Friendvestor Update #1: Early Days

Your purpose for these updates will be to help me calibrate my decision-making.

  1. Provide critical feedback/insights. I will prompt this with “Requests for feedback” & “Requests for help”
  2. When you think I'm going astray, please tell me how & why to I can recalibrate.

Please note - because this is the first update, this will run much longer than those in the future.

Welcome!

Most of you are founders, VCs, creatives, or engineers at the top of your industries - it was during the process of assembling this small group that I realized how incredibly lucky I am to have friends as talented as you. I remember moving to San Francisco, not knowing a soul, and trying to build Fountain with Keith - what a world of difference a few years can make.

Because it's early days, I am going to do the first few updates loosehand without a clear structure or cadence. Speak up on what you'd like to see and what you think is irrelevant. Depending on what works well, we can crystallize the format & medium going forward.

I will reiterate this on every update - the objective of this is to encourage two-way communication. On any subject - you may be right, I may be wrong, or vice versa - doesn't matter. Please offer your thoughts, as often these early days of building the foundation are the most indicative of long-term success, which is my goal for this company.

I also ask that I can trust you as a friend of me and the company that this information remains confidential, unless there is clear benefit to sharing said information.

Without further ado - here is Update No. 1!


Introduction

Italic is a turnkey platform for top global manufacturers to sell products directly to Western consumers, thereby making high-quality products affordable and eliminating most markups: no brands, no retailers, and no supply chain partners.

The goal is to create any product in any category in any geography faster than any brand to meet consumer demand, and we achieve this by leveraging a "supplier-led, supplier-owned catalog" vs the traditional supply chain.

For manufacturers:
By handling what a brand typically does (design, support, marketing, D2C fulfillment), Italic becomes the easiest way for manufacturers to sell products they already make to a massive global customer base and thus retain massively higher margins than the traditional PO model.

For consumers:
We sell high-quality products you can't get anywhere else, made by the suppliers behind luxury brands and delivered (profitably) at truly unbeatable prices.


Read the following asks to keep in mind while reading the rest of the update.

Asks

To respond to a RFH or a RFF, respond to the email or text me (6308008207).

Request for help

Urgent

  • Absolute top priority right now is speaking with apparel & leather goods manufacturers.
    • If you know anyone who either works at or with manufacturing or sourcing companies, I would love to have a conversation with them. I've already found success w/ Li & Fung's Fenix knitwear manufacturing business, and believe I can replicate this success elsewhere
  • Engineering - I'd love to spend an evening or weekend w/ someone to walk through the architecture.
    • We have 3 products (a consumer storefront, a manufacturer console, and an internal admin console) & there are some interesting paths to take dependent on how the data is piped.
    • Alex Lin (CEO of Hush), Tom Schmidt (ex PM @ FB/IG)- you both likely ran into this exact question (recurring sync between Shopify & a custom database) - would love your guidance on any best practices.
  • Design - do you know anyone who has experience in apparel design?
    • Doesn't necessarily have to be a high-up individual, just someone who's ideally been in the industry for quite some time. We're likely going to try to modify global manufacturer's existing private label line so that it fits and appeals to Western buyers.

No Rush

  • Closely read through the General Updates to gain an understanding of the business.
  • Creatives - are there individual graphic designers (not agencies) whom you would recommend?
    • Our business depends entirely on the success of our services (design, support, sales, marketing, fulfillment). I believe strong, unique ad creatives will be imperative to our consumer value proposition in a saturated market. We have a remarkably unique pitch in the Western ecosystem - if we do this right, we'll cut through the noise like a knife through hot butter.

Request for Feedback

  • What are the glaring holes you see, questions you would like answered, or risks you'd like to see addressed?
    • A number of you are angels, VCs, or operators & have already expressed interest or directly committed to investing - I'm grateful for the support! That said, I want to passively prepare to be in a great position when fundraising actually starts.
  • Take a look at the designs provided. If you have any comments, share it on the Figma document or in an email response.
  • Check the list of names at the bottom of this update - any names that you particularly love / don't love?

Shout Outs

  • Thank you to Richie Siegel (CEO of Loose Threads) for walking through value proposition, messaging, and business model many times over
  • Thank you to Charles Cushing (Founder Galleon Logistics, ex COO of Twice)for a super thorough response and actionable feedback touching nearly every point I made
  • Thank you to Tom Gong (CEO of AllDragon, early cofounder of AliExpress) for sharing some insights into how AliExpress spent money early on and for quickly identifying issues in the manufacturer pitch. Very useful conversation.
  • Thank you to Nate Garhart (Partner at Cobalt Law) for addressing the risks that come along with comparative marketing and the possible solutions. I know your time is valuable and I appreciate it!
  • Thank you to Vijay Pandurangan (Angel in Wish, ex Google, Twitter Director) for thinking through the logistics model with me - I think we've found the missing puzzle piece (answer: D2C fulfillment from Hong Kong)
  • Thank you to John Coogan (ex CTO of Soylent) & Savraj Singh (CTO of Daily Harvest) for sharing how you scaled your storefronts and how + when + why they built custom solutions instead of Shopify
  • Thank you to the unnamed VCs who spent time evaluating and poking holes in the initial pitch this month. Was really helpful in identifying the looming uncertainties that need to be addressed.

Business

General Updates

  • My top priority right now is acquiring manufacturers for the platform. This number matters more than anything else right now. Without our suppliers, we have no products to sell, no customers to sell to, and no business. We're playing the long game here, folks.
    • By extension, this also results in the number of products that are consequentially listable. Over the years, I've learned that sourcing manufacturers is akin to enterprise sales: driven by relationships, take time, and unpredictable early on.
    • To source suppliers, I will be spending a week in China at the end of January, and subsequently several weeks that may lead to months in March/April after their new years.
  • Fundraising: A big decision that I've been weighing deeply is the launch plan, on which I've received conflicting advice from great people. The choices are the following (in order of personal preference):
    • Glossier approach: Raise seed, build small product catalog & early systems, raise A, build larger product catalog & polished software, and run a proper launch campaign with a polished product
    • Brandless/Jet/Honest Company approach: Raise A, build large product catalog and polished systems, and run a proper launch campaign with a polished product
    • Massdrop approach: Bootstrap, launch rabid Disqus community to drive demand, build small product catalog, launch barebones product, raise A
    • Equity-saving approach: Bootstrap, build small product catalog and early systems, raise A, build large product catalog and early systems, and run a proper launch campaign with a polished product
    • Everlane/Grana approach: Bootstrap, build small product catalog & early systems, launch unpolished version, raise seed, grow to large product catalog and polished product, raise A to fuel growth
    • D2C approach: Raise seed, build small product catalog, launch with a semi-polished product, raise A to fuel large product catalog
  • Legality: This used to be my biggest concern, but after multiple conversations and iterations, I am now fully comfortable with the risks associated with directly using other brands' names on the products we sell. In fact, come fundraising, I am confident in being able to even provide a reference law firm to vouch for valid claims so long that we continue the following:
    • Trademark
      • We must tread carefully here and be vigilant that our language and designs are classified as comparative advertising. Currently, our designs have been reviewed by 3 IP and trademark lawyers with decades of experience between them - so far, our claims fall under fair use. We're identifying these brands and saying something that's true.
    • Copyright
      • We will never copy an existing brand's design - our products will either be designed in-house, or a modification on a manufacturer's private label line. This prevents us from getting in hot water with heritage brands claiming similarities & a grounds for a “design piracy” suit.
    • Regulatory
      • Almost no action is taken when the advertising harm claim comes from the competitor, not the consumer
  • Logistics Model: I've finalized the initial plan, which was causing a lot of headache early on.
    • We will handle the D2C fulfillment on behalf of the manufacturer and will have a single centralized warehouse in Hong Kong where all orders will be shipped out of and where all production orders will be received. This is largely inspired by Grana's approach. Why Hong Kong?
      • Hong Kong is a global hub for air freight and a godsend for duty/tax/customs. We can offer similar shipping times as American carriers with similar rates.
      • We avoid 1 month transit times (which is typical for Asia → USA freight shipments)
      • This removes the need to set up a pick-and-pack operation at the factory/manufacturer. This would be incredibly costly and difficult for the factory to set up, and honestly only works if the factory is shipping domestically (definitely not internationally)
      • By handling fulfillment ourselves, we can control the packaging, shipping times, and consumer experience vs. relying on the manufacturer to do so. This is huge.
      • We will avoid customs declarations and thus mask the identity of the manufacturer to prevent their existing clients from being able to trace our supply chain
  • Manufacturer Model: I've also finalized the first version of a manufacturer pitch.
    • The first production run will be a feasibility test which means we are only going to place an order for their MOQ and also pay for the inventory Net 60. As soon as we sell through the inventory, the difference in the manufacturer's cost we paid for and the typical margin they would incur from the revenue will be used as a down payment for future production runs. Every subsequent production run, we will not pay for, and instead split retail price with the manufacturer.
    • An example: a manufacturer today sells jacket for $28 to Acne Studios who resells it for 7X, or $196. Their MOQ is 300 pieces per style.
      1. We work with the manufacturer to modify the jacket for Western fit and use the samples build creatives to prepare the product to be listed on our storefront.
      2. Our first order, we will place an order for 300 pieces at $28/piece for 2 styles with Net60 Payment ($16,800). We agree that a $98 price point will do well in the market while providing plenty of margin for the manufacturer
      3. We receive the 600 pieces, inspect it for QA, and list the product: “Jacket” made by the same factory that also makes sweaters for Acne Studios, at a $98 price point.
      4. We sell through all 600 pieces and generate $58,800 in revenue. We split shipping costs 50/50 with the manufacturer. We keep 50% - $29,400, and pay back the supplier twice:
        • We pay $16,800 to the supplier 60 days after accepting the inventory
        • We also pay them an additional $12,600 (thereby bringing their earnings to their respective 50% of the margin) in the form of credit towards the next order
      5. The next order we place (which will likely be after we sell through 400 of the 600 pieces), we do not pay for the inventory, and instead receive, inspect, and accept the inventory to our HK warehouse and begin selling the product on consignment
      6. The subsequent revenue on the product price will thus be split 50/50, with recurring payouts every two weeks

Core Metric

Number of suppliers
0

Secondary Metrics

Note: I don't plan on being in a position to track any of these #s for quite awhile, but it's good practice to be cognizant.

User Metrics

CLTV: 0
Conversion rate: 0%
Signups: 0
Customers: 0
Signup → Customer conversion rate: 0% (reverse is churn)
AOV: 0 (we have 50% take rate)

Acquisition

Cash-conversion cycle: 0
Blended CAC: 0

  • Facebook CAC: 0
  • Google CAC: 0
  • Influencer CAC: 0
  • Print CAC: 0
    Avg payback period: 0

Fulfillment

Fulfilled on time: 0
Fulfilled claim free: 0
Tickets to orders: 0%

Support

Customer NPS: N/A
Support NPS: N/A
Average response time: 0

Financials

I'm deferring the process of generating financial projections & budgeting until I have a stronger sense of what is absolutely necessary for launch.

Financial projections
N/A

Budgeting
N/A

Cash on hand
N/A


EPD

Design

At the moment, I only have iterated designs for the consumer landing page, the consumer product page, and a rough outline of the manufacturer console. If you have feedback, either contact me or use Figma and add your comments (click "Italic" at the bottom left):

Engineering

We have 3 products:

  1. The consumer storefront - what consumers see and shop from
  2. The manufacturer console - the dashboard where manufacturers manage inventory, products, orders, and payouts
  3. The internal admin console - this is where we manage D2C orders, shipments, inventory, and complaints

Consumer Storefront + Internal Console

Screenshot-2018-01-20-05.20.31

Screenshot-2018-01-20-10.25.54

For the sake of speed, I am persuaded to build the consumer storefront on Shopify and also incur the benefit of using the Shopify admin console.

Because we do not do anything unique with payment structures (i.e. subscription), it's a fairly straightforward implementation.

The only major consideration for building on Shopify is that we will need to use the manufacturer console API to push inventory status over to Shopify inventory on a daily cron job.

We will also have to poll the Shopify API for the sake of getting revenue per product to ensure payouts are made appropriately to manufacturers.

Not rocket science, but the linking of the two systems will take work.

Manufacturer Console

Screenshot-2018-01-20-05.27.34

After procuring existing solutions, I have determined that we must build a custom manufacturer console.

Ironically, much of the functionality is similar to Shopify's console. However, being able to payout, monitor inventory transfers, and provide adequate vendor support necessitates a custom-built solution.

The goal of the manufacturer product is to make it as easy as possible to monitor and update the following:

  1. Inventory transfers (shipments to the warehouse to replenish inventory)
  2. New product development and monitor product listings
  3. Manage their payouts seamlessly and without failure. This is of utmost importance to build rapport w/ manufacturers

Product

Between myself and several friends, the current plan is to build the storefront and the manufacturer console concurrently as the design process finishes up. If I can work really hard and fast, I expect that to possibly start early February (which is perfect timing as Chinese manufacturers are on holiday that month).

More on this in weeks to come.


Miscellaneous

Friendvestor Group

I'm now realizing how strong a group this is. Are there other top-notch engineers, founders, designers, photographers, VCs, or operations folks that I should be spending time with?

I plan on keeping this small for now, but I'd love to expand the base of feedback if appropriate.

Format

How did you like the format of this update - too much info? Too little? Should I have covered other areas? Please let me know and I will adapt for the next one.

Names

*Current favorite

*Fat Cat
*Envy
Solitaire
Propaganda
Alter Ego
Generic
Commonwealth
Bebop
*Italic
Boo
*Namesake
*Tory