Episode #235: Ajay Prakash, Rinse, “The Barriers To Entry Are Super Low…But The Barriers To Scale Are Incredibly High”
Guest: Ajay Prakash is co-founder and CEO of Rinse, the laundry and dry cleaning startup that is working on evolving the business through technology and strong back-end partnerships in order to deliver a better customer experience.
Date Recorded: 6/10/2020 | Run-Time: 55:20
Summary: In today’s episode, we’re talking about building and scaling laundry and dry cleaning. We talk about the origin story behind Rinse and narrowing in on friction in the consumer experience and applying technology to old-school industries.
We discuss testing the offering on friends, and building a platform that leverages current industry infrastructure. We then get into future growth plans, the importance of expanding deeper into current markets, and other considerations they’re making to grow and expand the business.
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Links from the Episode:
- 0:40 – Intro – rinse.com/meb for $20 in credit
- 1:40 – Welcome to our guest Ajay Prakash
- 6:04 – Getting Rinse off the ground
- 10:17 – Growing the user base
- 16:00 – Why the space was ready for a national brand
- 17:42 – Service offering
- 19:16 – Integrating into communities
- 22:30 – What differentiates good vs bad dry cleaners
- 24:00 – Lessons from competitors that have flamed out in the space
- 27:12 – Picking markets to expand into
- 29:49 – Building awareness in new markets
- 33:00 – Technology and response to text-based service
- 36:46 – Adjustments due to the pandemic
- 41:37 – Fund raising
- 42:55 – Future growth strategy
- 44:17 – Other business opportunities that could piggyback on their infrastructure
- 47:03 – How does the laundry market look globally
- 48:08 – The Rinse domain
- 49:44 – Most memorable part of building the company
- 51:56 – Most memorable investment
- 54:19 – Learn more: rinse.com and receive $20 in credit at rinse.com/meb, firstname.lastname@example.org
Transcript of Episode 235:
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Meb: Hey, podcast listeners. Another fun one today. I imagine everybody listening is sick and tired of doing another load of laundry while in quarantine. Good news. Today’s guest is here to help, co-founder and CEO of Rinse, the laundry and dry cleaning start-up that is working on evolving this Stone Age industry through tech and strong backend partnerships in order to deliver a better customer experience. In today’s episode, we’re talking about building and scaling laundry and dry cleaning. We talk about the origin story behind Rinse and narrowing in on friction and the consumer experience and applying tech to old school industries. We discuss testing the offering on friends, building a platform that leverages current industry infrastructure, and then we get into future growth plans, the importance of expanding deeper into current markets and other considerations they’re making to grow and build the business. You learn in this episode, I’m a customer. And if you go to Rinse.com/meb, you also get 20 bucks off your first order. Please enjoy this episode with Rinse’s Ajay Prakash. Ajay, welcome to the show.
Ajay: Thanks for having me.
Meb: Where in the world are you located right now?
Ajay: I’m in Redwood City, California at my house, Rinse’s headquarters is in San Francisco.
Meb: Cool. Well, we’re gonna be talking about all things, laundry, and dry cleaning today. And I wanna first start by apologizing because I’m a Rinse customer and I look awfully wrinkled today. And I was just gonna say, that’s not because of you guys. This is my at-home office. This isn’t the background. This is the…if anyone recognizes it on video, it’s the up background, but this is just a long week at the beach. They’re open now in Los Angeles. It feels like everything’s back to normal. So this is not a Rinse endorsement for my shirt and hat situation. Okay. Let’s talk. Laundry, we all hate it. It seems like such a terrible and challenging industry as well. But before we can fall into that, I wanna hear a little bit about your background, origin story pre-starting Rinse.
Ajay: Yeah. Sure. So back in college, I went to Dartmouth quest in 2003. I started a club there with a friend called the Club at Dartmouth Entrepreneurs. And so, that was something that I was thinking about back then, but there really wasn’t a lot of infrastructure around it. And so, out of college, I took kind of a traditional business approach. I went into consulting at Bain, worked at the NBA for a little bit, and then did private equity at Berkshire Partners, and then went to business school at Stanford. And it was really there where I got the start-up bug. During my summer between my first and second year, I worked at a little known start-up called Bonobos out of New York. And at the time it was only seven or eight people just selling pants. And I got there and I fell in love immediately with the feel of a start-up, the ability to kind of have an impact on something literally the same day or the next day. And I really loved consumer. And so, for me, when I got out of business school, I knew that I wanted to start something. I didn’t have the idea of my own that got me excited. And I had gotten advice from one of my mentors there that said, “If you don’t have an idea of your own, go learn on someone else’s dime.” And so, I thought the next best thing was, let me go to a really early stage consumer start-up and kind of cut my teeth. And so I joined a start-up for a couple of years as the first hire, as the COO and CFO. Learned a ton there and just loved the feeling of building something and being early stage.
And so, in thinking about the origins around Rinse, around early 2013, I knew that I wanted to start something. I’d been going through my own process of trying to figure out what makes the most sense, what gets me excited. And I had narrowed in on a couple of key trends. One was looking at consumer experiences and where there’s a lot of friction and the other was this opportunity to bring technology to old school industries. And so, I was actually looking at a bunch of different ideas. I didn’t have the one that got me really excited, but then my co-founder, James, who’s one of my best friends from college, I’ve known him for 20 years now, he actually was exploring doing a healthcare start-up. And we were talking every once in a while, kind of bouncing ideas off each other. And he came to me with the idea of doing something in dry cleaning. And it was one of those moments where all the bells sort of went off because I thought dry cleaning was a perfect fit for the trends that I was looking at.
I’d always viewed James as a potential co-founder, but he did healthcare. I didn’t wanna do healthcare. There was no overlap in our interests, but then I think maybe the most important thing was he actually grew up in dry cleaning. His parents are dry cleaners. His aunts and uncles are all dry cleaners. And he had this really unique understanding of the supply side of the equation. So it was almost too good to pass up. We both got really excited. This was January of 2013. So a couple of weeks later, we basically signed up 11 of our friends. We went to their house, we picked up their clothes, we cleaned them at James’s parents shop. We delivered them back and we got this unanimous response from everybody that was along the lines of like, “Hey, this is awesome. When are you guys coming back?” And we hadn’t thought that far ahead, but we knew we were striking a chord. And so, that’s when we really started diving into it. And so, I can tell you more about that, but that’s sort of how we got started.
Meb: I was smiling as you’re describing the history because you’re like an idea I wanna get excited about. And I’m just thinking in my head, dirty underwear and how much I hate doing laundry. But it’s funny because, you know, it’s under this category, we think a lot about industries that it’s like this frustration arbitrage. The experience is miserable. The NPS score, everything across the board is usually just terrible, but there still hadn’t developed, at least in 2013, a good solution or way to affect the change. So walk me forward. Okay. So you had the initial sort of 11-person product-market fit. What was the next steps? Was it to max out the credit cards? You chat up some friends and family? How did you take the next steps?
Ajay: Maybe first just thinking about just the idea of wanting to dive into something and to start something, I think it’s really important to the point of this hasn’t happened before and we’re sitting there in 2013 and no one had really done anything in this space that was innovative. I think there’s always this question that needs to be asked when a company gets started, which is why me, why now? And the why me, I think there was a great story with James’ background. He wanted to help the space, help the industry. I’ve been very focused on consumer side, the consumer side of things, and we were a great partnership. But the why now is really interesting because I think what you were seeing in 2013 and really over the past seven or eight years now, you’ve seen the ubiquity of the iPhone. You’ve seen companies like Uber explode and consumers realize they can use technology as the remote control for their life.
And I think there was a time where you had all of these things kind of working together where it made sense. And then I think the next step is then as we go into it, one of the big pieces of advice I got from a mentor was, “Hey, when you start something, what you gotta do is you gotta gauge your own personal level of excitement. So if you’re excited today, that’s great, but are you excited next week? Are you excited the week after? Are you still excited?” And to your point, we’re talking about laundry and dry cleaning. It’s a very unsexy space. It’s incredibly complicated. It’s very fragmented. There’s a lot of reasons not to be excited about this space, but what I found was, as we were doing this, I kept getting more and more excited to the point where seven-plus years later, I’m even more excited about our potential in what we’re doing.
And where it started was really, you start with things that don’t scale. You figure out what the feedback is and you try to figure out how to scale it. After we had that initial test, we knew there was something there and we were feeling excited. Like we knew that we were onto something. So what we did is we spent a lot of time talking to as many people as we could about the last time they did dry cleaning or the last time they did laundry. And what we heard in those conversations has literally been the same thing we’ve heard for the last seven years, basically from any customer we talk to. And what it is, is that in dry cleaning and laundry, the experience is so full of friction. And it’s not one big point of friction, it’s just a lot of little points of friction along the way. So think about dry cleaning, as an example. You don’t know who’s a good dry cleaner so you just go to the nearest one. So you’re held hostage to proximity. You can’t assess quality until after the clothes come back. So it’s a bit of a crapshoot for us as a customer.
And also, by the way, there is no trusted brand. There’s no national brand. It’s all local mom and pops. They’re very vendor-centric. They’re open 9 to 5, closed on weekends. If you’re working during the day, that’s a very challenging situation. You have to do that twice just to drop off and pick up your clothes. And then there really, there’s very limited customer service, very limited transparency, no technology enablement, a whole list of friction points. And we call it internally death by 1,000 cuts. And the way we looked at this, as we said, “Hey, there’s a real opportunity to systematically remove the death by 1,000 cuts to create this seamless experience from start to finish and really provide one simple solution for everything in the closet for customers.”
And at the same time, by the way, there’s an opportunity to work with existing cleaners who are actually really good cleaners, but they just don’t know how to get volume. They’re all under-utilized, all of excess capacity. They don’t understand customer acquisition and really, there’s been a vendor-centric mentality forever, so it’s hard to think about how the customer really demands convenience and demands certain elements that aren’t there. And so, we realized, “Hey, we can actually work with the best cleaners, let them do what they do best, which is clean the clothes, and then manage everything else, own the customer experience, own the technology, help them get better by working with them and building technology and processes to improve quality.” At the beginning, all of the signs were pointing to, there was a lot of opportunity here. Everything we kind of looked at, every conversation we had, we realized that there was something we could do and really to capitalize on the frustration arbitrage and with the goal of making trips to the dry cleaner and the washer and dryer obsolete for customers and really building the dominant national brand in this space.
Meb: The only reason that I’ve had a longstanding pre-Rinse relationship with our dry cleaner was because in one of the very first drop-offs, I left $20 in my pocket and they had returned it. And so, my wife is like, “That’s amazing. They’re so honest. We’re gonna stay with them forever. And I was joking with her. I was like, “It’s probably just a cheap customer acquisition tool where they just put 20 bucks in everyone’s in the first week.” But no, I’m just kidding. So you guys start the concept. What were even the next steps of how you even begin to scale this from local friends and family?
Ajay: So after we were doing the need-finding conversations and kind of understood the key insights, it was really about putting the pieces in place to build Rinse out, to prove this out. And I think for us, we made a lot of decisions early on around what this was gonna look like and how we were gonna test it. And I think it’s important to understand, with a service like this, it is a very operationally complex business. And when you look at the industry, it’s a massive industry. Everybody needs their clothes clean, universal service universal need. It’s incredibly fragmented. And so, even with your example, there are really good cleaners out there. And there’s really good customer service out there, and there are people who are very loyal to their local cleaner.
On the other side, there are really bad cleaners out there and they’re not very good. And the challenge with the very local infrastructure is that the second you move, you need to try to figure it out again, no, you’re not gonna drive across town or go to a different city just because the cleaner was great. And so, for us, I think we realized there’s a really big opportunity here, but there’s a reason that nobody’s been able to do this before, no one’s been able to scale this in the right way. And so, we wanted to be really smart early on and really disciplined about how we tested this. So what we did is we went through kind of the motions of incorporating, starting to plan for a broader launch. But what we did is we started in May, 2013 and we put a circle around three zip codes in San Francisco and basically said, “If we can’t prove it out here, we’re not gonna prove it out anywhere.”
So we held to those three zip codes. And what we did is we just signed up 10 of our friends, said, “Hey, we’re gonna start here. We’re gonna go through all this. We know we’re gonna have to work out some kinks.” In May, we had 10 friends, in June, I think we added another 7 or 8 friends, in July another 7 or 8 friends. And through that process, we started raising our initial friends and family round. We hired our third co-founder, our CTO, Sam. And we started to kind of building out the infrastructure for broader expansion, but really with the idea, we wanna do this right before we go too far in too fast. And I think if you think about the way we even set up Rinse, when we listened to the insights from the customer, going into it, it was very obvious to everybody in the world that we had to be an on-demand company because Uber was on-demand, because Lyft is on demand, because there are so many dollars going into on-demand consumer services.
But when you talked to customers, it was incredibly clear that this was not a problem that needed to be solved with an on-demand solution. When you think about Uber and Lyft, they’re solving an acute pain point. You need a taxi, you need it right away. On-demand makes a ton of sense. We’re solving a chronic recurring pain point where customers unanimously prefer quality, consistency, predictability over speed and on-demand. And so, for us, even though it was very tempting to kind of say, “Hey, we’re gonna be all things to all people, we actually started with a model where we only served our customers on Sunday and Wednesday. So only two days a week, we picked up Sunday, delivered Wednesday, picked up Wednesday, delivered Sunday. And then we only serve the customers between 8:00 p.m. and 10:00 p.m
So if you think about the origins, three zip codes, two days a week, two-hour window. Very limited with the idea that as we get more and more customers, we get more and more reps, we know we’re gonna need to figure out how to scale quality, how to scale the customer experience. Because in this space, and this is what you’ve seen, we’ve seen this now evolve over seven years. From a competitive landscape standpoint, the barriers to entry are super low. It would not be hard for you to walk away from this conversation and go start dry cleaning and laundry for some friends. But the barriers to scale are incredibly high. There is a ton of operational complexity you have to manage in order to be able to serve multiple service types, multiple garments, thousands of customers across multiple markets, all that sort of stuff. So it was very important for us when we were getting started to be really disciplined. And then as we continued to learn, continued to develop the processes and the technology, then we would expand from there.
So in September, 2013, we added more zip codes. And as we kept growing and growing, we added more days of the week to the point where today we’re seven days a week, we’re all over the Bay area. We cover Los Angeles, Chicago, Boston, DC, but it’s really about kind of building it brick by brick, doing things that don’t scale, and then scaling from there. And I think the one thing that is important to realize that we actually, as we expanded our footprint and we expanded the days of the week and we’ve continued to expand with features and technology, one thing we’ve held very constant and firm on is we still only serve the customer between 8:00 p.m. and 10:00 p.m. That was a very conscious decision early on. When we started having those need binding conversations, it became really clear that cleaners being open nine to five was a huge pain point.
And we knew that in order to make a pickup and delivery service work to make the economics work, you’d have to build route density. It was very clear that on a Tuesday at 3:00 p.m. we weren’t gonna get a lot of demand. And so, we actually started with that two-hour window in the evening, forcing the demand curve for the customer, and then allowing us to shape the supply curve around it so we could manage the operational complexity. And over seven years now, we’ve built a pretty orchestrated dance around those two hours, which has allowed us to drive efficiency, continuously improve processes and technology.
Meb: I wanna get into the offering, but before we jump into that, I am curious. When you started this at 2013, why is this such an industry that seems so ripe for having a brand a national player? Literally, I can’t think that there’s any, like why had that not occurred yet? What was the main challenge to scale or to efficient, or whatever that just there wasn’t any players that are recognized other than the mom and pop down the street?
Ajay: Yeah. It’s an incredibly fragmented space. We look at it as a $40 billion opportunity. And I think the top 5 players have less than 2% market share. It’s incredibly fragmented. And when we were getting started, we kind of look back at others who had attempted to build a national brand in this space. And I think what we found was that the majority of people took an approach of being a national brick and mortar chain or a national brick and mortar brand, where they took the capital cost of building a box, having people come to it. They needed to price accordingly and trying to compete with local mom and pops. And what they found was it’s very hard to compete on cost with local mom and pops. For them, they’re not necessarily worried about percent margin, they’re worried about dollars in their pocket. They might be putting their son like James to work and saving labor costs. So it’s very hard to compete and then to scale that across multiple markets. There’s a different dynamic to a certain extent in every market. And I think when we looked at this, we said, “We can actually leverage the existing infrastructure. There are very good cleaners out there. And if we can work with them, we can build a process and technology layer, on top of an existing infrastructure, that’s gonna allow us to scale much faster.”
Meb: So we’ll let you take this either way you want. We’d love to hear about either the business model or the offering and describe it as which either it’d be easier for you to the listeners to hear about how you structured the offering and how it works or how the business works in general.
Ajay: I mean, from a consumer standpoint, our goal is to provide one simple solution for everything in the closet. So our main service offerings are dry cleaning, which includes dry cleaning and laundry and press. So cleaning your button-down shirts, or suits, or dresses. And then we have wash and fold, which is basic laundry. And so, if you’re a customer, the way we’ve set it up has been to make it consistent with how you understand this world already. So dry cleaning is priced per item, wash and fold is priced per pound. We also have a subscription product on the wash and fold side called rinse repeat, which is a lot simpler to price per bag. We launched that last year and we found that that’s been a very exciting product for our customers. It makes sense because this is a recurring pain point. So it actually lends itself to subscription.
But in terms of the offering, we’re open seven days a week, we pick up 8:00 p.m. to 10:00 p.m. We’ve built technology to make it seamless. The vast majority of our customers create orders and communicate with us via text messaging. So we’ve done all of this stuff since the beginning. In terms of the business model, the way to think about it is we are selling a product to a customer and getting whatever revenue we get. And then we need to use that to pay for the cost of cleaning, to pay for the cost of delivery. Internal operations costs, all of the sort of…the various cost of goods sold you’d expect for a operationally intense company that does pickup and delivery.
Meb: And so, talk to us a little bit about that integration and the way you guys work. Are you partnering with local dry cleaners? Are you trying to establish sort of just a one big commercial center? Is it something you’d ever consider owning at some point? And how does that integrate?
Ajay: The short answer to all that is yes. When we’re thinking about all that stuff, we’re considering everything. The way we’ve built this is as a process and technology that are on top of existing cleaners. And the way that works is really choosing wisely upfront with your partners. As I said earlier, some cleaners are good cleaners, some cleaners are bad cleaners. You wanna work with the best cleaners and then really work closely with them to help them grow their business. And so, first, as part of it, with our model, what we have done is we’ve built what we call a route-based schedule for our customers. So if we pick up on Sunday, we deliver Wednesday. If we pick up Monday, we deliver Thursday. What that does is not only creating a predictable, consistent schedule with the customers, but it’s actually a really important component of working with our cleaning partners.
Because before working with Rinse, our cleaning partners would deal with kind of a spike in demand on Monday morning, and then they’d be dead the rest of the week. And what you find is that’s very hard to staff for. It’s very hard to predict, how are we gonna grow this business. And with Rinse, what we do is we send them a predictable steady stream of volume seven days a week. And so, when we’re working with our cleaning partners, not only are we filling underutilized capacity, but we find that they are working with us to grow their business and take on more shifts so then they can grow as we send them more volume. So in order to serve the volume of our customers in various markets, it doesn’t require thousands of local dry cleaners. We can work with a handful of very good cleaners and we can help them drive more throughput by being more efficient, by having more shifts, by having a predictable, steady stream of volume that allows them to staff.
And so, the model we’ve taken has been one of working with cleaners, choosing wisely upfront. We have a pretty thorough vetting process we use when we pick a new partner. We internally call it the 5 PS originally mapped out by James, who I mentioned, you know, he’s grew up in dry cleaning, he understands the space. His parents were helping out early on. But the 5 P’s are, number one, is the profile of the vendor, is he or she on-premise? Does he or she care about the end product? The plant, are they using efficient machines? Are they environmentally-friendly? We don’t work with any dry cleaner that uses perk. You have to use the environmentally-friendly solvents. Process, can you actually track orders through your workflow and bonus points if you know how to use technology, if you’re already using it. People, are you hiring. In wash and fold, are you hiring good people and training them?
In dry cleaning, the key person is the spotter. It’s a person who understands chemistry and knows how to gets stains out. And then we pilot with them. Well, we’ll give them a test with a limited amount of volume and then we’ll kind of gradually work them up to the levels that we’re expecting. And through all of that, they’re gonna prove that they can meet the standards that we set. They’re gonna work with us and grow with us, and we’re gonna work to make them even better. We’ve taken that approach since the beginning. I think as we continue to scale, as we continue to grow, there are different variations that we’re gonna wanna look at. Some markets might make a ton of sense to vertically integrate. Some markets might make a ton sense just to keep the same model where we work with existing partners. And so, I think for us, as we continue to learn, as we continue to scale, we’ll continue to make these decisions as it makes sense.
Meb: What’s the biggest distinguishing factors for a good versus bad dry cleaner? Is it low error rate? Is it consistency? What are the things that you’re like, “Man, these guys are just awful? We can’t work with them, or these guys are as good as it gets?”
Ajay: One thing I’d say is we’re all service-based businesses, and service-based businesses are won and lost through execution. And execution starts and ends with the team. So a lot of times, it’s the people and it’s the way they approach cleaning the clothes. Do they care? Do they put the extra effort in? Do they notice when they make mistakes and correct them? I mean, there are certain things that you can identify very quickly, especially when you start getting into that pilot phase and you see how their end product looks, even if it’s a small amount of volume. But a lot of times we view our cleaning partners as part of the team. So I would think about them the way you might think about employees or the way you might think about people on your team is like, are they working with us? Are we having good dialogue?
Are we getting along? And we’re talking about solving these problems and working together, that’s really important to us. It is a people-driven process. It’s a very critical part. I mean, the other part I would note is that we are a technology company, right? We’re the most digitally advanced company in this industry. And so, when we work with our cleaning partners, there’s gonna be some technology involved. We built quality and process checks in the technology that the cleaning partners work with. And so, I think you wanna see, does a cleaning partner adapt to the technology? Are they embracing it? Are they working with us? That’s also gonna be important.
Meb: So as you guys have been building this over the years, there’ve been some other competitors that have flamed out and gone to the graveyard. You guys learned anything from the companies that didn’t make it, any reason in particular? Did they try to scale too fast? Were they taking the wrong approach? Why have you guys been successful, whereas these others are long gone?
Ajay: Yeah. I mean, I would say it kind of goes to the point of the barriers to entry being low and the barriers to scale being high. It’s not hard to get started. It’s very hard to scale this and scale quality and scale inventory control and scale the customer experience. And so, what we saw and for some of the competitors you are alluding to, you know, we actually, when they shut down, we acquired their customer lists. We saw their data. So we saw that their margins were very negative. We learned a little bit about their processes, but at the end of the day, I think it goes back to execution starts and ends with the team. This is execution-based business. You have to be maniacal about your metrics. You have to be analytically rigorous. I think you have to build the company in a way that fits what the customer needs.
And I think one of the mistakes we saw, not just in our space, but in a lot of spaces in the consumer world was a lot of companies kind of taking this on-demand approach for everything. And I think one thing we’ve been saying since the beginning, I wrote an article on TechCrunch about this maybe four or five years ago, is that on-demand isn’t always in-demand, right? It’s not always the right answer. And I think what you have to understand is what is the pain point you’re trying to solve for the customer and then build a solution around that. We always say needs-focused solution agnostic. And I think some of the companies that you’re alluding to, they want it to be all things to all people on-demand, maybe same-day turnaround, maybe open during the day. And if you’re gonna do pickup and delivery, as an example, if you’re gonna do pickup and delivery and serve the customer, again at Tuesday at 3:00 p.m, I don’t know how you make the economics ever work because you’re paying the driver something and you’re gonna try and divide the amount you pay that person across the number of stops he or she completes. And if it’s just one stop, that’s a very, very expensive transaction.
So I think there’s a lot of things. It’s a very complex business. And for us, not only are we focused on what we call smart scheduling, which is being very disciplined on that evening window, having a route-based schedule, making it very predictable, but we always think about continuous improvement. We have kind of the benefit of being in five markets. And the Bay Area is our biggest market. It’s where we started. And what we see is, as we scale in the Bay Area, we have to continue to adapt our processes and our technology to manage that level of scale. And oftentimes, that technology improvement or the process improvement is immediately transferrable to a smaller market.
So the smaller market gets to scale more efficiently because they benefit from what we learned in the bigger market. So I think there’s some advantages there, but in general, because the barriers to entry are low, what we’ve seen is a lot of companies have died in this space and there are still companies around and there’s a lot of them. Probably any city you go to, you’ll find someone, but they’re all subscale and they’re all kind of just getting going. And for us, what we’ve been focusing on is we wanna make this the dominant national brand, right? So making this work, not only across our five major markets, but having a plan for future expansion.
Meb: So as you look to new cities, what tends to be the characteristics that you guys are looking for? Is it density? Is it lack of offerings? What are the challenges with scaling? Why’d you choose Boston instead of Cleveland, or Denver, and LA?
Ajay: In general, we look at this as a universal service. Our goal is to be everywhere. And part of the process here is you start where the pain point is most acute, and that’s typically gonna be in the big cities. We started in San Francisco because that’s where we live and that’s where we started. And then as we’re scaling San Francisco, we always had this vision of being the dominant national brand. We knew we had to see if we could do this in another city, manage both places without the whole team being in both places. And so, the reason we chose LA wasn’t because there was amazing dynamics in LA or there was a population thing, it was because the advice we got from friends of ours who had built companies that went city to city, was try to pick something close to home in case something goes wrong.
I used to live in Boston. I was actually thinking about Boston because I understood the market, but we ended up choosing LA because it’s a one-hour flight away and if something went wrong, we could go down there. And it was just easier way to start testing this out. And then as we looked ahead to other markets, we had acquired the customer list from a competitor who had shut down who was in Boston, Chicago, and DC. And we were able to talk to their team and understand that, hey, DC was the best market out of those markets. So we went to DC, number three, and then we went to Chicago and then Boston. And we wanted to launch those at a very similar time. But in general, it’s not about, hey, that market is much more attractive to that market. It’s really not about the local offering or local competition. There is something to be said about, maybe there’s a start-up there and they understand. They try to educate the customer base, but in general, I think we’re all small fish in a pretty massive pond and there’s local competition everywhere.
So it’s really about, are we ready for the market? Do we have a team that can go launch there? And we wanna start with bigger cities and kind of move to smaller cities because the pain point’s more acute. So with our roadmap, I mean, the U.S. is massive. There’s a ton of large markets that we’re not in. We’re not in New York, or Houston, or Dallas, or Seattle, or Miami, or Atlanta. I mean, you name a big market and there’s so many of them. And so, I think for us, the way to think about it is our model works. We have a very strong expansion playbook, a strong… We can get a city up and running in a matter of days. And so, it’s really about when it’s the right time for the company, let’s go to the market and then kind of grow there and get to a point where the market is profitable. We establish ourselves as a strong service offering in that city and leverage the learnings, not only on the operational side, but on the marketing side that we’ve developed over these five markets we’re in.
Meb: Once you’re in a new city, is it just a digital campaign to build awareness? Or how do you guys go about it?
Ajay: It’s interesting because one thing we’ve learned about what we offer is that we’re very much a considered purchase, not an impulse purchase. So if you did your laundry yesterday and you saw this amazing ad on Facebook today for free laundry, you’re not necessarily gonna do anything. And so, for us, I think what we realize is we need to have you see us in multiple places and hear about us in multiple different ways. And so, we might do it through various marketing. We do a lot of investing in Adwords, Google Adwords, and search. We have our own SEO that we built. We’ll do things like we have partnerships with apartment buildings and employers to help spread the word. We have our own customers as referrals, and then we’ll go to a new market, hopefully, they can help us seed the market. But part of what we wanna do is take a approach where we’re doing a bunch of different things to try to build awareness and reduce new market risk when we get there, because the quicker we grow, we know we’re gonna start with the right technology. We’re gonna start with the right processes. We know our pricing, we know our cost structure on the backend for cleaning. The quicker we grow, the quicker we build route density and economies of scale with our internal operations. And that’s a really important part of launching any new market.
Meb: You mentioned corporate offering. That’s something I actually wasn’t aware of until digging around the website. Can you talk a little more about that?
Ajay: Yeah. We’ve always been direct to consumer, go into your house, picking up between 8:00 p.m. to 10:00 p.m. I think we realized over the years, we got a lot of inbound requests from employers who wanted to provide Rinse as a benefit to their employees. And also from apartment buildings and property managers who wanted a preferred vendor for their residents. And I think what you’ve seen historically is that if you were a benefits person at a company and you wanted to bring dry cleaning and laundry as a benefit to your employees, you’d have to go and search around for some local mom and pop who might be willing to come by the office during the day. It’s always been really challenging. And it’s always been very limited at that level. What we thought about with Rinse for Business, which is what we call it, is that not only do we have the ability to provide an offering that your employees will appreciate, and it’s more modern, we use technology, all that sort of stuff, we can make it much easier for the benefits person.
And what we have found is that there are companies we’re working with that wanna use Rinse across multiple markets. You don’t have that individual in each market trying to figure out the local mom and pop. You have one decision-maker working with one company to serve all of their employees across multiple markets. So that’s something we actually launched in the last couple of years, maybe last year we launched it. And then we have been working with some apartment buildings to be the preferred cleaning partner, the preferred vendor. A lot of times we’re already in the building. We already have a lot of customers there, and then it’s just really finding the property manager or working, maybe…the nice thing about being more national or at least being in the five markets we’re in, is we can kinda elevate the conversation to be not just the property manager but maybe the person who’s managing multiple buildings. And that way, we can be the preferred cleaning partner for all of those buildings. And so, that’s how we’ve thought about it. In reality, it’s another way for us to reach the end customer. It’s another way to build awareness and get more credibility in the end customer’s mind.
Meb: One of the other differentiating factors for you guys has been…you alluded to has been tech. And specifically for me, has been the text-based interface. And for almost any other app service, like I don’t want text messages that just drives me nuts. But for something about y’alls that just works and it’s obvious and it makes sense, can you talk a little bit about the decision to roll that out? I’m assuming that wasn’t 2013, maybe it was, how you built it, and then how the response has been, because it’s a pretty cool feature.
Ajay: Yeah. Thanks. It was 2013 actually. We decided from day one that we were gonna do this via text messaging. And when I was mapping out different ideas and I was looking at friction in the customer experience, I think one of the points of friction was, “Hey, I have a bunch of apps on my phone and I gotta go find that app and go into it and then do something.” When you think about what we’re trying to do, there isn’t a lot you need a mobile app for. I mean, it’s nice to look at order history, it’s nice to track your valet. And we have added features like that over time. But in general, you really just need to let us know you want us to come by, we’re gonna come get your clothes, we can do some simple communication. And so, text message was a medium that I was really interested in using from the beginning.
And when we started, it was James and I doing manual texts to our customers from day one, even when we did that early tests with our 11 friends in February of 2013. Over a time, we have built a very sophisticated backend to manage text messaging. Sam, our CTO, built it from scratch at the beginning because, in 2013, you have to remember nobody was texting their customers. And so, there was nothing off the shelf that we could leverage. So we’d literally have to build this from scratch from the beginning. And the thought for us was a lot of companies, as they’re focusing on the customer experience, are building in deflection. They don’t actually want you to reach an individual at the company, they wanna send you to an FAQ page, or they want you to put some sort of form on the website and maybe they’ll get back to you.
And what we wanted to do was take the extreme other side of it, which is we want to be super accessible. You should be able to ask a question via text message and we text you back right away. We’re working with you to build a long-term partnership, a long-term relationship. And a lot of those conversations, when you think about your friends or your family, it happens via text. And so, what we’ve done since the beginning is we’ve said, “We’re gonna treat text messaging like sacred real estate. It’s gonna be very targeted and focused in terms of what we text you about and we’re gonna leave it really outside of you creating why to create an order, which is super simple.” And last we checked is about 70% of our customers were using text messaging to create orders. By the way, you can text why any day of the week, it’ll create an order. But you can also ask a question and we have our customer care team on the other side of it to respond. And so, we’ve built…Sam had built an interface early on where the care team is basically writing it like an email, but we’re sending it like a text. And so, that’s been very important part of our operations at the beginning. And it’s aligned with the idea of removing all the friction, being super seamless. That was very important from the start.
Meb: Yeah. It’s one of those things, it’s obvious to me at least in retrospect where I certainly don’t wanna log on to internet to get laundry done. I don’t even wanna do an app. If I was gonna do that, I’d probably just do it myself. But just getting text messages, “Hey, we’re in your neighborhood Wednesday.” I was like, “Oh, yeah, I totally need to do a dry cleaning.” It seems so obvious. I haven’t tried wash and fold yet because I’m sure you’ve dealt with this as you’ve profiled your customers. I have some sort of psychological barrier to where I feel the guilt mode. I feel guilty outsourcing my laundry. I’m like, “I could do that. That’s so simple.” But COVID, the amount of laundry that I’ve done, I’d never wanna do another load of laundry again. It’s just absolutely the worst. Talk to me a little bit now about how this year has impacted you guys, how you’ve adjusted, and then obviously ignoring all of the human toll this is taking. Has this been… Because I could probably make a guess one way or the other, has this been a good thing for business, a bad thing for business? Kind of walk me through all those ideas, topics.
Ajay: First, I just wanna reframe your guilt. And the way to think about this is that I think the way a lot of our customers think about this is that you’re saving three or more hours a week. And there’s so much more you can do with your time. And I think the way we have thought about this is that you’re paying for convenience. So, yeah, it’s a simple task, but it adds up and you gotta do it all the time and we could take it off your plate.
Meb: Believe me, I understand the math and the per hour that I’m paying does not make sense. It’s just something there in my psychology, I don’t know. I’m sure it’s from my parents or some part of growing up. I understand. And I fight that. That’s the most ridiculous part is I’m like, “I know I should not be doing laundry. It comes back folded, and beautiful, and clean.” But here I am just, I can’t get over it. So hopefully, this podcast will help me get rid of my deep-seated issues.
Ajay: I hope so. Yeah. In terms of this year, obviously it’s been an interesting year, very unique times. I mean, first from a business standpoint, what we have seen with COVID has been laundry has remained relatively steady. Dry cleaning has taken a hit, and I think it’s expected, people aren’t going to the office as much, or they haven’t been in the past couple of months. Business travel is down dramatically. There’s a lot of reasons why that’s the case. I think for us as a company, the way we have approached COVID has been first and foremost, it’s all about safety for the team and for the customers. And so, we’ve actually been ahead of our local governments in terms of putting regulations in place and preventive measures in place to make sure our team is safe and make sure our customers are safe. We implemented no contact delivery right away. Even if you don’t sign up for it via the app, you can just text your valet and keep it really simple.
We spent a lot of time implementing procedures and protocols, not only at our warehouses, but also at all of our cleaning partners. And we made sure they had the supplies on hand, whether it was soap or disinfectants to regularly clean, not only wash your hands but regularly clean work surface areas. And we implemented a ton of processes through the entire chain from getting the clothes from the customer to cleaning them and bringing them back to the customer. And so, there’s a lot of processes we put in place to make sure everyone is staying safe and we’re reducing the risk of transmission. So that was certainly an interesting period. And lot of that activation energy happened in early March. And then from that point on, I think it’s been about, “Okay. Hey, we’re an essential service. We’re gonna stay open. Let’s make sure we can take care of our customers and our team and make sure everyone’s safe first and foremost.”
And then as that was happening, it was like, “Okay. What else can we do?” Right? I think we’re in a situation, and we’re still in a situation where a lot of people were wondering, “Hey, how can I help?” Staying at home is obviously one way to help, but are there other things we can do? And so, for us, we have an active delivery infrastructure. So we ended up doing a medical supply drive in March and into early April to help get masks, and gloves, and wipes, and sanitizer to local hospitals. That was important for us. And we were able to aggregate donations across our customers. We have cleaning partners who are really taking a hit. We know the business impact, especially our dry cleaning partners. They’ve taken a hit. And so, we help them not only with protocol to stay safe and healthy, but also navigating various relief programs out there so that they can take advantage of those and also thinking about ways we can support them, whether it was reducing the amount of days that we asked them to work. We paused our rush dry cleaning as an example because rush dry create staffing complexity. So we removed that to make it easier for our partners.
We’re working with a few of our partners to produce reusable cloth masks. And so, that’s been a nice income stream for the cleaning partners. And it’s been a way to provide masks, not only for our team, all of our valets, but also to sell them to customers. It’s a way to drive business for our cleaning partners. We actually saw one of our cleaning partners in San Francisco who was producing masks in the Bay Area. Instead of being down a significant amount of month over month, they were around flat. The delta was all because of masks being produced and sold.
So we’ve been trying to think about all different sorts of ways we can navigate this and help. It’s a challenging situation for everybody and it’s unprecedented for everybody. So we wanna do our part as much as we can. And from a business standpoint, the way I think about this is that when you go into a crisis like this, it’s not about the P&L, it’s about stability, job security, making sure the team is safe, making sure there’s team morale. That’s been the focus, just making sure that we’re in a good position to navigate it. And we’re in a good position coming out of this when things go back to whatever normal is gonna become after this.
Meb: Talk to me a little bit about six, seven years into this now, as you’ve kind of scaled, you’ve taken some funding, you’ve raised some rounds. Where do you guys stand with that?
Ajay: We raised capital over the past seven years. And I think the way I would think about where Rinse is as a business has been a lot of what we’ve been doing. We are in five markets, we’ve grown a lot, and there’s a lot of great things that we’ve been able to accomplish. A lot of what we’ve done has been around just nailing the model. And because there’s so much operational complexity, a lot of our time and effort and energy has been in on that, on people, the process, the technology, so that we have something that can scale very quickly to multiple markets. So as you think about the journey so far, the majority of the focus has been on scaling quality, scaling the customer experience, making sure this is something that we can take to many, many markets, and build the dominant national brand. And I think where we are, as you look ahead, I feel very good about the model works. The work we’ve put in, the playbook we have is very replicable, very scalable. And so, I think going forward, the next step, and it’s probably not in the immediate term, but it’s in the foreseeable future is to look towards expansion, look towards the next round of funding, which can help us push to new markets and really solidify our position as the dominant market leader.
Meb: And so, what is the one, three, five-year sorta horizon plans? Is it just to simply take the model you built, block and tackle, move into a bunch of new cities?
Ajay: Yeah. I think in the simplest form, it’s something like that. I mean, when you look at our existing markets, it’s interesting because our existing markets are huge. LA is a massive market. The Bay Area, we only expanded outside of San Francisco proper, starting in summer of 2018. So we’re still pretty new to the peninsula, San Jose, Oakland. And then we have, Chicago’s massive, Boston’s massive, DC’s massive. So there’s still a ton of opportunity within our existing markets as well. And so, I think the way I think about this is over the next one, three, or five years, it’s gonna be this consistent dance where we think about going deeper in our markets versus going broader to more markets. And at the end of the day, the vision, since the beginning has been to be the dominant national brand.
We’re taking the drunken walk of the entrepreneur where we’re ebbing and flowing in all different directions, but the visions remain the same and the direction we’re headed has remained the same. So the U.S. is a really, really, really big market. There’s a really big opportunity. We haven’t gone to New York yet, which is obviously massive. I already named a handful like Houston, Dallas, Seattle, Miami, Atlanta. These are all just big, big markets and I’m barely scratching the surface. So I think for us, the focus is make sure the model works, make sure the playbook is dialed in, and then continue to go deeper in our existing markets while expanding the footprint.
Meb: Have you guys brainstormed at all about any other…I mean, you’re starting to become a trusted partner for households, and essentially, you own a trust of leaving and picking up clothes from their doorstep. Are there any other sort of business models you guys have brainstormed over the years or even consider? I know they’re probably distractions about ideas that may be complementary or interesting possible additions to what you guys are doing.
Ajay: I’d say we’ve thought about a lot of things. Whether or not we’ll do them is a big question. I mean, when you think about expansion, there’s geographic expansion, which we just talked about. There’s channel expansion. So we work with employers, we work with department building. That’s sort of a new channel for us. There’s a channel that we haven’t hit yet, which is on our mind, is universities. So at some point, there will be some channel expansion that’ll help us go deeper within our existing markets and reduce that new market risk as we go to new markets.
From a product expansion standpoint, I sort of think about it as our core service offering, is cleaning clothes, really dry cleaning and laundry. I think as we think about expansion around that, the first step is probably something that is aligned with being one simple solution to everything in the closet. So think about services we don’t offer yet like shoe repair or tailoring and alterations. That would be a natural expansion from a product standpoint. And the other thing we’ve done is we think about kind of broader vision, is right now we are taking care of the clothes while you own them. But we’ve always had a broader vision of helping influence the clothing lifecycle from cradle to grave.
And if you think about our dry cleaning, for example, when we started Rinse in 2013, we wanted to build a culture of data. We’ve actually tracked every item type, every brand, and taken a photo of every item we’ve ever dry-cleaned. And so, we are the only company in the world that has this database of how people actually wear their clothes. And so, a broader vision for us has been, can we use that data to help influence how people purchase clothes, whether it’s through partnerships or through something we do? And can we help people with retiring clothes? We already take clothing donations to help people remove the clutter, but is there an opportunity to help with things like consignment and that sort of stuff?
So for us right now, those are big market opportunities. They may be unwise for us to go into, but it sort of, as we think about a broader vision, I think there is a vision about owning the clothing lifecycle from cradle to grave or influencing it. But for now, I think there’s just there’s enough work on the core that we need to really stay dialed in and focused. As we just said, the first step is really going deeper in our existing markets and geographic expansion before we start thinking about some of the other stuff.
Meb: So no milk delivery. We actually used to get… I remember as a child, in Colorado, we used to get milk delivered into a box once a week or something. What’s the state of affairs, the rest of the world? Do people approach laundry the same way? Is this a similar situation where there’s opportunity in Europe, or South America, or Asia, or is it totally different elsewhere?
Ajay: I think it’s actually a global opportunity. Just like you see startups in various cities in the U.S. because the barriers to entry are low, there are start-ups in every major market across the world. There are players in Europe, there are some in South America, some in the Middle East, some in Thailand, Asia. I’ve had a bunch of them reach out to me over the years and just, we get to know each other and see what they’re doing. But in general, I think there’s a huge opportunity everywhere. For us, I wouldn’t want to go internationally until we’ve really taken the U.S. market, which is already such a huge market, but we’ve always had global ambitions in terms of a broader vision, right? I mean, think about using text messaging as your main medium to communicate with customers. That translates to all markets. So there are things we’ve thought about, and it is a universal service and a universal need. But I think for now the opportunity is big enough right in front of us, right in our backyard.
Meb: By the way, great name and great domain. When did you acquire that? And was that a five-figure, six-figure? Those aren’t around so much anymore.
Ajay: Yeah. Now, 2013, basically when we started… So I spent a lot of time in the consumer world, a lot of times with consumer start-ups. And I think there was a trend. I’m not sure how persistent the trend is today, but at least in 2010, 2011, 2012 timeframe, a lot of consumer-facing companies were getting started with names that weren’t real words. And they were hard to spell or hard to think about, or you’d add like an LY or an IO at the end of a name. And I thought for us, what we wanted was a word that captured the essence of what we were trying to do but was super simple, super scalable. And so, I think a lot of people that start a company look around and see what domains are available, what words aren’t being used that often. And it turned out Rinse wasn’t being used very much at all.
Rinse.com was not available in early 2013, but we bought Rinse Now Rinse app, My Rinse, Get Rinse, all the various permutations around it. But we happened to stumble upon the opportunity within 2013 at rinse.com being available and we were able to navigate the purchase for what I would call a pretty affordable price, so, you know, I think for us. We knew we wanted it when we saw it, and so, we went after it. And again, part of it is like when we were starting Rinse, we weren’t thinking about being the biggest dry cleaner in San Francisco or the biggest dry cleaner in the Marina. We were thinking about being a dominant national brand with global ambitions beyond that. So I think we knew that it was important to invest in the brand upfront and invest in a great name.
Meb: Yeah. Smart. From someone who owns way too many domains and has bought and sold a few, in my time, that’s great. All right. From someone who’s dealt with wine spills, skid marks, yellow armpits, everything in between, I imagine you have some stories. What’s been the most sort of memorable part of building this company over the almost near last decade?
Ajay: It’s been an amazing journey so far. I don’t know if I could pick one specific memorable situation, but I think for us, because we do deal with so many different types of customers, so many different types of situations, and because there’s so much operational complexity, I think a lot of times for us, you could talk to people on the team and there’s a lot of memories around the challenging situations we’ve got to navigate. So, frankly, the last couple of months will probably stick out as some of the most interesting, challenging times we’ve had where we’ve all come together as a team to do backflips and make sure we can keep the team and customer safe and navigate the operational complexity.
We’ve had wildfires in the Bay Area that have made deliveries and operations hard. We’ve had blizzards in Boston. There’s different stories like that, that stick out. And I think it’s funny because we were just talking about this yesterday, over the past week, we were navigating some of the curfews in the various markets we were in. And that we’re an evening delivery service, so we had to adjust to continue to operate a little bit. And one of the members of the team said, “We’ve gotten really good at these exceptional situations.” And I think those are things that stick out for us, I hope it’s a sign of a great team and a sign of a team that understands how to navigate any operational challenge in front of them. And we’ve been able to stay calm in times of crisis. There are times where backflips might lead to other results. And I think those are the things that stick out for me, is just the team coming together and continue to execute at a high level.
Meb: And if being an entrepreneur wasn’t challenging enough, you’ve decided to replicate at least three times post-founding, right? Three children?
Ajay: That’s right. I have three children. My oldest son was born December, 2014, so literally born three days after we closed our first institutional round of capital. I was incredibly tired at that time. But, yeah, I have three daughters. Son is 5-1/2. Haley is 3, and Ishmael is 1-1/2.
Meb: Wow. Congrats. That’s great. From someone who has just one, I can’t even relate. All right. We also ask all the guests, what’s been your most memorable investment? Can’t say your domestic partner and you can’t say Rinse. So anything else is fair game. Good, bad, in between.
Ajay: It’s interesting because over time I’ve invested in…I used to work in private equity. So I was able to co-invest with our fund at Berkshire. I’ve done public investing. I’m most interested and excited by angel investing. So I’ve been able to invest in a handful of start-ups. Maybe my most memorable is my first one, which was Bonobos. After my summer working there, I really loved the team and loved what they were doing. And Andy, the CEO was raising around and I asked him if I could be part of it. And he let me and my brothers in, and that was the start of our angel investing. So I think it’s really fun to, especially now that I’ve been on this journey for so long, hopefully, there’s some perspective I can add to companies that I’ve been investing in or advising in. But I enjoy angel investing and understanding the battle that they’re all going through.
Meb: You just reminded me of two quick stories. One was, I remember trying to go to Bonobos. I always struggle when I go to New York. I remember running into one and say, “Oh, I need a pair of pants.” Picked out the perfect pair, they said, “Sorry, we got to mail these to you in the mail. We actually don’t sell anything in our store.” But that reminded me of…this was probably my first job interview in college, was at a hedge fund in New York City. And I’m legit country mouse. I think I had been in New York a couple of times, but really didn’t understand how it worked. Flew up there, staying at a friend’s house in New Jersey, but had this expectation that New York City, city never sleeps. And I had to get some dry cleaning done. I just assumed you could just walk outside Sunday night and find a place that could do it in an hour.
My friend’s like, “Meb, you idiot. What are you talking about?” So I had to go and the next morning and I was like, “I just hope a store is open because I have no clean shirts. I have to buy a new shirt.” And the only store that was open that was right next to the interview was…and I was time-constrained was Thomas Pink, which I think is on Fifth, or Park, or whatnot, which if you are listening and you’ve ever bought…their shirts are like $200. And for me, that may as well be $10,000 at 20 years old. So I have a lot of scars. Maybe this is where the dry cleaning scars go back to. But I had to buy a shirt, which I think I still have. All the buttons have been replaced, but needless to say, didn’t get the interview. I didn’t get the job, but funny story. Very memorable. Bonobos just brought back that painful memory. Okay. Where do people go to learn more about the service to find out, sign up, transition, make their lives a lot happier? Where do they go?
Ajay: Best place to go is rinse.com. And we have all the information there. We’ve actually, for your listeners, put together an offer for them. You can get $20 of Rinse credit. If you go to rinse.com/meb. And maybe so, feel free to give it a look. And if anyone has questions for me, it’s email@example.com. Feel free to email anytime.
Meb: Listeners, take them up on it. I promise it’s a great service. I love it. Ajay, thanks so much for joining us today. It’s been a lot of fun.
Ajay: Yeah. Thanks for having me. I appreciate it.
Meb: Podcast listeners, we’ll post show notes to today’s conversation at mebfaber.com/podcasts. If you love the show, if you hate it, shoot us feedback@ themebfabershow.com. We love to read the reviews. Please review us on iTunes and subscribe the show anywhere good podcasts are found. My current favourite is Breaker. Thanks for listening, friends, and good investing.