Matteo Franceschetti – Modernizing Sleep – [Founder’s Field Guide, EP. 23]

My guest today is Matteo Franceschetti, the founder and CEO of Eight Sleep, a smart mattress company. I’m a customer of Eight Sleep and this was one of the most unique founder conversations I’ve had on the show, in both the focus on the product and the exploration of sleep. We talk about which biometrics matter, how hard it is to start a hardware company and launch manufacturing overseas, how Matteo manages his own sleep, and the massive potential for preventative health companies like Eight Sleep may have in the future. I hope you enjoy this conversation with Matteo Franceschetti. For the full show notes, transcript, and links to mentioned content, check out the episode page here. ----- Founder's Field Guide is a property of Colossus Inc. For more episodes of Founder's Field Guide, visit joincolossus.com/episodes. Stay up to date on all our podcasts by signing up to Colossus Weekly, our quick dive every Sunday highlighting the top business and investing concepts from our podcasts and the best of what we read that week. Sign up here. Follow us on Twitter: @patrick_oshag | @JoinColossus Show Notes [00:02:36] - [First question] - Origins of the Eight Sleep business [00:03:21] - Designing and testing the original product [00:04:17] - Goal of the product [00:05:19] - How temperature can improve sleep [00:06:28] - Accuracy of the sensors in this product [00:08:30] - Valuable inputs for health that they measure, HRV (heart rate variability) [00:09:59] - Amount of research on the variables they measure and impact on health [00:11:45] - Hardest data for them to measure in their mattress [00:14:03] - Early challenges to launching the business [00:15:27] - Lessons from the early manufacturing process [00:16:50] - Working through the potential business models [00:17:56] - Goal of less sleep and reducing light sleep [00:19:45] - Behavior changes he’s made as a result of understanding his sleep more [00:21:08] - How alcohol/caffeine impacts sleep [00:22:01] - How food impacts sleep [00:23:01] - Why glucose spikes are bad for sleep [00:23:40] - Challenges in the business after the crowdfunding stage [00:25:34] - Marketing lessons from a high price point and infrequently purchased product [00:26:42] - Most exciting day in the researching phase [00:27:48] - Turning an infrequent purchase into a frequent sale [00:28:54] - What it’s like to work with his wife [00:30:03] - Future of the quantified self-movement [00:31:23] - The hardest challenge in the business [00:32:13] - Most valuable things he’s learned as a fan of Formula 1 racing [00:33:41] - Future of the mattress business [00:35:28] - Other businesses he has learned from [00:36:40] - Lessons from the data part of the business [00:38:26] - Collecting more data from their customers without being intrusive [00:39:56] - What he’s learned through Apple Health [00:41:39] - What has him excited for the long term future of Eight Sleep [00:42:32] - Kindest thing anyone has done for him

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Patrick O'Shaughnessy?

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• 0:45Patrick O'Shaughnessy?

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• 1:30Patrick O'Shaughnessy?

  That's how LinkedIn Jobs can help you hire the right person faster. When your business is ready to make that next hire, find the right person with LinkedIn Jobs. And now you can post a job for free. Just visit LinkedIn.com/fieldguide. Again, that's LinkedIn.com/fieldguide to post a job for free. Terms and conditions apply. Hello and welcome, everyone. I'm Patrick O'Shaughnessy and this is Founder's Field Guide. Founder's Field Guide is a series of conversations with founders, CEOs and operators building great businesses. I believe we are all builders in our own way and this series is dedicated to stories and lessons from builders of all types. You can find more episodes at investorfieldguide.com.

• 2:12Speaker 01

  Patrick O'Shaughnessy is the CEO of O'Shaughnessy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaughnessy Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of O'Shaughnessy Asset Management may maintain positions in the securities discussed in this podcast.

• 2:38Patrick O'Shaughnessy?

  My guest today is Matteo Franceschetti, the founder and CEO of Eight Sleep. Eight Sleep builds mattresses with dynamic temperature control and a variety of biometric sensors, and their goal is to make their customers get drastically better sleep. We talk about why biometrics matter, how hard it is to start a hardware company and launch manufacturing overseas, how Matteo manages his own sleep, and the massive potential preventative health companies like Eight Sleep may have in the future. I hope you enjoy this conversation with Matteo Franceschetti.

• 3:08Patrick O'Shaughnessy?

  Okay, so Matteo, I think this is the first time that I can say that I am a nightly active user of the product of one of my guests. Your product is Eight Sleep, a mattress that does all sorts of interesting things. I'd love you to begin by describing the origin story of this business. What was the path that led you to found Eight Sleep?

• 3:26Speaker 02

  Yeah, I was the typical entrepreneur, working long hours, and I started looking into sleep to see if I could sleep less, to have more time to work and do whatever I wanted. And then I started wondering why Elon Musk is taking me to Mars, but I still spend a third of my life on a piece of dumb foam. I mean, if I'm gonna live 100 years, I'm gonna spend 33 years of my life on a piece of dumb foam. That was now making sense to me, and so I thought, maybe I can fix it.

• 3:53Patrick O'Shaughnessy?

  What was the original journey of creating this product like? Because I imagine it's very complicated. There's a cool picture that we'll post in the show notes that shows like wires everywhere. And what was version one? Like, how did you decide what should go into version one?

• 4:08Speaker 02

  It's a cool story because my co-founder Max, so we built the first version in his garage in San Francisco, he just hacked a bunch of different sensors. And then he was also able to create a sort of heating pad. And he did everything like three days, but obviously it was a real hack. And then we invited friends to his place for a pajama party. And everyone came with their pajama and they tried the product and they gave us feedback. But at the time, there was no company, right? It was a side project. It was like the third side project we were playing with. And one of the people coming gave us a check at the end of the pajama party and say, "Oh, I want to give you 25K to start the business." And that is how it slipped started.

• 4:50Patrick O'Shaughnessy?

  Describe the state of it today for listeners. What are all of the things that the mattress does today?

• 4:57Speaker 02

  Let's start with the vision and then I explain what we are doing today. So we want to do two things. We want to compress your sleep and we want to save your life. Compress your sleep means what if you could sleep only six hours and get more rest than when you were sleeping eight hours? So technology can enhance your sleep performance. Then during those six hours, we still want to scan your body to identify if there is any illness or anything that you should be aware of. So going to bed is more valuable than going to your physician. What we do today is we already do partially both these two things. On one side, we improve your sleep performance and we do it through temperature. So we dynamically change the temperature of your bed and your body during the night to help you fall asleep faster and get more restful sleep.

• 5:38Speaker 02

  And second, we track everything about your heart rate, including HRV, respiration and sleep. It comes in two form factors. Is it whole bed or is it mattress cover that can be installed onto any bed and retrofitted?

• 5:51Patrick O'Shaughnessy?

  Let's talk through each of the reasons why those things are good. So why is temperature an interesting variable to play with as people sleep? What's the research behind it?

• 6:00Speaker 02

  Temperature is the big elephant in the room when you think of sleep improvement outside sleep medical disorders. There is plenty of medical evidence about that. There is also a book called Why We Sleep, written by Professor Matthew Walker, that has a whole section about thermoregulation. But the bottom line is your body temperature changes during the day and changes during the night. So what we do is we just enhance these changes to help you fall asleep faster, get more deep sleep, get more REM, less wake-ups and less tosses and turns. Then inside the device embedded, there are a lot of sensors that we use a technology called ballistocardiography. And so you just go to bed, but the bed has all these sensors and it's

• 6:43Speaker 02

  working like a wifi connected stethoscope. Through the sensors, we can pick any information about your heart rate. In the future, we will see arrhythmia, we will see atrial fibrillation, we will be able to predict if you're getting sick because your heart rate at rest changes a couple of days before you get the flu and sleep apnea.

• 7:00Patrick O'Shaughnessy?

  Talk me through the challenge of the temperature seems kind of straightforward. You're pumping water that's warmed or cooled through these coils. And I think, you know, there's been mattress pads that you can cool through time. So that seems maybe less technically challenging. The sensor part seems really hard. So like, what literally are those sensors? And how accurate are they relative to, let's say you went to some institute and did like a sleep study with the most sophisticated accurate sensors? Like, how much gap is there between what you can do now? And how quickly would that gap close?

• 7:33Speaker 02

  Briefly about temperature, sort of these technologies existed. The big challenges were to make it to create a great user experience, make sure that it's not noisy, that it changes temperature quickly and that it's comfortable. And then the big challenge is really the machine learning and AI, because we need to keep adjusting the temperature based on your biometrics and your sleep to really enhance it. On the sensor, we use this sort of microfilms. So there are these sensors that are embedded in the top layer of the mattress or the cover. You don't see them, you don't feel them. And as I was saying, they work like a stethoscope. They substantially pick up the vibration that comes from your chest and that vibration could be the vibration generated by the heart rate or the vibration generated by your breathing.

• 8:18Speaker 02

  Then together with movement, because we are able to track movement as well, we are able to infer your sleep stages. For example, in REM, you don't move, but your heart rate is accelerated because you're dreaming. Well, instead in deep sleep, you have a different breathing, a different heart rate, and you still move.

• 8:35Patrick O'Shaughnessy?

  I'd love to talk through, I like the idea that going to bed is more valuable than going to your physician, what the most valuable inputs are for health. So you've talked about several of them, heart rate, respiratory rate, things like this. Maybe HRV is a good example of one that people may not be familiar with. Talk us through a little bit about that. Why is HRV valuable? What does it measure? With that feedback loop in place, like if I get to see, which I do, using the mattress every morning, my HRV, like what can I do with that information? Why is it valuable?

• 9:06Speaker 02

  So HRV is a great proxy of how rested your body is. So let's say today you go and you run a marathon, tomorrow your HRV very likely will be really low. The higher the HRV, the better. It means that your body is more rested. Particularly if you're into fitness, CrossFit, or any sort of training, you start measuring how rested you are based on this metric. And when you see that your HRV is really low, that is the moment where you should take the day off, or you should have a very light session. The risk that you have if you train during those days is that you could just get an injury, or your performance would just be below par. So anyone who is, again, going to the gym, or in health and wellness and fitness, that is a

• 9:50Speaker 02

  great proxy. Another great proxy is your heart rate at rest, which is indicative of what is your cardio fitness. So the lower, the better. In this case, it's the opposite of the HRV. In my case, when I do high intensity interval training, the more I do that, the more my heart rate at rest drops. I have stats now with all the devices I use of the past probably three years, and I noticed that all the times that for a couple of months, I do high intensity interval training consistently for a month, my heart rate press drops. The other big thing, we don't track that, but is VO2 max, that is indicative of capacity to really intake oxygen.

• 10:31Patrick O'Shaughnessy?

  How much research is there on these variables? It seems like there's good research on the fitness component of this. It's helpful in terms of its utility to know when to train hard, when to rest, whatever. How much value is there in terms of more significant health problems or outcomes? Do you think that that's a realm that you'll be into soon? Like, am I going to get a notification that says like, you should probably check into X, Y, or Z? Like, what are the valuable non-fitness health outcomes?

• 10:59Speaker 02

  On heart rate and rest, there is plenty. In particular, there are also benchmarks of where you should be based on your age and gender. And so you can immediately understand if you are above, below par, or on par. The heart rate and rest is really important because it's a metric that changes when there is something wrong. So for example, two years ago, December 2019, I got the flu. And when I started looking at my heart rate and rest, I noticed that it started changing three days before I got the flu. So in the future, companies like us, they will be able to have an 80% confidence that maybe you're going to be sick in a few days. Or if there is any inflammation, or maybe even COVID. On the respiration, the respiration is more, what is really important is to see if you have sleep apnea.

• 11:44Speaker 02

  Because when you have sleep apnea, substantially, there is a lack of oxygen going to the brain. And so if you have a light sleep apnea, it's fine, you want to measure it. But there is no simple way to measure unless you use our product. You don't want to wear some of the sleep ap machines. But if your sleep apnea is really strong, you should use one of those. Otherwise, you will not be rested in the morning because your brain keeps lacking oxygen during the night. HRV, there is not a lot of information yet in terms of longevity and health. And it's a metric that keeps varying every single day. There will be more discovery.

• 12:18Patrick O'Shaughnessy?

  How do you think about the most valuable measurables or data? That it will be really hard for you to capture in a mattress. You showed me you're wearing the Levels Patch, which measures continuous glucose, blood sugar in your system, which I think is probably super valuable. Maybe there's other things that can be measured, like vitamin levels or your urine. I've seen a product that does that. Just help us flesh out the rest of what's missing. Like in 10 years' time, what are the other things that we're going to measure that might be valuable? And which of them do you think you can do eventually?

• 12:48Speaker 02

  To me, the most important thing we will do, and I really care about, is to really scan your organs. So I want to be able to detect cancer. There are already technologies that they do it. So we're not talking about inventing the wheel. Just no one was able to bring some of this technology to mass consumer at a reasonable price. And so imagine if with some of this technology, in three to five years from now, we will be able to scan your organs and see sort of cancer in a couple of different areas of your body. And we will go beyond that because maybe we'll just be able to see how your liver behaves after you have a couple of glasses of wine. Maybe it's not an illness, but right now no one knows does your liver becomes bigger, how much bigger.

• 13:31Speaker 02

  And then there will be the last step of predictive health where we will not even wait for you to develop a cancer. We will be able to know a couple of years in advance based on certain trends and patterns that you have a high likelihood to develop a certain type of cancer. That is what is going to happen in 10 years. We will change the form factor of the beds. We will introduce many more sensors. The beauty of what we do is there are three. Because of the price point, we can add sensors, adding a hundred bucks sensor. It's something we can do. It's not going to meaningfully change the MSRP. While instead in a wearable, you cannot add hundred bucks in cost. Second, we have a lot of space because there is all this dumb foam that no one is really using.

• 14:15Speaker 02

  And third, you use the product every single day for six to 10 years. And that type of retention becomes really valuable in terms of longevity because your heart rate today is different from your heart rate in six years from now.

• 14:27Patrick O'Shaughnessy?

  I love the idea of the space, the frequency, the MSRP as variables that make the bed the uniquely right form factor to measure this stuff. Let's talk through the business now and we'll probably keep coming back to why this information's valuable, so many neat things to dive into. What were the interesting early challenges of getting this off the ground? It strikes me that there's a heavy R and D function in your business. It's physical, so it's manufacturing. The marketing aspect is really interesting. Talk me through the early days of the business and the biggest challenges that you faced.

• 14:57Speaker 02

  Let me start with a funny story. So we went to Y Combinator, we did Way See Demo Day. We raised money, so it was a good moment and it was time to start manufacturing, but things were not happening in China. So I go to my wife, one of the co-founders, and I say, manufacturing is not happening. I have to go to China and fix it. And she says, oh, when do you go? And I say, oh, I leave tomorrow. And then she says, and when do you come back? Oh, once I have fixed it. And so I got to Shenzhen for a couple of months, one way only. And yeah, I started meeting manufacturing, I started meeting contractors and we figured that out. But the first batch, so everything started with an Indiegogo campaign. It was a crowdfunding campaign at the time, we sold 8,000 units.

• 15:41Speaker 02

  None of us ever built a physical unit of anything in our life. So we didn't know much and we had to build 8,000 units. So that was really painful. We were late in shipping and everything in hardware costs more than you expect. In particular, when you don't have experience, you are not able to predict the mistakes that you will make.

• 16:00Patrick O'Shaughnessy?

  Talk me through the early manufacturing lessons. So for those that want to go manufacture something overseas, so you land in Shenzhen. Who are the players? Who are you talking to? What are you literally doing? What are the steps that matter? What have you gotten better at since that original trip?

• 16:16Speaker 02

  The real bottom line, if I was redoing this again, is I would just hire people like our SVP of Hardware. It's not something that you learn overnight. If I was giving you an advice, is hire the best person who knows this shit.

• 16:30Patrick O'Shaughnessy?

  Yeah.

• 16:30Speaker 02

  Find the person and they will figure it out. Otherwise, the learning curve is too slow because any mistake can cost you months. But if you're gonna do that, then what I did is I went there through contacts and friends. I got connected to a couple of contractors. I identified one and this person who was Chinese was taking us around to see all the different manufacturers. But what you really need to do is to identify who's gonna be your manufacturer, negotiate with them. Based on the product, you might need more than one. For example, for us, there is one manufacturer only for sensors, another manufacturing for the thermal engines. And then there is one that assemble everything. You need to run a process and there is where someone with experience would be way better than you. And in order to get the quotes.

• 17:15Speaker 02

  And then you need just to be really good at timelines. Again, any mistake can cost you a quarter.

• 17:22Patrick O'Shaughnessy?

  How did you think through the different potential business models here? So obviously, it's a big physical product. You have to charge people for the product itself. And there's lots of ways that you can earn margin in any business, I guess. I think your model right now is you just buy the bed. And the application that I'm using every day is currently free. What have you considered in terms of potential business models to make this thing? One, the most valuable and to customers, of course, and then two, the most valuable business?

• 17:48Speaker 02

  There are a lot of features that are coming. So you can think of us like a Peloton of sleep. That is how some of our customers, they call us. Right now, the subscription is not paid yet, so we don't charge you for that. That is going to happen. We just want to make sure that we deliver enough value to our customers through health notifications and content and other data and insights and automatic temperature adjustment. We call it sleep fitness. And the reason why we call it sleep fitness is to me, going to sleep is like going to the gym. It's something that you're doing for your body health and longevity. And in the same way that you pay for your gym, there must be a small amount that you pay for your sleep in order to be always sleep.

• 18:28Patrick O'Shaughnessy?

  And when you talk about sleep fitness, you mentioned at the beginning, one goal being potentially reducing the amount of sleep. Why would the goal be less sleep versus just like more good sleep? Just want more waking hours in life? Like, talk me through that as a North Star and why I care about that?

• 18:43Speaker 02

  Our hypothesis is that what really matters more than anything is deep sleep and REM. And those ones, we want to increase them. The point is roughly, you still spend 50% of your time asleep in light sleep. And our hypothesis is that light sleep is substantially an inefficiency of your body to transition to these different stages. Again, we don't want to touch deep and REM. We actually want to increase them, but we want to compress light sleep that counts for around four hours a night. So what if we could cut it in half?

• 19:12Patrick O'Shaughnessy?

  I'm going to pull mine up because I'm just curious to ask the question and I'll give a real data point. Hopefully I'm not a terrible sleeper here. If you look at my data from last night, 60% of my sleep was light sleep and then basically split between REM and deep sleep for the rest. So what is good? What is a target? What percent should be light in the best sleepers out there that you've studied or measured?

• 19:33Speaker 02

  Yeah, it's super personal, but a rule of thumb, I think you could see your REM and deep anywhere between 15 and 25. For me personally, for example, if I got less than 18% deep, I will not feel good during the day. I will not perform well. Anything above 18%, I start being good. Anything above 20%, I'm like a killer today. Then is when you start really thinking that together they are deep and REM and they are in the 40% ish. It could go really between 30 and 50 and all the rest is light sleep. But light sleep is not what your body really needs to recover at its peak. Because if you got a full night only of light sleep, you will feel terrible in the morning, even if it was eight hours of light sleep. What you need is deep and REM more than anything.

• 20:17Patrick O'Shaughnessy?

  Yeah, really interesting. What behavior changes have you gone through, or maybe you and your wife gone through as a result of sleeping on one of these and having this data every day? Like, what are the biggest changes that you've made?

• 20:30Speaker 02

  Obviously, I'm super obsessed with my sleep and so I can tell you all the hacks. The most impactful to me is what I call a thermal shock. Before dinner, I usually take a shower and I keep switching between hot and cold 10 times, 30 seconds each. That thermal shock really relaxes me. If I'm in a hotel or if I have the opportunity to do a sauna and an ice bath, that is the same, it's actually better. The other big thing, if you talk to any sleep doctor, is consistency. Go to bed at the same time and more than anything, wake up at the same time every single day, also during the weekend. In that way, you train your body to wake up naturally at that time and you will wake up without an alarm, without feeling groggy. Temperature, as we were saying, is the big elephant in the room.

• 21:14Speaker 02

  Key thing is when you hear people saying, oh, you should sleep at sixty eight degrees the whole night, that is BS. The reason is your body temperature changes during the night. So sixty eight degrees could be right for thirty minutes, an hour, but not for the whole night. And that is where we come in and with our technology, we keep changing the temperature of your body based on what are your needs. Then you can try supplements, you can try normatic boots to compress your legs, mobility exercises.

• 21:41Patrick O'Shaughnessy?

  Have you learned anything about what you consume and how it affects sleep? So when and what type of food, alcohol or not, these sorts of things? What have been interesting lessons that you've learned there?

• 21:52Speaker 02

  Yeah, so I stopped drinking two years ago. Alcohol has a huge impact on your sleep and your recovery in general. Sometimes you don't notice it or you think the opposite because this just slows your mind and it might relax you. And you think, oh, actually a couple of glasses of wine, they will have sleep better. The reality is if you look at your biometrics, you will see that your heart rate at rest will go up, which is bad. Your HRV will go down and in general you will get less restful sleep. So I stopped drinking completely. I was not a heavy drinker even before, but now I'm good. Then also coffee. Coffee, what we have seen is, I mean, the rule of thumb is to stop drinking coffee eight hours before going to bed.

• 22:34Patrick O'Shaughnessy?

  Anything on food specifically that's interesting for you personally that you've learned? Like types of food or how proximity of eating to bed or just anything like that? Anything on the consumption side of food?

• 22:44Speaker 02

  Food and sleep specifically, there are some studies that prove that carbs, they can help you fall asleep faster. But then you will have less restful sleep. Usually you should stop eating a couple of hours at least before going to bed. If possible, and obviously a lighter meal is better than a heavy one. The reason is that if you involve digestion too much, there is where all the blood goes in your body and that makes everything harder. Then outside sleep, I have a lot of stories about my nutrition because I monitor my glucose. For example, for me, eating batteries is worse than eating a pizza in terms of glucose spikes. While instead, maybe because I'm Italian and ice cream, a gelato has no impact at all on my glucose, zero.

• 23:30Patrick O'Shaughnessy?

  That's great news.

• 23:32Speaker 02

  Yeah.

• 23:33Patrick O'Shaughnessy?

  Why is glucose spikes bad? Is there good science behind what is going on in the body? Like what's downstream of that? So if that's the indicator, you want to stay in like a low variance type band of glucose. Why is that? Why is that true?

• 23:44Speaker 02

  The simplest answer is glucose spikes, they create inflammation. And inflammation is the problem that then drives any sort of illness, including cancer, and it has an impact on your longevity. Then if you keep being at high level of glucose, you develop this sort of insulin resistant. And so you will start craving more and more junk food or food that can generate this sort of high spikes, which is then what can lead to diabetes.

• 24:12Patrick O'Shaughnessy?

  Yeah, that's fascinating. Going back to the business, so you've got the early days, you had the 8,000 orders on Indiegogo and you struggle up the hardware learning curve in Shenzhen and elsewhere. And that's the early stage of the business. How would you describe the next chapter of the business after that? What were the challenges in chapter two of the business?

• 24:31Speaker 02

  We finally shipped the 8,000 units. I think it took us like 18 months overall. It was 2016. So at that point, we finally are in real life orders. The number one challenge you face is then it's not that you sell or you need to build 8,000 units anymore. So the big problem for hardware companies is you do this successful crowdfunding campaigns, you build these large volumes, but then when you start selling on a day by day basis, then on each month you sell, I don't know, 300 the units. So that is going to screw up your whole supply chain. The manufacturer is unhappy because it says, what's happening? All the kind of thing. But things started going well. At the end of 2017, Cosla Ventures come in, they invest in us. Keith Rabois is the one leading the round.

• 25:15Speaker 02

  And they gave us the money to build the pod, which is the current technology. Because the first version didn't have cooling, but we knew since day one that cooling again was the big game changer is what can really enhance your sleep performance. We just didn't have the money to build it. So Keith and Cosla, they come in, they give us the money. At that point, we spent around 15 months to build the pod. By then we had the SVP of Hardware, so he was able to do it properly. I had on time. We shipped that and since then it has been, I would say, you know, things went pretty well. After the launch of the pod, three, four months later is when Funderstand led our round with Trey Stevens and that was our last formal round.

• 26:00Speaker 02

  Things are going really well now. People love the product. If you follow us on Twitter, you would see probably many people talking about that.

• 26:06Patrick O'Shaughnessy?

  What have you learned about marketing with this product specifically? What has worked well? What has failed when marketing a product that's a high price point and very different sort of thing? It's an infrequent purchase.

• 26:19Speaker 02

  A lot of things there as well. I would say the biggest thing is we probably tried to go on too many marketing channels too fast and the result is this is not an impulsive purchase. And so our customers before buying, they want to hear from other people, secondary voices that they trust that the product is good. They don't want to spend now the blindly 3K. And so what we understood is to focus on a smaller community and really own that community, which right now for us is the tech space and that's why you see me so active on Twitter. It's better to own more community that is still large because it's still millions of people and make sure that people keep talking about the product because that will create

• 27:02Speaker 02

  a snowball effect instead of just doing TV, radio, this, this and that. But you don't create multiple touchpoints with the same customer.

• 27:09Patrick O'Shaughnessy?

  Yeah, it's a fascinating density or heat of the comments is always really important. What was the most exciting day for you in the research part of your division across the firm's history?

• 27:21Speaker 02

  I think two things. So first, the first prototype that was really able to cool me, that was an amazing experience. Once you started using it, you started thinking why there is nothing like that. It's like living in a house without an AC or in a car without an AC. Once you started using it, it's so normal and so obvious that you can't imagine living without that. So that was one. The other one, it was, we picked the first episode of AFib in one of our clinical trials and you really start understanding that we can really save lives. And that is when everything started having a bigger meaning in what we do. And the death of one of our employees a year ago died with a heart attack in the early morning.

• 28:04Speaker 02

  So things like that, they shouldn't happen and we could prevent them hopefully one day.

• 28:08Patrick O'Shaughnessy?

  I love that. I mean, defaults matter, right? And people are lazy. People don't take active steps often, but if it's done passively and collected passively, which a bed is uniquely situated to do, it seems like a cool business angle or idea. What else have you learned about, Peloton, I guess is a great example, of turning an infrequent purchase into a frequent purchase? Any nuance to that business model that you think the audience would find interesting?

• 28:32Speaker 02

  Yeah, so what we did, because we knew and we know we'll keep releasing new technologies, we didn't want people that bought a bed last year to then find the thing that now immediately obsolete some month after. And so the way we design our beds is that you can upgrade them at a fraction of the price. So let's say tomorrow we release a new pod. You don't have to buy the whole new pod. You just buy the top layer and you replace that in your current product. The foam part will still last 10 years, as it has always done for them mattresses, but the technology at a fraction of the price can be updated every year. And a large part of our monthly revenue is still people just upgrading, which if you think is like the iPhone model, is the same concept.

• 29:16Patrick O'Shaughnessy?

  Yeah, that's fascinating. And obviously layering and subscription, like Peloton has done, content for them, probably insights and data for your customers is another way of doing it. It's pretty fascinating. What has it been like working with your wife? That's a fairly unique co-founder story. I'm involved in another business where that's the case as well called Bottomless. I'm just fascinated by it. You know, I don't work with my wife. What have you learned about doing that effectively and not killing each other?

• 29:40Speaker 02

  I'll share a couple of stories because they're funny. So the first one is we use WhatsApp for our personal stuff and we use Slack for business. And so sometimes I might be screaming on Slack about something that needs to be fixed today. Then on WhatsApp, I'm asking what we are going to have for dinner. And so we have these two dimensions. And then she's the one, I would always talk about work. I would always be working, right? And so she was the one who has set the boundaries. It's just say correctly, you need to treat me like a colleague. So it's not that at 9:00 PM randomly while we are on the couch, you can just start talking about work. But then what I did was, fine, I got that. I cannot talk about that, but I can still Slack you because I would Slack a colleague if I have an idea.

• 30:23Speaker 02

  And so sometimes we are on the couch at nine thirty PM and I started writing her and I can hear her phone vibrating on the couch and it's me, but I cannot talk about that.

• 30:34Patrick O'Shaughnessy?

  That's really funny. What else is exciting to you about the future of this quantified self movement? If we were to just start to dream a little bit and think about what might be possible in the future for us, for our kids, what is the almost like sci fi like potential outcomes that you think we might see in our lifetimes?

• 30:55Speaker 02

  Preventative health. I'm so excited about that. So we have this vision. Let's assume we nail our vision as we will. I give you an example. There was the death of a person, she's a founder in tech. She lost one of her parents in thirteen days because they discovered she had cancer all over her body and then the person was gone thirteen days later. This can be solved. There are a bunch of different types of cancers that can be detected very early. And actually, if you detect them very early, they're not even that complicated to be solved. The point is, it's really hard to detect them early. And so by the time you discover them, it's usually too late. And the end goal, as we were saying, is not even to detecting day one of cancer. To

• 31:40Speaker 02

  me is detecting the fact that you have a high likelihood that that will happen two years before it even starts. That will happen. Multiple companies will be able to help us achieve that, not just aid sleep. And we have the data with all the wearables to make it possible.

• 31:56Patrick O'Shaughnessy?

  What has been the hardest challenge overall in the business so far? What was the hardest hill to take?

• 32:04Speaker 02

  I think, so obviously, we started in two thousand and fifteen when hardware, there was a lot of interest around hardware. Then a lot of other companies had problems in the following years. And so for a couple of years has been really tough for us because investors didn't want to invest in hardware anymore. We were lucky to find the right visioners that were able to back on our vision and take bold bets, but it was not an easy time.

• 32:30Patrick O'Shaughnessy?

  Yeah, it's fascinating.

• 32:31Speaker 02

  Hardware is hard.

• 32:32Patrick O'Shaughnessy?

  Hardware is hard. Yeah, yeah. I have a relative who is building a hardware business and it's just amazing. It's like building a house, like twice as expensive and twice as long with way more problems than you anticipated. Seems to be the rule of thumb. I'd love to hear, switching topics a little bit, the most valuable things that you've learned as a huge fan of Formula One racing. Something I know as a passion of yours. F1 is obviously fun and interesting to watch and exciting and precise and high-paced. I remember watching the Sena documentary years ago. It's one of my all-time favorite documentaries. But beyond just the enjoyment of it, what have you learned about the way that business operates that you find most interesting?

• 33:12Speaker 02

  It's really an engineering business. Everything is about gaining a tenth of a second. They spend 300 million or 500 million in a year to just gain a couple of tenths. And they need to be reliable. There are a lot of things that are really common to what an hardware startup does. You need to almost match perfection with a product that doesn't break and really performs at its best. They have some of the best minds in the world for software. There are all these software engineers and sometimes you see the drivers that they start having software problems and they just change their steering wheel and the problem is solved. Or you see these engineers connecting to the car with their computer to reset all

• 33:55Speaker 02

  the key specs of the car. And I think for the average Formula One fan who is not in tech, they don't understand that because they are still very, the old school F1 that was very mechanical. Well, instead now the F1 is really a software-controlled device driven by this Superman.

• 34:14Patrick O'Shaughnessy?

  What do you think will happen to old mattress companies as you and maybe others are successful in modernizing the bed? What's interesting to you about, everyone knows like Sealy or Serta or, you know, some of these brands that go in that stupid showroom and lie on these things? That's got to be a pretty big industry. Purple and Casper are the modern equivalents. What have you learned about all those companies? Like what else is interesting about the mattress ecosystem or industry to you?

• 34:39Speaker 02

  The problem there is foam is really a commodity. If you wanted to start a done mattress company today, you could do it today and you could be able to ship probably within a week. You just call a couple of these large foam manufacturers. You set up a deal with them because there are so many companies, they have probably a template. You sign it and they start shipping for you. There is no technology. And so it's really a matter of how much do you want to pay for this foam? You want to pay a hundred bucks, three hundred or a thousand bucks? It's really like going to the market or having a menu. And then you start shipping it and becomes just a branding exercise. Then obviously, I still have a respect for this company. There are still great people working there. They're big, they are able to move large units. So I'm not talking about the people.

• 35:23Speaker 02

  I'm really talking about the type of business. I think if you go on Google and you just Google beds in the Middle Ages, it would still look the same bed. Or if you look at beds at the time of the Romans, it's substantially the same thing. This means that for the past 2000 years, no one brought any sort of improvement, technological improvement to our sleep, which again is 33 years of our life if we live 100 years. The last innovation in sleep was memory foam in 1966. And memory foam is not really a technological innovation, it's just a different type of foam. So that's the part that I honestly don't like of the industry.

• 36:00Patrick O'Shaughnessy?

  What other businesses have you learned the most from in terms of lessons that they've offered you when building Aids Sleep?

• 36:08Speaker 02

  I think Tesla, right? Electric cars. From a certain perspective, being ambitious, I think of us like a Tesla of sleep. And the reason is when Tesla started, obviously, electric cars existed, but it was a very niche market. And no one was betting on that because the user experience was not good. It was too painful, the batteries were not lasting enough, all that. Elon doubled down on that. And now every other company is trying to catch up with Tesla, but they cannot. The reason is Tesla is a software company first, then they also have great hardware capabilities, but it's not a mechanical company. And I also think they built a brand that really stands for electric vehicles.

• 36:49Speaker 02

  And so it will be way harder for BMW and Mercedes and all the others to catch up with that. And so my dream is that the same thing will happen with sleep, where A sleep will be, hopefully, the Tesla sleep and all the other companies, they will try to catch up. But because it's not part of their DNA, to have that hardware skill and that software and machine learning skill, they will always be behind.

• 37:13Patrick O'Shaughnessy?

  I'm sure also that you're collecting valuable data that only you could have by virtue of having people on these things every night. You've got a data set and there's a compounding data advantage of sorts that you couldn't buy this data from some other vendor. Like you have to, I guess you could buy sleep study data or something, but you can't do it in a way that helps you iterate the quality of the product via software in such a way. Anything you've learned about that part of the business, or I'll call it like the pure data part of the business and how to manage that piece well so that one, you're getting good lessons and two, those lessons are feeding back into the quality of the product?

• 37:48Speaker 02

  Our data is really helpful in two ways. The most obvious is for us to keep improving our products. So more data we collect, the more we can improve our algos. So our algos, they learn. Then sometimes we also ask our users feedback in the app, based on the feedback, we keep improving our algos. But the second big thing is the amount of data that we collect in a night is probably more than what some of the best sleep professors in the world, they have seen in their whole career. And the reason is because in the past, there were no devices that were able to track sleep every single night at home. Five years ago, you could go to a sleep clinic, but a sleep clinic is a very foreign environment, an hospital.

• 38:32Speaker 02

  They cover you with all these sensors in this room and they pretend you to sleep, which is not going to happen, particularly if you already have sleep problems. And then you add this anxiety, nothing is going to happen. The way we can help doctors and researchers by providing, I don't know, three years of your sleep data at home in your normal environment. And based on that, they might be able to help you to solve some of your sleep issues.

• 38:58Patrick O'Shaughnessy?

  How do you think about gathering other useful data as frictionlessly and passively as you gather sleep data? So like, I'm sure it would be valuable for you to know when somebody's had a glass of wine or something like this, or eat some fried chicken at 10 o'clock, or something like that. How do you think about that? Getting more data into the ecosystem that helps your customers, but maybe doing so in a way that's not invasive or requires them to open an app every time they do something?

• 39:23Speaker 02

  We are pretty obsessed about this passive data. So we want to have as much data as possible without you doing anything, because I hate doing things, wearing things, charging things. And so we do it in two ways, on the sleep side with our device, but then we are connected to Apple Health. And to Apple Health, if you use any other device, there will be the data there that then we can pull. And so we are already running studies internally where we see when you train, or what time of the day you train, what kind of training, was it yoga, was it tennis, was it high intensity internal training, whatever? And then we start working on correlations. That is something our users really want, because they want to know, okay, should I train in the morning, or should I train

• 40:04Speaker 02

  in the afternoon? Or maybe I'm agnostic and I can do whenever I want. My case specifically as a Mateo, if I train in the late afternoon, I struggle to sleep. My sleep quality drops like 10%. And the reason is, I tend to go to sleep early. And so if I don't let at least a couple of hours go by before I go to bed, then my sleep is very nervous.

• 40:28Patrick O'Shaughnessy?

  What have you learned about what's going on at Apple that people might find interesting? Because I'm very interested in what I'll call like, protocol businesses, where it's sort of like the standard that everything pipes into, and data can be pulled out as well. What's interesting about what's going on at Apple Health?

• 40:45Speaker 02

  I think Apple Health is becoming this first platform where they're really collecting all the data, plus they are developing their own devices. The Apple Watch is really a medical-grade device. Maybe not now, but it will be in a couple of years. Today is already to a certain degree. So they created this device that, if you think it's very similar, they use a form factor that people are already using, as we do, and they are reinventing the watch, we are reinventing the mattress. The end purpose is to build the medical-grade devices that can help you live a healthier and longer life. But the strength that Apple has is that everyone else is pushing data to them from other wearables or devices.

• 41:25Speaker 02

  And I'm sure they are developing a very large database, health database. Myself, I keep using my Apple Watch. I have been using it for three years now, not so much for the single day, but because I'm really building a data set about my heart rate. And so in 10 years from now, I will look back and I will see what was my heart rate today and how that is changing. And hopefully by then, machine learning will be at the point where they will be able to tell me I can develop a rhythm or I could be subject to a heart attack.

• 41:56Patrick O'Shaughnessy?

  It's a fascinating future, right? The preventative health side of all this is what's most exciting, as you laid out. I'm an early adopter of all these things typically, so I recognize it'll be some years before this is everybody. But you have to figure that it's going to be a generally good thing for national health. What is the thing you're most excited about for the long-term future of 8Sleep? I realize we've talked about some of these aspects already, but as you look forward and just put your vision hat on, what thing are you most excited about?

• 42:24Speaker 02

  Compressing sleep and preventative health. I mean, our two things that probably even today, when I share them, people still think I'm crazy. So that gives me more energy to really make them happen. And I'm pretty confident that maybe to different degrees, but both of them, they will happen. They are already happening with our device because our customers are already falling asleep faster. So they are gaining time there. They're already getting better sleep. So they are improving their efficiency and we are already detecting some diseases.

• 42:53Patrick O'Shaughnessy?

  Fascinating stuff. I've loved using it. I think people listening know I'm into all this measurable, wearable, quantified self-stuff, but it's not just for fun. I think the impacts can be quite interesting. So it's been a pleasure to meet you in this format. I ask the same closing question of everybody, which is to ask, what is the kindest thing that anyone's ever done for you?

• 43:11Speaker 02

  I would guess my wife. She has taken care of me multiple times. Even recently, I had a really bad day at work. I was crazy. I was a bit down and she made some dinner for me and gave me energy again. That just happened last week.

• 43:25Patrick O'Shaughnessy?

  Very simple. Mateo, great to see you. Thanks for doing this.

• 43:28Speaker 02

  My pleasure.

• 43:30Patrick O'Shaughnessy?

  To find more episodes or sign up for our weekly summary, visit investorfieldguide.com. Thanks for listening to Founder's Field Guide.

• 43:51Patrick O'Shaughnessy?

  To find more episodes or sign up for our weekly summary, visit investorfieldguide.com. Thanks for listening to Founder's Field Guide.