Sleeping Duck’s 33-year-old mattress magnates set for $500m deal

The start-up’s founders gave up careers at ANZ to become entrepreneurs after a visit to a shop to buy a mattress.

Sleeping Duck founders Winston Wijeyeratne and Selvam Sinnappan at their warehouse in Mulgrave, Melbourne. Picture: David Geraghty

They are the 33-year-old engineers who quit the ANZ graduate program to set up their own e-commerce company, which could be worth $500m.

And it is all because of a visit to a mattress store in a confusing and ultimately fruitless bid to buy a new bed.

Melbourne duo Winston Wijeyeratne and Selvam Sinnappan are the co-founders of online mattress business Sleeping Duck, which is heading for annual revenue of $100m and has private equity and other investors lining up to buy a stake in a transaction set to value their company at $500m.

Sleeping Duck’s online sales of customised and adjustable mattresses have surged during COVID-19, and the business is already cashflow positive and more profitable, they claim, than rivals such as Koala.

It is only three years after Wijeyeratne and Sinnappan knocked back a $500,000 offer from entrepreneur Steve Baxter on the TV show Shark Tank that would have valued Sleeping Duck at $3.3m. The business reportedly made more than $10m in pre-tax profits last year, a figure set to at least treble in the 2021 financial year.

It has been a heady rise for the duo, who met at ANZ in 2011 after Wijeyeratne had studied aerospace engineering at Monash University and Sinnappan civil engineering at the University of Melbourne.

While appreciative of the opportunity in banking, the pair decided their passion lay elsewhere. “The realisation we came to was our passion is for materials science and engineering, and we ­really wanted to take that to a product category and reinvent something that hasn’t been looked at for a long time,” Sinnappan explains.

“Initially we weren’t sure what category we were going to go into, but around that time Winston actually tried to buy a mattress.”

It was a frustrating experience.

Wijeyeratne could not comprehend how one mattress might cost $1000 and another $3000 with no discernible difference and a wide range of materials used. Horse hair, latex, memory foam and other materials all varied in price. And what if he took the bed home and it wasn’t comfortable then? He was stuck with it.

“The answers to my questions weren’t very strong and that was our first indication that maybe this industry hasn’t changed in the past 50-100 years and there could be a better way to do it. And with the rise of e-commerce and direct to consumer distribution we wouldn’t have to have this massive store footprint around the country to get into the game,” Wijeyeratne says.

Aerospace engineering is about material design, choosing the right materials for the right jobs, and the pair believed they had a solid understanding of costs.

They started Sleeping Duck in 2014, had prototypes built in China, and started adjusting the product based on feedback from their first customers, mostly family and friends.

It took them three years of constant tweaks and numerous phone calls to surprised buyers asking how they felt about their mattresses and what changes they would make, before the Shark Tank appearance brought some publicity.

Sleeping Duck got a further boost in 2018 when consumer group Choice awarded its mattress the best in Australia from 30 brands. It has also gained publicity for offering 100-day trials to customers and the ability to adjust mattresses during and after, the latter for a cost. There are now 256 different combinations available, based on firmness, covers, materials and other factors.

“I call it the Tesla approach where we can adjust the product over time without actually changing the model,” says Wijeyeratne. “A customer would call up and say I’m having lower back problems or shoulder issues, what can you do about it, and that’s why we created this customisation system (and) how can we make it to get you a better night’s sleep.”

Another key moment was an approach by Melbourne entrepreneur Adir Shiffman the same year. Shiffman, the chairman of ASX-listed Catapult Sports, had noticed a similar US company called Casper advertising in New York and searched for an Australian equivalent.

He became Sleeping Duck chairman and a small shareholder and helped Wijeyeratne and Sinnappan streamline the business and sharpen their entrepreneurial skills, starting with nightly 10.30pm phone calls to discuss the day’s events.

Sinnappan says he and his business partners have no regrets about leaving banking, despite being told they were crazy at the time, and are glad they found an industry to use their qualifications.

“Everything we do is still grounded in that engineering mindset. It all goes back to how can we improve the product, how can we continue to innovate. That is at the heart of what we are, a product-led and customer-­focused business.”

So well is the company performing now that it may be the second-most profitable Australian pure e-commerce start-up behind Kogan.com.

A stockmarket listing was suggested by investment bankers earlier this year, and the Sleeping Duck founders point out that given they are selling their own products their profit margins are higher than other e-commerce businesses that sell both their own and external brands.

They have international expansion plans and say they will only take external money when it is needed, though they appointed Goldman Sachs to handle inquiries from potential investors and interest has been strong.