COMPANY:Touch of Modern
2017 INC. 5000 RANK: 565
HEADQUARTERS: San Francisco, CA
YEAR FOUNDED: 2012
2016 REVENUE: $118.8 million
Its four co-founders pivoted twice before settling on the idea that would finally pan out--a site offering a curated selection of clothing and home goods for men. And pan out it did: Touch of Modern estimates it will hit $200 million in revenue in 2018. This is the story of an overnight success, eight years in the making.
On May 17, 2010, Steven Ou woke with a pretty clear plan: He'd graduate from college later that day and then he'd pursue a finance career, starting with a plum job he had secured at UBS. But a phone call he received shortly after getting dressed in his University of Pennsylvania cap and gown changed the plan.
It was Ou's buddy and co-founder, Jonathan Wu, calling to say that they along with their two other co-founders had been accepted to a startup incubator run by I/O ventures in San Francisco. Graduation went as planned, but the Wall Street plan didn't. Ou was ready to take a risk--even though financially it made almost no sense. He had student debt to pay off and only a couple thousand dollars in his bank account. Still, a little over a month later, he packed up for the Bay Area.
Ou, Wu, Dennis Liu, and Jerry Hum hadn't completely decided on their startup idea yet when they had applied at the incubator. According to common startup wisdom, you should solve a problem lots of people have. As recent transplants to the area, their most immediate problem was how to discover fun things to do on the weekend.
Their first attempt at solving that problem was a company called Skyara, which was a platform where people could book unique peer-to-peer experiences, such as a tour of a local chocolate factory. It attracted some money from venture capitalists but a few months in, it was clear it wasn't going to be a sustainable business. They tweaked the idea to offer booking services for outings, such as skydiving lessons or walkin, and renamed it Ravn. But again, the team ran into a wall.
"It's really hard to scale and make money when you have to manage all of these small businesses and be hyper-localized," says 29-year-old Ou, who served as CTO of both ventures.
Rather than give up and return their investors' money, the team pitched their VCs in 2012 on one last idea--Touch of Modern, an e-commerce destination for stylish guys to find flash sales of unique products.
"My partner and I looked at each other and thought, 'Really?' " says Bobby Lent, a partner at Hillsven Capital, one of the VC firms that had backed the company from the beginning.
The same thing that had convinced Hillsven to stick by the co-founders through the first two ideas ultimately led the firm to support the team on idea No. 3: discipline. Lent says that the team had a track record of testing every idea thoroughly, pivoting quickly when it didn't work out, and explaining their decisions clearly.
"They built trust with us. It was their discipline in everything they've ever done--they always showed us the data behind their thinking," Lent says. "If there was another way to make Skyara or Ravn successful, I couldn't have thought of what it was. We'd suggest [an idea] and they would have already tried it."
It also helped that the team had already beta-tested the idea for Touch of Modern before they told their investors about it, so they came armed--again--with data.
Even while Ravn was winding down, they decided to run two preview sales online to see if a curated selection of stylish items for guys would resonate with potential customers. They did--the team wound up bringing in more revenue with those sales than both the previous two companies combined ever did.
Someone even bought the $7,000 Danish couch they threw into the sale on a whim--but they had no idea how to ship it to her. They hadn't yet worked out the logistics of running a company that had to touch physical goods. It eventually took six months to get it to her. "She was very patient," he says.
"It sounds very trivial but at the time there was simply no retailer truly catering to men's lifestyle," Ou says. "A lot of retailers cater to women's lifestyle and sometimes tack on men's, but we don't believe they understand how men shop and what motivates them to buy."
Touch of Modern, which has raised $17 million to date, did, in fact, have competitors at the time. The primary one was Fab.com, and it sued the company in 2012 for allegedly copying its website design. The dispute was later settled out of court, but Fab crashed and burned in 2015 from a combination of overspending and poor execution.
The fact that Touch of Modern is still going strong--and hit $113 million in revenue in 2017--has a lot to do with the co-founders' staying lean. In classic Silicon Valley fashion, the team lived and worked out of an apartment for a couple years. "They were really stingy guys," Lent remembers. Touch of Modern also managed to nail what its "cool guy" customers want--luxury watches, art, clothes, maybe even a designer plunger. A perennial best seller (for real) is a wrist-mounted flamethrower.
Continuing to grow profitably will be Touch of Modern's biggest challenge. The brand has adjusted how it targets customers, starting with Facebook ads for desktop computers, and then switching to mobile ads, Google ads, and search engine marketing. The brand processes more than a million orders a year, two-thirds of which now come through its mobile app. The latest marketing iteration is direct response television ads.
And the company continues to try new things, like its own label of T-shirts. In the future, CEO Hum says they haven't ruled out an even bigger experiment, such as a physical store in the manner of Everlane and Warby Parker. But in keeping with Touch of Modern's methodical approach, the team won't make any hasty decisions.
"We do not take products into inventory [so] we face a particular challenge in presenting them in a physical store," Hum says. "We will need to resolve this tension before we're ready to test a concept store."