Announcer: From the campus of the Wharton School in San Francisco, this is Startup School Radio. Here is Y Combinator Partner, Aaron Harris.
Aaron: Welcome to Startup School Radio on SiriusXM's Business Radio powered by the Wharton School. I'm your host, Aaron Harris. I'm a Partner at Y Combinator, where we fund early stage companies and work with them to make them into billion-dollar businesses. Every year, Y Combinator does a conference called Startup School, where we bring on founders that we really love and have them tell their stories. Talk about their successes, their failures, and everything they've learned in between. On Startup School Radio, we'll be bringing those founders to you on a weekly basis, broadcasting every Wednesday at 1:00 PM Eastern/10:00 AM Pacific, with the goal of helping anyone thinking about starting a company learn how to do it better. Coming up on today's show, I have some really awesome guests. First up, co-founders David and Alan Tisch of Spring will join me to talk about the story behind their mobile marketplace app and how they're making it possible for consumers to buy directly from over 750 brands. Everything from Levis to Marc Jacobs. Later on in the show, we'll hear from the first single, non-technical founder ever accepted by Y Combinator, Olga Vidisheva. She'll talk about her YC experience and her journey founding Shoptiques.com, her online destination that allows consumers to shop the best boutiques, where they're curating the most unique items from all over the world.
If you're thinking about starting a company, already running a startup, or you're an entrepreneur who's just got the earliest ideas, and you have a question for us, we'd love to hear from you. Our number is 844-WHARTON, that's 844-942-7866. And be sure to follow our channel on Twitter, @bizradio111 or follow me at @harris. I'm very happy to welcome our first guests, David and Alan Tisch. David is a managing partner of BoxGroup, a New York City based angel firm, that has invested in startups like Vine, Harry's, and Warby Parker. Before Spring, Alan worked as a global investment specialist at J.P. Morgan, specializing in e-commerce and technology. And he also launched NYC BigApps Competition, which is an effort to make New York City more tech-friendly. David and Alan, who have known each other their entire lives, are also co-founders of Spring, a mobile app enabling the world's best brands to sell directly to consumers. Alan, David, thanks so much for joining me and Happy Passover.
David: Thanks for having us, Aaron.
Alan: Thank you for having us.
Aaron: So, I want to start out by talking about Spring, because this is the company that you guys founded together. And we've had a bunch of teams come on where people have known each other for a long time, but you guys are starting a business as brothers. So, A, what the hell would possess you to do that, and B, why Spring? Where did this thing come from?
David: So let's start with brothers, right? I think that's probably the more generic point that we can make here. It's crazy, because you're putting every single thing that you've experienced together, into one room, into one place. And now, everybody at your company, gets to see that dynamic exposed. So it's incredibly good, because you have a foundation of trust that nobody else probably can bring into a company. We trust each other beyond anything else you have in life, right? And on the flip side, we also are deeply aware of each other's weaknesses and have points of conflict that we've had our whole lives that now start emerging in the workplace. So, it's this balance of leaning on each other, in this incredible way. But the other people at the company are never gonna have that same bond that you have. Like co-founders normally can build, but this one's another extra degree of solid. And I think the other people at the company have to feel somewhat, just different, in terms of looking at that bond versus a normal co-working bond.
Aaron: Alan, how do you think about it? I mean, here's your brother, you've known him for a pretty long time. Had you ever worked with David before doing Spring?
Alan: No, never even thought about working with David before that. I think the idea always came off as a little bit crazy. But I think David hit on the most important point, which is trust. When it is your brother, you inherently trust him so much more walking into it. For us, what it created, was the ability where we were able to push each other harder and faster. And our limits, like we were both well more aware of our outer limits, than if we had just met somebody on FounderDating, for example. And what that allowed us to do was really push each other to work harder, work faster, and do more. And I think that there was always that understanding that we trusted each other.
David: He lied, though. We worked together one time before. So when Alan...
Aaron: On what?
David: It actually ties into your second question of, "Where did Spring come from?" When Alan was 13 and I was 20, I had to fly down to Miami with him and we went to a random mall. Literally it was some weird outdoor mall, with a case that had like really incredibly hard-to-break locks filled with really expensive, fancy sneakers. And Alan was one of the original, early Nikeheads and he was selling sneakers at this mall, at this sneaker show in Miami and we set up a booth and he was 13 so he couldn't go by himself...
Aaron: Was this one of those big flea markets they have out in the parking lots outside Miami? One of those things? Or was this a...
Alan: No, this was at Niketown in Miami.
Aaron: Oh it was at Nike...so it was like a Nike-sponsored sneakerhead dealing game?
Alan: Exactly, that 13-year-olds were allowed to enter.
Aaron: You know we actually just funded a company called Flip that is trying to bring that online. So are you still into sneakers?
Alan: I am. I actually read the other day that eBay does over 500 million dollars a year in GMV on sneakers alone.
Aaron: What?
Alan: Yes.
Aaron: That's a lot of sold sneakers.
David: The secondary Jordan market is supposedly a billion dollars a year.
Aaron: That's wild.
David: Yeah. [crosstalk] That was the only time I think, if I look back, that we've ever done anything work-related.
Aaron: How'd it go?
David: He came in second place.
Aaron: Okay.
David: I was pissed. I thought he should have won. I think the contest was rigged.
Aaron: It was a contest for who had the best kicks?
David: Yeah.
Alan: Yeah.
Aaron: So second place. What was your prize pair?
Alan: Ooh. A pair of LeBron James shoes that Nike had made for him while he was a senior in high school, that violated like every single thing that was allowed, but Nike was funneling sponsorship dollars to him in high school and I had somehow gotten my hands on them.
Aaron: That's amazing. All right, so that's the first working experience. But, you have examples of this also in your family. Your dad and your uncles worked together. So this is like a thing that you knew of as, "Hey, it's really good to work with family, brothers, your trust them. You think alike maybe. You're not going to fight over the same like stupid stuff that other founders might fight about."
David: Or you on the flip side just know each other's strengths and weaknesses and so you can divide and conquer a little bit differently. So our grandfather and his brother, they started a company together, they worked together for 50 years before they both passed away. And we saw that bond growing up and I think it was two people who are totally different, but able to collaborate on a vision. And I think that that's something that we've been able to do. I think Alan has totally different strengths than I have and Alan's the CEO because he's much better at...
Alan: Taller, taller.
David: But he's better at operating the company and he's better at managing the group of people and attracting the group of people to come work with us. I think he's been incredible for me to watch, as an older brother, to watch him emerge as this leader at the company and it's something that I don't think I would be as good at as he's been at it.
Aaron: You know, this is something that we talk a lot about with our teams at YC. And we're actually looking at applications right now, we're in our application period, where we get all these applications, we gotta radically limit the number of companies we actually interview. And one of the key things we look at is just how founders relate to one another. It's actually less about progress on an idea, though the idea is super important, but you know about how the founders are. And when you see two founders who have only known each other for a month or just started working because of this thing, it just never feels right. Sometimes, like lightning can strike and that can work, but most of the time these people don't really know each other, they don't know strengths, weaknesses, trust, any of that stuff, and it does lead to worse teams. That said, you know sometimes family has some of the biggest tensions around, so the fact that you guys are able to work together is pretty powerful and cool.
David: I think early on...two sort of anecdotes that I would pull out that, I think have been important. The first one was, early on we started getting in an argument in the middle of the office and Alan pulled me aside and said, "Hey, if we're gonna fight, we're gonna fight in private time." And so we started taking all of our founder dynamic conversations to the evening. And so we spent nights talking one-on-one and sorting out any difficulty so that doesn't stream to the office. The second thing that happened, which I think is a lot more telling, and he's not gonna be happy I share this story but that's okay. We moved offices about a year ago and we were in the new office and it was one of the early meetings we had and we're sitting in the room and he said something and I totally disagreed. And I called him out and I said, "You're totally wrong" and I started getting upset. He pulls me out of the meeting, stands me in the middle of the office and goes, "You ever do that again, get the fuck out of my office."
Aaron: So, I mean, that's pretty extreme, right? So, Alan, it's okay for co-founders to fight with each other and to disagree with one another. So, what did David do in that instance that was not okay?
Alan: I think it was really just the way that we were communicating. I think that when you're trying really hard to solve problems, and it's intense, and you're trying to ship things, the energy level and the intensity comes up and sometimes things boil up. I think often times, especially in product meetings, we encourage people at Spring to have strong opinions and to defend those opinions, and the key is that it's done in a respectful manner and I think I stepped outside of that at that point and didn't handle it respectfully. But, the key is that we all wanted to get to the right place...
David: See, I disagree. I think what he did was he took control of the company. And he said, "This is mine and you can't get in the way of what I'm doing here." And I thought at the end I walked away and said, "That was totally awesome and totally appropriate."
Alan: And then he didn't talk to me for a week.
David: Yeah, that's probably true.
Aaron: Well, it's a good thing you guys don't also live together. I think that might take it to too far of an extreme. Yeah, I mean, that's like the interpersonal relationships of founders of a company, at the company, especially in your case, Alan, you're actually running the company and Dave, you're the Executive Chairman of the company.
David: Yep.
Aaron: So, I want to play with that in a second, but let's go back because I cut you off when you were talking about where Spring came from. So, Alan selling shoes in strip malls in Florida, I guess, you know, living shoe to shoe, how does that become Spring?
Alan: Yeah, I think the 13-year-old experience, what I think I took away from that was that having customers is one of the greatest feelings in this world. In the early days of eBay, after you bought something you were required to leave feedback for the seller, and even seeing that copy and paste feedback of "A+++ seller", it was so rewarding. And then, fast forward ten years, I'm sitting inside of Fab, and on the operations team there...
Aaron: Oh, so you worked at Fab?
Alan: I did. And it was interesting because we were one of the first e-commerce sites that had over 50% of our traffic come from mobile. And I was really an early adopter of iPhone, from the first time it came out, I was trying to do everything in my life on it. And it was a really painful experience to shop. But then I started thinking, "How are people going to shop on the phone?" And the biggest realization was, I remember looking at one of Mary Meeker's internet trends, and pulling out this stat that over 85% of time on mobile was spent in-app. Which means people were not going to shop the mobile web. And I started saying, "Okay, apps are the future. How are people gonna shop in apps?" And I think the biggest belief that we had were people don't want to download multiple mono-brand apps and put them on their home screen and open them up everyday. There's simply not enough value, even for me, who's a Nike fanboy...
Aaron: You don't want a specific Nike app and then also...?
Alan: I don't want a Nike app just to go shopping, right? So how are...?
Aaron: So I guess this a problem, right, mostly solved on the desktop web because you have Google. Google is your entry point to everything. You know, if you need something, I don't know, you go to Bloomingdales.com, they have most of the stuff you want, right?
David: Well that's the interesting point, right? Bloomingdale's aggregates from 100, 200, 300 brands.
Aaron: Right.
David: On mobile, the only people that you were downloading the app for were these third-party aggregators, or on the flip side, a Nike app was built around community and content, not necessarily shopping. And that was the way that Nike was gonna engage their mobile users. That's awesome for that top 1, 2, 3 percent of their fans. But it's not awesome for the casual shopper. So what was happening on mobile, were the third-party apps were taking the majority of the traffic from shoppers. And so for us, when we looked at it, what we wanted to build Spring around was to give each of these brands the benefits of having their own direct-to-consumer shopping channel and communication channel without the negatives of having to get your app installed and get people to open it.
Aaron: Now is the idea there that just like Bloomingdale's will have a lot of clothing out on the floor and then they'll have sort of the mini shops, and then there are brands that won't even sell at Bloomingdale's, right? They have their flagship store, maybe they'll sell at Barney's or something that's a much higher end department store, but basically...I guess there was no department store on mobile, right?
Alan: Well, the other question is, in the business world there's this trend of vertically integrated, right? You've seen brands like Harry's, Warby Parker, Everlane, that have completely not sold to wholesalers. And then you have more traditional ones, Zara, H&M, Topshop, American Apparel, and the question for them was, "How are they going to get distributed on mobile if they're only selling direct-to-consumer?" They're never going to be sold in Bloomingdale's. They're never going to be sold in Barney's because the business model doesn't make sense. So our view is that we're creating something more akin to a mall, where these brands are able to have their own flagship store inside of our mobile mall.
Aaron: You know, one of the questions that I guess I have around this, is when you're selling something, the primary concern that you have is your ability to move product, right? You want to sell things, at least that's how I conceive of it, at least most web products, right, it's just about distribution. So is there something different about the companies that you're working with that goes beyond just the need for distribution?
David: Yeah, I think they all have a story. And I think that if you think about modern day consumers, there's a stat that came out of Davas this year, which is pretty obvious, but 85% of all dollars spent by consumers are spent with brands that they trust. How do you develop trust with a brand, especially one that you don't know about? You start learning about their story. If you read about the origins of these D2C companies, they're about the story, they're about the brand that these companies are creating. And so in addition to just selling merchandise, what Spring is really about is letting these brands tell their individual stories.
Aaron: If you're just joining us, I'm Aaron Harris and your'e listening to Startup School Radio. I'm speaking with David and Alan Tisch, co-founders of Spring. David was just telling us about how brands are really built on stories. The one that pops to mind for me, is the famous story of the Adidas and Puma founders, right? Same town in Germany, split the town down the middle, right? And it's like these people are so united with a single brand and with a single thing just because, "I'm an Adidas person", "I'm a Puma person", that dominates the world of soccer gear.
David: And I think if you look at these aggregators, right, who are just trying to sell product but they're not...
Aaron: Yeah. They can't communicate that story.
David: They're not trying to.
Aaron: Right.
David: They're not trying to communicate each brand's story, they're communicating the aggregator's story.
Aaron: Okay.
David: And so for us, what we're doing, is we're giving each of these brands a platform to tell their own story.
Aaron: Right, okay. And so do you think that works for...should that work for every brand?
David: Yes.
Aaron: It should?
David: It should.
Aaron: And do you think that their stories...
David: Ones that have a story, right?
Aaron: Right.
David: There are brands that just aren't interested in building that relationship with modern consumers and connecting with them. There are brands like that, that we're not interested in putting onto Spring. I think most brands, that care about their customer, that care about customer development, and having that relationship, they have a really good story and we want to help them tell it.
Aaron: So it sounds like you're basically helping them chart a middle ground, right? Where consumers don't want to download an individual app for every single company, because that would probably be the best way for a company to tell its story. Right? Completely their own, everything their own.
David: But then they have to build an app.
Aaron: Right, well, yeah. But that's why it's the middle ground, right? This is the trade-off.
Alan: And then they have to acquire customers...
Aaron: Right.
Alan: ...to that app. And then they have to worry about retention and engagement and all of a sudden you're asking an emerging brand, whose core competency is merchandising, marketing, and creative process, to all of a sudden become a digital company? That's not why these people started those companies.
Aaron: Right. It's interesting as technology changes, different companies manage to take advantage of those technologies. I mean, you look at Nike, right, where they took advantage of the rise of television and sponsorship deals to sort of dominate sports. And now there's digital, which is a whole different thing and requires a whole other set of skills.
David: I think our expectation is that brands should be incredible at the marketing side on digital, but the idea that every single brand needs to be incredibly great at building mobile applications, is a stretch.
Aaron: Right.
Alan: Nike's a 70 billion dollar company, I believe. How about the companies that are 30, 40, 50, 60 million dollars, which are real businesses?
Aaron: Right.
Alan: Nike barely has the resources to be able to be innovative and the reality is, these companies are not going to be able to attract the best product and technical talent and make innovative experiences. So, if we can be their partner and help them tell their stories in unique and innovative ways, it's a win-win for the customer, the brand, and for Spring.
Aaron: So, can you think of yourselves, or have you ever thought of yourselves, as saving these companies the expense of hiring an outsource Dev shop?
David: Yes.
Aaron: Okay. That's interesting, right? Because the traditional path here, is you'd say, "Oh, I'm gonna go hire a Dev shop.", some of which are very good, but...
David: And then you have to hire them every four months, right?
Aaron: Right, to refresh and...
David: Because there's a new technology that comes out or there's this new OS that comes out.
Aaron: Right.
David: And so for all these brands to have to go through that process, and again, it's not just make the app but it's acquire customers, keep them engaged. And all they're really trying to do, as you said before, was sell product. And so they have to do all this other stuff in order to just be able to sell product.
Aaron: Right.
David: If we can take all that difficulty off their hands, if we can guarantee that we will be the forward-thinking technology partner that's gonna build in new technology as it comes out, into our experiences, across all of our platforms, that's the promise of the brands.
Aaron: Right, and that becomes really powerful. So Alan, you were talking about all these, you know, Nike on one end with 70 billion dollar market cap and on the other end, you know, 50, 60 million dollar brands. Is that your core, the 50 to 60 million dollars in sales a year companies who are trying to acquire new customers and get a digital presence? Because we talked about, in the top of the show we talked about Levi's, which is not a 50 to 60 million dollar a year company.
Alan: I think we don't think about it that way. We think about our core as what does the customer want. And the customer wants a mix of high and low and emerging brands. So they want Marc Jacobs, they want Levi's, they want American Apparel, but they also want very small brands that are just emerging because that makes them feel cool and as though they've discovered them? So I think our core is what the customer wants, not a certain size of business. We are a B2C business, not a B2B business.
David: And I think, you referred to Bloomingdale's before, right? Bloomingdale's is a very specific lens. There are certain brands that 100% fit in Bloomingdale's and a lot of brands that just aren't in the right price point, aren't in the right aesthetic, aren't at the right size as a brand to sell into Bloomingdale's. Those are brands that customers want. If you walk down 5th Avenue, if you walk around SoHo, if you walk into your mall in the middle of the country, you're gonna find brand adjacencies, that are not available in these department stores. That's the way that normal customers shop. They might spend $30 on their top, $50 on their leggings, but buy a really nice pair of shoes. We at Spring can provide them all of those products in one easy-to-use experience, versus having to go from one store to the next store.
Aaron: Got it. So it's not about just having expensive stuff or just having cheap stuff, it's about really giving every store it's own storefront that they can control...how deeply can they control it?
Alan: Fully. They control the pricing, the sizing, the photos, the item descriptions, what they post, how they post it. It's for them to tell the story, we're just giving them the platform.
David: And even more importantly, the consumer piece, it comes in their box. And so in that box, the way that you unbox their product, it lets them extend their story to actually the moment when a consumer touches their product.
Aaron: Do you handle any of the logistics?
David: No.
Alan: We do customer service.
Aaron: Customer service? Oh, so you do the customer service for them. Interesting.
Alan: We do. It's about trust, like David said earlier, if you want a customer to trust you, be on the front lines. So we have an incredible customer service team that can solve any problem for customers.
Aaron: So that brings up an interesting point, right? Which is that, you're effectively now asking customers to kind of form associations with two different brands when they're using Spring. They form an association with Spring, on the one hand, and they also form probably a deeper association with the underlying brand from which they're buying. How do you think about playing those two off of each other?
Alan: Think about American Express. People buy with American Express because they're reassured that if there's a problem with the hotel that they stay in, American Express will go to bat for them. And I think with Spring, you could go to American Apparel, you could go to MarcJacobs.com, but if you buy it on Spring, you're gonna be able to know that we have your side. If you call us, we will solve that issue for you. We have a direct relationship with them, so every customer on Spring is getting VIP status with any brand that they shop from, because we have that concierge team who's going to help them.
Aaron: Interesting. So, I guess one of the companies that presents sort of a different angle on this, and I'm curious, because some of the brands that you talk about, Marc Jacobs or Carolina Herrera, that's the kind of stuff I might expect to find on something like NET-A-PORTER, right? Which is, I think, only very high end. Is that a segment of the market... how do you differentiate yourself at the top of the market with those customers against that kind of business?
Alan: I think it's a holistic experience. There's no doubt that there are some customers who are exclusively luxury customers, but the larger market is actually customers who are more mainstream that have those aspirational purchases only a few times a year. And on Spring they're going to be able to discover things that they can afford often. Whereas on NET-A-PORTER, most people cannot shop on there on a daily basis. So I think Spring is almost an entertainment or an addicting habit where it's like, "Hey, I can come on, I can buy a 10, 20, 30 dollar item. But when I'm ready for that $700 bag, I know that I can also get it here."
Aaron: Right. That's interesting. It really is the...I mean, you have been doing this for a while so talking about it as a mall actually makes sense. And the more you think about it , the more that really does make sense, where you can go... I mean it depends on the mall, right? But...
David: But we want you, if you are a customer, and you have a minute during your day, if you have ten minutes, or you have an hour, and you want to go shopping? Whatever that activity is, and it doesn't always mean buy something. If you just want to go shopping, it's a fun activity, that's what Spring should be there for. And it's a one-click place to go shopping versus having to go from one different app experience to another different app experience and figure out each of these experiences. It's a single way to go shopping on your phone.
Aaron: Right. Do you think that there is a future... or when you think about the challenges coming in the future, if someone manages to figure out how to make really good mobile search, right if there's the rise of sort of a Google on mobile, how would that impact you?
David: I don't think it impacts us. I don't think what we're trying to solve is when you need something, where to get it. What we're trying to solve is the want, not the need. And so want is a totally different experience when you're on the internet. There are not very many experiences that are geared at helping you figure out how to buy what you want or discover what you want. If you think about e-commerce, go back 20 years, you're the same age I am, we watched e-commerce rise, right? Every single thing that happened in e-commerce was simply trying to replicate what was happening offline. How do we get you in/out, get you your product quicker? That's not the experience that we're building. We're building something that should entertain you, that you should find enjoyable, that you should find fun, that you find trustworthy. That 's not what you're gonna come to when you know exactly what you need and how to get it as quickly as you can. You're gonna come there when you want to go shopping, when you want to do an activity, not when you're trying to fulfill a need.
Aaron: Who's your main demographic?
Alan: 26 to 35 year old females. I think a modern-day, young professional.
Aaron: Interesting.
Alan: Possibly a young mother.
Aaron: It's pretty cool. It's funny when you think about ideas. I was talking to a class of students from Columbia recently about ideas. And they were like, "Oh, well what's a good idea, what's a bad idea?" It's not the right question, right? Because any idea boiled down to a sentence could either be really good or really bad. So what would be the one sentence description of Spring that you use?
David: It's a mobile mall.
Aaron. A mobile mall, right.
David: I mean, that's not our marketing pitch, but that's the idea.
Aaron: No, I know. That's the idea, right? So you say, "Mobile mall." Well, depending on the day of the week, I'm like, "That's a terrible idea," or "That's a really a good idea." But when you delve down into these particulars of how it actually impacts people, how it impacts the target customer, how that customer acts, how that customer behaves and buys and does all these things, that's where the nuance and I think the power of it comes in.
Alan: And I think, to your question from when we started, "How did Spring start?" I went to David and I said, "I have an idea." And he goes, "No you don't. Go back to work." And I said, "Yes I do." And he goes, "What is it?" I go, "A mobile mall." He goes, "That's stupid," right?
David: By the way, that's his default answer to everything I say to him also.
Alan: But then we dove deeper, like you said, and we started playing it out over the course of a few weeks and poking holes in it, and it's the nuance pieces of it when we realized that there was actually something here. Where on the surface it's like, "What do we need a mobile mall for?"
David: And as an investor, one of the big things you ask for is "Why now?" Right? And mobile is the why now. This was tried early on in the dotcom world, online. It didn't make sense there. The mainstream property needed to be built, mobile is what made it the why now.
Aaron: Right, it's the thing that you can pull out your phone and you browse it and it's right in front of you. If you're just tuning in, I'm Aaron Harris and I've been speaking with David and Alan Tisch of Spring. Just ahead, David is gonna stick around, we have to say goodbye to Alan unfortunately, and we're going to be joined by Olga Vidisheva, the founder of Shoptiques.com, an online destination allowing consumers to shop the best boutiques. So we're keeping the fashion theme going. They curate some of the most unique items from all over the world. We'll be taking your calls at 844-WHARTON, that's 844-942-7866. You're listening to Startup School Radio on Business Radio, powered by the Wharton School, SiriusXM 111.
Announcer: You're listening to Startup School Radio, powered by the Wharton School. Here again is Aaron Harris.
Aaron: Welcome back to Startup School Radio on Business Radio, powered by the Wharton School, SiriusXM Channel 111. I'm your host, Aaron Harris. I'm a partner at Y Combinator and have been speaking this hour, with co-founders of Spring, David and Alan Tisch. David, thanks for sticking around.
David: Thanks for letting me stay.
Aaron: We're joined now by my next guest, Olga Vidisheva. Olga is the Founder and CEO of Shoptiques.com, a one-of-a-kind, online destination that allows customers to discover, explore, and shop the best local boutiques and most-bragged about goods from all over the world, without having to buy a plane ticket. She joins us today to talk about Shoptiques and her experience in YC back in Winter 2012?
Olga: Yeah, a long time ago.
Aaron: That's a while. What she's learned, how the company has grown, all kinds of good stuff. If you're thinking about starting a company or you're an entrepreneur in the early stages of running a startup and have a question for us, we'd love to hear from you. Our number is 844-WHARTON, that's 844-942-7866. Olga, thanks so much for joining us.
Olga: Thanks so much for having me. It's so great to see you.
Aaron: It's good to see you too. I remember when Shoptiques was just getting started and you were sitting behind me and my co-founders at Dogpatch Labs, which is a co-working space here in New York.
Olga: Yeah, it was so long ago, it is amazing actually. Every speech I give, I give you guys credit because without you I definitely would have never applied to Y Combinator, because I was so fresh out of business school, did not even know what Y Combinator was. And you guys were like, "Oh my god, you have to apply." I was like, "Okay. You guys are awesome, I have to apply."
Aaron: All right. I think we could probably just stop there and say, "Everyone apply to YC."
Olga: Definitely.
Aaron: So, that's pretty interesting. You just said fresh out of business school. You went to HBS, you went to Harvard, and most Harvard Business School students weren't going and starting startups in, was it 2011?
Olga: 2011, yeah. So, just to give you kind of a background, when I got to business school I didn't really know what I wanted to do. But my first exposure to traveling and exploring new places was because I was working at Goldman Sachs in New York. And so I was working with a lot of clients all over the U.S. but also all over the world. And every time I would travel, I would find something so cool, bring it back home, and everybody would be like, "Oh my God! Where did you get this? We have to have it." And so I realized that the stores didn't have online presence. So when I got to business school, because I was working at Goldman 24/7 so I definitely did not have time to figure out why the stores didn't have e-commerce presence. So when I got to business school, finally for the first time, I had an opportunity to have a breathing room and actually think. So I had a little bit of, kind of, time to do a business plan and I talked to the stores. So, it wasn't that I got in business school to try to start a business, but I kind of got exposed to it during business school and had time to explore the idea. So when I graduated, I was definitely convinced I was doing this business and exploring it and hence why Dogpatch.
Aaron: That's interesting. I mean to go into business school, I think, without knowing what you really want to do on the other side, I think that's actually pretty common.
Olga: I think so, yeah.
Aaron: And getting that room to explore, were there other things that you thought about doing before you decided to focus on Shoptiques?
Olga: Yeah, I mean, the truth is the following. I paid for school myself, so coming out of business school, you know, I had a ton of loans and I was on Wall Street at kind of the worst time, '07 to '09, the end of the world so...
Aaron: There were no bonuses back then.
Olga: Yeah, exactly. So, coming out of it I had to really make a big decision, what business am I going to invest five to ten years of my life and really have big impact, I wanted to run a huge business. Or, the alternative was to go in private equity and actually go down the path of paying down my debt and making sure that my future's taken care of that way. So for me it wasn't like an obvious, "Oh, let's just go and try it out." Because it was a huge opportunity cost. So the first year of business school I wanted to do non-profit, I'm really passionate about elderly and how they're treated in different countries and financial crisis, so I explored that and I just decided that it wasn't an opportunity where I could make the biggest amount of impact, coming out of school. So the second year of business school, you could take a class and it would count as a class, and you can explore it, working really closely with a professor. So I figured, why not, working on this idea. So, only when I figured out that it's a 20 billion dollar business with nobody doing anything in the space...
Aaron: That's the boutiques business?
Olga: Boutiques online business, right? So 40% of transactions offline happen at small retailers. So you apply that percentage just to the online e-commerce, growing double digits, 20 billion dollar market if I'm the only player, and I can actually scale this thing quickly, be the first mover advantage, I can actually make it a multi-million dollar business. So the fact that I was first passionate about as a customer and then the market was so big and I was able to prove it over the course of the year, that there was such a huge demand from the boutique side for this type of product, it just made me so clearly realize that I just had to go and play in that type of space.
Aaron: Right. Now, one of the things that we sort of look for, and we alluded to this at the top of the show, but one of the things that we think about at Y Combinator is the structure of a founding team and how those founding team members complement each other and what kind of skills they bring to the table. And we think a lot about whether or not a founding team can execute the idea. When you're building a web product, or you're building software, we normally say, "Well, that means you need software." You are a single founder who had obvious knowledge about the market, but you weren't a hacker and couldn't build it yourself, so a lot of people get discouraged by that. How did you push past that and why do you think you were able to get something built and get it moving when most people can't actually get there?
Olga: I recently gave a talk at Female Founders Conference, which was amazing and I recommend for people to listen to that, because they have a YouTube channel I think at YC. So, one of the things I said was, "Always ask, because if you don't ask the answer is always no." For me it's "Always do because if you don't try the answer is definitely no."
Aaron: Right.
Olga: So, I was so convinced of the idea, just to give you background, I spoke to over 800 retailers, small businesses, when I was in my second year of business school and I asked them the same question, "Why aren't you online? Why aren't you using something like Shopify?" And the answer was, they were such good merchants, they just had no clue how to bring that online, how to take photos, how to integrate shipping providers, how to create packaging materials, how to send the tracking information to the customer. It was just this big internet, scary thing. So I realized that my value that I can bring is actually figuring out the operational side and technology side and their value is buying merchandising and really creating that amazing thing.
Aaron: Right.
Olga: So I got out of business school really convinced that there was huge demand from the boutiques. I didn't know if there was demand from customers. Was I the only person that was just hanging out and wanting to shop boutiques or were there huge opportunity for business?
Aaron: I think the crowds in SoHo on your average Sunday would indicate a lot of people wanna shop at boutiques.
Olga: Yeah, but maybe they didn't want to shop it online.
Aaron: Right.
Olga: So I didn't know that, right? So coming out of business school, a ton of debt, and I had I don't know $10,000 of savings. I knew that I wanted to test it, but I didn't know how to code. So I found engineering team in Indonesia that I was able to build a prototype for.
Aaron: Yeah.
Olga: Right, so people are scared of trying because they're scared of failure. I was coming in to that saying, "Hey, I don't want to raise money until I'm 100% sure this can be a big business."
Aaron: Yeah.
Olga: Although you obviously never 100% sure because most businesses fail.
Aaron: Right.
Olga: But at the end of the day, I wanted to know that there is demand from the customer end. So I built this website, I think it cost me seven grand, out of Indonesia. Launched private beta, I had 12,000 people on the waitlist after the first week. Then it was really clear indication that people wanted to shop small boutiques and they had favorites in their cities, right?
Aaron: Right.
Olga: And so as soon as I saw that, that's when I applied to YC, because at that point it was kind of indicative that both sides of the market wanted this product and were ready for this product.
Aaron: So, Dave, you and your brother are also not engineers, and you went and started a mobile product and a website. So, how did you think about that decision process of whether or not to start this? You've also invest in a lot of companies, so you've seen this from both sides.
Dave: One of the first things I made Alan do, as his brother and co-founder, was find a technical co-founder. And I introduced him to as many people as I could find in my network and there was this one guy that had worked with me at Techstars as a Hackstar, who had spent six years at Google and...
Aaron: What's a hackstar?
Olga: Yes [crosstalk]
Dave: A freelance developer who wanted to go through the program to learn about how to start a company, but wasn't attached to a specific team. And so, he was this really cool, quirky, assertive, sort of aggressive developer, that I just didn't think would click with Alan personality-wise. And so I had them meet up for coffee one day and he comes back and he goes, "I think he liked me." And I'm like, "That's good."
Aaron: It's kind of like you sent your brother on a date.
Dave: Yes. And he goes, "But he doesn't like shopping." And I'm like, "Okay." And so the hardest part for us has consistently been, making it clear to the technical people that we're bringing on to the team, whether that's engineers, product designers, or product managers, that this is not necessarily about fashion. This is about developing the next phase of e-commerce on mobile, and if you phrase that problem differently than, "Come here to figure out how to build the next fashion company," I think you can start having a lot better conversations with engineers. But that was the first thing that we needed to do, was to build the team internally.
Aaron: Interesting. So, you took different paths forward and...
Olga: Well, I didn't have the money.
Aaron: Right, I know, yeah. Right, you didn't have the money, you didn't have the luxury of saying, "Well, does this development team have an interest in fashion?" No, you just needed to get the thing built. So you get it built, you get all these people who are saying, "Yes. Me, me, me," raising their hands saying they want to buy from different boutiques, and you apply to YC.
Olga: Thanks to you guys.
Aaron: You're welcome. Well, thank you, actually, for doing it. That's the reward. How did that go? First off, what was it about YC that made you think you wanted to apply?
Olga: So, talking to you guys, and I literally remember this conversation, you guys were like, "You're awesome. They are awesome. You have to apply." That pretty much made me apply and I applied, I don't know, an hour before the deadline, so I didn't have too much time to think about it.
Aaron: That's how most people apply.
Olga: Yeah, but I learned about it an hour before the deadline. And I was launching the site private beta like the next day. So I was like, okay, head down, just gonna do it, applied and kind of forgot about it. And in fact, I wasn't a person who was checking Hacker News everyday, so apparently they asked me a question on it that I never checked and so when I went to look for whether I got an interview or not, I saw a bunch of those questions there and I'm like, "Oh I definitely didn't get it because I never even responded." But I didn't even know that there were questions. So it's kind of a funny story but I applied because I did need to find a network of people, similar to what you said, right, you had a network of people that you could introduce your bother to. Well I had absolutely no network in technology because I was coming from finance background, went to business school, people I knew in the industry, I knew a lot of fashion people, but I also didn't know anybody in the tech space. So YC, and I put in my application, I was really hoping that they would guide me through finding the tech team, building the technology, and really establishing ourselves as a tech leader in the space.
Aaron: Right. Which I think for us reflects sort of how we think about things. We love to see, and we prefer I think to see both, people who understand the idea and can build the idea. But the thing that we're looking for most is people who are going to do everything in their power to get something done. And I think by proving that ahead of the interview, like, "Screw this. I spent seven of my last ten thousand dollars to get this thing built. And look at all the demand I unlocked." That is an incredibly powerful statement, right? That's a much more powerful statement than just saying, "Hey, I'm really smart and I can code. Here's this loose idea that I was once thinking about while taking a shower."
Olga: And for me it was really important too because it wasn't that I just had to convince YC, I wanted to convince myself to spend the next ten years of my life doing that, right?
Aaron: Would you have kept going without YC?
Olga: Yeah, absolutely.
Aaron: Of course, right.
Olga: Yeah, yeah, yeah. Absolutely no reason for me not to go...
Aaron: Which is, by the way, another big thing. We don't want people who are only going to do it because they do YC.
Olga: Yeah, exactly. That's why I wanted to build the website before raising money. I wanted to see that there is demand on both ends, you know on the customer and the boutique side.
Aaron: Right. So, what happens at YC, does it change how Shoptiques works for the better, for the worse? How does it change the way you approach the business?
Olga: I mean, Y Combinator was the best experience for me, both personally and as a business. Definitely recommend to everybody I talk to, 'm a huge fan.
Aaron: Thank you.
Olga: It's a family, definitely. I think getting there was incredible because everybody has the same mentality as me, put their head down and just work on your product. And being around people that are driven and want to build next multi-billion dollar businesses is just so inspiring and empowering. And having mentors like Paul Buchheit, Paul Graham, and talking to them everyday about what they're doing, it's been the coolest thing and being able to pick up the phone and call them and say, "Hey, this is a problem", right? And the way YC's structured, you don't treat them almost as investors, you treat them as family, so you come to them with problems. It's not you just going to them with like, "Oh, everything is awesome." You're going in and it's like, "Everything is broken. What do I do?" And so I think that was so incredible and having weekly dinner. So you get there, every Tuesday, I mean you obviously know, but every Tuesday there is a dinner and it's off the record, that's what's exciting.
Aaron: Right.
Olga: You hear about all these incredible companies that you are reading about in the news and they're doing so amazing, and you're really learning...
Aaron: You hear about the crap. Yeah
Olga: Yes, yes. Everything was breaking, you know.
Aaron: If you're just joining us, I'm Aaron Harris and you're listening to Startup School Radio. My guests are David Tisch from Spring and Olga Vidisheva from Shoptiques. Olga was just telling us something that I think is pretty important about how Y Combinator works, and really how relationships with investors work, once you're working with them. Which is, what you share and how you share it when you need help, and I think that there is this natural tension for entrepreneurs with their investors, where they think about, "Okay these people gave me money so obviously I feel responsible to them. But I kind of want to make myself look as good as possible, because I want them to think that they didn't make a bad decision." And here at YC, we try to say, "We don't care about the money we gave you. We're gonna help you however we can." Dave, you've invested in companies, you're the Chairman of Spring. How do you think about this challenge? I mean, you're also an investor in your own company. Do you lie to yourself?
Dave: All the time. No, I think it's a great question. I think that's the magic of YC is you're providing a safe environment. That safety is so powerful to early stage companies who are running into walls and if they're not able to communicate that outing and talk to somebody who understands and can give them advice, it's a disaster. Y Combinator provides an incredible place for that safe environment to form. One of the things as an angel investor that I say when we make an investment is, "I assume you immediately lost my money." And I really mean that, because I've already made the decisio. Right, I've already given you the money. So, either it's gonna come back in some magical form in five to ten years, which is the horizon we're investing in, or it won't. So, the second I make an investment, I try to create that environment where I want to be the place that you feel comfortable, whether that's as a friend, whether that's as an adviser, a mentor, or simply an investor. I don't want you to view our relationship as financial or transactional. I think it's a total waste of time, for everybody involved.
Olga: But I think that the point you're making is that as an angel investor, there is no expectation, there is another follow and round? And i think that's what the challenge for a lot of entrepreneurs...
Dave: Totally agree.
Olga: If you have VCs in your round, you're kind of selling yourself at the same time.
Dave: Oh, if you know that that investor can and is interested in potentially writing another check, you don't have the same safe environment to provide honest answers.
Olga: And you know YC's not going to put on more money.
Aaron: Right, and just to cut in one second, the distinction here, which I think a lot of people don't necessarily understand, unless they've been in this a lot, is that there are different investors that invest in your company at different stages, right? The first time you raise money, you might just raise money from your parents or your friends and family, and you know that you're good for it, you feel really responsible if you lose their money, which is why it's a dangerous thing to do. And then you might go out and raise money from semi-professional investors or even professionals who put in, sort of small amounts and those are angels. Maybe they'll write you 150, 200, 300 thousand dollar check, which is a lot of money, but they're not gonna write you 5, 10, 20 million dollar checks. And when you raise money from someone who wrote you a 5 million dollar check, who might write you 20 million in the future, you have a whole different relationship.
David: And the other nuance point here is if you take money from a VC who isn't going to follow on, but they have a portfolio of companies, if you're a problem child or if you don't look like you have momentum, you're gonna get less time allocation and over time you're gonna get the bottom of that firm's people, as well. And that's something that as a founder, you're not just getting their money, you're fighting for attention within their portfolio, which is a complicated thing to win.
Aaron: Right. So Olga, you have now this group of people in Y Combinator, or at Y Combinator, as sort of the people you trust, the people you're wiling to tell your problems to, to work with really closely. How does that actually change the way that you think about Shoptiques and what does it do to the business?
Olga: So we launched publicly, we were in private beta before that, so right after the end of YC, we raised a round of funding which was actually unusual during Y Combinator before demo day, which obviously felt really grateful. We have amazing investors like Andreessen Horowitz and Greylock and Benchmark. So, raised a round of funding and then launched publicly. And so at that point, it's all about head down now, it's all about execution. So, as you mentioned Y Combinator, it's finding teams that you can actually execute and go through ice and fire and just to figure it out. So for us it was, I can tell you horror stories about engineering because I had to hire and fire three teams before my current team.
Aaron: Wow!
Olga: So definitely wasn't the most fun, but I think that as a founder you owe it to yourself and your shareholders to make hard decisions and move forward and do what's best for your business. And so we've been executing and we grew 700% last year. We've been..
David: That's a lot of percent.
Olga: That's a lot of percent, yeah we're really excited and on track to grow about 500+ this year. So, really excited.
Aaron: How many boutiques do you now have in the system?
Olga: Over 1500.
Aaron: That's a lot of boutiques.
Olga: We're gonna be at about 5000 by the end of the year.
Aaron: Where's the largest concentration of boutiques? Is there a particular city?
Olga: New York, California and Texas for states. And it's like San Francisco, actually, number two, if you go into cities.
Aaron: Really?
Olga: Yep. Great shopping in San Francisco.
Aaron: I presume. I walk past a lot of stores when I'm there, but...
Olga: Watch out for Shoptique stickers. A lot of...
Aaron: Okay. They're probably up on the wall.
Olga: Yeah, a lot of the stickers. Yep.
Aaron: So you're a channel for these stores to sell beyond their local radius, which is incredible because, I guess I'm more familiar with the places in New York, where you walk past this little basement level shop, you'd only know about it if you literally walked into it. And that's their entire market and it's sometimes funny how small these stores are, they're closets basically.
Olga: Yeah, but that's why they're actually revenue per square foot is really high. Compares to Apple. That's because they're so small.
Aaron: Really?
Olga: Well, because they're so small. They're literally like closets, so if you were selling...
Aaron: Right. They move like one item and...
Olga: Well, exactly. But what's really cool about the boutiques is that they're really great curators and also a lot of them produce their own merchandise. So we work with a store called Pinkyotto, we also work with a store called Think Closet, they make three to five of everything, so we have celebrities that buy the clothing, not because they can't go and afford Chanel, because they don't want to look the same on the red carpet.
Aaron: Right.
Olga; So they don't want to have "Who wore it better?" moment on the red carpet. So what Shoptiques is all about is finding those amazing stores like the basements, but really cool basements or storefronts that have really beautiful merchandise and bringing them online. We do their photography, we're sort of like an OpenTable, but for the boutique front, right? So, we integrate into their point of sale, we give them...
Aaron: So you do inventory, you'll track their inventory, as well?
Olga: We'll track the inventory, we will help them with giving them supplies, we will send them a shipping label when an order is placed. For a customer on the front end, they can go and shop in Paris and London all at the same time with one checkout, and leave and feel like they're actually jet-setting the world.
Aaron: Nice to not have to buy the plane ticket and the hotel room, as well.
Olga: Precisely, yeah.
Aaron: What's the thing that surprised you most in building Shoptiques? Is there anything you didn't expect when you started?
Olga: Yeah. So, I worked at Goldman Sachs. Loved Goldman, I think that the beauty of Goldman is that people were so smart. I didn't realize how hard it is to actually hire smart people. And so I thought that everybody's very driven and motivated off the get-go, and I think it's coming from Wellesley, going to Harvard, going to Goldman, and going to Y Combinator where everybody was so like, "Let's work hard." And then going around and being around people and you're like, "Oh my god. I guess not everybody's that driven and motivated." So I didn't realize how important and how hard hiring is.
Aaron: Yeah.
Olga: But now I learned my lesson, so.
Aaron: So now you only hire the best and the people who are gonna perform.
Olga: I think I always hired the best, but I didn't realize how hard to find the best, you know?
Aaron: Right. Yeah, especially as a small company. I mean, hiring as a small company, you're hiring against Google when it comes to engineering and you're hiring against, I don't know, like the largest companies in the world because they're the ones with budgets.
Olga: But to be honest, I also don't want people that maybe worked at Google because they are just wanna build this little thing. I want people who are thinking about the customer, who are thinking about the product all the time. So finding the people that have the same mentality as you, because those are the people that are making millions of decisions about your product every single second, so you want to find people that think like you and finding that person is so hard.
Aaron: Right. So let me just ask you one last thing, and unfortunately we only have about 30 seconds. You know, you've mentioned a little about the growth coming for Shoptiques, but what is winning, or what is taking over the world look like for you?
Olga: Being able to have a store from every single place in the world. Go to India, go to Hong Kong, go to Bali, just by going to Shoptiques.com.
Aaron: I think that would be pretty awesome. I would love some stuff from India. I don't even know what I'd buy, but...
Olga: We have home decor things, you already can go and do it.
Aaron: I am...well we just moved to California so we need some new home decor stuff. We'll have to check it out.
Olga: It's time. From Paris. Exactly.
Aaron: Thank you both so much for joining us. Dave, thanks for being here and thanks to Alan. Thanks to Olga Vidisheva from Shoptiques for joining me today, as well.
Olga: Thanks for having me.
Aaron: For more information about Spring, you can visit them online at ShopSpring.com or find their app on the app store. You can also follow them on Instagram, @Spring, and on Twitter as well. And be sure to check out Shoptiques.com and follow Shoptiques, @Shoptiques. Startup School Radio airs live every Wednesday at 1:00 PM Eastern/10:00 AM Pacific, right here on Business Radio, Channel 111. If you have a question about something you heard on today's show, email us at
[email protected] or follow us @bizradio111 or me @harris. Thank you for joining us today, and a special thank you to Senior Producer Lisa Mantineo and Associate Producer and Engineer, Dion Simpkins. Be sure to tune in next week, when I'll be joined by Marco Zappacosta from ThumbTack and Sanjay Dastoor from Boosted. I'm Aaron Harris and you've been listening to Startup School Radio on Business Radio powered by the Wharton School, SiriusXM 111. Thanks and have a great day.
