#59. Resonance is a venture-operating company that is helping designers scale their brands at record speeds. We talk with its co-founder, Joe Ferrara, who started the company with Lawrence Lenihan after spending close to a decade investing in consumer brands and realizing the importance of flexible supply chains and modest capital raising. Resonance is the pair’s most ambitious project yet, as they seek to redefine the skillset, infrastructure and capital needed to succeed today while Amazon and Zara continue expanding. The Loose Threads Podcast features in-depth discussions with leaders across the rapidly changing consumer economy.

Check out the full transcript below.

Richie: [00:00:07] Welcome to the 59th episode of the Loose Threads podcast, a show about the rapidly changing consumer economy. This episode is brought to you by Loose Threads membership, which gives you actionable analysis insights into events that drive growth and Loose Threads Espresso, your energizing and high pressure filter for consumer news—in context. We also have a newsletter that features the latest open letters to CEOs, podcasts with industry leaders and news from Loose Threads. Check it out loud at LooseThreads.com. Joining me today is Joe Ferrara, a co-founder of Resonance, a venture-operating company that is helping designers scale their brands at record speed.

Joe: [00:00:42] If you have an idea and you spend a dollar to test it and it fails, who cares? If you spend a million dollars to test it and it fails, you can’t do too many of those. We’re driving the costs of creation down to clicks and that’s why the technology and our infrastructure is so important.

Richie: [00:01:00] Joe started the company with Lawrence Lenihan after spending close to a decade investing in consumer brands and realizing the importance of flexible supply chains and modest capital raising. But Resonance, is the pair’s most ambitious project yet as they seek to redefine the skill set, infrastructure and capital needed to succeed today, as Amazon and Zara continue to expand. Here’s my talk with Joe Ferrara.

Richie: [00:01:25] So why don’t we start. Just talk a bit about your background and how you got into the industry—maybe the five-minute version—and then we can work our way up to Resonance.

Joe: [00:01:33] Resonance was founded two years ago with my partner Lawrence Lenihan. He and I started investing together as an angel. I’m going to work back in history to the very beginning—not quite birth, but somewhere close. He and I started investing seven years ago in the fashion industry. We’ve invested in brands. Some have done extremely well, and we saw that as an entryway and a prototype for how to build brands in the future. And our current fund is here to invest in the brands of the future. Prior to angel investing, [I] spent years in supply chain management, owned one of the largest private label firms in the Western Hemisphere. We had 2,000 employees and were driving private label businesses across major retail and department stores throughout the United States, a little bit in Canada and a little bit in Europe. Prior to that I was an NYU student, so I’m now jumping way back. [I] was in business school and went straight into management consulting in a very hot technology at the time called mobile. And from mobile, [I] went into supply chain and began a career that spanned 25 years building product in that private label business that I talked about. So, I mean that kind of gives you about 20-some odd years of history leading up to you know the current, which is a venture operating fund that is building the brands of the future.

Richie: [00:02:50] What was the first incarnation of Resonance that you can remember

Joe: [00:02:55] It really was seven years ago. So we were involved in Mayor Bloomberg’s Fashion 2020, which really was saying, “What does the industry look like—with a New York-centric perspective—but what does the industry going to look like in the year 2020?” And I was part of that mayor advisory committee and it was really fascinating. So, you know, my background obviously is in supply chain and make. All right so, will fashion still rely and depend somewhat on making clothes? You know, my answer is a resounding yes. And so the perspective there was, what does that going to look like seven years out, eight years out, at the time that that initiative was formed.

Joe: [00:03:30] And it really was that combined with angel investing where a lot of new companies that were great brand ideas, direct-to-consumer—you know, think Bonobos—and it was, how do we build these brands, how do we connect with customers. And I think a lot of the companies that we saw were great at connecting to customers. They were great at marketing, they were great at really generating energy and tapping demand for product. And then as soon as they tried to operationalize their business, it was sort of a watershed collapse of everything. And it’s everything from, you know, how do you manage fabric and piece goods and how do you not have too much inventory for that which was not popular and not enough for you know all of your hot sellers. And constantly operationalizing the business came back to supply chain. And so my perspective was, “You can’t execute half a plan—and half a plan is do the marketing, have wonderful creative, really tap demand and connect to customers—and then deliver nothing. And so if you think of it as the digital and analog marriage of a business, the digital is how do we connect to the analog is, you know, where’s that physical product that’s going to show up at my doorstep that I can wear. And if you can’t marry those two, you don’t have a business. You certainly don’t have a business that’s been operationalized and can perform.

Joe: [00:04:43] So that really was a perspective going in and we invested in businesses that have done extremely well because they had both sides of the pie. They had the digital, they had the analog, and that perfect marriage of demand activation and supply gratification through physical delivery of product was key and essential. The company we like to talk about a lot because it’s the perfect archetype for both, you know, how it was capitalized and how it performed is a company that no one knew six years ago: Tommy John. Tommy John’s an underwear company. Tommy John was funded with an angel seed level capital and never had a follow on round. I won’t quote what their revenue is, but if you think of Bonobos at north of $100 million, Tommy John is neck-and-neck with a company like Bonobos. And that was on a single seed round. So think about it. Seed rounds tend to be under $2 million dollars and this one was. So run the math, right? This is an incredibly successful company that was built to be durable operationally from day one, had the power of the digital and the physical analog and executional infrastructure in order to build a brand which they now are. And that’s one of the best unknown properties out there. That’s the archetype for the type of companies that we’re investing in that Resonance.

Richie: [00:05:54] So from the investing side—being able to look into the business—you saw effectively, as Tommy John that you just mentioned—a perfect embodiment of what was possible if this happened. And then I’m sure you also—I don’t know how many hundreds of deals came across your desk in the years you’ve been investing or are investing—I’m sure you saw most of the opposite.

Joe: [00:06:11] I wish I only saw hundreds.

Richie: [00:06:13] Thousands?

Joe: [00:06:13] Yeah, it’s thousands. Yeah, I mean, so I was a board member at New York Angels—one of the largest angel networks in the country. We literally saw thousands over the years. We invested in a bunch, right? You’re running a portfolio. And the emptiness of so many of the really slick decks always came down to operations. Everyone pretty much had great ideas—great ideas don’t build great businesses. Great ideas unfortunately—I hate to say it, I don’t want to crush the souls of all those with inspiration—but they’re a dime a dozen. The reason why we see thousands of angel deals is because there are thousands of ideas. And the ones that actually float to the top and you want to skim off are the ones that have operational grounding. So if the operational plan is not there—now we’re getting into another piece of my history.

Joe: [00:06:59] So I’ve been on the faculty at NYU, teaching in the business school. Now [I] currently teach an MBA course in entrepreneurship that really focuses in on, “Hey, if you’ve got a business plan and an idea and you can operationalize it, you’re just not going to make that 2 and 3% cut for the entrepreneurs that make it.” So it really is about execution, not about the idea. Hate to crush the souls of those with great ideas, but, you know, you’ve got to have that second half, which, in the fashion industry, if you are a product concept, you need to know if you’re pure retail, you’re still managing product. If you’re a vertical player that is making and selling product, you definitely have to manage product back further in the chain to its creation, its formation, its inventory management, its staging—all of it’s really complex. Once you master it, what’s great is it’s extremely scalable. We like to think of manufacturing as the original scale concept, right? How do you make a widget? How do you make many widgets? That is manufacturing. And we talk about scale all day long when we look at a business. Is it scalable? Well, you know, let’s use the manufacturing analogy. The widget is the perfect expression of a manufacturing analogy.

Richie: [00:08:07] So I guess I’m want to spend a minute just talking about why there was so little expertise on the operations side. Because we both, in different ways, spend a lot of time looking at the current kind of landscape and all of these brands today are predicated on “things are different, stuff is changing, the internet has democratized, blah blah blah blah blah.” It would seem—and this is a hypothesis and tell me if I’m wrong or how I’m wrong—that the manufacturing supply chain logistics have generally always been important and always been hard. And that’s not necessarily a secret to any of these businesses, but a lot of the focus went elsewhere, into the digital and the marketing and the branding side. I guess I’m just curious, why do you think that happened? Because all these companies sell physical things—that’s not a secret of the business model. But it seems a lot of the expertise and the focus was put elsewhere, as you said

Joe: [00:08:47] It’s interesting, and maybe this is a reflection on the state of our country. And I’m not going to step into a political puddle. I will not do that. But I think it’s a reflection of what’s going on in our country. I mean, if I go back 40 years, we still made stuff in this country. And so the basic expertise was here—you had factories, people walking through factories. You had a visceral understanding of what is right and what is wrong in a make context. So let’s dial back to 30 years. A lot of that started to move away and it wasn’t reimagined in any particular way. It just said, “Let’s get all of this bulk activity out of this country and let the water flow down to the level that it should.” And that’s okay because the masters at that time—the ones who knew how to make things—were actually engineering the movement of product to other parts of the world. And actually, America was muscling at its best because the masters who drove that move—it was really a logistical challenge to lift up manufacturing, carve out certain parts of it and move it to another part of the world in a time when you didn’t have the internet. You relied on phones and planes in order to remote manage. Dial back 20 years and the masters kind of started to fade away and all of a sudden the masters were now located in other parts of the world. Dial back 10 years and we no longer had manufacturing masters.

Joe: [00:10:05] And so we had this remote management infrastructure where the intelligence and the mastery was no longer here. And we became masters at… Think about when you walk into a McDonald’s. You look up at a menu and you say, “I’ll have a ‘number one.'” You really don’t know how that hamburger’s made. You kind of suspect that there’s beef and maybe some lettuce and there’s this flowery stuff.

Richie: [00:10:25] And maybe beef.

Joe: [00:10:27] And maybe beef. But you order a “number one.” And so, what you have in recent times—where we are now, in an environment where the complexity of challenges of manufacturing have grown exponentially—you’ve got an environment where people are saying, “I’ll have ‘one of those.'” Well, how ‘one of those’ comes out and how it’s actually made is always a disappointment because “I’ll have ‘one of those'”—it’s not McDonald’s because you’re a true creative, right? This is unique product. This is not a commodity that you’ve designed or conceived. And so, all of a sudden, “I’ll have ‘one of those'”—you wind up getting back just commodity. And so the ability and the mastery of manufacturing is no longer here. And the complexity and the demands of these great ideas that we see, that are driven by customer connection and micro market segmentation, where these ideas… When we talk about thousands of ideas by budding entrepreneurs, they’re coming up with wacky product concepts that are just awesome and they’re actually tapping demand that is unmet. [The] only problem is [that] they’re ordering ‘one of those,’ and so they’re trying to satisfy this awesome demand with complex product and potentially complex personalized delivery systems as requirements with a McDonald’s ‘number one’ hamburger.

Richie: [00:11:42] So it seems that, if I’m understanding correctly, two things kind of happened. The first was, as production moved abroad, the ability to learn from it, from being close to it started to take a hit. I mean, I think where we met, when we were working on our menswear line here in New York, it was essential that we could walk to a factory—not get on a phone call—to learn those things and I think we learned five-times faster than we would have if it was somewhere far away. And then two, the complexity also increased and so you had basically less proximity and more complexity. Is that a fair summation

Joe: [00:12:10] Yeah, it’s a great summation and the word that comes to mind—and we’re all going to remember this—is iterations. How do we learn? We learn by failing. The question is, how many times did we fail before we learned?

Richie: [00:12:20] And how cheap are those mistakes?

Joe: [00:12:21] So, can we make mistakes really fast, really inexpensively, because if we can, on the 10th try, I’m going to hit it out of the park, right? [The] problem is, we only get three strikes and you’re out. So can we redefine the game of baseball to say “20 strikes and you’re out”? And can I do those 20 strikes in like 15 minutes? And can each strike cost me nothing? Because if you can, it’s like great, swing, go! And you’ll hit it. You’re going to knock it out on the 20th.

Richie: [00:12:44] That makes sense as to why that was starting to happen. And so, you’re investing—this is seven years ago, you said—you know Lawrence from the investing side from NYU. Why and when did you decide, “Okay, this is the next thing.”

Joe: [00:12:55] So it’s a great segue because when your venture investing, you’re writing a check to a company with a great idea with operational promise. And we want to see those two things. Whatever’s special in their business plan execution—you want them to get that right. Unfortunately, they wind up spending about 80% of their time on the basics, like do you have QuickBooks? Are you billing? Are you collecting? Do you have an H.R. infrastructure? Are you paying your bills? Did you order water for the office? And I know that seems like really stupid stuff and it really is stupid stuff and we wind up seeing, you know, our checks for a million bucks—too much of the money is going to the basics. And what’s really tough to see as a portfolio investor, is five companies, ten companies, going through the same pain. And you’re like, “Wait a minute. I wanted you to spend most of your time and energy on the special part of your business, not on the basic part of your business.” And so the incredible waste that you see from a portfolio perspective is seeing an office being built ten times across ten companies, seeing the same mistakes on H.R. being 10X. The waste was incredible from our perspective. Now, from each company’s perspective, it’s like, well, this is how you build a business. This is the pain of building a business.

Joe: [00:14:12] So our perspective is twofold at Resonance. Number one: How do we run these portfolio companies as a class? How do we have them move together, how do we have them learn from each other, how do we have them not make redundant decisions from our perspective over and over again? And how do we just build a platform that provides all those basics. So, you have a financial backbone, you have a commerce team backbone, you have a web infrastructure that works, you have a delivery apparatus that works and you have a full supply chain complement that makes product, from product development to customer doorstep, last mile. How do we take all of that infrastructure as foundation and say, “You do only what is special. I want you to spend time and money on what is special.” Which, by the way—and this is not a criticism, this is actually a complement to these companies—what is special is 20% of what needs to be done. So how do we just commoditize 80% and make efficient 80% as a platform so these companies have a fighting chance to do what’s special. Where they’re spending, yes, in aggregate it’s 20% of the resources, but actually it’s 100% of their time. Okay—99%, because they have to spend a little bit of time on the other stuff.

Joe: [00:15:28] But on a platform such as Resonance… And I’ll describe a little bit more of what we’ve done is, we consider ourselves a venture operating company and the way, you know… As all good ideas, they’re born on a napkin. It was, “Wait a minute! We’re going to have the venture fund of the future. No, no, no! We’re going to have an operating company because we’re going to have real substance and provide real value, foundational value, operational value to the companies in which we invest. And so, of course, the answer is, “Wait, we’re going to do both. We’re going to have a venture fund that is an operating company,” and that’s how the venture operating company was born.

Joe: [00:16:02] The operating company piece is that 80% of pain and foundation that every company needs. And we found, especially in fashion, because of this digital and analog challenge, that foundationally that 80% is just the same for all. They need the same basics in order to execute product they need the same basics in order to jump over from that digital to analog execution. They need the same basic foundation to operationalize their business. And so why not have a home and a place for these companies to build their base? And when we write a check, instead of writing a check a million dollars over ten times, maybe we only have to write a check for $200,000 because we’re covering the $800,000 through the foundation. Which is really the original concept.

Joe: [00:16:49] What we have learned and what we suspected at the time when we invested two years ago in Resonance is that there is actually another massive benefit. So, as the investor that has a portfolio of companies, we get to become really smart across our portfolio because we see mistakes from company one and two become great advisers to company eight and nine by telling them, “Hey, don’t do this because it’s going to really hurt.” Or, we see the successes from company three and four and we say, “Hey, company five and six, try this—it will really help your business.” So the learnings from one company, as an investor—all that knowledge is captured. And then you become a great adviser to the rest of the companies.

Joe: [00:17:31] Hell, we just flipped it. We said, “You know what, companies one and two—talk to companies three and four, share each other’s mistakes and let’s build that into the foundation of our platform so that everyone learns really fast.” When you’re on a platform, you’re a fast learner. To the point of iterations earlier, how do we not only have companies iterating quickly, but how do we have them share each other’s journey so that you don’t have to iterate on the thing that I iterated yesterday because, you know what, I put my finger on the stove and it burnt. Please don’t do that. Use the knob, it’s much better than putting your hand in the fire.

Richie: [00:18:05] So two years ago, what did you guys start doing? Obviously I know there’s a physical piece, but talk about how it all came together in that first year.

Joe: [00:18:14] How do you build a platform for the brands of the future? Brands plural. Heavy focus on an operation. So, the very simple formula for digital and analog operational excellence is I have a commerce team and I have a backend infrastructure. Commerce team is customer acquisition, performance, marketing. Backend infrastructure is finance and manufacturing. Because of who we are, the idea is how do we bind all this with technology? If you think about just making resources available à la carte, that’s not very interesting. Making resources hyper-efficient is really interesting and the efficiencies come from technology.

Joe: [00:18:52] So the play that we did—and this was a leap that was toward the end of year one—was, all these piece parts are great and we make them available to our portfolio companies. But how do we have companies easily plug into the foundational infrastructure that we’ve built? The answer is through technology. And so, what we’ve done is we’ve built out manufacturing facilities, finance capability and commerce team that are fully integrated through a platform that allows complete visibility for a designer to take a product concept and a sketch and literally click their way through to a prototype showing up in four days, to a swatch showing up in 72 hours. Being able to do this without human contact. The traditional way for digital to analog is, “I have an idea, I’m going to send you the file and I’m going to communicate that this is the yellow that I want.” Why communicate “this is the yellow I want?” Why don’t you see it on your screen, why don’t you press click and let me see it physically show up you know in an envelope in 72 hours?

Joe: [00:19:55] And if it’s the yellow I want I’m going to click another button that says I want a shirt in that yellow and then that shirt should show up in another 72 hours. And then when it shows up you should be able to say, “Auto upload to the commerce team” and all of a sudden I’m selling it on Shopify and I’ve got my first sale four days later. So how do we take an idea and compress the cycle to commerce in six days, five days? In order to do that, you need technology and the technology that we’ve deployed allows designers to click their way through prototyping, move to commerce, and a machine takes over to deliver product and user product within days. And that’s the kind of power of commerce married to backend infrastructure on a technology platform where a designer can plug in and move idea to customer doorstep within a seven day period. And that’s what we’ve built.

Richie: [00:20:51] So that’s what you built. I’m curious how did it get built and what were some of the lessons, inferences… To do that in two years is kind of crazy, I would say.

Joe: [00:21:00] It’s crazy. You know we love giving tours.

Richie: [00:21:02] Talk about also the assets I guess because there’s obviously a physical piece.

Joe: [00:21:06] So it is tough to describe. It is easier to see. So we’re going to have to…

Richie: [00:21:10] Luckily this is a podcast.

Joe: [00:21:10] We’re going to have to do our best to paint canvas here today. So imagine things that we can understand like a factory. There’s 150,000 square-foot factory that has these million-dollar printers. And there’s two of them now and a third one will be here shortly. That has full finishing capabilities—they print, they digitally print. And digital print is really important because digital printing is one of these technologies that moves digital to analog. Literally a digital input comes into an analog form in the form of color on fabric or graphic design on fabric. [The] problem with digital printing and what we’ve built, which is very different, is digital printing has been applied very successfully to things like activewear. So, think baseball caps and Lululemon stretchy pants, and, you know, it’s all synthetic product that tends to be poly jersey, it’s inexpensive goods. What we built is a version of that but for elevated goods, so very expensive silk product. Think Lake Cuomo region Italian fine silks. We’re printing wool, expensive rayons. We’re printing the most beautiful jersey tees. So right now on platform what we’ve built is we’ve taken these very expensive digital printers, we’ve taken a bunch of mad scientists who have worked chemistry to deliver digital printing on what’s now 25 fabrics that allow designers a range of products to produce beautiful, expensive garments very, very quickly. So there is a really big factory that’s part of the backbone.

Joe: [00:22:40] What we’ve built is a commerce team. You know they high-five by the hour as they sell product. And we are running some of the most advanced AI algorithms to drive how customer success breeds more customer success. So we tell our companies, “When you hit 1,000 customers, we now have a lot of data. And when you hit 1,000 you can get to 10,000.” All right. And so 1,000 customers is a really important milestone. Depending on your product and price point, you’re gonna get to 1,000 is going to deliver you somewhere between $250 and $500,000 dollar revenue stream. And when we tell you that we can get from 1,000 to 10,000 based on the data from a thousand, that performance marketing team is now going to bring you over the 2 million mark to the 5 million mark to the 10 million mark.

Joe: [00:23:27] So all of a sudden you’ve got a brand. If you can hit that early-stage customer acquisition play and plug into our commerce team, which is already built, which is made up of data scientists. Actually we don’t like using the term “data scientist,” but let’s just say, people [who] are able to process and crunch data in ways that are really, really amazing as well as performance marketers who are running a campaign cadence and applying best practices to these very small companies so that they can drive revenue better than their larger counterparts. In a world—and think of it in these terms because we like to think of these two very powerful forces in our industry—in a world where Zara dominates supply chain, Amazon dominates data and data aggregation… And those two kind of represent an army of other companies that are following and doing versions of that.

Joe: [00:24:19] This is a world where we will give you the power of Amazon, the power of Zara, and you’re going to bring something really special—it’s called the power of creation. Because you know what? Zara copies—they don’t create. You know what? —endless commoditization of product through endless data. And so if we can take those two very dry but powerful forces and add magic, which we call creation, we’re going to kick their asses. So this platform is the Zara-Amazon platform for creators. That’s what we do. That’s what we’ve built.

Richie: [00:24:52] So, you’re abstracting or taking away a lot of the operations of the supply chain, which [as] we talked about before, is a very big pitfall or kind of a trap for a lot of the companies. Same on the data side and ecommerce. I mean, I think—and we can talk about this more—but the acquisition landscape from a customer perspective is arguably one of the most essential problems for a lot of these new digitally-native brands because they simply to a certain point can’t afford the rising costs on the major platforms. Not “what is the creative worth?” but how do you now decipher what is good versus bad. Because if you’re putting all of your eggs effectively in the basket of the creative, which I think has all the upside that you’ve alluded to. But I think we’ve also seen plenty of companies that are really, really creative, but things change, trends change, all of that. And at the same side, even if you think more about Zara, there’s something over time unsustainable there about this constant turn and turn and turn and turn. And so, how do you approach to me what seems like a massive opportunity but also a risk of putting all that trust in the creative? And how far [will] that actually go

Joe: [00:25:48] It’s a great question and too bad we only have an hour. So we’ve already established things are really complex and execution is super challenging. We’ve established that the small guy is hampered and held back by this 80%. This challenge of the basics. And we’re removing all of that. We’ve also said that Zara copies the creative, right? And they do it better than the creatives can. Zara will look at something new and they can have similar product at an incredibly low price and you know three-and-a-half to four weeks. Every day—I know this sounds really nerdy—but I like typing in Amazon’s search, “little black dress” to see how many options come up. The lowest has been 493,000 options. The highest has exceeded a million. So those forces are powerfully out there. We’re taking a bet on creative. Creation is about discontinuity. It’s about creating something that a customer didn’t know they wanted. Amazon and Zara are creating something that they know the customer wants, right? So let them keep doing that. Let those powerful forces continue to play out whatever it is they’re going to play out. We’re making a bet—and I’m going to answer your question on how to mitigate risk. We’re making a bet that we want to be supporting creator-driven brands that are creating things that customers didn’t know they wanted. And that’s a really important concept.

Joe: [00:27:21] So how do you mitigate risk, right? You know, what happens if they create product that they didn’t know they wanted [that] in fact they didn’t want? All right, so how do you do that? And this is where the power of the platform is so important. When you create something that no one wants, just make one. So if we can drive the cost of creation down to zero—and that’s our goal then we call it “a dollar and an idea.” If you have an idea and you spend a dollar to test it and it fails, who cares? If you spend a million dollars to test it and it fails, you can’t do too many of those. We’re driving the costs of creation down to clicks and that’s why the technology and our infrastructure is so important. If a creator wakes up in the middle of the night and has an idea for a product that is just insane and they can execute it and see it in 72 hours and start selling it in 100 hours and customer response is zero, who cares? Let it evaporate until the next great, crazy idea emerges.

Joe: [00:28:22] So it really is a game that says, “Hey, creators, you can drive new product ideas at an incredibly low cost.” You know why? Because we flattened the infrastructure to clicks so that you don’t have an army of pattern makers. You don’t have line adoption meetings. You don’t have commitments that say, “Nine months from now, this is what we’re going to be publishing, this is what we’re going to be selling.” Why don’t I just take an idea with clicks without talking to anybody and seeing a live product in 72 hours, selling it, seeing if there’s a response, and if there is, I can make a thousand of them or I can make none. I’ll make a thousand if the response is resoundingly in love with that thing I didn’t know I wanted, or I can make zero and move on to the next great idea. So we’ve operationalized that concept of rapid iterations at low cost. And we focused it on creation. How do you drive down not only the incremental cost of making a product, but also the incremental costs of designing a product and realizing that product and moving it out to commerce?

Joe: [00:29:29] And that’s how we mitigate risk. We’ve put that power in the hands of the creators to say, “You’re a creative-driven brand, you don’t have to go through a line adoption meeting, your cycle is not seasonal—it’s continuous. If you wake up at three in the morning and you want to sell product tomorrow, do it and don’t talk to anybody—just click your way to that dream. And when the response is positive, you’ve got an infrastructure that gears up and pumps product out faster than Zara.” And you know what? If two weeks from now that trend is over and you sold your 642 items and Zara wants to copy you and in week four they’ve got a facsimile of what you have, you’re not making it anymore. You know why? You moved on to the next discontinuity in creation. And let them try to catch up to that game. They’re going to realize soon, to answer your question: Zara is going to have to get into the creation business. Amazon’s going to have to get into the creation business. We are already in the creation business.

Richie: [00:30:24] So you want to go faster than Zara?

Joe: [00:30:26] We want to go the speed of light. And the speed of light is the speed with which creative comes up with an idea. And that cycle is how do we stay digital long enough so that that idea can be published and then quickly flipped to analog as soon as there’s a demand signal. That’s how fast we want to go.

Richie: [00:30:49] My next question then is—we’re talking about product right now, right? You’re talking about collapsing the speed of product creation to put it out. How do you then square this with building the enduring brand, right? Because they’re obviously connected, they’re somewhat different. And I guess if I look at Zara, their ability to move as fast as they do—it’s a valuable brand, but it’s kind of worth nothing because it’s just whatever they funnel through…that’s a Zara product, right? There is nothing defined about it in a way and I think you could argue that a lot of very good brands have a definition, a point of view, something like that. I don’t know if Zara has it effectively besides just fast things, currentness, so forth. How do you square then, the speed of the product you’re now able to create with the reality and timetable of what it takes to build an enduring brand? If that makes sense.

Joe: [00:31:33] Yeah, that makes perfect sense. So, you know, we talk about brand building as “delivering the promise.” Right? And the promise is one of consistency. So in a world where we just said, “Let’s celebrate discontinuity,” how do you square that with consistency? And the answer is, is that every creator-driven brand is going to have their own special form and version of this continuity. And so, you know, maybe it’s radical freedom, which is the inspiration behind a brand and it’s expressed through a red stripe and a white stripe, and somehow that red and white stripe is present in every discontinuous design version that that brand makes. So you’re still going to have the principles of business and branding apply in a world where there’s continuous discontinuous publishing of products.

Joe: [00:32:17] And here’s the protection to make sure and ensure that you have delivery on a promise. And the answer is don’t get too big. And the reason why is, if you are focusing on this discontinuous creation of product and doing it consistently, what you’re really focusing on is your tribe and it’s going to be defined by a very specific connection to a group of customers that thrive on those freedom stripes or whatever the hell is important to what that creator is communicating. And so as soon as you say, “Hey listen, freedom stripes is only good for 127,000 customers. The rest of the world doesn’t give a shit about freedom stripes. It’s just 127,000.” As a brand, you’re like, “Well, at 127,000, I’ve got a $25 million brand.” Right? “And I’m continuing to satisfy and engage this audience.” We want to grow. We need to capture a million customers. Well, you know what? In order to capture the incremental 873,000 customers, we’re going to have to start to water down that concept of freedom. And we’re going to have to make it not just a red stripe and a white stripe. We’re going to have to include a green and a yellow stripe and it’ll appeal to a broader audience. All right? So what have you just done? You just killed the brand. You’ve just played into the mass, right? Because you’ve now pissed off those 127,000 customers who loved you for red and white. You’ve now appealed to this other group of customers that don’t love you quite as much as the first 100,000 did. But they kind of like you. So you’ve now traded out love for like.

Joe: [00:33:53] And so you’ve now broken the promise to those who love you and you’ve now you know expanded the promise to those who like you. And as a brand, in our perspective, you just broke equity. You’ve just diluted your meaning and importance. Stay meaningful. Become as large as you should be in order to maintain the meaningful quotient. As soon as you dilute meaningfulness and connection to customer, it’s Zara’s turn to take over or let it be Coca Cola. All right? Because it’s now not going to be you, it’s going to be a broad-based rather than a very specific and narrow love. And so our vision is that there will be a world where there are many brands that have very strong connection to a narrowly-defined group of customers. And so that’s the defense for a brand. As soon as you dilute your promise, as soon as you water it down, as soon as you try to appeal to an audience bigger than you should, you’ve just made a mistake. You’ve just opened the door to now competing against someone who isn’t as meaningful as you used to be.

Richie: [00:35:01] Through that lens then, let’s say you’ve got a brand of $50 million in revenue, $30 million in revenue, and then there is some assessment that “We’ve saturate early adopters, we can make some calls, but that will start to have negative effects on that.” Is there inherent pressure to keep pushing past 15 or 30, or do you just say, “Hey, you’re good, just keep doing it to maintain. How do you square that

Joe: [00:35:21] Yeah, that’s a great question and there’s a few answers. So there’s the venture capital and investor hat that I’ll start with. Let’s say we have a great brand. And if we capitalize the company in such a way that it can be profitable at $10 million. And the brand should only be $9 million, we screwed up. Right? We overcapitalized. Because we’ve now said, “You know what, you’ve got to grow to 20.” And then you’re in that dilution cycle that I talked about a minute ago. If we capitalize that brand and it can be profitable at 10 and its correct size is 30, we’ve made a great investment. And you know what? Part of the selection is, “Hey you’re a $30 million brand. You own 50% of your company as a creator. And your customers love you and they keep coming back. Stay a $30 million brand. Be as big as you should be. Don’t sit here and say I’ve got to be 60. I’ve got a double next year.” So the trap that happens from over capitalization is if you’ve capitalized the brand where it must be $100 million, you’ve now set the threshold at 100. You’ve now taken out all of those great brands that would have wonderful connection to customers that are below that hundred.

Richie: [00:36:36] Right. Which to me is the entire story of this general crop of digitally-native brands.

Joe: [00:36:40] The capital structure that we have right now says that every one of those digital brands needs to be between 500 and a billion dollars. Hey, that might work really well in technology. It’s leaving a lot on the table for fashion. A lot. What’s wrong with a $50 million brand? Nothing. It’s great.

Richie: [00:36:57] Give me 20 of them.

Joe: [00:36:58] All day long. Let’s do it.

Richie: [00:37:00] So you built your career on the private label side. What is it like to now go to the other side of it? Because, to me, one of what seems like a private label kind of lesson is [that] some of the best businesses in the space get built as core-base businesses, they’re making repeatable product, they’re building up the story over time. It would seem [that] a lot of private label somewhat fits that bill of sticking to consistency and kind of evolution a little more incremental than some of the more cutting edge stuff. Has that changed? In the sense of, if I came to you saying, “I want to make a core-base brand,” is that interesting for what you all are doing? And what’s it like going from more of the manufacturing, product-driven side now over all the way to the creative side

Joe: [00:37:38] It’s fascinating, because the scenario that we just painted of having thousands of small micro brands is a scenario that this entire industry is saying, “What does that look like?” No one really gets it.

Richie: [00:37:50] Why has it not existed?

Joe: [00:37:52] So, it hasn’t existed because if you go back many, many years, the major brands aggregated the resources that were required to make stuff and they ruled the game. The cycle shifted to the major retailers who were aggregating the customers and the manufacturers succumb to the retailers. The retailers says, “Jump how high,” and the brands would simply supply the retailers because they had the spigot flow on revenue, which is access to customer—geographic aggregation of customers through physical retail stores. And so this has always been a behemoth game. And the behemoths have been the brands and the retailers. All of the—I’m going to call them “old timers,” you know, those two groups—they have no idea how to thrive in a world where thousands of small brands are going to eat lunch. From my perspective this is complete greenfield new territory. The retailers have never seen it before. The brands have never seen it before. No one’s ever seen it before.

Richie: [00:38:47] Even the holding companies today—the financial holding companies are not actually synergizing any of this, right

Joe: [00:38:52] There is no playbook. All of those brand playbooks—they’re done. Not going to do it again. The last of them already happened. And so there is no playbook on this. So how do I see this? This is new territory for everyone. And so we’ve laid out our stake. We’ve said that in new territory, creator-driven brands are going to win, small and many is the game. Will that be the playbook of the future. I’ll talk to in ten years.

Richie: [00:39:19] Do I have to put our product at pure speed to work with you or if I said, “Hey, I want to put out 20 SKUs a year and build a core business,” what would you say

Joe: [00:39:28] You know what I’d say? First of all, we’re not the arbiters of what’s good and what’s bad. We’re not going to sit here and say, “Hey, that’s really on trend. Come on platform and sell.” The ultimate brand equity is measured by connection to customer. And if you show up with 100,000 customers who love you to the end, who will kill and die for your product, and you connect to them through that product consistently over time, come on board. That’s all we care about. And if our infrastructure empowers that and allows you to tweak—for example, you might have a basics line that has continuous product improvement. Continuous product improvement for a traditional company is really difficult. You know why? They get to improve the product every six months. All right? So you might want to be on platform because you want to improve the product every week. And so literally you’re making small batch production and you’re improving, constantly tweaking based on this tribe that loves you.

Richie: [00:40:25] Right, so it’s speed on the backend; you don’t have to necessarily use it on the front end.

Joe: [00:40:27] That’s right. Speed where you need it.

Richie: [00:40:29] So, I guess, give us a bit of a status report talk about what you’re looking forward to or what’s the plan for next year and then we’ll go from there.

Joe: [00:40:37] Next year is really exciting because you know we’re seeing post-validation on what we’ve built and where I am actually more shocked than in any other is if I dial back three or four years from now, where we are right now in 2017-18 is where I thought we’d be in 2022. So the acceleration that has taken place is blowing me away. But everyone knows that in 2018 we’re going to see more headlines that shock us all. You’re going to see more major brands collapsing. You’re going to see more major retailers collapsing. So what does it mean for us? Well, good news is, you know, we’ve already built what we’ve built.

Joe: [00:41:15] I tip my hat to those who will try to build something similar because it’s a very steep learning curve, is all I can say.

Richie: [00:41:22] What was that like for you?

Joe: [00:41:23] You know, we have a running start because… there’s a lot of institutionalized expertise that we have. In order to install technology, you have to be full stack. From design—meaning owning the brands—all the way through to customer doorstep—being able to operationalize every step to the customer. We believe you have to own one of everything, you have to own the entire chain. Because if you want to install technology, you have to look at it as a system-wide holistic approach. As soon as you have any third-party piece parts to that value chain from design all the way to customer doorstep, technology gets shut out. All of a sudden it’s like, “Oh, well, you’re going to have to work with the IT department…

Richie: [00:42:09] It’s just integration.

Joe: [00:42:11] All of a sudden you are shut down and shut out. Our technology iteration is daily. I don’t want to talk about what we’re doing in AI, but I will say that we are running thousands and thousands of unsupervised learning across the entire network of what we do. And right now, for example, we are auto buying—meaning bots are buying what is going to be in demand in the next week. And that’s all happening from machine learning. And right now if we tried to install machine learning in a non-full stack environment, [we] wouldn’t get the data. And so all of a sudden we’d be negotiating with third parties who have their firewalls set up so that we don’t get to see anything. As a platform, we couldn’t do it, is the answer. So good luck on building full stack. We’ve already built it.

Richie: [00:43:03] So for the brands you work with, where in the life cycle do you want to come in? Because I assume the earlier, the better, but how do you evaluate that

Joe: [00:43:09] It’s a really good question. So here’s the “calling all brands”—this is the archetype that we’re looking for. We want demonstrated energy. If you’ve got $500,000 to a million dollars in wholesale business, two reasons why it’s good. Number one is market validation. That there’s at least a couple of thousand customers out there buying your product through third-party channels. Second, we know how complicated it is to build a direct-to-consumer infrastructure. And you haven’t built it yet—that’s why you only have a wholesale business. Come on over. We will have you set up in 45 to 60 days and you’ll be selling product and you will have a million dollars in ecommerce business, direct-to-consumer, some combination of all within a year’s time.

Richie: [00:43:50] You’re a lifeboat.

Joe: [00:43:51] I don’t want to go call it lifeboat.

Richie: [00:43:52] Well, it’s interesting from a wholesale perspective that, for a wholesale business, maybe you are somewhat of a life raft. I assume you have ideas about where the channel is going and kind of taking the promise that they’ve shown and putting them on a steadier course.

Joe: [00:44:03] The problem with wholesale is that you don’t know who your customers are. You have an idea. But the good thing about wholesale is it’s a demand signal. So there are people wearing your clothes. And so the early promise that you’re showing.

Richie: [00:44:15] Is validated.

Joe: [00:44:15] Is validated. And so, we want to operate in a de-risked environment. So you have to demonstrate energy in the marketplace. Best way to demonstrate energy in the marketplace is through a current book of business. Or it might be that you have a current direct-to-consumer business that’s running at somewhere around $500,000 and you want to accelerate. So somewhere between you know $500,000 and a million dollars of existing business tells us—whether it’s wholesale or direct-to-consumer—as an instant lift up of your business, we will get you over the $2 million mark really quickly in top line sales and you’re going to be on your way very quickly to $5 million. And then we’re going to start to say, “How big should this business be?” Right? We know that at $5 million, you are profitable. You are now operationalized, you don’t have these heavy salaries and silos that are going to slow you down. You’re operating now at speed, cost have creation has come down.

Joe: [00:45:05] You start to see all those things immediately as you journey between wherever you are now to [$2 million], at to a threshold hits and you go to [$5 million], and then we’re quickly saying at [$5 million], “How big should this be?” Any brand—I’ll say this is a broad stroke—that any brand that’s able to get to [$2 million] can get to [$10 million]. You just haven’t found your customers, you’re still crippled by operations. So the real question is not, “Can we get to [$10 million]?” It’s, “Then what?” “Is my destiny [$11 million]?” That’s okay. At a $10 million business earning two-and-a-half million dollars a year where you own half the company, that’s fine. Or, “Hey, let’s throw more fuel on this fire because this is a $100 million concept and we’re leaving a lot on the table. And let’s go find our people and our tribe and all we need to do is continue to operationalize.” In which case the platform will take you there.

Richie: [00:45:53] I pushed us far off the 2018 bid.

Joe: [00:45:55] Yeah, 2018 is about adding seven brands. So we’re going to go to 12. And 12 on-platform is an important threshold because at 12, our next sight is to bring it to 30. We’re measured by brands right now, but in 2018 there will be 12 brands on-platform and in 2019 we’re going to add 20 more brands. And so it really is a scale game for us right now—scale and speed. It’s not about definition. We’re very clear on the base that we built and we’ve carved out and put our stake in the ground. Our stake in the ground is creator-driven brands. And that’s our stake. That’s how we see the world and that’s how we see the promise of creation, which is where we’re making our bet.

Richie: [00:46:33] Yeah. If you were going to be wrong, what do you think you’re most likely to be wrong about with that stake

Joe: [00:46:38] The simple answer is timing. I don’t think we’re behind any curve. Look, we all have our blind spots. So I don’t think we’re behind any curve, we just might be ahead of the curve. Or, we may have simply called it wrong, that, you know, it’s not about creation, it’s not about design. It’s not about discontinuity. It is all about knowing exactly what everyone wanted in a very predictable, bland, dry, boring context.

Richie: [00:47:04] Wouldn’t that take you back to your private label days.

Joe: [00:47:06] Yeah, maybe… Maybe it would. Right? So we’re always trying to avoid something in our history. So maybe it would. But I will say—and not to get philosophical about this—but growing up, I’ve always been about the logical mind. And so [it’s] natural that I’m very operationally focused. If we can make efficient and compress logic and flatten it and make it a commodity, honestly, what’s left? It’s the things that make us laugh and cry. It’s the artists, it’s the creators and that’s our bet.

Richie: [00:47:33] What’s been the cheapest and most expensive lesson building Resonance.

Joe: [00:47:38] Full stack is hard.

Richie: [00:47:39] It’s crazy.

Joe: [00:47:39] It’s crazy. You know, I teach at school: focus, focus, focus. And when you look at full stack it’s every aspect of operations from design through to customer doorstep. So number one, it’s hard. Number two, to find focus and that clarity was a light going off. The focus and clarity is we’re building a technology company. And in order to build a technology company we have to do full stack. And so the focus is on technology. And the cheap lesson was, “Oh my God, if we don’t do every aspect, we don’t have a laboratory to build the technology that’s going to drive this industry.” And you know what? No one does. No one has the laboratory. You know, you will have other players trying to acquire different aspects of the stack and it’s going to be a steep learning curve. Each and every one of them. But the realization that’s driving that is going to be, you can’t build the technology unless you have the full stack because it’s about system-wide optimization. It’s not about optimizing any one element of a stack or of an operation.

Richie: [00:48:46] Right, it’s the ultimate integrated approach.

Joe: [00:48:48] A siloed approach will optimize a single silo at the expense of others.

Richie: [00:48:53] What did it feel like the moment you first saw that full stack go from A to Z

Joe: [00:48:58] It was about a year-and-a-half in when we started running unsupervised machine learning on every aspect of what’s in the stack. And when we started to see machines learn from a system-optimization perspective, it blew me away. And the vision of zero cost of creation—I could see it. We knew technology would be incredibly important from an integration standpoint. We never knew the speed at which machine learning would become so important so that we can empower our brands to be smarter, faster than any other brands out there.

Richie: [00:49:39] Awesome. Thanks so much for talking.

Joe: [00:49:41] Richie, great talking to you today.

Richie: [00:49:49] Thanks for listening to the Loose Threads Podcast. Join the newsletter at LooseThreads.com and feel free to leave a review on iTunes—we always appreciate it. This episode was edited by George Drake Jr. and my thanks to him for his time on it. We have a great roster of upcoming guests including Michael Pollak of Heyday, Ben Kaufman of BuzzFeed and Alex Fogelson of Taste Beauty. Thanks for listening and talk to you soon.