20VC GOAT's Eddy Lu on Pivoting From Failing Social Dining App To The World's Largest Sneaker Marketplace, How The Best Founders Pick Their Investors & Why It Is Better To Be Hated than Unknown



Harry Stebbings interviews Eddie Lou, founder and CEO of Goat, the world's largest marketplace for authentic sneakers, on "The 20 Minute VC." Eddie shares his journey from Wall Street to entrepreneurship, highlighting his pivot from various ventures, including Japanese dessert stores and 99-cent apps, to creating Goat. The conversation delves into the challenges and insights gained from pivoting businesses, the importance of trust in marketplaces, and Goat's innovative approach to eliminating friction in the sneaker buying process. Eddie emphasizes the significance of co-founder relationships, the role of key investors like Greg Betanelli and Maynard Webb, and Goat's omnichannel strategy, merging digital presence with tactile retail experiences. Harry and Eddie also discuss the critical lessons from Goat's Black Friday mishap and the future vision for Goat as a next-generation sneaker retailer.

Summary Notes

Introduction to the 20 Minute VC Podcast Episode

  • Harry Stebbings introduces the podcast and invites listeners to connect on Instagram.
  • Harry introduces Eddie Liu, founder and CEO of Goat, and outlines Eddie's diverse background.
  • Harry thanks Greg Betanelli from Upfront for introducing him to Eddie Liu.
  • Harry also promotes The League, an exclusive dating app, and Zoom, a video and web conferencing service.
  • Harry promotes Culture Amp, a platform for employee feedback.

We are back for founders Friday here on the 20 minutes VC with me, Harry Stebbings at H debbings 90 96 with two b's on Instagram.

This quote is an introduction to the podcast episode and an invitation for audience engagement via Instagram.

To date, Goat have raised over $97 million in vc funding from some of the very best in the business, including Excel index upfront and include angel investments from Elad Gill, Ashton Kutcher and Alexis Ohanian, just to name a few.

This quote highlights the significant venture capital funding that Goat, Eddie Liu's company, has raised, indicating its credibility and success.

But before we meet today's guest, are you told your standards are too high? Well, the league is the app that tells you to keep them.

This quote transitions from the introduction to promotional content, specifically highlighting The League dating app.

And speaking of products that I'm a fan of, you must check out Zoom, the fastest growing video and web conferencing service.

Harry promotes Zoom, endorsing it as a fan and highlighting its growth and user satisfaction.

And speaking of connecting people there you must check out culture amp, the platform that makes it easy to collect, understand and act on employee feedback.

Harry introduces Culture Amp as a platform for managing employee feedback, suggesting its utility for businesses.

Eddie Liu's Entrepreneurial Journey

  • Harry asks Eddie to discuss his diverse entrepreneurial background leading up to Goat.
  • Eddie shares his journey from corporate life to entrepreneurship with his co-founder Daishan.
  • Eddie and Daishan bonded over their dissatisfaction with corporate jobs and decided to start a business together.
  • They built 99 cent iPhone apps and opened Japanese dessert stores for passive income, which turned out to be very active during the 2008 downturn.

Goat basically started ten years ago when I realized how depressing corporate life was.

Eddie explains the origin of his entrepreneurial spirit, stemming from a desire to escape the dissatisfaction of corporate life.

We had good, demanding jobs, but we really bonded over our dispassion about being small cogs with very little impact in a huge machine.

This quote reveals the motivation behind Eddie's and Daishan's decision to quit their corporate jobs and start their own business.

Founding and Pivoting of Goat

  • Eddie and Daishan faced challenges with their dessert business during the 2008 downturn.
  • They created GrubWithUs, a social dining network, which gained initial traction and raised $7.6 million after joining Y Combinator.
  • GrubWithUs faced marketplace friction and eventually did not work out, leading to pivots.
  • The pivot to Goat was inspired by Daishan's bad experience buying fake sneakers on eBay, highlighting the need for a trustworthy marketplace.
  • Goat differentiates itself as a managed marketplace, providing a retail-like experience for buyers by handling authenticity verification and seller quality behind the scenes.

The idea got initial traction, got some great initial traction. We joined y Combinator, raised $7.6 million for it afterwards.

Eddie recounts the initial success of GrubWithUs and the significant funding they received after participating in Y Combinator.

We pivoted. We pivoted. We pivoted again.

This quote emphasizes the iterative nature of the startup journey, highlighting the multiple changes in direction before finding success with Goat.

We just realized how broken the experience was on eBay, especially when you're buying a high value good like sneakers.

Eddie identifies the problem that led to the creation of Goat: the flawed experience of buying high-value items like sneakers on eBay.

Passion vs. Vision in Entrepreneurship

  • Harry asks Eddie about distinguishing between passion and vision in entrepreneurship.
  • Eddie discusses the challenges of their social dining concept and the realization that it wasn't working.
  • He describes the product and social friction in the marketplace that led to the pivot from GrubWithUs to Goat.

Well, we basically threw everything we had to solve. Social dining.

Eddie reflects on the commitment they had to their initial concept, indicating the difficulty in deciding when to pivot.

The idea of meeting new people over dinner was a great idea in theory, but just like with the eBay example, there is just too much friction in this marketplace.

This quote explains the issues with their social dining venture, comparing it to the friction experienced on eBay, ultimately leading to their pivot to Goat.

Pivoting in Startups

  • Eddie Liu and his co-founder Daicha experienced waning passion for their initial concept due to a lack of mass market adoption.
  • They were determined not to let their startup fail and were not open to being acqui-hired, leading them to pivot.
  • Pivoting was seen as the only option to continue their entrepreneurial journey.

"But we just could never get mass market adoption. And through all these tests, our passion for the concept waned. But our drive for building a business never died."

The quote illustrates the challenge of achieving mass market adoption and the subsequent decline in passion for their initial concept, while highlighting their persistent drive to build a successful business.

The Misnomer of an Overarching Vision

  • Eddie Liu agrees with Marco from Thumbsac and Adrian Ayun that having an overarching vision to start a company is a misnomer.
  • He believes in making micro pivots on a daily basis and changing things up if they are not working.

"No, for me, you make micro pivots even when you're building a startup and you have that initial vision."

The quote emphasizes the importance of flexibility and the willingness to make small, frequent adjustments to the initial vision of a startup.

Data-Driven Signals for Pivoting

  • Eddie Liu suggests that a lack of data indicating product-market fit is a signal for pivoting.
  • High customer acquisition costs due to friction points were a clear indicator that their business model was not suitable for mass market success.

"The data driven perspective is probably that the absence of data meant we didn't have product market fit."

This quote points to the absence of positive data as an indication that the product did not meet market needs, signaling a need for a pivot.

Investor Relations During a Pivot

  • Pivoting from group dining to sneakers was a significant shift that led many investors to write off Eddie Liu's startup.
  • Investors allowed Eddie Liu to keep the remaining funds to pursue the new vision, showing trust in his potential despite the pivot.
  • Board member Greg from upfront, with his eBay experience, was particularly supportive of the pivot to sneakers.

"Luckily, pivoting from group dining to sneakers is very natural and logical, as you can imagine."

The quote is a sarcastic remark on the drastic change in business direction, which was not an obvious transition for investors to support.

Working with Board Members

  • Eddie Liu highlights the value of having a supportive board member like Greg, who protected and supported the startup during its pivot.
  • Greg's hard work and belief in the entrepreneurs were critical during the transition, and he was instrumental in helping them navigate the pivot.

"And the thing I love the most was when we were pivoting... he was always supportive, never pushed us to get Acqua hired or return the money."

The quote reflects Greg's unwavering support and his role in encouraging the founders to persevere rather than giving up or returning investors' money.

Investor Selection

  • Eddie Liu values investors like Maynard Webb for their experience and willingness to provide guidance.
  • Webb's commitment to weekly Skype calls for advice, despite his busy schedule, set an example for the type of investor Liu looks for.
  • The personal relationship with investors and their involvement in the company's journey is important to Liu.

"So I just look for that in investor."

This quote summarizes Eddie Liu's criteria for selecting investors: those who are willing to offer support and advice even during difficult times.

Founder Relationships

  • Eddie Liu emphasizes the importance of a strong co-founder relationship, especially during challenging times like a pivot.
  • He shares a story about a physical altercation with his co-founder Daisha during a basketball game, which they quickly moved past to focus on work.
  • Their long-standing relationship and complementary skills have been crucial to their ability to work through tough issues.

"You have to be so aligned with your founder. You're going to get through tough ideas and you're going to get through tough issues and you're going to push through and just work together because you both want to succeed so badly."

The quote highlights the necessity of alignment, resilience, and shared ambition between co-founders to overcome challenges in a startup environment.

Common Pitfalls in Co-founder Relationships

  • Ego can be a detrimental factor in co-founder relationships, as observed by Eddie Liu in his Y Combinator batch.
  • Clear communication and understanding of roles and responsibilities are essential for a healthy co-founder dynamic.
  • Liu and his co-founder Daisha had an early conversation about who should be CEO, demonstrating their focus on what was best for the company rather than personal ambition.

"One place where I see that it goes wrong is ego."

This quote points to ego as a common issue that can lead to the breakdown of co-founder relationships, emphasizing the need for humility and teamwork.

Importance of Differentiated Supply in Marketplaces

  • Differentiated supply is essential but does not necessarily mean unique products.
  • Trust and safety are vital for marketplace success.
  • Examples include Stubhub with ticketing and Carmax with used cars.
  • Founders should consider enhancing existing supply with trust and safety.

"So, yes, you do have to have supply differentiated from the incumbents, but that doesn't mean unique product."

Eddie Liu emphasizes that while supply differentiation is crucial, it can be achieved through quality and authenticity, not just uniqueness of product.

Strategies for Scaling Supply from Zero to One

  • Unnatural and unscalable tactics may be necessary initially.
  • GOAT used creative photography to simulate multiple sellers.
  • The focus was on creating the appearance of a diverse marketplace.

"So in the beginning we were the only seller... we went to Home Depot and bought a bunch of different tiles... it looked like we had a bunch of different sellers... But really it was just us taking those pictures in our office with a one by one tile."

Eddie Liu describes the innovative approach GOAT took to overcome the challenge of appearing as a multi-seller marketplace when they were the sole seller.

Role of Existing Distribution and Offline Activities in Marketplace Demand

  • Existing distribution channels can facilitate marketplace demand.
  • Enhancing the buying and selling experience through technology is key.
  • Utilizing both online and offline presences can be beneficial.

"It's a lot easier when existing distribution exists... we're taking that and just enhancing the experience through technology."

Eddie Liu agrees with the notion that leveraging existing distribution channels and enhancing them with technology is effective for generating demand.

GOAT's Decision to Merge with Flight Club and Go Omnichannel

  • The merger with Flight Club was driven by a desire to offer a tactile experience.
  • Physical retail stores make sense for certain commerce categories like sneakers.
  • The decision was well-received by investors due to synergies between the two companies.

"Sneakers are a very tactile experience. And people want to feel the shoe, wear the shoe, even smell the sneaker that they're buying."

Eddie Liu explains the rationale behind taking GOAT offline, emphasizing the sensory aspect of purchasing sneakers.

Impact of Physical Retail on Margin Structure

  • Physical retail can be compared to digital marketing expenses.
  • The location of the store plays a role in justifying the overhead costs.
  • The transition to omnichannel may not significantly impact margins.

"If the store is in a class A location, it's no different than spending money on Facebook marketing."

Eddie Liu suggests that the costs associated with physical retail can be analogous to digital marketing costs, and thus may not adversely affect margins.

Learning from Failures: The Black Friday Experience

  • Failures provide learning opportunities and can be pivotal for growth.
  • GOAT experienced significant challenges during Black Friday 2015.
  • Customer service and communication were key to overcoming the backlash.

"It's better to be hated than unknown... we responded to every single customer service message, apologized, and just told them that we're going to make it right in the future."

Eddie Liu recounts the Black Friday incident as a crucial learning experience and highlights the importance of customer communication in crisis management.

CEO's Personal Coping Mechanisms During Crisis

  • Focusing on customer experience can help navigate through tough times.
  • The GOAT team personally addressed customer service issues post-Black Friday.

"We just hunkered down and just focused... all of us literally were on the customer service lines for the next five days, answering every single message possible."

Eddie Liu describes the hands-on approach taken by the GOAT team to manage the fallout from the Black Friday debacle, emphasizing dedication to customer service.

Impact of Literature on Personal Conduct

  • Reading certain literature can have a profound effect on one's behavior.
  • The story "The Tell-Tale Heart" by Edgar Allan Poe left a lasting impression on the speaker, instilling a sense of moral responsibility.
  • The mental consequences of guilt and wrongdoing are highlighted as significant deterrents to immoral actions.

"Wow, you can get away with murder, but the mental anguish that you have after, when you hear the dead person's beating heart everywhere you go, will consume your mind."

This quote illustrates the psychological torment that guilt can cause, as depicted in Poe's story, and how it influenced the speaker's commitment to being a law-abiding citizen.

Silicon Valley and Venture Capital (VC) Critique

  • The speaker expresses frustration with the VC process, describing it as potentially a multi-year waste of time.
  • The criticism is directed at VCs who repeatedly pass on investment opportunities due to a lack of understanding of the market or fear of market size.
  • The speaker suggests VCs should not engage with entrepreneurs across multiple funding rounds if they have preconceived doubts about the market.

"So the one thing I would change about VC is just if you already have it in your mind to not understand the market or not understand the sizing, don't keep asking entrepreneurs to hang out and to chat with you for the different rounds, because you're probably never going to get there."

The quote captures the speaker's desire for VCs to be more decisive and transparent, avoiding unnecessary interactions if they are not genuinely interested in investing.

Fundraising Advice for Early-Stage Investments

  • The speaker shares a personal story from their experience raising seed funding after Y Combinator (YC).
  • They discuss the decision to decline a $5 million Series A offer in hopes of achieving a higher valuation later, which ultimately backfired.
  • The advice given is to accept good terms from a reputable investor when available, rather than gambling on future possibilities.

"If you get great terms with a great investor, just take the money."

This quote emphasizes the importance of seizing favorable investment opportunities when they arise, rather than taking unnecessary risks.

Personal Inflection Point

  • The speaker recounts a pivotal moment in junior high with a science teacher, Mr. Edwards.
  • Pretending to be less intelligent to fit in was a behavior that the teacher corrected, leading the speaker to embrace their capabilities.
  • This experience fostered a love for science and computer science and taught the importance of self-belief and academic integrity.

"Stop acting dumb. And so he worked with me for the next few months and just, he made me love the sciences and I did computer science afterwards."

The quote reflects the transformative impact that a teacher had on the speaker's attitude towards education and self-acceptance.

Value of Board Members

  • Adam Bain's contribution to the board is highlighted as invaluable due to his extensive network and experience scaling Twitter.
  • His expertise in HR, technology, and people management is particularly noted as beneficial.

"His experience with all things people, HR, technology, are just invaluable."

This quote underscores the strategic advantage of having experienced individuals like Adam Bain on a company's board, especially those with a broad and influential network.

Vision for Goat's Future

  • The speaker outlines the vision for Goat as the next-generation sneaker retailer, emphasizing variety and consumer choice.
  • The contrast between traditional retail limited selections and Goat's expansive catalog is presented as a key differentiator.
  • The integration of first-party retail sales with third-party marketplace dynamics is seen as a consumer-driven trend.

"Having a huge variety and a huge catalog of sneakers allows us to be that next generation sneaker retailer."

The quote conveys the speaker's ambition for Goat to redefine sneaker retail by offering an unparalleled selection of products.

Acknowledgments and Networking

  • The host expresses appreciation for the guest's participation and shares contact information for further engagement.
  • Networking and introductions facilitated by mutual contacts are acknowledged as beneficial in the context of the show.

"Again, a big hand to the wonderful Greg betten Elliot up front for the intro to Eddie today."

This quote highlights the role of networking in creating opportunities for dialogue and connection within the industry.

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