She founded Outdoor Voices, an Ecommerce apparel company in 2013. It wasn't super technical athletic clothes, it was pretty normal clothes for the everyday person. She was a normal 20 something year old, with a cool brand. Except her brand was doing $40M a year in revenue and people loved it.
They opened stores in Soho, Austin, Boston, and my favorite - Los Angeles. Not just in any part of the cities, the best part of the cities. The LA location is on the best part Melrose and I run by it every Saturday with the Grand AC Run Club. These stores were beautiful and you could only assuming the company was "killing it"
This week, the news came out that Tyler Haney was stepping down as CEO amid news of the company losing $2M/month. This was shocking. It sucks to see your idols aren't what you think they are. It was like learning Lebron is on steroids, or like learning Mark Zuckerberg is actually a robot.
As an Ecommerce apparel company, there is no excuse to ever lose that much money. There is no excuse to run your business unprofitably. How did we get here?
In the late 1990's venture capital firms started investing in unprofitable technology companies. Companies like Amazon, Google and Facebook. For tech companies, it is okay to be unprofitable as you scale. You get enough users and you can "flip the switch to profitability", like Facebook or Google starting to monetize on ads.
This model also makes sense for SAAS (Subscription as a Service) companies that either-
A) Lock their clients into long term contracts, so they are unprofitable at first but make their money back over time (Ex: Salesforce)
B) Their product is so sticky users will not churn or ever leave (Ex: Uber, subscription company selling hair loss pills)
Unfortunately, neither of these scenarios apply to apparel Ecommerce companies. Tyler Haney was able to raise $64M off the thesis that her brand is sticky, which is INSANE. No apparel brand is sticky. Unless you are Lululemon or Nike, no apparel brand stays cool for more than 5 years. I'm saying that and I have an apparel brand, this is real stuff people. The investors who put money in obviously don't understand apparel or Ecommerce. Tyler's thesis was the brand is so good, they can lose money at first because the customers will never leave, and they will eventually make their money back with a metric we call LTV (Lifetime Value).
CAC- Cost of Customer Acquisition
AOV- Average order value
LTV- Lifetime Value
To run a successful apparel company, you need your CAC to be significantly lower than your AOV. This means you are making money on every order.
AOV- Real Number
CAC- Real Number
LTV- Fake Number
To find your LTV, you have to extrapolate data, meaning you make assumptions. If I had to guess, I would say Outdoor Voices numbers looked something like this-
AOV- $125
CAC- $200
LTV - $500 (NOT A REAL NUMBER!!!!)
When making the pitch to investors, it is easy to say "look at our LTV, if we acquire a customer for $200 they will pay us $500 over time and we will make money, we just need some money to acquire customers, it's a no brainer."
Because of this, Tyler was able to raise $64M!!!! The only problem? The LTV isn't real, and that number they projected for it is lower than they think. Their LTV over a period might have been $150 instead of $500, so spending $200 to acquire a customer doesn't make sense. Instead of making money, they lose money. $2M a month to be exact.
From the outside it looks great, they are able to do $40M, have all these awesome stores, do interviews on how they built this amazing brand. That is what is seems like from the outside. Sometimes, to see the real picture, you have to listen to the indoor voices, not the outdoor voices.
-Taylor "always keepin' it real with you" Offer
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