September 10th, 2020 | By: Sarah Lacy | Tags: Stories
Ten years ago, Andy Dunn was at Stanford’s Graduate School of Business. He was torn between taking a high paying job and following the lead of Brian Spaly– a classmate who was selling better-fitting pants out of the back of his car.
That company would become Bonobos, a promising survivor in an otherwise graveyard of so-called “ecommerce 2.0” upstarts.
Spaly and Dunn had a contentious falling out; with Dunn keeping Bonobos and Spaly going on to build (and sell) TrunkClub. Dunn is still plugging away with Bonobos, hoping to reinvent the way brands are built in an online world.
He says he’s now confident that Bonobos will survive. But continuing to build it into a stand-alone ecommerce company is another matter. An even bigger challenge: Making it into a company that “means” something.
I’ve interviewed Dunn off and on since 2010, when he raised his first institutional venture round. I’ve seen him get distracted with building out ecommerce divisions and a women’s brand only to spin them off subsequently and focus back on the menswear core.
I’ve also seen him turn into a great entrepreneur and one of the few cheerleaders the ecommerce world had… well, before Jet and Dollar Shave Club’s massive acquisitions suddenly made the category look hot again.
He’s funded some 15 other ecommerce companies, advises even more, and serves on the board of three others. For better or worse, Dunn is all in on Bonobos and ecommerce generally. I caught up with him on a recent trip to New York and we reflected on his ten year slog. The following are edited excerpts of the conversation.
Sarah Lacy: You are ten years into Bonobos. How do you feel ten years in about this bet on pants? Do you still feel like betting on pants should be your life’s work?
Andy Dunn: The more I’ve seen a lot of entrepreneurs, the more I think it’s really, really hard to make something that is better enough for your company to ever really matter. The reality is that Brian Spaly did that. He made something better enough for enough people that our company had a reason to be.
A lot is made of the fact that we’ve done it in a new way with the Internet driven brand thing– or digitally native vertical brands to give a name to that ecosystem. Now every vertical has one to five of these up and comers.
But that wouldn’t matter. That wouldn’t be the story of Bonobos if we didn’t start with a great product.
So better fitting pants have been a conduit to create a better way brands are built. Without them, there’s no Bonobos, and I don’t even know what Warby Parker or any of these brands would look like if we hadn’t made that bet.
AD: I was talking to Dave Gilboa (of Warby Parker) today, and he was talking about coming to visit Bonobos in 2009, and he was like “we are going to do this in eyewear.” We had the privilege of building an Internet-driven model because we had a product people actually cared about.
SL: And that’s the antidote to Amazon? That’s the only way you build something in an Amazon-driven world, right?
AD: Someone asked today at this thing I was speaking at, “What’s the most important part of the term ‘digitally native vertical brand’?”
SL: That’s such a business school term, by the way.
AD: It’s such a dorky term.
SL: It’s painful.
AD: It’s a totally nerdy term. My belief is you can’t beat Amazon by selling other brands. The only exceptions to that have been Zappos, Diapers.com, and Jet, two of which went to Amazon, and one was about beating Amazon and now has a shot because Jet was acquired by the only company that has a better supply chain in Walmart.
SL: OK, let’s talk about this, because we suddenly see that ecommerce….
AD: …It’s back in vogue! What’s up, now?
SL: …you guys have been so shit on for so long.
AD: I know
SL: …and now suddenly two of the big billion dollar-plus exits have been ecommerce, and that could be three if the rumors on Honest bear out.
AD: Speaking of Honest, people are dishonest about the apples and oranges differences between building a brand and building a channel that sells other brands. And if you build a channel that sells other brands, your best bet is to sell to someone else.
That’s what Zappos has done. That’s what Jet has done. That’s what Quidsi has done. That’s ultimately what Zulily ended up doing. The only one that hasn’t done that since Amazon is Wayfair, and let’s see what happens. Fab is gone. Gilt? Gone. Hudson’s Bay?
One Kings Lane? Gone.
And I remember all these people saying, “Why can’t you grow as fast as fill-in-the-blank?” And I would say, “It’s a totally different business.” Selling a bunch of other people’s stuff is a low margin game that requires a lot of capital and ultimately, and it’s hard to beat Jeff Bezos at that.
Compare that to the idea that you can build a brand that is at its core digitally natively distributed. What’s fun about Dollar Shave Club is they’ve actually proven you can. Michael Dubin proved that someone would actually want one of these brands, and I think there will be more.
The only problem with the model from what I’ve learned is it takes a long time to build a great brand. I’m in my 10th year. We now have what could be a great brand. It’s not too good to be true. You have to actually care a lot about what you are making and put in ten years of heart and soul.
SL: And why is that?
AD: It’s the Ben Horowitz article: Nobody cares. Nobody cares about your brand. Just because you have a strategy for how to build it, and an idea for how the product is different. You have to find a way to tell the world. How do you get the world to care about what you are doing? That’s hard work.
And I actually think it’s harder work if you are digitally native, because you create your own distribution. We put our product in Nordstrom, and it’s been awesome for us. We’re now the #1 best selling chino in Nordstrom. Wholesale happened like that [Dunn snaps] but building a direct to consumer relationship is really tough. And the truth of the matter– if you look at people who have gotten to this scale– Warby, Casper, Bonobos, Dollar Shave, just to take those four examples– we’ve all raised north of $100 million in paid-in capital.
SL: Did you need all that money though? Or did you waste a lot of it?
AD: I think if I could go back, I could do it on less, but I don’t know how much less.
SL: It’s hard to know because so many mistakes lead to successes, how do you pull them apart?
AD: Correct. And I think a lot of that money was required to build audience, whether we did it efficiently or not. And so I think the better question is who has done it that hasn’t had to raise that much money, and I only have one answer: Tuft and Needle. That is the only digitally native vertical brand that has gotten to significant scale– I can’t say what because I’m not a founder there– but as an advisor to them, I can tell you that they are ridiculously big, relative to the paid in capital of the company. They invested $6,000, and they have an amazing asset. I tried to invest but they didn’t need the money.
SL: Ok, let’s talk about NastyGal, which was very much that story…
AD: NastyGal isn’t a vertical brand, so it’s actually a different [thing]. If selling other brands is apples, and making your own brand is oranges, NastyGal is a banana. Because what they do is sell other brands that are hard to find and build a brand identity around it and now they are trying to make their own brand. So NastyGal and ModCloth have the same strategy but not the same as either of those poles.
SL: So Bonobos is ten years in. Have you built a “brand” yet?
AD: I think we’ve build a brand that is known for fit and service and, maybe, fun in menswear. That’s cool. That will get you customers and a business, and a business that we think is now turning the corner into being an independent sustainable business. That was not evident [before]…
SL: …So you feel confident about that now? The sustainability?
AD: I have data about that now. Last time we raised money was July 2014. Now, what I want to do is build an enduring and an iconic brand, and that’s harder. That’s not about standing for the sum of the parts. That’s about more.
Think about Patagonia; you think about conservation. Think about Tesla; you think about sustainability. Think about Apple; you think about creativity. Think about Chanel; you think about unattainable luxury. The great brands stand for more than just products or services. I think this concept of what is happening with the male gender… who is contributing to that conversation in an important way?
So we just did a video with Jimmy Butler, who is an amazing guy. He was abandoned by his dad when he was 18 months old, a typical African American male story. Then his mom kicked him out of the house when he was 13 reportedly saying “I don’t like the looks of you.”
And yet, he found his way to college. He went to community college. He was not a particularly impressive basketball player for his first two years. He started to show some promise and was drafted 30th by the Bulls after his senior year. Now just a few years later, he just won an Olympic Gold Medal in Rio and is going to be the face of the Bulls and is just an amazing guy. He’s a tornado of positive energy and charisma and, for me, is a tremendous inspiration.
SL: So that’s what you want to stand for?
AD: I want to stand for guys who are trying to be like that.
SL: So you don’t want to be a “bro” brand?
SL: Do you think you are a “bro” brand now?
AD: I don’t think so. I think we definitely had some roots there.
SL: This sudden resurgence in ecommerce companies getting bought… is it good for you? As a late stage company that at some point may need more money is it good that brands like Dollar Shave Club have an exit? If Honest sells for what’s been rumored, it will be underwater valuation wise, but that will be three $1 billion-plus ecommerce exits this year.
AD: I think it’s good, because I think we went through an era where there were so many ecommerce stories that were bad. And a lot of people were painting the sector with one brush.
And there was no other sector where there wouldn’t be nuance to the story. That wouldn’t be the case with SAAS.
If you look at ecommerce, it’s a bunch of dudes who make investments who don’t know the first thing about retail, and they are thinking the whole thing is just people buying stuff online. And the reality is there are very different strategies.
SL: A bunch of dudes, plus Forerunner’s Kirsten Green, whose first three deals were Bonobos, Birchbox and Warby Parker, and was also invested in Jet and Dollar Shave Club.
AD: Well, God bless her…
SL: She stuck with the category and has suddenly now emerged as one of the top VCs. You’ve gotta be proud? Happy?
AD: Proud and happy and grateful to have her on our board.
SL: She took the long hard way to be a VC. She scraped together special purpose vehicles to invest in companies one-off before she proved she could raise a fund. No big firm gave her a shot.
AD: She did. We joke that we grew up together [since Bonobos was one of her first deals.]
SL: You two have a special bond…
AD: …It’s more than business. She had a lot of naysayers for a long time, and now she looks like a pioneer.
SL: So what would make you happy in five years Bonobos-wise?
AD: It’s a different answer than it used to be. The answer used to be, ‘Hey, here’s my business plan’ or this is how big we want to be. Now I just want to be a brand that matters in the world. I want to matter. Because I think people have plenty of stuff. They have too much stuff. It doesn’t make them that happy.
SL: But how do you measure that? Because ostensibly you matter to some people now…
AD: We matter as a function of the fact that you get up in the morning and need to wear clothes. We want to inspire people, and I actually think we’ve inspired a couple of entrepreneurs because of our model. But I want our consumer to be inspired to belong to what we are building. It’s a really murky journey because you don’t want to be pedantic, but the Jimmy Butler campaign is the beginning of us having a voice on this.
I don’t want to compare myself at all, but when Steve Jobs came back to Apple and said “Think Different” and put up Mahatma Ghandi, it was like “What are you doing? I thought you were selling Macs?”
But he understood something important: That he wanted Apple to mean more than just a computer company.
When entrepreneurs start their companies they say all this stuff, they say things like “we’re not a pants company we’re a blah blah blah.” It’s like “No, we’re actually a fucking pants company.” That’s what we were.
But once you get to year ten, and you have a pants company and a shirts company and a suits company and an outerwear company, and you’ve reinvented how brands are build digitally and you’ve reinvented retail stores, because they don’t have to carry inventory, then you get to wake up and say “How did we actually inspire people?” And that’s what i’m trying to figure out. How to do that next.
SL: When I interviewed Brian Spaly in Chicago he talked about how efficiently he built Trunk Club.
AD: He was the first one in a lot of ways. He proved the multiple and the value of this in a lot of ways.
SL: Yes, to your point: He raised $12 million in equity and sold for $350 million. So should companies like yours raise as much money as you did?
AD: Most entrepreneurs are not as uniquely and creatively scrappy as Brian Spaly. I mean, he is a unique human being. Even when we were together under the same roof at Bonobos, he always had an instinct for fiscal conservatism. It was more of like a bootstrapper mindset than you normally see from people who raise equity capital.
Normally you are one or the other. You are either a bootstrapper, or you raise and go for it. And he’s a really weird hybrid. He’s comfortable taking other people’s money, but he’s really scrappy. I think there should be more entrepreneurs like him who say, “How do I build something awesome with $20 million or $30 million in capital?” But I think it’s usual. You have people like Sophia Amoruso (of NastyGal) who have nothing and then boom! They have a ton of equity, and it’s a new ball game. And then you have people like Michael at Dollar Shave Club who raised a lot of money in a short amount of time and built an amazing asset. It’s hard to find people who are in between. Spaly is a special guy.
SL: But for the time we live in, Dollar Shave Club has been conservative. It never had a $1 billion valuation, so $1 billion was a great outcome.
AD: I want to be really clear about this, we’re in our tenth year, and we’ve never done a down round partly because we never thought our business was a software company. I think the danger is retail companies thinking they are software companies, and they are not. You have to have humility. You have to build into you that. Just because you can raise capital at a certain price doesn’t mean it’s wise.
SL: That’s all well and good as a hypothetical but, have you ever walked away from a higher valuation because you felt it wasn’t right for your business?
AD: Twice. I’ve been through a bunch of financings. It’s more let’s get the best investor we can. Sometimes the best investor doesn’t have the highest valuation.
SL: Right now, we are in an election where male and female energy is very on display. As a male brand, how do you think about that? How do you want to represent what masculinity means in a time like this?
AD: So our brand is named after a matriarchal chimpanzee.
There are five great apes: Bonobos, chimps, orangutans, gorillas, and human beings. Bonobos, humans, and chimps have a common ancestor, and bonobos and chimps only split off two million years ago. They were thought of as virtually identical for most of history then someone realized they are two species.
The only difference between the two of them is they are separated by the Congo River, which is impossible to cross. And they have speciated slightly differently over the last two million years.
They look the same but they have one massive difference: Chimps are arranged in patriarchal societies and bonobos are arranged in matriarchal societies.
Bonobos have no violent conflict and no observed killing each other and in chimp societies there’s plenty of violence and chimp-ocide. And if you watch a bunch of chimps, it’s like Hamlet. The number two and the number three chimp team up and overturn the number one chimp.
[Silicon Valley lawyer] Ted Wang at one point said, “If you want to understand men read “Chimpanzee Politics,” and I did and now I do. And what you see with Bonobos is if you put women in charge, men behave better.
It’s true: Men are just like women except women have better judgement, more empathy, and they are shown to be better entrepreneurs in a apples to apples basis. They are financially more astute. They are just like men, only a little bit better. And yet we live in a world where men weigh 1.6-times what women weigh and a couple thousand years of history have weighed women down because of that.
That’s starting to change. And the rate it’s changing is accelerating. And I believe, as I’ve told you before, the next 100 years will be referred to as the female takeover. And by “take over” I don’t mean “Run for the hills, guys!” I mean, “Your life will be improved by the ascendance of women.” And should Hillary win, we will have the first time in human history that the leaders of the United Kingdom, Germany, the United States, and Australia are all women. So we’re finally catching up to Pakistan.
Sarah Lacy is the Founder and CEO of Chairman Mom and Pando Media. She's been covering technology for nearly 20 years, previously for BusinessWeek, TechCrunch and many other publications. She's the author of "Once You're Lucky; Twice You're Good: The Rebirth of Silicon Valley and the Rise of Web 2.0" (Gotham, 2008); "Brilliant, Crazy, Cocky: How the Top 1% of Entrepreneurs Profit from Global Chaos" (Wiley, 2011) and the forthcoming "A Uterus Is a Feature Not a Bug" (Harper Business, 2017). She lives in San Francisco.
Andy Dunn has spent the past ten years building Bonobos. He’s funded about 15 other ecommerce companies, advises even more, and serves on the board of three others. In this interview, he shares his thoughts on better fitting pants, 100M in capital, and why men should embrace a world run by women.