Italian company Luxottica pretty much owns the eyewear business, controlling 80 percent of the industry through brands that include Prada, Ray-Bay, and even Sunglass Hut and Lenscrafters.

So how did Warby Parker decide it made sense to compete against them anyways? Neil Blumenthal and the other Warby Parker co-founders wanted to reinvent the market for eyeglasses, but many of their lessons on reducing risks can apply to any smaller company or startup looking to take on an industry giant.

"Everyone says entrepreneurs need to take risks," Blumenthal said last week. His perspective is entirely different. "If at any time you find yourself needing to make a giant leap of faith," he advised, "step back, and break that decision down into smaller decisions."

Blumenthal was speaking in Chicago at Iconic, a conference series co-hosted by Inc. and CNBC, where he explained how he and his co-founders systematically took the risk out of their startup, until taking on Luxottica no longer seemed like a crazy thing to do. Here's how they did it.

Set limits

Warby Parker's first step was to limit the amount of money each partner was going to be asked to invest. The four co-founders would each put in $25,000, and agreed that, if need be, they were willing to each contribute an additional $5,000. But if the business wasn't showing signs of success after they'd put in a total of $120,000, that was it. They weren't going to throw good money after bad.

"We wanted to invest as little time and money as possible, to get that confidence to invest more time and money," said Blumenthal.

Let customers help set prices

Warby Parker's first business plan had the company selling prescription eyeglasses for about $50. When the founders showed their business plan to one of their professors at Wharton, the professor took one look at the price point and announced that there was no way the plan would work.

There were two reasons the professor thought Warby Parker was doomed: One was that he'd seen a number of these plans before, and he knew entrepreneurs always underestimated their costs. The professor thought Warby Parker's costs of doing business would be about twice what Blumenthal and his co-founders had estimated.

The professor's second objection was even worse: At one-tenth the price point of a designer pair of prescription glasses, Warby Parker just wasn't credible. No one would trust that the glasses were of even moderate quality.

So the Warby Parker co-founders sent out a survey asking people how likely they were to purchase glasses at different price points. Their findings confirmed what their professor had told them. People's willingness to purchase glasses from Warby Parker actually increased as the price went up. When the price reached $100, willingness to buy hit a plateau. That verified that the right prices was somewhere around $100. Blumenthal thought $99 sounded "discounty." They chose $95, thinking that sounded "deliberate."

Be vulnerable

Warby Parker's launch was a huge success. They were offering to ship people five pairs of glasses for five days so they could try them on at home. But in four weeks they'd sold out of their top 15 styles, and they had to suspend the home try-on program because they were out of inventory.

That's when customers started calling with the inevitable question: Can we come try the glasses on at your store? Problem was, there was no store. "We told five people they could come to our apartment," said Blumenthal. "We thought, we've just destroyed our reputation with five people. If they mug us, tough luck."

Warby Parker's first store was the founders' dining-room table. "Brands build relationships with customers just as humans do, through vulnerabilities," said Blumenthal. "Those five people ended up being some of our biggest advocates."

Research happens in the real world

With people visiting their dining room table, and later a showroom, to try on glasses, the founders of Warby Parker knew that physical storefronts were next. That was risky. Their response, while it seemed like a cute publicity stunt, was actually a research project in disguise. They bought an old yellow school bus, ripped out the insides, and worked with a yacht designer to put in shelving and fixtures that would encourage people to try on glasses in the bus. They called it the Warby Parker class trip.

The bus didn't just sell glasses, because even people who wear glasses every day don't buy a new pair all that often. To find out who else might be attracted to the brand, the bus also sold mugs, sweatshirts, and "flasks, at the back of the bus, if you were one of the kids who would sit in the back of the bus," said Blumenthal.

By driving through different neighborhoods in different cities, and carefully tracking demand in each, the founders were able to figure out the exact best places to open Warby Parker stores. Their first physical outpost? Greene Street, in New York's Soho neighborhood.

Now, five years after Warby Parker started selling glasses from a dining room table, the company has raised $115.5 million and has 500 employees, 12 stores, and, through its charitable activities, has donated more than $1 million glasses to people in need.

Published on: May 28, 2015