Mike Munter: Hey, Avi, how are you doing?
Avi Zolty: Hey, Mike, how’s it going?
Mike Munter: All right. We are here to talk about earfleek.com today, which is an interesting concept you developed. Before we get into that, I was wondering if you could tell us a little bit about your background, your education, etc.
Avi Zolty: Absolutely. I actually didn’t go to college. I went to a program called Y Combinator in winter of 2013. I had a company called Beatdeck—actually two companies Trustbull and Beatdeck and we sold those in 2015 before I founded a company called Skirt.
Actually, right now I’m going back to get an education after all—I’m actually doing an MBA out here at the University of Cambridge. It’s been just a wild, wild ride, but I sold the company Skirt, it got sold to fare.com a couple of years back and then I started EarFleek.com maybe—I want to say in 2016-2017 or around there.
Mike Munter: That’s pretty cool. Sounds like you are a serial entrepreneur—is that right?
Avi Zolty: Unfortunately, I think it’s actually like an interesting conversation about the concepts around serial entrepreneurs. I would argue it’s a vice, being an entrepreneur lately. Meaning, if you gamble and you have that feeling where you are feeling unsure—I should not do this, but I really want to, and you get that rush and that excitement, that adrenaline. I see a lot of similarities (laughing) between that and being an entrepreneur. So, unfortunately yes, I seem to be a serial entrepreneur. Yes.
Mike Munter: Yes. Well, the bottom line is if you’re having fun—it does not matter what label you put on it.
Avi Zolty: Yes. I’m actually doing some consulting interviews with McKinsey and BCG, those global management consulting firms, and the way I’m framing it in the interviews is that I’m a reformed entrepreneur, which I think is the right way to look at it.
Mike Munter: Okay, cool. Well, let’s talk about EarFleek.com. Why don’t you give an overview of the business?
Avi Zolty: Absolutely. The business is really, really simple. I’m actually really excited. I think in my life, I think EarFleek is coolest thing I’ve ever done—which sounds silly because it looks just like the earring subscription, right?
But it’s solving so many different problems. It’s actually brilliant in its inception—at least I think so, but I’m a little bit biased. The idea is—it’s just a monthly earing subscription at $3.50. Subscribers get a pair of earrings every month, they keep it, no ands ifs or buts, no tricks—no keep it fees or cancellation charges or anything like that.
And the reason I think it’s so brilliant is that one of the reasons subscriptions work is they are able to bid the lifetime value of a customer on the direct response ad sites. If you don’t really know much about that world, like Facebook and all these sites, the reason that Facebook is a billion-dollar company and, Lamar or whoever sells billboards is not, is that Facebook has got a unique way of letting people bid for each time they show an ad.
You can be very granular, really understand how much you are paying to acquire a customer. Because of this “meritocratic democratization of ads,” the real value of—the real amount you can bid on Facebook, isn’t how much money your board has given you.
It’s based on how much money are you certain that you can get off that customer. Subscription businesses have this long trail of customers, which means that they much better understand, or they can much better calculate the value of a customer, rather than someone selling just a one-off product and say, “I hope this person refers me to their friend,” or something like that actionable, right? Yet the problem with subscription businesses is most of them are really expensive.
If you think of Tote for example, a company where my co-founder and I actually worked, or Stitch Fix or all of those different subscription boxes out there, they are $40, $50, $60 to fund.
The problem is that ruins the ability for a subscription to take that advantage you have on the direct response ad channels. The reason is at $50 for a subscription, there are very few people or at least not as many people signing up for that subscription the first time they see it—your conversion rate is low. Then, people may only stay one or two months and they will turn out.
If you are a very, very low-priced subscription box, first of all, have a very high conversion rate, which means you are getting a lot of customers, which has this compounding effect. Then you also have a very long lifetime of that customer, and that allows you to bid more money on Facebook and really beat out the competition.
I know that was a really long way to explain that earfleek.com was built originally as a way to arbitrage that function. And if you think about, for example dollar shave club does something similar, but they are much more expensive. They are like $5 or $8, something like that nowadays.
Mike Munter: You are really focused on capturing people the first time they see your site and building a volume.
Avi Zolty: Yes, exactly. We are focused on keeping customers for a very long time and having a very high conversion rate. Then, a lot of the magic obviously is how to make margin at a $3.50 cents subscription. Right? The reason no other box—that is our biggest advantage—most other companies, even dollar shave club, the reason they are priced so much higher is that, forget the actual product you’re shipping, the cost of shipping something in the continental U.S. is quite expensive.
Right. We ship much cheaper than—we actually ship much cheaper than Amazon, just based on a lot of studying—it’s a different conversation. Yes.
Mike Munter: You made a good deal with the shipping company.
Avi Zolty: Okay, fine—I’ll tell you! Basically think about a magazine or those big manila envelopes lawyers send, the reason they they are so cheap to send is that they process them in a certain way through certain machines. No one at the post office is actually touching them.
They are a certain level of thickness. They bend a certain amount. ch. There a certain aspect ratio. And if you design—there’s like a bunch of those different rules—but if you design a product that fits all those requirements, you can actually ship a consumer merchandise for the same price as say a magazine.
I spent about six months of my life flying back and forth from China and dealing with the post office, which I can assure you is not a very fun thing to do. I actually designed a package that allows me to ship earrings. And I’m paying not very much—I’m paying basically what bulk mailers pay to actually ship then, anywhere in the U.S. in less than three days, it’s quality because the post office does not want to lose an important law document or bill or anything. So it’s an amazing situation.
Mike Munter: Yes, well that’s cool. That’s how you keep the profit margin.
Avi Zolty: Yes, yes, absolutely.
Mike Munter: Walk me through the process if someone signs up. If they started paying the $3.49, how does it work? Do you immediately start shipping them earrings or are there additional costs to them? How does that work?
Avi Zolty: No additional cost. That’s the cool thing. Right? We are all about customer attention. Literally, that’s it, they sign up now, and we have over the years built a bunch of actions to keep that retention and to increase customer attention and obviously increased our internal costs.
One example, customers can now swipe through their prospective inventory, and then we place purchase orders based on that. It’s really great because that means that we’re not going in and actually picking out all these earrings. We are having customers choose what is going to be popular.
Then from the customer’s perspective, it means that they are going to get a product that they like much more than if I am going to a factory and designing the earrings.
Mike Munter: Right. Okay, there’s no additional costs and then they get one set of earrings every month?
Avi Zolty: Yes, yes.
Mike Munter: Wow. I don’t know how you’re able to manufacture earrings that inexpensively, but obviously you figured it out.
Avi Zolty: That’s another trick. I’ll tell you this trick—again, I love this business. There are so many different, amazing hacks and just everything came together. With earrings, there’s really two components with earrings.
It’s the design and then the actual material they are produced from. The design is the same, whatever the material you are producing it from. And most companies from Anthropology, which is pricing the earnings at $60, right down to Players or Walmart, they are charging something like $5 to $10, are basically using the same designs, maybe more or less the same components.
They are just using slightly different material. Here’s the crazy thing: the cheaper the material, the more likely it is to have a nickel in it and many women are allergic to nickel and therefore people with sensitive ears don’t buy cheap jewelry.
However, when I looked into it, zinc is a non-nickel material that’s cheaper than nickel. I would literally go to these factories and ask about producing these same styles cheaper. They would say, “Yes, but it’s not going to have any nickel, is that a problem?”
My response is, “That is perfect.” (laughing).
It just turns out that no one has thought to use higher quality—it’s across the board better. It’s just not nickel. There is a communication gap over there (laughing).
Mike Munter: (laughing) That’s awesome. Where did you come up with the idea for this?
Avi Zolty: I was working on a handbag subscription, which is the exact opposite of the earring subscription, and it’s much more expensive to ship, the conversion rate is pretty, the retention is pretty low because people can get tired of handbags. I really loved the idea of subscription boxes, but I wanted something that took up less space, was cheaper to produce, and that people did not get bored with, was cheaper to ship, etc. Basically, if you can think—what is the opposite of the handbag—it’s an earring.
Mike Munter: Yes, well, you came up with the smallest item perhaps in the fashion world, right?
Avi Zolty: Yes. Yes. It’s one of the smallest. I think like there’s eyelashes, necklaces, bracelets, face masks—a lot of things we were toying with, but the problem is that when you are priced as low as we are—even though we are honestly offering really good quality, people still have it in their head that when things are cheap, they are crappy.
One of our vendors actually supplies Korean face masks. When we say face masks now in COVID times, it means something very different than two years ago with masks that the people put directly on their whole face, with the black charcoal, etc. So we bought those ones that retail for like $8-12.
We started pricing them at three bucks and they were literally identical. No one would buy them. They thought it was bad quality. You can’t—how do you educate customers? But yes, the earrings are the cheapest product that people are okay with paying less money to buy.
Mike Munter: Yes, it is certainly interesting, the psychology of that. I’ve talked to people in the past that were selling a course for a hundred dollars and say they were getting a lot of complaints, had to answer many questions. Yet when they tripled the prince, all the complaints disappeared and the sales were phenomenal.
Avi Zolty: I know. It’s crazy now I am actually taking the class on consumer behavior. There are so many boring research articles about all these different arguments against the efficient market hypothesis. How crazy people are about for example price anchoring is one thing, over conductiveness is another a thing, risk aversion is a thing, Kanterman, and all those (researchers?). It’s crazy how much the human mind can be hacked.
Mike Munter: Cool. How are you or what is the main method you use to get customers? Is it the Facebook ads that you mentioned or is it organic?
Avi Zolty: We do have a fair amount of organic traffic. There is a built-in referral mechanism in the sense that the products are so cheap and so cool that people refer each other. But I would say almost all of our paid traffic comes to comes through Facebook.
Mike Munter: Through Facebook, Alright. Awesome. Do you have other competitors?
Avi Zolty: At our price point? I think the nearest competitors are at $8-$12 again, and that’s just a function of the fact that he cannot ship it as cheap.
Mike Munter: They haven’t figured out the shipping part yet.
Avi Zolty: Yes, it’s really a lot harder than—I’m happy to tell this to you. Even Claire’s can’t compete with us based on the quality. The other thing is we are a startup and so we function based on data, we have a lot of information on what trends are going to be popular that even companies like Claire’s—they might have point of sale information.
But I don’t think they can predict, the 6 million votes on styles we have and even the amount of time, they can’t build out the infrastructure to compete with the styles. Now, obviously Claire’s is much bigger and a lot more successful than we are, but there are advantages—at the point of scale that we have, it prevents anyone from really competing with us.
Mike Munter: Right. Do you have like this huge earring warehouse somewhere in the United States you are shipping from?
Avi Zolty: Yes, we have a, I don’t want to give away too much of our secret sauce, but it’s in Wisconsin. We have—I like to joke with my fiancé. I bought way more earrings and handbags than any other straight male that I know.
Mike Munter: (laughing) That’s funny. Well, you have got some really cool stuff on the website. I took a look. I saw pizza earrings and many fun things there.
Avi Zolty: Yes, those sell really well. It’s funny. One of the reasons that we have customers vote on products is I realized how bad I am with styling myself because I—I looked at a bunch of earrings in the beginning and I thought these are going to be the three best sellers and these will be the three worst sellers.
I ranked them. Then, I saw our top sellers were the earring I ranked as the three worst earrings. They’re again-it’s crazy.
Mike Munter: That’s funny. What are you most popular earrings?
Avi Zolty: I think those pizzas ones actually.
Mike Munter: Really, the pizza earrings?
Avi Zolty: Yes, the pizza one really, but we also have this little one. I don’t know if you can see. It’s like this little ball and it has little different colored mini balls inside them. That’s another really popular one.
Mike Munter: Cool. What does the future hold—more growth?
Avi Zolty: That’s a really good question. I think there’s two worlds (roads?). We have been growing decently over the course of the last four years. But our growth is a function of a competitive mix on Facebook. And I’m happy to daydream about our company going insanely viral and us coming up with some great Facebook or YouTube video ad that’s going to take off.
Realistically, I’m more than happy. It’s a lifestyle business and it’s paying for me to come out here to do an MBA. It takes a very little amount of time to run. I’m happy if things would just stay the way they are for the rest of my life. I’m happy with that too.
Mike Munter: Well, you have invested the time and the money to put the systems in place for it to work that way.
Avi Zolty: No, absolutely.
Mike Munter: Cool. A final question for you, as an expert in this subscription service industry, would you be willing to mentor someone else who said they want to get into it?
Avi Zolty: Of course, of course. I think that subscription boxes are awesome because they are so easy to start. The first time I shipped an earring, I literally just bought earrings from the local flea market. I shipped them in literal envelopes, like the little white envelopes and they all broke. I had to refund those customers but by then we had enough customers so that I could improve, improve, improve. So yes, a hundred percent. I love this stuff.
Mike Munter: That is great to hear. Well, thanks for taking the time today. I really appreciate it.
Avi Zolty: Absolutely. Thank you so much, Mike.