Like many, I frequently write about startup founders and the businesses they launch.  But what you don't see as often are stories about the middle stages of a company's life, which in many ways can be more difficult than the startup phase: Expanding a team, maintaining growth, building a sustainable infrastructure, creating the right culture... for many entrepreneurs, that's when the leadership and business skill rubber really hits the road. 

This is the next in a series where I check in with entrepreneurs and companies I've written about in the past. This time it's Matthew Stuart, the co-founder (with Jimmy Lau) of Stuart & Lau, the bag and briefcase that happens to make my favorite travel bag (even though it's technically a gym bag.)

The first time we talked about how Matthew and Jimmy left their corporate jobs to launch their startup. A year later, they've grown their sales, their team... and found out what it's like when demand outpaces supply by a wide margin.

You no longer spend as much time in China. What changed?

I still split time between New York and Hong Kong. I go back and forth every five to six weeks so I can spend time at the factory in China.

I feel great about our factory there. They are more than a supplier -- they're an integrated partner. We work hand-in-hand with them on samples, on production... once I felt comfortable that we were in good hands, I moved back. 

Being in New York is extremely important. Marketing, working with great people, being at the epicenter of everything on the brand side... New York is the place to build a team and a brand. That's become a huge competitive advantage.

Speaking of building a team team, you've made some key hires. Was it hard to give up some of that "control"?

No. It's been great. We needed help with digital marketing. We needed help with operations and merchandise planning. While we've learned a lot, those are not areas of expertise for Jimmy and I. They're very specific skill sets.

We're very focused on digital, on online marketing... following the playbook that a lot of digital-first brands are currently following. And we've seen a lot of success. 

When we started, we focused on serving an international customer. We still serve those customers, but just by the virtue of growth in the States we're leaning much more on focusing on U.S. first and putting our emphasis here.

"Digital" can mean a lot of things.

In terms of growth, in terms of plans, we're focusing heavily on Facebook. That's where we're putting a lot of our resources. 

Of course it's changing every day: What creative assets or ads work, how to set up a campaign... we're learning all the time, and as you know it's very competitive on Facebook. 

Prior to this summer, when we first started going full-on with Facebook, we relied on word of mouth, on email, on being scrappy... now we're placing a larger bet on paid advertising -- and we've seen great results there. Paid advertising has been a major driver of growth.

So much so that your orders outpaced your supply.

Facebook uses lookalike audiences, a reservoir of people that Facebook has identified looks like your customers. We went after that 1 percent or so -- which is typically around a million people in the U.S. alone, just because of the total population -- and immediately saw great returns.

In fact, the response caught us off guard. We blew through our inventory.

We were chasing it until just recently. 

That's a good problem to have... but it's still a problem.

In the summer the wait time was one or two months. Fortunately, people were willing to wait, which was really gratifying. Sales are still growing month-to-month, the return on ad spending is quite compelling...

So with all that, we placed a very large bet on inventory. Now those goods are in stock and for the holidays we can deliver on a standard, 3 to 4 day delivery. 

What did you learn from that experience?

We've gotten better about balancing Facebook ad spending and inventory levels. Unlike in some industries, we can't use orders to fund purchase orders. And we have to pay the factory a deposit.

So for now we've invested heavily in items we are confident will sell -- the briefcases and bags we know our customers want. That meant paring down some of the peripheral items that are complementary rather than fundamental. We're allocating a small percentage of our spending on those items.

Our briefcases, our backpacks, the gym bag you like... for now, that's where we're planting our flag. 

In fact, our goal is to make the number one briefcase: The gold standard, the one everyone wants, the one that is competitively priced yet still packed with features...

We think we're there, but we still have a bunch of things coming for next year that we will inject into the briefcase. We continue to add and tweak. That's will always be part of our DNA.

How do you balance customer acquisition spending versus product spending?

As we ramp up marketing and write bigger checks on ad spend... we do look at the CPA. And we look at how much we can actually put into, say, a bag. 

Our position is that we will continue to spend another dollar on quality and craftsmanship instead of marketing. Creating a compelling product that will sell itself allows you to bid less on ads... and your CPAs will come down.

Of course there are different perspectives on that. If you have a huge war chest of VC money, maybe the right decision is to spend more on marketing than on product. 

But that's not us.

We'll talk more about investor capital in a moment. Before we do, though, I want to talk about your plans for a physical storefront. Doesn't that go against your digital-first strategy?

(Laughs.) We're in the middle of planning to open a store in SoHo next year.

We've always felt that was important -- to have a place where people can touch, feel, and kick the tires. Some people need that, especially for a bag they will carry every day.

But we also want to flesh out the brand, to have a home base, a headquarters that represents us. We've seen how successful other startup, digital-first brands have been in going to brick-and-mortar, and we think there's a strong case for us as well.  

Plus, in respect to the NYC retail environment, it's quite brand-friendly. Landlords and owners of properties have really struggled. Rents have gone down. We might not be at the bottom, but it's a good time to do this.

And we feel it will be an investment that will really help us accelerate the brand.

Granted, that is a question people will ask as we go into fundraising: What amount of your bandwidth will go into running a single store versus growing a global online business?

Which means you are looking to do a raise.

We are. We've opted against it until recently, but with our sales growth and with a physical store in the works, we think the time is right. We have real results.

We thought about it before, but we put it off to ensure our foundation was there, that the proof of concept was extremely solid...  more solidified.

Looking back, we possibly should have done it sooner. To get to the next level you need the capital and resources to spend on people, and inventory, and ads... if we had done that earlier, we might be further along... but then again, we would have felt more pressure to deliver short-term results.

Hindsight is 20/20, but we now feel the time is right.

As you expand beyond core products... how do you decide what customers want?

For us, it's about driving the engine of briefcases and bags and adding peripheral items customers might like. Of course it's tricky to really know until you test. 

Our relationship with our factory makes that easy: If we want to try, say, a new wallet or a new laptop case, we can make ten or twenty and see how it goes.

As we got more volume to our website we have been able to test more easily. More orders, more contact with people... you can learn a lot more quickly. 

Something else we've done: If you go to our Instagram we have a survey where people give us their time and thoughts, and in return we give them 10 percent off for the holidays. Already we've learned things that were somewhat intuitive but not what I would have known right away.

The combination of all our data helps guide product development and inventory buy levels.

Offering a discount in return for completing a survey also helps you avoid simply running a sale.

We're sensitive to expectations of discounts. Once you run a sale... that becomes a customer expectation. 

But we don't want one customer to pay $X here, and another to pay $X minus 20 percent... to us, that ruins the experience for our customers.

We feel we offer a great value proposition. If you discount just for the sake of discounting... that diminishes your brand.

We're too proud of our brand to want that.

Published on: Nov 27, 2018
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