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



    We first met Sergei many years ago in Perm, in his school years. The second time - in Moscow, doing Internet projects.

    When it became obvious that Scentbird was founded by two people with Perm roots, our small editors were seriously excited by a simple question: “How did the founders manage to develop and successfully grow such a specific business, especially in the United States?”

    And that’s why we talked with Sergey the third time, they asked all the questions of interest and received answers to most of them. So the next “case” was born, telling about a startup that broke through the thorns to the stars and from the third attempt got into the program of the legendary Y Combinator.

    - Sergey, tell us first, what does the operations director in an innovative company do?
    In fact - all in a row. From design to procurement in China to operations and marketing. Really - to everyone.

    - The real explanation of what “COO” does. The second question is also classic - where did it all begin? How did everything happen until the moment the current product appeared?
    It will be a fairly long 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 tight integration with Yandex, and I, initially, had plans to enter the US market and, accordingly, move. But, due to the fact that Social Mart had no plans to go abroad, I began to gradually study various ideas that could be tested in the States.

    So I was introduced to Maria Nurislamova, she is CEO and cofounder of Scentbird. We are both from Perm, but at the time of our acquaintance Masha had been living in the West for 7 years. We called up several times, discussed various ideas and, at some point, found out that Masha likes the topic of cosmetics and perfumery. Discussing ideas around this topic, we found out that in the US the market is very large and actively growing.

    In the United States, a very large number of people use perfumes - eau de toilette and perfumes, so we somehow automatically came up with the idea of ​​some service that helps the user to select aromas for themselves.

    The problem that we undertook to solve is simple: there are a lot of perfumes, they smell differently for different people, they cause different emotions and sensations. There are citrus flavors, there are spicy ones - these are fundamentally different products.

    - You want to say that this is a diversified market, without established “average” positions?
    Namely, it is very personalized, so at first we decided to make an algorithm. Our first MVP was a prototype of a service that searches by tags in order to choose a perfume. That is, choosing, for example, citrus notes that are associated with a certain 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 find the final bottle.

    We quickly realized that in this way you won’t make money quickly and started to develop the idea further and think about how to “wrap it up”. The idea was born to create a business model similar to Warby Parker, but for perfume.

    Warby Parker is a company that sells points based on the “try before you buy” principle. You are sent 5 pairs of points, you choose the ones that you like, leave them to yourself, and send the rest back.

    We did the same for the perfume: we sent 3 full bottles along with smaller “probes” that we were supposed to try and, in case you liked some flavor, you left yourself a full bottle. If you have not found anything suitable for yourself, you simply send the whole set back.

    We started with this model and worked with it for a long time - about a year, trying various sales options, trying different channels and so on. Nothing happened, or rather it turned out, but not in the desired size, and when the money began to run out, the logical question arose: “What next?”. We decided that we need to go to the accelerator.

    - Does this mean that confirmation of the product and business came from investors earlier than from the consumer?
    No, or rather - not really. We initially existed on our own funds, the first six months, minimally, investing personal savings in Scentbird. Seeing that the product “doesn’t fire” and sales are not growing, we tried to find funds in the market - we negotiated with several investors in New York, but we constantly heard the same thing: “We need more traction” (ed.: traction - the direction of movement, in the sense of metrics - steady, without falling, growth of the chart.)

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

    Having gone to Y Combinator, we were invited to an interview - and for the last, no kidding, money we flew to the West Bank. YC covered some expenses - this was the only reason to go to the last resort, completely draining pockets.

    That time, they didn’t take us to 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 that we had heard before, talking to 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 considering our application, they took us and gave us money for a pre-seed, 40 thousand dollars and an office, and by that time we already had four partners. Our technical director Andrei managed to move from Moscow to New York and at that moment we were able, as a whole team, to focus on the product.

    - When did all this happen?
    In the summer of 2014, a year and a half ago. In total, two years have now been spent on working at Scentbird.

    Having worked for 2 months on the idea that existed at that time and managed to grow 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 was not working and what could be changed.

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

    - Exactly at that moment the idea of ​​an atomizer was born? I'm sorry if I get ahead of myself.
    Yes, exactly at that moment we came up with a subscription service, since our initial attempt was not optimal for this market. During communication with our consumers, we found out that people like to buy quite a lot of perfume: an average of 5 bottles. It is worth noting that this is an expensive product that is priced in the category “from $ 80” and because of the cost, such purchases are still not made often.

    At the same time, in the American market, every year 2000 new fragrances are released. There is massive advertising: on television, in magazines, I constantly want to try new things. We thought: “Yeah, that means people need to be given more, but in a smaller volume and for a lower price.” We also knew that there were certain lines of smaller volume on the market - even large brands, such as Chanel, produce fragrances, including in atomizers.

    We decided that it was worth a try, completely redid the site in a month, renegotiated contracts with suppliers, agreed with wholesalers and factories that supplied us with the packaging, and started 2 weeks before the end of the accelerator program.

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

    We made sure that it is growing. All the time we had a feeling like “something is wrong” - we liked the idea, people left positive feedback, but we did not see sales.

    Everything has changed here.



    - And what happened at that moment with those investors, funds and accelerators with whom you spoke before - did they change their point of view?
    After we started, the Demo Day of our program came up almost immediately. We showed our own numbers and product, the beginning of a promising schedule even with a short time: from 0 to 500 sales in 1.5 months.

    Our first round after this, which lasted 4-5 months, on the east coast of the United States (where it is more difficult to find money) was ultimately successful (editor's note: known rounds and their investment volumes in Scentbird can be seen on AngelList: angel.co/ scentbird-1 ).

    The second time we applied for joining Y Combinator, we received an invitation and flew in as a team (for the first time, only me and Maria were at the meeting). Finally, we were in the office of the most famous accelerator in the world together! We talked to Sam Altman and Jessica Livingston, and we were again denied.

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

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

    We were mostly compared to www.birchbox.com

    - Let's continue. Was that round A?
    No, it was seed.

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

    “And this is the last round to date?”
    Yes. From that moment, a lot of things actually happened: we started to grow, opened YouTube as a serious and important channel, started working with video bloggers who review our products and fragrances. Instagram was also engaged, until recently, these were our main marketing channels.

    After some time, we decided that it was necessary to apply for 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 knew many YC alumni and partners. In 2013, a conference was held in Moscow, to which, among other things, we helped bring the partners of the fund.

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

    This is a very intense and rewarding experience. Our growth during the program from week to week was 11%. At the demo day, we showed a large run rate (editor's note: this phrase implies extrapolating the current results to the horizon in the future), a bunch of everything else and the interest in us was great. In particular, we found some more investors there - unfortunately, not everyone who wanted it.

    - YC is a “unicorn grove,” tell us more about the inner atmosphere.
    Y Combinator is the perfect place for a startup. There are people who go there: A. They want to attract a lot of money (there are more opportunities than any other accelerator) and B. They want to grow the 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 submitted to the program for the second or third time. Many do not pass even from 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 there is simply overwhelming. This is access to the entire network of Y Combinator partners.

    - Paul Graham still taking part in the work?
    Paul Graham is almost completely retired. He spent forty-five minutes with each team in each set and that’s all.

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

    Recently, a third person joined them - COO Y Combinator Qasar Younis.

    Paul showed startups a bigger picture, he very quickly found growth points in any product the participants talked about. He told me where everyone can be in many years.

    “You talked about the past.” What do you have in the present? When will your estimate be more than a billion?
    We plan in the next 5 years and now our business is actively growing. We agree on a direct partnership with brands, we want to be the endpoint for fragrances on the Internet, creating such a reputation for ourselves and consumers.

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

    - Do you have experience in working and doing business in Russia and in the States. What is the difference?
    It is very difficult to answer this question, since I worked in B2B in Russia, and here we work with direct consumers, the markets are very different.

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

    In our case, partnership plays a huge role and we communicate with a large number of other companies, trying to arrange joint actions of a very different kind. We put cards of other companies in our own packages, as they are ours. This collaboration helps a lot, I can’t imagine this with us.

    - Have you lost the pleasure of this work?
    Every day we have a new challenge here, of course I like it.

    - At the time of getting into YC you were four, and now?
    Let me count: there are 10 of us, including all the 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.

    - No one came up with other options?
    There are plenty of other options: you can work with France, Italy and Taiwan. But everywhere the price is very different from the Chinese. It took me a lot of time - finding quality suppliers in China, this can not be done there in a day.

    - From America, how does it work with China?
    Just as from Russia, there was experience, 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 started discussing ideas, we quickly realized that without a technical person in our team, we won’t be able to do anything: I was in marketing, Masha had a studio in New York working on sites and design.

    I met Andrey at Moscow's AngelHack - 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, agreed that we would move the whole team to the USA to work on a startup. Now Andrey is working here with us.

    When I moved to New York, Masha and I met Rachel. She has worked for many large perfume companies in the United States, has always held CMO positions with industry connections and is now helping us establish direct relationships 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 has a family and children here.

    Plus, all the major brands are here.

    - And where are your consumers?
    California (Los Angeles), Florida, Texas (Houston), and only then New York. The southern states use more perfume.

    - Why is this?
    Climate and nationality: African Americans and Latin Americans use a lot of perfume.

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