realize that it may take two or three years to convince them to change their mind.
These days, Franceschetti enjoys meeting with investors who passed on Eight Sleep early on. “One of the best things they can tell me is, ‘Matteo, I think I made a mistake to pass. You told me you would deliver A, B and C. I didn’t believe it, but you did.'”
‘Be a painkiller, not a vitamin’
One of Eight Sleep’s biggest mistakes in the early days was poor unit economics. Underpricing the product and overspending on customer acquisition was unsustainable.
“The mistake we all make is to try to set a price that is as cheap as possible so you can move more units, but that is not a sustainable business,” he says.
Franceschetti advises new business owners to initially identify a large market and then determine the pain point solution for it. Price your product for healthy margins from day one.
Hire as little as possible
Franceschetti says that focusing on “stupid growth at all costs” can be costly. One of the big missteps many startups make is hiring as many people as possible to scale the business. That’s not the case.
“The quality of the people you hire is so important,” he says. “But more than anything, hire as little as possible. This is another mistake we made.”
Looking back, he believes you only need three to six people you trust to start a company. It’s simple math. Every person you add after three people will be taxed, and business will slow down.
“So stay small, save the money where you can prove that it’s working, and then maybe cherry-pick a few more roles that you wanna add to your team.”
Understand the power of sleep
Franceschetti is a big proponent of healthy sleep habits—and not just because his company is built on this premise.
He is critical of entrepreneurs, such as himself in the old days, who pride themselves on how little they sleep vs. how much they work. “Sleep deprivation is the smoking of the 21st Century,” he says.
“If you wanna be at your peak performance during the day, you need to take care of your health, which means three things: sleep, nutrition, and fitness,” he says. Sleep is really fundamental because if you start sleeping two hours a night, you don’t go to the gym and you start eating junk. There is no way you can have a healthy diet.
“Everything starts with sleep.”