The Inside Scoop is a series that chronicles the ups and downs of starting a Direct-to-Consumer (DTC) apparel company from scratch...in the middle of a pandemic.
Did you know Frankly began as a class project? It's true. Jane and I met as students at Stanford Graduate School of Business and decided to take the famous Startup Garage class "just as a thought experiment." Famous last words.
Startup Garage is a 20-week class that uses the Lean Startup Methodology to help test potential business ideas and bring them to market. At the end of the day, you don't need to go to business school to start a successful company. In essence, you only need three things to take a solid swing at building a business:
- A Founding Team
- A Real Need
- A Way to Finance
A Founding Team
The Frankly founding team came together independent of our idea. We actually applied to the Startup Garage class with a totally different idea - a virtual assistant designed to help you stay in touch with friends and families in the midst of a busy schedule. Then we pulled a total bait and switch. SURPRISE, teaching team! We are working on braless clothing! I'm sure they were thrilled.
While it worked for us to build our team first and then find our need, other teams rally around a shared idea. That works too! In the words of last week's #WCW, there is no one way to build a startup. If you have an idea, talk to anyone and everyone about it. See how people respond. If you have someone whom you love working with, ask if they've ever thought about starting something of their own. The best way to fight inertia is to put yourself out there. You'll be amazed at how word travels, and the fascinating leads you get from others when they know about your passion project.
Jane: I was always told our ideas might evolve, we might pivot, and we also might be somewhere we never thought we would be. Despite the changes, your co-founder is there with you through all of it. A founding team is essentially a marriage. Yup, I’m Heather’s second better (or worse) half. The piece of advice I got was that you have to trust this person enough to give them your social security number. Heather definitely has my social security number, but she also isn't about to buy a house under my name in Alaska :) Noam Wasserman, a professor at Harvard Business School who studied 10,000 founders for his book "The Founder's Dilemma,” said that 65% of companies fail because of conflict between founders. Be thoughtful about who you choose to marry and make sure your priorities align.
Heather: Jane and I both say we would never have undertaken this journey alone. Being a founder / co-founder is hard work. It is has really high highs and a lot of low lows. Having someone that intimately understands what you are going through is a lifesaver. It's rare in this world to find someone that you can spend nearly 24/7 with and not drive each other crazy. And that's basically what you do when you start a company. Specifically, I knew the quality of Jane's work, that she had an awesome work ethic, and that she - like me - has a very low tolerance for bullshit. I like that she calls me out when I need it. We share similar values, but see the world differently enough to challenge each other. Jane and I had very frank conversations up front about our strengths and weaknesses. She is a finance and operations wizard, which are the aspects of the business I find LEAST appealing. Complementary skill sets are key.
TLDR; Find yourself a great co-founder! Work with someone who:
- has complementary skills to your own
- shares your values and goals
- you enjoy spending a lot of time with
- trusts you and that you trust completely
- recognizes the importance of communicating openly
A Real Need
We say you need a need, not an idea, because there are lots of creative ways to solve a single problem. For example, if you have 10 people and only eight chairs, you could remove two people OR find two more chairs. Or maybe you have everyone sit on the floor! The sky is the limit. But if you start from the solution of removing two people, you may never have found the alternatives. This is the theory behind "needfinding." It is important to enter into the needfinding phase as naively as possible. You learn a lot more from interviewing and observing people when you don't unwittingly bias them towards the solution you have already dreamed up.
Heather: When I started business school, all of my classmates seemed to have a clear idea for their next venture. I had zero ideas, and I accepted my fate as a non-founder. Reframing the search for an idea as a search for a need completely changed how I looked at the world. I started training myself to notice every time I was disappointed, frustrated, or outraged. I started keeping a note in my phone full of problems that I personally encountered or heard other people talk about. Some were really bad (ask my husband about the time I pitched AirBnB just for backyards), and some are things I still think are a great idea! Making braless clothing more inclusive was the one that had staying power. I couldn't stop thinking about it, and when I talked to other women about it, the idea clicked instantly. I knew we were on to something. In general, Jane and I both asked ourselves if solving this need was something we were willing to dedicate 5-10 years of our life to, and went from there.
Jane: Doing needfinding is definitely something Heather was more practiced at. So many people think user research is the easy part, but it’s actually a skill to NOT lead the witness. Fortunately for me, Heather has done so much of it between her last job and design school classes that I got to learn a lot about how to ask better questions. My favorite experiences were shadowing while people shopped and doing closet visits. The things people said while talking about their process was so interesting. There's also a benefit to having firsthand experience with the need. I’m someone who would literally go braless all the time if it weren’t for the nip situation (I’m apparently cold 24/7). You’re not required to have personal experience with the problem as long as the need is there, though it can make you more motivated to solve the problem.
TLDR; spend the time talking to and observing real people who experience the problem you are trying to solve. Leave questions open-ended, and be receptive to the different possibilities their answers present. If you're struggling to find a need, start with your own experiences.
A Way to Finance
Money is nice, but honestly, it is a distant third in terms of importance. There is a lot of work that should be done before you ever invest your first dollar. Once you're convinced that you've found a real need with a viable solution and you have the right team to solve it, you need to think about how you will fund it. At that point you have three choices: finance your company yourself (bootstrapping), borrow money from family and friends, or raise institutional capital.
Bootstrapping gives you ultimate control over the direction of your company because you don't owe anyone but yourself. That being said, you have to be a in a situation where you can front the money needed to stay afloat or have good enough credit to take out a loan. Many people work another job to finance their "side hustle" startup, which might mean you can't move as fast.
Borrowing from family and friends, or seeking angel investment, can be a high stakes game. You are probably more likely to be successful getting funding this way, as your family and friends believe in you and want to support you. However, once you take their money, it can change your relationship. If your business were to fold, and you couldn't repay them, how would they feel about it? How would you feel about it? They also may want more of a say in your business. Is that something you are prepared to take on? Consider these questions carefully before taking from friends and family.
Institutional capital, also called venture capital, is the most formalized process of fundraising. It involves pitching to professional investors, being able to answer a lot of nitty gritty details about your business, and signing legal contracts. The amount you can raise is often much higher than what you could bootstrap or get from family and friends, but it comes with strings attached. Investors expect a significant return on their investment - often 10x or more what they put in. That means investors will be invested (pun intended) in how you run your business. Think of the investor-founder relationship like a marriage: you are in it together for the long haul, so make sure you choose a good partner.
Heather: Being in Silicon Valley, we were surrounded by venture capital. It almost seemed like the only option if you wanted to grow your business. It became clear early on that raising institutional capital was going to be difficult for us. First, DTC brands aren't the darling of the VC world post Casper's failed IPO. Fashion is considered even riskier because companies don't often sell for billions of dollars. Second, we don't have much traction yet. We are pre-product which means we can't show off revenue numbers or low customer acquisition costs. With women's fashion being such a crowded space, you need to be able to prove that customers love your brand. Third, VC is a mostly male community. Braless clothing requires a lot of explaining, and even then, men don't always get it. Female co-founders working on a female-centric product don't often get funded. Seriously, only 2.8% of VC money goes to female founders, and even less to female founders of color. (Whenever you get the opportunity, support female founders!) Advice from trusted members of our network persuaded us to focus on getting customers before seeking funding from outside sources. Success gives you leverage, and you want leverage!
Jane: Having no funding and a lot of conviction feels like a hard spot to be in. Candidly, we discussed one of us getting a job so that we could pay our contractors and other fees. However, when the job opportunities actually came though, neither of us felt like we could only put half our energy into Frankly. It was a personal choice that might not be right for everyone. We have savings and family support, and we are very privileged in that sense. What we don’t have is unlimited capital to throw into this business. We had tough conversations on how much we would spend to prove traction, what those proof points were, how much we would each invest in this business to get us through a certain time, and what date we were comfortable not taking salaries until. These aren’t fun conversations, but they are necessary. You have to be sure that you’re on the same page regarding money.
TLDR; do as much as you can to make sure your idea is a good one before you spend much money. Talk candidly with your team about how much you are personally willing to invest, how comfortable you are with running up debt, and what you will do if / when you can't raise money or you run out of the money you do have.
There is so much you can do to validate your business idea before you take the leap to become a full-time founder. Assemble your team (or go solo), start proving the need, and go from there.
We hope this post was helpful as you think about starting your own business. Share what you learned, or where you disagree, in the comments. Next week, we start talking specifically about fashion. Get excited! Ta-ta(s) for now!