The Real Price of Fast Growth
J.Hilburn was a startup that had beat the odds.
In 2012, the company, which sells custom high-end men's clothing through a network of personal stylists, had survived five years, grown to 80 employees, and attained a pleasing growth curve: $35 million in revenue, up from less than $17 million a year prior. J.Hilburn was one of those scaling stories that make M.B.A. students go oooh. Its founders tweaked the time-tested-but-flawed direct-selling model, crafting a successful business that required very little outside investment: It started with less than $1 million from friends and family. And five years after it launched, J.Hilburn was the largest seller of men's custom dress shirts on the planet.
The media took notice. A feature story in Inc. profiled the company. J.Hilburn's suits and dress shirts became staples in GQ and Esquire. This year, the company projects it will take in revenue of $60 million, while serving a designer menswear market estimated to be worth $1 billion. Competitors, such as Savile Row Society, have sprung up, and a close peer, Trunk Club, was recently sold to Nordstrom for a reported $350 million.
But what those sunny numbers don't illuminate is that for the past year, J.Hilburn has been in the throes of a tumultuous adolescence, one that included rapid turnover and a management shakeup that ultimately ousted its founder--the company's progenitor and eponym.
It's easy to chalk the strain to your standard growing pains. But candid interviews with executives at J.Hilburn suggest it felt more akin to a huge adrenaline rush paired with the occasional self-inflicted third-degree burn.
The tremors started early on, but intensified around a year ago, as J.Hilburn's head count neared 100. The company also had 2,500 independent stylists, its salespeople who are scattered across the United States, and who work on commission. These stylists in many ways are the lifeblood of J.Hilburn--they are its primary face to customers--but they are also freelance workers who make an average of $20,000 a year. In other words, they were not simple to manage.
And even at headquarters in Dallas, the company started outgrowing its youthful ways. "We were scrappy and did goofy stuff; we dressed up in costumes all the time and had beer in the fridge all the time," says Larry Hagenbuch, J.Hilburn's operations chief, who has been with J.Hilburn since its early days. "But our org chart was breaking. The fun, quirky stuff didn't work anymore."
The company's board was acutely aware of this. According to two company executives, the board had been murmuring for years about its desire to bring in seasoned leaders. From the perspective of Hil Davis, the company's CEO and co-founder, it seemed clear the board's vision didn't include him, nor perhaps his co-founder, Veeral Rathod.
"They started talking about it in 2009, but we were just like, 'The business isn't ready for this yet,'" says Davis, whose full name is John Hilburn Davis IV--hence J.Hilburn--and whose rapid-fire speech is flavored with a rich Southern accent. "I realized I wasn't going to be the CEO forever, but there's a right time to do that. And it wasn't right."
Davis's premonition was correct: He would not be CEO of his company for much longer.
His former colleagues say that as the company grew into a larger, more mature enterprise, the day-to-day operations simply weren't Davis's cup of tea. He echoes that sentiment to an extent, saying that after going from zero to $60 million in six years, it got to the point at which "you can't make changes quickly. There are org charts, and there's a lot of process. That's less interesting to me."
Rathod, the company's co-founder, who came straight out of investment banking to sign on with J.Hilburn in 2007, says he witnessed a change in Davis. "He loved chaos. He loved startups," he says. "What Hil hated hearing was, 'Well, Jennifer runs that team and she is out today, so that will have to wait until tomorrow.'"
Davis says that pressure from the board increased last year. They wanted a new CEO, stat. "If I'm not capable, I'm happy to step away," is how he characterized his thoughts toward the end of discussions in mid-2013. But he tells Inc. that as a founder, he was only throwing up his hands in frustration. He had always had a mental marker as to when he would be willing to resign from the company he built and let an outside CEO take over: $100 million a year in revenue. J.Hilburn wasn't there yet. Neither was Davis.
Still, last September, Davis forfeited his role as CEO. His new title: non-executive chairman. His new role: nearly non-existent. And in March of this year, Davis--who dreamed up the company, created its business model, and ran J.Hilburn for the past six years--gave up that fig-leaf title.
But in doing so, he says, he helped strike a bargain that set the company on its current course, ensuring that his co-founder, Rathod, would take over as CEO, instead of the company hiring an outsider. "The traditional VCs on the board wanted to go out and get" an outside executive to be the CEO, Davis says. "That pressure was there, so you kind of feel like, 'Let's make a trade.' One of us should be CEO."
The board changed its tune, according to Davis, and threw its backing behind Rathod. The company's official line is that the company transitioned from a "startup to a high-growth company" in 2013. A statement provided to Inc. reads, in part, "The J.Hilburn team, Hil Davis and Veeral Rathod, along with the board of directors, decided that for the continued success of the brand, a new CEO, Veeral Rathod, was best for the next phase of the company."
The board and Rathod began working swiftly to bring in a slate of seasoned outside managers. Davis's departure was accompanied by additional staff turnover: According to Rathod's reckoning, around 30 percent of the company's current staffers have been with J.Hilburn for less than a year.
Rathod was right in the center of the tumult, but his new position meant he had to hold steady and lead. In multiple interviews, he only got sentimental once, talking about the departure of Davis, who for years was not only his co-founder but also his close friend.
"When it was just me and Hil and a couple of other people, it was a like a family," Rathod says. "When going to lunch, we were all sitting in the same car."
Rathod didn't just lose a friendly colleague. He lost the guy who had spent years building and managing the company's diffuse and diverse sales force of thousands of personal stylists. Once he became CEO, Rathod's first move was to get on a plane.
"The most important thing right away was to take care of our stylists," he explains. "I spent a lot of time on the road going out to different markets talking to the stylists, explaining our growth and what it would mean for them."
Back at the ranch, on Mockingbird Lane in Dallas, the conversations were less motivational and strikingly intimate. Some ended in tears. Individuals who were also in that car years ago going to lunch, who had risen in the ranks over the years, would be shuffled around to make room for outside--read: more experienced--talent.
"The people who helped build the business were great, but people maxed out at a certain level," says board member Michael Brown, a partner at Battery Ventures, which has invested in J.Hilburn in multiple rounds. "And you need to find that next tier and that next level."
Rathod, for his part, geared up by reading management books and joining a local young executive support group called YPO. He likened the shifts he needed to execute to the strategy a football coach might use to assemble a team. And J.Hilburn wasn't in the peewee leagues anymore.
"When you get to the NFL, the level of execution is so much stronger," Rathod says. "You are not going to put together a team because everyone is friends--you are putting together a team that can win." He pauses, then says, "I know how hard now it is to make those decisions."
First, Rathod and his team brought in a new head of sales, Melissa Brisbois, who has 15 years of experience in direct sales. More recently, they hired a data scientist, and they are hiring a chief marketing officer.
Still, the process is hardly free from friction and raised eyebrows. The company's COO, Hagenbuch, says despite his years in the U.S. Navy, he favors nurturing creativity and a largely flat structure in J.Hilburn. Though he knew the old org chart was breaking, he still says he doesn't "like a lot of structure."
"I worry about it stifling innovation," he says. "We have a lot of young, creative people here."
Helping with the hiring spree is $20 million in fresh investment from a Hong Kong company J.Hilburn already works with to manufacture its shirts in Malaysia. (A rep from J.Hilburn declined to identify that investor, saying that the company prefers to stay out of the press.) That money, too, has helped Rathod see the changes he's making at J.Hilburn from another perspective, one, as he puts it, that's less "startup-centric" and more "vision-centric."
"The person we could recruit two years ago is not the same person we can attract and recruit now," he says. With much of the new hiring complete, Rathod is now focusing on honing J.Hilburn's core strategies, building up a new company culture, and creating good metrics for marking success.
Amid all this, J.Hilburn continues to grow. Its product lines of upscale men's clothing are expanding and now include denim, formalwear, and accessories such as pocket squares and wallets. Still, all the changes have left J.Hilburn a fundamentally different company than it was two years ago. It remains a company at a really interesting inflection point. But here's the thing about inflection points when you reach them: The journey is apparent. The destination is not.
J.Hilburn is strategizing for significant future growth. Not just the freewheeling startup kind of growth: This time, it will be deliberate. Among other things, the new data-scientist hire, Brad Blanchard, is helping to create a more personalized and predictive online shopping experience for men who browse the website without the help of their personal stylist. (Though more than 90 percent of sales are done through personal stylists, the company is pushing for increased online-sales growth.)
A new head of marketing, Rathod hopes, will help beef up the company's Web presence and will work to capture a slightly younger demographic of shoppers, which he calls the "25-to-mid-30s guy. He's digital, social, and reads Esquire."
Like the company, its supply chain, after being honed for years, is poised to handle the increasing demands of an ever-growing enterprise. A custom shirt--with measurements, material, and details such as individualized buttons and monogram--is now created in just three days of manufacturing and sometimes just two. According to Hagenbuch, the company makes about 1,000 custom dress shirts each weekday, and its factories have the capacity to bring that figure up to 3,500.
The company's all-important national network of independent salespeople, those personal stylists--who now number more than 3,000--will expand deliberately, too, Rathod says. "Getting to this point, this growth has been organic and accidental," he says, noting that stylists often recruit friends. "But if we want to take it to 10,000 stylists, that has to be strategic."
So what about the other founder, then?
Hil Davis is hard at work on a new company. One aimed at women this time, though also with a business model derivative of direct sales. Not that his parting was easy. "It's tough, sometimes," he says in a moment of reflection, "to not be there every day." He continues to watch his old company intently, albeit from a distance. He thinks he knows what's next after this particular juncture.
"I'm still proud of it," Davis says. "This should be a hundred-million-dollar--no, several-hundred-million-dollar--company in the next couple of years."
CHRISTINE LAGORIO-CHAFKIN | Staff Writer | Senior Writer
Christine Lagorio-Chafkin is a writer, editor, and reporter whose work has appeared in The New York Times, The Washington Post, The San Francisco Chronicle, The Village Voice, and The Believer, among other publications. She is a senior writer at Inc.