ZappBug Dissected: The Crazy Story About Turning Bed Bugs Into A ‘Killer’ Business

bugDid you know there are 110,000 unique searches a month on Google for “how to get rid of bed bugs”?

I didn’t either.  No one wants to talk about the fact that there’s a Bed Bug problem in our world.

No one but Cameron Wheeler, founder of ZappBug. He has no problem talking about how he can rid people of one of the worst and most traumatic infestations – Bed Bugs.

I met Cameron more than a year ago at a startup event here in Seattle and, to be honest, my first reaction when he told me what he was working on was “uh what was that again, I thought you said bed bugs!”

Turns out that’s exactly what he said.  I quickly found Cameron to be a smart dude and Bed Bugs to be a killer business.  But this story isn’t all about how to get rid of Bed Bugs (although you can find the link below).   Intrigued as an entrepreneur I wanted to learn more about how he was approaching this massive problem and how he built a physical product company in a web dominated startup world.  This is a story of how three normal guys started a product company that actually generates revenue without seeing a single bug.

Do You Have Bed Bugs?

First off, if you have the misfortune of Bed Bugs, you have to check out their solution.  ZappBug is meant to be a one-stop resource for how to get rid of bed bugs and their main products are multi-sized oven heaters to place clothing, luggage and other stuff meant to kill 100% of the bugs.  Basically, you can throw all your stuff in there and “heat em” just like a washing machine washes clothes.

Brilliant!

They’ve also designed a set of free tutorials that gives you all of the information you need to completely get rid of bed bugs in 8 steps. You don’t need to purchase the ZappBug Oven to use these steps, although it looks like oven is an extremely clever and helpful tool in getting rid of an infestation.

Check out ZappBug.

Starting A Company

“Looking back, I never saw myself as the leader of a startup with the sole purpose of killing bed bugs” says Cameron.   In 2009 he graduated with a degree in mechanical engineering and entered the big world. “But my definition of failure at that time included “working for a large, impersonal behemoth so….”

So naturally, starting a company was his only logical choice.

Cameron knew startups are quite different than large behemoth companies – they are smaller, more agile and generally more fun to work at.   I chimed in and said “But they are also cash strapped!”   Being low on capital they have a harder time building businesses around physical products, which was a problem in Cameron’s case.

So the question he had to figure out was: Is there a way to apply Lean Startup principles to physical products?  Could you actually produce and sell a physical product without a huge amount of capital and actually make a profit?

Turns out…there is. And this is exactly what they are doing at ZappBug.

Solving A Big Problem – Bed Bugs

Bed bugs are a real problem and many of us know someone who has encountered them (even though your friends might not tell you).  It all started when a neighbor of one of the company’s co-founders had bed bugs and they spread through the electrical outlets into units across the building into his apartment.  [Gross.]  Having to deal with this “fun” experience searched and searched and finally found out how to get rid of the bugs.

During the initial research process they learned that there was a real need for better solutions and more information. They found out the market is huge but fragmented. Pest control companies want to come to your home and sell. Bloggers spew tons of words with little actionable advice and sellers want to throw products at you.  They realized there weren’t really any great resources or solutions in market and thus, ZappBug was born.

To Cameron the bed bug market is unique for several reasons.  First, it’s new and a surprisingly large niche.  With approximately 110k unique searches for “How To Get Rid of Bed Bugs” a month, its obvious people are continually looking for a better solution.  According to goggle, that number rose by more than 400% in 2010 – so apparently  it’s becoming an even bigger problem – and bigger opportunity!

Also, the subject is Taboo… so there’s less competition that you would see in niches of a similar size.  There are virtually no comprehensive resources online for how to deal with bed bugs from start to finish.  By helping people get rid of bed bugs in their belongings, you are also helping them save thousands of dollars.  A lot of people panic and unwillingly throw away everything they own.

This further intrigued Wheeler and his team.

zappbug-oven-furniture

After some research, they found the elusive hole in the market – no one was providing high quality products at affordable prices so they decided they would develop a physical product and sell it directly to customers.  The idea was to develop a bed bug oven that could use heat to kill bed bugs in luggage and other personal belongings, saving peoples belongings in the end. “We chose to begin with this product because we had the technical competency to do it. Heat treatment is a proven way to kill bed bugs. The product could be used for both prevention and extermination and would be a great revenue generator.”

The Challenge With Physical Products

Apparently, ZappBug is not Wheeler’s first rodeo.  “Ecowell was my first major startup, coincidentally around physical products as well” says Cameron. “We made environmentally friendly, extremely expensive, vending machines. Yes, that’s right, we made a physical sheet metal box with an electromechanical mess of PLCs, solenoids, pumps, valves, filters, and syrups.  But, of course, we ran out of cash in 2010. I learned a lot from this including the fact that cash really is king.”

Through previously failed startups, he learned the importance of applying lean principles to product development and market testing.  Also, as a product manager responsible for overseas manufacturing at Direct Global Sales, he learned how easy it was to get things made in China.  “When my cofounders and I talked about the opportunity, things began to move quickly. I soon developed a strategy for low volume overseas manufacturing and developing an MVP to bring us into the market.”  

Although the “Lean Startup” phenomenon wasn’t out yet, Cameron had intuitively learned the basic concepts of product validation and cash flow and determined to build ZappBug with those in mind.

This is why I have been so interested in Cameron’s approach to ZappBug, and why I wanted to dive deeper into the mechanics of his business.  It can be very expensive to start a company that makes physical products. Testing and manufacturing alone can require more time/money than software products. And there is the fact that each unit costs money. You need working capital up front to buy inventory. Also, you need to make enough units in each production run to meet the minimum order quantities required by factories producing your product. There is no Amazon Web Services for physical products, just Chinese factories…which are a far cry from the affordable but flexible services we are used to in web services.

But there are also advantages!

“The biggest being that people actually pay money for physical products.  I don’t know about you but I spend about $20 a week on coffee and maybe only about $20 a year on apps,” says Wheeler.

So it was obvious they had some good ideas.  But first, they needed something to manufacture.

We Need A Prototype!

The team had the idea, but they needed a prototype.  “I went to home depot and got a heater, some insulation and a storage container. Then I brought all of my nerd tools home and pulled out my Arduino. By the end of the day, I had a working prototype.”

He basically built an oven from scratch.  The goal of the simple bed bug oven was to heat items and hold them lethal temperatures for a period of time.  After a few days of testing they had a really good idea of the max size and how the product was going to operate.  “We then found a guy on craigslist who used to design clothes for Nordstrom and was willing to sew up some samples for us. After a couple of revisions and a lot of testing, we already had a design that was ready to manufacture.”

About that little issue of manufacturing…?

Producing textiles like their “insulated folding box” (aka bed bug oven) is not feasible in the U.S. because of labor costs and minimum order sizes.  Most People don’t really understand how you can go from a prototype in your garage to a factory sample and then a production run.  Cameron, remembering what he learned at his previous job, started looking for a small factory in China to make their stuff.

So how did they find one?

“We took some pictures of the prototype and sent an email to the factories! We sent out hundreds of emails to manufacturers across China and got replies from most and then just started negotiating from there.”

And before he knew it, Cameron was off to China!

Screen Shot 2013-01-31 at 4.59.19 PM

Once things in China were in the works they spent some time developing the website and by June of 2012, everything was done. The product was loaded into a shipping container bound for Seattle. Before the container arrived, they rented out two storage units near the port to store the products.

Everything was ready!

The Cosco Seattle arrived with the goods on June 28, 2012. They started selling the product on Amazon immediately and sales went well.  So well they quickly sold out of the first shipment.  Needing more, they made another manufacturing run and landed their first full shipping container of product in December of 2012.  Cameron passed on the opportunity to talk specific revenue numbers but he did mention they are driving margins “double the wholesale average” and their sales are solid and growing with the latest (and larger) run of heaters.

Lessons Learned

Major lesson # 1: “Chinese manufacturers have a much different concept of what “next week” means.  We had a lot of difficulty getting samples and product out of factories in a timely manner.  Next time I will press harder and be less friendly.  Those guys are tough and everything is a negotiation.  You cannot let your guard down.”

Major Lesson #2: “Get it right the first time.  We had to go though several prototype iterations with the factory. Each one took about a month and it was a painful process.  But we could not afford to do a manufacturing run on a product that we couldn’t sell.  Looking back, this process would have been a lot smoother if we had spent more time perfecting the design ‘state side’ where the iterations would have taken less time.”  

Author’s Lesson:  Cameron is solving a big problem and thus has a nice growing revenue curve to support his business.  With ZappBug, people simply search and find a solution to a nasty problem.  And not too mention, when people have a pressing issue they will not hesitate to spend money on an easy to find solution.  Huge lesson for entrepreneurs out there – solve an urgent problem for people and money will follow.

What’s Next?

ZappBug now has a validated product and the cash to design much more sophisticated products. It’s open road ahead.  “Our goal is to be a one-stop resource to help people get rid of bed bugs.  Anyone coming to our site will find free informational videos and tutorials as well as products that will help them get rid of bed bugs.”  Already, they are looking ahead to larger and more value generating products.  The next will be called The ZappBug Room and will be large enough for a couch or a mattress meant for professionals and consumers.

“I really don’t think this could have been possible just a few years ago” notes Cameron.  Using (mostly free) tools from the modern world allowed a small team in Seattle to quickly build an international operation with very little capital.  “We used google translate, craigslist, wordpress, amazon.com, Alibaba and several other amazing resources.  At the end of the day, our lean approach to ZappBug allowed three normal guys to start a company that now generates enough revenue to pay each of us and grow the company.”

Who knew Bed Bugs could be such a killer business?

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Why Twilio Will Kill AT&T

Can AT&T remain the 20th century communications powerhouse we came to love (and hate)?  Or will they eventually relinquish their throne to an up-and-comer with a better grip of today’s communication technology needs?

This question can be heard reverberating around the business world like a never-ending echo throughout the grand canyon.  If there is one company that can displace the conglomerate with respects to providing a basic communication platform for the general public, I think it could be Twilio.

Twilio provides infrastructure APIs for businesses to build scalable, reliable voice and text messaging apps.  They provide all this so cost effectively they are seeing massive growth and are a powering a new class of startups, ones that extend their technology to touch almost every part of our society.

To realize my words aren’t mere blasphemy, it’s paramount to grasp the difference between two types of innovation: sustaining and disruptive, these types being best described in The Innovators Dilemma by author Clayton Christensen.  Sustaining innovations are improvements that make the product better, but do not threaten its market.  Disruptive innovation, conversely, threatens to displace a product altogether.  It’s the difference between the electronic typewriter, which improved the typewriter, or the word processor, which supplanted it.

AT&T is the Typewriter.  Twilio looks to be the Word Processor.

The history of AT&T is well documented in the book The Master Switch by Tim Wu.  He describes how the great telephony company, started by Alexander Graham Bell, navigates an incredible path towards dominating the communication wires for most of the 20th century.

What strikes me interesting when I read the great history of AT&T is the repugnance of anything innovative on top of their communications platform.  Was being protective and narrow minded regarding innovation just en vogue thinking of the times?  Or was this perspective so ingrained in the company culture led by visionary (and monopolist) Theodore Vail that it grew stronger as decades past?

They exhibited classic sustaining innovation characteristics.  According to Wu: “AT&T, as an innovator, bore a serious genetic flaw, it could not originate technologies that might, by the remotest possibility, threaten the Bell system.  Disrpuptive technologies, those that might even cast a shadow of uncertainty over the business model, were simply out of the question.”   

More interesting is to wonder if this still the case today?  AT&T is hard at work protecting their lot – cell phones, digital TV, Internet, and the traditional phone service.   So hard at work they are, they fought to acquire close competitor T-Mobile, just another chapter in the centuries long monopolistic story.  Losing the acquisition places AT&T at an interesting crossroads, where they must look in the mirror and choose what type of communications company they should be going forward.   They also seem to be backpedaling on data usage, specifically text messaging, at a time when messaging seems destined to become our main mode of communication.

The real question is are they embracing the new way of business, opening up and encouraging disruptive innovation, from themselves and also from others?  Or are they still about sustaining innovation and stifling anything would that attack their own den?

Twilio, on the other hand  was created to be built upon.  They have innovation running through their veins and pouring out their ears.  Why?  Because they understand the new rules of business – better in the long run to open up, provide basic communication technology to the masses and empower innovative ideas as a platform rather than remain closed and stifle anything that might attack their business model.  They understand technology moves faster than they do so the best position to be in is as a platform.  They understand they will touch more end users by encouraging innovation using their service.  An even better way to think about Twilio’s business model is it’s all about disruptive innovation.

How did Twilio get traction in such a challenging communications ecosystem dominated by the likes of AT&T?  According to  Quora:

One answer points to how developer friendly they are and how much they are ingrained  in the emerging startup culture. “Twilio’s API is beyond awesome. It’s light, it’s fast, and there is no shortage of documentation. They’ve built this from the ground up with developers in mind.  

Also, Danielle Morrill is everywhere, all the time, and doing everything. It seemed like every event I attended she would be there preaching the Twilio gospel. If she wasn’t speaking at the event she was probably in the crowd hacking with other attendees, giving out Twilio account credits, or showering people with Twilio merch (stickers, shirts, etc).  There’s no doubt in my mind that without her contribution to the company we would be looking at an entirely different Twilio today

Even investor Fred Wilson mentioned in early 2010 the unique nature to Twilio and why they have grown so quickly.  “We believe that one way to build a large network of web users is to build something that makes developers’ lives easier. And Twilio does exactly that. It masks all the complexity of telephony into a finite number of API calls that web developers can use to build apps quickly and easily.”  

USV partner Albert Wenger takes it a step farther,  “Twilio has accomplished even more. It has made telephony a bona fide citizen of the Internet, by working on the basis of URLs. This is a profound transformation. Not only does it mean that web development skills can now be applied to telephony. But more importantly, telephony is changing from a closed to an open system in which adding new capabilities now becomes as simple as chaining together web service requests.”

The stance about being developer friendly is exactly why I believe the future is shining brightly for Twilio and particularly cloudy for traditional communications companies like AT&T.

Imagine if AT&T would have realized it’s not enough to just provide people the ability to communicate, but the opportunity to build communication platforms on top of their own platform?  I can only imagine if they were empowering thousands of small and large companies to embrace and extend their technology for the sake of innovation.  Supporting such things as offering $20,000 cash prizes at Hackathons, like this one happening at the upcoming CES, helps get the ball rolling but AT&T’s reluctance to embrace the disruptive technologies and attitudes is classic innovators dilema in action.

New companies building on top of Twilio’s communication functionality have the opportunity to bring communications to the masses for incredibly low cost – if not free.  Seconds, the startup I co-founded last fall is offering messaging functionality to merchants so they can quickly communicate with customers and transact through their mobile device.  Merchants and businesses, the other half of society, have yet to experience the tremendous benefit of messing and quick text communications, and it’s ripe for disruption. I’m not seeing AT&T offering text messaging to local businesses the way the offer it to mobile subscribers.

Twilio even has a small investment fund to encourage startups to expand using their platform.   The startups receiving investment from the first fund include:

Magnolia Prime, which delivers voice messages to elderly patients, as configured by the patient’s clinician or caregiver. Callyo, also quite practical, aims to offer multifaceted crisis, emergency and tip line options for police departments. knockknock, targeted at businesses and consumers, routes phone systems to put consumers in touch with the customer service reps at the companies they want to speak with. FastCall411 aims to be the aide of the local salesman with call recording, analytics and lead scoring, while Volta serves as an A/B testing framework for outbound phone calls. And WorkersNow expedites the hiring process around contract construction gigs. Less practical, but more fun is applying Twilio’s texting capabilities to the sexting fancies of teens and young adults. Qwipd, for instance, can be used to convey flirtatious, albeit controlled, text messages with choose-your-own-ending flavor.

A major Twilio success recently came from GroupMe, born from TC disrupt in 2010 and purchased by Skype for a reported $85 million a year later.  They were powered by Twilio.

Twilio recently raised a $17 million Series C round of funding to maintain momentum after a big year, and continue hiring aggressively. The San Francisco-based company grew from 25 employees to nearly 100 in 2011, and increased its customer base by 400% to reach 75,000 developers.  Their usage has be nothing but astounding; notice the growth chart to the right.  After a few price drops in 2010 Twilio saw volume skyrocket and hasn’t looked back since.  They also recently announced an international expansion, to Canada and Europe so by no means will this trend slow down.

My question is:  What does Twilio look like in 5 years if they keep attracting young, innovating startups to leverage their communications platform for dirt cheap to bring radical change to our society?

The end goal for Twilio is to “open the black box of telecom, and move the world away from the legacy of Cisco and Microsoft’s big expensive [hardware] that you put in your closet and watch age. We’re reinventing with the cloud, and it gets better every time we deploy code.”

And what does AT&T look like in 5 years if they don’t do the same?  But what if they do?  Something is going to have to give…

@jnickhughes