Business and Financial News

The Entrepreneur: Andy Dunn, 30

Background: In 2003, Dunn, then a consultant with Bain & Co., worked in a Lands’ End (SHLD) call center in Dodgeville, Wis. He was impressed by customers’ notes on the wall that paid tribute to the retailer’s service. Two years later, while working as a private equity analyst, Dunn learned how consumer brands can profit from a direct-to-consumer distribution model. In 2007, when he was a second-year student at Stanford Business School, Dunn went into business with housemate Brian Spaly, who had been selling out of the back of his car a line of men’s pants designed to fit well. Their plan was to sell the pants online, enticing customers with superlative service.

The Company: Dunn spent the summer of 2007 developing Bonobos Web site with another Stanford classmate in a tent in Palo Alto, Calif. In the fall Dunn moved to New York with 400 pairs of pants in tow. The site was launched that October, backed by $50,000 from Spaly, $30,000 from Dunn, and $750,000 from angel investors. Bonobos grew 23% month-over-month during its first year, earning $1.8 million in revenue in 2008 (and nearly breaking even).

Revenue: $4.9 million in 2009 (estimated)

His Journal: When Brian Spaly and I started Bonobos, both the technology startup world and the fashion world told us that our vision of combining an e-commerce retailer with a clothing brand was not possible. The naysayers from Silicon Valley and Fifth Avenue were convinced we could be only one or the other: We could create a brand, like Polo (RL), and build awareness in traditional channels before extending it online. Or we could create an e-commerce retailer, like Zappos (AMZN), and sell other brands in a specific category such as shoes. I scratched my head and asked, why can’t we be both?

We intended to emulate Zappos’ culture of fantastic customer service to offer better shopping than at the mall. And we wanted to design men’s clothing that looked and fit better than anything else out there. So we forged ahead, combining the two goals.

At first, Bonobos grew quickly despite ignoring retail rules of thumb such as going to fashion trade shows, selling in stores, hiring models, buying mannequins, and marketing through expensive glossy print ads. We ran a scrappy operation out of my Manhattan apartment with no one from the apparel industry working for us. For the first 15 months, this worked marvelously. During that time, our eight-person company did $2 million in sales and lost only $60,000. In the second year, though, we started struggling. In the process of nearly tripling sales, our rapid growth rate began to take its toll, and we began to make mistakes.

Identifying What You Don’t Know

In our rush to get out a swimsuit line, we didn’t test it with customers. This meant we were trying to sell a European cut that didn’t appeal to our core American customer. We also hired three Web developers in succession, none of whom was suited to the challenge of being both a coder and a platform architect. All of them left. And while manufacturing in New York City is a nice marketing story, we knew we needed more scalable sourcing, but we didn’t know how to go about it. Perhaps worst of all, we fell into the retail industry practice of promoting, discounting, and advertising to increase the business. Revenue came, but profitability faltered.

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