bonobos sxsw shopify

Had Bonobos founders Brian Spaly and Andy Dunn built the company today, it might have failed, Spaly admitted in a Shopify panel at South by Southwest, which began Friday.

“I think Bonobos was eerily prescient about where the world was going, but I’m not convinced it would have succeeded,” Spaly told WWD. “I think both of us would acknowledge that it’s gotten a lot harder and a lot more competitive. You know, being early is as important as being right, and you’re no longer able to say you’re early in this game. Because it is a far more competitive playing field.”

The storied direct-to-consumer brand, known for its men’s looks, leaned on social channels like Facebook to build a fan following that eventually led to an acquisition by Walmart Inc. in June 2017.

Today, Spaly — who also helped start Trunk Club and sits as the executive chairman of boot company Tecovas — believes brands have their work cut out for them.

Emerging players that derive all or most of their business from one or two social platforms are playing a dangerous game. The reasons are obvious, not least of which is that trouble lies just one software update away. The savviest companies understand this, which is why some are diversifying and exploring more traditional marketing, like TV spots.

But standing out in an increasingly crowded space isn’t easy or cheap. And matters get even more complex when it comes to things like funding.

“You’ve seen some cautionary tales that I certainly have been complicit in — where technology investors are backing what are consumer goods companies,” Spaly said. It’s a problem, because tech investors are used to 90 percent gross margins. That’s fundamentally different than what they should expect from apparel businesses, “which at best can only hope for 15 to 20 percent EBITDA [earnings before interest, taxes, depreciation and amortization] margins,” he said.

Some investors do get the difference and know how to support consumer goods companies, he said, but there’s simply not enough of them.

The majority of investors seem to prioritize the wrong things, according to fellow panelist Lily Kanter, of furniture company Serena & Lily and Boon Supply.

“This ‘blow-up consumer brands at all costs’ [mentality] isn’t necessarily the right path to building a heritage brand, a brand that will be here in 100 years,” she said. “I think that there’s a natural progression to building a consumer brand that, if you can really get the fundamentals to work very early on and get profitable, you’ve really built something — versus just throwing a lot of money at it.”

Ultimately, it means that VCs are no panacea for direct-to-consumer brands. “There’s a working capital of inventory issue here,” she pointed out, “and they might not understand that growth is an incinerator to cash.”

Knowing how — and when — to hit the VC circuit can make all the difference. For Spaly, Los Angeles-based Revolve is a prime example, as “a phenomenal business” that bootstrapped before they took outside capital.

“That’s $70 million in revenue, and they were profitable,” he added. “Those are your poster children. It’s not gumbas like Andy Dunn and me, who’ve raised a lot of money behind questionably profitable apparel businesses. It’s Revolve, two really smart people in L.A. solving a problem.”

That core intent, of genuinely helping and connecting with the consumer, can’t be underestimated.

“What I hear the brands saying is that customer experience is paramount,” said Jeff Weiser, Shopify’s chief marketing officer. “I think a lot of retailers lost sight of that, and that’s why they’re being disrupted. These guys think all day, every day about the customer experience, about authenticity of experience, about reaching customers wherever they are.”

Stitch Fix is another apt example.

“They totally disrupted a service offering, because they’re not selling anything different than Nordstrom,” Kanter said. “It’s just this idea of personalizing the shopping experience for this busy woman who’s now working full-time, and helping her curate her closet. That’s what Stitch Fix did with a lot of AI, and it was brilliant. It was absolutely brilliant.”

Spaly, a friend of Stitch Fix founder and chief executive officer Katrina Lake, remembers her take on the business early on.

“When she started, she said, ‘I’m just doing your business model for women,’ and I remember saying to her, ‘Good luck. I don’t understand women’s clothing, so I’m going to stick with men’s. But I think you’ll probably be as successful or more successful than I am,’” he recalled. “We’ve maintained a good friendship, even though our businesses are ultimately on a collision course. [Stitch Fix has since branched out into men’s wear.]

“But there can be more than one winner when there’s a huge market,” he said.