Disrupting Men’s Personal Care: Hawthorne

“You smell great.”

Receiving this compliment can make you feel like a million bucks. Yet, while this feeling is surely gratifying, it doesn’t come too often. From walking through aisles at Macy’s to trying free samples until my nostrils are fried, finding a cologne that smells just right can be a time-consuming, futile task.

Rather than being a stand-in expert in aromatics, New York City-based startup Hawthorne is making it easier to choose a cologne (and now bath and skincare products) through its personalized formulations.

A set of personalized Hawthorne cologne, including Work and Play variations.

Overview

Founded in 2016 by Brian Jeong and Philip Wong, Hawthorne is a direct-to-consumer provider of premium personalized care products, including fragrances, skincare, and bath offerings.

To date, the company has raised $10.5M in funding, with the latest injection of capital coming from an $8M Series A led by Natalie Massenet and Nick Brown of Imaginary Ventures.

Simplify. Express. Elevate.

As was alluded to earlier, Hawthorne is addressing a widespread problem. Current offerings for premium men’s care products are dated or inaccessible to most men. A majority of products come from legacy “dad brands” sold at department stores, airports, and drugstores while other boutique, luxury offerings are either out of the price range of most or sold in locations/distribution channels not frequently accessed by men. In Brian’s own words:

“We realized that not only were premium personal care options for men limited in offering, but they were also often marketed in ways and sold in places that made them essentially inaccessible for most men.”
– Brian Jeong, Co-Founder

This comes as no surprise due to the historical perception surrounding men’s personal care products and the resulting impact on men’s buying habits. According to a report from market research firm Mintel:

“The majority of men prefer to shop for toiletries in a self-selection environment. In many department stores, men’s toiletries products are sold from the women’s counter. However, men tend to find the idea of buying from a beauty consultant intimidating”

Hawthorne makes it easy to discover premium, tailored solutions through its direct-to-consumer offering. Using a simple questionnaire and an algorithm built on machine learning, Hawthorne factors in attributes such as body chemistry, skin type, hair type, lifestyle, and scent preference to personalize the perfect hair care, body care, and fragrance products for its customers—making it an easy and hassle-free way to express yourself and elevate your routine. What’s more, Hawthorne’s website allows customers to feel more comfortable browsing personal care products from the sanctuary of their computer screens than they would otherwise be too uncomfortable to buy in-store.

Premium skincare products from Hawthorne help customers elevate their routine.

Business Model

In addition to developing an innovative product, the company’s business model is designed to drive growth.

Subscription Revenues

Hawthorne offers a mix of both subscription and one-time products through its platform. Customers can order kits, including the Face Set (face cleanser, face lotion, eye cream, and sunscreen), Hair Set (shampoo and conditioner), Body Set (deodorant, body wash, and lotion), Hand Set (hand cream and hand wash), or Essential Set (deodorant, face cleansers, face lotions, and a cologne) on a recurring basis.  Users also have the option of subscribing to select products or buying a whole set/part of a set once.

The benefit from employing a subscription-based business model is the ability to tap into recurring revenues, therefore increasing revenue visibility – a sure benefit for any startup. Further, subscriptions to Hawthorne’s products create a lock-in effect, enabling the company to more easily secure and retain customers (vs a one-time sale).

Personalization

Through Hawthorne’s online quiz, study-backed research, and data from thousands of customers, the company is able to accurately identify the perfect products for each customer’s body chemistry, skin type, hair type, and lifestyle. This not only results in an effectively tailored solution but also leads to low return rates and high customer satisfaction. According to a recent article by Forbes, the company’s return rate is less than 1%, demonstrating the success the company’s found with personalization thus far.

Diversified, Complementary Product Portfolio

The team at Hawthorne has recognized the need to move past colognes and has in turn built a diversified suite of complementary products. Currently, Hawthorne offers personalized colognes, creams/lotions, body washes, shampoos/conditioners, and deodorants. Each product inherently services a different customer need (ex: shampoos vs deodorant) and therefore does not result in cannibalization across Hawthorne’s product lines. Moreover, the introduction of new products decreases the reliance on a single product and further diversifies revenue streams.

A select few products from Hawthorne’s ever-growing lineup, including cologne, deodorant, body wash, and shampoo/conditioner.

Financial Performance

As a result of the company’s continuing investments in its innovative product portfolio, Hawthorne witnessed 350% year-over-year revenue growth in 2019. While updated financials are not available, the company’s website has maintained ~100K visitors/month even after the December Holiday spending season. Therefore, it’s clear Hawthorne is consistently generating demand.

What would be interesting to understand, however, is the mix of recurring/one-time revenues, customer retention rates, and ultimately LTV/CAC. A greater share of recurring revenues increasingly sustains top-line growth and boosts Hawthorne’s overall value. Extending this point further, high revenue retention is even more critical for operating a healthy and profitable business as it increases customers’ lifetime value and demonstrates the strength of Hawthorne’s value proposition.

Industry Tailwinds

Hawthorne operates in the men’s personal care market (including skincare, haircare, and personal grooming) which was valued at $47.5B in 2019 and is expected to expand at a CAGR of 6.0% from 2020 to 2027. Driving industry growth is growing awareness around the importance of health, hygiene, and self-grooming. As evidence, a 2019 article published by Cosmetics Europe reported 81% of men globally believe that health, hygiene, and looks influence their grooming products purchase decision.

In recent years, the stigma surrounding men’s use of beauty and grooming products has receded in place of self-expression, therefore opening the personal care market to both incumbents and new players. Premium brands including Chanel, Giorgio Armani, and Burberry have expanded their product portfolios to benefit from industry tailwinds. For example, Giorgio Armani entered into the men’s personal care segment with the launch of a 3-piece skincare line for men. Commercial brands have entered the fray as well, with P&G launching a separate male-grooming brand known as King C Gillette made from sustainable practices.

The above therefore represents a massive and rapidly expanding market that presents a prime revenue opportunity for Hawthorne to capitalize upon. With the company’s innovative lineup of personalized offerings, I believe Hawthorne can separate itself from the pack and successfully positions the company to scale even further.

Rethinking Fast Fashion: Son of A Tailor

The fashion industry is a disaster – and no, I’m not talking about the resurgence of the infamous “dad sneaker” or “not wearing pants during your Zoom meeting” look. Per a 2019 report by Quantis, apparel production and transportation accounts for a whopping ~8.5% of global carbon emissions – equal to the total climate impact of the European Union. What’s more, the fashion industry will undoubtedly exert “an unprecedented strain on planetary resources” as demand is forecasted to reach 100M tons by 2030, heightening the already mounting pressure on industry players to rethink how clothes are produced and consumed.

Breakdown of U.S. Textile Waste Disposal by Method (2019)

The U.S. generates16M tons of textile waste per year, with a staggering 10M tons (or 62.5%) sent to landfills and another 3M (or 18.7%) incinerated.

At the crux of this issue is a pricing model that drives excess stock, overconsumption, and ultimately increased waste.

Historically, brands sourced production from low-wage countries, leading to lower labor costs, and in turn, higher margins. However, outsourcing extended transportation times and forced sales forecasts to be made well in advance of the selling season, resulting in uncertainty of demand and oftentimes, excess stock. Unsold garments would then be burned or dumped; in fact, up to 85% of textiles go into landfills each year – enough to fill the Sydney harbor annually.

Fast forward to the present day, the industry’s focus on fast fashion, or the process of moving designs from catwalks to stores at breakneck speeds and at affordable price points, has amplified the industry’s waste problem. Zara, H&M, Topshop, and other fast fashion retailers offer designer looks at a fraction of the cost, driving consumer demand for always-on styles. The advent of online shopping and rise of photo-sharing social media platforms (Instagram, Pinterest, among others) has further added fuel to the fire, igniting a wave of demand for cheap, trendy apparel. However, to continuously offer new styles at below-market price points, companies must sacrifice quality – significantly reducing the lifetime of each item. As items are worn a handful of times and ultimately discarded, landfills continue to grow and contaminate the surrounding environment.

However, not all is lost. One promising avenue on the path to sustainability is the reduction of excess stock through supply chain innovation.

Problem Meet Solution

Enter Son of A Tailor, a Copenhagen-based apparel company that offers a sustainable alternative to run-of-the-mill, ill-fitting, mass-produced t-shirts. The Company does so by producing custom-fitted t-shirts at affordable prices through a made-to-order production system. Historically, made-to-order production systems were reserved for Haute Couture houses, such as Balmain, Chanel, and Dior, that design one-off pieces for private clients – often charging upwards of $20K for day wear and $100K for bridal wear. This then begs the question: how feasible is producing customized, individual units at affordable price points on a global scale?

“We created an algorithm that could create a body profile of the customer in an intuitive way”

The entire process of customizing and ordering a t-shirt occurs on Son of A Tailor’s website, where users are asked a series of questions, including height, weight, age, and shoe size. From these inputs, the company’s “Ideal Size” algorithm generates a unique t-shirt size tailored to each customer. According to Son of A Tailor co-founder Jess Fleischer, the algorithm “creates a body profile of the customer in an intuitive way” and ensures a “new size for every new T-shirt…so none of our T-Shirts are made from standard sizes.” After calculating the perfect fit, users are then prompted to choose between various style preferences, including neckline, sleeves, color, pockets, and initials. Offline, a t-shirt pattern is created from each body profile and sent to the company’s European production site. After a final quality check, each t-shirt’s hang tag is signed by the person who made it and shipped to customers across the globe.

Aside from guaranteeing a perfect fit, Son of A Tailor’s “Ideal Size” algorithm ensures low return rates and high customer satisfaction. According to Fleischer, the company witnesses an impressively low, 5% return rate – as compared to 40 – 50% return rates exhibited by the company’s e-commerce counterparts. Low return rates and high customer satisfaction are a perfect recipe for increased brand loyalty and attractive customer LTV. ‘Once people have found their perfect fit, they come back for more. We’re always here to help them get the perfect fit nailed, that’s what our business model is all about,’ Fleischer says.

As a result of the company’s made-to-order production system and “Ideal Size” algorithm, Son of A Tailor is able to nullify any inventory risk while offering custom fitting t-shirts that encourage brand loyalty and drives LTV. This is perhaps why the company is able to offer t-shirts at relatively affordable price points. Rather than jacking up prices to increase margins on a per unit basis, the company makes profits off the back end through repeat purchases.

“The last thing the world needs is another T-shirt company where half the inventory ends up in a landfill somewhere.”

From a sustainability perspective, the company’s made-to-order business model can significantly reduce waste. As mentioned prior, by having every t-shirt made-to-order, Son of a Tailor does not have excess stock. “We really wanted to impact the way we think about waste, as a lot of resources go into making a piece of clothing, from the cotton itself to the people sewing the clothes, so it’s important that we’re mindful of this,” explains Fleischer. In fact, by having no unsold inventory and a low return rate, the company “obtains a CO2 footprint half of other fashion commerce retailers." If the industry follows in Son of A Tailor’s footsteps, excess stock could be eliminated altogether.

Couple the advantages of the “Ideal Size” algorithm and made-to-order production system and this starts to look like an attractive business model both in economic and environmental terms. However, it has to be stated that while $80 for a custom-fitted t-shirt is relatively affordable, the price point is still largely out of reach for most consumers. Therefore, to expand its reach, Son of A Tailor must reduce its prices through cost-cutting initiatives, including (but not limited to) reduction of labor expenses through increased supply chain automation and simplifying the garment construction process to drive efficiency.

In today’s sustainability-conscious environment, it’s exciting to see how industry players are taking initiative while driving economic value. If I can look good while doing good, I’m all for it.

By Gyan Kandhari

Tele…Pet? Introducing Fuzzy

The moment I first laid eyes on Buddy will live rent-free in my mind. He was dwarfed by the toys we bought him but made up for it in his barking and never-ending energy.

As with every first-time dog owner, we thought we had everything under control – until he started attacking anyone who ventured into the backyard. We did not know if his behavior was natural, if we were being bad parents, and we were ultimately unsure who to consult.

Fuzzy, a subscription-based veterinary telehealth service, focuses exactly on this issue by providing on-demand consultations as well checkups, vaccination, testing, and preventative medications. After doing some more digging (no pun intended), I became more fascinated with the company and believe it has the potential to scale.

Fuzzy’s IOS app and sample medications

People Love Pets.

Fuzzy operates in a massive and ever-expanding market. Revenues for Veterinary Services in the US are expected to reach $50.2B by the end of 2021. Fueling this growth is the rise in pet ownership. Per the American Pet Products Association, a whopping 67% of U.S. households, or about 85 million families, own a pet. This is up from 56% of U.S. households in 1988, the first year the survey was conducted. As shelter-in-place orders became mandatory across the country, a rising number of Americans looked towards pet adoption as a means to seek companionship. In turn, the number of pet adoptions soared, with 12% of adults with kids under 18 adopting pets due to the pandemic. The vast market for pets and industry tailwinds, therefore, represents a deep revenue opportunity for the Fuzzy team to pursue.

Tackling a Widespread Problem.

As was alluded to earlier, Fuzzy is addressing a problem faced by many pet owners – the inconvenience of veterinary care. Fuzzy addresses this issue through its two core offerings: (1) 24/7 Live Vet Chat, a telemedicine service that connects pet owners to veterinarians, and (2) access to vet-recommended supplements and medications. As a result of these services, pet owners can access convenient care, become more informed about their pet’s health, and potentially avoid unneeded costly trips to the ER.

Fuzzy’s 24/7 Live Vet Chat connects owners to veterinarians

Innovative Business Model.

Besides developing an innovative solution, management has also focused on the company’s business model and financial performance. Fuzzy provides online veterinary care through a subscription business model; users either pay $100/year or $17/month to access a personalized pet plan, discounts on medications, health tracking, and 24/7 Live Vet Chat. Recurring revenue generated from subscriptions helps sustain top-line growth, provides increased revenue visibility, and creates a lock-in effect.

Notably, Fuzzy generates a positive contribution margin per transaction, in part due to supply-side optimization. Fuzzy – like ridesharing companies UBER and Lyft, optimize the number of suppliers (in this case, veterinarians not drivers) as a factor of demand to increase cost efficiencies. As a result, Fuzzy is able to effectively limit downtime and staff veterinarians accordingly.

Boosting Margins Through the Back End

Positive contribution margins may also be a factor of the company’s newfound focus on providing medications. While I’m not 100% certain, I do believe Fuzzy is employing a similar business model to the telemedicine provider Hims. Fuzzy (like Hims) offers attractive low-cost (and low margin) telehealth services but makes money off higher-margin, recommended medication sales. While the company is only offering a limited number of medications at the moment (perhaps due to the various state-by-state restrictions on online pet medication sales), I can see the company capitalizing on this growth opportunity. As evidence of this business model’s viability, Hims generates 90% of its revenues from subscriptions to medications listed on its platform.

Overall, Fuzzy’s focus on providing affordable, convenient veterinary care through an innovative solution and financially-sound business model makes it a company both Buddy and I are excited about.

By Gyan Kandhari

Not Just Any Meal Kit Startup: Raised Real

As a single 23-year-old guy living in New York City, having a kid is last on my to-do list. In fact, the only time I think about parenthood is when my parents ask why I am still single – I, unfortunately, do not have an answer but am open to any (and all) suggestions.

However, it does not take a genius to understand how tough parenting can be. This is where Raised Real comes in. The Company aims at reducing the stress of parenthood through its ready-to-serve organically sourced baby and toddler meal kits. Since its inception in 2018, the company has served over 500K meals nationwide. Babies are not the only ones excited about what Raised Real has to offer. The Company has since secured $7.3M in funding, with the most recent injection of capital arising from Frozen Harvest Intelligence who invested $350K in April 2020.

I too think Raised Real is a promising startup that is poised to grow.

Raised Real meal kits include organic, allergen-free raw ingredients

Out with the Old. In with the New

Incumbents in the baby food space, including Gerber, Heinz, and Nestlé, have historically focused on providing quick, inexpensive, processed food. The Center for Science in the Public Interest warned in a 1996 report that baby foods made by Gerber and Heinz were “adulterated” and “nutritionally inferior” to homemade recipes. More recently, Billy Roberts, senior analyst of food and drink at market research firm Mintel, says that there were four times more product launches in the baby food aisle in 2018 than in 2005, with a majority of new toddler foods containing excessively high sugar content.

A snack bar for children contains 2 teaspoons of total sugars per serving. (Bill O'Leary/The Washington Post)

The good news is parents seem to be on the right track. As millennial parents become more health-conscious, buy more pelotons, and demand greater ingredient transparency, there has been a surge in demand for healthy alternatives that are both dense in nutrients and time-saving. Raised Real focuses exactly on this market trend by providing fresh, organic, ready-to-prepare meals for children aged six months to two years. Each Raised Real meal contains plant-based, allergen-free, and nutrient-packed ingredients that are highly beneficial during a child’s early developmental stages.

Massive Addressable Market + Industry Tailwinds = Clear Revenue Opportunity

As mentioned above, rising demand for ingredient transparency and healthier alternatives has sparked a spike in demand for nutrient-dense, organic baby food. The global organic baby food market (including ready-to-eat baby food, milk formulas, and dried baby foods processed without GMOs, preservatives, or colors) is projected to reach $11B by 2024, expanding at a CAGR of 10% during the 2019-2024 period.

As a result, incumbents are losing market share to new organic alternatives and even good old-fashioned homemade baby food. According to a 2014 New York Times article, the sale of processed baby food has been declining since 2005. As a result, Raised Real stands to benefit from consumer trends while the expanding market presents a sizeable revenue opportunity.

Business Model Fuels Growth

In line with other meal kit providers, Raised Real employs a subscription-based business model, offering 12 – 24 meals every 1 – 2 weeks. Revenues from subscribing customers boost top-line growth while providing increased revenue visibility; effectively empowering the Company to better handle impending business changes and manage expenses.

With this said, meal kit providers including Blue Apron and HelloFresh have come under fire for poor customer retention rates. Yet, I believe Raised Real can bypass this issue altogether. Babies, unlike their parents, are generally less picky and do not have the capacity to readily switch meal kit providers or cancel altogether (although there may be excessive crying involved). According to Santiago Merea, Raised Real’s cofounder and CEO, the customer retention rate is 80% after the initial box is shipped and 90% after the second box is shipped; this translates to a 72% retention rate after the first month. On the other hand, according to research firm 101Data, Blue Apron exhibits a dismal 50% customer retention rate after the second week.

Seasoned Leadership Team Increases Probability of Success

Santiago Merea - CEO & Co-Founder

Michelle Davenport - Co-Founder

Steven Kontz - Co-Founder

Raised Real was founded by Santiago Merea, former CEO of Orange Chef (acquired by Yummly in 2016). Since immigrating to the US from his home country of Argentina, Santiago has continuously tested and reimagined the way we approach cooking; from his first product, the Chef Sleeve, to the Prep Pad and other products sold under the Orange Chef brand name. Santiago later teamed up with colleague Steven Kontz, former CFO of Orange Chef, and Michelle Davenport, startup advisor and former Director of Nutrition for Zesty (YC ’14, acquired by Square) to scale Raise Real.

The star-studded advisory board includes Birchbox Co-Founder Mollie Chen, former TaskRabbit VP of Marketing, Jamie Viggiano, and Glossier co-founder Nick Axelrod.

By Gyan Kandhari

VCs = Hypebeasts? Finding Value in StockX

StockX – the Detroit-based sneaker, apparel, and collectibles marketplace for hypebeasts and wannabe trend setters, closed its $275M Series E financing round, boosting the Company to a whopping $2.8B post-money valuation. Existing investor Tiger Global Management lead the round, with participation from Altimeter Capital, Sands Capital and Whale Rock Capital Management.

Management indicated that the injection of capital will be put towards accelerating international growth efforts, product development, and expanding the product portfolio. The Company has already begun to pursue these initiatives. Since its inception in 2016, the Company has recorded more than 13M transactions across 200 countries, with 50% of those transactions occurring in the past twelve months. On the international front, Q3 2020 non-U.S. trades increased 260% as compared to the same period in 2019.

The Company’s lineup of goods has also expanded past sneakers with the introduction of streetwear, electronics, collectibles, handbags, and watches. Users can now buy authentic Air Jordans, Off-White Fanny Packs, and even a 1995 BMX Dirt Bike from Supreme. Therefore, it comes as no surprise that the Company surpassed $2.5B in lifetime gross merchandise value in June 2020.

A pair of Jordan 1 Retro High Diors (pictured above) is listed for $7,800 on StockX - a 290% increase from it’s $2,000 retail price.

Finding Value Amongst the Hype

With a $2.8B valuation and $490M in funding to date, hypebeasts are not the only ones excited about what StockX has to offer.

From a macro perspective, StockX is operating in a market with a high TAM. It is estimated that the sneaker reselling market will grow at a CAGR of 28% between 2019 and 2030, reaching a value of $30B. Concurrently, the apparel reselling market is on track to be valued at $64B by 2025. As the Company expands into new verticals, the revenue opportunity will increase, further heightening the already astronomical ceiling.

In a narrower sense, the Company is bridging gaps in the market by providing a real solution. Buyers want verified, authenticated items especially with the proliferation of knockoffs. Prior to StockX, buyers would have to peruse hundreds of listings with the risk of receiving a counterfeit. Simultaneously, sellers would list their items according to the few readily available data points they had on hand. StockX addresses both these issues through their service offering. The Company authenticates items at their verification centers, ensuring the legitimacy of each item sold and establishing buyer confidence. For sellers, StockX captures relevant data points, such as historical sales data and fluctuations in bid/ask spreads, to inform the value of their listing. Furthermore, StockX eliminates the need to take photos, include items details, and communicate back-and-forth with bidders. For these reasons, StockX provides real value to both buyers and sellers.

The benefits StockX brings to the table reinforces their business model and has turbo boosted growth. The ability to authenticate items has driven buyers to the platform, and in turn, attracted sellers – igniting a flywheel effect and demonstrating network effects. It is worth noting that buyers and sellers are not mutually exclusive, as resellers can both actively purchase and resell items on the platform. Furthermore, same-side networks effects also benefit the Company’s service offering as more users leads to more transactions and therefore greater pricing accuracy.

In addition to establishing buyer confidence, the authentication process increases market share through inventory lockup. Specifically, when buyers ship items to StockX’s warehouse for authentication, buyers can no longer list the items on other platforms as they are in StockX’s possession. This “lockup” of inventory permanently takes away market share from other resale websites and establishes StockX as the dominant player in the space.

Looking Ahead

With dry powder in hand, there are more than a few growth avenues for the Company to pursue. As mentioned prior, management will be aiming to increase the number of product verticals offered on the platform. In fact, the Company can look to include any supply-constrained product so long as the authentication centers are equipped.

Management will also be looking to build out their IPO feature, in which products launch on their website using a blind Dutch auction format. Companies planning to sell limited release products at below-market prices can alternatively launch their items through StockX, thereby capturing the real market value while retaining the rarity that arises from low volume product runs. In fact, the Company has already completed a successful IPO with Adidas Campus 80s and Ben Baller slides, proving the effectiveness of the IPO process and signaling the opportunity for future launches.

StockX has evolved from a sneaker reselling platform for sneakerheads to a reselling rocket ship that has the fuel to propel it towards a potential IPO and unicorn status. I will be surely keeping a tab on the Company’s development but would love to hear your thoughts below!

By Gyan Kandhari

Ready To Scale Series: Thrilling

Thrilling is a Los Angeles-based online marketplace of curated vintage and secondhand items. The company currently partners with 150 stores across 30 cities to sell items on its platform.

Leadership Team:

Shilla Kim-Parker, CEO & Co-Founder

Brad Mallow, CTO & Co-Founder

Employee Count:

14 Employees (as of Oct-20)

Funding to Date:

$2.1M Seed Round by Congruent Ventures

Investment Highlights

Finding White Space. The gap in the market that Thrilling is addressing is two-fold: sellers of vintage and secondhand items mostly operate local stores and lack a digital presence; and on the other side, consumers seek out high-quality, one-of-a-kind secondhand items but are limited to the stores in their immediate vicinity. Thrilling aims to bridge this gap by providing local sellers and boutiques an online platform to list their items for sale on Thrilling, while buyers peruse thousands of listings.

A Booming Sector During COVID Times. Thrilling operates in the $28B secondhand apparel market which is forecasted to grow at a CAGR of 18% to $64B by 2024. Rising consumer awareness around sustainability has helped spur industry growth, with 87% of U.S. millennials willing to pay more for sustainable clothing and 53% of U.S. millennials saying they prefer purchasing eco-friendly products.

Concurrently, the rising domestic unemployment rate and overall economic uncertainty caused by the COVID-19 pandemic has led consumers to be increasingly price-conscious. As a result, consumers are seeking bargains from home and further propelling industry growth.

Global Secondhand Apparel Market Size (2019A - 2024F)

Business Model Boosts Margins vs Competitive Set. Apparel and sneaker resale websites including thredUP, StockX, Stadium Goods, and GOAT operate distribution centers to collect items from sellers, conduct an authentication process, and subsequently ship verified items to buyers. The process is a core value proposition for sneaker-focused resellers StockX, Stadium Goods, and Goat which operate in an industry plagued by counterfeits. Purchases in the sneaker resale market can surpass $10K or more, further emphasizing trust and protection as valued assets.

thredUP provides a verification process to check for signs of wear, damages, and alterations in an effort to uphold high-quality standards. As a result, the company only accepts 40% of all items provided. However, while the verification process does benefit buyers, it severely impacts the company’s bottom line. thredUP CEO James Reinhart said the company pays $2.00 per bag for buyers to package items into, $1 to ship buyers the bag, $12 to ship the bag back, and $5 for staff members to go through and verify each bag. That amounts to a whopping $20 per verification process.

In contrast to the companies mentioned previously, Thrilling ensures high-quality standards are met by partnering with trusted stores to list and sell items rather than operating a true (open) marketplace. As a result, the company foregoes the expenses that come with operating a distribution center to collect items, conducting verification processes, and shipping items to buyers.

Proven Traction. During a recent interview, Shilla Kim-Parker revealed that revenue has grown 50% month over month since January 2020. While not a clear indicator of (or proxy for) growth, gift card purchases have risen 200% year over year, with the average balance hovering around $150.

As a result, it is clear that the company is finding traction with its current offering and customers value vintage/secondhand clothing.

My Strategic Guidance

Expand Sales Channels. If I were advising the team at Thrilling, I would advocate for the company to tap into multiple sales channels, including marketplaces (eBay, FarFetch, Rakuten, Amazon, etc.) and retailers (Walmart, Nordstrom, among others) to boost revenues and build brand awareness.

For marketplaces, this would entail listing Thrilling items on eBay, FarFetch, and other platforms under the Thrilling brand name. This will effectively increase the number of sales channels (vs only selling items on Thrilling’s website) and in turn increase revenues. Not only will leveraging other marketplace platforms boost sales, but it will also strengthen the company’s brand image and reputation for being a trusted reseller. As Thrilling sells more items on eBay and other platforms, their seller rating will increase. Not to mention, the high-quality photos that Thrilling provides its partners will further build brand equity as items are listed and sold across platforms.

Two illustrative examples of this strategy being implemented are Stadium Goods and Airbnb. In the case of Stadium Goods, the company lists items across eBay, Rakuten, Amazon, and Goat to increase sales channels and build brand awareness. Since the company created an eBay account in October of 2015, the company has received a 96% seller rating out of ~8,700 buyer reviews; further establishing the company as a trusted reseller.

To generate more bookings, Airbnb offered users who listed properties on the platform the opportunity to post them on Craigslist as well. Simultaneously, the company began offering free professional photos to increase each listing's attractiveness. As a result of these two key strategies, Airbnb tapped into Craigslist’s preexisting audience base while also attracting more users (and in turn, generating more bookings) through appealing photos.

Regarding the expansion into retail channels, Thrilling can look to partner with retailers including Walmart, Nordstrom, and other discount stores to sell items both at physical locations and online. Companies are motivated to include resale options in their traditional retail settings to boost overall sales; in fact, customers spend 21% more and visit stores with resale options 70% more than stores that do not. This may be driven by shoppers looking for “diamonds in the rough” as well as the increased variety that comes with secondhand goods vs. the traditional retail selection that rotates on a seasonal basis. thredUP has leveraged this strategy in the past, with over 100 store-in-store collaborations.

By Gyan Kandhari

Ready To Scale Series: Gainful

I’ve been an athlete my whole life. Up until college, I played soccer competitively – eventually playing in the U.S. Soccer Academy and captaining my team to a #16 standing nationwide. After sustaining a career-ending injury, I looked towards weightlifting as a way to stay competitive and keep my love for sport alive.

As I started weightlifting, I was overwhelmed by the number of exercises, diets, and supplements promising six-pack abs and maximum gains. Through trial and error spanning five years, I’ve learned which programs work best for me, which supplements to take, and I’ve developed my own program. At the same time, I’ve seen many friends and gym-goes spinning their wheels with little progress to show.

Gainful, a San Francisco-based startup, is aiming to demystify supplements for athletes and gym-goers through its personalized protein powders. After conducting extensive research, I believe the company has the potential to scale.

Company Overview

Leadership Team:

• Dean Kelly, CEO

• Eric Wu, Co-Founder & COO

• Jahaan Ansari, Co-Founder & CTO

Employee Count:

28 Employees (as of Oct-20)

Funding to Date:

$120K Pre-Seed round from Y Combinator

Investment Highlights

A Solution for a Real Problem. There is a multitude of protein supplements in the market, each composed of different ingredients purported to aid users in reaching their specific goals. However, nutrition facts can quickly become confusing and leave users overwhelmed. Gainful addresses these issues by simplifying the process of buying protein supplements through personalized formulations catered specifically for each users’ body type, exercise habits, dietary restrictions, and health goals.

Room for Growth and Industry Tailwinds. Gainful is situated in the global protein supplements market (including protein powder, protein bars, and ready-to-drink protein products). The market size was estimated to be $17.6B in 2019 and is projected to grow at a CAGR of 8% until 2027. An increase in consumer health consciousness, rising popularity among younger cohorts (Gen Z, millennials) around supplements, and push for greater ingredient transparency are the main drivers behind industry growth. As a result, Gainful stands to benefit from the consumer trends while the expanding market presents a sizeable revenue opportunity.

Global Protein Supplements Market Size (2019A–2027F), in Billions

Favorable Business Model Characteristics. Gainful capitalizes on the consumer shift towards personalization by capturing key data points through an online quiz. Not only does the company capture and synthesize data to tailor products to each individual, but the same data can be used to personalize customer communications and drive engagement – ultimately increasing client stickiness and LTV/CAC.

In addition to personalization, the company employs a subscription-based model, delivering products to consumers on a monthly basis. Recurring revenue helps sustain top-line growth while providing increased revenue visibility; effectively empowering the Company to better handle impending business changes and more easily secure funding (from lenders).

Lastly, Gainful is expanding upon its product portfolio through protein bars, pre-workout, and other supplements. The expansion of the portfolio further diversifies the revenue stream and drives top-line growth. It is also worth mentioning that the inclusion of separate supplements (such as their pre-workout) does not result in cannibalization across their product lines as they inherently service different consumer needs.

My Strategic Guidance

Build a Community & Leverage Word-of-Mouth. If I were advising the team at Gainful, I would suggest allocating resources towards building a community of followers or brand advocates and facilitating word-of-mouth marketing to drive sustainable growth. Airbnb, Soundcloud, Skillshare, Github, and various other companies across a broad range of industries have developed a tight-knit community around their brand. When executed correctly, communities can help foster a sense of belonging, build thought leadership, and perhaps most importantly, drive referrals. This stands in stark contrast to other acquisition strategies such as social media and google/search ads which eat into the bottom-line and which may not drive word-of-mouth marketing. These methods prove to be unsustainable as the company grows and competes with other players in the space who also have the means to deploy capital towards paid acquisition strategies. Therefore, Gainful must begin allocating resources towards building a community and fostering word-of-mouth marketing to boost organic growth.

By Gyan Kandhari

Fake Door Testing: Validating Ideas

After launching a “few” failed ventures over the past several years, I’ve come to understand why certain ideas are more difficult to bring to fruition and why some growth strategies are more challenging to implement. Maybe it was my team’s failure to acquire clients, inability to keep costs low as we scaled, or a failure in product design. Regardless of what the issue was, I’ve found that a majority of my failures were rooted in my lack of understanding of the potential customer and their needs.

If I knew my customer inside-and-out and conducted thorough due diligence, perhaps I would’ve acquired clients in a cost-efficient manner, identified flaws in product design, and ultimately recognized if my product matched their needs.

My teams and I would’ve saved THOUSANDS of dollars. But alas, it’s better to fail and learn than to learn nothing at all. So, after all these trial and errors, how do I understand if a product will succeed? In other words…

How do I know if my idea serves a customer need?

OK – there are a hundred ways to do this and thousands of articles covering this topic. I’ve a read a lot and implemented some, but what I’ve found to be the most impactful method for understanding if there is a genuine need for a product/service offering is a Fake Door Test.

Fake Door Testing allows us to understand if an idea or product has viable market demand prior to investing in and delivering that product. To conduct the test, we show the user an option that does not yet exist. After the user takes an action (clicks a CTA, registers, etc.), the website notifies the user that this feature or product is not yet available – hence the “fake door.”

By measuring how many users “step” through the fake door, we can gain a better understanding of real market interest and ultimately make more informed decisions. 

Fake Door Testing Step-by-Step

The process consists of 3 key steps:

(1) Create a Landing Page and Construct a “Fake Door."

The landing page should be designed to clearly explain your product/service offering – nothing more, nothing less. As with any early-stage startup, it is important to stay lean and reduce expenses where possible; after all, this is a test designed to validate an idea, not put it into full motion. Unbounce and Mailchimp are two great options for quickly developing landing pages (no, I am not sponsored).

The door should be easy to locate and tracking should be enabled in order to understand who stepped through the door. Regarding what is “behind” the door, I suggest redirecting users to a page that says, “Thank you for your interest in ~Your Product Offering~. Please provide your email address to stay in the loop.” In this way, you can capture the contact info of real potential customers for when you launch.

See below for a great example by Buffer, a social media account manager. Their landing page clearly lays out their service offering and the door, a "Plans and Pricing" button, prompts users to input their email address.

(2) Test and Market your Page

After the landing page is fully fleshed-out, start driving traffic. Paid advertisements (Facebook, Instagram, Google) are the most viable option, as they guarantee a stream of potential customers in a defined set of time. Slow and steady does not win the race here.

(3) Capture and Analyze Data

After enough data points have been captured (sample size is contingent on your level confidence), you can now analyze the data. Of key importance is the conversion rate of users who stepped through the fake door versus the total number of users who visited the landing page. A higher conversion rate can be used as a proxy for greater market demand.

While analyzing the data, do keep in mind that the data may be imperfect. Users may have not seen the door, the copy/content may have not appealed to certain set of users, etc. So please iterate before going ahead with / canceling an idea.

Advantages of Fake Door Testing

• Save time and resources. Fake door testing allows you to validate an idea/product, even before investing your time and money into development.

• Real-world Stress Testing. While it’s great to conduct interviews, observational research, and other studies to understand customers, it is arguably just as important (if not more) to understand how the market will react to an idea/product in the field.

Disadvantage of Fake Door Testing

• It’s not a nice thing to do. Users who step through the door are expecting your product, not a dead-end. Therefore, I suggest conducting the test on a predetermined sample size for a set short duration of time.

• I honestly can’t think of any other disadvantages except for a limit on the number of fake doors. Placing too many fake doors on a website would surely frustrate users, but would also be pretty hilarious :)

Key Takeaways

Fake Door Testing is one of many ways to validate a potential product/service offering. I’ve found that by implementing these tests early on, I could gauge market demand, and as a result, save both time and money on ideas with little to no traction.

But don’t get me wrong – a Fake Door Test is not a be-all end-all. A low conversion rate does not mean you should close your doors and call it a day. Rather, the test should be used to capture data and generate insights to ultimately make informed decisions.

Feel free to post your thoughts and questions below!

By Gyan Kandhari

Function of Beauty: A New Take on Personalization

In today’s post, we delve into the strategies Zahir Dossa implemented to scale his business, Function of Beauty, to a 100M+ valuation. Feel free to share your questions / comments / thoughts below!

Company Overview: Function of Beauty offers personalized hair care products tailored to its customers' specific hair profile and goals. A link to their website can be found here.

The Problem: over saturation in the hair care market, coupled with one-size-fits-all products, has left consumers confused when deciding which hair care products to purchase.

To put it another way, there is a finite number of products out there and an infinite number of possible problems and solutions; hence customer cohorts and one-size-fits-all products.

The Solution: personalized hair care products that suit the needs of each user.

How: The company implemented a “Hair Quiz” to pinpoint the exact hair care needs of each user. To understand which questions to ask, the company tested and iterated upon a variety of quizzes, focusing on the marginal benefit of each question. Testing of the quiz proved to be impactful, with an increasing rate of users completing the quiz and ultimately being satisfied by the end product.

Operational / Business Innovation: From startups to multi billion-dollar enterprises, personalization imposes a breadth of problems at the operational level. This especially holds true for CPGs, where the marginal cost of creating a personalized tangible product is magnified. So how did the FoB team counter these obstacles in their pursuit of personalized hair-care products?

The team approached personalization one step at a time, implementing more robust and efficient solutions as the company scaled. Let’s break it down below…

#1 – Zahir and team started hand filling each bottle. During the initial stages, the company (as with all startups) had minimal capital to expend and ultimately wanted to gauge the demand for their product. Partnering with a manufacturer therefore did not make sense for the team.

#2 – Once proof of concept was established, Zahir was able to secure additional funding to invest in custom equipment and manufacture bottles in-house. Manufacturing and bottling the formulas in-house has proven to be a key strategic step for the company. By straying away from third-party manufacturers, the company has provided itself increased flexibility in experimentation and reduced manufacturing costs in the long run. Zahir and team could experiment with new formulas, allowing the company to provide a more refined product, adapt to new trends, and expand their product portfolio in a more nimble and cost-efficient manner. Additionally, the company could experiment with new bottling processes to reduce manufacturing costs and boost their bottom-line. Not to mention, contract manufacturers have a certain minimum order size, thereby making customization on a small scale (each bottle is unique) costly.

Wrap-Up: After studying FoB’s growth story, I think the main takeaway is that disruption does not occur instantaneously – rather, it’s a process. From the outset, personalization is a daunting task that may seem insurmountable, especially on a operational and cost basis. But by staying focused on the vision, approaching the task one-step of the time, and continuously iterating / experimenting, Zahir and team were able to disrupt the hair care industry.

By Gyan Kandhari