Zero to one, in the age of Moore’s Law, is an interesting phenomenon to observe. We see it in software and other forms of technology. It’s a common enough sight. Like Facebook’s 2004 explosion or Slack’s adoption growth in 2015, the hockey stick is so frequently observed that we expect other types of businesses to emulate the same trajectory. But fashion doesn’t work the same, the best ones take time and discernment. They pop after confluences of events or press mentions or the right person wearing something at the right time. It’s a brand’s foundation that should be the KPI, not it’s sales CRM.

It wasn’t until I recently spoke with the managing partner of a sizable family office that I learned just how little knowledge there is about what is required to build an enduring apparel brand. One that can IPO or stand on its own as a privately-held, profitable company.

Fashion retail is different than other product categories. In ways, it’s applied sociology. A DTC fashion founder can manipulate lifetime value (LTV) through product iteration, SKU variance, loyalty programs, and savvy ad retargeting. But fashion will never resemble the predictability or dependence often found in the consumption of cleaning products, dietary supplements, beauty components, or grooming necessities. Those products are needs more than wants. Apparel is often the opposite, it’s the embodiment of prioritizing our wants over our immediate needs. The DTC apparel space is irrational.

However unpopular the notion, venture capital is well suited for consumer packaged goods. Perhaps accessories and furniture, as well. Those are the types of one-off purchases that can be simplified to a simple ratio: $ = (MSRP – COGS) / CAC. The $500 luggage brand can spend $100 acquiring a customer and still net nearly $200 per sale (assuming a $200 cost of goods). Luggage is a need – even if it’s a fancy aluminum one that shines through the terminals of the world. But there’s never been a product with more substitutes than fashion and that’s why it’s becoming clear that digitally-native apparel brands may not be suited for traditional venture capital.

Whether or not there is a brand to suit that trend or idea is answered by studying the society, not an algorithm.

I’d argue that the vast majority of fashion-based digital-natives have better odds of developing profitability, scale, and potential exit without traditional venture capital. The growth horizon for fashion is closer to 10-15 years than it is 5-7 years. That 5-10 year difference allows for improved founder discernment, real consumer connection, and a shot at a longevity independent of the customer acquisition methods that venture firms are subsidizing today.

In a conversation with former Rebecca Minkoff CMO and Sociology Ph.D Ana Andjelic [1], she remarked on this issue.

Fashion is applied sociology. It is a recording mechanism of our time. It captures values that a society emphasizes at the moment and these values can live as a dress, a song, as a tweet, as a t-shirt or graffiti.

A couple of years ago, it was a time of rebellion and Vetements was at its peak with hoodies that made one look like they’d just smashed a Berlin wall. Some of their garments wore massive shoulders that seemed to signal “stay away.” But values unfold. What set Vetements or Off-White on a path for success, today, actually happened a decade or longer ago.

It was then when luxury fashion began to feel the generational shift – in brands, media, consumers, platforms.

The arc by which a fashion brand becomes popular is long. For example, everyone is talking today about Harry’s and Dollar Shave Club as new models of retail. That as may be, their rise started a decade earlier when men’s grooming habits started to shift. They were first to capitalize on the shift in the culture of modern masculinity.

Gwyneth Paltrow is often quoted saying that she was crucial in making yoga popular. That’s probably true. This idea symbolizes the American consumer’s fascination with Veblen brands [2] and the spread of trends from affluent to everyone. Again, the arc of adoption is long and has more to do with social influence and the evolving social currency than with a specific business model.

The biggest indicator that VCs should consider is whether a society is ready to embrace a new trend or an idea. Whether or not there is a brand to suit that trend or idea is answered by studying the society, not an algorithm.

The practice of reducing every product and brand decision to a figure on a Google dashboard is as pervasive as ever. In a recent conversation with an early stage apparel founder, he cited the need to maintain a consistent, non-promotional price point for his apparel concept. He pinpointed a specific, luxury customer and worked to develop messaging and content around a consumer that we called “Lucy.” A married mother of three, Lucy was an active, suburban resident with a household income of $320,000. Her neighborhood scratched the highest strata of the middle class. Her disposable income hovered between $3,000 and $3,500 per month.

Within six weeks of launching the brand and with little sales traction, he gave up on Lucy. He exhausted his targeting budget. His strategy shifted to cheaper pricing and an altogether new target consumer: college students. He set aside three months of consumer and trend research because Google told him that sorority students were clicking through to his site at a larger proportion than “Lucy’s.”

This is a common refrain. Rather than patiently and diligently speaking to the consumer that the product was designed for, he chose to offload inventory at 40% of the intended product price. This led to lower sales projections, a high rate of product returns, logistical headaches, and a customer acquisition cost that was no longer economically viable. He didn’t make it to the next round of investment. By lacking patience and trust in clear market trends, this founder surrendered the potential for sustainability and the fruits of power laws.  He closed the doors to his company seven months later, writing off his own $90,000 investment. He cited “the data” throughout his short process from zero to zero.

Developing the foundation

推特上的网络史密斯

Investment thesis: seek out DTC brands that can achieve modern luxury KPI: 1/ upper-to-premium price point 2/ avoids promotions 3/ discerning / few wholesale partners 4/ low-to-no performance marketing 5/ polarizing 6/ brand-first 7/ can achieve 8-figure run rate by 18th mo.

But zero to one requires a longer horizon. And ironically, there are few greater analogs for this the development of the Walt Disney Company. Designed by Mr. Disney in 1957, the document below is a mapped promotional system of media, influence, merchandising, and experiential marketing that worked as a collection of nodes. These nodes interacted with the consumer in numerous ways with the intent of promoting a single entity: Disney’s creative talent.

Replace Disney’s emphasis on “Creative Talent” with the “Optimal Customer”, the types of consumers that market-moving fashion brands need to leap into the mainstream. It takes time to map a brand’s promotional system. Consider that Nike reaches consumers in several ways. Consider this week:

• NBA team sponsorship
• Social Media (see here)
• NFL team sponsorship
• USWMNT uniforms
• Clever advertising
• Resale sites like StockX and GOAT
• NCAA sponsorship
• Brand storytelling (see here)

Brands can adopt similar vision strategies to scale from niche to eight and nine figures in annual revenue. For apparel retailers: patience, discernment, and vision have never been more important. This is how traditional apparel brands were built. However, in the DTC era, it’s a method that has been set aside for early-stage growth hacks.

Consider Wone [3], the luxury leggings brand. By starting with a small “friends and family” round before taking a round of non-traditional venture capital from Kate McAndrew and Bolt Ventures, quick scale took a back seat to the right scale. This approach allowed founder Kristin Hildebrand to focus on exclusivity. As a result, retailers like Barney’s recognized that their clientele were drawn to the brand. Net-A-Porter and Equinox Hotel followed. From Kayleigh Moore’s Forbes article on her sales strategy:

For WONE founder Kristin Hildebrand, it was Paul Graham’s Y Combinator article “Do Things That Don’t Scale” that sparked the idea to use a limited access model. She decided to build a company that was focused on prioritizing its best customers rather than mass audiences and sales numbers.

To many observers, long-term growth potential in digitally-native fashion is often disguised as a lack of meaningful scale. The right kind of development takes much longer than the wrong kind. From No. 277’s The Power of 100:

Without a strong group of early adopters, you will not efficiently achieve the attention of the masses. The first 100 are the foundation. Without the support of the 100, the masses will not adopt. Made famous by Simon Sinek, heed the diffusion of innovation theory: the early majority will not try something until someone else tries it first. Brands are judged by this early majority.

The alternative to the right kind of growth is scaling exclusively by paid impressions. There can and will be multi-billion dollar apparel brands built in the DTC era but they may not be conventionally built or traditionally funded. While the technologies behind them may not be particularly innovative, the founder’s mentality must be.

Statistics is a regression-based form of math that is founded on the belief that what worked in the past will work in the future. But unlike software and technology, apparel brands cannot be built in a vacuum. Society and its influences are as a part of apparel products as the threads themselves. To build an enduring brand, there must be an accounting for the variables that you won’t find on a dashboard.

Identifying those brands that are capable of transcending online retail is more art than science. And that means that traditional metrics are deceiving. It also means that modern luxury is for the taking.

Read the No. 323 curation here.

报告人：Web Smith |大约 2PM

[1] You can follow Ana on Twitter here.

[2] More on Veblen brands here.

[3] A 2PM investment