The engineers behind rapid-growth mattress startup Sleeping Duck dived into the Shark Tank this week, but surfaced without a deal, after knocking back offers, worth half a million, from both Andrew Banks and Steve Baxter. As they told Dynamic Business, the ‘deal breaker’ wasn’t the equity each shark demanded; rather, they weren’t convinced either could help take their business to the next level.
Sleeping Duck was ‘hatched’ by Melbourne duo Selvam Sinnappan and Winston Wijeyeratne in January 2014 as an alternative to what they saw as a ‘frustrating, in-store experience’; namely, shopping for a new mattress. Sinnappan commented, “Going through 40 to 50 mattresses, with prices ranging from as low as $200 to as high as $10,000, made for one of the most confusing, expensive and tedious processes I’d ever been through. How can you know a mattress suits you by only sleeping on it for 15 minutes in store? Even if you take one home, there’s still no guarantee that you will get the best night’s sleep possible”.
According to Wijeyeratne, Sinnappan’s background in civil engineering, as well as his own in aerospace, enabled the pair to “ascertain very quickly what materials were going into the products on the market and where the large cost variations were”. From there, they combined pocket springs, gel-infused memory foam and natural latex to produce a customisable mattress, which is shipped, compressed, in a box “about a quarter the size” of the actual product.
“Due to its modular construction, our mattress can be adapted to suit your unique sleep needs,” Wijeyeratne explained. “Plus, they come with a 100-night trial, during which you can adjust the firmness and feel of the mattress depending on your sleep needs. Worst case, if we still can’t get it right we will give you a full refund. We offer free delivery, free returns and free customisation.”
First mover advantage
After turning over $300,000 in its first year on the market, Sleeping Duck’s revenue rose by 800% to $2.4 million year two and again by nearly 200% in year three, reaching $4.7 million. Sinnappan attributes this rapid, early growth to the ‘first mover advantage’ enjoyed by his (to date) self-funded startup, explaining: “Winston and I pioneered the 100-night trial and the ‘mattress in a box’, and for almost two years we were the only major players in this space”.
Other key factors included Sleeping Duck’s ‘online-only’ model (“the significant amount we saved helped us get our name out there with digital marketing) as well as its launch into overseas markets – outside of Australia, it mattresses are available in UK and parts of Europe, and it recently expanded to New Zealand and Hong Kong. Sinnappan added that Sleeping Duck has been able to reduce the overheads usually associated with mattress storage and transportation because its products are compressed into boxes with wheels and handles
“This makes it very easy for us to move quickly into new countries, while still being able to use standard couriers,” he said. “If our mattresses were to be delivered full size, we would have to use specialised storage and shipping which would make costs rise astronomically.”
A certain anxiety
Earlier this week, Sinnappan and Wijeyeratne, appeared on Channel Ten’s Shark Tank, with a view to securing an investor who shared their vision and would help them grow Sleeping Duck. Valuing their business at $10 million, the founders asked for $500,000 in exchange for a 5% stake in the business.
Like his fellow Sharks, Morgan & Banks co-founder Andrew Banks was impressed by the startup’s growth rate but questioned why the co-founders had only forecast $5.5 million in revenue for the current financial year: “Why is your growth rate slowing? It should be staying the same or accelerating”. Sinnappan cited the fact that their “cheap, organic” web traffic, had begun to ‘shrink’, requiring the co-founders to offset this with paid traffic. With investment, he told the Sharks, revenue was expected to hit $7.5 million.
“We haven’t done much in the VC space,” Wijeyeratne told Dynamic Business. “But what I would say, is that pitching on Shark Tank was on a completely different level. The fact we had no control of how the show would play out when it went to air created a certain anxiety. You obviously want to come off well to the Sharks, but you’re also aware that potential customers are watching as well.
“We practiced our pitch word for word in excess of 100 times in front of a camera. Leading up to the filming of the episode, we got various friends and mentors to test us from different perspectives to make sure our story stood up to any scrutiny. Doing this kind of preparation gave us confidence in ourselves and our pitch, which is probably why we came off relatively relaxed (on the outside anyway!)”
A like-minded partner
Suggesting the co-founders had ‘hit a bump’ in their growth trajectory, Banks offered them $500,000 in exchange for a 25% stake in Sleeping Duck. When Sinnappan and Wijeyeratne declined Bank’s offer straight off the bat, the entrepreneur put forward a revised offer: $500,000 in exchange for 20% plus an ongoing royalty ($20 per mattress sold) until the investment was paid off. This offer was also rebuffed, leading Steve Baxter to offer the pair $500,000 in exchange for a 15% stake. Realising Baxter’s offer would cut the valuation of Sleeping Duck by a third, from $10 million to $3.3 million, the co-founders countered with a 10% stake for $500,000. When a compromise couldn’t be reached, Sinnappan and Wijeyeratne resolved to depart the Shark Tank without an offer.
“We declined Steve’s deal because he suggested we were better off selling the entire business to an established player rather than trying to grow the business ourselves,” Wijeyeratne explained. “We came on the show not only looking for funding but for an investor who would help us grow the business. The percentage amount wasn’t actually the deal breaker as we potentially would’ve agreed if we thought Steve could help us take the business to the next level.
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“We are engineers at heart, and we believe in building products that we think can improve the sleep experience. We believe the experience is broken and customers deserve significantly better in terms of both product and service. At the moment bricks and mortar stores are by far the majority of mattress market.
“Whereas Steve thought we should just sell, we believe we have a huge way to go before moving on. The challenge of growing a company is what keeps us coming back. When we think we can’t do anymore, or believe someone else is better positioned to achieve our vision, that’s when it will be time for us hand the reigns over.
“We have plans to expand into China in 2018 and further into Europe, and we want to keep growing in all the market we’re currently in. We want to do this in partnership with an investor who shares our vision and has the ability to bring in new customers. We’d welcome anyone who is in the space that believes in us.” We have some big changes coming up for our mattress and new additional products to add to our line-up.”