Part one of four of a case study of a start-up failure.
A promising business opportunity
Christina Wallace completed a double major in maths and theatre studies at Emory University. She moved to New York City, where she was an artistic manager at the Metropolitan Opera. She enrolled in an MBA program at Harvard Business School in 2008.
Alex Nelson studied mechanical engineering at MIT, Massachusetts Institute of Technology. After completing her studies, she worked at the Boston Consulting Group (BCG) in Boston and London. With BCG she focused on the retail industry. Alex also enrolled in HBS’s MBA program in 2008.
Christina and Alex were assigned to the same section and became close friends. During their second year at Harvard, working together on an academic project where they considered opportunities for improvement in product offering, marketing, and customer service for a startup, Rent the Runway, which rented out designer apparel.
The two enjoyed working together, had a common interest in fashion, and felt they would launch a business together one day. When they finished their MBA, both joined the Boston Consulting Group, although in different locations.
The birth of a business idea.
Working at BCG requires a high level of professionalism regarding working attire. It was Alex Nelson who first came up with the idea that would lead to the launch of Quincy Apparel. Alex, who is tall, found it challenging to find affordable work clothes that she felt comfortable in.
Alex knew that Christina, who is even taller, must have a similar problem. A shopping trip confirmed the problem. The pair went shopping for work clothes and could not find much they liked. Young businesswomen like them would find it difficult to dress fashionably and at the same time professionally. They brainstormed solutions which they shared with classmates and professors during their one-year reunion at HBS. Everyone loved their concept.
Research found that the sizing of women’s clothes dates back to the 1940s when ready-to-wear clothing was becoming established. It was never satisfactory. Sizes came in even numbers, such as 0 – 14; sizing assumed an hourglass figure, which only 8% of American women had. To make matters worse, there was no consistency in sizing across manufacturers, and most major brands took no account of bust size, which significantly impacts how a garment will fit.
Christina and Alex felt a system like that used in men’s suiting would be a better solution. Men’s jackets were offered in two-inch increments for chest sizes, say, 34 to 44 inches, with typically three lengths, long, regular, and short. Similarly, men’s pants or trousers had both waist and inside leg measurements. Also, many producers offered “big and tall’ sizing along with trim/slim sizing.
The pair decided to launch their business under the name of Quincy Apparel and agreed to a 50:50 joint ownership. To avoid investors’ concerns about how two MBA Co-CEOs would resolve disputes. Christina took the CEO title, and Alex would be the COO. Both quit their jobs at BCG to focus full-time on their new business.
Business validation.
Quincy Apparel was going to bridge the gap between companies that offered affordable women’s suits, which in the words of their business plan, “gape and hang like ill-fitting boxes,” and high-end brands that offered more fashionable suits at higher prices. Quincy would offer the high-end brands better fitting and feeling clothes at lower prices.
At the time, two vertically integrated start-ups, Bonobos, which sold men’s pants, and Warby Parker, which sold eyewear, were achieving success both in the marketplace and in attracting investor interest. Both companies demonstrated that the direct-to-customer model could work in the fashion industry. By cutting out the wholesalers and retailers, Quincy Apparel could offer high-quality goods, designed and manufactured “in-house”, at competitive prices.
A meeting with Bonobos executives gave greater clarity to their business ideas. They would design their own clothes as Bonobos had. The Bonobos team recommended a factory to make the garments. The co-founders felt that they had a clear picture of how to start their venture. Bonobos had been successful; Bonobos had raised $26 million in capital funding in 3 years. There was a path to success.
Not surprisingly , as both the founders were MBA graduates, they recognized that they had to understand their potential customers’ problems before deciding on their solution. Research, in the form of a survey, confirmed the cofounders’ hypothesis; 57% of respondents said that fit was the most important factor in the buying decision, and 81% had difficulty finding work clothes that fit well.
Encouraged by the survey results, the founders wanted to gauge demand by the possible market segments they had identified. The segments were: undergraduates, recent college graduates, and young professional women. They planned a series of trunk shows. A trunk show is an event, often by invitation only, where vendors present merchandise to customers at a selected location. They held six trunk shows. Could Quincy Apparel sell clothes to undergraduates and then continue to supply them with higher-end products as the customer’s career advanced?
For the trunk shows, the founders had developed a minimum viable product. A minimum viable product has just enough features to be a saleable product to customers, who will then provide feedback for future development.
This was a single style of jacket with matching pants or a skirt. Like Henry Ford’s Model T, these were available only in black.
Unlike the traditional sizing for women’s clothes, the jackets were sized using bra measurements such as 34A/B, with sleeve lengths available in short, medium, or long. The pants and skirts were available in similar combinations of waist, hip, and length. One of each possible combination was available for the women attending the show to try on. Delivery was promised in 8 weeks, the time required to order the fabric and to find a sampling factory to make the garments. As Quincy was going to be a USA made brand, the sampling factory would be in the New York area. The outcome of the trunk shows was positive, with 25% of attendees making a purchase. For young professional women, the conversion rate was even higher with 50% of this segment placing orders at an average sales value of $350.
Following the shows, Quincy tweaked their sizing formula slightly. These adjustments would allow Quincy to offer well-fitting clothes to women who would usually struggle to find clothes in which they felt comfortable. Once they understood the complexity of handling the potential combinations, Quincy would expand the range by, for example, adding larger bust sizes. The founders had a vision of catering to all women. This vision would prove to be divisive when things began to unravel as the business entered its end phase.
But for now, the company had to fulfill the orders they had taken at their trunk shows. The pattern maker they had hired to produce the garments for the trunk shows help them enter a contract for Quincy’s first production run. This was a learning experience for the founders.
They were unable to find the exact fabric they used to produce their prototypes. They found a nearly identical fabric but did not realize that even closing matching fabrics have different degrees of stretch, which impacts how a garment fits.
Also, the measuring system had inconsistencies; the garments that were shipped were a little tighter than the samples. Fortunately, their customers were forgiving and were willing to try multiple sizes to find the fit that was ideal for them. The founders recognized that building a personal connection with their customers was important; each order that was sent out contained a handwritten note.
To summarize:
The founders had identified an unmet need, affordable well-fitting clothes for the professional woman. This hypothesis had been confirmed by surveys where 57% of those surveyed said fit was important when choosing a garment. Further 81% of the respondents said finding well-fitting clothes was challenging.
The trunk shows had proven to be a success; with 50% of young professional women attending making purchases averaging $350. These were not token purchases but a vote of confidence in the product and the fledgling company.
Until now, the founders had bootstrapped the business with modest investments amounting to around $55,000 from family and friends.
If this was your company, what would you do next? Launch? Or do further validation of the concept?
How much funding do you think you would need? Not in terms of dollars but in terms of time? This is often referred to as runway, the length of time you can exist before you run out of money. Keep in mind this is the fashion industry which typically has two seasons per year; Spring and Fall.
How would you develop your financial projections?
What staff would you hire?
To learn more about the Minimum Viable Product approach you can check out this explanation from Product Plan. They also have an e-book discussing Product-Market fit that contains some helpful advice.
Acknowledgment: Much of the material for this case study came from Professor Eisenmann’s excellent book “Why Start-Ups Fail” There is a lot more to his book than I will cover in this series. Check out his website to learn more.
Why Start-Ups fail 