Case Scentbird: how to build a "fragrant" startup in the US market and get into Y Combinator from the third time

We first met with Sergei many years ago in Perm, during our school years. The second time - in Moscow, engaged in Internet projects.

When it became obvious that Scentbird was founded by two people with Perm roots, our little editorial was seriously agitated by the simple question: “How did the founders manage to develop and successfully grow such a specific business, especially in the US?”
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And it was for this that we talked with Sergey for the third time - asked all the questions of interest and got answers to most of them. Thus was born the next “case”, telling about a startup that broke through to the stars through thorns and on the third attempt got into the program of the legendary Y Combinator.

- Sergey, tell us first, what is the operating director in an innovative company doing?

In fact - all in a row. Starting from design, purchasing in China and ending with operations and marketing. Indeed - all.

- The real explanation of what COO does. The second question is also a classic - how did it all start? How did everything happen until the moment when the current product appeared?

It will be a long enough story, but since you asked.

It all started when I worked at Social Mart with former cofounder Nikolai Pasholok. At that time, we had a problem in the form of close integration with Yandex, and I, initially, had plans to enter the US market and, accordingly, move. But, due to the fact that Social Mart did not have plans to go abroad, I gradually began to explore various ideas that I could try out in the States.

So I was introduced to Maria Nurislamova, she is the CEO and co-founder of Scentbird. We are both from Perm, but at the time of our acquaintance, Masha lived in the West for 7 years. We called each other several times, discussed various ideas and, at some point, we found out that Masha likes the theme of cosmetics and perfumery. Discussing ideas around this subject, we found out that in the USA the market is very large and actively growing.

In the US, a very large number of people use perfumery - toilet water and perfume, so we somehow automatically came up with the idea of ​​some service that helps the user to select fragrances for themselves.

The problem we decided to solve is simple: there are many perfumes, they smell differently for different people, they evoke different emotions and sensations. There are citrus flavors, there are spicy - these are fundamentally different products.

- You want to say that this is a diversified market, without established “medium” positions?

That is, it is very personalized, so at first we decided to make an algorithm. Our first MVP was a prototype of a service that searches for tags, in order to select perfume. That is, choosing, for example, citrus notes, which are associated with a particular mood and pastime, you will use it when going on a date or a festive dinner. Such was the idea - on the basis of simple associations to help the user to find the final bottle.

We quickly realized that you could not earn money this way quickly and began to develop the idea further and think about how it can be “wrapped up”. The idea was born to make a business model similar to Warby Parker, but for perfume.

Warby Parker is a company that sells points on the principle of “try before you buy - try before you buy”. They send you 5 pairs of points, you choose the ones you like, keep them for yourself, and send the rest back.

We did the same for the perfume: we sent 3 full bottles together with smaller “samplers” that we were going to try and, in case you liked the scent, you keep a full bottle for yourself. If you do not find anything suitable for you, you simply send back the whole set.

We started with this model and worked with it for a long time - for about a year, trying different sales options, trying different channels and so on. Nothing worked, it worked out more precisely, but not in the desired amount and, when the money began to run out, the natural question arose: “What next?”. We decided to go to the accelerator.

- Does this mean that the confirmation of the product and business came from investors earlier than from the consumer?

No, rather - not really. We initially existed on our own funds, for the first six months, minimally, investing personal savings in Scentbird. Seeing that the product “does not shoot", but sales do not grow, we tried to find funds on the market - we held negotiations with several investors in New York, but we constantly heard the same thing: “We need more traction” (Editor's note: traction - the direction of movement, in the sense of metrics - steady, without falling, the growth of the graph).

While we were trying to show some kind of positive movement in terms of sales, our money was almost out. Investors did not believe in us. This is only part of the reasons why we decided to go into the accelerator.

After serving at Y Combinator, we were invited to an interview - and for the last, no joke, we flew money to the West Bank. YC covered some expenses - this was the only reason to go to the last funds, finally draining pockets.

That time they didn’t take us to the YC and, upset, we flew back.

- Did you get a reason?

I don’t remember in detail, but in general terms it was the same one that we had heard before, communicating with investors in New York. Entering YC, we had only 300 sales - we could not prove consumer interest in the product.

Returning to New York and starting to think what to do now, we went to the ERA accelerator. Maria knew the founder of the accelerator and after reviewing our application, they took us and gave us money for the pre-seed, 40 thousand dollars and an office, and by that time we were already four partners. Our technical director Andrei managed to move from Moscow to New York and at that moment we were able, with the whole team, to focus on the product.

- When did all this happen?

In the summer of 2014, a year and a half ago. Total work in Scentbird now spent two years.

Having worked 2 months on the idea that existed by that moment and having managed to grow up to 600 sales. KPI we put ourselves on our own, checking every week what happens. It is worth saying that we almost never achieved our goals - and again began to think about what is not working and what can be changed.

Then, in one of the brainstorming sessions, we decided that “pivot” is an unequivocal option, but we wanted to stay on the perfumery market because we already learned a lot about this industry and, most likely, there are not so many people on the market.

- Exactly at this moment the idea of ​​an atomizer was born? I'm sorry if I run ahead.

Yes, exactly at this moment we came up with a subscription service, since our initial attempt was not optimal for this market. While communicating with our customers, we found out that people like to buy quite a large amount of perfume: an average of 5 bottles. It is worth noting that this is an expensive product, which is estimated in the category of "from $ 80" and because of the cost of such purchases still not made often.

At the same time, in the US market, 2,000 new fragrances are released every year. There is a massive advertising: on television, in magazines, always want to try new things. We thought: “aha, then people need to be given more, but in a smaller volume and at a lower price”. We also knew that there were certain smaller lines on the market - even big brands, such as Chanel, produce fragrances including atomizers.

We decided it was worth a try, this month completely reworked the site, renegotiated contracts with suppliers, agreed with wholesalers and factories supplying us with packaging and 2 weeks before the end of the accelerator program, we started.

In the first month, after sending by e-mail list, we received 100 sales, in the following month - 500, and further exponentially.

We are convinced that it is growing. All the time we had a feeling like “something was wrong” - we liked the idea, people left positive feedback, but we didn’t see sales.

Here everything has changed.

- And what happened at that moment with those investors, funds and accelerators with whom you communicated before - did they change their point of view?

After we started, almost immediately came Demo Day of our program. We showed our own numbers and product, the beginning of promising graphics, even from a short time: from 0 to 500 sales in 1.5 months.

Our first round after that, which lasted 4-5 months, on the east coast of the USA (where it is more difficult to find money) was ultimately successful (note: well-known rounds and their investment in Scentbird can be overlooked at AngelList: angel.co/ scentbird-1 ).

We applied for the second time to join Y Combinator, received an invitation and flew in with the whole team (for the first time only Maria and I were at the meeting). Finally, we were in the office of the most famous accelerator of the world all together! We talked to Sam Altman and Jessica Livingston and were denied us again.

At this point, we had about 1200-1300 monthly subscribers ($ 15 per month).

It seems that the guys liked everything, and we saw each other not for the first time, but in the evening we received a letter from YC with the words that, unfortunately, we are not passing. In general, they were not satisfied with the competition in the market, including among the subscription services.

Mostly we were compared to www.birchbox.com

- Let's continue. Was it round A?

No, it was a seed.

- What volume?

The volume was disclosed - in the first round we took $ 1 million from investors.

- And this is the last round by now?

Yes. From that moment on, a lot of things happened: we started to grow, opened YouTube as a serious and important channel, started working with video bloggers who make reviews of our products and flavors. We also did Instagram, until recently these were our main marketing channels.

After some time, we decided that it was necessary to submit an application to Y Combinator for the third time. We felt that we needed direction and serious thoughts on how to scale such a business.

- Roughly speaking, did you let them know that you came for an examination?

Because they can help with this - we have known many graduates and partners of YC. In 2013, a conference was held in Moscow, to which, among other things, we helped to bring partners to the fund.

After we showed growth and charts, told about free marketing channels and so on - we were accepted. In June 2015 we got into the accelerator program and successfully completed it.

This is a very intense and rewarding experience. Our growth from week to week during the program was 11%. On the demo day, we showed a large run rate (comment ed.: This phrase implies extrapolation of current results to the horizon in the future), a lot of everything else and the interest in us was great. Including we found some more investors there - unfortunately not everyone.

- YC is a “grove with unicorns”, tell us more about the inner atmosphere.

Y Combinator is the perfect place for a startup. There are people who: A. Want to attract a lot of money (opportunities are greater than any other accelerator) and B. Want to grow a business at a crazy pace.

- Your experience shows that it is not easy to be there.

It is very difficult to be there - I know many people and startups who, along with us, also served in the program a second or third time. Many do not pass and the fifth. And someone gets on the eighth. People go there purposefully.

My acquaintance with big business (gigster) and already very impressive results also participated in the YC program because of even greater prospects.

The number of people you recognize is huge. This is access to the entire network of Y Combinator partners.

“Is Paul Graham still involved?”

Paul Graham almost completely retired. He spent forty-five minutes with each team in each set and that's it.

He showed his presence, but at the top level are Altman and Livingstone working?

Recently they were joined by a third person - COO Y Combinator Qasar Younis.

Paul showed startups the bigger picture, he very quickly found growth points in any product that participants were talking about. He told where everyone could be in many years.

- You talked about the past. What do you have in the present? When your score will be more than a billion?

We are planning for the next 5 years and now our business is actively growing. We agree on a direct partnership with brands, we want to be the end point for flavors on the Internet, creating a reputation for ourselves and consumers.

Now we have launched e-commerce, we are increasing our own LTV and, of course, we are trying to sell more perfume. The scheme works the same way: the client receives monthly samplers, he likes something and he buys a big bottle at a club price (that is, at a discount).

- Do you have experience working and doing business in Russia and in the States. What is the difference?

It is very difficult to answer this question, since in Russia I worked in B2B, and here we work with a direct consumer, the markets are very different.

In general, of course, in the States a completely different level of infrastructure. More support and more meetings, more money, more startups.

In our case, the partnership plays a huge role and we communicate with a large number of other companies, trying to arrange joint actions of various kinds. We put cards of other companies in our own parcels, as they are ours. This collaboration is very helpful, I can not imagine this with us.

- The pleasure of this work is not lost?

We have a new challenge every day, of course, we like it.

- At the time of entering the YC, you were four, and now?

Give count: we are 10, including all remote workers from Russia, with whom we work.

- What is the essence of your work in China?

We buy packaging there: atomizers, glass vessels (for perfume), bubble packaging and all other materials.

- Nobody came up with any other options?

Other options weight: you can work with France, Italy and Taiwan. But everywhere the price is very different from the Chinese. It took me a long time - searching for quality suppliers in China, this can not be done there in a day.

- From America, how is it working with China?

Just as from Russia - the experience was, there is no difference, the same customs, customs clearance, delivery. The same Chinese.

- And now on a free topic.

A little more about our team: when Maria and I began to discuss ideas, we quickly realized that without a technical person in our team we could not do anything: I was in marketing, Masha had a studio in New York that worked on websites and design.

I met Andrei at AngelHack in Moscow - he helped me attract developers to him, after which we stayed in touch. When we had an idea, we told Andrey about it and, as a result, we agreed that we would move the entire team to the USA to work on a startup. Now Andrey is working with us here.

When I moved to New York, Masha and I met Rachel. She worked in many large perfumery companies in the States, everywhere she held CMO positions, with connections in the industry and now helps us to establish direct relations with Versace, Gucci, Juicy Couture and other brands.

- Last question. Why did you end up in New York?

It happened: Mary was here and was familiar with many. In New York, it was easier to start a business, Rachel was also not ready to move anywhere, she had a family and children.

Plus, all the big brands are here.

- And where are your consumers where?

California (Los Angeles), Florida, Texas (Houston) and only then New York. Southern states use more perfume.

- Why is this?

Climate and nationality: African Americans and Latin Americans use a lot of perfume.