Mentored, episode 12, Juan Pablo Dulanto

Juan Pablo Dulanto is the entrepreneur in residence at 500 Startups in Mexico City. He was one of the founders of Washio, a company dedicated to laundry and dry cleaning services on demand. Washio was backed by well-known investors and in under four years raised US $17M, scaled to five major US cities and then had to cease operations. This was not Juan Pablo first foray in entrepreneurship, but Washio meteoric rise -and eventual burn- gave him incredible lessons that he shared with Sebastian on this episode of Mentored.

On his Silicon Valley learning rollercoaster

Like many businesses, we came up with the idea on a late night around the kitchen table. It was around the time when Uber was exploding. We were thinking about on demand services. We chose dry cleaning and thought it wouldn’t be too difficult. Obviously, we were mistaken. We were entrepreneurs but didn’t know much about technology. We created an online form; used Square for payments and we’d make deliveries in our own cars. Our first contract was with cleaners in Santa Monica. The model was basically: get a contract with dry cleaners in different zones, work out a 50% discount on wash and fold with a minimum weight and then a price per dry cleaned piece.

Our first mistake was trying to raise money before launching. We tried raising, reaching out to 30, 40 investors we knew through AngelList and failing miserably. We had to launch something first, then figure it out with more traction, more understanding of the economics, more validation through the cleaners contract. We created the form with the help of a friend, spent less than US $500 on Facebook and that started the word out mouth. We started working for a few month and then we went back to the investors. And we were lucky enough that Silicon Valley was really into “Uber for X” businesses; everybody wanted to invest in on-demand startups. Our first investor had sold his company to Vistaprint for US $140M. We raised US $250K on the initial round.

On bootstrapping, MVP and investors herd mentality

Bootstrapping is starting without external capital and financing your operation as you close clients, very traditional. MVP is the minimum value product. This is the most basic solution I can offer the client, I can launch this basic option.

We were very lucky in the sense that we had a high level, large network. And, we saw what happens when there’s a herd mentality. Like I said, we didn’t get any investment at first. After we launched and were in a fundraising track again, we had access to one investor. Once word got around that we had that investor, other people invested too. A year and a half later, we raised US $2.5M, then made it to US $10.5M, then a venture debt loan for US $3M. At the end of it all, we had raised US $17M. That money caused us to go into hyper growth mode. We were not paying attention to our unit economics.

It was a learning stage. On one side some investors were pushing for aggressive growth. But in my experience 95% of the investors are not very active, especially if they have a large portfolio.

We were not “fully loading” our unit economics, we were not including some costs. And that makes you think that your margin is better than what it actually is. It was a big failure that we had to work hard to get out of. Often times, startups present their unit economics prettier than what they are: maybe they’re lying to themselves or want to deceive a little bit.

On the most important lessons learned

Hyper growth breaks a lot of things, it affects the client and your churn. It is a culture where you’re adding a clients quickly, but you’re losing them faster too.

I’d say the first lesson is that you have to really know when it’s time to start an accelerated growth.

The second lesson is that early founders that do not dominate finances have to have someone that does. Otherwise that team will not have the adequate vision to make decisions that work for the business and its performance. For example, unit economics. There was a difference on what we thought that number was and the actual number.

On unit economics

Unit economics is the unitary revenue of your product with all the costs associated with selling each one of those products. In our case, our average ticket was $50, at unit level, we had a revenue of $50; then the costs are associated with each order were: cleaning of the clothes, the delivery, the customer support, payment process, the bags we’d gift with the first order… We were not “fully loading” our unit economics, we were not including some costs. And that makes you think that your margin is better than what it actually is. It was a big failure that we had to work hard to get out of. Often times, startups present their unit economics prettier than what they are: maybe they’re lying to themselves or want to deceive a little bit.

It’s very common for startups, especially in the US when you’re raising money, to burn money on a monthly basis. That’s fine, it’s expected. The plan is to level that as time passes. What cannot happen is losing money at a unit level. If I sell coffee and that coffee is more expensive than what you’re paying for it, there is no business. And if the volume grows, the more money I lose. You need someone that has more knowledge about finances than you.

On Silicon Valley and Latin America entrepreneurship

It is not as easy or accessible as in the US and this created a more resilient entrepreneur, it’s more scrappy. The very first time I visited 500 (Startups), I saw a tech startup that was cash flow positive. That does not exist in the US. LatAm has to find a way to create more sustainable business and they’re able to find a balance. The best businesses are when I see a founder that understands their unit economics. It is not wrong to have a low margin, or even to be in the negative. But you should be aware and have a credible plan to the road to profitability.

On what should be the focus of the entrepreneurs

Pay attention to the unit economics and close attention to the finances from day one. Never lose sight of that.

Something else I see constantly is lack of focus. Many meeting start with “I want to launch in this market, make this new product,” but organizations die from indigestion. If you cannot hyper focus in what really matters (clients, demographic, niche), the chance for success is slower. Try not to scale too early. Too often I hear, “I want to go to this country”, but they only have 200 clients in their own country. Often times, the money and time spent are underestimated.

Book and Podcast Recommendations

Book — The Obstacle is the Way. It is not that oriented to startups, more for the personal life, but I think it’s interesting for entrepreneurs because it gives you frameworks on how to lead with obstacles and be more balanced to make better decisions.

Podcast — Masters of Scale and NPR’s How I Built This

Mentored is a Facebook Live Series, where parallel18 visiting mentors share their knowledge, experiences and advice. Watch Live every Friday at 10 a.m. To rewatch this episode, go here.

*Translated and edited for the blog