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And no one owns product. The relationship with the consumer and distribution, it’s very fragmented and I would say at least half of the industry’s really run that way, operates with this legacy infrastructure that’s really a drag on profits and captures margin that we really give to the consumer.
Jay Clouse: 00:00:22
Startup investment landscape is changing and world class companies are being built outside of Silicon Valley. We find them talk with them and discuss the upside of investing in them.
Jay Clouse: 00:00:34
Welcome to upside.
Eric Hornung: 00:00:49
Hello. Hello. Hello and welcome to the upside podcast, the first podcast finding upside outside of Silicon Valley. I’m Eric Hornung and I’m accompanied by my cohost, Mr Apple doesn’t fall far from the tree himself. Jay Clouse, Jay, do you have any idea what that nickname means?
Jay Clouse: 00:01:08
No, I. I’m guessing it’s related to my parents somehow. What do you know about my parents?
Eric Hornung: 00:01:12
Well, I was just thinking your parents are both teachers. You have a whole family of teachers. You’re pretty much like predisposed to becoming a teacher, but you didn’t, but at the same time you are very much a teacher and that your newsletter teaches a lot of people. This podcast teaches a lot of people and you are Mr. Linkedin learning himself from an earlier episode, so really you have rolled away from the tree a bit, but not too far.
Jay Clouse: 00:01:41
I’ve fallen right back into the family business of the Clouse clan. Yeah. I went to college with absolutely no intention of teaching at all. That was the one thing I knew I didn’t want to do and here I am spending just about all my time doing that and I would even lump in unreal inside of that. I’m not doing all of the teaching or sharing in the group calls that we have, but there’s quite a bit. So yeah, it’s weird how things circle back.
Eric Hornung: 00:02:04
It’s like the socratic method there because for unreal you’re still the teacher, you’re the facilitator, but you’re asking more questions than lecturing I guess. Right.
Jay Clouse: 00:02:13
Not a professor. I’m not professing anything.
Eric Hornung: 00:02:16
Right, but on your newsletter you profess a lot.
Jay Clouse: 00:02:18
That’s right. And you guys can sign up for that at jayclouse.com/newsletter.
Eric Hornung: 00:02:22
Wow. The plug. There it is. There it is. I set them up. I set them up. He didn’t take it the first time he took it the second time. jayclouse.com. Sign up for the newsletter, upside.FM. Subscribe to the podcast. If you’re not,
Jay Clouse: 00:02:33
that will probably be the only slam dunk that I will ever experience. Oh, for our listeners, exciting news. Something that I didn’t know and that you probably can’t tell from his voice. Eric Hornung, our host used to be able to dunk a basketball
Eric Hornung: 00:02:47
back in the day. I was telling Jay while he was visiting Cincinnati that I was working out and I mentioned that I was doing box jumps and he said he would pay good money to see me do a box jump thinking it was like six to 12 inches. It turns out that I used to be athletic. I’m not claiming to be athletic anymore, but I did get fourth place in cities in high jump and I used to be able to back when I was 30 pounds lighter dunk a basketball. Not consistently. I have small hands which doesn’t help with the single hand dunk
Jay Clouse: 00:03:20
from Barry bonds to stocks and bonds. It’s a flood metaphor.
Eric Hornung: 00:03:24
It didn’t really work
Jay Clouse: 00:03:25
in several ways, but that’s all right. Speaking of Athleticism, our guest today is Summersalt.
Eric Hornung: 00:03:32
How is that speaking of athleticism?
Jay Clouse: 00:03:35
in name only, you know Summersalt, like the the role that you would do.
Eric Hornung: 00:03:38
Oh, that’s. That’s pretty good. I was thinking they are bringing athleisure to swimwear.
Jay Clouse: 00:03:43
I don’t think that’s true, but they do do swimwear and our guest today is Lori Coulter, the founder, ceo and president of somersault. Summersalt is designers swimwear without the designer Price tag. It is a direct to consumer brand with a patent on recommending garments based on body type and consumer preference. They use more than 10,000 scans of real women’s bodies and some one point $5 million measurements to create what it says. Our designer quality garments. Based in St Louis, Missouri, founded in 2017. Summersalt just closed their series a, a $6,000,000 series a on October 25th of 2018, which was led by founders fund, which includes Peter Teal and revolution Steve Case’s Fund. Steve Case of rise of the rest. So Summersalt has some big names in their corner, has been moving very quickly since 2017, which I’m sure we’ll spend some time talking about in the interviews day.
Eric Hornung: 00:04:40
Yeah, and I also think we’re going to spend some time talking about why a brand might accept venture capital funding. So I want to specifically ask those questions today because there’s a different return expectation when you take venture capital funding than if you took some other sort of funding, maybe call it private equity or you raise enough debt to sustain yourself and grow the business and I would just want to talk about that decision and why they went down this path.
Jay Clouse: 00:05:08
I agree. And it’s going to be really fun talking with Lori who has owned a swimwear company, Lori Coulter swimwear since 2007. So she’s not a stranger to swimwear to starting a brand. I love when we have ecommerce and retail companies on the pod.
Eric Hornung: 00:05:25
I also love when we have founders who start on second base and that’s a fun phrase that we really should have included it in our Bingo board that we put up on twitter.
Jay Clouse: 00:05:36
Yeah, the Bingo board that you spent, what, three hours doing?
Eric Hornung: 00:05:41
I didn’t spend three hours. I. I spent adhoc 15 minutes over the course of three hours.
Jay Clouse: 00:05:47
How many likes did we get on that tweet?
Eric Hornung: 00:05:49
Two. Two. One was you and one was me, I think.
Jay Clouse: 00:05:54
Wow. Wow. Great use of time. All right, well I’m excited to talk with Lori. Are you ready to roll right into this interview with Summersalt?
Eric Hornung: 00:06:01
We’re not jumping in?
Jay Clouse: 00:06:03
a bonds.
Eric Hornung: 00:06:06
Hey guys, wanting to cut in here real quick and let you know about something. Jay and I have been getting ready behind the scenes in 2019 when we started this podcast. Jay and I said that you, the listener, will have an opportunity to learn in real time to think like venture investors with us as we meet a wide variety of personalities, examine a wide range of industries. Well, now we’re going to share something new and it’s a little different. This new idea is called the update. It’s a carefully curated quarterly publication of editorials, trends, and stories happening outside of Silicon Valley. Jay and I will be writing stories about what we’re learning about on the podcast, have guests editorials on interesting topics and share news and updates from our podcasts. In some cases, we may even share some exclusive content or first looks. Our goal is to stay at the cutting edge and of course bring you along with us. We’re super excited about it and know you’re going to love it. If you want to be the first to hear about our q one launch in subsequent letters, go to upside dot FM slash update to get on the mailing list,
Jay Clouse: 00:07:12
And before we get into this interview with Lori from Summersalt, we have a short conversation with Karen Howland who is a managing director at CircleUp. CircleUp is an investment platform providing capital and resources to innovative early stage consumer brands. They’re comprised of internally managed funds and investment marketplace and credit division and are powered by Helio, which is a proprietary machine learning platform that evaluates more than one point 2 million consumer and retail businesses.
Eric Hornung: 00:07:39
When we first heard about circle up on Patrick O’shaughnessy is invest like the best podcast when Ryan, the CEO and founder was on as a guest. I thought immediately that it was a very compelling story to be a quant, which is generally reserved for the public markets and the private markets and specifically as it relates to consumer businesses.
Jay Clouse: 00:08:01
Yeah. Circleup has a very unique perspective on consumer brands in one that I think is very aligned with what Summersalt is doing. So this conversation with Karen will give some really good context and framing for this conversation with Lori and I think it will also set us up for our deal memo in this episode, which is going to be a little bit different. We’re going to do less evaluating of Summersalt as an opportunity given that they’ve just closed a $6,000,000 series a. We have a little bit of a unique twist looking holistically at ecommerce and retail, so first, enjoy this quick conversation with Karen Howland of CircleUp.
Jay Clouse: 00:08:41
Karen, welcome to the show.
Karen Howland: 00:08:42
Thanks, Jay. Eric, thanks for having me.
Eric Hornung: 00:08:44
It’s great to have you here. We want to start with a little quick history on you and your background. Can you run us through that?
Karen Howland: 00:08:52
Sure. I joined CircleUp after spending about 15 years working in the consumer focus public markets and most recently I was at a firm called citadel, which is known to be a very data driven hedge fund. They use extensive amounts of data some publics and proprietary to help make investment decisions. After I left citadel, I spent about six months doing some consulting work with some smaller emerging consumer companies and was surprised to learn that there was little to no data readily available to these companies, so they were more or less flying blind as they, as far as detailed industry trends, pricing, competitive analysis, or they were paying massive amounts of money to try to get small insights into these things. During this time, I was introduced to CircleUp and learned that it wasn’t just consumer companies that didn’t have a lot of this data, but investment professionals didn’t use a lot either. Big Investment decisions were made primarily based on heuristics as in pattern recognition with limited data to support it, so I got really excited about the opportunity of marrying my experience with data analytics with Leo, which I’ll talk a little bit more in a bit and continue to use my knowledge of consumer trends that I’ve built over the last 15 years with my newfound passion around early stage companies at CircleUp,
Eric Hornung: 00:09:57
so data driven. That means that you’re looking at different varieties of factors and how they drive success, how they’re predictive of success. Is that a fair characteristic of data driven?
Karen Howland: 00:10:07
Yes.
Eric Hornung: 00:10:08
Okay, so what are some of the factors that everyone thinks are important that actually are important
Karen Howland: 00:10:13
Door growth, Door growth as far as future? We find door growth to be one of the best predictors of future growth for a business. Surprisingly enough, when we look at some of the data, we had not been able to imperially prove that velocity of products at retailers is one of the better predictors of future growth, but rather door growth specifically is one of the things that we think that we do particularly well is brand strength is one of the is a very strong predictor of future success of the business, but as you might imagine, predicting the strength of a brand can be extremely difficult. I think very often people think about brands kind of like sanity, right? I don’t know it, I can’t define it, but I know when I see it, we’ve actually using some of our proprietary data with Helio have been able to develop a brand score that we can assign to each company and each brands that help us predict the future success of that brand of growth.
Eric Hornung: 00:11:10
Before we jump into some of those interesting things, you’ve mentioned helio a couple times, can you talk about what that is?
Karen Howland: 00:11:15
Maybe it helps if I take a step back, CircleUp. We’ve got two internal funds here at CircleUp. We’ve got a growth capital Equity Fund and a credit fund which gives working capital loans to consumer companies. We do all of this backed by technology though, which is a little differentiated in that venture investing world. Helio, it’s our proprietary machine learning platform, analyzes millions of brands that gets one point or one point five now and trillions of different data points in consumer and retail and allows us to take a more quantitative approach when thinking about investing in companies and it benefits us not only when we’re investing with companies but also when we get to how we get to support our entrepreneurs that we work with. Locker.
Jay Clouse: 00:11:56
You. You started off this conversation saying that there was a lack of transparency or access to data and now with Helio you guys are looking at, you said trillions of data points. Where are you guys finding that data that was not found before?
Karen Howland: 00:12:12
The exciting things about consumer, right? Consumer data points are actually pretty readily available, whether it be through some larger data sources that you can partner with that can provide you with your growth and pricing, but also on websites, on social media, a social media interactions, and so you can develop proprietary data sources that can scrape all of these different data and can put together a composite of what the businesses look like and what the adults don’t like.
Jay Clouse: 00:12:44
And so helio has a tool. You guys have spent a lot of time developing itself as a tool to give you all of this data that you’ve figured out how to analyze to help CircleUp. Is that something that you guys also licensed to others or is that something that you’ve kept completely proprietary because of the leg up it gives you and your companies
Karen Howland: 00:13:04
at this point it’s proprietary. We use it for own investment decisions, but then we also use it to help support the entrepreneurs that we work with on both the credit side and the equity side, which at this point is about $300.
Jay Clouse: 00:13:16
And the premise here is that by having this data, you guys can identify companies that previously were not getting attention from the venture community or I guess what I’m asking is, are you guys identifying companies that previously wouldn’t have gotten investment, or are you looking at companies that may have gotten investment and you’re choosing The top ones,
Karen Howland: 00:13:36
you know, it’s a combination of both. We use it as a screening tool to look outside of our backyard that’s actually a passion and a shared mission that we have a circle up in upside. We recognized that businesses don’t have to be located right outside of San Francisco to be entrepreneurial or they’re innovative consumer companies located in big and small markets throughout the United States, but the geographic dispersion creates significant hurdles when it comes to fundraising and growth. Hopefully that’s where CircleUp helps fit in, right? We can use our proprietary machine learning platform to monitor, evaluate the forming universe of consumer brands to help us find breakout companies and help them grow with some data driven insights. We currently have investments in Seattle, San Francisco, La, New York, older St Louis to this bow and I was speaking to once all across the country. You’ve got a digitally native investments. We’ve got companies that sell almost exclusively through traditional retail channels. We’re finding there’s no one size fits all with consumer entrepreneurs, which makes the job so exciting and so interesting.
Jay Clouse: 00:14:36
How proactive are you being in reaching out to these companies because you see the data versus using it to evaluate the companies that are coming to you?
Karen Howland: 00:14:45
We are very proactive and using the data to reach out to companies. We think it is a big differentiator. Being able to these companies earlier and reach out to them proactively.
Eric Hornung: 00:14:54
You mentioned that you have investments that are digitally native and investments that are traditional retail. What are some of the pros and cons of each and does your portfolio lean heavy one way or the other and why might that be?
Karen Howland: 00:15:10
so, I’m looking. I sit in a conference room and got a lot of our brands up on the wall in the conference room, and I have to be honest, it doesn’t really lean one way or another, so we have a. This is hum nutrition, which started as a a digitally native brand is thinking about potentially moving more towards traditional retail model. We’ve got companies like nutpods, which is a a plant based creamer which has a huge business on Amazon, but also a growing business and retail and then we’ve got a company or five, oh five, which is traditionally a a a retail business, so I think it really depends on the brand and the business. I personally think a company that is exclusively digital or exclusively retail and plan to be that way for the longer period, it could be a little bit shortsighted. I think more and more we’re seeing retailers move towards the Omni channel strategy and I suspect that’s going to continue Omni Channel could obviously be Amazon traditional retail. It could be pop up retail locations, it can be your own owned website, but I think Omni channel is going to be where most of these businesses can continue to push towards, but it all depends on the state of development in the State of growth that they’re in. We’re talking about some very early stage retail companies here, so the fact that they had been primarily digital versus primarily retail at this point, it’s not hugely surprising.
Jay Clouse: 00:16:37
Do you see then in the data, the companies that are breaking whatever threshold you’re looking for to reach out to them, our Omni channel, when you get that signal or do you have people break out from that threshold focusing on simply retail or simply native online?
Karen Howland: 00:16:55
It’s been all three. We have metrics that we look at that focus primarily on retail door growth, retail velocity growth. We have metrics that we look at that look at strong online engagement and then we have companies that will fall under both of those universes, so it’s not just one or the other. We have different ways of looking across the spectrum,
Eric Hornung: 00:17:17
so we mentioned that we get to the interesting stuff a little later, the anomalies if you will, and you said that door growth and brand strength are two of the things that people think are important that actually are important. What are some of the things that people think are important that aren’t important?
Karen Howland: 00:17:35
One of the best examples or this I wouldn’t necessarily say it’s not important, but we haven’t been able to statistically prove that it’s important is it’s probably a better nuanced way of saying it.
Eric Hornung: 00:17:46
Very data scientist.
Karen Howland: 00:17:48
Exactly, exactly, but but brand score and slash or growth or two things a we statistically can prove our great future indicators of growth. Category growth is another great future indicator of growth in categories. Strength, as I said, velocities, so inventory terms within a specific retailer which to me I would have thought moving, moving, coming here, that that would have been one of the most important things that we could look at and we haven’t been able to prove that that is a very strong indicator of future growth.
Eric Hornung: 00:18:19
And what about the third prong of this, which is things that people don’t think are important that ended up being important.
Karen Howland: 00:18:28
Things that people don’t think are important that actually proved to be important. Again, I go back to. It’s not so much that people don’t identify it as being important, but they just don’t know how to quantify it. Right? So brand strength. If I was to ask you had identify a strong brand and guessing you wouldn’t be able to. Maybe one?
Jay Clouse: 00:18:51
No, I’m not sure. I mean to me a brand lives in the minds of its customers. So it kind of comes down to how are people spreading. I might look at like k factor to see how are people talking about it and spreading it themselves. But I would love to hear insight into how you guys quantify it.
Karen Howland: 00:19:06
So brand strength is what a brand score is. One of the things that we really focus on as far as a differentiator that we don’t think other people aren’t necessarily able to quantify product differentiation. We’ve been able to statistically show what products, how to quantify product differentiation. And then even more importantly, what specific categories customers are focused on that product differentiation in. So these are things that I think inherently everyone would say we’re different in say are important, but actually being able to quantify them is increasingly differentiated.
Jay Clouse: 00:19:38
So let’s say I’m a digitally native brand, what type of advice would you give an early stage digitally native brand who thinks they have a great product or maybe they have an idea for a differentiated product? From your experience, what is a good go forward path?
Karen Howland: 00:19:55
I think digitally native want the best things you can do when you’re a digitally native brand is iterate on your product. You can test new things, you could try new things, you could throw marketing out there, you can see how the customer responds to it, and you’ll be able to test those things in a really small batch basis to really hone in on what your customer wants. I think marketing and going out and reaching out to that customer in a purely digitally native way is getting increasingly more difficult, increasingly noisy and increasingly more expensive. So I would always caution around that customer acquisition cost, I feel most digitally native brands in year one, there’s a certain amount of adoption, a certain amount of early acceptors of brands where they jump right in and are really excited about them. Your customer acquisition costs is asked in the lowest early on. That idea that that will not continue to ramp up over time as you move to more and more confident, more and more customers that are not those early adopters I think is something that I would caution against.
Jay Clouse: 00:20:57
And so is the Omni Channel and specifically the retail strategy adding to digitally native brands. Is that a new way to get acquisition new customers? What? What do you see that as playing a part of?
Karen Howland: 00:21:12
It’s interesting. We actually were speaking to a company that was a digitally native brand that was looking to bring their products to target because they viewed that as a cheaper way of acquiring new customers than actually doing it through their own website and on my marketing. Two years ago, that wasn’t the case. Even with the slotting fees. Even with the cost of dealing with the retailers that is now a cheaper way of reaching a larger swath of customers.
Eric Hornung: 00:21:38
Where do most consumer brands and consumer brand companies fail?
Karen Howland: 00:21:43
I think not being differentiated and not adapting to consumer preferences. Do you think about the crafts of the world? Right. I mean it’s obviously a heck of a brand, but it’s stagnant and it’s declining because they haven’t been fast to adopt recent trends as far as consumer preferences. As far as consumer tastes, I think you can have an innovative product and unless of course you have a Mooc, it’s unlikely you’re going to keep that innovation and the differentiation for the longer period, so you always need to be thinking 10 steps ahead as far as what the next new product that you’re going to be launching a new iteration.
Eric Hornung: 00:22:20
So you’re saying that craft should launch fortnight shaped noodles? Spongebob.
Karen Howland: 00:22:27
I wouldn’t be surprised if they already have. I haven’t checked out the craft selection recently, but I wouldn’t be surprised that they have, but that is. I questioned it. That’s innovation.
Jay Clouse: 00:22:35
He’s consumer products. I have a clear path to revenue. They have a clear revenue model. What is the trigger for a consumer brand looking to raise funding from an institutional investor?
Karen Howland: 00:22:47
I can tell you specifically with CircleUp, what we think about is differentiation which can be defined in a lot of different ways and be form factor. The distribution model. It’d be value proposition. It could be a new innovative product that we haven’t seen before at CircleUp, as I said before, we’ve got models that help us understand product differentiation and help us quantify a lot of this product differentiations. Another thing we think about, and I think that’s resonating more and more, it’s authenticity of a brand. To be honest, we haven’t figured out a great way to quantify that, but we are seeing more and more authentic brands, mission brace back brands that are resonating with the customers. One of our companies is it a direct consumer cosmetic company targeting women of color. The brand was founded by two women who were personally affected by the lack of product that was available for the red skin tone and develop the product to address it through their direct to consumer channel. They regularly speak to their customers, their social engagement, and the customers responded extremely. The business is growing very quickly, so I think that authenticity is really important. Hey brant, we’re talking about this before. It’s another thing that’s so important with customers and I think increasingly so as trends towards voice activating, shopping increase. If I’m a customer and I’m making my shopping list on Alexa and I asked for Nutpods, I get nutpods in my car. I asked for Creamer, almost guaranteed that Amazon or whole foods, three 65 brand is going to be in my shopping cart so that brand awareness and that importance of the brand to the consumer is increasingly important, which is part of the reason that we spent so much time on building a brand model but not this quantify that brand across the different categories.
Jay Clouse: 00:24:28
So are people looking for when they raise funding as as a consumer brand, are they looking for funding to help push the marketing plan forward more? Is it to buy inventory or are they coming to CircleUp, for example, for the insight in relationships you have in the industry?
Karen Howland: 00:24:47
It’s a combination of the three. We have two to two distinct funds, we’ve got the credit fund and that’s primarily working capital requirements, which we’re really excited to be able to give entrepreneurs that option. It’s really, really expensive to raise equity to try to fund working capital requirements within the equity fund, which is what the part of circles that I work at, we focus more on, on the marketing changes, the important hires that they’re going to have to make the new product launches. So the, the bigger, more strategic issues is compared to the working capital needs, but these are small emerging consumer companies. They need a combination of all.
Eric Hornung: 00:25:26
If you were going to start one of these small new emerging consumer companies and say you’re going to do as a new co, so you’ll be chairman of the board or something, not working directly in the business. Who would be your first three hires position? Not People.
Karen Howland: 00:25:41
Oh Gosh. It would have to be an entrepreneur to take over my position because I don’t think I’ve got the insights and creativity for it. Um, I, you know, I think brand marketing is so important and you can have a vision or a product, but being able to brand that product and be able to get that on the shelves is really important. Digital strategy is increasingly important to you. Have you talked before about the ability to talk to your consumer on a social basis? Digital strategy is very important and we’re actually finding increasingly so on the operation side, the coo type role, somebody actually work on the supply chain. Somebody be able to help us with the manufacturing and the capabilities.
Jay Clouse: 00:26:24
I have one rapid fire question and then one kind of abstract question. So I’ll start with the rapid fire question. Let’s say going back to uh, a digitally native brand, at what stage do you think they should start looking at retail if they’re going to go omni channel?
Karen Howland: 00:26:39
I feel like I, I, it’s a cop out answer, but it really depends on the runway of growth. I think at this point, given how expensive it is to continue to move more towards a pure digital strategy earlier is better, but it really depends on the runway of growth.
Jay Clouse: 00:26:56
Alright, and my last question here, this doesn’t pertain to today’s interview, but we’d spoken in the past with a founder who integrates with shopify stores and he spoke a little bit about what he perceived as a danger of depending on Amazon as part of your Omni channel strategy being sort of a longterm existential risk. I’d love to hear your take on that of Amazon as part of Omni channel and if there’s any risk there for a brand trying to build their brand strength.
Karen Howland: 00:27:24
I think working with Amazon is honestly pretty essential for a Omni channel approach over the longer period. You’d wanted to actually work yourself with Amazon. You want to be able to control your brand, control the inventory, control the pricing, and to do that you have to work with Amazon. Otherwise people are going to be buying your products that are places and putting it up there and then you won’t be able to control the message for the brand. I think as we move more and more consumer shopping, we’re going to see more and more aggregated purchases on Amazon rather than doing seven different boxes getting delivered all from different channels to your house. Um, so I think we continue to see brands move more towards Amazon in a way.
Eric Hornung: 00:28:06
And one final wrap up question from me. What are you most excited about in the consumer brand investing space in the next decade?
Karen Howland: 00:28:13
The innovation that we see out of these all consumer brands is happening at such a rapid pace. It gets me really excited to see what the next new product is. We talked a lot about different channel growth, but it’s really the product differentiation that keeps coming out that is so fascinating to me and makes me really excited for each management.
Jay Clouse: 00:28:34
Thanks so much Karen. If people want to learn more about you or CircleUp after the show, where should they go?
Karen Howland: 00:28:39
They can email me directly at khowland@circleuP.com.
Jay Clouse: 00:28:44
Fantastic. Thanks so much.
Karen Howland: 00:28:45
Thank you guys.
Jay Clouse: 00:28:49
Lori, welcome to the show.
Lori Coulter: 00:28:51
Thanks. Really glad to be here with you guys.
Eric Hornung: 00:28:54
We’re glad to have you, Lori. We’d like to start on upside with a background on the founder, so can you tell us about the history of Lori?
Lori Coulter: 00:29:04
My cofounder and I are both serial entrepreneurs. Ten years ago I launched a business in partnership with macy’s in store as a vendor. We made to order apparel and digital body scanning, so really working at the intersection of technology and fashion at an early date. We were one of the first concepts to go from a digital body scan through a cad system to the factory and back in as fast as 10 days and over the next five to 10 years we evolved into designing and manufacturing still quick turn around, but for other brands, midsize retailers as well as large scale resorts, so that was really background. I’m an MBA by training. I’ve always had a passion for entrepreneurship. I knew that even when I was in college that I would be starting a business. I just didn’t know multiple businesses and then also if I had a great idea, I was going to go for it from the very beginning.
Jay Clouse: 00:29:58
What was the breadth of the type of clothing you guys were doing with these body scans?
Lori Coulter: 00:30:04
So we scan over 10,000 women all in store at me, see a different macy stores around the country and so that really gave us a great base for sort of this kind of mainstream America consumer and we made individual swimsuits for each of those customers so we not only had the scans and the one point 5 million kind of measurements and data points to start from to really optimize our fit, but we also had the feedback loop there directly with the consumer. That really allowed us to optimize very quickly and to bring that intellectual property with us into Summersalt. That really is a starting point for each of our garments over that neck. That 10 year period we evolved from designing swimwear to. do you mean athlete dresses, shirts and you name it? We’ve probably done it on some level.
Eric Hornung: 00:30:55
I want to get into Summersalt in a second, but first take me back before this previous company, you said Mba, why retail? Why? Why did you even head down this path in the first place?
Lori Coulter: 00:31:07
Yeah, so I’ve always had an interest in retail and particularly apparel. I think in some ways I’m a governmental at heart. I get a kick out of making things, building businesses. There’s nothing quite satisfying as satisfying as actually going through the product development process and apparel happens to be a faster product development process. You have a finished good sooner, you know, I just really get the thrill out of having that sort of Unicorn Unicorn of swimsuits as the today show dubbed one of our students this summer. There’s nothing like it.
Eric Hornung: 00:31:42
Can you tell me about that product design process? Like what is iteration look like in it? You mentioned it’s fast.
Lori Coulter: 00:31:49
Yeah, so one of the great things about our back, my background in our team, you know, sort of instill, we’ve instilled with our team is this idea of quick, quick, very fast iterations both on product development as well as manufacturing. So we have the opportunity to get a read from the consumer, understand what’s working both from a marketing perspective. So when you’re an ecommerce brand, understanding what creative is working is super important and creative for us can be anything from you know, digital imagery of product to copy to audiences, all that kind of bundled together and then on the other hand, what products really catching the eye of the consumer and then what is she coming back to buy over and over again. So getting that, that feedback loop, staying up on top of trends, both from a just an overall fashion perspective but also from a search and industry perspective is super important and then instilling that into our team. So the interesting thing is because of our quick turnaround background and because we started on the made to order side, we can do a prototype and as fast as 10 days we can be cheap production like to the consumer and as fast as four weeks if we really want to.
Jay Clouse: 00:33:01
So when you had this partnership with macy’s, was this body scan technology and made to order process? Was that something you brought to macy’s and they said we would like to try that.
Lori Coulter: 00:33:12
Yeah. We were essentially a vendor at macy’s. So we functioned as a lease department in the way cosmetic brands do many times, not always, but a lot of times. So we are a lease department, at lease vendor under the macy’s structure.
Jay Clouse: 00:33:26
And so how did that come about? How did you guys start this scanning process?
Lori Coulter: 00:33:30
So, so I was really interested in technology, any. I’ve always been interested in technology enabled retail became fascinated with body scanning and other mass customization technologies, again at a very early date and just absolutely went for it. We had a bear, we didn’t have product, we didn’t have anything, just sort of developed a process, start to finish putting all the body scan out algorithms about around shape analysis. We have a patent in the area of recommending styles by body shape and we use that in a light way with Summersalt right now and we’re really excited to go deeper there. So I had personally programmed a lot of our body shape analysis back in the day.
Eric Hornung: 00:34:15
So you ‘re a programmer as well as an MBA.
Lori Coulter: 00:34:18
I want to be
Eric Hornung: 00:34:21
your self taught,
Lori Coulter: 00:34:22
self taught, yeah. Very cool.
Jay Clouse: 00:34:24
What was the experience like for somebody coming to macy’s entering, I’m assuming sort of a machine or like a gateway? How did, how did my body gets scanned?
Lori Coulter: 00:34:31
so, so it was really, I would say a 20 by 20 foot print with a dressing room that actually had a body scanner in one of those dressing rooms spaces. We had what I would call now kind of a showroom space. So those barriers, different style options were there kind of a guide shop model, but an earlier date. Right. So we would show them the different options we had over. I mean, you know it when you start providing customization options, get up there and very, very quickly. So we know there are a million options for the consumer. Everything from basic silhouette to neck lines. I’d like hide to broad types. Aligning fabric is all the as well as those additional design details around contrast straps or monogramming or hardware, that sort of thing. So that, that really was my background. And so this, you know, interesting time in retail over the past, let’s say five years. I started looking at what was happening from an industry perspective and I did not see a path to scale for brands pursuing kind of traditional wholesale model. I started really in a way direct to consumer even though we were a vendor at macy’s, we still had that one to one relationship. I had moved away from that when we were designing for other brands. And then in June of 2016, I met with my now cofounder rashma chatter on Chamberlain. We had lunch. People find it interesting. We were not personal friends and we had not worked together, but we sort of knew each other from the entrepreneurial community here in the Midwest. And I admired her work and I expressed my views in regards to what was happening in the world of retail. She really challenged me to look hard at the direct to consumer business model. She had already been working with some of the largest on the east coast, him Jimmy issues and rapids of awesome. So she really had that direct to consumer, a playbook on how to launch and so that, that lunch was June of 2016, was a very fancy restaurant called Chipotle and uh, there was nothing actually memorable about that, that conversation except that it really struck a chord for me. And then I spent the next six months really looking hard at both the industry and the direct to consumer model that was working, what wasn’t, developed, the initial business plan and strategy for what is now Summersalt. I developed a collection, the products which I think is unique both for rush Miami and really our ability to actualize product and brand in a very fast and iterative process. And then in December of 2016, I went back to rush to hire her agency. I like to tell this part of this story. She said no, and she says today that it was because she was unwinding her agency looking for that next opportunity. We’ll see if that’s really true. I guess time will tell. But in January of 2017, she and I serendipitously met in New York. We ran into each other at a an event at the gramercy Park Hotel rose bar. I’d been interviewing PR firms really intent on marching to launch with kind of top tier representation on the PR side of things and when you’re retail or consumer product, I think it’s absolutely a mistake not to really have that from day one. So I have the deck, I have the line sheets with me. I cornered her and said, let’s look at this, and to my great surprise and credit, she said, yes. She said, would you consider a CO founder? And I said, yes, let’s, let’s talk about it. So serendipity certainly plays a role and we tell that to all founders, but then the founders responsibility is to recognize opportunity when it comes your way and to seize that opportunity and use it to the best of your ability. So that was late January. We stuck our deal early March. Let’s say we raised a small $625,000. Angel Round prelaunch. We had not opened a bank account and so April 15th, 2017, I will tell you, that makes angel investors in the Midwest a bit anxious. We had several people say, you can’t do it. You cannot launch in May. We launched may 23rd 2017. What I’ve come to realize as VCC that as a, as a, you know, I was checking a box. They want to see that speed of execution, that aggressiveness, that willingness to do it no matter what
Jay Clouse: 00:38:59
Rashma’s background. You mentioned that she was with an agency. Was she predominantly doing sort of marketing and PR work?
Lori Coulter: 00:39:05
She owns a digital strategy firm and so they were really working at the intersection of designed thinking, any commerce and those were really, I think her favorite clients and from a best practice perspective, they really loved supporting direct to consumer brands. Understood the revolution that’s taking place, believed wholeheartedly that today is direct to consumer brands are tomorrow’s, you know, procter and gamble’s and so she was looking to really sink her teeth into one of those next generation brands. Summersalt just happened to be a great opportunity.
Jay Clouse: 00:39:40
I want to get a sense for the industry at the time that you started doing these customizations. I remember when Nike had like, they’re customizable tennis shoe. That was a huge deal where you really early to market with this level of customization.
Lori Coulter: 00:39:52
I mean we launched at May season 2007, so the fact that we were working the ad that early of an idea of a date, it’s just really unheard of. We’re still one of the few concepts to go from in store all the way to the factory back and back and is fastest as ten days particularly for women’s wear. Brooks brothers was working in the men’s space with Customs Sudi, but this was really, you know, women’s core product.
Eric Hornung: 00:40:20
So in the last decade or so, you’ve seen a lot of change in retail. You noticed that there was this change in retail. What about the change made it the right time to start Summersalt?
Lori Coulter: 00:40:30
Yeah, I think you know, again that’s the entrepreneur’s kind of responsibilities is to understand timing and I was seeing the writing on the wall and maybe you call it sort of synthesizing various different inputs or just pattern recognition, but certainly I sensed that this was the time we are seeing a generational shift with regards to consumer products and brands and we know that millennial women and we use the term millennial very loosely, so I’m always hesitant to say that, but millennial women prefer experiences over things they’re buying fewer, better items, they’re traveling more and they by the way, don’t love to go to the store. So we understood that this was a unique time in retail or brands like Summersalt can be born digitally, get that traction digitally both from an influencer perspective on social media and elsewhere. Also, I think from an advertising digital advertising perspective, there are opportunities to be had. Although I think that window is closing to some extent. So we saw this opportunity. We pushed very, very hard to launch may of 2017 because we knew that the timing was right and that was really part of our pitch angel investors. Prelaunch is we have to do it now and I think Rushman and I uniquely suited one to, two launch Summersalt, our backgrounds in our careers where we were both really kind of building to this point, but also we knew the time was right
Eric Hornung: 00:42:04
is May important because it’s right before summer. So you would have had a way to fold another year or is there another reason?
Lori Coulter: 00:42:11
we could launch later? But we knew that um, June was in an important month for swimwear. really? March, April may are very important. First one were to, but we didn’t have that luxury.
Jay Clouse: 00:42:26
Oh, so you came to this when you guys started, you had the proprietary scans of 10,000 people. Right?
Lori Coulter: 00:42:34
So we had that proprietary Ip on the digital body scanning side as well as over separately a database of an archive of patterns over 10,000 patterns, designs as well that we could quickly iterate upon. And we were very confident in the fit on that. Those designs as well to really create almost any swimsuit that we would like to create.
Jay Clouse: 00:42:58
Maybe I’m a little ignorant here, but you guys don’t do custom scans with Summersalt now. You guys have a line, right?
Lori Coulter: 00:43:05
Yeah, just we really describe it as we’ve developed the perfect size to the perfect size for optimized for mainstream America and so because of that we’re able to move very quickly and confidently with regards to our product development process going forward.
Eric Hornung: 00:43:22
Interesting. When I was in India in college, we were getting chaperoned around by a British guy who lived there and like loves India and he said that India is one of the. Has the most opportunity, is one of the least researched countries in the world and the opportunity he brought up is this idea that women specifically in India, their body shapes are just so different from the west and from the east and they get clothes from the west and the east and none of the clothes really fit them. So this idea of like body scanning and finding the perfect size to for the western culture is. That just resonated with me that as like something that is super unique.
Lori Coulter: 00:44:00
I think so and it’s certainly been a competitive advantage both from a quality of design and fit perspective, but also on the cost of inside. We really understand our cost structures are way better than most startups at our stage.
Jay Clouse: 00:44:14
We’ve alluded to this, but to just close the gap here, can you explain the breadth of what Summersalt is today?
Lori Coulter: 00:44:22
Yeah, so Summersalt really is redefining the travel experience for women, millennial women, so we really want to move away from what I consider kind of my father’s generation of traveler with regards to retail and product and really position travel, travel, travel content, and then swimwear in a way that’s appealing, fondant and evokes a sense of wonder lesson adventure for our our consumer. And so the messaging you see around Summersalt. Initially our hero product we launched with a swimwear, right, and what you’ll see in comparison to many an oversexualized brands, Summersalt is fresh, it’s modern, it’s fun, and all product really meets three different kind of requirements in our mind. First is this is this idea of design or quality without the designer price point, so a 200 plus dollar swimsuit for $95, a $300 plus loungewear set for $145. That’s super important. We’re cutting out the middle man and giving the consumer a better price. The second really is this idea of functionality at the core, our materials or five times stronger. It’s four times the compression. We use a beautiful, we call it travel soft product and our. Our new travel where collection. It’s absolutely gorgeous. Wrinkle resistant. It feels amazing. It’s a Vegan silk, still like the perfect travel kind of material from a comfort and performance perspective and the third component for, for a Summersalt and really all of our products should have some sort of sustainability component or so our, our swimwear fabric is made of recycled nylon. It’s really recycled fishing nets, which is amazing. And the travel where is primarily me from a post consumer waste product, so really we’re not perfect. We don’t claim to be, but certainly making those intentional conscious decisions around materials and that’s really, really embodies kind of the value system of Summersalt.
Jay Clouse: 00:46:36
Do you find that your target customers are people who are already excited about eco friendly materials or conversely, do you find people who may not naturally be excited about that? Afraid of buying something that is a post consumer waste product?
Lori Coulter: 00:46:52
We have not experienced any fear, so that’s really not a concern, but what I will say is that I believe any brand of the future, any digitally born brands and day really this idea of conscious consumerism really is a minimal entry point. It’s to be expected for the millennial consumer and it really is the right way to do business and I think our consumer recognizes that and values our belief system.
Eric Hornung: 00:47:21
What was the, and if I misstate something here, let me know, but what was the idea behind starting swimwear when we asked what is Summersalt? You started with it’s travel, so why? Why swimwear to start traveling?
Lori Coulter: 00:47:39
So what we know about swimwear that women are buying swimwear ahead of a planned trip and you know our whole intent from the very beginning was to own this idea of the consumer coming into Summersalt at her suitcase every time she travels and so we are already on her packing list. It’s a natural evolution to move beyond somewhere to to other garments
Jay Clouse: 00:48:01
or when you talked about the price point difference that Summersalt comes in at super compelling from a user perspective or a customer perspective, is that because you’ve innovated on the process or because you’ve cut out the middle or you said, or is this kind of saying that the brands that exist have too big of a margin and we’re just going to cut into it?
Lori Coulter: 00:48:22
All of those things coming together. Again, it’s a unique time in retail and what we find is that legacy brands really have this overhead around their different distribution structure. So I know a main stream, brand gesture be syrup through a major department store or other major retailers typically will solve and licensed for swimwear to a third party. That third party then aggregates 10 or 15 different brands. They’re buying the license in multiple cases and then eventually they hire another third party is a sales agency who really owns the relationship with the retailer and no one owns product. The relationship with the consumer and distribution, it’s very fragmented and I would say at least half of the industry’s really run that way, operates with this in a left legacy infrastructure that’s really a drag on profits and captures margin that we really give to the consumer and so that that is the difference. The other half of the industry is more private label brands by which most of those brands have significant headwind with their overhead. You know, retail stores. So in both cases the industry is just right for disruption. This isn’t unique to swimwear and this is really the case against all four for all retail right now, but I think swimwear in particular, just the way it’s been done in this oversexualized kind tired way, there was a unique opportunity to message something fresh and fun distributed on social media and to really get that initial traction and not just initial. I mean it’s clearly beyond the initial traction.
Eric Hornung: 00:50:00
Can you walk me through the process of so I can get like a tangible feel of this? You come up with an idea for a new piece of called swimwear. It gets created somehow. It gets put online. I bought, well, I buy it in my cart and then it shows up. Can you just walk me through that and how that works for Summersalt?
Lori Coulter: 00:50:22
Sure. I think the best example, my co founder saw swimsuits that she really liked. I thought it would be a great fit. Our product team did some initial sketches. I referenced a pattern we already had developed in our library, instructed our pattern maker to make some specific tweaks. We sent it to the factory for sewing, so we output from our cad system and you can literally print out a swimsuit in two dimensional, 2D. We output it for printing. Had they had the sample made, we can do that in New York or we can do it in Asia. Either way, those samples come back to us. We review because we’re so confident in our fit and their sales are consistent across the entire collection. It’s not as difficult for us both on the initial prototyping, but as well as the size testing. We did an initial test of that design last November, so I guess probably 10 days to prototype another two weeks to production or testing limited quantities and get a read from the consumer and that actual suit is a best seller for us for 2018.
Eric Hornung: 00:51:37
Can you talk about the struggle or if there’s a struggle on gauging supply and demand in this inventory kind of focused space?
Lori Coulter: 00:51:47
Yeah, I mean I think we’ve had exceptional demand and we are very good at predicting those breakout winners and seeing early indicators across the board, what’s working, what’s not, what’s resonating with the consumer and then respond accordingly. So everything we do, we sort of borrow from the successful tech startup kind of philosophy, iterate quickly, get a read and then go deep in the inventory of where we’re seeing particular response and relevancy for the consumer.
Jay Clouse: 00:52:21
How did launch work? What was the go to market strategy here? For Summersalt,
Lori Coulter: 00:52:27
we launched May 23rd of 2017. It’s not one thing working in isolation. It really is a 360 approach to product and marketing work and working in hand in hand, really product driving this conversations we’re having with consumers. We had pr, we had a paid media strategy, we had a social influencer strategy, retargeting budget as well as an email capture kind of campaign. All those things working together to really identify, again those that ad creative that’s working, that email for it and it’s working. The site optimization, all of that is super important. It’s not one thing that’s driving the success
Jay Clouse: 00:53:10
and so paid marketing I imagine is a cost for you guys. That is a huge part of your strategy. Is that what drives a consumer brand to want to do institutional capital versus kind of just doing the inventory turnover?
Lori Coulter: 00:53:25
No, in fact, I would argue that it’s really the the opposite. You need to see the other kind of engagement metrics working in tandem on paid media responses because anybody can do paid media, right? It’s not just venture back startups. It’s really this idea of exceptional traction and it’s exceptional. Traction comes both in media it comes with social media. It comes with influencers it comes with your consumer following email captures and then that engagement with the brand digitally and then eventually you know as well as conversions, but you really need to see that kind of break out success early on and it’s really the amount of traction on the short amount of time that I think differentiates those clear winners from a VC perspective than others.
Jay Clouse: 00:54:15
Since you guys have raised nine ish million dollars, right? Nine, eight point six. So talk to me about what that decision was like for you guys. Why did you say we think that institutional capital is the best for the business.
Lori Coulter: 00:54:29
So again, it’s about us understanding that it’s a unique. There’s a unique window of opportunity right now for digitally native brands to be born online digitally, to have that direct relationship with the consumer and then you come back with exceptional traction. We recognize that it is a window of time. I do think that brands we’re seeing today are the consumer product brands that will be with us for a generation or more and we wanted to be part of that revolution from the very beginning. So it is this idea that we want to grow as quickly as possible to capture as many consumers and just the idea that, hey, it’s fun. We want where we’re here to win. We’re unapologetically here to redefine this, are to define a category of apparel travel. wear to be the first to market both almost one where our perspective and the space as well as to define generation of traveler.
Eric Hornung: 00:55:28
You’ve mentioned digitally native a lot. One thing I’ve read recently about the consumer space is that generally the companies in it that raise a lot of venture funding eventually leave the digitally native space and go to some sort of brick and mortar retail. Is that in the plans for Summersalt?
Lori Coulter: 00:55:50
digitally native in my. My vocabulary really means you’re in the way that our youngest children are toddlers today are digitally native, right? They’re technology natives. They. They were never offline the way I was, but it’s the same for brands your digital first, but that doesn’t preclude actual physical retail. For us. It’s not traditional retail. We really see, again, those brands that are putting forward concepts and experiences and retail formats that are compelling for the consumer. Beyond what we’re seeing today.
Jay Clouse: 00:56:29
What are some of the brands and specifically digitally native brands that you look up to and you point to and say, this is inspirational for me,
Lori Coulter: 00:56:38
so we. I’m always inspired by all birds. That brand they created as creating is amazing. The product has broad appeal for everyone from my father to our 22 year old new hire out of Dartmouth. I mean all of our Ted had recent article ways in the La Street Journal and both of those individuals bought a era of all virtues that we. That is a very broad audience and a brand that resonates with a lot of people. I love glossier. What they’re doing from an engagement perspective is phenomenal, but there are others and highly respect whatever lines doing away travel as impressive. The list goes on and on.
Jay Clouse: 00:57:22
So you guys started in swimwear, got into travel where, so you’re broadening in that way. It seems like you guys have, as you said, the perfect size to that could be the perfect size to have really any article of clothing. Right?
Lori Coulter: 00:57:36
absolutely yes
Jay Clouse: 00:57:36
and so do you guys plan to go completely broad and just continue to add categories in lines?
Lori Coulter: 00:57:41
I think anything that we wouldn’t, we would consider must, kind of adhere to those principles of design or quality without the designer price point functionality at the core sustainability focused, but over time I think a lot of those pieces in the fall. Every everyday life. Yeah.
Jay Clouse: 00:57:58
Do you see a world where you say, you know, we’re not going to get into this type of article. Would you license the information you guys have to help brands who are in that vertical make better fitting clothes?
Lori Coulter: 00:58:12
I don’t want to. I, I, that’s not part of the business model today. No entrepreneur would ever say no to that too.
Eric Hornung: 00:58:20
So we talked about taking institutional money and there is an expectation behind venture capital money specifically have at least like a 10 acts exit. So what’s the next step to get to that 10 x now that you’ve taken that money?
Lori Coulter: 00:58:34
I think I think that 10 acts is interesting, the return is relevant to the stage or a light. So an angel investor maybe looking for 20 or more 30 acts in some cases see maybe steps down from that series a and at each stage we’re sort of reducing risk and we’re essentially post series a at this point on we were putting the gas down from a revenue perspective. We’ve had exceptional attraction that puts us really in the top one percent of venture capital backed start ups and now we’re coming back and do that again in 2019. So super excited. It really is about value creation and for us that’s hitting home runs from a revenue perspective, making sure that our margins are appropriate and then acquiring customers and in an efficient way.
Eric Hornung: 00:59:26
What’s an ideal margin in this? Maybe not appropriate like you mentioned, but like best in class.
Lori Coulter: 00:59:32
Oh an ideal margin is 100 percent really, you know, traditional retail up better than traditional retail,
Jay Clouse: 00:59:43
What is traditional retail?
Lori Coulter: 00:59:44
And they’d say keystone of maybe two, two point five times cost. So if they solid good for $50 or 125, maybe
Eric Hornung: 00:59:57
from a public engagement standpoint, you mentioned traction a lot. We talked about revenue numbers and margins being healthy, but from a social media marketing type of Lens, what are some of the kpis that you look at and how have they grown in the last, let’s call it six to 12 months,
Lori Coulter: 01:00:18
From a social media perspective? We’re always looking not only at follower count, actual engagement with our brand as well as with other brands and sort of benchmark how we’re doing. We want to get that read to understand what’s what products resonating, right? But also what messaging email us as super important. We’re looking for growth engagement there as well. That’s super important to us.
Jay Clouse: 01:00:45
And then I’m assuming you guys are probably looking at like gross merchandise volume
Lori Coulter: 01:00:50
of course. Yeah. Just in general with when you have sorted that breakout kind of traction, the numbers really speak for themselves from a volunteer perspective.
Eric Hornung: 01:01:03
You mentioned earlier that you want to pack her suitcase whenever she travels. How big is that opportunity?
Lori Coulter: 01:01:10
My thing, just understanding that we are at a point in time when millennials are traveling more than ever, it’s the largest generation in history who travels more than ever means that the opportunity particularly and travel there is on that and said this point in time and no brand is really done a great job of speaking to the consumer when, how, and where she wants to be spoken to and for us right now that’s digitally and so we are very excited to put the gas down over the next 12 months and to really be her go to for all things travel.
Eric Hornung: 01:01:51
When you think about how big this can be five to 10 years from now, 10 years from now, how do you think about your total addressable market and things related to that?
Lori Coulter: 01:02:02
Women’s apparel? The market’s incredibly large, Right? And so particularly and travels really an even larger market because as we move beyond the US borders, both for our us consumer as well as international consumer. We don’t really have any boundaries. Um, from a size perspective,
Jay Clouse: 01:02:21
let’s say that I’m looking to start a digitally native brand and for the, for the sake of making this, an easier question to answer will say, I’m not in a competing vertical with Summersalt. What’s a playbook or a go forward strategy you would recommend for people who are aspiring to create digitally native brands?
Lori Coulter: 01:02:39
So, I think authenticity rules right now, so what? What’s really working for Summersalt is that we live free and output from a product messaging and your creative perspective, sort of the brand values, so really defining how you’re different from other brands and then owning those values and everything you do is super important the consumers are smarter than ever. She’s more connected than ever. She reaches out, she communicates with us in a digital way where we’re able to capture that input and really incorporated into our feedback loop. I’m a product as well as the brand side, so understanding that authenticity, rules, capturing consumer feedback and all that you do and then moving forward quickly in all things as it relates to the business is super important.
Jay Clouse: 01:03:35
Is there a way to quantify or measure or monitor even authenticity and how whether or not you’re being authentic to your brand?
Lori Coulter: 01:03:45
That’s an interesting concept. I don’t think there is just one metric that’s relevant, but certainly not social media traction is as a great gauge in regards to whether and whether or not your content is getting engagement, super important. Certain leads and conversions to revenue as well.
Jay Clouse: 01:04:06
If I joined Summersalt and I’m sure you wouldn’t hire me, but if I joined Summersalt, yeah, as as like a social media manager, how would you explain to me the way that I should be sharing the Summersalt message so that I’m authentically representing the brand.
Lori Coulter: 01:04:25
So in all things we want to be inspiring, wanderlust and fun. So encouraging her to engage with the brand, inspiring her to travel, teaching her how to travel, engaging with her so that we. We are ensuring that feedback loop. This is super important.
Eric Hornung: 01:04:45
So one thing that we think about here on upside is geography and how it affects both startups and startup investing. One thing that I think about with Summersalt is my first take wasn’t that it was a travel brand, but being from St Louis it feels like if you’re traveling you’re generally going somewhere where there is a beach. So that makes it a little bit more sense to me. I’m curious about what being in St Louis has meant for you as you started this company.
Lori Coulter: 01:05:15
So I think being a midwestern founder as unique, there are many, many advantages and then there are some sort of, you know, we just all know that 75 percent of venture capital goes to essentially it’s where he said it is right. Coastal cities and so understanding f that structurally or just isn’t as much capital being thrown with the midwest right now is super important. And then I, I should add that women founders, so let’s say 25 percent of venture capital goes to outside of New York, Boston and San Francisco. So by definition our pool of resources is, is less and then three percent of venture capital goes to women founders. So those are not great odds, but certainly numbers disprove all odds. Right? And so understanding that once we actually had the traction, it got much easier to, to raise money, I think should encourage entrepreneurs across the midwest, we have the numbers and therefore the fundraising has not been nearly as, as difficult as you might.
Eric Hornung: 01:06:26
So what might be some of the advantages?
Lori Coulter: 01:06:28
So, um, I was hoping you would ask. So from an advantage perspective, we have a unique view of the market from a consumer products perspective, most of the direct to consumer brands that we’ve seen having success really do fall in those coastal markets. And so certainly they have the cool factor they’re acquiring postal kind of consumers. But what they may not understand is that 300 million people go live between New York and California. That’s a lot of spend. And so again, there’s a reason kind of those consumer product companies, the big ones up today are based in middle America. It’s because they know how to reach not only the coastal customer, but also kind of mainstream America. So we’re uniquely positioned to really understand how to scale beyond just that initial traction and to reach a more a broader audience. So that’s from a consumer’s perspective and I think that’s why you see us doing such a good job on the authenticity side, really being both aspirational and relatable for our broader audience. And then on the opposite side of things, I’ll tell you that our cost structure’s very attractive particularly for that or that early. Those early, early stages are a lot of opportunities and office space is very affordable. We’ve been able to get by until this I guess series a raise on a rather modest budget, which I don’t think you can do and those kinds of traditional vc markets.
Jay Clouse: 01:08:09
One last question for me, Lori, the success you’ve had with investors to this point, are those investors typically investors in b, two C or consumer brand companies? Or are you changing behavior for some of these investors who may be in SAS or.
Lori Coulter: 01:08:24
Yeah, that’s a great question. And I would advise any entrepreneur to really focus on being in the sweet spot for investors. So you know, you should talk to hundreds of investors probably per round and part of that initial conversation is to understand where they are in the cycle of their fund. What sectors do they like to focus on, how much money do they have left in their fund? Are they overtaxed? From a company perspective, that means is that we see running around the country with no additional time. Do they have a budget left to allocate and are you a good fit for their portfolio? Fit Is. And timing is everything in vc. Of course you have to tell a good story as an entrepreneur and you have to have the numbers but it fit and timing aren’t right. It’s still not going to work. So that’s really the entry point and I would encourage lots of initial conversations and you know, stage is super important. I can’t tell you how many series seed investors we talked to you at series a, there just aren’t a good fit because were beyond their stage focus or likewise. We were too early for a series C and beyond investors. So just that would be. I think that’s great advice for him.
Jay Clouse: 01:09:43
This has been fantastic. Thank you so much. Lori, if people want to learn more about you or Summersalt after the show, where would you have them visit?
Lori Coulter: 01:09:50
I would visit Summersalt.com, spelled s u m m e r s a l t dot com. Please check out our new travel wear, gifting opportunities for men. There’s a lot coming out over the next few weeks and Then you can find me on linkedin. It’s just Lori Coulter, c o u l t e r. thanks guys.
Jay Clouse: 01:10:15
All right, Eric, so we just finished our conversation with Lori Coulter of Summersalt and now we’re getting into our deal memo which we told listeners earlier is going to be a little bit different today.
Eric Hornung: 01:10:26
Yeah, it is. One thing I hear from venture capitalists or read from venture capitalists is that as you analyze more and more companies in the same space, you start to see trends and you start to learn something different than if you just analyze one company. Well, Jay, I don’t know if you remember, but we went on an ecommerce blitz
Jay Clouse: 01:10:48
The blitz
Eric Hornung: 01:10:48
and in that I think we talked to six or seven ecommerce companies where we learned a ton about ecommerce. Summersalt is the most recent member of the blitz
Jay Clouse: 01:11:02
the blitz
Eric Hornung: 01:11:02
and they’re also probably one of the furthest along in terms of funding and traction, so for this deal memo, like you said, we’re going to do something different. We are going to go through three key themes that we pulled out of the Summersalt interview and we’re going to relate them back to things we’ve heard from past guests and past experts
.
Jay Clouse: 01:11:22
Yeah. Going to be really cool to pull in some contexts from past episodes and conversations we had and bring them all together to relate a lot of what we’ve learned here about ecommerce and retail. So Eric, can you lay out what those three themes are?
Eric Hornung: 01:11:36
Yeah. The first theme is this direct to consumer revolution or what some people call dtc. The second theme is pairing dtc with brick and mortar and the third theme is the supposed inherent trade off between customization and speed. Following those three themes, we’ll end up with our standard question of what we’re looking for from Summersalt in six to 18 months, but before that, Jay, if people like this form of the deal memo or they have comments on this form and the deal memo, where should they talk to us?
Jay Clouse: 01:12:08
Yeah, we’d love to hear from you guys as we’re going through this. If you have thoughts on the quotes were pulling in or the analysis we’re putting around them, you can tweet at us @upsideFM.
Eric Hornung: 01:12:19
Alright, so let’s dive into theme one, which is the DTC revolution. Jay. There is a revolution afoot.
Jay Clouse: 01:12:27
That’s right. There’s a revolution afoot. My dear Watson
Eric Hornung: 01:12:29
and the DTC revolution is really an ecommerce revolution. Really. It’s a commerce revolution. You hear about the end of retail all the time. You hear about how retail’s changing, how brick and mortar isn’t a thing, but really I think what the most interesting part about this is is that we are at a period of all time high innovation in retail. The business models are innovating. Product differentiation is innovating. Everything’s innovating because of there’s so much competition and so much accessibility and I think Corbett in episode six set it best, so here’s Corbett,
Corbett Morgan: 01:13:10
Anybody can create a product. I have allbirds on. These were made from trees. It’s the coolest thing. It’s not Nike. Whatever they offer at the mall. I mean the barrier to entry with brick and mortar with these major sears and Marshall fields, so high, so hard for somebody to say, Hey, I’m going to make shoes out of trees and sell them direct to consumer. So production of product, selling of product, distribution of product to consumers democratized. Anybody can start a company and produce.
Jay Clouse: 01:13:37
Yeah. What corporate really underscored there in that quote is what you said, Eric, this accessibility that is now available to anybody who has an idea and can innovate on the form factor of a product. You know, Karen talked about this with CircleUp. They look for a few different differentiations. Those being formed factor distribution, value prop and new innovations and the DTC revolution is really where we see people being able to capitalize on those four different criteria
Eric Hornung: 01:14:09
and there’s really two ways capitalize. There’s, there’s the mammoths of the past right there. They’re capitalizing by just expanding. I mean you can think about one of the biggest innovations probably in the last decade is Amazon prime, getting people to pay a subscription for an ecommerce play, so there’s the mammoths and how they’re innovating, but there’s also the independence and how they’re innovating and I think Summersalt falls into that latter category.
Jay Clouse: 01:14:35
Yeah, that’s right. And I think some more context here on the difference between those two approaches to innovation comes from Chris Sentz in our episode with [inaudible] Works,
Chris Sentz: 01:14:46
I see the future of retail being kind of a bifurcation between these mammoths, like an Amazon and Walmart and Ebay and the rest of the world, which is independent stores that have stories that have a brand that has an element to them that they want to share. They want to have an intimate relationship with their customers and that’s the side of it that we want to support. That’s the flip half of it. So you can go to Amazon. It’s everything store, you know, you’ll find whatever you want there. But getting a story across on Amazon is hard as a brand. There’s really no customer relationship there. You can do that in a really boutique fashion. And if you look at the way people are shopping generationally, our generation and millennials on down the line definitely want a story. You know, you want to wear a shirt that has a little bit more story to it then, hey, it was super cheap and somebody made this in China for pennies. And that’s not a great story. You want to wear shoes, you want to have classes, you want to have accessories, you want to buy everything. That kinda has a little bit more to it because then you feel good about it. And that’s the side of the things that we want to get on. And one of the things holding that back is that they can extend their aisle, they can’t amazonify uh, is another word we throw around a themselves. And so we say, Hey, own your brand, own your category. Don’t be the everything store. But, but really extended, you know, if you’re an outdoor store, sell some other products that support the outdoors lifestyle. But you might not want to buy ahead, you might not want to manufacturer yourself, but there are great companies that are already doing that.
Eric Hornung: 01:16:17
So in a world where there are only sears and walmarts and department stores, things like Summersalt probably couldn’t have existed without amazing distribution
Jay Clouse: 01:16:28
and it’s sort of the gatekeeper effect in ECOMMERCE, right? It was really up to those mammoths, the sears, the walmarts to decide what products were given distribution,
Eric Hornung: 01:16:41
right? So you could have an inferior product with better distribution and dominate for decades. Whereas Summersalt can have the perfect size to or the perfect size for and has immediate accessibility to a wide audience. So I think that this is important because if Summersalt were to launch 30 years ago, they would be a corner store in one market catering to one audience which is bound geographically, which is bound geographically. And if they got lucky and had great business sense and great bankers who would give them enough capital to move forward, they could then launch another store and another store. But today that’s a lot different. And I think that that is the exciting thing that Corbett talked about and it’s the differentiated thing that Chris talked about.
Jay Clouse: 01:17:34
Alright. So our second theme of this interview was the idea of pairing direct to consumer dtc with brick and mortar and I think a really good place to start here is with the conversation we had with both Web Smith and Adam Iversen in our swannies episode where Web very much took the pro side of brick and mortar sales being an augmentation to digitally native brands. And something that surprised me a little bit frankly with our interview with Karen because of that quote with Web, I have very much taken the stance of brick and mortar is a strategy that all digitally native brands should take. And when we asked Karen about that, she didn’t necessarily have that same level of intensity to that. She said it is getting more expensive for digitally native brands to compete and be fully digitally native and market and differentiate themselves in the marketplace. But Web seemed to think that it was almost a necessity at this point to have this Omni channel strategy. So real quick, let’s hear that quote from Web.
Web Smith: 01:18:39
So I’m just going to go ahead and use. I think it’s the best example. Over the years started off, it was bootstrapped ecommerce company, you know, bare nuts. It was very difficult to generate interest and to gen up national prominence in the first three years. But we did it. One thing that I credit Kevin for his, that he did a great job of hedging ecommerce retail online retail with brick and mortar sales. So today if you look at Ms Dot, I just got a call today from the guy that sold me my car last week. He said, oh my gosh, I bought four shirts from Nordstrom. I didn’t think that you guys were serious when you said that you guys are everywhere. So there’s all the nordstrom around the country and then there’s like 500 independent boutiques around the country that film is. And so when you go to Naples with your better half, no, you walk down the street on the main drag. We’re going to see one or two stores that have missing in the window. So not only are you achieving like a base level of monthly sales that you can count on, it’s like free advertising nationwide for these types of reputable retailers. This to bolster your brand very publicly and that’s what I think it takes right now
Eric Hornung: 01:19:46
and I think Web’s point gets to one core element and that’s consistency of revenues. So he said base level of monthly sales that you can count on and I think that’s incredibly important for one type of company and that’s a company that is scaling because if you have a base level of sales you can count on then your financing becomes easier because you can say look, here are my historicals. Your operations become easier because you can plan around an expected value. And I think things just become easier in general when you see things growing in a smaller fashion. I mean Jay, think about it with upside. When we had a huge spike in September, it was a little like excited, panicky, but it was panicky because it was, what do we do with all of this newness we have. And I think when you have an operational business running where there are a couple months, a year that may or may not hit it out of the park and the rest pretty much don’t exist is very hard.
Jay Clouse: 01:20:49
And something else that I wanted to highlight from our conversation with Karen, one of the signals that CircleUp uses to measure the success of a brand is what she called Door Growth and CircleUp uses this measure door growth to talk about how many new doors a brand is going into and pretty much by definition that needs to be in brick and mortar. I guess you could say in a digital world almost what Chris does, a [inaudible] works is kind of door growth. She was talking about as a company gets into more and more of these stores. That is a signal to say that that brand is trending upwards and making some more sales.
Eric Hornung: 01:21:27
Yeah. And I think Adam Iversen later in that episode gives a really good insight into give some really good insight and almost a business case on why being in stores is very beneficial to their business. Which is swannies, which is a golf apparel business, and by definition golf’s only played a couple of months of the year. It has some pretty big seasonality. So let’s listen to that case study by Adam.
Adam Iversen: 01:21:54
We do about 80 percent of our revenue through these golf courses, so it’s a hugely important channel for us. It was something we identified pretty quickly as a scalable model. We can basically, you know, with error bars of course, but identify a region, find out just by looking at the course demographics in that region, you know, maybe 30 to 50 courses in that area that we think would be a demographic fit and essentially from there it’s just a sales funnel, hounding them on cold calls, getting meetings with a decision maker and then meeting with them and introducing them to the line. And in a fair amount of these instances, courses will buy on the spot. One of the biggest growing pains we’ve had in that channel is that their buying patterns are incredibly seasonal and obviously vary and differ by region. So identifying the correct time to hit up these buyers and to make these calls is something that’s still kind of a learning process but is probably the best thing we’ve done to increase our conversion in that sales funnel and it’s, it’s got to the point where we do have a really, really good understanding of identifying a region and identifying those courses and knowing how many of those will make a purchase from us in any given area.
Jay Clouse: 01:23:16
And so in the case of Summersalt, when they were looking at purely swimwear, that leads to a lot of potential seasonality. And so I think part of the reason that they are moving into this world of travel where is because that is another attack to sort of playing out the seasonality that having strictly swimwear products would have. But if you look at their swimwear line, they’re likely going to have some seasonality to that.
Eric Hornung: 01:23:42
Alright. So theme three is a thesis that Jay and I are playing with, which is the inherent trade off between customization and speed of innovation. Now if you think about a spectrum where on the far left is customization on the far right is speed of innovation. We’ve had companies on across the spectrum, the first company we want to bring in here is cuddle clones were Jennifer talks about customization in one extreme,
Jennifer Williams: 01:24:11
but the problem was none of the companies we want, we talked to wanted to be our partner only because they’re not used to making one at a time. You know, they all make 10,000 of the same thing. They have a few sample makers on their staff which are the talent, but then all the workers you know are doing the leg or in the airport or you know, whatever they’re doing, they’re just not set up to make one at a time. And so this particular company was saying, well we can make maybe one per week for you. And we’re like, that’s not gonna work unless we sell one per week for a million dollars. So what we did was we thought, and Adam will tell you this, if he talked to you, he’s like, yeah, I probably would have quit right there. You know, oh, this really can’t be done, but I’m like, well no, like we have these prototypes like we know that someone can make something that looks like your pet, so we just need to start our own workshop. So that’s what we did.
Eric Hornung: 01:25:07
So from that quote, we learned that Jennifer and cuddle clones had to vertically integrate their workshops in order to get the quality that they wanted to because of the extreme customization nature of cuddle clones that comes with increased financial costs. That comes with increased operational costs, but it also comes with an increased personalization of the product, which in the case of Kodo clones matters a lot to the consumer. On the other side of the spectrum, let’s go over to wicked sheets. With Allie and Louisville,
Alli Truttman: 01:25:40
the larger purchase orders helps me manufacturer a better product because we have efficiency models. Now we’re doing the same thing over and over again. We decrease our error because we don’t have to change threads and sizes and things, so I look at the number of sets we’re producing like, okay, so we’ll do like 10,000 this year or something like that. It’s better for me to actually manufacture more sheets. It makes us a better product because our efficiencies now have increased and we’re not making a human errors as you do when you’re handcrafting a product, so we don’t have to change the threads as often, so I love mass manufacture. You can actually build processes that work versus when you’re working with smaller batches, you can see you see a lot of increased errors,
Eric Hornung: 01:26:24
so Alli is able to innovate quickly because she can get things out to her manufacturers quickly and get that product in a very quick fashion, but also a very wide distribution because her product isn’t personalized to a specific consumer. If Alli were to add more customization, it would likely slow down her efficiencies. Now the world of DTC and brick and mortar and the overlapping of those two has created some new business models that exist in the middle of these two. When you think about extreme customization, you think about things like tailors. When you think about extreme ability to innovate and scale, you think about the traditional capitalists, the rockefellers of the world who could just go wide ranging, but in the middle there’s this new area. This is what’s exciting and this is what corporate was talking about. One of the new business models is decentralized localization, which we heard about from local crepe. Let’s listen to frank.
Frank Jackman: 01:27:23
So we said, well, if we were to look at a model like that where we had regional kitchens and commissary kitchens in every region, while we could have the freshest product, we could get into a lot quicker. We could use 80 percent when it’s packaging and it’d be cheaper shipping. Right? So we looked at the national players, we said what’s their top two cost? The top two cost are shipping and packaging because they centralize and they have to ship across the nation. And their number one problem is the freshness of the product. What people are buying this product because they believe it’s the freshest product. So we knew we could beat them out on the distribution side, but we couldn’t scale as fast. So rightfully so, the national players, they could scale very fast doing that and that’s what technology people want, right, but now you’re seeing all the problems that are coming about it because of the spoiled product not being able to control freshness across two to three days to the consumer’s home. People are leaving, it’s high cost to get them in the door and they’re not staying that long, so all those issues are coming about,
Eric Hornung: 01:28:26
so Frank and local crate are able to leverage their brand which is local crate and leverage minimal customization on the packaging and leverage the innovation of content on a regional basis. So when they bring on a new chef, it gives them brand new content for a localized region to have some of the best in terms of customization for that local region and some of the best in terms of speed of innovation,
Jay Clouse: 01:28:52
and this is where Summersalt really has some secret sauce because they fall in the middle here. Also, where they have kind of an unfair advantage in terms of customization and speed. Just given a catalog of body scans that Lori built up over those years in her previous business so they can radically customize their product. They can make this perfect size to this perfect size for for their customers based on this essentially algorithm of all this data they’ve taken in. They understand all these body shapes. They can figure out the best product for just about any sized woman and because they already have those measures, they can manufacture it and ship it very quickly so they found a way to kind of avoid this customization versus speed problem that Eric and I are talking about and I think that’s really part of the reason that they’ve found so much success so quickly and so early on.
Eric Hornung: 01:29:49
Right. They definitely had some early success, but let’s look to the future. Jay, when you’re looking six to 18 months from now, what are you looking for at Summersalt?
Jay Clouse: 01:29:59
I’m looking for our hidden potentially forgotten theme, importance of brand. That’s something that came through in every conversation we had on this show with Karen, with Lori, with past episodes of Chris and Web. Brand is super important here in the ecommerce space, especially for the digitally native aspect so you can play in those tails and so six to 18 months from now I’m looking to see how strong is the Summersalt brand growing, how recognized as it because it’s going to be a huge factor in their ability to continue to gain actual customer market share.
Eric Hornung: 01:30:38
I completely agree with that. I think that that would be the number one thing I look at for six to 18 months from now as well because like you said, the DTC revolution is focused on brand. You need to be able to differentiate. Brand is incredibly important and that extends beyond just DTC. But it’s also brick and mortar. It’s the overlap of the two and finally, regardless of your Back end business model, which I think Summersalt has a fantastic one. That model doesn’t matter if you don’t get people buying into your brand
Jay Clouse: 01:31:11
and it needs to be. You know this, this probably goes without saying, but it needs to be something that is recognizable. When we asked Lori what brands inspire her, she mentioned allbirds glossy, a everlane. I’m not a customer of any three of those brands. Never have been, but I recognize all of their names.
Eric Hornung: 01:31:29
Right. And I’m. I don’t often buy women’s swimwear, but I know some of the brands and the biggest one that comes up to me when I’m thinking about Summersalt is triangle, which I think most people are not familiar with the name of the brand. At least the bathIng suits themselves and I think that in six to 18 months I want somersault in the travel realm to be more like triangle in the bathing suit realm
Jay Clouse: 01:31:55
or up there with brands like a way
Eric Hornung: 01:31:57
a way is a great one. There’s also great brands in the travel space and there are some great podcasts like extra pack of peanuts and zero to travel that constantly are talking about some of the brands they use when they traveled the best kind of brands and I think I would want to see Summersalt making their way into that niche community as well. Some examples that pop into my head are tortuga backpacks or mophie wireless charging or even the points guy,
Jay Clouse: 01:32:30
but they do have a very positive foundation at this point and it’s. It’s super early in their journey and they’re. They’re moving super, super quickly, so excited to follow Summersalt here over the next six to 18 months. That’s it for this week. Guys, if you have any thoughts on this episode, please tweet us @upsidefm or email us hello@upside.fm and of course if you enjoyed this episode, please leave a rating on itunes. Helps us a lot to continue to bring high quality guests on the show.
Jay Clouse: 01:32:57
That’s all for this week. Thanks for listening. We’d love to hear your thoughts on today’s guest, so shoot us an email hello@upside.fm, or find us on twitter @upside.Fm will be back here next week at the same time talking to another founder and our quest to find upside outside of silicon valley. If you or someone you know would make a good guest for our show, please email us or find us on twitter and let us know and if you love our show, please leave us a review on itunes. That goes a long way in helping us spread the word and continue to help bring high quality guests to the show. Eric and I decided there were a couple of things we wanted to share with you at the end of the podcast, and so here we go. Eric Hornung and Jay Clouse are the founding parties of the upside podcast. At the time of this recording, we do not own equity or other financial interest in the companies which appear on this show. All opinions expressed by podcasts. Participants are solely their own opinions and do not reflect the opinions of duff and phelps llc. And its affiliates Unreal Collective llc and its affiliates, or any entity which employ us. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. We have not considered your specific financial situation nor provided any investment advice on this show. Thanks for listening and we’ll talk to you next week.
Summersalt is a direct-to-consumer, travelwear brand. Their flagship product is designer swimwear without the designer price tag. With a patent on recommending garments based on body type and consumer preference, Summersalt uses more than 10,000 scans of real women’s bodies and some 1.5 million measurements to create what it says are designer-quality garments.
Summersalt was founded in 2017 and is based in St. Louis, Missouri.
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Karen Howland is a Managing Director at CircleUp.
CircleUp is an investment platform providing capital and resources to innovative, early-stage consumer brands. CircleUp is comprised of internally-managed funds, an investment marketplace and credit division, which are all powered by Helio, a proprietary machine learning platform that evaluates more than 1.2 million consumer and retail businesses to predict future business success.
Learn more about Summersalt: https://www.summersalt.com
Learn more about CircleUp: https://circleup.com/
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