How to Scale a Startup Marketplace for Used Furniture

BRIAN KENNY: Heirloom, according to Miriam Webster, is a valuable object that’s been given by older members of a family, to younger members of the same family, over many years. Things like jewelry, time pieces and art, or that ornate walnut cabinet that holds the even more ornate fine china that no one’s allowed to use. There was a time and the sentimentality and usefulness of heirlooms made sense, but those days are long gone. Baby Boomers, Gen-Xers, and millennials are shedding their parents’ possessions at record rates. And in today’s disposable culture, it’s cheaper to buy a sofa from Ikea than it is to pay to move Aunt Claire’s overstuffed ottoman. The evidence is piling up. Americans tossed about 12 million tons of furniture in landfills in 2021, creating mountains of waste, even as we spent about 120 billion on new furniture. Seems like there must be a better way. Today on Cold Call, we’ve invited Professor Ayelet Israeli and case protagonist Kalam Dennis to discuss the case entitled, AptDeco, Circular Economy Furniture Marketplace. I’m your host, Brian Kenny, and you’re listening to Cold Call on the HBR Presents Network. Ayelet Israeli studies omni-channel and e-commerce markets with a focus on pricing, channel management, online marketing, and marketing analytics. Kalam Dennis is the protagonist in today’s case. He’s the co-founder of AptDeco, along with his partner, Reham Fagiri. According to my quick glimpse at LinkedIn, Kalam has had pretty much every job that you can have in a company in the time that he’s been with AptDeco. Thank you both for joining me today.

AYELET ISRAELI: Thank you so much for having us.

KALAM DENNIS: Yeah, excited to be here. Thank you.

BRIAN KENNY: Great to have you on the show. This is a really fun case. I think a lot of people, particularly our younger listeners are going to really relate to this, people who are moving around, people move. I think it’s a pretty transient population we have these days just based on my own children who seem to move about every six months or so. So, I think there’ll be a lot of interest in hearing about this business idea and how it came to life and what some of the challenges are that you’ve faced as you’ve brought this company online. So, let’s just dive in. Ayelet, I’m going to ask you to start for us by just telling us what’s the central theme of the case, and what’s your cold call to start the discussion?

AYELET ISRAELI: So, like you said, this is a case about AptDeco, which is essentially an used furniture marketplace coming out of New York City. What is really cool about this peer to peer marketplace of used furniture as you will see as you read the case is how the company focus initially was to actually be profitable and only later to grow and get more scale. And this is a very unique theme that we don’t see in many other or cases. The case lays out a bunch of different options for them on how to grow. And really, I like to start the discussion with what should they do? How should they grow? Which of the options or avenues they should take.

BRIAN KENNY: Yeah, and we’ve done a lot of cases on Cold Call over the years about companies that tried to grow too quickly, didn’t focus on profitability. So, I thought that was a really interesting defining theme in the case. Let’s just talk a little bit about why you decided to write it. How did you hear about them? And how it relates to the kinds of things that you think about as a scholar.

AYELET ISRAELI: So, how did they hear about them is one of these opportune moments where if a student comes to you and tells you, “You have to write this case.” And actually, Jamie, my co-author on this case worked at AptDeco. She was an intern there and she told me it’s such an exciting company. She’s so inspired by seeing first getting profitability and then growth, which again, it might sound trivial to some of our listeners, but this is something that is pretty rare in the marketplace. And then one of the other interesting things is that what we oftentimes when see cases, a lot of the cases are about success stories. And what is interesting in this case is that they did try to actually scale at some point and had kind of a failure. And she said, “It’s so rare. I’ve done hundreds of HBS cases. I’ve never heard of how a company learned from failure.” And this is one additional aspect of this case. HBS students do so many cases and they’re the perfect people to identify great cases. And for me, how does it relate to what I do? I study eCommerce businesses and we know that the internet essentially enables all these businesses by eliminating a lot of different frictions that we see in the marketplace. And this is a great example of how do you eliminate frictions? How do you introduce transparency and create better transactions between sellers and buyers of furniture? And how you improve the entire process. The second aspect that I really like here that also relates to my research is the usage of data and analytics to get better performance and to get better value proposition. And again, this is something that AptDeco does really well.

BRIAN KENNY: Kalam, let me turn to you for a second and ask you just quickly to describe AptDeco. What is it? How does it work? What’s your value proposition?

KALAM DENNIS: AptDeco is the easiest way to buy and sell furniture. That’s how we like to describe it. The way that it works is pretty simple, straightforward. If you’re a seller, you’re looking to sell a piece of furniture. You can go to our platform. It takes a couple of minutes to list. We do some curation. Basically joozing up the listing to make it as appealing as possible. The item goes live within a few hours, and then it’s posted on our platform. We market that item to, so it’s introduced to buyers in the areas that we service. And then when the item sells, we have our own internal logistics team where we pick up the item from the seller and then deliver to the buyer in the same day and also sellers, buyers, they transact from any e-commerce website so that you buy with your credit card and then the seller is paid via a direct deposit.

BRIAN KENNY: It sounds great. It sounds like one of those ideas that, why didn’t I think of that idea. Who came up with the idea? How did it sort of evolve?

KALAM DENNIS: It came out of our own frustrations. My co-founder was in grad school at Wharton and was moving from Philadelphia to New York and had a lot of uncomfortable experiences with strange guys in her house and trying to sell furniture and, as a single female at the time, just was put in an awkward position in her apartment alone with strangers and just how weird it was to have this cash exchange and just an awkward experience. And at the same time, I had a couch that I was trying to sell, but people were very non-committal and using Craigslist at the time. And when Reham came back to New York, I was like, “You know what? Let me just borrow your truck for a day.” And I posted, “Hey, this couch for sale and I’ll deliver it.” And then it sold like that. And that was kind of… I was commiserating over this and having that aha moment really was like, wow, this is something that has a lot of utility. And that was the kind of the Genesis of it. Then we took a lot of inspiration from Airbnbs and other marketplaces. And then just start looking into actual size of the category, wow, this could be something again useful and really big.

BRIAN KENNY: So, you had a really good idea, and then the hard work began. We’re going to talk more about the hard work of actually building the company. But before we do that, Ayelet, I want to ask you, what Kalam describes sounds to me like a platform company. We’ve talked about them before, but can you remind our listeners what a platform company is? And I’d also like you to include the term, to talk about the term circular economy. I read that in the case and I thought, wow, this is a cool new idea. And then I looked it up some more. And I found out that, that term’s been around since 1988. So, clearly I am on the cutting edge of this kind of economics jargon. So, maybe you can explain both of those things for others like me who weren’t familiar with that concept.

AYELET ISRAELI: So let me start with the circular economy piece, because that was news to me as well. It’s essentially a rebranding of the word buying used things or vintage or pre-owned, but really it needed, it was a right time in history to be rebranded because people started caring more about sustainability. And so we see more and more companies nowadays in this space, trying to figure out how to induce people to recycle or to re-use things that other people dropped. We see this in furniture with this company, but also jewelry, clothing, many, many other companies. With regards to platform companies, we think of a company that essentially facilitates interaction between different sides on their website or on their platform. In this case, we’re talking about a two-sided form where there are sellers, people that want to sell furniture. There are buyers, people that want to buy furniture. And the platform helps them meet and helps facilitate a transaction. What’s interesting here, like Kalam just mentioned is that above and beyond what Craigslist or other peer-to-peer marketplaces offer, they also close the loop on the delivery part and the logistics part of actually delivering furniture from the seller to the buyer and completing the transaction.

BRIAN KENNY: Okay. So, Kalam, let me turn back to you for a second. I’m just curious. Did you set out to be an entrepreneur? Was that something that you sort of self-identified as? You came up with eyes with the idea, but there’s such a difference between somebody who comes up with a good idea and then somebody who makes it happen. That’s what being an entrepreneur is all about. And that’s not for the faint of heart, I would say. But I’m just curious. What’s your background, and did you identify as an entrepreneur?

KALAM DENNIS: Honestly, I don’t think I did at first. I come from some parents that are a bit, they’re risk averse. It’s like, get a good job and-

BRIAN KENNY: Hey, I’m a parent. So, that’s not a bad quality in a parent. Let me just say.

KALAM DENNIS: They’re like, “get a good steady job or work for the government or something. And just have you steady Eddie.” And even before starting AptDeco, I worked for L’Oréal and I worked there my entire professional career and had the opportunity to do a lot of really wonderful things within that organization. And then that’s probably where like the seed of entrepreneurship really was there as, wow, I’m accumulating a certain level of skills. Wow, if I did my own thing, it’d be great. And you think that those things would apply, but the truth is they really don’t at all. And not until later on. Not until later on, I would say. It really came on later and answer your question directly about the desire to be, to go into entrepreneurship. And then once getting into it, it’s like, wow, what a journey it’s become.

BRIAN KENNY: Yeah, I’m sure. It’s a big industry. Ayelet, if you can maybe just give us a sense of the landscape of the furniture industry in the U.S.

AYELET ISRAELI: It’s an industry of over a hundred billion. Traditionally, as we all know, it was all physical retail, mostly new furniture. So, over 90% of business was attributed to being new furniture sales. And there was some used furniture, roughly 10%, that was usually in vintage shops, antique markets, maybe peer-to-peer but very scaled down. With that, with the introduction of the internet, of course, everything moves online. There were several companies like Ikea that added an online channel or at least a way to deliver, to order something online and receive it at home. In Boston, there is Wayfair, a company that is selling furniture online, and they are digitally native and started online and did not have a physical store. And then we’ve also seen with Craigslist starting with a lot of different product categories, including furniture, this idea of how do you utilize the internet for peer-to-peer sales.

BRIAN KENNY: Yeah. Kalam, it seems like one of the differentiators for you guys obviously is delivery of the product. I’m curious as to what kinds of things people are buying. What are the transactions look like? What are the products that people are buying and selling on the platform?

KALAM DENNIS: 70% of our sales are of seven brands, West Elm, Crate & Barrel, restoration hardware, CB2, Ikea… There are other companies out there like other marketplaces, like Cherish or 1stdibs where they’re more vintage items. 1stdibs is for the 1% of the world. It’s extremely, extremely expensive. But I definitely think that the need that we’re filling is for the very much the mass consumer from in terms of what’s transacting on the site. And the one thing I mentioned too, just about the delivery component of it is that we actually… The truth is we really we did that kind of kicking and screaming, if you will. We didn’t start the platform in that way. Our idea was we’re going to make this nice platform, we’ll handle the payments and then we’ll utilize moving companies to facilitate the delivery. And we quickly learned that wasn’t the quality, the service was really bad and the price was higher. We realized that we could do it quicker, faster and better if we invested in the technology and the routing algorithms in order to be able to do so.

BRIAN KENNY: Yeah.

AYELET ISRAELI: And to piggyback on that, you mentioned Amazon Prime or truck deliveries. But what is really neat here is not only does the delivery person does the actual delivery. And when I order something on Amazon, it waits in a box downstairs, a lot of New York apartments are walk-ups. So, delivery people here actually help carry the furniture to its place. But also, they facilitate the transaction even more so by actually examining the item at the house of the seller. Checking if there are any discrepancies, doing a bunch of the quality assurance, which is the key value proposition that AptDeco has to offer. Because someone external a third party, if you will, that is not the buyer or the seller actually ensures that everything is okay. And they sometimes go back to the buyer and say, “Look, there’s a scratch here that wasn’t mentioned earlier. Do you still want to buy it?” Or might even talk about some discount, and only then will take it to the buyer. So, that’s an interesting aspect. And the clever thing here is that they can still do all of this without having to have warehouses to store the furniture. But they take it directly from the seller to the buyer in an agreed upon time. So, all of these are lots of, lots of frictions that you think about when you think about buying a furniture from a stranger online, but they solve for all of these problems.

BRIAN KENNY: Yeah. The quality assurance thing is huge, but having that fleet of delivery vehicles changes the business proposition. Most platform companies are asset light, and you don’t have to worry about that dimension of it. So, I want to talk about that. But maybe we can start by talking about the strategy of going for profitability over growth at the outset. Ayelet pointed out that that’s pretty unusual, and it is in terms of the cases that we’ve had on the show here before. In fact, I can’t think of one actually. So, you guys are unique from that standpoint, but it seems to be working. Kalam, can you talk a little bit about why you decided to pursue that avenue rather than, excuse me, rather than the other?

KALAM DENNIS: 50% of it was, I think, just in our inherent nature from our professional experience. We’re working for large institutions that are profitable by nature. L’Oréal is a very profitable organization or Goldman Sachs is probably extremely ridiculously profitable. And so just even, I think truthfully, I just think the concept of growing, but not having the true product market fit, buying customers in a way that’s not realistic is inherently not really in our nature. But the other part of it too, is that it was actually out a necessity because although we tried to really secure a good amount of funding, we never were able to do so. And so out of necessity, you have to be, you have to build a real business that is bringing in revenue in order to be able to sustain and grow the business. We didn’t want to sacrifice growth. We had the metrics that were commensurate with any fast scale growing startup, which is growing 300% year over year. And so we had all of those metrics. We were just doing it on a shoestring budget, and when we were doing it still being close to profitability, which speaks to the proposition of the company itself.

BRIAN KENNY: The other avenue is also a legitimate strategy, right? The strategy of going for growth and worrying about the profits catching up. Is that a harder road, do you think?

AYELET ISRAELI: We see now a lot of companies that have done that even did an IPO. None of them are profitable. A lot of them are doing poorly these days. New specs that we’ve seen in the last year doing relatively poorly to how they started. And it is hard. And whenever anyone, students or entrepreneurs mentioned to me, they all have this example of how Amazon wasn’t profitable for so many years, but most companies are not Amazon. And also I think that something changed for VC investors. Whereas ten years ago, five years ago, they were willing to buy an idea. And nowadays they’re actually looking for profitability. So, they grew as well.

BRIAN KENNY: Imagine that.

AYELET ISRAELI: You need to show a real path to profitability these days and maybe with AptDeco, it was earlier than expected. But it seems like that’s where things should be. Now there, of course there is the theory of blitz-scaling and scaling fast and all of that. It’s not a question that I can solve, which way is better. But we do see more convergence into trying to ensure that you’re profitable or that you can be profitable in a reasonable time.

BRIAN KENNY: Right. Let’s talk about that a little bit, because you certainly were demonstrating that you had a great idea and that you were working towards profitability when you started the Y Combinator approach. Can you talk a little bit about that experience and about some of the challenges that you faced coming out of that? It sounded like it didn’t necessarily go the way you had hoped it would.

KALAM DENNIS: I mean, we wouldn’t be here without Y Combinator. I’ll go back to the point of, I accumulated all this great work experience at L’Oréal. And Reham, she worked at the top banking institution in the world. We can figure this out. And the truth is like getting a business off the ground, getting those first 100 customers, first, 1,000 customers is very manual. It’s not charts and data and analytics. It’s going to customers’ homes and getting that couch. The experience of being there those three months was, man, we still apply those learnings to this day. After the Y Combinator, the experience, it culminates in demo day where you meet investors. And based on your trajectory, your promise as an organization, that’s when they introduce you to these investors. Many companies get a good amount of funding at that time. We were one of the most promising consumer-facing companies coming out. And so based on our performance, they were like, “Man, you guys are going to, just be prepared for a really strong demo day in terms of interest and investors.” And that didn’t materialize. That’s the part that we were surprised about, but our experience with Y Combinator was fantastic. We still work with them to this day. We still consult with them. They’re still investors in the company.

BRIAN KENNY: We’ve done cases. In fact, we’ve done cases recently with Black entrepreneurs that have had trouble getting what they think is a fair shake in the venture community. And I’m wondering if you think that might have played a role in this, if you think that has anything to do with some of the challenges that you had early on finding investors.

KALAM DENNIS: Yeah, definitely. I mean, we’re very much like a data first organization. I mean, that to say just the numbers just don’t lie in terms of the financial, the distribution of venture capital to women founders or founders of color, whether it’s Black or Latino or anything like that. It’s hard to not, it’s hard to, when you look at the kind of apples to apples performance, and so I think that’s really important is like, it’s okay. What was the growth rate of this company that received $20 million in funding and the revenue that they were generating versus the growth levels that we have and the amount of revenue we’re generating? We’re doing the exact same thing. How are these companies able to raise this amount of money? And we’re living check to check. It’s just hard to understand. Reham’s an engineer. We have a professional pedigree. It’s hard to say that that’s not there. And I just think the data, the data around it just speaks for itself. At the same time, we really, we don’t wallow in that. What is it going to lead to? So you have to understand that it’s there and you have to address it. But at the same time, you have to, where we are as our glass half full solutions oriented and focus on the solutions. And you don’t want to get kind of mired down in some of the obvious inequities that are there.

BRIAN KENNY: Yeah. I appreciate the candid response on that. And I think if you don’t, if we don’t address it in shows like this, and if other people aren’t talking about it, then it’s never going to change. So ,we want to keep talking about it here. So, I totally appreciate that. Ayelet, let me talk with you about the numbers because you’re an analytics person and I’m wondering, would you define AptDeco as a digital company and in the definition of that term?

AYELET ISRAELI: They’re definitely a technology company. They have technology around logistics, around pricing, around figuring out customer preferences. How would you, which items would I show which person in order to get them to buy? They are digital first. All of the transactions are digital. Yes, there is a logistic arm. Yes, there are delivery people. That’s true about a lot of companies that we would consider digital or digital first. Digital companies can sell physical goods, and that’s absolutely the case here.

KALAM DENNIS: Just to add onto that too, the true intellectual property behind AptDeco is our routing and scheduling algorithm. It’s very unique to AptDeco. We’re doing thousands of pickups and deliveries a day without ever warehousing it. And it’s really a bit of a logistical feat. That to be able to pull that off in a way that’s efficient. And so that’s where I think for the most unique tech to… That’s where our truly unique tech is. This is the part that I think is really special to what we’re doing and trying to accomplish.

BRIAN KENNY: And we hear that a lot with platform companies. It’s like the question about what business are you really in? And oftentimes it’s not the obvious thing, but it’s something like you just described, which is you’ve developed this deep expertise now in logistics, which is a hugely valuable asset for you to have. I don’t want to lose of the super user strategy. Kalam, I’ll come back to you on this one. Can you talk about who are the super users as you guys are looking at them now?

KALAM DENNIS: Very important with marketplaces to help you prop one side up or the other depending on what stage you are or through expansion. And so for us to answer your question about the super users, we have real estate companies, management companies. If you have these large buildings here in all over in the… we’re in the Bay area too, in the northeast where people are moving in and out of these buildings all the time. That is a super user because we’re getting access to 50 buildings, 100 buildings with 5,000 people in each building or 1,000 people in each building. And that’s a definite user that can allow for us to get the word out there without having to advertise. Interior designers continue to be a big channel. And then also I mentioned that a lot of our sales are the very popular brands, but vintage and resale shops are utilizing our site as a secondary sales channel and platform as well, our super users that we have to help to bolster the platform.

BRIAN KENNY: As the case wraps up, it does talk about your expansion plans. We know you did that experiment in the DC area. I’m curious as to what you learned from that experience and how that helps to influence what you’re thinking about doing going forward.

KALAM DENNIS: I think the important thing especially if you’re getting into startups is one thing we want to say is that the highs can’t be too high and the lows can’t be too low. You really have to understand how to be steady and to not necessarily panic. And then two is you have to take that honest look to understand and learn your mistakes. Learn your mistakes, and then to grow from them. Right. So we say that DC was a mistake, but in some ways it was really good for the organization because it helped us double down on our analytics. It helps us to understand that we need to diversify our advertising channels, and it allowed for us to come out of it and be better. And it gave the foundation to really scale in the future. So I was listening to some podcasts earlier about that failures are not really failures, and it almost came off like as a cliché, but it’s really true. It’s what are you going to do? You get knocked down. What are you going to do? You got to get up, get up.

BRIAN KENNY: Yeah. So, for people who are listening, you’re in the New York area right now. You’re thinking about going to some other markets. Where might they be able to find you in the future? I’m not making you commit to anything. I’m just curious.

KALAM DENNIS: Well, we currently are in the Northeast so we’re servicing New York, New Jersey, Connecticut, Delaware, Pennsylvania, Connecticut. And so you see some expansion into the Northeast pretty soon here.

BRIAN KENNY: Boston would be an interesting place to explore, wouldn’t it?

KALAM DENNIS: Yes. And we expanded into California last year, and that’s been going really well too. And so we’re in the Bay area. And so we want to continue to build on that. So, going into southern California and just trying to take that one step at a time. And then, and so those are the immediate next steps. I’ll say that.

BRIAN KENNY: That. All right. All right. We won’t hold you to that. Ayelet, I want give you the last opportunity here. Just tell us, tell our listeners, if there’s one thing you’d like them to remember about this case, what is it?

AYELET ISRAELI: As a marketing professor, I always have to go back to really understanding the customer very, very well, and understanding their experience and understanding how you can create value into that. And it’s not just with the initial idea of facing a real problem that both of the founders had to deal with. And that sparked the idea for the company, but also adapting and adjusting based on what they learned about the collaborators and what is important for consumers, especially around this development of the logistic capabilities and the delivery and making it also the QA system and all of that. And I think that’s key here and always start by really, really understanding your customer well.

BRIAN KENNY: Ayelet, Kalam, thank you so much for joining me on Cold Call. It’s been great talking about AptDeco, and we’re going to keep an eye out for you here in the Boston area.

KALAM DENNIS: Yes, please do. Thank you for having me.

AYELET ISRAELI: Thank you so much.

BRIAN KENNY: We are excited to be celebrating the 100-year anniversary of the case method at Harvard Business School. If you want more on the history of the case method, visit our website: www.hbs.edu/casemethod100. Cold Call is a great way to get a taste of the case method, after all each episode features a business case and its faculty author. You might also like our other podcasts: After Hours, Climate Rising, Skydeck, and Managing the Future of Work. Find them on Apple Podcasts or wherever you listen. If you enjoy Cold Call or if you have any suggestions, we want to hear from you. Write a review on Apple Podcasts or wherever you listen or email us at [email protected] Thanks again for joining us. I’m your host, Brian Kenny, and you’ve been listening to Cold Call, an official podcast of Harvard Business School, brought to you by the HBR Presents network.

https://hbr.org/podcast/2022/02/how-to-scale-a-startup-marketplace-for-used-furniture