"You See the Glory, But You Don't Know the Story"

Brian: [00:00:01] Hello and welcome to Future Commerce podcast about next generation and cutting edge commerce. I'm Brian.

Phillip: [00:00:07] I'm Phillip. And today we have a very special guest, someone who I didn't get to meet at the show, but definitely was the personality that stood out at the show and the person that I've thought about the most since the show... In October, I attended Fashion Digital New York, where there was a panel that was led by Hilary Milnes, who is now the editor over at Vogue Business, who thinks about direct to consumer and retail. And on the panel was Audrey McLoghlin, who is founder of Frank & Eileen and a new brand called Grayson and had some amazing things to say about direct to consumer and being sustainably hybrid. And we'll find out what that means. But just such a vibrant personality and someone who I learned a lot from in just the short time that that panel took place. And so I couldn't wait to get her on the show. So please join me in welcoming to the show today. Audrey McLoghlin, who is on the show.

Brian: [00:01:02] Welcome.

Phillip: [00:01:03] Welcome, Audrey.

Audrey: [00:01:03] Thank you so much, Phillip and Brian. I'm so excited to be here. I'm really glad that I had an impact at that panel. It was really fun to be there. So I'm really excited to have a conversation with you guys today.

Phillip: [00:01:14] Thanks.

Brian: [00:01:14] We are, too.

Phillip: [00:01:15] So tell us a little bit about yourself. It seems like you're a serial founder in the world of consumer brands.

Audrey: [00:01:22] A bit.

Phillip: [00:01:23] Yeah. Tell us.

Audrey: [00:01:24] I think it's become an addiction, but I'm formerly an engineer by training. And then at this point, now I think I'm officially a serial entrepreneur. So I think now I'm a four time entrepreneur. So it gets into your blood and it changes the way that you think. But Frank & Eileen, we're actually having our 10 year anniversary.

Brian: [00:01:47] Wow. Congrats.

Audrey: [00:01:47] So it's been a really fun and exciting time, especially over the last 10 years. I think things have changed so profoundly. It's been a very interesting journey to be on while growing a brand. But it started originally ten years ago. I fell madly in love with these menswear Italian fabrics, and I just was staring at them like, wait a minute, why don't these exist for women? This is not really fair. And so all of a sudden I decided, you know what, I want to take this moment, and I want to rethink women's button-up shirting and just kind of like reinvent the button-up shirt for women using these magical menswear Italian fabrics. And so I partnered with this Italian mill over 10 years ago. And we've been working exclusively together to design all of our fabrics since. But it's interesting because I think you don't know it at the time, but like that moment shaped my entire career. So I've spent the past decade just working on building an entire world around the perfect button-up shirt.

Phillip: [00:02:47] And I'm always impressed at businesses who resist the temptation to go really broad on category. It seems like that's sort of a bit of a... You can dilute yourself a bit, and it looks like you've stayed true to that.

Audrey: [00:03:04] Right.

Phillip: [00:03:05] I'm sure that that...

Audrey: [00:03:05] It is very tempting. So in the fashion world, like when we launched, I launched with one perfect button-up shirt using menswear fabrics. And when we went out to the market and went to, you know, Ron Herman, Fred Siegel, Barneys, it was very interesting because with the immediate success of having this incredible product, everybody else then wanted you to be everything to everyone. Please make that pant you're wearing that you're wearing with the shirt, and please make sweaters to go over the shirt. And everyone wants you to become this big collection all of a sudden. So it was a very important lesson to know that I think in business it's almost more important what you say no to than what you say yes to.

Brian: [00:03:44] Yes.

Audrey: [00:03:44] So we stayed very, very focused. And we actually only had one button-up silhouette for five years.

Brian: [00:03:52] Wow.

Phillip: [00:03:52] Wow.

Audrey: [00:03:52] And so we just became famous for this perfectly wrinkled, rumbly, gorgeous Italian shirt for women. And then on our five year anniversary, we launched our second silhouette. So it was a very, very focused, slow grow for the first five years.

Phillip: [00:04:07] If you're not familiar with the brand, just go to FrankandEileen.com, scroll down a little bit and you'll see, you know, Oprah wearing the shirt, and I think that says everything you need to know. {laughter} But yea, it is very, very impressive to be able to grow and stay so true to your original charter, which I think is always tempting to go scale out horizontally into all kinds of things. Go ahead, Brian...

Brian: [00:04:35] You did say yes to something recently, though, which was a new brand, Grayson. Tell us a little bit about this new brand and why you decided to launch this new brand.

Audrey: [00:04:47] So this was something that the yes was burning inside of me probably for five years and every year I would contain myself like, "Am I going to do it this year? No. Stay focused. Stay focused." You know, it's been a very interesting journey in fashion, specifically in consumer goods with direct to consumer and how much the world has changed, but over the last five years, specifically, the entire retail landscape has changed. The whole world for women has changed really, like all of a sudden women are rewriting the rules that we're all going to live by. And then for me personally, I became a mother, which changed my world in way more ways than I think I realized, and all of a sudden I looked up and I'm like, "Women are superheroes.".

Phillip: [00:05:31] Yeah.

Audrey: [00:05:31] And there's no other way to explain it. So while I was watching these young women that work for me and are building this company with me and seeing how they really fundamentally think different than the generations before them. And it was so inspiring and so interesting. And I just ultimately really, really wanted to be able to launch a brand that speaks to what's going on today and speaks to the customer that we would want to speak to. And so that all came together in the form of a brand we launched this year called Grayson, which is named after my fearless little four year old real-Life princess, named Grayson.

Phillip: [00:06:07] {laughter} That is so cool.

Brian: [00:06:07] I love that.  I think that's when you know that you need to say yes when something's been burning inside of you for five years. {laughter}.

Audrey: [00:06:13] Yeah. Exactly. I was really, really trying to be patient and patient and patient. And finally being like we have to do it now. This is the year that we have to do it.

Phillip: [00:06:21] Do you fear that people think of you as the one perfect shirt person now? This is your second at bat. Was there a part of you that thought like, I knew exactly what I would do differently the second time? Or is there a part of you that thought, what if it doesn't land the same way that it did last time?

Audrey: [00:06:37] I think I would love if people thought of me as a person who makes the one, perfect button up shirt. It's the one thing I can confidently say that we do better than anyone else. And so that's always like the core DNA that we build a whole brand around that. I think I've spent ten years listening to women say, "Oh, I love that, like classic button-up shirt look. Like Meghan Markle wearing effortlessly a button up. But I can't wear it because I'm busty or because my shoulders are broad," and I'm like, "Don't worry, I got you." We engineer our button up shirts around the female body. So I understand boob gap and shoulders and waist... We really, really work hard to build something that really fits a women's body. And I think that's people's biggest struggle. So it's life changing for women that have always thought they couldn't wear a button up and now they can. So that's really fun to be a part of.

Brian: [00:07:35] Wow. That's that's so big. And, you know, being able to provide something to women that is actually useful for them. It's actually something they love.

Phillip: [00:07:46] Yeah, meant for them.

Brian: [00:07:48] What a joy to be able to do something like that. I'm actually really jealous. That's awesome. {laughter}

Phillip: [00:07:54] I say it all the time has kind of become a trope around here. But it's like I feel very deeply that, you know, the world didn't need another two white guys on a podcast, which was, you know, very 2019 thing of us to do. But I think one thing that we saw that was missing in our world was having conversations with people like you who are founders and talking specifically about the why. The why happens a lot. Sometimes I think you see this, especially on shows like How I Built This. You know, the why is as important as the how. And I'm curious, when you're launching a brand now compared to 10 years ago, what fundamentally was different between launching and going to market in those two time frames?

Audrey: [00:08:37] Everything. {laughter} Literally everything. So one is the importance of the why. You know, that is a really big difference to 10 years ago or, you know, going back to even 11 years ago when we were building and launching Frank & Eileen. I mean, basically, social media didn't exist. E-commerce did not exist in a big way. So, you know, brands launched as a wholesale brand. And really, you know, when I was launching Frank & Eileen, I had negative money. It was like, OK, if we just make the best product in the whole world and get it into the three best stores in the US, we're gonna be fine. Right. And it will build from there. So it was all just about having the most incredible product and getting it in the right places. And, you know, all of the unbelievable people that we've had buy and wear our product, like Oprah and, like Angelina Jolie... They just buy it. I'm not sure where. They've not been gifted by us or anything. So it just speaks to, you know, if you do have the best product in the world and have it in the right places, then people will find you. And now, 10 years later, it's very, very different. So I think you do need incredible product, but you also have to lead with this "Why?" So my passion is making the most incredible button-up shirts for women in the world. But with Grayson there's this big why. We really, really wanted to be able to have women look inside and realize that they are superheroes and that they all have a superpower they may not realize. And I was speaking on the Women's Entrepreneurship Day panel recently, and we did this incredibly powerful activation where we had all these women come over and instead of name tags, it was a tag that said "My superpower is..." and had a blank. And every woman got to really look inside herself and decide what her superpower was. And all these women were walking around the event with their superpower on their chest, and it was really, really powerful. And women were looking to each other and going, "Oh. Your superpower is this, and my superpower is that..." and asking people that know them, you know, sometimes women are not bold enough to say that they really believed they had a superpower. So they would ask someone else, "What do you think my superpower is?" And it was just really incredible to watch people share that. And I think that's a very, very different part about launching a brand today than 10 years ago.

Brian: [00:11:00] What about your go to market strategy? So you're leading with the why now, you're building community, you're doing sort of what is kind of the new playbook for launching a brand. So would you classify yourself as sort of in that digitally native vertical brand sort of category now? True direct to consumer?

Phillip: [00:11:18] Feels like a loaded question, Brian. {laughter}

Brian: [00:11:23] It might be a bit of a loaded question.

Audrey: [00:11:24] Exactly.

Brian: [00:11:24] Yeah, tell us a little bit more about your go to market strategy.

Audrey: [00:11:27] Pre-starting Grayson, I did spend a lot of time really thinking, looking at the business landscape, and really recognizing how much things have changed and wanting to be very intentional about what do I believe is the relevant business model for today and tomorrow. And obviously over the last five years, I think the playbook has really been this, you know, DNVB, the digitally native vertical brand, you know, made famous by Bonobos and the likes of Warby Parker, and everything about completely controlling the relationship between the vertical brand and their customer. And, you know, it really has changed the landscape, and it's been exciting to watch. I think the challenges that we're now seeing is that it's extremely expensive, requiring unbelievable amounts of capital to achieve this unnatural growth and that the path to profitability has become elusive. People really are having... Maybe have never been profitable or having a very hard time finding this path to profitability. And I think, I'm watching like everybody talk all the time about the hot topic of sustainability and talking about in terms of product. And Frank & Eileen's always been very, very sustainable in the way that we make our fabrics and the way we do production. But the thing that I think's been missing is no one's really talking about how to make sure that we're sustainable in a business way. And, you know, how can we have sustainable growth and sustainable profitability? And so I really looked at it and wanted to launch Grayson with a new business model that I believe is going to be more relevant in the future, which I'm calling Sustainably Hybrid Vertical Brand. So for me, it takes all the goodness out of all the different business models. So it's got all the really good stuff about being a DTC brand, which I think at this point having that direct relationship with your consumer is table stakes. Like everybody has to have a DTC component of their brand, like everybody's living and shopping on social media and on on e-commerce. So that's just kind of understood. But the flip side is people are spending millions and millions of millions, if not 100 million dollars, on new customer acquisition and growth. And that in and of itself is really just not sustainable. And people are starting to question that. So we looked at it and said, "OK, what can we do to balance it? We need to balance growth with profitability." So I came up with this concept of a Sustainably Hybrid Vertical Brand. And from day one, you have to do this from the beginning. You can't think about it three years into your business, but you have to look at how you can balance your direct to consumer component of the business with a wholesale component. So what I think that people may be starting to realize, or that I've always seen because we've been working in the wholesale side, is that in this new world and this new retail landscape, you can have really strategic wholesale partnerships, and wholesale can be your new customer acquisition strategy. But this new customer acquisition is a profit center. So it's the first time in the world where you can have a new customer acquisition strategy that's actually a profit center. So then obviously you can use those profits for building your community and building the direct communication between your customer. And the wholesalers have... They have incredibly loyal customers. They already have the footprint. They have hundreds of thousands of square feet of retail space that are already have people coming in, and it has a stamp of approval for a new brand, and they'll introduce your new brand to them.

Phillip: [00:15:08] Yeah.

Audrey: [00:15:09] So that's how we set up Grayson. I made sure, both from a margin point of view, from logistics, and from every point A to B that we would be able to have both wholesale partner relationships all the way through digital.

Phillip: [00:15:21] When you're talking about acquiring a customer in wholesale and then effectively channel shifting them to direct. Is there a specific strategy that you use or are you uniquely sort of positioned with such a stellar product that they're looking for and trying to come directly to you to get more of it? What's your sense of like a strategy to get them to come to you directly after you've captured them in wholesale?

Audrey: [00:15:50] Well, we look at it very holistically. So I never look at it as your wholesale partners against you. Like ultimately it's all one big ecosystem. So we want to make sure that we're supporting our wholesale partners and that our customers are shopping there. And then we want to make sure we're supporting our customers by giving them an experience that they can get directly from us. That's obviously not possible to get through a wholesale retailer.

Phillip: [00:16:14] Right.

Audrey: [00:16:15] But, you know, maybe they discover it at one of our partners and they then want to go on our social media to see the story and find out more. And then maybe they can talk directly to us. They can be involved. They can find out what our messaging is. They could find out where we're hosting a Grayson event. They could come and participate. And all of a sudden, you're really bringing them into your world, but maybe they were introduced to it through Anthropologie or Nordstrom, and then it would be great for them to be able to buy from both. Nordstrom and Anthropologie create a very specific kind of experience that their loyal customers love. And so when they're there experiencing that, and they walk in and there's a whole big Grayson installation, right when they walk in the door, they can grab that new product. And then obviously, as the brand we will always have a wider selection and a deeper selection. So they can always come to us when, you know, if they sell out, or they want to find out what else we have, or they want to do a monogramming for a gift for someone. So we try to make it so that it is very holistic and very complimentary, both for the customer and for our part.

Phillip: [00:17:17] On the pricing strategy side, when you're looking to make a new brand that is sustainably hybrid in 2019. How important?

Brian: [00:17:29] So relevant...

Phillip: [00:17:29] How important is the pricing strategy? Are you specifically trying to price it in a way that allows you to be in places like Anthropologie, which are sort of the place of discovery for a certain type of a customer right now?

Audrey: [00:17:44] Yeah, I mean, to answer the first part of your question, of course, pricing and margin is critical to the health of the company and then also it's critical to the health of your partners. So everybody has to look at it all the way from day one and really figure out what your supply chain is, what your terms are, what your margins are, what the margin requirements of your partners are, profitability requirements of your partners. You know, you have to look at it all the way from A to Z and also look at it from small scale to larger scale. Is this going to break as you scale or is it going to work as you scale? What was the second part?

Phillip: [00:18:21] The second part is, does that pricing strategy allow you to target certain places for discovery? Like an anthropology where...?

Audrey: [00:18:27] Oh, right. So this goes to... My answer is a bigger picture. So when I launched Frank & Eileen 10 years ago, we launched with a whole concept where everything was around exclusivity. Right? It was a very different time also. But we were working exclusively with the finest men shirting Milan, Italy. We had very exclusive distribution, which we still do to this day. So it's a very... The discovery and finding it at these incredible stores all around the world, like Four Seasons Hotels... And we have this unbelievable customer, like you mentioned, some of these just incredible luxury customers. It's very aspirational. And so when looking at Grayson and how much the world has changed, and a lot of it had to do with this team we were building. It was this super teeny tiny team of 3 for so many years.

Phillip: [00:19:16] Wow.

Audrey: [00:19:17] And as we were growing all of a sudden, now we're like twenty two people strong, and most of them are young women.

Brian: [00:19:23] Wow.

Audrey: [00:19:23] And so looking at them and looking also at my friends as I've gotten older is that, you know, people have so many demands on their disposable income, like everybody's saving for mortgages, and they're saving for having kids, or they've got child care demands, and they've got work and travel. And so it's very hard to have a high level of disposable income to buy luxury goods. And so I really wished that I could make an incredible button-up shirt for all those women in my life and world that can't shop at the Four Seasons or can't shop at Neiman Marcus. But it was really hard. You know, I looked in the market and there was not a single, beautiful, well-made, well fitting, beautiful construction in fabric shirt under $200. So that was a really interesting challenge to look at. And so I started really doing a lot of market research and you know, there's dozens and dozens of brands that give women a button-up shirt under $100. So that would be considered fast fashion. So everybody's got that covered. And then there's a few people that make beautiful button-up shirts over $200, including Frank & Eileen. But there's actually this huge empty space of no body that makes a beautiful, well-made shirt with a high taste level between $100 and $200. And what we find when you talk to customers all over the country is it's way too much of a jump to go from fast fashion to luxury. They just can't jump from that price point. So we thought there's this unbelievable opportunity to make a product so that these women can graduate from fast fashion and start making something that is much more about slow fashion, sustainable practices, beautiful fabrics, incredible construction, no more boob gap. And that they're, you know, able to buy something that is more reasonable and more inclusive in terms of inclusive price point, inclusive sizing. And so we chose specific wholesale partners that represented that customer and that price point and that experience.

Brian: [00:21:30] Earlier you were talking about how we've been in such a period of explosive growth where everyone's looking for explosive growth, and so either you've got fast fashion prices coming in, and you've got people investing huge budgets and in digital marketing and in other options. When it comes to this price point, one of the things we're looking at in 2019 as a potential trend is we're no longer looking for a business that's going to have explosive growth. We're looking for businesses that are profitable. How has the price point sort of reflected back on your PNL? You said there's this interesting gap between $100 and $200 in the market where there's not really any shirts that are of the quality that you want your shirts to be at. So how do you create a shirt... Is it all margin at the luxury level? Or have you created some cost efficiency that allows you to be profitable going forward in your new model?

Audrey: [00:22:46] There's a lot of answers to that question, but I think the reason why... We quickly found out the reason why there's not really any competition in that space is because it's very, very hard to have that quality level, and that taste level, and that construction level in those fabrics, at that price point and still have the healthy margins. So there's you know, I think I end up using all sorts of creative, small little things to be able to accomplish what we want. The supply chain part, we were really fortunate. It's one of the reasons it took five years to be able to do it. Finding the right supply chain was everything. So, you know, it ended up being through an introduction of our Italian partners in Italy, introduced us to an Italian family that had left Italy. So we're able to work with Grayson on a family business that has the taste level of Italy. We develop all of our fabrics and cads in Italy and Switzerland. And then, you know, ultimately through efficiencies and international production, we're able to bring the prices down. So we have a very unique workaround for supply chains, so that we're able to design at that taste level, but then bring it in at a price level that is more attainable for the customer. And then internally, you know, there's hundreds of small things you can do to create efficiencies. And I think that's what's really helpful and maybe when my engineering training comes in. I really am always thinking about efficiencies and how we can do more with less. And we just have to get very, very creative, so that we don't spend too much money, and we can stay profitable and then constantly reinvesting the profits into the next year and the next level of growth. And I think also in order to be sustainably profitable, it takes something called patience.

Phillip: [00:24:35] {laughter}

Brian: [00:24:35] I love that.

Audrey: [00:24:35] It just takes more patience. You can't do everything at once. You have to be very strategic about what initiatives you're going to do each year and then ultimately each quarter within that year. And you have to really wait for the results and spend that money and then take the money that you have to work on the next initiative. And I think the luxury that all the VC backed digitally native vertical brands have had over the last five years is now having to have any patience. They can do everything at once and spend 50 million dollars growing really quickly over the first few years. I think it's very important, a fundamental concept in business, is you can either grow profitably or you can grow fast, but you can't do both.

Brian: [00:25:23] Actually that was gonna be my next question, which is have you partnered with any VC at all through this process?

Audrey: [00:25:33] No, I never have. I'm completely self-funded.

Brian: [00:25:36] Wow. Wow.

Audrey: [00:25:37] Bootstrap, to be clear, painfully bootstrap over the years. But, you know, as I said, when I started Frank & Eileen I had negative dollars. So that obviously changes the conversation for me. When I am talking, I'm talking as like, you know, a down in the dirt and weeds entreprenuer who has built it from nothing and reinvested, you know, all of these years. So I've definitely had to have a lot of patience. But I think the whole funding trend and the narrative around funding has become a real hot topic lately. And it's something I'm really interested in talking to and sharing my knowledge, especially with other female founders, because I think the other conversation that comes up all the time is that female founders feel like there's this big disadvantage because such a small percentage of VC funding goes to women. And I think I have a different point of view. I think it's potentially a blessing in disguise. I think it's complicated to have VC funding, and there's a lot that you're giving up for the fast growth. And I think a lot of the time people don't necessarily know what they're giving up, short term or long term. And it's not for everyone. And I think there's a lot of validity to talk about how many other funding strategies there are that allow you to maintain 100% of your company. And it's something that has also been coming up a lot and something that I've started to realize that's something maybe I'm very proud of that I didn't realize, but to to be part of this hundred club and that you actually own 100% of your company, which allows you to really navigate through all these tricky times and really decide who you want to be and who you want your company to be and what pace you want to grow at. And, you know, there's a lot to say for that.

Phillip: [00:27:18] You had mentioned in the panel at Fashion Digital, one of those things that having a wholesale component, being in broader retail and having those wholesale accounts allows you to do is to have sales orders or purchase orders that allow you to get some financing against the product, which it's not something that you have in a direct to consumer channel or vertical. And so you don't have to make as many bets. Right?

Audrey: [00:27:44] Absolutely..

Phillip: [00:27:46] Could you talk a little bit about that?

Audrey: [00:27:48] Yeah, it's a really... It's a fundamental part of the sustainable hybrid model. And to be clear, I think what's happened now is I think you have to look at DTC as just a distribution channel now. So I think that we have to look at it, that there's multiple distribution channels. One is wholesale, one is e-commerce, one is brick and mortar. And you have to look at it as a sustainably hybrid model of how are you going to do each and when and how are you going to finance each and when? So one of the magical things about having this kind of business model is that by partnering with wholesale partners, you get a lot from them. So one, you get there upfront kind of approval that your product is needed in the market. So if you invite Anthropologie and Nordstrom leadership in and tell them what you're doing and they jump at the opportunity and tell you there's a huge void in the market and their customer absolutely needs your product, you can like...

Phillip: [00:28:43] It's validation.

Audrey: [00:28:44] {sigh} I'm on to something. I'm on the right path. So, you know, they know the market. They know exactly what people want and need. So that's a big step in launching a brand. Then they're going to give you orders up front. Six, eight months in advance. So they're gonna give you these orders. You can go to your factories, you can negotiate better terms, better margins. You can give them, you know, a really stable business. You can plan for a year in advance with them and develop a really deep partnership with your factories that they can rely on. So then you can also establish different financing strategies with either a bank, with a factor, and go to them with these orders and say, "Look, I have a big commitment from Nordstrom. I've a big commitment from Anthropologie, or Neiman Marcus, or whoever your partners might be," and then they're going to help you finance your production or your receivables or anything else. And then if you can negotiate good terms with the factories, in theory, you don't actually really need much working capital to get through your first year. And so, you know, so that's kind of the magic of it. And like I said, then there are also these partners are gonna be your new customer acquisition strategy, or one of your new customer acquisition strategies. But it's guarantee brand awareness and new customer acquisition, and you walk into an Anthropologie store in the first couple of months at Grayson launched and all of the associates were super... We went in like a secret shopper. And they're like, I have to tell you about this new brand, Grayson. It's incredible. You feel like a superhero when you wear it. It's got a cape like pleat in the back. And you're like, "I can't believe you're pitching me on my own brand. This is the most magical moment," you know? So that's something that would be so expensive to pay for on the digital side.

Brian: [00:30:32] Right.

Audrey: [00:30:33] And then you use, obviously, wholesale as a profitable distribution channel. So you then take the profits from wholesale, and you can then reinvest it. You're also able to borrow against those receivables. There're a lot of really, you know, maybe Old-School ways of financing your business that you can get through the wholesale channel. And then in parallel, you're also going to have a direct channel where you're going e-commerce, social, and that you're either growing slower and using the profits from wholesale or using some sort of outside funding, whether it's a loan or friends and family money, or something to grow the digital part faster. But if you're blending them, the demands for capital are so much smaller.

Brian: [00:31:16] It's so counterintuitive to I think a lot of that was the "wisdom" that's out there right now, which is, you know, just get something up and running on Shopify and get your brand out there, and then kind of scale behind it, or looking at like Crowdfunding or other options like that... This model to me, is like you said, it's old-school. And you know what? Lots of businesses were successful with the old model.

Audrey: [00:31:48] Yup.

Phillip: [00:31:48] Yeah.

Brian: [00:31:48] There's reasons why businesses were able to launch and start and grow using a bank to fund their business.

Audrey: [00:31:55] Right.

Brian: [00:31:56] Instead of having someone take ownership..

Audrey: [00:31:59] I know it's not necessarily exciting. Sometimes I joke like being profitable is boring, right? So maybe Forbes and Inc Magazine don't want to write about you because you're profitable. It's not that exciting, but it's exciting when you're the one that's profitable. And you know, I think today things have changed so much like the barrier to entry to start a brand is so low. But what people are realizing is the cost is higher than ever.

Brian: [00:32:26] Right.

Audrey: [00:32:26] Right. So it's this hard mix where, "Wow, I could build a site on Shopify, I could get on social media, I could do all this stuff and launch a brand so quickly. But it's exponentially more expensive than ever before. And, you know, you guys had a great podcast recently with the VC 4Runner Ventures. And I think he said it so well where, you know, VCs are looking at someone probably very different than me, where they're investing in untested concepts and inexperienced founders and they want unnatural growth. So that's a very specific combination. And it does require an enormous amount of money because, one, they want unnatural growth. And two, they're investing in inexperienced founders. So inexperienced founders haven't been through the trenches. They haven't you know, they don't have their battle wounds yet. So they haven't learned all the efficiencies and all the things that you can do to navigate your way through. So it ends up being a very, very expensive way to grow a business. And I just don't think it's sustainable that we're going to be able to go into the future where ever new brand that wants to launch needs to raise 25, 50, 100, 150 million dollars before they can reach profitability. That just doesn't seem... That doesn't feel financially sustainable.

Phillip: [00:33:40] I feel like there's a little bit of a ret-conning, like retroactively canonicalizing of the way we remember how certain brands come to life. Everybody all of a sudden for some reason a super hype on Everlane. I mean I love Everlane. It's basically the GAP. But I love it. I love Everlane.lane.

Audrey: [00:34:00] Right. It is a modern GAP.

Phillip: [00:34:00] Right. But it's not a fast story. They've been around almost a decade.

Audrey: [00:34:08] A long time.

Phillip: [00:34:09] And I think like we like to fetishize the fast growth. Not every story is like that. But we seem to try to cram it into that mindset because there happens to be some sort of funding or backing there. I heard Ty Haney on a podcast recently talking about Outdoor Voices. The way they started, like she sold a kit to J. Crew, and then had to figure out how to fill purchase orders. That is not the story that everybody wants to popularize. It's the VC backing...

Audrey: [00:34:39] Exactly.

Phillip: [00:34:40] And so I think that is, what I'm trying to say is, the durable brands, the ones that we are trying to point to as some sort of standard bearer right now, don't have the story that I think we all think they have, by and large.

Brian: [00:34:53] Right. And if we do think they have a story, we might be wrong.

Phillip: [00:35:00] Right.

Audrey: [00:35:00] So I say, you know, you see the glory, but you don't know the story.

Brian: [00:35:03] Right.

Audrey: [00:35:04] So for every entrepreneur, there's an unbelievable story. And I personally find them really fascinating and inspirational. One of the things I love to do is read entrepreneur biographies. So the most fascinating one that I've read recently was Phil Knight's book called Shoe Dog. And it's the story of starting Nike. And I think it's a really good example for what you're saying, because people look at Nike, and it's just like the biggest company in the world. And they just think that, I don't know, he woke up and started, you know, he's just incredibly successful and started this company. And if you read Shoe Dog, or listen to it on Audible, it's the most incredible journey. He goes all the way back to when he was basically a college kid. And every chapter is a year. And so you get to read a year of his life at a time and see the exact journey he went on. And it's just so fascinating because at the end of the day, the story of building Nike is the exact same as the story of building every brand that's going to stand the test of time. It's painful, and it's setbacks, and it's like shocking stuff that he has to overcome. And, you know, it's a very sustainable growth story, and obviously, wildly successful. It's one of the biggest success stories of our generation. But it's very different than I think that most people would think if you actually read it.

Phillip: [00:36:30] Yeah and by a handful of accountants, no less. Right? Like unlikely people to start at an athletic wear branded. I'm interested...

Brian: [00:36:42] So wait... Well, what I'm hearing right now is that during the consumer is really just... Is it just a marketing channel? Like is it just a marketing strategy? I get that it's not, but... like.

Phillip: [00:36:57] No but it is.

Brian: [00:36:57] Kinda?

Audrey: [00:36:57] Well, actually I wouldn't call it a marketing channel. I personally just call it a distribution channel.

Brian: [00:37:02] Yeah.

Audrey: [00:37:03] So you can have one distribution channel if you want and just be direct to consumer. It's extremely expensive. Or you can have multiple distribution channels. So even the DTC guys have gone, you know, even all the ones that declared they would absolutely never have retail stores. They all now have retail stores. That's another distribution channel. And then wholesale is another distribution channel. So which even a lot of those same initial DTC guys have all at least tried to dabble in wholesale. I think the challenge that nobody really talks about is because they didn't build their business model that way from the beginning, they don't realistically have the margins needed to be able to have real deep wholesale partnerships, and/or they may not have the logistics and stuff setup behind the scenes to handle that kind of business. It's very different than direct to consumer. And so it's hard for them to go backwards. It's something that you really have to set up this Sustainably Hybrid Business Model from day one. Even if you don't want to do it from day one, you need to set it up so that you are ready and have these choices that you don't want to find out four or five years down the road that you don't have a choice that you wish you had.

Brian: [00:38:14] Is that an operational setup you're talking about?

Audrey: [00:38:18] Yeah. Yeah, but also from a margin point of view, you need to make sure that you have, in your supply chain and in your pricing structure, you've got to make sure you have the margins to be able to sell a major partner like a Nordstrom or an Anthropologie or Neiman Marcus and understanding the complexity of those businesses and what they require to have a real partnership, not a pop in or a pop up or a temporary kind of partnership, those can be structured as basically marketing partnerships. But if you want like a real long term wholesale partnership, there's a lot of things that you have to set up in your structure and margins from the beginning.

Phillip: [00:38:53] Yeah you build it into the product effectively. Right?

Brian: [00:38:55] Right.

Audrey: [00:38:56] Exactly.

Phillip: [00:38:56] I think what we see, though, and it makes me scratch my head not to bring up Everlane again, but it makes me wonder how they can be in a Nordstrom long term, because it effectively means they're probably having to retool the product. Like it's not the same product. It has the label, but it can't possibly be the same product that they sell in brick and mortar at wholesale market.

Audrey: [00:39:22] Possibly. One of my theories would be... I would put it under... It's like a profit channel. It's new customer acquisition, and wholesale is going to be a profit center for me the way I set up my business model. But one of my theories with Everlane is that wholesale is not actually a revenue channel for them. It's a marketing channel.

Brian: [00:39:51] Got it.

Audrey: [00:39:52] So my guess would be that they don't make money from their wholesale partnerships, but that they're using it for a new customer acquisition. And, you know, for a brand like that, all new customer acquisition is an expense.

Phillip: [00:40:06] Right.

Brian: [00:40:06] Right.

Audrey: [00:40:07] Whether you're paying it to Google or Facebook or doing it on social or whatever, it's all just an expense. So my business guess would be that these are probably just marketing channels for new customer acquisition...

Phillip: [00:40:20] Negative margin on wholesale?

Brian: [00:40:22] So wait...

Audrey: [00:40:24] It's potentially negative margin on the partnerships.

Brian: [00:40:27] What would you say the most common channel is to actually make money? Because we're including all digital marketing and sort of the DTC channel. Right? And we've got the wholesale channel. We've got a retail channel where are, let's just say fashion apparel brands, actually making the profit right now?

Audrey: [00:40:47] Well, most DTC brands are not profitable? {laughter}

Phillip: [00:40:50] {laughter} Brian's like with the loaded questions today. I don't know where...

Brian: [00:40:53] {laughter} Oh man, I'm sorry.

Audrey: [00:40:55] I mean, look, wholesale is more complicated than I think DTC people realize it is. And it's really interesting. I was having a conversation with the CEO of a DTC brand the other day, and she was asking really interesting questions that I think she anticipated the answers were more straightforward. And we got into a lot of detail and all of a sudden she reached across the table and said, "If I teach you everything I know about DTC, will you teach me everything you know about wholesale?"

Phillip: [00:41:25] Yeah.

Audrey: [00:41:25] I was like, "You've got yourself a deal." The businesses are so fundamentally different, but can be incredibly complementary and powerful together. It's a lot for people to learn all at once. So I think it's a great idea for people to share their knowledge and experience with each other, so that we can all help each other grow. But if done correctly from day one, and if you know how to manage a wholesale business with these major, major partners, which can be quite complicated, then it's a guaranteed profit center.

Brian: [00:42:01] Wow.

Audrey: [00:42:01] If you set it up right, and you have very intentional partnerships, and you manage them very closely, and you manage their profitability and yours, you're guaranteed to be profitable in wholesale.

Brian: [00:42:12] Wow.

Audrey: [00:42:12] That's something that I think has been so much harder on the DTC side. I think it looked really good on paper, but that it has become so much more expensive for new customer acquisition and, you know, advertising with Facebook and Google that I think that people think if we just grow to this level, we'll become profitable. And then it becomes more expensive. If we grow to this level, we'll become more profitable, and then it becomes more expensive. So I think it's been like this elusive chase of the path of profitability. And it's been very hard to get there because there's not really any guarantees of profitability in DTC.

Phillip: [00:42:48] If you're looking at... You're growing your business, you are a serial entrepreneur in your role as a founder and CEO of a company that's growing, how does your roll change or how does your your day to day change as a leader in an organization that over time? If you think about the tenured horizon of Frank & Eileen, how did things dramatically change for you or did they dramatically change for you in a leadership role?

Audrey: [00:43:23] Yeah, yeah, that's a great question. I mean... So much change, right, and I think of being a founder CEO, which I think is very different than being what I would consider a professional CEO who came from Harvard Business School, and you have all this experience... A founder CEO is a very specific type of role and it's one where, you know, it takes a very specific kind of person that can create something from nothing. So that takes a really specific skill set. And being I mean, just in the weeds and doing two hundred different jobs at once and being under enormous pressure and there's absolutely no boundaries on your time... You know, if there were twenty eight hours in every day, then this personally working twenty eight hours a day to get their company off the ground and grow. And with every stage of growth, there's a completely different set of challenges. So I remember in the early days we had all these problems. It was so hard. You know, we had no money. We had no leverage with our factories. We had no, you know, all these challenges. And I remember saying to this woman who's now been with me for 15 years, so she's seen it all, saying we're getting bigger now, so we're no longer gonna have all the problems that we had for the last few years. Now we're gonna have new problems. So it just like became a joke, like, don't think the problems are going away, but you're going to get rid of your old problems of being too small, and now you're going to have new problems of growth and growing a bigger team and how to communicate between the team. When you're a tiny team, like I got away with murder, we would say we're a teeny tiny team of three. I would ask people to please be patient with us because they thought we were so much bigger than we were. And it was amazing because there's no need for communication, there's no need for meetings. There's no... You're so fast. Like everybody knows what's going on at all times. So, you know, one of the challenges of growing a bigger team is figuring out how the different divisions talk to each other and communicate and make sure that everything's going seamlessly. And so there's definitely a lot lot of challenges at every different stage of being a founder CEO.

Phillip: [00:45:34] Would you say that communicating to different teams is best done on Slack and berating people?

Audrey: [00:45:47] {laughter}

Brian: [00:45:47] Talk about loaded questions, Phillip..

Phillip: [00:45:48] Yeah. I'm curious about how your opinion is changing... For those who don't know Steph Korey and the Away leadership change is what we're referencing. But I'm curious what your take is on effective leadership. And if you think that that's being unfairly viewed as a lens of a female in a leadership position.

Audrey: [00:46:16] Yes, it's really interesting that you ask. We've had a very heated debate on what happened with Away this week and Steph, and I actually wrote an open letter to her a few days ago. I personally feel very strongly about it. And my point of view may be counterintuitive to maybe what other people would think, or what other females would think my opinion would be. When I originally read the article that came out, I think I had the same feeling as everyone else. I was super shocked, shocked at the things that were coming out on Slack and shocked at her tone of voice and the way she was talking to her team and the demeaning things that she was saying. And, you know, I think I was genuinely just shocked, like, "Wow, that's a toxic environment." And then the next day, she came out with her apology. And I thought she said some really important things, really reflecting on her behavior and saying something along the lines of, "This is not the kind of leader I want to be. I'm working with business coaches. And I really want to figure out how to be the best leader possible." And I thought... It immediately made me think of other startup founders and what the culture is like at a lot of fast growing startups. And I thought her apology... I thought she was very apologetic, maybe even took it too far because she did acknowledge it and said she wanted to change. And it felt like a very heavy apology. And then the next day, she was clearly forced to resign. So I had a really big emotional reaction to it as a female founder and as a leader. And I thought that she was really unfairly pushed out. I think that while I don't condone her behavior and that was not an ideal leadership style, the problem is it is such a common leadership style in startups and in fast growth. And I think I I really wish that not only everyone, but specifically other female founders and women, would really show up to support her, because the perspective that I don't think anyone's giving her is that she's a CEO with no experience. She's in her 20s. So when this happened, she was like twenty eight years old. She'd grown a company from zero to a 150 million dollars in three years. So the other people that are in that camp would be Bill Gates of Microsoft, Steve Jobs of Apple, and Elon Musk of Tesla. And I went back and did some research and looked at their growth. And each one of them did at or below 150 million dollars in the first three years, when you convert for time change, like the equivalent in 2019. And so you look at the camp that Away is in is mind blowing. Right? You're in a group of people who are so small that have grown their companies from zero to 150 million dollars and run by what I call founder CEOs. So these are CEOs that have no real previous experience. They're not professional CEOs. So I think that people have to take into mind the unbelievable pace that they were growing at, the pressure, what's going on there, and if you peel back the onion in any of those places, whether it's Away, whether it's Tesla, whether it's Apple, or Microsoft in its early days, it's ugly under there. I mean, all these leader leaders are notorious for being demeaning and yelling and shouting and firing people with no notice. It's chaos. But those three leaders that have grown at the same pace as Away did and Steph did have never been asked to step down, have never been pushed out by their board or by their community. And they've actually never been apologetic for their leadership style. They're completely unapologetic. They believe that that's what it takes for them to grow the company the way that they want to grow it. So I feel like I would wish that people would recognize that while her behavior was not acceptable, she took it a step further than I've ever seen any of these guys take it, and she did recognize it and said, "Wow, that's not who I want to be. I want to strive to be a better leader." So why haven't we given her the time and space and chance to get the coaching she needs to learn how to handle unbelievable stress, how to learn to manage people, how to learn to grow a team at that rate. And I wish everyone had come around her and really said, "We really appreciate you taking responsibility and accountability and you need to get your ass in coaching, and let's all stand there and support you and see how you do over the next few years," and let her mature into the leader and CEO that she would like to be. And it would be so inspirational if everyone did it and give everybody this path to see like, "Well, maybe it's crazy up front and maybe I didn't handle it well," as none of us probably did in our early twenties under that kind of pressure. Yeah. So it seems like to be in this time where things are changing so much, and there's so much more visibility into companies and what's going on.

Phillip: [00:51:43] Right.

Audrey: [00:51:43] I think we're seeing that they're all toxic. Right? So whether it's Uber, whether it's WeWork, whether it's Away, whether it's Tesla, whether it's Apple, they're all toxic behind the scenes. So why don't we view this as a time to say what's going on behind the scenes? What kind of pressure are these people under, and what's going on that's causing it to feel so toxic? And how can we fix it? How can we create the kind of environments that we all want to work in? Let's support the people that are breaking down these barriers and having unparalleled success. Can we figure out how to support them and help them, so that they can have the success but also grow into the leaders that they want to be? So I'm sad that I think it's a missed opportunity and an unfair characterization of her. And I just think the consequences to her don't feel fair when I look at how all those other leaders in her shoes have acted.

Phillip: [00:52:35] And especially those people haven't had the sort of the visibility and then the platform or criticism over such a short period of time. You make mistakes over a 10, 15 year period and you know, it's not publicized.

Audrey: [00:52:48] Right.

Phillip: [00:52:48] You learn a lot along the way. I think three years this is an incredibly accelerated timeframe.

Audrey: [00:52:55] Exactly. I have this woman that's been with me that I mentioned to you. She's been with me for 15 years now. So basically my entire... She was my first employee ever at my first company. So she makes these jokes that she gets mad because she says, I've turned into a giant marshmallow. So she gets mad because she's like, "None of you had to see that Audrey was like an early days. You have no idea what what she was like before." Like, people think I'm tough or I'm demanding or I work really long hours. But she's like, "Audrey's a giant marshmallow now." And so, you know, we've all made a lot of mistakes. What do we know about managing people and motivating people and being a great leader when we're twenty five, twenty six, twenty seven, twenty eight? We have to learn it. She didn't go to professional management school and come out of Harvard and be at some big Fortune 500 for 10 or 15 years. Then she could be held to a higher standard. But she's just a young entrepreneur doing the absolute best she can to grow at a speed that's basically impossible.

Brian: [00:53:56] Right.

Audrey: [00:53:56] It went from what, zero employees to hundreds and hundreds of employees in a two to three year period?

Phillip: [00:54:03] Oh yeah.

Audrey: [00:54:04] Anyone would crack under that pressure. Your best side would not come out. You know, she's exhausted. She's probably not sleeping well. There's a lot to it. And I just think that this is a huge opportunity for us all to stand up and go, "We're creating these cultures of growth and pressure that are basically inhumane for both the leader and the team. So how can we figure out how to make this healthier for everybody?" And, you know, so I guess I really still hope that we can not miss this opportunity. And it makes me, I think, very sad for her feeling like the scapegoat in all of this, and that we're not going to learn. If it just happens, and she's asked to leave, and we all move on with life, what did we really learn, you know?

Phillip: [00:54:50] Right.

Brian: [00:54:50] Yeah. That's a really, really good point. Yeah. I think I love this as a wakeup call to everyone in this situation because it's very likely... So this story, it broke, it's the first in sort of that DTC brands to break this way. How many more of these DTC brands that are out there are experiencing similar things?

Phillip: [00:55:11] All of them.

Brian: [00:55:12] I would bet more than this one.

Phillip: [00:55:12] This is almost... We've come to accept this, at least in male led startup culture and technology and software. And in fact, you know, Steve Jobs is, "Oh well, that's just Steve."

Audrey: [00:55:24] Right.

Phillip: [00:55:24] There's like, you know, everybody's got some sort of story they've heard of that Steve Jobs fired someone in an elevator.

Brian: [00:55:31] Right.

Audrey: [00:55:31] Right.  Oh, and it's very public, like it's very well publicized, and with Steve being one of the most famous of it... One hundred percent unapologetic. And you know, the things that happen inside, like you said, those tech companies with male leaders, it crushes the stuff that Steph did. I mean, it makes it look like child's play. You know? It does very, very much upset me that there is this huge double standard, like, is it OK because they're in tech or is it OK because they're male? Why is that OK, but when she does stuff that's a two on the chart, you know, one to ten chart for like a Steve Jobs and Elon Musk, she's immediately considered a liability by either her community or her board or her VCs. And they're like, "We got to get rid of that. Like, let's just get rid of it. Let's not look at it and fix it and support her in this crazy journey she's taken the company on. Let's just get rid of her."

Phillip: [00:56:34] Here's the interesting thing. If you like conspiracy theory, said John Gruber, of Daring Fireball, has a really great conspiracy theory that The Verge got played. And this was a creative attempt by Away to shift the narrative that they're hiring an old white guy to take over from Lululemon, which... I don't love conspiracy theories. This one actually sounds plausible. Anyway... I'm sorry I shifted us away from the main topic, which was...

Audrey: [00:57:11] That's ok. It's has been a very hot topic around here. I don't get passionate about a lot that's going on outside of the Frank & Eileen/Grayson universe, but this is something that I did, and it just didn't sit well with me. And I had strong feelings about where are we going and what are we learning if this is how we're handling stuff like this?

Brian: [00:57:34] I think you mentioned something earlier, something about how if there are 28 hours in a day, then, you know, some earlier founders would be working 28 hours in a day. Right? And things are very different when you're three people than when you're 28 people and you kind of have to put up more boundaries. I think that, you know, you've mentioned some stuff earlier about not taking funding and saying no to expanding your category and finally saying yes after five years of just wanting to start Grayson. And one of the big trends, you know, that I think I'm hearing and I definitely think is important going into 2020 is this whole idea of having boundaries. If anything, everyone should look at this and say, "Boundaries might be one of the most important things..."

Phillip: [00:58:22] Yeah building your business with you setting reasonable boundaries and limits of, you know, having measured growth or having achievable targets, or achieving a balance of happiness between your customers and your employees and your margins. Those are all boundaries that I think everybody can thrive in if they impose them on themselves. I think even having internal culture statements to say, "We do things like this..." is a reasonable boundary for a business to adopt instead of just growth at all costs. This has been such an amazing conversation. I really appreciate all your time. Audrey. It's been phenomenal.

Brian: [00:59:00] Oh yeah.

Audrey: [00:59:00] Thanks, Phil.

Phillip: [00:59:00] If you had to predict the future a bit, what do you think the next four or five years looks like for Grayson? And where are you heading toward?

Audrey: [00:59:13] I think the next four years for Grayson are going to be particularly exciting. You know, I think I mentioned we're doing a lot of women's events and really going out and empowering women to look inside and identify what is their superpower. And so I think that's going to be a really exciting time to build a product that I love so much, like the button-up, but use it as a vehicle to really make women feel good about themselves. So that's exciting. And I think, you know, Grayson will continue with really trying to prove out the Sustainable Hybrid Business Model and look how it rolls out. You know, we have an initial proof of concept after launching, you know, eight months ago. But really looking at how that plays out over two, three, four years will be really interesting to look back and be able to say that we believe strongly that this is the right way to to be growing.

Phillip: [00:59:58] And I think others will be following your lead, too. Thank you for all that you've shared with us. And thank you so much for agreeing to come on the show and just be so open.

Brian: [01:00:08] Yes, thank you.

Audrey: [01:00:10] Well, thank you so much, Phillip and Brian for having me.

Phillip: [01:00:11] And thank you to our listening audience, for participating. We want you to lend your voice to this conversation. You can best do that over on our website, FutureCommerce.fm. And we would love to hear from you what you think about Sustainably Hybrid businesses. Is this something that you're interested in or is it something that you're tracking as your roadmap to profitability and success in business? What kind of boundaries are you imposing in your business, and how are you thriving within them? We want to hear all about that. You can also drop us a line at hello@FutureCommerce.fm with any of your thoughts on today's show, and we'll make sure to feature them on the next episode. Thanks for listening. And remember, the future is what you make of it. And so let's build a future that we're all proud of. Thanks for listening.

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