Forbes India – Startup: How the ‘bed in a box’ made Sleepyhead India’s second largest online mattress brand

Mathew Joseph, CEO and Co-Founder, Sleepyhead Image: Selvaprakash Lakshmanan for Forbes India

DDid these guys get up on the wrong side of the bed? wondered Mathew Joseph. It was January 2017, and on a spirited morning in Bangalore, the 32-year-old walked into the office with a spring in his step. His excitement was understandable. The Marketing Director of Duroflex, the second largest mattress brand in India with around 20% market share by value, had to make a morning presentation to the board explaining the pressing need to roll out an online-only mattress brand .

“What is the need? asks one of the members. “You already have an established brand,” he joked, dampening the fiery spirit of the marketing big boss who was trying to jostle the five-plus-decade family business out of its comfort zone.

Pushed on the back foot, Joseph tried to stir up the argument. An online-only brand, he pointed out, could cater to the needs and tastes of digital-native millennials and Gen Z. The board, however, hasn’t budged. The meeting stretched out over the following hours. Not wanting to back down, Joseph was ready to go to the mattresses. “I was trying to convince them,” says Joseph, who had previously worked at JPMorgan Chase and Tesco, and had earned a double master’s degree in advertising and marketing at Leeds University Business School in England. “Duroflex was a very mature brand,” he explained. The online audience, he pointed out, is very young and needs something they can relate to.

The task, however, was not going to be a sleepwalker. Being one of the promoters of Duroflex, which was started in 1963 by Joseph’s grandfather, PC Mathew, didn’t help much. Reason: The young third-generation entrepreneur didn’t want to use the parent brand. “I didn’t have the Duroflex cushion,” recalls Joseph, who also didn’t want to use the “From the house of Duroflex” brand on the products. “For the first three years,” the co-founder and CEO of Sleepyhead pointed out, “the company will post a negative Ebitda of around 5%. The talk of the loss has sparked an outcry.

For the next few minutes, there was a deafening silence. “It wasn’t minutes. They were mum for a few hours,” Joseph recalled, adding that the marathon meeting lasted six hours. The 10-member board, which had been used to a positive Ebitda of 10-11% in Duroflex for years, looking at potential losses What overstated Sleepyhead’s chances was its business model, it was positioning itself as a direct-to-consumer (D2C) brand, which meant it would bypass the imprint and Duroflex’s traditional retail channels and would only be available online.While the idea and concept didn’t sound too heartwarming, Joseph was backed based on his excellent track record as CMO of Duroflex Sleepyhead got a seed capital of ₹70 lakh from the company, and Joseph was about to get what he didn’t hope for: sleepless nights.

The first fight was not far away; it was prowling around the corner. Launched in October 2017, Sleepyhead saw meager sales of three or four mattresses per month through December. Then came the move to put the mattresses on online marketplaces. The company, even by bullish estimates, had stock for three months, which meant 30 mattresses. “But we received 150 orders,” explains Joseph. “We were out of stock.” The lesson learned was quick: the online space is unforgiving. After spending money to acquire a customer, he points out, if you run out of stock, it’s a crime. The two-member team couldn’t handle a sudden rush of orders. Joseph multiplied the calls to his colleague, who did the same in return. “You just can’t be out of stock,” he says.

But overstocking is also a crime. Two months later, at the start of 2018, it was the next big learning curve for the young CEO. This time, Joseph was well prepared to meet an unexpected increase in demand. He therefore stored 200 mattresses. Then came the googly. He only received 100 orders. “Overstocking is also a crime because it affects cash flow,” says Joseph. There were more start-up issues for the new brand. After rolling out a website, the startup took into account that it needed enough server space for around 10,000 visitors. The website crashed. Reason: It got more than 20,000 hits. With only two people on the team, Joseph’s dream quickly turned into a nightmare. It was consumers’ turn to find themselves on the wrong side of the bed. “In February 2018, we were on call for six hours continuously to settle consumer orders,” he recalls.

After a few months of hard lessons, the foam-based brand has found its sweet spot and home. In the financial year 2018, it recorded a net income of ₹40 lakh; the following fiscal year the figures jumped to ₹6.74 crore. In fiscal 2020, Sleepyhead recorded sales of ₹21.29 crore, which increased to ₹84.84 crore the following fiscal year. For FY22, it is estimated to close at ₹150 crore and shows a run rate of ₹300 crore. The company has so far raised ₹200 crore and counts Lighthouse and Norwest Venture Partners among its backers.
While the product portfolio includes mattresses, beds, sofas, sofa beds, recliners, and bedding accessories, it plans to roll out sheets, cushion covers, and furniture, and transform into a lifestyle interior design brand. True to the DNA of a D2C brand, 25% of sales come from its own site; 74% of marketplaces and 1% of its experience centers offline. “At Duroflex, I was in a comfort zone,” says Joseph. “I realized I had to unpack.”

The unboxing began with boxing. Sleepyhead shook up the market with its “bed-in-a-box” concept, which involved rolling up the mattress, putting it in a box, and selling it to consumers. The new product and strategy were based on consumer insights. Joseph explains. The mattress category was quite boring in two respects. First, communication. While the big boys did a brilliant job of emphasizing the virtues of good sleep and various aspects of sleep, the message lacked punch.

The second annoying aspect was the whole process of buying a mattress. Whether it’s taking a crash course to understand several types of mattresses or focusing on just one and then haggling with the merchant to make sure the consumer isn’t paying for transportation was a big problem. “The whole process was killing the happiness of buying a new mattress,” says Joseph.

The segment needed excitement. Joseph raised the chutzpah quotient by compressing the foam mattress into a box and delivering it directly to a user’s door. “Our first campaign slogan was ‘unbox your comfort zone’,” he smiles. While people were used to unboxing a smartphone, Joseph gave them a new experience of unboxing a mattress. Videos from a consumer group were uploaded to YouTube, and they went viral. Sleepyhead started grabbing eyeballs.

For Joseph, the next big unlearning was to stay lean in terms of price, team and wallet. For about 18 months, Sleepyhead continued to be a two-member team. The vibrations were also reflected in the product portfolio. While an offline brand would have rolled out 20-25 types of mattresses, Sleepyhead remained frugal and only offered three or four options. Extensive consumer surveys gave an idea of ​​the type of firmness and comfort that users were looking for in a mattress. The idea of ​​a selective portfolio was to reduce confusion for consumers. “Make it less confusing and conversion rates would go up,” says Joseph.

One group of consumers, however, remained puzzled. “You kept asking what consumers were looking for, and you put all those features into Sleepyhead,” was the response from Duroflex retailers. It was difficult for Joseph to make them understand why Duroflex and Sleepyhead needed to exist independently in all aspects – price, positioning and technology.

For Anshul Jain, taking a leap of faith made sense. The General Manager of Lighthouse bought the box and the Sleepyhead story even before the product was officially launched. The reason was simple: the team. “When we invest, the most important thing is the team,” she says.

Although Duroflex is a legacy brand, the brothers who ran the show were open-minded, progressive and passionate. “It gave us a lot of confidence.” The icing on the cake was a differentiated product.

There was another differentiation, however. Joseph had ensured that Sleepyhead also remained lean in terms of cash burn. Coming from an entrepreneurial family meant building and running the business the traditional way. What that means is don’t let the bottom line inflate. Joseph explains. If the gross contribution after the cost of customer acquisition is positive, he points out, that means you’re building a sustainable business because the cost after that is mostly overhead and depreciation. “As long as I’m running a brand with positive gross contribution after my customer acquisition costs, I’m fine,” he says.

Well, in a mattress business – or any business – if you take care of the bottom line, you don’t have to worry about sleepless nights.

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(This story appears in the April 22, 2022 issue of Forbes India. To visit our archive, click here.)

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