Imagine these four MBAs sitting in class when their phones start blowing up with orders for eyeglasses after they lost the business idea competition at the Warton School of Business for the same idea.
Dave Young:
Welcome to the Empire Builders Podcast, teaching business owners the not so secret techniques that took famous businesses from mom and pop to major brands. Stephen Semple is a marketing consultant, story collector and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is, well, it’s us, but we’re highlighting ads we’ve written and produced for our clients. So here’s one of those.
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Dave Young:
Welcome to the Empire Builders Podcast, Dave Young here, along with Stephen Semple, and we’re talking about businesses and innovation and ideas that take a business from tiny to empire. There’s usually something that they turn on, something that they come across, they figure out. And it makes all the difference. Today we’re talking about, boy, this is another one of those that bridges the brick and mortar and online world and a bit of a disruptor, if I’m not mistaken. You said we’re doing Warby Parker today, and I know that they’re an online eyeglass company and I don’t know much else.
Stephen Semple:
Well, they are an online glass company and they now have, gosh, I forgot to look up how many stores they have, but they now have a few hundred stores. So, they’ve started to open brick and mortar. But the part of the story we want to talk about is what they did when they were just strictly an online business because they went to the brick and mortar later. So again, the idea of these stories is to talk about the early days, what turned them into an empire. And that was when they were online. So we’re going to focus today on the online part, but they were founded in 2010 is when they started by Neil Blumenthal, David Gilboa, Andy Hunt, and Jeff Raider. And in September 2021, they went public with an evaluation of almost $7 billion. But when they went public, yes, 7 billion.
Dave Young:
7 billion.
Stephen Semple:
That’s a little bit of a payoff, eh?
Dave Young:
Yeah, no kidding.
Stephen Semple:
Yeah. So founded in 2010, 11 years later, $7 billion. So, the idea started in 2008. And basically what happened is the guys were together and they were sharing their frustration with losing glasses and the cost to replace them. And these guys all met at the Wharton School of Business. They were students there and they all had this common frustration of buying glasses and they kept losing them. And the example that got them started was Dave talking about leaving glasses on an airplane. He left his glasses on the airplane and they cost $800. And at the same time, now think about this, it’s different today when we look at the price of an iPhone. But in 2010 you could buy an iPhone for $200 and he’s standing there going, “This iPhone is 200 bucks and these plastic glasses are 800.” This makes no sense to him.
And Andy who liked buying things online was frustrated that he couldn’t easily buy glasses online. And they felt like the technology of how glasses were made and sold, felt so antiquated. And when they got talking about it turns out, talk about this weird connection. They get talking about it. It turns out Neil had experience in the glasses space. He had spent a number of years working for an eyewear nonprofit. So, he had been going to factories and buying glasses as cheaply as possible to be giving away in these third world countries. And this started a conversation and Neil would even be involved in the designing of this stuff and taking it to the factory. So he knew the business. And it turns out what he shared with them, is that the business was dominated by a handful of players. Companies like Luxottica. Luxottica is a $30 billion business.
They make Oakley’s, they make Ray-Ban, they make Arenette just to name a few. They license everyone. Ralph Lauren, Chanel, Prada. They own LensCrafters, Pearle Vision, Sunglass Hut, Sears Optical, Target Optical. They also own the second largest eye-medical insurance provider. So they basically own everything. They own most of the brands. They own second largest insurance company and they own most of the places we go to buy this stuff, all under one company. And they realized that what they wanted to do is disrupt the industry. The more they talked about it, they couldn’t sleep. And one day they meet at a bar over beers and they say, “We should go after this.” And they all agree. Now here’s the thing that’s really fun. They’re all in business school at the time.
Dave Young:
Okay.
Stephen Semple:
Now, part of the program, was to create a business plan. So they decided this was going to be their project was create a business plan for this eyeglass company. They got feedback, they met with professors, they spent… Now here’s another interesting part. They spent hours in optical shops and I think we don’t spend enough time. Yes, you should go to other retailers who are competitors to learn from, but you should go to your competitors not to see what your competitors are doing, but to observe how customers are buying. Listen to their conversations, see how they interact with things. Be that fly on the wall.
So, they spent hours in optical shops and they ended up writing a 40 page business plan. And they enter a competition, school of business competition. And they got eliminated in the semifinals. They weren’t good enough to go to the finals. And now they’re like, “Oh boy, I can’t believe we didn’t win this thing. We really got something to prove.” So, they get their competitive ire up. And so at this point, they have a paper, 40 pages, they have an idea, but no product and no ability to manufacture it and no way to sell it. “But I got an idea and 40 pieces of paper.” And they got lots of pushback to this idea because it was strange to buy glasses online. We weren’t buying things as much online. And glasses are something, “Well, I want to see it on my face. I want to try it on.” And here’s the other thing they were told. They were told, “It’s hard to create a brand,” which is true.
They’re also told, “It’s hard to create an online store,” which is also true. But because of that, they were told, “You need to choose one or the other. You either focus on building the brand and sell it through others, or you focus on building an online store and sell other people’s brands.” And they were like, “Nope, we actually want to do both.” So they decided to go down and do both because they saw the magic of online. They just knew that online would work. But the big barrier in online, this is where they were smart, people would say to them, “But people want to try on glasses before buying them. That’s why they won’t shop online.” They then flipped the question on its head and said, “How can we make it easy for people to try on glasses and buy online?”
They didn’t go, “Oh, that’s wrong.” Or they didn’t go, “Oh, you’re right, there’s nothing there.” They went, “Okay, that’s true. Now, how do we flip that on its head and make that no longer a barrier?” Because what they realized, people need to touch and feel it and try it on. And at that moment they felt really challenged and they started looking at every obstacle that they could think of. Every obstacle, every piece of what we like to call in sales marketing, friction, and remove all of them. Anytime something came up as friction, “How could we do it? Free shipping, free returns.” Then they created this Try-On Program. And the Try-On Program is they send you the frames, you try them on. If you like them, send them back and we’ll put lenses in them.
Dave Young:
Yeah.
Stephen Semple:
The other problem, which was brilliant, I can now try on the glasses in my home, take my time, ask all my friends. The other problem is, product normally is really expensive. Like we were talking about, $800. What they want to do is sell for under a $100. Now, here’s one of the things that got pointed out to them is that this can create skeptics about quality. You can go too low. Their initial idea was they were going to do them for $45. They were told that that was too inexpensive. And they did a lot of research around price and found there’s a psychological barrier around $100. So they felt they could just go under $100 to achieve their objective, but not be seen as being cheap. Because there’s lots of research out there that price and quality match.
And if price is too low, an outsider will not believe that there’s any quality. So, they wanted to have a price point low enough that they could get to as many people as possible because they wanted to get glasses on as many faces as possible, but high enough that people would actually believe that there’s quality. So they settled on $95. Now here’s a fun part. Real debate about the name of the company. They had all sorts of different names. And finally they landed on Warby Parker. And Warby Parker comes from characters in a Jack Kerouac book, Warby Pepper, and Zach Parker. Warby Parker. And they also thought when you put Warby Parker together, it sounded kind of cool and different and all that other stuff.
Dave Young:
Yeah, it does. It rolls off the tongue. It’s not hard to… I was going to say, it’s not that it’s easy to remember. And it’s not that it’s hard to forget. It’s just unique enough.
Stephen Semple:
It’s different.
Dave Young:
Yeah, it’s different.
Stephen Semple:
Yeah, it’s different. Now, they use their life savings. Each one of them, when they put it together, they had $120,000 that they were able to pull together to do this. And basically they went 15 months before raising funds. That was enough money to get them through that. And even when they raised funds, it was really leveraging the relationships that they had. Now the other thing is because there was this experience of buying glasses for non-profits, they’re able to leverage relationships in terms of the factories. So they knew the factories to go to, but they still had to pitch them. And it turned out they had to pay for the frames upfront. Manufacturers were not going to put them on credit or anything like that. And they had to store all of them in their apartment. When their first shipment showed up, it took them hours to unload and they inspected every frame.
So this 120,000, they invested in inventory and website and also PR. They interviewed a bunch of PR companies, hired one of the top PR firms out there because what they knew is they only had one shot to launch a brand. And before launch they hired a publicist. They met with 50 PR firms, they wanted to find a good fit. And look, a lot of the PR firms even weren’t interested in them. There’s nothing sexy about four MBAs launching a fashion business. And I need to add four MBA students launching a fashion business. So, they knew they were launching a spring of 2010. They really, really wanted to be in premier magazines because they also understood the halo effect. We talked about this in Black Pearls, right? If you’re in Vogue, in GQ, you’re suddenly fashionable. They were targeting those magazines to get into and they had production samples but no site yet. They wanted launch partners and they found out that GQ and Vogue were going to do an article. So, the real key was finding the right PR firm.
Dave Young:
Stay tuned. We’re going to wrap up this story and tell you how to apply this lesson to your business right after this.
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Dave Young:
Let’s pick up our story where we left off. And trust me, you haven’t missed a thing.
Stephen Semple:
And the message was novel at the time. The price point was novel, the home try-on was novel, but here’s what they needed. They needed an idea that suddenly made sense to the consumer. You know how we often will talk about connecting the known with the unknown?
Dave Young:
Yeah.
Stephen Semple:
This was brilliant, is this, is that they got labeled as the Netflix of eyewear.
Dave Young:
Oh, there you go.
Stephen Semple:
If you remember Netflix at the time was they would send you a DVD, you would watch it and send it back. But these guys were sending you glasses that you would try on and then send it back. Suddenly somebody could get their head around the Try-On Program. “Oh, it’s like Netflix.”
Dave Young:
Yeah.
Stephen Semple:
Attach the unfamiliar to the familiar. So here’s the crazy thing. They find out this article’s coming out the next day and they don’t have the website up yet.
Dave Young:
Oh, no.
Stephen Semple:
So they stay up all night, get the website up and working, and the next day they are in class. Yes, these guys are still in school. The next day they are in class and they’re sitting in class. Told no one, the site was live, unsure if the site’s going to work. And they had their iPhones set up to notify when orders came in. Immediately in their class and all their phones are going nuts.
Dave Young:
Oh, wow.
Stephen Semple:
Orders are coming in. Lots of orders. Next problem. They suddenly realize there’s so many orders coming up, they don’t have enough inventory, they’re sold out. But they did not build a sold out or a wait list.
Dave Young:
Oh, no.
Stephen Semple:
So, they basically rush out of their class and make this emergency telephone call to their web people to build this wait list function. Within four weeks, not only are they sold out, they have a wait list of 20,000 customers.
Dave Young:
Oh, my gosh.
Stephen Semple:
It took them nine months to work through that wait list.
Dave Young:
That’s amazing.
Stephen Semple:
But it created this buzz and this aura of scarcity. At first, they thought this was a problem. It actually made it feel more special for people. And one of the things they also did, the founders personally reached out to everyone on the wait list. Personally reached out to them. They had a bad experience, They addressed it personally. The first person they hired, who’s still with them, was a person for answering the phone and running customer help. Wasn’t a new technology person. Was a person to take care of customers. And it was an overwhelming amount of work in the early days. They tried to borrow money to fund inventory. They went to 18 banks. Even with all this, they went to 18 banks and only one would talk to them. This was right after the financial meltdown. So banks are really tight. And most banks had this rule that they couldn’t lend you money if you didn’t have two years of tax returns. Well, they’re students, they didn’t have two years of tax returns. And they ended up getting this special loan, for 200,000 SBA loan. So that’s something in the States and-
Dave Young:
SBA.
Stephen Semple:
Yeah. So they got that. But then they were also working with a logistics company. And the CEO saw all the things going on and he went to them and he said, “Could you do some PR consulting for us?” And they were like, “Sure.” And he was like, “I’ll pay you a couple hundred grand to do that.” So, that gave them more money to fund their business. And the turning point though emotionally for them was the first time they saw somebody in public wearing their glasses.
Dave Young:
Nice.
Stephen Semple:
And they literally followed the person, “Oh my god, they’ve got our glasses on.” But I can understand that as a business owner, that’s the moment it really became… Even though you’re doing all these orders, the first time they saw it in public. So in 2019, they continued to innovate, remove friction. Because in 2019 they introduced a virtual try-on augmented reality application, where basically you can see a picture of yourself wearing the glasses. And this was recognized by Time Magazine as one of the 100 best inventions of 2019, was this augmented reality app. And now Warby Parker has some brick and mortar locations to support all of this. But really the beginning was this online and the other part that’s so cool. These guys were in school, while imagine that.
They’re sitting in their class and their phones are going, “Bing, bing. It’s like, oh my God, we’re getting all these orders.” And they’re in Wharton Business School. And their business plan was not the best business plan. But there’s a couple of really important lessons here that I really admire. They originally just created a price point and one of the professors said, “You got to think about price point more importantly. Yes, there’s this price point in terms of making your market broad, but if you make it too low, it won’t be seen as the quality you want. Really research that price point.” And they spent a lot of time on that. But the other part was when people said, “Folks won’t buy glasses because they need to try them on to buy them.” I love how they flip the question of, “Well, how can we get it to them to buy it?”
So they looked at the business from the consumer’s point, combination of their own frustration and the frustration consumers were feeling and didn’t dismiss those things. Worked hard to eliminate every one of those friction points. Every one of those friction points. And then in the early days, stayed involved with customers. They handled customer complaints personally. They followed up with customers personally so that they could learn, because look, a complaint’s a friction point. “Okay, let me learn about this.” And they had a launch strategy. So many businesses start without that. They had a launch strategy and their idea was PR. They knew where they wanted to get and they built a strategy for that. And then that strategy led them this idea of applying the familiar to the unfamiliar to make it more comfortable for consumers. Sure they did that as a startup, but even existing businesses can do that. Remove the friction.
Dave Young:
Remove the friction. Amen.
Stephen Semple:
The CEO should work the customer complaints line for a little while. Talk to those people.
Dave Young:
It’s so important for businesses to talk to their customers. And they tend to leave that in the hands of the newest hires and the store clerks, the technicians. The business owners need to be out in there.
Stephen Semple:
They do. Because otherwise, the feedback you’re getting is there’s a person in the call center who took the call, who noted down the things, who then handed it to the supervisor, and then somebody creates a report that lumps it all together and gives you the summary. That’s complicated, right? Remember as kids, we played that game of telephone, 12 people in a row and you would just say a sentence, and by the time it got to the end line, it was nowhere like how it started. How do you think this feedback is working in businesses, when it goes through this seven layers of people before it gets to the CEO?
Dave Young:
And five or six of those layers are people that are likely going to go, “Well this customer, nobody’s going to make him happy.” At Warby Parker, they said, “How do we make them happy? They’re not happy. How do we make them happy?” Not, “Nobody can make them happy. What do we have to do?”
Stephen Semple:
Absolutely. And that’s a great point, David, because the feedback that you get is also going to be tempered by A, “I want to make sure that I don’t look bad or my department looks bad, so I’m going to temper the feedback a little bit that way. I’m going to have my own views. I’ll know that that customer’s just being unreasonable,” and all those other things, which means there’s no way you’re going to get accurate feedback. So spend more time with your customers. Work those phones for a few hours, hear those complaints, reduce that friction.
Dave Young:
Yeah. Reduce the friction.
Stephen Semple:
And that’s what Warby Parker was all about, was reducing price friction and then the experience friction.
Dave Young:
I think they still are focused on that.
Stephen Semple:
Yeah. Well look, in 2019, the augmented reality. So they continued to innovate in that front. So good for them, right?
Dave Young:
Cool story. Thank you Stephen.
Stephen Semple:
All right. Thanks David.
Dave Young:
Thanks for listening to the podcast. Please share us. Subscribe on your favorite podcast app and leave us a big fat juicy five star rating and review. And if you have any questions about this or any other podcast episode, email to questions@the empirebuilderspodcast.com.
