Selling Pickaxes

Initial success doesn't guarantee future results.

Online mattress retailer Casper announced this week that it's being acquired by a private equity firm. The startup popularized direct-to-consumer mattresses in a box, went public at a $1.1 billion valuation, and then plummeted to around $575 million after its IPO.

Selling mattresses online is pretty easy (as of 2019 Casper had 175 competitors). But making a profit doing so is hard. In the third quarter this year, Casper lost a staggering $25.3 million, putting it in the majority of online mattress companies that have yet to make a profit.

Where's the money in the industry going? A big chunk of it is going to the online mattress reviewers, who receive free mattresses from companies to test. These sites typically receive around $50 for every referral they make that results in a purchase (and sometimes as much as $250).

Derek Hales, the creator of one of the most successful mattress review sites, Sleepopolis, apparently made $100,000 from just a single mattress company in 2016 through his referrals. He is more profitable than most of the mattress startups he's promoting.

In a crowded market, sometimes selling pickaxes to gold miners is a better strategy than actually mining for gold.