The Next Big Thing discusses topics that other hardware entrepreneurs will find useful, such as prototyping and manufacturing, tools the companies use to keep moving forward, sales channels that have been effective (as well as others that have been complete failures), and managing cash flow.
In Episode 8 we discuss how Flair is adapting their business during the Covid-19 pandemic. We speak with Daniel Myers, the founder of Flair, about how they are seeing demand shift and the tools they use to enable remote work.
Product: Smart HVAC product. Allowing every room to be at the optimal temperature while using the minimum energy
Sales Channels: 70% online. 30% distributor
Sales / month: $100k
Margins: 25% net
Location: Remote: NYC & Seattle. Manufacturing: China
Team: 6 Full time, 4 Part time
Can you give a brief overview of the product Flair sells?
Flair builds home comfort products. We build a smart vent system that you can install into a home relatively quickly and easily by dropping in our vent in place of your existing vents. We distribute air to different rooms at different times depending upon the points that users set on a per room basis. We also build a smart thermostat that works with those smart vent systems. It integrates with other smart thermostats you may already have, but also works with the world’s most popular air conditioner, called a ‘mini split,’ which is typically operated with a handheld remote. So we replaced that [the remote]. We’re the “Nest” for mini splits.
“I think right now people are pretty leery of person to person interaction, especially people outside of their core home and family. The signal we see from the marketplace is that the direct to consumer is a really nice way of avoiding those kinds of concerns”
You manufacture in China and sell all across the U.S. How is Covid-19 affecting your business?
We’ve been pretty lucky with our logistics. They’re staying busy and shipping a lot of product for us. Our manufacturing is interesting because we tend to do these really large manufacturing buys. So we’re not always manufacturing in a continuous manner. We time our buys with our forecasts, and even seasonality to a degree, because obviously HVAC heating and cooling tends to be a very seasonal business. So we’ve been okay on manufacturing.
We have a foot in two worlds. We have a foot in the consumer world and we have a foot in the heating and cooling industry. The heating and cooling industry is traditionally a professional installer going into homes and setting up air conditioners.
I think right now people are pretty leery of person to person interaction, especially people outside of their core home and family. The signal we see from the marketplace is that the direct to consumer is a really nice way of avoiding those kinds of concerns. I think we’re in a pretty luxurious position where our products can be sold through professional installers, but they can also be self-installed. That’s a really strong point for us because it makes us, I wouldn’t say immune to Covid-19, but it certainly helps us weather it a little bit more comfortably.
I would have a hypothesis that as people spend more time at home they may find more time for home improvement projects. Have you seen any data to back that up yet or is it something you’d expect to happen to over the short-to-midterm?
The simplest tool we’ve got is Google Analytics on our applications to see who’s using it and at what frequency. They’re certainly paying more attention to their home comfort from what we see. And then on top of that, there’s definitely been an uptick in our consumer sales because I think people are at home and really want to be productive and they want to be comfortable when they sleep. Sleep and immunity go hand in hand, so I think people are looking at life holistically and how much their indoor climate really makes them productive, healthy and comfortable.
We’re seeing China’s manufacturing capacity is ramping back up to 100% but logistics, especially air freight, is costing 3-4x more. Are you seeing that as well?
We typically avoid using a lot of air freight for a variety of reasons. Occasionally if we really run low on some particular model and we don’t want to run out of inventory, we may send a small percentage of a build through the air and then send the rest via ocean freight. But so far we haven’t really needed to use air freight. That said, we’ve got a few friends that have definitely seen it.
I think if you are trying to fly things in from China right now, just getting it on the flights can be tricky and you certainly are going to pay for it. So if you can get it on a boat I think that’s the way to go. On top of that, boats are nice because goods that are flown in don’t take long to fly. However, by the time it’s aged on that boat the goods are effectively not going to be risky [from Covid-19] in any way.
Have you had any customers ask about your process around packaging and fulfillment and any extra measures you’re taking with Covid-19?
We haven’t seen too much reach out from customers around that. But you know, one of the first things we did when this whole thing started developing was we went to our 3PL, essentially our warehouse that ships things out for us, and we asked them, ‘Hey, what is your procedure in place? What is your plan if an employee is sick? Give us your view of how this plays out for you as a logistics provider.’ I have to say we were really happy with their response because they had a plan and had implemented all sorts of programs like hand-washing and distancing. Things that, in hindsight of course, they need to be doing but by the time everybody was talking about it, they were already doing it.
We pay a lot of attention to what the carriers themselves are doing–UPS, FedEx and those sorts of companies. But you know, they’re so big that I think they’ve had plans for awhile.
As your demand evolved to become more eCommerce focused, how has your customer acquisition changed?
With HVAC companies, obviously it’s kind of an ecosystem. There are distributors, there are installers, and there are, of course, homeowners. We find we often have to connect the dots for that industry to make sure that if a homeowner comes to us and says, ‘Hey, I need somebody to help install this,’ then we need to find them an installer. Then the installer needs to be able to go to their supplier and hopefully this supplier has a product in stock. And so it’s a fairly involved process and requires a lot of human interaction. So, like any good startup, we’re constantly experimenting and we started with these experience experiments to see how we could understand the interest for these HVAC contractors and be assistive to them to help pull our product through that channel.
It was a great experiment because we found out that we really can do it, but in the time of Covid-19, while people are trying to lower their exposure to others, direct-to-consumer just makes a lot more sense all around. So we’ve shifted a lot of our attention to delivering our message to homeowners who will just buy and install directly. I think that is just better for everyone right now.
I have to say I can’t wait to be back working with the channel and that [HVAC] ecosystem because I think those kinds of relationships really last. So the sooner that we’re able to get back working with them the better. But in the short term, it’s really nice to be able to say, okay, we’re just going to work on delivering our message to consumers and continuing to grow there.
As I presume most, or a lot of, companies are turning to eCommerce right now, have you seen the costs rise on Facebook, Instagram and Google?
I don’t think that’s something we’ve really seen. I don’t know if that’s a function of who and how we’re marketing. Maybe that’s because so many of the people out there buying ads right now are pulling back on some of their ad spend since their core business is enabled by brick and mortar and essentially not operating. So I think there’s an interesting shift that happened where I think certain companies are really hitting the gas that are perfectly set up for this.
We’re an eCommerce-focused business and then there are other companies that use online ads to push people to their physical stores. It’s really hard to see how much either one of those is really moving the costs of advertising and marketing.
One of the ways that we’ve built our sales systems, that is a point of pride and strength, is we really focus heavily on engaging early on with social media, but our long term relationships tend to be a lot of email interaction. So that’s another way, if you don’t want to be advertising via expensive ads, spend on social media. It’s very common that our customers buy a couple of units and then buy a few more afterwards. It’s a really nice way of avoiding any kind of turbulence in the advertising market.
Since customers buy more units over time, I’m guessing there’s a lot of word of mouth with your product. Have you tried any referral programs?
Yeah, we do that. It works pretty well even though we haven’t put that in front of people very centrally, that’s something we could probably improve on. I think the referral happens very organically because somebody comes over to somebody else’s house, they see our product on the wall or installed on the floor and they’re like ‘What is that thing?’ It just organically happens where people are talking about the product because it’s such a novel set of products.
So we get a lot of organic referrals and we see a decent amount of usage from referral programs. It’s also quite common people buy a few units for a test too. They want to see that it works in a way that they’re expecting. Once they are happy with the product, they’re like, ‘Oh, I’d love to add this kind of control that I’ve got to the rest of my house.’ Not everybody wants to buy a whole home system upfront. So it makes a lot of sense that people buy a few pieces at a time. We’ve got customers who install one device and we’ve got customers who install 30, but I think it’s a much smoother onboarding experience broadly if they can buy a smaller number at first, get familiar and then order more.
Can you talk a bit more about how you financed the company initially and how you see that process evolving going forward for however long this potential downturn in the economy lasts?
So we really got going with the help of some fantastic angel investors early on. Other folks that got involved were big venture funds and groups that have a little bit more ‘dry powder.’
I expect that as we raise subsequent rounds of financing, certainly within this climate, my suspicion is that angel investors are going to be much more exposed to the broader market changes than venture capital funds who typically have a fund allocated upfront.
I think they’re [venture capitalists] going to pull back and probably invest a little bit more slowly, and make sure their portfolio companies are going to weather this thing, but at the same time I think it also cuts down on a lot of noise.
We’re a company that has been built in many ways out of revenue rather than strictly investment, which is not necessarily the Silicon Valley model of startups. But what that does for you is it gives you an advantage at fundraising time where you don’t necessarily need to go raise a ton of money.
But I would say I think it’s a really powerful position to be in if your entire business model is not dependent upon fundraising and you’ve got options in terms of just leveraging your revenue to maintain things and hold onto your employees and all of your core investments that you’ve made over time.
Now that you guys are remote can you talk me through the tools the company uses for the day-to-day running of the business?
Slack: team communication (cuts out 95% of potential emails)
Google for business: collaborative documentation (one caveat being the difficulty of using it in China)
Zoom: video conferencing
Shopify: powering eCommerce store
Have you got any advice for other founders who are just starting out?
Focus on customer support. We were almost blindsided by how high touch customer support was. Now, our product admittedly is a home automation product, so inherently with that comes a lot of questions.
But ultimately I think the amount of support is something you’ll want to really pay attention to and invest in. When you deal with a company who’s really paying attention to you, who’s really making sure that you have a good experience, it’s night and day. Even if the product fails miserably but you have a good experience with customer support, you’ll get past it.
If you are an eCommerce business wanting to access more capital to deal with changes in demand, user acquisition and logistics we are here to help. Come say 👋to the team here.