left arrow
October 13, 2022
10 min read

How Portal is dreaming big to disrupt the sleep industry

Portal is the sleep hygiene company helping consumers make deep restorative sleep the new normal. We sat down with Portal co-founder, Dan Foussard for a three-part series on the nitty-gritty of building, financing, and scaling a winning DTC brand.

In part one, we cover Dan’s founder journey and the origins of Portal, including:

  1. Aligning a team and a product around a shared mission
  2. What it takes to build a better health product in 2022
  3. How Portal is approaching growth and profitability
"The CPG space is tough to nail operationally and financially because you sell a physical good and have a non-zero marginal cost with every transaction."

Built around a singular mission: supercharge your sleep

There are two origin stories to Portal, the first is the origin story of the Portal team, and the second is the origin story of Portal as a product.

Dan first met his co-founder, Justin Liao, on March 13th, 2020, days before COVID hit and dramatically changed the landscape for DTC brands. Dan was living in Miami at the time, Justin was visiting, and the two connected through mutual friends.

Dan’s background is in finance and investment roles, but he always knew he wanted to get more hands-on – to build something rather than live in spreadsheets.

He admits that it may have been an armchair quarterback situation where he started thinking, "Oh, I can do better than these companies if only they did X, Y, and Z." He sat there, running “what ifs” and wanting to get off the bench and onto the field. Meeting Justin, a serial entrepreneur, was precisely the opportunity Dan needed.

Justin lived on Dan’s couch for two months during COVID. The two decided that if they could live in 600 sq. ft for 60 days and not kill each other, they might as well start a business together.

Dan and Justin brought on some extra players with experience in the eCom space, including:

  • Nick O’Brien, who had built multiple seven-figure brands before (including Alloi, a Highbeam customer) and was looking to venture into health
  • Jesse Roth, a lawyer by trade and fintech operator with many adjacent tricks up his sleeve
"We’re four people, with very different careers, that coalesced around building something to effectively solve a problem the people around us were having."

Early market research: nailing the target consumer

As a consumer analyst and a self-proclaimed CPG guy, Dan found developing products and brands coupled with the virtually unlimited shelf space of the web fascinating.

By moving away from the shelves of Whole Foods or Walgreens, there’s a lower barrier to entry to starting a brand and creating purpose-built items. The team focused on small, daily habits consumers were making in hopes of finding an underserved health and wellness-oriented customer.

They kept coming back to how nobody was sleeping well, a problem that was exacerbated mid-COVID, impacting everyone’s routines and negatively affecting mental and physical health.

Now that the pair had identified the problem, how could they fix it?

Product iterations: developing the Portal MVP

They leaned on their “more scientifically oriented” friends – ones with PhDs in nutritional sciences and pharmacology, to get to the root of why people sleep badly.

The first thing the team discovered was the ubiquity of melatonin. They spoke to as many people that hate it as people that love it, turning them off from the whole category.

Melatonin critics will say, "Oh, I tried melatonin once, I tried it three times, and it didn't help me sleep." There are some reasons for that:

  1. Melatonin is the output of your body's sleep processes, a hormone, not a vitamin, mineral, or anything supplemental. It's what your body produces when you tell your brain that it's time for bed.
  2. Naturally, you shouldn't be playing with your hormones if you can avoid it.

Instead of supplementing melatonin, the Portal team tried to replicate the processes in the body that organically produces melatonin. More specifically, the team wanted to create circumstances within the body to create the same outcome as melatonin but in a healthier and more productive way.

To do this, they identified four amino acids and minerals that jumpstart the process of getting sleepy. To find the perfect blend, the team tested several recipes – mad scientists in a friend's kitchen, trying to make magic.

"Portal was born after a lot of testing; we're excited about it, and where we can go to help people sleep better."

Diving deep into scientific formulation

Many sleep supplements and “health” products on the market have less than healthy ingredients with some gummies having upwards of five grams of sugar. Portal didn’t want to create a product that was just some marketing gimmick – instead, the founders wanted to create a supplement that was holistically good for you.

Dan's sugar-consciousness began after seeing the visual highlighting how one can of Coke has 48 grams of sugar. If you lay out 48 sugar packets in a row, you would never drink that.

Instead of making “nutri-candy,” packed with sugar, Portal uses stevia to recreate the flavor without the negative effects. While sugar speeds up your metabolism, which isn't desirable right before bed, stevia replicates the taste of sugar with no metabolic effect.

Finally, because Portal is targeting people who are already health-conscious, they ensured the product didn't conflict with any common dietary restrictions.

"No one should have to put this into their daily calorie counting because it’s not a food. Portal should be easily incorporated into anyone's health routine."

Positioning Portal for sustainable & intentional growth

Dan and Justin are thoughtful about Portal's financial and growth trajectory. Due to their financial and entrepreneurial backgrounds, they knew they didn't want to raise venture capital or take on debt immediately. Dan admits they were luckily in a place where they could bootstrap the company by using pooled savings.

Also, they launched at a time when a lot of brands weren’t measuring their metrics well and were selling “90-cent dollars.” If you sell a dollar for 90 cents, someone will always buy it. If you're optimizing for top-line revenue, you can burn as much as you want. Dan saw too many companies that have been around for 20 years and are barely free cash flow positive.

Dan knew that if he ever wanted Portal to be profitable, he couldn't just run unprofitably and hope to flip the profitability switch one day. Instead, he wanted to be thoughtful and use the store analytics and metrics available through Shopify and Highbeam to make a profitable business before turning on growth levers.

It was less about wanting to go out, raise, and get in every store and more about building something that would be durable through early processes and metrics visibility.

"I’ve seen too many worrying stories where people aren't conscious enough about what's happening underneath the hood until it's too late."

Focusing on profitability and unit economics

If your unit economics are wrong and you're unable to make them work, they can’t be fixed by taking on debt. That only exacerbates the problem.

Dan emphasizes the need to fix the operational issues and understand their origins. We're no longer at a point where an “up and to the right” growth curve is the only thing that matters – revenue won’t pay for itself over time. In other words, DTC startups are no longer in an environment where money grows on trees. The current environment necessitates more thoughtful investing decisions as the risk-free rate has increased.

This is specifically problematic in CPG where inventory, shipping, and other expenses create a non-marginal transaction cost.

With consumer goods, if you want to jump into the big leagues and sign a deal with Kroger or Costco, you need to be able to service that inventory. You have to deliver the product. That's usually well outside of the abilities of a young business, especially if it's not profitable. You can do everything right, but your business won't scale with broken unit economics.

"Financing doesn't save operational problems. That's the best way to say it."

Don’t treat CPG like a software business

CPG is a capital-intensive business, but many DTC companies started thinking there wasn't a big difference between how you run a software company and a consumer goods company. This led some brands to take new financing rounds at ten times sales.

On this note, Dan quotes Vinod Khosla: “At 10x sales, you expect me to pay out a hundred percent of my revenue over ten years with no costs to generate a rate of return.”

Brands need to return to simple questions:

  • What are we underwriting?
  • How much do we have to grow to meet the valuation we're setting?

Even for brands that are “crushing it” and raising funding at this level, if they're raising on sales data, it’s based on a long-term margin target instead of cash flow and profitability. Dan thinks investor decks that go from a cost-heavy current state to profit in five years, via hand-wavy magic, will be penalized going forward.

Dan doesn’t want to have his hair on fire in two years and realize that Portal has been taking money out of the business to pay for ads, only to realize the company lacks a foundation.

"This is all something that too many people don't think about, especially when you’re singing the siren song of ‘growth at any cost."

Banking that helps brands
make smarter decisions

Automate your cash flow with real-time insights, refreshingly transparent credit, and high yield deposit accounts.