Why Casper Is The $750 Million Startup That Just Can’t Rest

After banding together to upend the mattress business, the company’s five founders are now facing their biggest challenge: what comes next. 

In early May, the online mattress startup Casper celebrated its third birthday in whimsical style with an event, held in its New York headquarters, modeled after a 3-year-old’s birthday party. There was face-painting, piñatas, and—in a necessary concession to adulthood—a free-flowing open bar. They even hired a balloon guy. “He really put the artist in balloon artist,” says cofounder and CTO Gabriel Flateman, whose company has transformed the mattress business with smart design, low prices, and a clever business model. “He made me this intricate jet pack I was wearing around. I mean, he made a knockoff Chanel bag! But the magician canceled at the last minute, which kind of sucked.”

When Casper launched three and a half years ago, its five founders—Flateman, CEO Philip Krim, COO Neil Parikh, chief creative officer Luke Sherwin, and chief product officer Jeff Chapin—had no clue there would soon be so much to celebrate. They knew they had a strong idea, but back then their vision was modest. Mattresses were a $7 billion industry dominated by a tiny group of highly consolidated manufacturers and retailers. Markups were sky-high, sometimes topping 100%, and the shopping process was widely perceived to be unpleasant and confusing. It seemed possible that a nimble, low-overhead online player with a veneer of cool—the Warby Parker model, essentially—could capture a small-but-profitable slice of that market, despite the conventional wisdom that no one in their right mind would buy a mattress without at least flopping down on it for a few minutes at their local retailer.

So when, on April 22, 2014, Casper flipped the switch on its new e-commerce platform—selling just one model of foam mattress in twin, full, queen, and king sizes and targeting millennial Ikea shoppers—the founders had what seemed like a reasonable goal. “Something like $1.8 million in sales in our first 18 months,” says Krim. “But then, literally on launch day, we began to totally rethink everything.”

Before the founders had shipped a single one of their blue-and-white boxes, each packed with a near-magically expanding rolled-up mattress, it was clear they had hugely underestimated just how good their idea was. Orders came flooding in so fast that the company depleted its initial inventory on the very first day. Within eight weeks Casper had surpassed its original 18-month sales goal, and within a year the young company had dramatically reshaped the industry it originally planned to nibble at from the edges.

In the short time since, the sleep business has become both more consolidated and more chaotic. In 2016, Mattress Firm, the industry’s biggest retailer, acquired its rival Sleepy’s for $780 million, shortly before Mattress Firm itself was rolled up by South African retail behemoth Steinhoff in a $3.8 billion deal. Then, earlier this year, in response to slumping sales of products made by Tempur Sealy, Mattress Firm decided to stop carrying its line. “All this basically just means that the customer is going to keep getting hosed and hosed and hosed because there is no price comparison in this market,” says Casper’s Parikh. “How can there be, when Sleepy’s, 1800Mattress, and Mattress Firm are all owned by the same people?”

Last year, Casper did more than $200 million in business. It has grown from a handful of employees at launch to more than 300 in offices in New York, San Francisco, and Berlin. Its product line has expanded to include sheets, pillows, a dog bed, and more, and its wares are now also available in Canada, Germany, Austria, Switzerland, France, and the U.K., with further global expansion on tap. It’s a level of success that still spins the heads of the young founders. “I mean, it’s mind-blowing,” says Krim. “We just celebrated our millionth customer interaction—it’s just crazy how many people look for us, how many people sleep on our products.”

Days after the birthday bash, Casper’s founders are gathered at an upscale pizza place not far from their office in New York’s Gramercy neighborhood. Parikh orders pretty much the entire menu for the table: truffle meatballs, kale salad, a half-dozen pizzas with toppings like mascarpone and sliced potatoes. The whole crew is sipping bottles of Peroni beer. “I’m not supposed to be drinking,” says Parikh. Responds Krim, vaguely exasperated: “You say that every night!” Everybody laughs. The scene recalls the company’s early days, when they’d gather at a downtown pizza-and-wings spot to drink beer and strategize. Today, with Chapin living on the West Coast, Krim now married, and the whole team feeling the pressures of running a fast-growing enterprise, these kinds of get-togethers are increasingly rare. “It’s good,” says Chapin. “It’s like going old-school.”

If you ask the founders what accounts for their rocketlike ascent, they all say it’s the unique perspective each of them brings—that there are major advantages to having five strong points of view and five different sets of expertise rather than a single domineering vision in the Jobs or Zuckerberg mold. Krim, they all say, has a unique instinct for marketing and a calm demeanor that makes him the ideal CEO. Parikh is the most natural salesman of the bunch—Chapin describes him as “magnetic, just a person that people are drawn to.” Sherwin has a knack for brand-boosting ideas like the Casper Nap Tour, in which a fleet of bed-equipped trucks roam places like South by Southwest offering daytime snoozes. Flateman—who taught himself to code and built Casper’s original, totally bespoke web store—is obsessed with systems and full of factoids like “UPS drivers [mostly] turn right.” (Which is true; look it up!) And all four of them, along with most of their coworkers, seem quietly in awe of the somewhat older Chapin, who spent a decade as a star designer at Ideo before turning his attention to mattresses.

This cohesive mix of distinct personalities and talents is the kind of dynamic, I suggest to them, that you often find in successful rock bands. The dudes (and they are pretty dude-ish) latch onto the idea. “That is really not a bad metaphor,” says Sherwin, whose floppy hair and laconic vibe make him seem way more like the seventh member of Arcade Fire than a high-ranking executive at a breakthrough startup. “What is the sound or style you invest in? Do you creatively destroy some of the things that made you successful?” Flateman, who was Sherwin’s roommate in college, interrupts him with a teasing series of sarcastically delivered clichés: “Do you double down? Roll the dice? Risk it all?”

At the center of this looms one big question: What should Casper be? Is it a company known for making one game-changing product and delivering the best possible experience? Or is it something bigger: a platform through which to launch a variety of loosely connected items that all live under the Casper brand? And if it’s the latter, just what does Casper stand for, anyway? This debate has preoccupied the founders since the beginning, when they were scrambling to scale fast enough to just meet demand for their core mattress. On one hand, there were customers asking for ever more products; on the other was a whole host of potential bottlenecks: from a perfectionist design chief and complicated delivery logistics to implementing a seamless customer-service experience and recruiting experts from Google and Amazon to help solve these problems.

Increasingly, the platform side has been winning: Casper sees itself less as a simple mattress company and more as a lifestyle-driven enterprise that looks at sleep as a unique, optimizable category comparable to exercise or cooking or travel. “If I wake up in the morning and say, ‘I want to sleep a little bit better,’ I have to go and get a mattress from a furniture store, sheets from Bed Bath & Beyond—you end up having to get things from all these different places,” says Parikh. “But if you wake up in the morning and say, ‘I want to become a better runner,’ you immediately think Nike. Or, ‘I want to eat healthier,’ great, go to Whole Foods. There’s nothing like that for sleep.”

That line of thinking has required the founders to rally around an entirely new idea. After all, simplicity has always been central to Casper’s message: It markets its lone mattress as the ideal solution for most body types. “But as we’re evolving, we’ve realized that while simplicity is a value forever, it can’t be the beginning and end if we can do things that are better fundamental technologies,” Sherwin says. “So using the album metaphor, the next one is going to have some more complex sounds on it. There’s going to be some more synth—a synth-gasm moment three and a half minutes into the song where it just goes wild.”

If you happened to be walking past Krim’s office during a recent meeting he had with Parikh, you might have been surprised to see the two leaders yelling at each other—a disagreement that grew so heated, it seemed like they might start throwing things. The subject of the dispute isn’t important, Parikh says. What matters, he explains, is that this level of charged debate suggests how much the founders’ professional and personal bonds have deepened over the years. In the old days, they might not have felt comfortable enough to freely vent. Today, the four New Yorkers still hang out as much as possible, travel together, enjoy blowout meals at popular new restaurants—and, yes, yell at each other when situations dictate such passion. “We have less of a filter with one another about how we really feel,” the COO says cheerfully. “We don’t have to use politics anymore.”

To Taryn Laeben, Casper’s retailing chief—who joined the company last year after previously having run Kate Spade’s retail operations—that degree of openness is a major strength. “They’re so different from each other, but there’s really no ego in the founding team,” she says. “If you come to a meeting, there’s no culture of holding back because there’s a founder in the room. There isn’t some private place where debates happen. It’s an open community.”

Chapin, by virtue of working in San Francisco and joining the company mid-career, has an interesting perspective on his colleagues. “This sounds really terrible, but I don’t have that much in common with the other guys,” he says. “I don’t know if I would be friends with them if it wasn’t for Casper, other than the one guy [Parikh] that I knew before. I love spending time with them, but they’re very different from the friends I mostly spend time with.” The secret to making it work, all five agree, is trust and deference to the others’ abilities in their domains. “If I’m debating a branding thing with Luke, like, he’s going to own the branding,” Chapin says. “I can’t force my opinion down his throat. It’s about respect—not just respecting the people but their areas of expertise.”

When Chapin originally linked up with his cofounders in 2013, he had no idea how to make a mattress. But when Parikh, who had briefly gone to medical school with Chapin’s now-fiancée, reached out, he sold the idea so well that Chapin was inspired to give it a try. At Ideo, Chapin had worked on everything from car seats to toilets. One of his assignments there, years ago, was a deep-dive innovation study for one of the handful of dominant mattress manufacturers, during which he got to spend time in their R&D facility. What he saw left an impression. “I was like, Holy crap, there is nothing new here,” he recalls. “We also looked at the business-model side, did shop-alongs in retail stores. It just seemed like a broken industry.”

Around the same time, Krim was coming to a similar conclusion. Then a college student at the University of Texas at Austin, he was already entrepreneurial. He had launched an early e-commerce business out of his dorm room, selling everything from blinds to futons—basically anything that could be purchased wholesale from a supplier and shipped directly from the factory to the customer. One of those products, foam mattresses, turned out to have a particularly high profit margin. “That industry was always very behind on embracing technology and anything new,” says the CEO, who has a more buttoned-down style than his colleagues.

Eventually Krim made his way to New York, where he launched a company helping local businesses advertise online, operating out of a coworking space he shared with a trio of younger guys who all went to Brown together, and who continue, Chapin says, to have a unique bond: Parikh, Flateman, and Sherwin. At the time, they were trying to get a startup of their own off the ground (which involved pairing people who had things to sell with online influencers who would promote the products and get a cut). Flateman, who studied music as an undergrad, had taught himself to code on the side. Parikh had just dropped out of medical school after his first year, much to the dismay of his physician father, and was Sherwin’s roommate. The pair even slept on an air mattress together for a while, in an apartment they shared with three other guys. “It was the classic story,” Parikh says. “Move to New York, have no money, share a room, that kind of stuff.”

One day, Parikh heard a friend of Krim’s jokingly refer to him as the “mattress mogul.””I was like, ‘Why would he call you that?’ ” Parikh says. “And he told us the story about how he used to sell beds online, and the industry is a total racket.” They were all keenly interested in the emerging class of e-commerce firms like Warby Parker, Harry’s razors, and Bonobos. “Companies that came along and said, ‘Hey, there’s a broken category’ and were creating the same product at a much lower price,” says Parikh.

Given that neither of their startups was exactly thriving, the foursome began looking into the possibility of selling mattresses direct to customers. Almost immediately, the idea felt right to the entire crew. Chapin and Parikh rented a space in Providence, Rhode Island, and started testing prototypes. The company raised $1.6 million in seed capital from a handful of investment firms in early 2014 and officially launched soon after. The timing was fortuitous. Sleep was becoming the hot new thing, with sales of sleep trackers beginning to take off and Arianna Huffington promoting a prominent campaign around the importance of eight hours of high-quality slumber. “There was a tailwind around sleep,” says Sherwin. “Entering the mattress industry was clearly a really smart proposition relative to what we were doing before.”

On the same day as the balloon-man party, Chapin’s West Coast team had its own third-anniversary celebration, and the mood was decidedly more low-key—a trip to a make-your-own-ceramics spot, a few pizzas, some beers at a dive bar. As Casper plots its next phase, some healthy tension has developed between its two coastal operations: the sales-driven mothership in New York and the design-and-engineering-focused satellite in San Francisco.

Chapin’s top priority is to nail the products—something now expected by the passionate followers of the brand that Casper has carefully built. When developing its $125-and-up dog bed, which Casper released last year to strong sales and a jolt of media buzz, Chapin’s team went through dozens of prototypes, each rigorously assessed by actual dogs. (Casper only semi-jokingly refers to the process as “canine-centered design.”) Early this summer, the company rolled out its eighth major item, a $250-plus duck-down duvet, after more than a year of iteration and testing. Chapin experimented with all kinds of synthetic insulation, before settling on down as the most breathable, comfortable, temperature-regulating solution. The shell is made of special featherweight cotton, making the entire thing more cloudlike, and it’s stitched together with baffles inspired by winter puffer coats, keeping the down from clumping.

Meanwhile, in New York, everyone is pushing to amp up the pace. “We’re always wanting to launch stuff,” says Parikh. “We have customers calling every day saying, ‘I want this, I want this, I want this!’ [Chapin] is like, ‘I hear you, and I want the same thing, but I’m not going to launch this product until it is absolutely perfect.’ ”This summer, Casper opened a new R&D facility in San Francisco, which now allows Chapin’s team to both move faster and push the company forward in several directions at once. They can experiment more with new materials and forms in-house, discovering whether production might be viable without requiring a vendor partner to participate in the research phase. There is also now a team focusing entirely on packaging design, which used to involve a protracted process of sending specs to a vendor, getting samples, and tweaking them over the course of a couple months. Today, using in-house prototyping, “our designers can design it, print it, check it,” Chapin says. “What took six or eight weeks now takes three days.” Casper is also tapping an army of 30,000 fans around the world, who have volunteered to sign NDAs and help with the testing.

Some of Chapin’s big focuses at the moment are the kinds of tech-infused products that he refers to as “connected sleep.” The Casper team has been looking more carefully at what might actually help people get better rest. They have come up with three distinct areas: How do you draw someone into bed? (By, say, making it cozy and warm in the winter.) How do you keep people asleep? (By, for instance, altering the microclimate beneath the covers.) And how do you ease people into the day? (By finding ways to make the waking phase more pleasant.)

Chapin pulls up some images on his MacBook of a sleep lab that Casper had created in a spare conference room. In one, a bed is strewn with several soft, round objects, which turn out to be connected speakers that form a 3-D sonic environment. “The team created a five-minute wake-up experience where you hear birds chirping over here and then wind chimes over there,” he says. “It was a really nice way to wake up.” Other images show heated and cooled pillows, ambient lighting effects, even a little cabinet he calls a “bedroom toaster” that can warm your pajamas in the winter. “Even though I’m obviously a fan of the products we make, these will create more delightful experiences, if we get them right,” he says. “Or we could totally fail and do a crappy job with them, and then [we] probably did brand damage. It’s all in the details of how we execute.”

Chapin has also been spending a lot of time thinking about a different question that could have even more impact: Should Casper launch a second mattress model? From the start, Chapin has been tinkering with the company’s core mattress product, working with a polymer chemist to test sandwiches of various foams and other adjustments. Quietly, he has refined the mattress as he learns (for example, the foam was refined after early iterations firmed up too much in colder climates). It’s a clever design: Layers of memory foam provide the bulk of the support, while a proprietary latex-like top layer keeps the bed cool and provides bounce for what the company’s initial marketing referred to as “indoor sports.”

All of this experimentation hasn’t just made the core product stronger: It has helped Chapin conclude that there might well be room for a second, more technologically advanced mattress to join Casper’s product line. “The testing we’re doing right now, it’s really promising,” he says. “We have to shake out what it’s going to cost us, because some of the things we’re looking at are a little spendy.” He describes a mattress unlike anything currently on the market, built around a stiff endoskeleton similar to a really good shoe insole. “How do you play with support of the mattress in different zones, like under the hips, under the shoulders?” he says. “You can’t add a lot of that support to the top of the mattress; you have to put it deeper down. And that requires some new materials and manufacturing methods that aren’t in this industry. So we’re having to create some new things and then port some stuff over [from] other industries.”

When Casper launched, one of the core assumptions was that the products would mostly appeal to tech-inclined millennials, the group most comfortable with making major purchases online. That turned out to be wrong: Casper’s demographics aren’t much different from those of the mattress industry as a whole—its customers come from every age group and every part of the country. But as much progress as Casper has made in persuading Americans to try out their concept, 90% of shoppers still buy mattresses from a physical store, Krim says.

In May, Casper—which has begun making tentative plans for an IPO—announced a new partnership with Target, which invested $75 million in the company amid reports that it had offered to acquire Casper outright for $1 billion. (The investment is part of a larger funding round worth a reported $170 million.) The deal has put its non-mattress products in 1,200 Target stores nationwide, reaching huge numbers of potential new customers. “The idea of getting in front of so many demographic areas that have never heard of us?” says Parikh. “It’s just so compelling.” At the same time, Casper’s own site, which is overseen by Flateman, continues to evolve. Customers in several cities, including New York and Los Angeles, can now order a mattress and often get it delivered in not much more time than it takes to get a pizza: 90 minutes or less.These moves, the founders hope, will both broaden and better define the Casper brand, and will also help it stay ahead of the dozens of companies it has inspired. Competition is a major worry, with both Big Mattress and other startups angling for Casper’s customers. “The reason there are so many look-alikes out there is that it’s an industry with a very low cost of entry,” says mattress-industry analyst Jerry Epperson Jr., a managing director of the investment firm Mann, Armistead & Epperson. “But Casper raised money early and has raised the most, and now that it has Target as a big brother it has a real competitive advantage. I don’t see any other [online mattress] that’s going to come up and become a more recognizable brand.” Still, there’s quite a bit of pressure to stay ahead, which is why the New York founders are so keen to push the California product-development operation to move faster.

No matter how much they might debate with each other, all five founders do strongly agree about one thing: They aren’t going to break up the band anytime soon. Krim won’t talk specifically about the reported billion-dollar Target offer, but he says that there have been any number of parties seriously interested in acquiring the company—and that in no case have the talks gotten very far. “It’s never been of interest because we’re still very much in building mode,” he says. “We think we have much bigger, brighter days ahead of us. We view what we’re doing as building something that will be great for decades to come.”

site: https://www.fastcompany.com/40438355/why-casper-is-the-750-million-startup-that-just-cant-rest

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