Entrepreneur's Journal

To Recruit the Best, Admit Weaknesses


The Entrepreneur: Andy Dunn, 30

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

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

Revenue: $4.9 million in 2009 (estimated)

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

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

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

Identifying What You Don't Know

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

Meanwhile, I confronted the paradoxical problem you face when you have a growing business: not knowing how to scale it. I realized that identifying what I didn't know how to do was critical. Equally important was recruiting talent to help me fill these holes.

I set to work putting these realizations into practice, first hiring someone to head customer service who had helped run the flagship Apple (AAPL) store on Fifth Avenue in Manhattan. His contributions paid off quickly. We now called every new customer to ensure their pants fit perfectly, developed an online dashboard to measure our performance, and segmented our e-mail marketing to offer relevance based on purchase history and geography. Our e-mail unsubscribe rate went down to less than 0.5%, word-of-mouth became the No. 1 form of customer acquisition, and repeat purchase rates hit 50% within 12 months.

"I Need Your Help"

Having seen the transformative power of industry talent, I was hooked. After struggling mightily to select the right e-commerce platform, I turned to a recruiter for help. I ended up hiring the No. 2 engineer from Zappos, who moved from Las Vegas to New York City to become my vice-president for engineering. After his arrival, I was quickly able to attract a full engineering and Web design team. Our engineering vice-president also led the development of a set of company core values that would make even his former employer, which is known for its culture, proud.

The final frontier in recruiting for me was to bring in people from the apparel industry, the same industry that didn't believe in what I was doing two years earlier. I worked hard to persuade some of the industry's finest that their prospects with Bonobos burned brighter than anywhere else they could go. By the end of this year, it was an easy sell: Much of retail was getting killed, but our revenue had almost tripled year over year. My vice-president for sourcing formerly sourced several hundred million dollars of goods a year at Old Navy (GPS). My design director designed men's wovens at everywhere from Banana Republic to Club Monaco before joining us.

My job as CEO, I now realize, is easy. All I have to do is recruit superstars. Of course, it's more than that: They need fair salaries, meaningful equity stakes, and most importantly, the authority to make decisions. To make this happen, I had to accept three difficult principles: 1. As a leader, I have meaningful weaknesses which will become an obstacle to growth; 2. the company is better off hiring those weaknesses, which means I need to hire people better than me and then give them equity and power; and 3. although I love my job, my goal ultimately is to make the company safe for my departure. It may take 10 years, but I must work toward that every day.

The funny part is that once I accepted these principles, it gave me the humility I needed to inspire key recruits to join. In their eyes, I saw not only excitement for the equity we offered, but the earnest belief that they would be entrusted to do their jobs with my counsel, if they sought it, but without unwanted meddling. By accepting and acknowledging my own weaknesses, I was able to prove the naysayers wrong and hire winners from both worlds. I now begin my conversations with potential recruits with a sentence that always brings a smile: I am not good at what you do, and I need your help.

More journals are available in our ongoing series http://www.businessweek.com/smallbiz/journals/.


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