Fog

Editor’s note: This is a guest post by Rick Lewis, General Partner at USVP. The post went through PandoDaily’s usual editorial process. Mr. Lewis was not paid for this post.

“Why would I ever pay $250 for a shirt?” A highly-respected fellow VC asked me this rhetorical question soon after my firm invested in Trunk Club’s Series A round and I joined the company’s board of directors.

In the three years since, Trunk Club CEO Brian Spaly and his team built Trunk Club into a category-defining brand and business in “assisted commerce” for men’s apparel. It recently was announced that Nordstrom has acquired Trunk Club, enhancing Nordstrom’s core business with Trunk Club’s stylist-based personalized service that combines online and high-touch commerce.

The “$250 shirt” conversation has come to mind many times over the course of my involvement in Trunk Club as an investor and board member. VC investing starts with an entrepreneur who is expert in their field and who knows their business opportunity better than anyone. As a VC, you do your homework, and try to subordinate any preconceived notions you have. If the due diligence convinces you that product or service is innovative, the market is large, and the team can execute, you’ve got a good candidate for investment. Not that complicated, in theory.

But so often, the preconceived notions get in the way. It’s all too easy to stay in the “comfort zone” and dismiss an entrepreneur who could turn out be the next Brian Spaly. Here are four “comfort” traps I try to avoid:

1.) “I wouldn’t use it.”

I think it’s a stretch to assume one’s own personal preferences are a proxy for the behavior of a large population of target customers. It turns out one individual’s willingness to pay for a snappy shirt and unparalleled convenience can vary quite a bit. What we learned quickly at Trunk Club was that for every guy with disposable income who is satisfied with his wardrobe, there are many more who are looking for a convenient way to raise their sartorial game and play for the win in that next career move or relationship. It’s comfortable to rely on personal opinion, but the real money is in predicting—without the comfort of certainty—how thousands or millions of potential customers will behave when offered the opportunity to purchase a new product or service. It’s not necessarily about you!

2.) “I’m just not sure what kind of business this is.”

I call this one the “Categorization Trap”. It feels good when a business fits neatly into a well-defined category that already features numerous successful companies, because this validates the market and business model. Unfortunately, this may or may not indicate a good business opportunity—sometimes ease of categorization also means the opportunity is incremental, or the competitive landscape is crowded. Was there an “on-demand mobile-dispatched personal transportation” category when Uber was an early-stage company? No, but I’ll bet Benchmark and Chris Sacca and other early Uber backers are glad they didn’t let that fact deter them. At Trunk Club we found that investors frequently asked, “is this an e-commerce company or a brick and mortar retail company?” In truth, Trunk Club didn’t conform to either model. The model itself—“assisted commerce” combining a hyper-efficient inside sales model with physical locations not just for sales but also for product curation, training, and a unique brand experience—was an innovation. The same differentiation that made Trunk Club’s model “uncomfortable” for some investors made the service uniquely appealing to Trunk Club’s clients and hard for competitors to replicate, and ultimately made the company valuable. There’s comfort in knowing a business looks a lot like another successful company, but if you make familiarity a requirement, you’ll miss some good opportunities.

3.) “There’s no technical barrier to entry.”

Investors often seek the comfort of knowing a startup’s technology can’t easily be replicated. It’s understandable, but my experience has convinced me that there are plentiful examples of very successful startups that had solid tech underpinnings but no actual core tech IP that couldn’t be replicated. GoPro, now a $5B market cap public company, created a huge market for its wearable/mountable HD camera despite not having any fundamental technology advantage over many more established consumer electronics giants. GoPro won for other reasons. Nick Woodman envisioned that the real untapped market was not for cameras, but for capturing and sharing experiences. There also was rapid product innovation, the network effects of the proliferation of GoPro-captured video content, brilliant marketing, and solid execution. At Trunk Club, the company quietly built solid technology under the hood to enable it to service its customers – from order fulfillment on the backend to mobile apps for stylists and customers. The technology enabled Trunk Club to execute on the unique elements of its service. So while there was not technical barrier to entry when we invested, it didn’t matter.

4.) “That’s not where the market is going.”

I call this one the “hubris trap”. It certainly is important to form a well-educated point of view on market opportunity, but if you don’t stay open-minded you’re going to miss some good investments. A friend from another VC firm recently told me an entertaining (and tragic) story about his partners’ reaction when he tried—unsuccessfully—to get his firm interested in chasing Facebook for an investment in 2004. One of his partners told him, “Don’t waste your time. Social networking is dead. Look at Friendster!” I had my own experience with this when I landed my job at USVP in 2004 and a friend at another VC firm told me, “I feel bad for you, being a software guy in VC – software has been done. It’s over”. Of course, since then, we’ve seen a bumper crop of venture-backed software companies worth over $1B, such as Castlight Health, Marketo, Veeva, Workday, Yammer, Zendesk, and many others. Trunk Club, too, had its naysayers, those who thought the world is going exclusively online, period. So often, it seems, the consensus view of where a market is going turns out to be inaccurate, or at least incomplete.

I think investors can do well avoiding these traps, and likewise, entrepreneurs should seek the open-minded investor and avoid being forced to conform to someone else’s framework for their business. The best entrepreneurs often will push investors outside our comfort zones. I love it when a compelling entrepreneur takes me outside my comfort zone, like Brian Spaly of Trunk Club did… because if an investment opportunity makes it through all of the “comfort traps” and easy outs, it might be something very special—and you might be one of a few who recognizes it.

(Editor’s note: This is a guest post by Rick Lewis, General Partner at USVP. The post went through PandoDaily’s usual editorial process. Mr. Lewis was not paid for this post.)

[Image via Helmut Hess, Flickr]

  1. Trunk Club
    Hand-selected outfits shipped to your door
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    Traditional retail or e-commerce doesn't work well for most guys, and we’ve built our business around the idea that there’s a better way. We send guys a trunk of awesome clothes personalized for them by a real person on our team - each guy keeps what he likes and sends back the rest. We started in late 2009 and are backed by top tier VCs and angels. Our engineering and design team is small, agile, and generalist heavy. We're actively recruiting, so check out our recruiting page.