Monday, April 23, 2012

Lessons in Entrepreneurship: StyleSeek Case Study

StyleSeek is a Chicago-based startup that has been in stealth mode for much of the last year.  They are building a men's fashion discovery and e-commerce site.  If you haven't heard of them, you surely will, post their upcoming launch in the next few weeks.  I recently sat down with Tyler Spalding, their Co-Founder & CEO, at their offices in the new shared-startup space, Catapult Chicago.  His startup story and progress to date was so impressive, I thought it deserved being the feature of case study describing the "right way" to build a startup business.

First, a little bit about Tyler.  After graduating with a B.S. and M.S. in engineering from the University of Illinois, Tyler literally started his career as a rocket scientist, with varying jobs at NASA, the U.S. Air Force and Lockheed Martin.  He was even a member of the engineering faculty at the University of Alabama and the University of Miami.  But, Tyler always wanted to start his own business.  He realized he did not have any venture relationships that could help him, so he went back to school to get his MBA in entrepreneurship from M.I.T. between 2009-2011.  But, unlike his classmates, sending out resumes trying to get jobs with the major consulting firms or investment banks, Tyler began working on his new startup in 2010, while still in school.

Tyler's idea was to build an algorithmicly driven discovery engine around men's fashion, similar to how Pandora works for music.  You click on images of what kind of cars, hotels, drinks, houses, movies, magazines, and other lifestyle topics you enjoy, and the sites profiles you against other users of similar interests, and then makes men's fashion recommendations based on the attributes that have been indexed.  Once you find products you like, you can also discover similar products (e.g., same style/fit/color at better price) or related products to complete the outfit (e.g., pants if you are looking at shirts).  As you "like" the clothes within the site, its starts to map your "Style DNA", and links you to e-commerce shopping from over 1,600 brands (e.g,. Lacoste) and 105 retailers (e.g,. Nordstrom) to buy the products you want.  That is Tyler's vision.

Before starting to build out the site, and for most of the first year of their efforts, Tyler and his Co-Founders, Chris Walti (a fellow MIT graduate with a background in data analysis and startup business development) and Brian Hawkins (a consumer marketing expert and professor at the Fashion Institute of Design & Merchandising), were religiously focused on researching consumer desires for a product like this.  They surveyed over 400 men in two hour interviews, to learn how they shopped for fashion and what they liked and disliked about the current shopping process.  Once Tyler was convinced there was real market appetite, he raised $150,000 in friends and family money and started building a minimal viable product that they could begin testing with users.  And, in doing so, built a product that would start with men's fashion, but could easily be extended into women's fashion or any other product that could be better sold through this "shopping discovery" process.  Tyler, once again, thinking ten steps ahead.

Once the alpha site was built in August 2011, he decided to demostrate it to a room of 200 students and investors at an MIT startup event.  The demo was received with terrific enthusiam as the users in the audience started to get exact matches on the types of clothing they would be interested in buying.  And, as a twist of luck would have it (which entrepreneurs always need), Tyler did not realize that the famous angel investor, Mitch Kapor, was going to be sitting in the front row that day, and change the trajectory of his growth forever.

Mitch Kapor is the Founder of Lotus, the founding Chairman of Mozilla, and an active angel investor in Bit.ly, Uber, Twilio, Inkling, StumbleUpon and over 50 other startups.  He is the #5 most followed angel investor on AngelList, the startup-angel marketplace, with almost 9,000 followers, as of today.  If Mitch likes something, then the masses usually follow.  Mitch was so impressed with what he saw at Tyler's MIT presentation, that he emailed Tyler after the event and said he was interested in investing in mass personalization stories, especially ones that lent themselves well to creating a viral buzz.  StyleSeek was off to the races.

With the potential of such a strong lead investor in place, Tyler realized it was time to make sure the managment team was fully lined up, and he added another well-known person in the fashion space: Ryan Plett, one of the leading men's style bloggers with expertise in creative and branding.  And, the outcome of the team's brainstorming, resulted in a Trojan horse in StyleSeek's go-to-market strategy: the same 100 bloggers that would partner with the company as content contributors to the site, would ultimately become the site's trusted brand endorsers once they start promoting StyleSeek post-launch to the 25MM unique visitors on their websites, creating a very cost effective and highly viral go-to-market strategy. Tyler and team had thought ten steps ahead in designing their business, knowing those bloggers would be their "holy grail", including getting the editor of GQ on board as an early adopter of the site.

And, in Tyler's traditional style of leaving no stone unturned, before closing his seed round, he started putting out feelers to 15 of the big venture capital firms in Silicon Valley, to get their reaction to the story, to know that Series A and Series B money could possibly be secured after the seed round.  But, instead of contacting them directly, he smartly asked for introductions from the portfolio companies of these firms, where he had networking relationships.  And, in the process of doing so, some of these big venture firms got excited, and were pushing Tyler to raise an even bigger round and get them involved, creating a buzz in the Valley that something hot was brewing in Chicago, wanting to be a part of this great story and team.  However, before taking in big VC money, Tyler preferred to have a more solid proof of concept and higher valuation in hand, and instead, stayed focused on the seed round.

With all the pieces of the puzzle in place (e.g., product, team, go to market strategy, visibility into long term financing), Tyler felt ready to engage Mitch to potentially lead an angel round in StyleSeek.  And, that he did, in January 2012.  Mitch promoted StyleSeek to only 500 of his followers, and Tyler had 50 interested parties knocking his door down within 48 hours, which frankly kept him glued to his email for the two weeks that followed, as he screened all these inbound inquiries (click here for StyleSeek's profile page on AngelList).  There was so much demand, that Tyler was only able to take capital from around 11 of those individuals (each investing $10-$50K), and told the rest of the angels that the round was full, which had them wanting it even more, further fueling the buzz machine.  StyleSeek recently closed this angel round of $550,000 in convertible debt, but left the door open to potentially raise more before the subscription period officially closes at the end of May.  Perhaps, StyleSeek may be the first investment of the new fund from Catapult Chicago, called Trebouchet (translated "catapult" in French), or to other Chicago investors.  Because up until this point, Tyler admittedly said "StyleSeek hadn't really received a lot of love in his Chicago home market".

Which raises the only sad part of this story.  Tyler did make the circuit of pitches to the local Chicago VC's and angels, but summarized their reaction as "wanting the product launched first and proof of concept behind the business".  Which is a typical reaction from the Chicago investors, more conservative than their Silicon Valley brethren.  But, Tyler was disappointed that not one Chicago investor was one of the 50 angels that were fighting to get into his deal.  But, he was insistent on getting "home town flavor" into his investor group for local mentorship, and successfully found a few Chicago angels to join the syndicate (e.g., Wayne Boulais, Jeff Cantalupo, Dave Hoover) .  And, I am doing my best at Red Rocket, to help him find some more.  I would hate to see this business blast off, and Chicago not get any investment credit for it.

So, what are the key lessons here: (i) do what you love and makes you happy, regardless how successful you are in your current field; (ii) know your weaknesses and get the proper education to round out your skills and network; (iii) research market desires before building out your product, to ensure market demand and to fine tune the development plan; (iv) stay in stealth mode as long as you can, until you are ready to lift the curtain (and when you do, wow them); (v) build your technology with an eye to long term growth and scalability; (vi) everybody can benefit from a little bit of luck, and getting the story pitched in front of the right audience, which lead to a major investor; (vii) that investor was the magic bullet in shaking up AngelList and raising funds in record speed (so find your own ambassador); (viii) never approach investors directly, always ask for an intro from a trusted relationship; (ix) always keep your audience wanting more--turning away investors further added to the buzz; (x) it's all about the strength of the management team for getting investors excited (find your own rock stars); and (xi) as Tyler has shown many times, always think ten steps ahead, for every aspect of the business (e.g., market research, tech build, go-to-market plan, financing).

It is too early to know if these praises are premature, as the site hasn't even launched yet.  But, Tyler and team have left no stone unturned, and my spider sense is saying great things are soon to follow.  Keep your eye on StyleSeek, as I feel Tyler's rocket scientist background, has got this rocket ready for blast off!! 

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