zeo case study
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Zeo, Inc.
The more you know, the better you sleep.™
Newton, Massachusetts
One of the three had, through his coursework, become aware of a study commissioned by NASA during the 1960s. That study focused on the human sleep cycle. It identified points in the cycle at which a person would be most alert if awakened. For the three friends, NASA's findings seemed to have practical utility. If they could wake up at the right point in their sleep cycles, they would be less groggy and more effective in the classroom. They could continue cheating the gods of sleep, but with fewer negative consequences. Reasoning that an effective solution would benefit the millions of people who, like them, were burning their candles at both ends, the three set out to build a company around that solution. “We saw ourselves as the target market,” recalls Jason. “That market had to be large since companies were pushing caffeine products and special drinks, like Red Bull, to help people stay alert.”
Six years on, the college friends were still together, but now as founding executives of Zeo, a business dedicated to a somewhat larger mission: to help people get a better night's sleep. During those years they had raised $14 million, invented a way to track sleep comfortably, and developed and launched a consumer product that was gaining nationwide awareness. And although they were sleeping better than they had in college, they were now dealing with other issues. Zeo was no longer a three guys' college project. It was now a fast-growing enterprise with an increasing number of employees with specialized skills, experiences, and reporting relationships. An older, seasoned CEO was at the helm, and the focus of the enterprise's energy had shifted from developing and launching a product to expanding sales and satisfying customers.
Unsurprisingly, this evolution in the company's life was affecting the founders and their roles in the company. To evolve with the company's needs and contribute as leaders, they had to continue to grow professionally, learn new skills, and step up to new challenges. How would the founders evolve and grow to meet the different needs of the company?
The Sleep Problem/Opportunity
Most people take sleep for granted. Yet 30–50% of the adult U.S. population reports difficulty in sleeping.47 In a 2005 poll of adult Americans, 24% of respondents reported getting “a good night's sleep” only a few nights per week, and 13% reported getting that good night's sleep only a few nights per month. Another 13% told pollsters that they rarely or never had a good night's sleep.48
Sleep problems can have detrimental effects on a person's attentiveness, work and academic performance, and even relationships. Even so, only 8% of people speak with their primary care physicians about their sleep problems. And few doctors bother to ask. By one estimate, less than 20% of doctors ask patients how well they are sleeping as part of their annual physical exams. This “don't ask, don't tell” situation results in millions of people living with their sleep problems for years and years without relief.
For a minority of sleep-deprivation sufferers, the underlying cause can be traced to one or another medical condition.49 The medical establishment has responded to these with various forms of clinical diagnoses and therapy. Its primary diagnostic tool is the sleep laboratory, a specially equipped room in which individual patients are observed and monitored by means of polysomnography (PSG)—the gold standard of sleep diagnosis. In the United States, a small number of board-certified sleep specialists (approximately 5,000) attend to the millions who suffer from medical conditions that interfere with normal sleep.
The majority of people with sleep problems, however, have no underlying medical issues. Their difficulties often stem from work or lifestyle choices. These individuals include students, hospital physicians and nurses, shift-workers, people struggling to meet deadlines, long-haul truck drivers, hard-driving professionals, and heavy consumers of caffeinated products and alcohol. Sleep deprivation for them often results in drowsiness and reduced cognitive performance, and a greater susceptibility to accidents at work and on the highway.
It was this market, estimated at 70 million people in the United States alone, that Zeo aimed to serve. From the beginning, the company has made it clear that its product is not intended for the diagnosis or treatment of sleep disorders and warned customers that “If you suspect that you may have a sleep disorder, consult your physician.” Zeo did not intend to compete with medical devices, sleep laboratories, or medical practitioners.
Building the Company
When they formed Zeo in December 2003, Eric, Jason, and Ben knew little about sleep science or sleep medicine. Eric, a senior, was studying computer science and French; Jason, then a junior, was majoring in business and Chinese. Ben, a junior majoring in computer engineering, was recruited later through a campus job posting. Brown University, however, was a leading center for the study of sleep and sleep medicine, so the team worked hard to build relationships with the University's sleep experts and to learn from them and from other campus resources. In time they would expand their relationships and learning to a broader network.
Initially, the business opportunity was narrowly defined around the concept of Smart-Wake™, a technology used to track sleep and identify the optimal times for awakening someone refreshed and alert. To accomplish this, they would have to build a device capable of accurately monitoring and recording a person's sleep stages (wake, light sleep, REM, and deep sleep). They would do this by developing a comfortable, wireless sensing device that the customer would wear on his or her forehead during the night. The technical breakthrough that made this possible was a dry fabric sensor material developed by the team. The device itself would detect and transmit vital data to a bedside receiver/monitor, which would store and later array the information in a manner that a lay person could easily interpret. Ben initially estimated that he could develop a testable prototype over the school's Christmas break. In fact, the job took over two-and-a-half years.
Sleep Stages
People typically pass through various stages of sleep during the night. These include wake, light sleep, rapid eye movement (REM) sleep, and deep sleep. A person normally experiences repeated cycles of these phases during the night.
Light Sleep: Takes place between the transitions to the other phases of sleep and wakefulness. Usually accounts for the longest phase of the sleep cycle.
REM: Necessary for consolidating memories, learning, creativity, problem solving, and emotional well-being. A time when dreams occur.
Deep Sleep: Restorative phase in which the body secretes a growth hormone needed for development and physical repair. People generally feel most groggy when awakened from deep sleep. According to cognitive tests, they may experience impaired mental performance for up to 4 hours when abruptly awakened from deep sleep.
Early Financing
Many people responded affirmatively to the SmartWake™ concept. Eric recalls how he would talk about the project in the campus cafeteria. “Bystanders started to say, ‘That's a great idea. Can I invest in your company?’” And many of them did in small amounts. This in turn led Eric to seek out private investors in the community, who invested larger amounts. Ultimately this allowed the group to get more serious efforts underway with a small seed round. In the very beginning, other non-dilutive funds were also sought:
· A $9,000 grant from the Slater Center of Rhode Island
· An $18,000 grant from the National Intercollegiate Inventors and Innovators Alliance
· $10,000 in cash and $10,000 in services from the Brown Entrepreneurship Program Business Plan Competition
· $25,000 in cash and $35,000 in services from winning the State of Rhode Island Business Plan Competition
By mid-2005, all three founders had graduated from Brown and were working full-time in the company, which needed more money. Their fundraising efforts shifted exclusively to angel investors. Responsible for fundraising efforts, Eric pitched to angel groups and individual investors all over southern New England, as well as within the Rhode Island business community and Brown University alumni. “This was hard to do,” he says, “given our ages.” Each rejection, however, encouraged him to dig for reasons and to refine his presentation. By the end of this 10-month period, with a second oversubscribed round, the company had raised a total to date of over $1 million from several groups and individuals.
Among Zeo's early investors was Sean Glass. Like the Zeo founding team, Glass had joined with other classmates (in his case, years earlier at Yale) to start a successful business while still an undergraduate. He learned of Zeo through a fellow angel investor, a Brown graduate who had already taken a small stake in new enterprise. Glass thought the company had a strong concept since there were few credible products in the consumer sleep market; as he put it, “People will go to great lengths to solve their sleep problems.” Glass also saw a bit of himself and his company's co-founders in the Zeo team. And he liked what he saw. “Eric, Jason, and Ben had different personalities, but they clearly trusted each other in their roles. All were very well organized and open to learning.”
Glass invested in 2005 as a member of an angel group. Still, he perceived some difficult hurdles ahead. “They would have to convince people that their product was scientifically valid, and that it really worked. It would also need to be priced right.” And from the user's perspective, the headband monitor they were working on had to be comfortable and look good. Otherwise, “how many people will get into bed with their spouses wearing a weird-looking contraption on their heads?”
Advice and Credibility
Sleep science is a relatively new field. Research on the subject only began in the 1950s. As a result, the community of sleep specialists is small, and communication and collaboration is commonplace.
From the outset, the venture team understood the importance of tapping into this scientific community, drawing on its expertise, and gaining credibility by allying with key members. Most of the responsibility for this task fell to Ben Rubin, who, beginning at Brown University, cold-called key people, introduced himself and Zeo, and solicited their advice and support.
To his surprise and relief, these specialists did not automatically show him the door. Most, in fact, expressed genuine interest in the goal Zeo was pursuing. They were intrigued by the potential benefits that an inexpensive, self-administered measuring and monitoring system would bring to the millions of people who suffered from nonmedical-related sleep difficulties.
Each contact produced leads to other notables in the U.S. sleep science community. Before long, Ben and the team had assembled an informal group of sleep health advisers from several of the nation's leading medical institutions. In addition to this group, a key consultant, John Shambroom, joined Ben's development efforts. John brought a unique scientific and engineering background to the team, which included extensive experience in tracking brainwave patterns, critical to ongoing development. This initial group contributed invaluable technical guidance and gave the start-up venture much needed credibility in the eyes of potential investors. John would later join the company and expand this group into a formal board with semiannual meetings. Board members would represent the broad scope of sleep science: a psychologist, a specialist in circadian rhythms, a leading researcher, a clinical practitioner, and so forth (Exhibit 6.1).
EXHIBIT 6.1 Zeo Advisory Board
The team also sought business advice. It made a list of pioneers in fields related to Zeo, then approached each in turn. “It usually took a few calls to get through,” says Eric, “but once we got past the gatekeepers, most of these people were very approachable.”
I'd tell them that we were students who had started a company, that we admired what they had accomplished, and that we would appreciate their advice. I'd then ask, ‘Could we meet with you for just a half hour or so?’ This is how we met Colin Angle, founder of iRobot, and Sherwin Greenblatt, former president of Bose. Colin had started his company while a graduate student at MIT. We maintained an advisory relationship with these business leaders for over two years, then asked them to join our board, which they did.
A Coach/CEO
The three founders wanted to launch a consumer product company, first nationally and then internationally, and knew that they wouldn't have the best chance of success doing this on their own. Recognizing that they had never done this before, they wanted to find an expert who could help them achieve greater success, and from whom they could learn. So, with the proceeds of the final angel round closed in the summer of 2006, they set out to find an experienced person who could guide them through the important stages of final product development, launch, and growth. An executive search firm with an affinity for start-ups was engaged and asked to find qualified candidates for the CEO position. That firm's consultant met with the three founders and interviewed each extensively. What qualities and experiences were they looking for in a candidate? How would they describe their ideal candidate? How did they expect the person to work with them?
Eric, Jason, and Ben were of one mind. They wanted a CEO with an entrepreneurial outlook and a successful record in marketing consumer-health products. More than that, their ideal candidate would be a coach and mentor, helping each of them to develop his business and management skills. As they saw it, Zeo was growing from a small start-up into a real business; each founding member wanted to grow quickly into the new roles that operating such a business demanded.
Finding a person with the desired combination of experience and personal qualities was a tall order, but after several months of searching, the recruiter presented the team with several qualified candidates. The candidate they selected was Dave Dickinson, a man roughly twice their ages.
Dickinson's life path had been much different than those of Zeo's founders. As a teenager he had learned something of how entrepreneurial businesses work, and how they differ from bureaucratic organizations. His father had joined with former IBM veterans to develop a small company, and his work experiences were a frequent topic of conversation in the Dickinson household. Dave knew and admired the president of his father's new company.
I remember playing basketball with him when I was a junior in high school. And I still recall how much I wanted to be like him—to know everyone who worked for the company, to know their families, and to enjoy the freedom to get things done without dealing with committees and layers of bureaucracy. How many big company presidents play basketball with their employees' kids?
Despite his youthful attraction to small business life, Dickinson's career path went in the opposite direction. Armed with an MBA in marketing from Northwestern University, he worked for several giant consumer-health product companies: Procter & Gamble, Johnson & Johnson, Arm & Hammer, and Mead Johnson. In 1995, however, his entrepreneurial instincts were given a chance to express themselves. Dickinson's boss at Mead Johnson asked him to create a new product incubation unit, staffed by some 100 employees from marketing and R&D. “These were disciplines that never spoke to each other,” he recalls. “At our Evansville [Indiana] headquarters the marketing people were in a building on one side of a four-lane road, and the R&D people were on the other side. No one ever crossed that road, except to eat lunch.”
In accepting the assignment, Dickinson got permission to take over and renovate one floor of unused space in an old industrial building. He hired an architect to implement his vision of an open design in which communication and collaboration between marketing and R&D specialists would naturally occur. There would be no private offices, no cubicles. To further set the incubator apart from the rest of the company, he had the place painted in bright colors. Quotations by famous inventors adorned the walls. White boards and games were set out here and there to encourage interaction. A basketball hoop was mounted on a far wall. A phone booth was installed at the back of the space. “I told people that if they really needed to have a private conversation, they could use the phone booth.”
The success of this interdisciplinary product incubator changed Dickinson's life in two important ways. First, it made him realize how much he enjoyed breaking free of corporate rules and routines, and building new things from scratch. Second, it led to an important new assignment. In 1998, he was asked to move to Boston and help initiate a novel kind of venture capital firm, jointly invested in by Bristol Myers Squibb (parent of Mead Johnson) and General Mills. Consumer health and wellness would be its investment focus. Dickinson recalls how that experience broadened his understanding of innovation, different business models, and the management challenges faced by young and inexperienced entrepreneurs. “I spent a lot of time helping the CEOs of these companies, particularly in the marketing area.” He enjoyed sharing his knowledge with these CEOs and helping them with market development. “In many cases, I wished that I was them!” And, in 2001, he became the CEO of his first start-up, a biotechnology company initially incubated within Harvard Medical School.
Dickinson's background brought him into the sights of Zeo's headhunter in late 2006. He offered two unique qualities that Zeo needed: experience in developing, launching, and marketing consumer health products, and an open, mentoring personality. For Dickinson's part, Zeo represented an outlet for his entrepreneurial instincts.
Meetings between Dickinson, the founders, and Zeo's key investors were encouraging. The candidate met all of Zeo's expectations, and Dickinson liked what he saw in the venture and its principals. “You could see that these guys were insatiable learners, hungry for experience and knowledge. They were eager to learn from everyone—from people like me, from investors, and from their advisory board. There was no youthful arrogance.”
It was a match. After doing due diligence on the venture and its technology, and in return for a reasonable salary and an equity stake vested over time, Dickinson joined the company as CEO in February 2007.
Beyond SmartWake
By the time Dave Dickinson joined the company, the team had raised over $1 million dollars around its SmartWake™ concept. With Dave now wearing the CEO cap, Eric could turn his full attention to the job of prospecting for additional investment capital and expanding Zeo's strategic connections for business development. Jason's focus would remain on potential customers: Who were they? What were their needs in a sleep product? How would they connect with Zeo and its evolving technology?
Ben's engineering training made him the logical person to handle product development. This would be no small job. The technology had to be capable of accurately sensing and monitoring sleep without all the paraphernalia and personal assistance needed in conventional sleep laboratories. It had to be affordable to the average consumer, and so simple that an untrained customer could operate it correctly. And it had to provide a scientifically valid measure of an individual's sleep. More than one sleep-specialist expert declared that meeting all of these requirements was impossible.
Undeterred, Eric, Jason, and Ben thought they had a solid venture concept in SmartWake™. If people understood their sleep cycles and awakened themselves at an optimal point (outside of deep sleep), they would be more rested and alert. And they would be happy with Zeo. Ben's work, bolstered by John Shambroom's background and expertise, would soon give them the technology they needed to make that happen. By early 2007, he had a working prototype that Jason could test on focus group participants. Those participants, mostly college students and young professionals, responded favorably to the prototype and to the proposition of wakening refreshed and on the ball. They had little interest or curiosity about their sleep stages, as recorded by the prototype. However, test subjects who represented the broader population sent the team a disturbingly different message: They had sleep issues that SmartWake™ failed to address.
The product said it took me 43 minutes to fall asleep. What can I do to get to sleep faster? I wake up at around 2 A.M. and cannot get back to sleep. How can I change that? Your device says that I get about one hour of deep sleep at night. Is that good or bad? What does it mean for my performance at work?
People wanted answers to these and other questions, and they wanted solutions to their sleep problems. The crucial question was: What can I do to get a better night's sleep?
Feedback from potential customers revealed the limited nature of Zeo's initial value proposition. Sleep was a big issue for many people—it affected their relationships, health, and performance on the job, at school, and on the athletic field. Hundreds of companies, from pill makers to pillow and mattress manufacturers, were touting the importance of a good night's rest. Knowing the optimal time to wake up—the SmartWake™ proposition—was merely a small part of a much bigger issue. “SmartWake™ was attractive to the 30-and-under crowd,” says Jason, “but that part of the total market was small compared to the people who were experiencing real pain because of their sleep patterns. Not waking up at the optimal time was nothing compared to the problems people experienced by not getting a good night's sleep—problems with drowsiness, their relationships, job performance, health, and so on.”
The opportunity was clearly broader than initially conceived. But addressing it would require one big thing: practical and personalized solutions to common sleep difficulties. Recalls Jason, “We weren't sure that we had the expertise to help people sleep better. We wondered if this was too high a mountain to climb.” Indeed, climbing that mountain would require at least another year of work—maybe two. As things stood, the company did not have enough cash to fund another year or more of development. Could more be raised? The initial product launch was scheduled for mid-2007. Would current investors agree to deferring that planned launch if it meant building a better product? Should they launch the product in its current state, and then develop an improved Zeo Version 2.0?
After much discussion, it was clear that the intelligent wake-up proposition would satisfy a market segment that was too small, given the expectations of the founders, their advisors, and investors. Quantitative testing with focus group participants (using product concept testing methodology introduced by Dave) confirmed the appeal of the product concept with sleep improvement capabilities. They also feared disappointment by customers. “We had no choice,” says Jason, “but to step up to the larger concept. We might not have a real business otherwise.” After seeing the market-testing numbers, Zeo's investors agreed.
Enter Venture Capital
Recognizing that their expanded value proposition would require substantial new capital, the team went back to its angel investors, including those who, because of oversubscription on the previous round, had not been able to participate. “But we quickly learned,” says Eric, “that this approach would take too much time and was unlikely to produce the level of funding we needed.” They decided to go after larger pools of capital, namely, venture money. “This is where our board members really helped with advice and introductions.” iRobot founder Colin Angle introduced them to people at iD Ventures America, a quality venture firm that had financed his venture. iD Ventures led the company's Series B round, closing in 2008, even as the world financial system poised on the verge of collapse. Many deals were canceled during this period, but Zeo's went through. A later Series C round of financing, led by Trident Capital, closed in 2009, bringing total capital raised by Zeo to $14 million.
Zeo now had sufficient capital to exploit the large opportunity it had found and to hire the people it needed to scale up for commercial operations and launch.
The Go-to-Market Product
To fulfill its larger aims, the company had to develop both a more sophisticated sleep phase tracking product and an online, personal “sleep coach.” Part educational tool, part motivational program, the go-to-market product Zeo would offer what potential customers had clearly asked for: a product package that revealed the user's sleep patterns, and an online coach that would help each customer discover the habits and behaviors that interfered with his or her night's rest. An interactive “7-Step Sleep Fitness Program”—which took a full year to develop—would teach users how to overcome sleep-robbing habits and behaviors. At launch, the final package (Exhibit 6.2) included the following:
· A soft, lightweight headband containing Zeo's SoftWave™sensor technology. Worn during the night with the sensor against the forehead, this device accurately tracks the user's sleep patterns and transmits the data wirelessly to a bedside receiver/display. Unlike traditional methods of tracking sleep patterns, the sensor connects to the skin without gels or adhesives thanks to a unique patent-pending material developed by the company. (Tests-rated tracking results are comparable to the gold standard for assessing sleep.)
· Bedside display unit. The size of a clock radio, the bedside unit receives data transmitted from the headband sensor. Algorithms and artificial intelligence software determine the user's sleep phases throughout the night. A sleep graph summarizes each night's sleep stages. A “ZQ” score gauges the quantity, quality, and depth of each night's sleep. In addition, the user can see at a glance his or her total sleep time, how long it took to fall asleep, how often and how long he or she was awakened, and the total amounts of REM, light, and deep sleep.
· Access to the personalized 7 Step Sleep Fitness™Program. This online coaching program analyzes the user's unique sleep patterns and lifestyle, and then recommends techniques for addressing factors that may be negatively affecting sleep. The program also provides regular assessments of user's sleep statistics to help track progress.
· The SmartWake™Alarm feature. The headband sensors search for a natural awakening point—the optimal time to get out of bed in the morning, when the user transitions into and out of REM sleep and the brain is more active. The bedside unit's alarm will sound as early as a half hour before the user's set wake-up time, but never later than that time.
EXHIBIT 6.2 Product Hardware
Using an SD (Secure Digital) memory card within the bedside display, the customer can use his or her personal computer to transfer accumulated sleep data to a personal online account, myZeo.com. The Web site (Exhibit 6.3) has interactive tools for understanding the data. It also provides cause-and-effect information on how and individual lifestyle choices—including exercise, diet, drinking, and stress—affected sleep.
Manufacturing of the physical product was outsourced to an Asian contract manufacturer. The price was eventually set at $249 for the product alone, and $349 for the deluxe package, which included the product, a year's supply of headband sensors, and unlimited access to the online 7Step coaching program. Sales would be made directly to customers via the Internet.
The Launch
As mid-2009 approached, the Zeo crew prepared for the product's official launch. Not having the public company financial resources common to consumer product launches, they needed a high ROI method to gain public exposure. So, working with a Boston-based PR firm, Schneider Associates, they devised an innovative plan to create media buzz. Dozens of reporters were invited to spend the night, courtesy of the company, at a brand-new five-star New York City hotel. Each was given a Zeo device that they would use during the night to record their sleep patterns.
The next morning, the overnight guests were treated to a breakfast in the hotel ballroom, where company personnel were on hand to help them understand their recorded sleep patterns from the previous night. After a brief presentation by Zeo, several scientific experts spoke on the relationship between sleep and human health. Reporters then moved to “break out” tables where specific sleep-related topics such as sleep and human performance, methods for sleeping better, and so forth, were discussed. At one table, the trainer of the Boston Celtics entertained reporters' questions about sleep and athletic performance. “The idea,” says Dave, “was to give reporters opportunities to pick up on many different story lines.”
EXHIBIT 6.3 Sleep Tools and Coaching Program Information
This hotel PR gambit and other launch PR efforts paid huge dividends almost immediately. The first big story about Zeo appeared within days in the Wall Street Journal. The Journal's health columnist, Melinda Beck, described how Zeo had helped her discover and understand her own sleep problems. “Finding out what's going on in your sleep generally requires spending the night in a professional sleep lab hooked up to lots of wires and monitors,” she told millions of readers. “But I've been testing a new home-sleep monitor called the Zeo Personal Sleep Coach that lets people track their sleep patterns nightly in their own bedrooms.”50 She went on to describe her dismal ZQ score, how it responded negatively to tensions surrounding her column deadlines, and how it improved once she switched to decaffeinated coffee and kicked her dog out of the bedroom. In the article, she interviewed members of the company's advisory board and other Zeo users, who shared their positive experiences with the product, its coaching program, and how changes in daily habits affected their ZQ scores.
For the company, Beck's article could not have been more timely or beneficial. Orders began pouring in. Other positive articles quickly followed in the New York Times, Forbes, USA Today, Popular Science, Woman's Day, and other national periodicals. Ben and Jason soon found themselves interviewed on Fox TV, and America's primo TV pitchman, Regis Philbin, had himself filmed in bed wearing his Zeo headband and talking about his own sleep problems. More orders came in—at a time when consumer product sales in the United States were in the basement!
Over the next six months, the young company continued to score PR coups. One of the most significant of these occurred on December 14, 2009, at the height of the holiday gift-buying season. The nation's most popular morning TV program, The Today Show, watched by over six million Americans, ran four short story segments on Zeo's founders and their new product, with testimonials from a user, a leading sleep medical authority, and the TV network's own doctor/journalist. All praised the product. KaBoom! The sky began raining orders and Google identified Zeo as the most searched topic that day, even ahead of a Tiger Woods scandal story that was making headlines all over the media.
A Changing Company … Changing Roles
The product launch and subsequent media buzz marked a watershed for Zeo. The once-obscure little company was now on the map and receiving enormously positive feedback from reviewers. And the cash register was ringing.
Rather than relax, however, employees kept up a punishing pace of work. Says Eric, “With working many nights and weekends, there hasn't been a lot of time for friends and family, or—ironically—for sleep.” The only married member of the founding team, Eric consciously tried to optimize the limited time he had available to spend with his spouse by focusing on communication. Jason Donahue echoed his partner's assessment of the work load. “We don't have a problem with absenteeism around here. Our problem is presentee-ism—people not going home.”
Even before the June 2009 launch, however, Zeo had been changing. New people with deep and specialized experience had come onboard. Subsequent to Dickinson's joining the company, John Shambroom was hired as the initial VP of research, engineering, and operations, but was later asked to focus on the company's scientific and clinical platform as the VP of scientific affairs. Later, others were hired to head up e-commerce, finance and manufacturing, and engineering and product development. And as 2009 drew to a close, the team was searching for a specialist in direct-response TV advertising. “These people had technical skills we needed right away,” says Dave Dickinson. “We couldn't wait months and years for our own people to develop them. And we'll do more of this as we grow.” By late 2009, 19 people were on the payroll. Eight were on the management team, making the company strategically top-heavy in preparation for growth.
The launch and the addition of new people had an impact on the roles of the three founders. “We're now wearing fewer hats,” said one. “Each of us is developing new skills and learning a lot from Dave.” As an obliging mentor, Dave Dickinson made an effort to learn what each founder did innately well and then directed each into areas where he could make the greatest contribution and develop more skills. “To do this I actually used the same profile test for Eric, Jason, and Ben that their recruiter had used on me.” Each person's tests results were shared with his colleagues, and this helped each person to better understand his strengths and weaknesses and those of his peers. “That exercise really developed trust, which made the rest of the effort easier.”
For Jason Donahue, the post-launch period coincided with a major redirection of attention, from product development, sales, and customers to brand management and assuring high customer satisfaction. With Dave at the helm, Eric Shashoua shifted his primary attention to business development and to relationships that would help the company grow. He was now spending more time with Zeo's directors (Exhibit 6.4), the advisory board, the sleep-health community, and potential channel and product partners. Ben Rubin had once been in charge of technology development, product development, engineering and manufacturing. He was now focused on technology and its application to the company's next generation of sleep-related products.
While all acknowledged the necessity of these changes, it came not without some nostalgia. Ben commented that, “As the company has gotten bigger and our roles have become more specialized, we [the founders] have lost something. Each of us probably misses having a larger role.” He notes that decision making has also changed. “The three of us can no longer sit down together for five minutes and make a decision. The process is now more complicated. That's good for the business but sometimes frustrating for us.” As the same time, Ben is accepting of changing roles, seeing them as direct outcomes of choices the three of them had made.
If we had decided to be a smaller niche company, our roles would not have had to change nearly as much. Our decision to address a large consumer market had important consequences: It dictated our need for an experienced CEO, for more outside capital, for more employees with specialized know-how, and so forth. We have to recognize and accept the impact of our own decisions.
EXHIBIT 6.4 Zeo Board of Directors
Any misgivings the founders had about their changing roles appeared to have taken a back seat to conscious efforts to grow into those new roles. Speaking for the group, Eric noted that they had surrounded themselves with experienced employees and routinely interacted with business advisors, investors, sleep-science specialists, and with other entrepreneurs. Jason pointed to books and blogs, and to events and seminars as important sources of learning and growth.51 For his part, Ben acknowledged the benefit of having experienced and knowledgeable mentors on the board and outside the company.
After six years of building a company from scratch, the three founders were not intimidated by the challenge of taking on new roles and learning new skills. “We have a just do it attitude around here,” said Jason. “Sometimes you have to learn under fire.” He cited how Eric had successfully negotiated a deal with a direct-mail catalog company even though he had no experience in that area. “Eric talked to experts who understood the catalog business, then did it.”
Case Questions
1. What are the advantages/disadvantages of founding a company with your friends?
2. How did the founders identify and entice stakeholders to join their board of advisors?
3. Why did the founders seek a new CEO? Would you do that or would you want to run the business yourself? What was the process they used to select the CEO?
4. How did the role of each founder change as the business grew?
5. How do you maintain the culture when the company is professionalizing with a large top management team?
