Ever wondered how a simple idea can blossom into a thriving business? Eli Packouz of Instafloss joins us to unravel the story behind his groundbreaking dental hygiene innovation, taking the leap from side hustle to full-fledged entrepreneurial success. Together, we dissect the winning formula for crowdfunding triumph, highlighting the pivotal role of excitement and practicality in captivating potential backers.
Our chat with Eli is an eye-opener for anyone looking to transform their creative spark into a tangible product, offering a wealth of knowledge about navigating the Kickstarter terrain with a solution that promises to revolutionize our daily dental routine.
Teeth - they're not just for smiling! This episode chews over the concept of 'teeth privilege' and how one's chompers can be the silent gatekeepers to opportunities and perceptions in society. We contrast the impact of dental health to fashion choices, shedding light on the subconscious biases that can stem from our pearly whites. But it's not just about looks; we talk substance abuse, dietary influences, and the nitty-gritty of preparing for a crowdfunding campaign, drilling down to the importance of a prototype and understanding manufacturing costs. It's a blend of enlightening conversation and practical advice that'll have you grinning from ear to ear.
Our conversation with Eli takes a turn to the monetary maze of equity crowdfunding and the legal labyrinth of patenting. By sharing his journey and the lessons learned from combating copycats, Eli provides a window into the importance of protecting your brainchild. We also debunk patenting myths and stress the need for legal expertise to navigate the intricate IP protection process. This chat is not just about safeguarding your ideas; it's a roadmap for innovators aspiring to leave their mark on the world. Tune in for the insider's guide to turning your brainwaves into protected, profit-making assets.
About Eli: Eli Packouz (pronounced “Eh-Lee Pack-owz”) is a serial inventor and two-time founder. He started his first company, Singular Sound, with his brother in 2013; they have since launched eight blockbuster products. In 2017, he partnered with Dr. Ralf Raud and Dr. Ana Mascarenhas to create the first device that automatically flosses all your teeth in only 10 seconds — Instafloss. After five years of research and development, Instafloss is ready to change the world, one tooth at a time.
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Speaker 2:
Welcome to Side Hustle City and thanks for joining us. Our goal is to help you connect to real people who found success turning their side hustle into a main hustle, and we hope you can too. I'm Adam Kaler. I'm joined by Kyle Stevy, my co-host. Let's get started, all right. Welcome back everybody to the Side Hustle City podcast. Kyle Stevy is in the house. Actually, he's not in the house, he's in his house. He is with us remotely on Zoom, as is Eli Packhouse. Eli, how you doing, sir?
Speaker 3:
We're doing great today. Glad to be here.
Speaker 2:
Yeah, yeah. Well, thanks for coming on this show. We are officially our first person who raised money on Kickstarter or one of those platforms I'm not exactly sure which one you used, but you are the first one who has done this and I'm very interested in understanding how that works, what the process is like, what products I mean obviously yours did well on there but what products actually work and which ones do not. And you have kind of a water flosser, like a water pick type of product, and it definitely looks like an improvement on the one I have.
Speaker 3:
Yeah.
Speaker 1:
That's kind of the idea and the hope.
Speaker 3:
So the I would say that the products that would work well in that sort of platform are things that people are excited about and want for themselves and want to be a reality, things that people can yearn for and say, like man, it would be great If so. In our case, it would be great if I didn't have to floss all my teeth so laboriously and take forever and it hurts and I don't get the results I want, and et cetera, et cetera, et cetera. And then they see this thing that says that here's how it would work, here's the device that can floss all your teeth in 10 seconds, and people imagine a future where that device has made their lives better in some way. Whether that's more convenient, whether that's healthy or beautiful, all those things are important to people and it is because of that inspiration or that desire, or that yearning or that hope that they are willing to back a project that early, because normally it would be a terrible deal. Hey, give me money now and let me use your money to develop a product and come out with it and do the manufacturing and work at all kinks If you were going to be hiring them, I don't know, like a tax firm or something like that.
Speaker 1:
It's like hey, give me some money now, because I got to go through school. I got to get some books.
Speaker 3:
I got to learn how to do this. I'm going to take a few years.
Speaker 1:
You would look for somewhere else.
Speaker 3:
So I would say the things that you should probably avoid this sort of platform, although there are other options and. I'm sure we can get into that for anyone interested. The things I would avoid, specifically for Kickstarter or DeGogh or these sort of pre-order campaigns, are things that are more mundane and behind the scenes, things that don't evoke passion. A lot of people have great ideas. In FinTech, for example, we're going to shave off a fraction of a fraction of a penny inside some arcane system that nobody understands, including us. You can make a lot of money because that is wizardry and there's no amount. You cannot scale the wizardry of finance, but that's not something that's really going to be viewed as exciting or passionate by the user base. That would be in a crowdfunding platform such as Kickstarter and DeGogh, who are envisioning themselves using a product that will make their lives better.
Speaker 2:
I love it. Well, kyle, I'm going to pop this up on the screen here so you can see it. This is the product here. If you guys are listening in on the audio version, you won't be able to see this, but you can check it out at instaflosscom and it is spelled how you think it would be spelled and it's pretty interesting. This looks like it's taken care of like the top teeth and the bottom teeth at the same time. A little handle that you just kind of go back and forth over your teeth and what do you say here? 10 seconds, flush your teeth in 10 seconds.
Speaker 3:
Yeah, that's correct. So with a manual single jet device such as a waterpickage, you need to trace your gum line and in between the teeth on the front side of the top of the backside of the top of the front side of the bottom, of the back side of the bottom, and that is a process that take that one number one takes multiple minutes and that's number one reason people skip flossing. 70% of Americans regularly skip flossing because it takes too long. However, I would say there's two additional problems that you may encounter with a single jet, manual water flosser. One is that if you're in a rush, or you're just busy, or you're lazy or not thinking, or you're watching YouTube while you're doing, while you're flossing, you are probably going to miss some areas. You're not going to get in between every tooth, you're not going to clean underneath the gum line a full 360 degrees around each tooth, as you're supposed to do. And the third issue is that water jets are more effective. They can get deeper underneath the gum line when they are fired at a 90 degree angle. This has to do with the angle of attack, ricocheting physics. So if you come out at a 45 degree angle, it's going to bounce off this way and it's not going to get as far up If you want to get as far up underneath your gum line as possible. you need to hold it at a 90 degree angle and that is really difficult to do with a manual water flosser.
Speaker 2:
You're not going to be able to, especially on the backside of the teeth, like getting it at 90 degrees for a maximum effectiveness is almost impossible for most people.
Speaker 3:
So, number one it takes way too much time. Number two you're going to skip areas. Number three you're not going to do it at the right angle. These are all problems that we have solved with our H8 manifold, because over the top and bottom teeth and fires jets from both sides At 90 degrees. We actually floss each tooth four times and get a full 360 degrees around each tooth, and I'm really excited to say that a lot of people seem to be interested in getting this in their lives.
Speaker 2:
Well, I mean, I'm looking at the stats here on the website, like, look at those cod, you can see those.
Speaker 1:
I want to know does it come in different sizes? Because, like my, teeth are enormous, like right, it's got the world's largest teeth, it's got horse teeth. Yeah, I do.
Speaker 3:
Unfortunately, I'd be really interested in sending you a mouthpiece and finding out, because we've looked at there's a lot of data available in the literature in terms of the variants of teeth size and we've designed a mouthpiece that should cover 98% of adults and for the people who are outside of that 98% margin, we can make a larger and smaller size that are not available just yet.
Speaker 1:
Will you name it to Kyle Steve? Will you name it the Steve size?
Speaker 2:
The Mr Ed. Yeah, he'll be a dick.
Speaker 3:
Yeah, certainly not big enough if it's the Mr Ed.
Speaker 2:
Kyle prides himself at his handsome image. So you know this is something that he's going to need, because he can't have raggedy teeth in that pretty face.
Speaker 3:
I agree, Teeth are often viewed perhaps correctly as an indication of your health, and that's why we find a smile so attractive. So, oh, that's good point.
Speaker 2:
Yeah, people just kind of like the symmetry of people too right, like bees go to the most symmetrical flowers, etc. Etc. So when people see your teeth, they assume that you're healthy, you're taking care of yourself. It's like one of those things If you got dirty shoes, people are going to think you're just a raggedy person, you don't take care of yourself. If you got bad teeth, I mean same thing. I mean your people are going to look at you like, oh, I didn't care about myself, or especially if you're in sales or you're in you know an industry where you've got to meet people. I mean it might not actually help you out because, even though people don't want to be like discriminated against you in any way, there's these like subconscious kind of decisions people make about you when they, when they look at your appearance.
Speaker 1:
I mean it just the world. I generally just think, when someone has bad teeth, that they know how to party Well there's some things.
Speaker 2:
There's some things that would cause bad teeth, that I would not recommend anyone party with.
Speaker 1:
That is that is a you are.
Speaker 3:
You're almost certainly correct there. In fact, the majority of meth mouth comes from the fact that they're not actually brushing their teeth when they're on their binges, and they're just drinking sugar and not doing anything. So some. Of that is what you could look like if you just stopped to take care of yourself.
Speaker 2:
We don't want that.
Speaker 3:
Yeah, you're 100% correct. You should probably Google. I'm trying to remember the term. I think it's like teeth privilege or something like that. Oh, yes, yes, yes, absolutely People, people who get braces, earn a certain amount more than people who don't over the course of their lifetime due to these subtle biases, as well as people who take care of their teeth in other ways. I mean, there's all sorts of things that will influence.
Speaker 2:
Oh, if you're tall, if you're, yeah, if you're over what six three or six four or something like that. There's some benefits that come with that. I mean, there's all kinds of stuff that people could.
Speaker 1:
If you're talking about braces. If you have braces, your chances of making more money are increased. Does that go by like by year? Cause I had braces for like a decade. So I'm telling you, my teeth were huge and they got and they were just all over the place. So I feel like, if there's something to be said prepping braces and making more than I should be a millionaire sit here eventually, like annually, making a million dollars.
Speaker 3:
You know, I would say there's probably some sort of correlation there, in the sense of going on conjecture that the longer your treatment was probably the more serious your case was, and therefore it's not necessarily that when you get the final results that you know, if you have a 10 years worth of braces that you're going to have 10 times better teeth than anyone who got one year of braces. But you might have 10 times better teeth than what you had before.
Speaker 1:
So in relation to yourself perhaps that is true. I'm not worried about the teeth so much, I'm worried about the earning the money, Like if no, no, that's what I'm saying.
Speaker 3:
That's what I'm saying. I'm saying that if you had a severe case of braces, that means that the difference between the before and after is probably going to be more significant for you than it would be for someone who the dentist was like oh yeah, this is easy, I think it's just done. You know a very short period of time.
Speaker 2:
Eli, I think you should make like a sub product for bourbon drinkers. So, kyle is in Kentucky, I'm technically, I'm in Kentucky right now. So Cincinnati is like Northern Kentucky is like the Brooklyn is Cincinnati. Kyle hates when I say that, but it is, it's what it is. But bourbon is the thing in Kentucky bourbon and horses. So you got horses in Mount like there's horses down here actually and you got the bourbon. So, kyle, how much bourbon do you think you drink? Oh, I try not to drink anymore. Well, kyle did it for a while and there's a lot of people that are doing it. And I don't know, does bourbon even like? Does that mess up your teeth? No, oh, doesn't okay. So it's just maybe like coffee. So this should sell good.
Speaker 3:
Well, I would say anything with carbohydrates in it. If you leave it there for a period of time, what could have potential effects on your teeth?
Speaker 2:
yes, Well, I love coffee, so I definitely need this and to keep my teeth shiny and clean. But the data that you guys collected is pretty interesting and I know when you do like a crowdfunding type of campaign, you gotta kind of pull out all the guns, you gotta go and get stuff done. And when you did the crowdfunding campaign, did you have a prototype already done and did you have this data collected already? Or did you do the crowdfunding campaign, build a prototype and then start pulling this data together?
Speaker 3:
Right. So the part of the journey at which we decided to do the crowdfunding campaign was post prototype, post scientific studies and post quotes from the manufacturer, because before you get a quote from the manufacturer, you have no idea how much your product is going to cost. So it would be until you have an idea there. It would be very dangerous to go and promise people you're going to deliver them a unit for a certain price If you have no idea how much it costs. Imagine that you offer this for $50 to people and it ends up costing $100.
Speaker 1:
Now, for every unit you sell, you're doubling them in the net in the red.
Speaker 3:
So that's a really terrible idea, and there's a number of campaigns that have failed because they're like hey, we thought this was going to cost X, it's not going to cost X, it's going to cost way more. And so, therefore, if we deliver to you guys, we're completely in the red and we're going to go bankrupt.
Speaker 1:
And many of them do go bankrupt.
Speaker 3:
Some of them will read egg on their promises and be like we're not going to sell some old ass for more money. It's a very tough position to be in and none of those are good situations not for the backer, it's not for the customers, not for you, not for getting to your market, not for anyone. Maybe it's good for lawyers.
Speaker 1:
So capital calls are a new go-zoom. Like you wouldn't avoid capital calls at all costs, particularly when it's like an internet-based crowdfunding and you don't know your investors, don't know you, you don't know your investor group, it's just basically through a third party helps set it up. It's like pretty sketchy that these guys couldn't make do with $10 million of this race.
Speaker 3:
Yeah, I mean. So. I think a lot of the there are some spectacular failures on Kickstarter and I think a lot of it has to do with the fact that they are pre-manufacturing and a lot of things can change in manufacturing. So we did the prototype stage for three years, which took us two years to set up everything for manufacturing. A lot changed there, because when you try to mass manufacture, there's a lot of little stuff that needs modifications. Probably the biggest one I can think of right now that was the coolest cooler. They raised tens of millions of dollars. I can't recall the exact amount, but it was absurd. It was one of the highest ever and they ended up just going bankrupt because it cost way more, because they cost way more than each individual unit. It's like that old joke where what guy is selling a product for $4, but it costs him a five, and his business partner goes up to him and says what are you doing? This cost four. You're selling it for $4, but it's cost five, how is this viable at all? And I can say hey, hey, hey, don't worry, don't worry, don't worry, we're gonna make up for it in volume.
Speaker 2:
Yes, yes, that's the thing. Yeah, well, I mean so there's a lot of stuff that could go wrong when you're doing a crowdfund and there's things you need to be cognizant of. You know these things now because you've gone through the process, but I'm guessing there's a bunch of people that jump into this crowdfunding stuff and have no clue what they're doing and they end up running into these situations where they're over promising, possibly under delivering. They're built a prototype that does one thing, but then, when they go into advanced manufacturing, like you mentioned, the product may not be able to deliver what the original prototype did, or you have to cut back on certain features, or you have to take features out because it's now costing more money to deliver it with those features that the people originally invested in. Was there a group or somebody that helped you do this, or did you just kind of jump into it and learn on your own?
Speaker 3:
So this was my second crowdfunding campaign and this is my second company. Instafloss was sort of a side hustled project on my side From my first company. I just couldn't get the idea out of my brain to develop the floss. But my first company I had. We were actually making music technology products and I actually got into the market there. I ran a crowdfunding campaign with my brother in 2013, and we actually brought some records for the music tech space there. So I had done that and then I came out with seven more products. So I had a bit of experience making products, engineering them, passing them, getting them to manufacturing, launching them in the market, doing distribution, et cetera. So I've gone through the whole process multiple times and now for the very first one that we did a Kickstarter on.
Speaker 1:
I would say we really didn't know what we were doing.
Speaker 3:
We got really lucky the second time around. I had a bit of a better idea, not just from the first campaign, but also from going through the product creation process and multiple times that I knew that there is a stage before it is extremely unwise to do the crowdfunding campaign, a stage after which it is better. So in general, the later you end the process, you can do the crowdfunding campaign, the better it is, because you have a better idea of your cost, you have a better idea of your timelines. So the best time to do a crowdfunding campaign in theory is after you've already come out with a product and you had the product yesterday and you don't need the money, kind of like the best time to get a loan is when you don't need any money. The investors are most likely to invest in you If you can prove you don't need it. So the in reality, people are going to find that they will need to do the crowdfunding campaign earlier than they would like. The question is how much earlier than you would like it. That depends on how far you've gone in the development of your product. So the spot at which I would recommend you to try to get up to is pre-manufacturing, because there's the R&D costs and then there's the manufacturing costs. In general, manufacturing depending on what you're doing is a lot more expensive than the R&D, because you have to create moles, and moles are super expensive, and you have to create at least the minimum number of units at least 1,000, 3,000, 10,000, depending on the manufacturer and the type of unit. That's incredibly expensive. Now you might be able to get investment for that and you can then go ahead and skip the whole crowdfunding stage entirely, but if you're trying to view a method that is alternative to investment, you would probably need to go into the crowdfunding at this stage. So, definitely, if you need money for moles and to manufacture, this is a good time to do it, because you'll see how much you need. You'll have your orders already, you'll have your pricing in general and then you can go and you can manufacture.
Speaker 1:
How about this? I just had a question. Does that have no experience with this? How does Kickstarter or crowdfunding did they take in terms of compensation? Did they take equity in the company or do you pay them a flat rate? How do they make their money off of your product Understood?
Speaker 3:
So, to be clear, there's two types of crowdfunding, and perhaps we should have started these terms and definitions for anyone who's unfamiliar. So there's product crowdfunding, which is what I've been talking about this whole time, which is something like Kickstarter, something like Indiegogo. This is not funding in the sense of you're selling shares of a company and getting money for shares. What this is is you are selling the promise of a product and people give you money in the hopes that you will make this product and give them the product. So if someone gives you money on Indiegogo or Kickstarter, you owe them the product when it is ready. So in our case, we were coming out with the Instafloss. We're going to tell people we're going to be able to floss all your teeth in 10 seconds better than you can. They give us money. We take this money, we go to the manufacturer, we start building the molds, etc. At the end of the process, that person gets a flossing unit and our obligation is done. The other type of crowdfunding that we have not talked about is equity crowdfunding, and that is an entirely different beast and that is not. I am going to be delivering you a product that is this is my company, this is my idea.
Speaker 1:
Do you want to buy shares it?
Speaker 3:
is very similar to going to institutional investors and selling shares of a company which is a whole beast, probably worthy of like a 10-hour conversation. But instead of one institution or one large project-rich individual who will write you a check for a million dollars, you have a thousand people with $100 each, or 10,000 people with $100, depending on what. you are A large number of people with much smaller checks, with terms that you put online. So you put online the terms to say that our company is going to be valued. This, this is how much stock we're giving away, this is what percentage it's going to be worth and this is how much we're selling each share of stock for. Essentially just a couple of ways to do it. And then they give you money and they own a piece of your company and the consequences of that you don't know them a product. But now, if you ever do dividends, they get a pro-rata percentage that they own of dividends goes to them. And if you ever sell the company, they get their pro-rata percentage of the company in terms of the sale. So you sell your company for a million dollars and they own 10%.
Speaker 2:
They get a hundred thousand. What platform is that?
Speaker 3:
There's a number of competing platforms for equity crowdfunding and there's WeFundr, there's Republic, there's StartEngine, google equity crowdfunding. Every single person is going to tell you we are the best to your homework. Talk to companies. We actually did a Republic equity crowdfunding campaign as well. Oh, yes, and because we needed a bridge amount of money to go, because manufacturing started becoming way more expensive than we had anticipated, because we had to change some parts, we had to change mold parts, and that ended up costing a lot of money. So I've done both types of crowdfunding. I've done product crowdfunding and I've done equity crowdfunding. Is there a?
Speaker 2:
Is there a range of money in both cases that you would say is reasonable to go to market with a request? Is there, like hey, between this much and this much makes sense on platform A, with the promise of hoping to get a product, and this much to this much would make sense to try to raise on the equity-based platforms?
Speaker 3:
I would say that that is entirely depends upon your needs and what you're doing. Do you have a business where you are creating nuclear fusion and you need a team of 100 scientists and you know permits from the government and everything like that? I mean, are your costs going to be in billions of dollars? Are you creating something? What are the requirements for the manufacturer? For example, are you creating a super complicated machine that has perhaps 30 molded parts and the molds are going to cost you a million dollars? Or are you creating something that is like literally a one of the cheek on making a comic book? I could just go to a printer and five dollars a book, I could people do that too.
Speaker 1:
So if you're making a comic book, literally the you can.
Speaker 3:
As long as you're selling it for more than it costs you and you have a print shop willing to print you comic books at a minimum order of one, then there's no limit to how low you could go. You just need to sell one comic book. Maybe that's not the greatest campaign, it's not going to, you're not going to put your day job, but you'll have sold one comic book. Is that too little to go on product crowdfunding? That depends, that's up to you. So I think it's not that you need a certain amount of money to make it worth going on a platform, but rather you have a requirement for what you need to do to achieve your business goals, and I think this is a problem that we actually see. On the other side from institutional investments there are. I've talked to founders, I have no idea why this is in their head but they're like hey, we're doing a series A rounds for our business, we're doing a seed, Therefore we need to be raising a million dollars or we need to be raising two. I'm like okay, what's your business plan? Why do you need this money? They're like, oh, we don't really need this money, but it's a series A, which means you should be raising about this much, and it's like that makes no sense. You should be raising money because of what you need, not trying to form yourself into the mold of what people normally need. It's like going to the doctor and being like, hey, I'm 50 years old and. I read that on average, 50 year olds need to spend this amount of money at the doctor, so I don't know what you need to cut open, but like, do something. From what perspective?
Speaker 2:
are you coming here, like what percentage of what you raised with covered manufacturing stuff? Because you also have IP you have to worry about. And it's almost it's interesting, if you put this up on a kick starter or whatever it is product you have, does that somewhat cover your copyright a little bit, because it's published, it's out there, there's a date attached to it. So not that you're an attorney and you did, but I'm just thinking that that might actually kind of work and help you maybe get around some of the legal fees early on.
Speaker 3:
No, the reason why I took it? Because there's a lot of things you've actually covered, so I've been through this multiple times.
Speaker 1:
Oh yeah, I've had to use the weight of IP.
Speaker 3:
I actually just got a got a knockoff out of Walmart just last week, oh great.
Speaker 2:
So Chinese knockoff, or is this? Where does this come from? Did you track it?
Speaker 3:
So I probably cannot say like my okay, let me rephrase my lawyers would advise me not to say anything with legal repercussions.
Speaker 2:
Yeah, oh yeah, I understand there.
Speaker 3:
There is an American company that makes a lot of products and I had noticed the other week that one of their products used something that is explicitly granted in our patents on the shelves of Walmart. Our lawyers went to Walmart and have successfully actually gotten this removed, and now I'm trying to see you know what more can we do here? Yeah, good, but anyway. But to go to your question, there is a gamut of what you're talking about here. There's patents, right, there's utility patents and there's design patents, and then there's your trademark, and then there's, you know, associated copyright, and all these things are distinct and it's more than I can cover here right now.
Speaker 1:
I'm definitely going to say talk to your lawyer before you do any of this.
Speaker 3:
But let's go over patents real quick, because this is, I think, one of the most crucial bits. Oh yeah, if you have a product and you put it on the internet, that does not grant you any rights, but so ever that doesn't patent your product. In fact, it could actually get in the way of patenting your product if somebody else claims something first. Now, if something is available publicly, you could say, oh, you can't patent this because it was publicly available. In order to get a patent, you need something that is trying to remember the exact phrase here a non-obvious improvement that grants utility. Sorry, novel and inventive. That's the word Novel and inventive a novel and inventive mechanism that grants utility. So you have to have something that was not done before, so it's not. So if something was on the internet, you can't go claim a patent for it because it's not novel. So you have. And it has to be inventive. In fact, there has to be a new way of doing it that has not been inside the patent office before and it has to grant utility, meaning it has to actually do something of value. So if you have a product idea, probably one of the first things you want to do is go to Google Patents and search as many different ways you can think of to write about this. Like try to think about what words would anybody use to describe this and see if something out there is patented, because if it is, then you may be running into someone else's IP and they could sue you, and then you're lower than money or you'll find that it's maybe an expired patent, but that means you can't get a patent yourself. So if you can't get a patent yourself, you could do the work for many years, and then some big company is going to come and steal your lunch.
Speaker 1:
The other thing you want to do is go to Amazon, go to Google, go see if this exists out there, because even if it's not patented, maybe someone just came out with the product without patenting it, which happens all the time.