Speaker 1: When Jeff Carl decided to start a new business, he
Speaker 1: went the classic route of hitting up a few friends
Speaker 1: and family members for cash to get his idea off
Speaker 1: the ground. Here's Jeff telling the story of one pitch
Speaker 1: he made to an old college buddy. One of my
Speaker 1: first meetings was with a college um, my college neighbor
Speaker 1: I named Josh James, who's a very successful entrepreneur. Then
Speaker 1: we were in a basketball game. He said, I hear
Speaker 1: you're doing a new deal. What is it? Can I invest?
Speaker 1: Tell me about it? And I think he was expecting, Um,
Speaker 1: we had done a lot of web analytics in the past,
Speaker 1: and I think he was expecting something pretty technical. Said
Speaker 1: I'm gonna sell socks, and he really liked took a
Speaker 1: pause and he's like, are you serious. I'm like, actually,
Speaker 1: I said I'm gonna sell men's hosiery. That sounded better,
Speaker 1: and and then he said, Okay, I'm in because one
Speaker 1: of two things is gonna happen. You're either gonna make
Speaker 1: a lot of money or I'm going to tease you
Speaker 1: for the rest of your life about the time you
Speaker 1: made me give you a hundred thousand bucks for a
Speaker 1: sock idea and that's totally worth it to me. I'm in.
Speaker 1: Josh James, who's the CEO of a big software company
Speaker 1: called Domo, recalls it pretty much the same way, except
Speaker 1: Josh said he ponied up two hundred grand, not one,
Speaker 1: and that's the least of it. That money Jeff raised
Speaker 1: was back in stances earliest days in two thousand nine.
Speaker 1: A couple of years later he raised another seven million,
Speaker 1: mostly from venture capital backers, and three years after that
Speaker 1: he raised twenty six million dollars. Two years ago he
Speaker 1: got another fifty million, and then last year another twenty
Speaker 1: seven million dollars. All in all, Jeff talked investors into
Speaker 1: giving him about a hundred and ten million dollars. That's
Speaker 1: on par with Airwear, a big drone start up, and
Speaker 1: way more than stitch Fix, a hot subscription clothing company.
Speaker 1: So we're talking a hundred ten million dollars four socks.
Speaker 1: I had the same reaction myself. I had to run
Speaker 1: it by Jeff Carl and then I was like, oh
Speaker 1: my god, company has wised so much money. Weird. Hi.
Speaker 1: I'm Brad Stone and I'm Sarah mcgrad and this week
Speaker 1: on Decrypted, we're taking you on a tour of the
Speaker 1: very unusual world of VC backed non tech startups. Let
Speaker 1: me break that down. Silicon Valley venture capitalists are known
Speaker 1: for backing tech companies, but for years they've also quietly
Speaker 1: backed plenty of companies they think will grow fast that
Speaker 1: have nothing to do with tech. This is the same
Speaker 1: set of investors that helped launch companies like Facebook, Airbnb,
Speaker 1: and Uber. The differences this other breed of company doesn't
Speaker 1: sell software or build apps. They make products that we've
Speaker 1: been buying and using for decades, like Razors, mattresses, and
Speaker 1: Mannet's Stance. The sock company started by Jeff Curl is
Speaker 1: just the latest of these consumer companies that VC investors
Speaker 1: are pouring money into. Last year, non tech companies raised
Speaker 1: four point nine billion dollars from vcs, about a tent
Speaker 1: of all money vcs invested, according to CB Insights. So
Speaker 1: we'll be asking why why invest in sucks not software
Speaker 1: and how how do these investors decide which companies are
Speaker 1: worth backing. Sound tech companies are notoriously hard to scale up,
Speaker 1: and there are many examples of companies that didn't make
Speaker 1: it stay with us. So um, Sarah, it seems a
Speaker 1: little counterintuitive hearing that nearly five billion dollars of VC
Speaker 1: money went the companies outside of tech. Right, companies that
Speaker 1: do well in the venture world usually have a little
Speaker 1: technical razzle dazzle something truly transformative. I think machine learning
Speaker 1: or cloud computing, or the Internet, or even the semiconductor
Speaker 1: chips that the value got its name from. So what
Speaker 1: inspires venture investors to put their money into these other categories. Well,
Speaker 1: the founders of these benee typically have persuaded their investors
Speaker 1: that even though the business looks ordinary, if you rethink it,
Speaker 1: you can expand that business many times, maybe even transform it.
Speaker 1: I talk to Mood rogani, an investor at Kleiner Perkins,
Speaker 1: co Field and Buyers, which is a huge venture firm,
Speaker 1: about how far to take that IDEA keyback stance. I
Speaker 1: think any category um. I mean, you're seeing it now
Speaker 1: in agriculture, architec. You hear it in food, food tech. UM,
Speaker 1: you're hearing in an industrial, industrial tech companies, industrial IoT.
Speaker 1: So the notion that disruption is only in segments of
Speaker 1: the Internet or other areas of deep technology, I just
Speaker 1: think is um is incorrect. But sometimes those bets don't
Speaker 1: work out. Take too sero that's a company that persuaded
Speaker 1: investors that have drinking juice became easy, people would drink
Speaker 1: a lot more of it. That's as long as they
Speaker 1: didn't have to clean up blenders or drag home lots
Speaker 1: of fruit from the market. Right. They convinced backers that
Speaker 1: juice Ero could sell four hundred dollar juice machines along
Speaker 1: with eight dollar a piece juice packs to put in them,
Speaker 1: and VC Backers gave them a hundred and eighteen million dollars.
Speaker 1: But as their colleagues Ellen Hewitt and Olivia Zeleski reported,
Speaker 1: it was perfectly possible to just squeeze the juice out
Speaker 1: of the package with your mare hands. No four hundred
Speaker 1: dollar fancy juice machine required. In September, juice Ero said
Speaker 1: it was closing down. So how do you tell the difference?
Speaker 1: How do you know if the startup really does have
Speaker 1: a great idea that will give a shot of rocket
Speaker 1: fuel to a boring, old industry that has been around
Speaker 1: for decades. That is exactly the predicament of Jeff curl
Speaker 1: Our sock hero. When I met him, he was wearing
Speaker 1: shorts and a tank top because he'd just come from
Speaker 1: a game on the in house basketball court, and he
Speaker 1: truly thinks he's found some ways to dress up the
Speaker 1: staid world of socks. You can see the potential. The
Speaker 1: US market for adult sos is nearly five billion dollars
Speaker 1: a year according to m p D. Now, Jeff has
Speaker 1: to convince the wider world he's the real deal. But
Speaker 1: that doesn't mean he's trying to pass his business off
Speaker 1: as something it's not. Do you think of yourself as
Speaker 1: a technology not particularly. I think of us as a
Speaker 1: brand first and foremost. So to build his brand, Jeff
Speaker 1: needed to start with the right product. He methodically looked
Speaker 1: for a staple that could use better branding along with
Speaker 1: a little more innovation. Once he settled on socks, he
Speaker 1: had to hire people with and I can't believe I'm
Speaker 1: about to say this, some serious sock chops. One of
Speaker 1: those people is Taylor shoot Stance as co founder and
Speaker 1: chief product officer. He's a wiry and wisecracking guy who's
Speaker 1: about ten years younger than Jeff. They had the same
Speaker 1: marketing professor at Brigham Young University in Utah who introduced them,
Speaker 1: and at the end of a long afternoon, it stands
Speaker 1: Taylor stood outside their research building and made a little
Speaker 1: bit of a confession. I was always a sock guy
Speaker 1: or a product guy. I always had a certain location
Speaker 1: at the Orange County Swat Meat that I went to
Speaker 1: buy my socks. And so when Jeff came into me
Speaker 1: like nine ten years ago, and what what was special abouts?
Speaker 1: They had the best in elastic but left no They
Speaker 1: were just three by one, you know, like old athletic
Speaker 1: crew socks. You'd see all white, and they left no
Speaker 1: impression on my legs. So it had a really good,
Speaker 1: you know, sort of atlastic power. The product didn't kill.
Speaker 1: They lasted a lot longer than anything else I had.
Speaker 1: I can tell that's a guy who is way into
Speaker 1: a socks and as he learned, a little technology can
Speaker 1: go pretty far to improve a sock. Now he oversees
Speaker 1: a kind of Aladdin's Cave of sock machinery. It stands
Speaker 1: its headquarters in San Clementi. The department goes by Shred
Speaker 1: for Sock Hosiery Research, Education and Development, and so here
Speaker 1: we test things like durability. There's pilling that right there
Speaker 1: is a rub test for durability. We test fit, we
Speaker 1: test color fastness, we test thermoregulation. That's a camera that
Speaker 1: shows heat signatures or infrared um crocking lateral stretch. What's
Speaker 1: that one do? It's a tear test for fabric for
Speaker 1: our underwear. That was Taylor talking with Stance Is CTO
Speaker 1: Randy Sheckler, who happens to be a rocket scientist for real.
Speaker 1: When I was there, they showed me socks stretched almost
Speaker 1: three times their normal size and socks batted around on
Speaker 1: PVC pipes to make sure they could take a beating.
Speaker 1: The machinery looked so elaborate. I ended up asking Mood
Speaker 1: the VC investor, if they really needed it. Whether it's absorption,
Speaker 1: whether it's wicking, whether it's ability to grip, whether it's
Speaker 1: ability to you know, survive through a thousand times through
Speaker 1: the wash, whatever those attributes are. They measure UM and
Speaker 1: there's customization around areas of the sock where that matters
Speaker 1: relative to what you're using it for. You'd be surprised.
Speaker 1: You spin all of these knobs, you get permutations that
Speaker 1: are in the thousands, and so that's part of the
Speaker 1: scientific side of kind of what they're testing UM, as
Speaker 1: well as like produce ability. How much is it going
Speaker 1: to cost if we produce here? How much of a
Speaker 1: market is there, and so left brain, right brain, scientific fun,
Speaker 1: all of those things that come together. It's a lot
Speaker 1: more complicated than you what you would think. Bottom line,
Speaker 1: they need all that testing and oh absolutely, yeah, yeah, yeah, okay,
Speaker 1: those are some fancy socks and it seems to be
Speaker 1: paying off. Stance has a pretty ardent customer base, including
Speaker 1: everyone from teen skaters to superstar athletes like the basketball
Speaker 1: player Kobe Bryant. One time, after a game last year, Kobe,
Speaker 1: who was hired by Stance to create a sock line,
Speaker 1: talked about our socks helped his team, the Lakers, score
Speaker 1: a big basketball upset against the feared Golden State Warriors.
Speaker 1: The power of the socks. It's gotta be the socks, right,
Speaker 1: I mean it's uh, I think it's I think it's
Speaker 1: cool man. Stance also has licensing deals with the big
Speaker 1: sports leagues, including the NFL and Major League Baseball. Everyone
Speaker 1: from Rihanna to Jay Z is wearing these socks, and
Speaker 1: many of stances celebrity boosters are also Stance investors, so
Speaker 1: they talk up the socks for free. But before Stance
Speaker 1: started tapping its network of celebrities, it made sure it
Speaker 1: got traction somewhere grittier in skate shops and with surfers.
Speaker 1: I learned while reporting this story that a lot of
Speaker 1: fashions start in those communities. Surfers have a kind of
Speaker 1: low profile way of of dressing. This is Natalie Gamet
Speaker 1: from Hobie Surf Shop in San clement A, California, which
Speaker 1: sometimes ends up being uh more trend setting. Um. They
Speaker 1: could wear roll up Levi jeans, um uh uh retro,
Speaker 1: a low hush shirt and then stamp socks and then
Speaker 1: and then that be, that be the trend. Stance is
Speaker 1: constantly working to stay ahead of what's cool. It hired
Speaker 1: a team to come up with four thousand designs a year.
Speaker 1: They tried to make sure the patterns grabbed the eye.
Speaker 1: For example, Taylor, he's the sock guy who took me
Speaker 1: on the tour of Stances Research Lab, showed me a
Speaker 1: pair of holiday socks. One foot has the letters S
Speaker 1: L A Y across it and the other R I
Speaker 1: D E. I thought at first it was a type
Speaker 1: of about socks is that it's just such a great
Speaker 1: canvas for expression, and you know it's so novelty that
Speaker 1: you can do it like this. One sleigh ride that's
Speaker 1: what it's called, right, Like, yeah, so in missile so
Speaker 1: with the team. Yeah, that one was confident to two words,
Speaker 1: one on each sock, spelling out the weapon and the
Speaker 1: part of your foot, not the seasonal plant. Stance has
Speaker 1: endless clever designs. Recently, the internet lit up because Justin Judeau,
Speaker 1: the Canadian Prime Minister, wore a pair those showed Chewbacca
Speaker 1: from Star Wars. So Stance seems to be doing well
Speaker 1: so far, but it's a tall order having to think
Speaker 1: of four thousand catchy sock designs a year. How do
Speaker 1: we know it has staying power? Stance is checking all
Speaker 1: the right boxes. But a lot of the biggest flame
Speaker 1: outs could say that, at least for a time. Drew Serro,
Speaker 1: the juice startup we mentioned, said it had special technology
Speaker 1: and shut down anyway. And retailers like One King's Lane
Speaker 1: and shoot Azzle had big time celebrity ties and they
Speaker 1: ended up selling for fire sale prices. Jeff Carl says
Speaker 1: he's avoiding their problems, and he partly blames those failures
Speaker 1: on the investors. He says a lot of vcs just
Speaker 1: didn't understand how to size up a retail business, especially
Speaker 1: a few years ago when he started talking to them
Speaker 1: about raising money. Jeff actually makes an interesting point about
Speaker 1: e commerce, one that deserves a deeper discussion, maybe for
Speaker 1: another time. So he decided to go old school. He
Speaker 1: didn't start Stance by focusing online. He went for traditional
Speaker 1: retailers like Natalie at Hobie Surf Shop. Other online retailers
Speaker 1: have leaned heavily and selling consumers monthly subscription plans like
Speaker 1: Dollar Shave Club for raisors or Birch Box for cosmetics.
Speaker 1: Only now seven years in is Jeff gearing up subscription
Speaker 1: socks and seriously beefing up his online sales. That's in
Speaker 1: part because so many brick and mortar retailers are struggling,
Speaker 1: including some of the retailers that sell socks, and those
Speaker 1: troubles in retail are partly why Jeff raised so much
Speaker 1: a venture capital money in case he ever got the
Speaker 1: opportunity to buy some struggling brands that could help Stance.
Speaker 1: So far that hasn't panned out, and opportunistically, maybe we
Speaker 1: could find some great teams, some great entrepreneurs, some interesting
Speaker 1: product categories to acquisition. So I wanted to have a
Speaker 1: big balance sheet if that ever happened, and it just
Speaker 1: really hasn't. And I think it's been more cost effective
Speaker 1: and more innovative for us to work on our work
Speaker 1: on those products ourselves. So a lot of that venture
Speaker 1: money is still in the bank and Stances revenues are
Speaker 1: over one million dollars. They expect to turn a profit
Speaker 1: starting next year. Sarah, does anybody have anything bad to
Speaker 1: say about Stance? I found one person Sucharita Cadali, a
Speaker 1: retail analyst, raised a red flag or two. That's always
Speaker 1: a risk that that a company likes Stance has to faces,
Speaker 1: is you know, kind of everything from knockoffs to companies
Speaker 1: like Target, you know, kind of basically doing their version
Speaker 1: of a lower price point UM, a lower price point
Speaker 1: version of the same thing ing. She also had some
Speaker 1: sobering comments about a core group of Stance customers Stances,
Speaker 1: I think for the most part of millennial brand and UM.
Speaker 1: Millennials are really fickle and they're constantly trying new things
Speaker 1: and UM. The challenge with that is that, you know,
Speaker 1: kind of some of these new brands experience success really
Speaker 1: quickly because everybody learns about them on social networks. In
Speaker 1: other words, easy come, easygo, and one more thing. A
Speaker 1: former employee who didn't want to be named told me
Speaker 1: a lot of people just don't work very hard at
Speaker 1: the company. I guess I understand that they're in southern California,
Speaker 1: just a few minutes from the beach. Sarah, you told
Speaker 1: me that even right at the office, they've got a
Speaker 1: pretty distracting setup, right with the putting green and a
Speaker 1: basketball court and on site massages, right, and even a
Speaker 1: skate ramp. But some of their vcs are more worried
Speaker 1: about other stuff. For example, once that they shouldn't depend
Speaker 1: so much on word of mouth to build the brand
Speaker 1: and and they should advertise more. But Jeff and his
Speaker 1: marketing VP Noel Bates both think word of mouth is
Speaker 1: working great. Rihanna came out with soft line two days
Speaker 1: or last week that has her on them in her
Speaker 1: like met gall address and her video. Drake wore them
Speaker 1: and posted on Instagram two days ago of him hanging out.
Speaker 1: Do you know this in the Rihanna just f y
Speaker 1: I Drake, the singer is Rihanna's ex boyfriend. I actually
Speaker 1: did not know that. That's being Mashable, E News, people,
Speaker 1: in Style, Vogue, l cos everyone covered her collection. But
Speaker 1: now they're all covering it again because it's all the
Speaker 1: page six all about how Drake. You know, it's like this,
Speaker 1: this is as close as Drake and you can get
Speaker 1: to Rihanna right now, you know. And he looks all
Speaker 1: sad and video he looks all sad and be true.
Speaker 1: So it's running a report on like everywhere that this
Speaker 1: has appeared, and it was like six million dollars worth
Speaker 1: of advertising. Good rebuttal to the debate on ad spending. Still,
Speaker 1: this is a fundamentally pretty traditional business. Does venture capital
Speaker 1: have any business investing in it? Isn't venture money supposed
Speaker 1: to get crazy world changing ideas off the ground? Well,
Speaker 1: that's how people think of venture capital, and lately it
Speaker 1: does seem like venture capital has backed a lot of
Speaker 1: fundamentally non tech businesses, although statistics from CB in sight
Speaker 1: It's say it's no more or less than in the past.
Speaker 1: But in the past few years. Examples include Casper Mattresses
Speaker 1: and the Melt, a grilled cheese shop, All Birds a
Speaker 1: shoe company is another, and those types of traditional consumer
Speaker 1: businesses can deliver great returns. Starbucks coffee was venture back
Speaker 1: in the early nineties and today it's worth seventy nine
Speaker 1: billion dollars. More recently, Blue Bottle Coffee raised about a
Speaker 1: hundred and twenty million and got acquired by Nestley for
Speaker 1: hundreds of millions. And that's Jeff's point. He says, a
Speaker 1: well built brand can deliver the same kind of returns
Speaker 1: to investors as a traditional internet or software company. The
Speaker 1: problem is that not all entrepreneurs know how to build
Speaker 1: great brands. One reason we see so many venture back
Speaker 1: bus has less to do with how traditional or not
Speaker 1: the company that is getting funded is and more to
Speaker 1: do with how their founders play the game well. First
Speaker 1: of all, UM, raising money is sort of its own
Speaker 1: skill set. There's definitely a way to position companies to investors,
Speaker 1: and I think that actually creates, you know, an adverse
Speaker 1: bias and deal selection, because a great presenter can actually
Speaker 1: get an average or below average business funded. UM and
Speaker 1: a bad and a bad present you know, so a
Speaker 1: great the positioning of a business. There are many great
Speaker 1: businesses that go unfunded because no one was able to
Speaker 1: translate it into a language that a VC could find investable.
Speaker 1: On the other end of the spectrum, there were a
Speaker 1: lot that did get funded because fast talking entrepreneurs convinced
Speaker 1: vcs that simply adding an app to a traditional industry
Speaker 1: would take it to new heights. A lot of the time,
Speaker 1: the founders and entrepreneurs underestimated the underlying logistics and complexity
Speaker 1: an app does little to solve those. Food delivery is
Speaker 1: a classic case study. Good Eggs and Sprig are two
Speaker 1: examples of companies that raised about sixty million dollars each,
Speaker 1: but a couple of years ago, good Eggs had to
Speaker 1: close three of its four locations, and Sprigue shut down.
Speaker 1: Earlier this year, Monterrey, which raised a hundred million dollars,
Speaker 1: had to switch out at CEO, recapitalizing fire employees. This
Speaker 1: feeds right into the idea that Silicon Valley caters too
Speaker 1: much to millennials with a lot of money to spend
Speaker 1: on frills, including food delivery juice and I have to
Speaker 1: say it socks, even if it does make money for them,
Speaker 1: Our socks the best use of VC cash. Are they
Speaker 1: the best use of Jeff Carl's time for up A
Speaker 1: really good question, which is and it's hard. I think,
Speaker 1: how impactful can an apparel brand really be in the world?
Speaker 1: And you know, when we first started it, maybe I
Speaker 1: was it a less mature, you know, phase in my
Speaker 1: life and thought less about legacy. And at the time
Speaker 1: it was really quite a selfish notion of what I
Speaker 1: missed doing is going into the office with a small
Speaker 1: group of really talented, hungry, ambitious people and I don't
Speaker 1: really care if it's software consumer products, or maybe the
Speaker 1: passion for the product can be completely secondary, because what
Speaker 1: I care about is the group of people. And with
Speaker 1: stands we've absolutely created that. It's it's a very special
Speaker 1: leadership team. It's an incredible culture. People love to work here. Okay,
Speaker 1: but Brad, don't you think that when you meet some
Speaker 1: of these entrepreneurs who are clearly like brilliant, super capable people,
Speaker 1: and you feel like, yeah, they could be curing cancer,
Speaker 1: you know, and instead they're helping us get around faster
Speaker 1: or making more comfortable socks. I can say though, I mean,
Speaker 1: I'm sort of impressed by what Jeff has built. I mean,
Speaker 1: clearly these socks are a little bit of a fad.
Speaker 1: You see them all over the place. Um, maybe they've
Speaker 1: identified something. We've kind of taken this garment for granted
Speaker 1: for so long, but we can have a little bit
Speaker 1: of fun with He says that the product goes well
Speaker 1: beyond the sock. He has all these ideas about how
Speaker 1: it stands for individuality and so on, and buy that.
Speaker 1: What is the future for them? Are they going to
Speaker 1: do other kinds of clothing? So you can already buy
Speaker 1: men's underwear, women's underwear about to lunch? So what is
Speaker 1: next beyond undergarments? Can you see stands shirts? Or they
Speaker 1: wouldn't really go into details, but yeah, that would be
Speaker 1: a natural for them, also taking on under armo or
Speaker 1: maybe getting or um Lulu Lemon, getting into yoga pants
Speaker 1: and other fitness apparel more broadly, as long as they're
Speaker 1: not see through, as long as they're nuts. So it's
Speaker 1: Jeff comfortable just running like an apparel company or does
Speaker 1: he have ambitions that go beyond just creating clothes? I
Speaker 1: asked him about that, and actually recently somebody in his
Speaker 1: family went through cancer and he started thinking way differently.
Speaker 1: And I will admit that when I look at that,
Speaker 1: I find deep motivation of cheese. I've got to get
Speaker 1: myself in life sciences. These are real problems that are solvable. Um.
Speaker 1: None of them are easy problems, but they are solvable. UM.
Speaker 1: And I feel like I could make a difference doing
Speaker 1: some of that, But I have employees here, and I
Speaker 1: have shareholders here. We've built a good business, and we
Speaker 1: have oil fans, and so look, I think it's probably
Speaker 1: the kind of thing where and all you know, Candor, Look,
Speaker 1: maybe stance is something I operate till till I'm old.
Speaker 1: But if there was a transition, I think I would
Speaker 1: find myself thinking about a venture that had the potential
Speaker 1: for more purpose. And that's it for this week's episode
Speaker 1: of Decrypted. Thanks for listening. We always like to hear
Speaker 1: what you think of the show, so get in touch
Speaker 1: at Decrypted at Bloomberg dot net or I'm on Twitter
Speaker 1: at McBride s G and I'm at brad Stone. If
Speaker 1: you haven't already, subscribe to our show wherever you get
Speaker 1: your podcast, and while you're there, please leave us a
Speaker 1: rating and a review. This goes a long way to
Speaker 1: get the show in front of more listeners. This episode
Speaker 1: was produced by Pia gud Caryo, Liz Smith, and Magnus Hendrickson.
Speaker 1: We'll talk to you next week. M