How I Built This with Guy Raz - Bonobos: Andy Dunn (2019)

Episode Date: April 4, 2022

When Andy Dunn was in business school, his housemate Brian Spaly created a new type of men's pants: stylish, tailored trousers that fit well in both the hips and thighs. Together, they started the men's clothing company Bonobos, which became an instant hit due to the pants' signature flair and innovative e-commerce experience. But within a few years, Andy hit challenging roadblocks, including a struggle with depression and a falling-out with his co-founder and friend. Despite many moments of crisis, Andy steered Bonobos to massive success, and in 2017, it was acquired by Walmart for a reported $310 million.See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

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Airbnb.c.a.com slash host. Hey everyone, so next week, you'll start seeing two episodes of how I built this in your feeds every single week. And as you probably know, you can follow how I built this on Amazon Music, Apple Podcasts, or wherever you're listening right now. But I want to let you know that you can actually listen to the next episode of How I Built This right now. one week early on Amazon Music. Also, you can listen to it early and without ads by subscribing to Wondery Plus in Apple Podcasts or the Wondery app. So while our team works to add more content to the feed for all of our listeners, we thought we'd visit some favorite episodes from the archive. This week, it's my conversation with Andy Dunn, the co-founder of Bonobos. It first ran in

January of 2019. It's a good one, and I hope you enjoy it. How were you able to kind of stay optimistic? I mean, were you just looking at projections and saying, this is going to be fine? Stay optimistic. What makes you think that I was optimistic? I was defiant in the face of a terrifying reality. Companies don't die because the companies fail. They die because the entrepreneur gives up. And that was the approach.

Just keep the lights on. Keep growing. And that's what we did. Welcome to How I Built This, a show about innovators, entrepreneurs, idealists and the stories behind the movements they built. I'm Guy Raz, and on today's show how Andy Dunn realized that men would shop in a clothing store without any clothing in it and built a multi-million dollar fashion brand, Bonobos. Okay, so I just want to talk about a serious issue in men's fashion.

The khaki diaper butt. You know, you see men all the time with pants that might fit perfectly in the waist. but they're, shall we say, a little too baggy in certain other areas. And this is really common because your other option is wearing pants that are really tight in the waistband. And you might be thinking, well, if every man is wearing khaki diaper butt pants, what does it even matter? Except that when Andy Dunn and his co-founder Brian Spaley were in grad school in the mid-2000s, they had a hunch that there could be another option.

A best of both worlds type of trouser with a curved waistband that fits really well in the hips and eliminates that, you know, diaper look. And they turned this idea into a giant company, Bonobos, which in 2017 sold to Walmart for a reported $310 million. But the story is a little more complicated than that, because as you will hear, Andy Dunn made a lot of mistakes along the way. There were times when bonobos could have gone under, including a very messy fallout with his co-founder. But we'll get to that a little later. For now, here's what you need to know. Andy Dunn grew up in the suburbs of Chicago. His family was squarely middle class.

His dad was a high school teacher, born and raised in Chicago. And his mom, an immigrant from India, was an X-ray technician. So Andy grew up in a bicultural household, even though, as he tells it, he didn't really identify that way for a long time. time. I didn't know I was different at all until I think it was in high school. This kid, Ed, invented a nickname for me, which is Windu, which I guess stands for white Hindu. And I was totally, it became a thing and you know how teenagers are. You know, it became like a good derogatory nickname. And of course, those can catch on like wildfire. And, you know, depending on, how you feel about it, it can be a little bit upsetting or meaningfully upsetting. So I came home

and I told my parents expecting empathy and instead they both started laughing really hard because they also found it funny. And that was the only time in terms of awareness that I started to think, like, okay, wait a second. I'm not just among mostly white people. I'm not just, you know, I'm half white, half Indian, which is a little bit different. And I think I did a bad job of connecting deeply with the Indian side because of the dominant white culture that we have. I sort of engaged in it culturally with through my mom, but I didn't really own it until I went to India in 1997. When I was, I think, a freshman or sophomore in college, and that really connected me. And that helped me kind of shatter the bubble that I think in a lot of ways I grew up in in the suburbs of Chicago, you know, all the way through college.

Andy went to Northwestern for college, and at first he thought he wanted to be a doctor. But after studying for the MCAT, he decided to switch gears and go into business consulting and private equity. And eventually, he wound up enrolling at Stanford Business School. It was amazing. In what way? Just great people. They filter for empathy and self-awareness, I think. And then there's no grade disclosure to employers.

So they remove the competitive dynamic of how you do in your classes. And then it's smaller. It's 350, 375 people, which is, I guess, twice the Dunbar number, which is the number of people that existed in hunter-gatherer villages and supposedly is the number of people where you can know every member of a tribe. Sure. So you kind of are friends with everyone or one hop away, and you put all those ingredients and you mix them together,

and it's a magical place. All right. So you go to Stanford in the fall of 2005. and you've become friends with somebody who is going to factor into your life. Tell me about meeting Brian. We became housemates, actually. So once we both got into school, we had a common friend, a guy named Jeff. And I called up Jeff, who was an alum of Stanford, and I said,

hey, how do I think about getting a roommate for Schwab, which is the building where a lot of first years live? And he's like, oh, you got to live with this guy, Brian Spaley. And so I invited him come out one night and thought he was terrific and funny and fun and super smart. And so we became roommates. So you and Brian become roommates and you're doing your own thing. You're taking your classes. And I guess when you're a business school, presumably you're constantly like bouncing ideas off other students, right? because the idea is that they might be somebody you could build something with.

Exactly, yeah. I kind of thought about it as an entrepreneur and residence opportunity. Like, you're amongst all these brilliant people, and you can learn from them and figure out, hey, what do they think of different ideas? And I had a bunch of dumb ideas, and most of the time people told me. What were your dumb ideas? So taking different things I'd seen when I traveled and investing in new ideas to create those products in the U.S.

And there was a South African beef jerky called Bil Tong that didn't exist in the U.S. I'm a vegetarian now, but I used to love this. It's very different than American beef jerky. It tastes almost like dried flamen yon with salt, pepper, and coriander. And I couldn't believe this didn't exist in such a carnivorous country like America. And we got to the end of the project, and the guy who was the professor overseeding it, a guy named Joel Peterson, who would factor in, meaningfully into bonobos, said, I think this is a bad idea.

So you and Brian Spaley are roommates and you've got a bunch of weird ideas and he had an idea as well, right? Well, he had one weird idea, which is he was obsessed with the idea that pants don't fit. And so he did a project similar to the one I did on Bill Tong where he really dove deep on the idea. He got customer feedback. He went out to a bunch of guys in our class and asked them, you know, what do they think

about their pants and everyone said the same thing. Our pants don't fit so we wear jeans, number one. Number two, we don't like shopping for them, so it's not worth the time to figure out what fits. I mean, this is not, I mean, there was Banana Republic and J.Crew and, like, you could get pants, but, but he felt that men's pants just didn't, didn't fit well. Yeah, he felt that if the pants fit around your thighs, they tended to be too big in the waist. and so they would cinch under your belt. And if it had the right fit in the waist,

it would be too tight through the thighs. So you were either like super uncomfortable or wearing something that was really boxy. That was his insight, which was brilliant. That men's pants just did not, were not cut well. Exactly. And what he did that most guys wouldn't do is he would take pants that fit his thighs to a tailor

and have the waistband tailored in. And that was this genius insight that actually the way to do this is to, to make pants with a curved waistband, which would bring in the pant around to your waist in a way where the overall shape looks great. And that hadn't really been done in a meaningful way in men's pants before.

So how did Brian turn this project into the next step? Like, what was he? I mean, he had this idea and wrote a paper on it And then what? So, yeah, I'll never forget this. It was spring break of our second year. I was going to Kenya and Uganda on a service learning trip. Brian was going to head down to Brazil for a wedding, one of our classmates.

And he said, what should I do? Should I go to Brazil for this wedding? Or should I stay here and fly and head down to L.A. to buy fabric and make pants? And I was like, oh, this is a no-brainer. You've got to go to the wedding in Brazil. When are you going to have a chance to do that again with? you know, a couple dozen of our classmates. And so I flew off to Kenya and Uganda and had an amazing trip there.

And when I came back, I said, how was Brazil? And Brian said I didn't go. And in our house, there was like rolls of fabric that Brian had bought in the Garment District of L.A. Because he decided he was going to make the pants that he thought men would like? Exactly. He thought he was going to make pants to fit by taking any. And he took a pair of pants that had been tailored the way that he liked to a pattern maker in San Francisco. That San Francisco pattern maker then made an original pattern based on what the overall fit should be with the curved waistband.

He had bought all this great fabric, really cool, like turquoise corduroy and really fun eye-catching stuff. And then he found, I think, one of the last factories in the Bay Area actually in San Francisco, not far from where the Giants play baseball. which maybe had five or six cut and sew women working there, and they started making pants. He went there and said, hey, start making my patterns. But with what money? With the idea to sell it to who? He was a great pre-business school moneymaker and safer. So he had made some money from a company he worked at.

So he funded bonobos in those early days. and then he turned the pants that he was making into sales by selling them to our classmates. He was just like taking this fabric that he bought in L.A. And making orders with this small factory in the Bay Area. And then he would like walk around and hawk them, like sell them to other students? Literally. He loved Trader Joe's. He had two Trader Joe's bags, the red ones back at the time, filled with pants.

And he would walk around telling people about him. And they would be, like, dropping pants behind parked cars and trees, like trying them on. And people love the pants. And at the time, they called him Spaly pants. And I think he was charging $100 a pop. One day, we had a pants party at our house. And I think we sold $16,000 worth of pants that day. And that was when I kind of looked at him.

I was just pitching and helping, you know, taking some pictures for the website. And we kind of looked at each other and we're like, wow, this is becoming something. So when did you formally get involved? So I can remember sitting in class one day, and on a post-it note, I was sitting next to Brian. He had different ideas for, he had ideas for what to call the pants. And one of the ideas said bonobos, B-O-N-O-B-O-S, and I said, what's a Bonobo? It's like many people, I couldn't pronounce it. And he goes, oh, it's a peaceful chimpanzee that makes love, not war.

And I was like, what? Like, how do you know about that? He's like, I don't know. You know, he read about it somewhere. And so we kind of talked about Bonobos should be the name. He was making all the decisions at this point because it was his hobby. And then there was this weird thing where he had taken a job to go into private equity. And I said, hey, what you're doing is awesome selling pants on the internet.

Like, maybe I can make that a thing. Like, this was his side hustle as a graduate student. Exactly. He didn't think that this necessarily had legs. Pun intended. I think that I don't know why, but he, I think, felt like I could do it at that stage. And so once I expressed interest, I became the co-founder and the CEO. And the deal was that if it really did well, that he would come back.

Were people, they may say like, are you sure you want to do this? I had a summer road trip that I took with my parents after graduation. And I sat down with them and I said, hey, I have this offer from a venture capital firm, which was a firm up in Seattle called Maveron. And I said, but I don't think I'm going to take it because I'm going to sell pants on the internet. And my mom looked at me and was like, oh my God, Andy. You know, are you sure? And I said, I was sure.

And they said, okay. So this is in, I guess, the summer of 2007, you stay in Palo Alto wanting to transition. this into something bigger. How did you pitch this to, because presumably you needed money now. I mean, making clothing, manufacturing clothing, you've got to have a lot of capital. Did you have any of your own money at that point? I had nothing. I had spent all my money traveling and on school. I think I had about $160,000 in debt. And so I had one asset, which was a 401k, which I think if you cash in early, you pay a penalty. So I did that. And I had a couple thousand dollars in the bank. So we definitely needed some money. Brian had funded it with 50 or $60,000 of his savings. And it was time to get some outside capital. And what was your pitch? I mean, there were companies making men's pants and they were doing just fine. There was Jay Crewe. There was Banana Republic. There was Gap. I mean, there were lots of options. So how are you pitching this to people who you needed to, you know, presumably raise money from?

It's an awesome question because the inside of Bonobos, other than the better-fitting pants part, was just the role that the Internet was going to play in the future of retail. You know, retail isn't just physical products. It's a bundle of physical products and customer service. And those two things together create the experience that drives customer enthusiasm. And I believe, well, if you could make a big brand using a catalog, it stands to reason that you can make even bigger brands using the Internet. given the power of the web.

And that was the pitch, was this isn't just Ralph Lauren, this is Ralph Lauren plus Zappos. So who did you go to to ask for money? So my first meeting was, I think, like a seven in the morning meeting with Joel Peterson. And Joel had been the guy who had presided over the Bill Tong experiment. He was a professor at the business school. Yeah, he was a lecture at Stanford. and then the rest of his time he spent still doing investing. And so I kind of pitched him on the idea.

And he said nothing the whole meeting. He just nodded silently. And I thought, oh, my God, he hates this. And then we got to the very end, you know, 40 minutes in. And he said, this reminds me my first meeting with David Nealman from JetBlue. Wow. Which is we're going to go into a stagnant category, not focused on customer centricity. We're going to build a much more customer.

centric offering and disrupt the whole industry. He said I'd like to invest. And I couldn't believe it. I couldn't believe it. How much did he give you? Well, at the time, he said, how much are you raising? I said, $300,000. He said, well, I said, at what price? I said, we'll sell 10% of the company. And he said, okay, that's about a $3 million valuation. He said, at three, we'll take $100,000. But if you dropped it down to two, we'll take the whole round. So if you drop the value to $2 million, he would give you $300,000. And you were thinking, that's great. Let's do it.

No, I was thinking, let's stay at $3 million. So how did you resolve that? Well, then I went to see the other professor from school, who was an amazing business person named Andy Ratcliffe, one of the co-founders of Benchmark. And he also offered to invest. And he was willing to do it at the $3 million price. And I said, okay, we'll have the two of them co-invest. at three and then we'll figure out the rest.

I just want to pause for sec and ask you, you know, when you met with your first two angel investors, I mean, it seems like you were able to convince them pretty quickly that this thing, you know, had a shot. And I remember a couple episodes ago on our show, we had Katrina Lacon of Stitchfix, also went to Stanford Business School, also created a,

an online clothing retailer. And she had a problem initially raising money in part because she said a lot of the, a lot of the investors she would go talk with would say, well, let me ask my wife what she thinks. Let me ask my secretary what she thinks about this. And it's just surprising that these guys instantly were like, yeah, this sounds good. I'll tread carefully here because I don't want to imply this is about Joel and Andy. But I think I've seen this experience. My wife's an entrepreneur. My sister's an entrepreneur.

I think there is a lot of gender issues when it comes to entrepreneurship and fundraising. You know, we're at 9% of all VCs are women. And a lot of the consumer spending in our world is controlled by women. I think the number is somewhere between two-thirds and 80%. Wow. So we have a mismatch where men who don't understand women or how women shop are trying to decide how to make investments and only 9% of VCs are women. So it's a fundamentally misogynistically wired system.

So I was fortunate that these two amazing investors were willing to put money in. And I think that's one part of the story. But I think the other part of the story was I had had experiences with them where they knew me with Joel. It was the Bill Tong project. With Andy, I had written him a love letter, basically. I wrote him a four-page letter when one of our... classes ended. I spent two pages saying you're one of the best teachers I've ever had and here's

why. And then I spent two pages saying, hey, here are the things I think you could improve from having spent a lot of time around a great teacher, which is my dad. And Andy later, years later, told me that when he got that letter, he cried. And Andy's not the kind of person where that would seem like something that could happen, but he said that it had validated a career move that he had made to leave venture capital and to become a teacher. And when he saw that he had that much impact on someone, it really, it really moved him. So I had a relationship with the two professors who invested that I think was why they invested. I don't think if I had just cold pitched them, even if I could have gotten the meeting, it necessarily would have been the same thing. So you raised the first seed money.

And what was your next step? So then I flew to New York. I flew to New York with a duffel bag full pants and we called on a friend who had graduated before us who had a job, a guy named Michael Spirdo, and we did a little trunk show at his apartment. And I think I had 20 pairs of pants in the duffel bag and set him out on a table. And he invited some friends through to try on these, you know, allegedly better fitting men's pants. And who, I mean, who was the guy, like, what, who were you targeting? Like, who came to that trunk show? It wasn't the fashionista. It wasn't the people that have a really strong understanding of, hey, here's exactly where I go for this part of my wardrobe. It was kind of the next tier of guys who wanted to look good, but didn't necessarily invest the time in it or didn't know how to do it.

So was New York professionals, you know, guys in advertising or startups or finance who were in Michael's Network who came to this event. And I'll never forget this. Seven guys bought three pairs of pants. six guys bought two pairs of pants. Only one guy didn't buy anything. And it was at that moment that I decided we needed to build this company in New York. So you moved to New York, I guess, in the summer or the fall of 2007. And did you like get an office? Was it just you? Like what did you do? The guy who helped me build the website for what was then called bonobospants.com over the summer, I can remember he drove me to the airport with two suitcases.

One was personal clothes and the other one were Bonobo's pants. And I flew to Chicago for a friend's wedding. I made these bright blue corduroy pants for the wedding of a friend, inspired by Cubs baseball. And I thought, I'm going to sell all these. And I only sold like one pair because the color was so weird. And I then flew to New York. And I can remember kind of coming down Second Avenue.

and heading to an apartment that a classmate of mine had rented, and I just had agreed to live there. I'd never seen it and moved into the apartment, put a couple hundred pairs of pants up on shelves on the walls of the apartment, like in the room where I slept, and we were off to the races. And like at that point, you have this $300,000. And what was your next move? I mean, you had to, you had a website and pants,

and then what a joke? What do you do at that point? Well, 300 wasn't enough money. And so what happened was I started to sell as many pants as I could in person to guys in New York through referrals. So there was sort of a direct sales operation with trunk shows and sales in person. And then there was attempting to get some coverage. And so what happened was our first press hit came from Urban Daddy. I remember I was sitting at the Heartland Brewery and Cafe in Union Square, and I got a call from our first employee.

And he said, Andy, we're getting too many orders. Should I turn off the site? And you were like, how do people know about this? Yeah. Urban Daddy wrote an article called Monkey Business, which is half right, because Pinovos are apes, not monkeys. But let's set that aside, basically telling the story of this brand with great fitting men's pants. And to this day, I'm not sure how they found out. Because, I mean, you were literally, I'm imagining you were like going, you were just calling anybody you knew and said, hey, can you host like a pants party? Like a Tupperware party for me, but with pants and guys at your apartment. Exactly.

And then the pants had these kind of signature pocket liners in the back where you could see a different fabric, usually with a floral or geo print. And so they attracted a little bit of attention because there was a little bit of flair and verve to it. And that also created a bit of virality. You know, the name was interesting, the story of these non-fashioned guys. So we properly launched bonobospants.com in October of 07. And we did 10 grand that month. Then in November we did 20. December we did 30.

Came back from the holiday break in January. And we did no sales for the first five days. And I thought, oh, my God, this was just a fluke. And then all of a sudden, January, February, March, it went 30, 60, 90. So at what point after you moved to New York in 2007, did things look pretty good enough where you could actually get an office? Oh, that was when we got kicked out. Of your apartment? Yeah, because there started to be, I guess, complaints about all the packages stacked up outside the door.

and the landlord met with me and started yelling at me and said I had to move out because I was violating, you know, you can't run a business out of an apartment. And so I said, I totally understand. And we found a little lofted space on 16th Street and 6th Avenue and we moved. Huh. So I have read that like within the first six months, you guys were projecting to do like a million dollars that year. And so I guess that was the point where Brian comes back to the company, and this is like 2008? Exactly. Yeah, this was March of 08 or somewhere right in there. How did that go? It was awesome because Brian was able to jump in and take on all the clothing work, the sourcing, the production, the design, the merchandising, which freed me up to work

on the marketing, the technology, making sure the fundraise was coming along, the limited hiring that we were doing customer service, and we were just jamming. It was an incredible time. So, I mean, end of story, like fairy tale ending, right? I mean, that's amazing. Well, here's the thing, which is having two leaders, two founders in there. I think it started to get more complicated as we grew. And that then became the challenge of who makes the decision. More complicated between you and Brian? Exactly. What was going on?

So I remember this debate about what to do after pants. I think we'd spent at some point maybe a year and a half just focused on pants and we started thinking about the next product category. And Brian was excited about swimsuits and I was excited about shirts. And there was really good rationale behind both. And so we were in conflict over business decisions like that. And then on a personal level, what I realize is once you get into a business partnership with a friend, the friendship gets totally sublimated to the business partnership. So a lot of the stuff that you used to talk about or do, you don't have time to do because you've got to work on this little growing baby company.

And so it went from what was really fun in kind of the laissez-faire world of friendship where you talk about the things you want to talk about and do whatever is fun and support each other when things are different. And it actually flips that. It takes away all the fun. The support that you need, you're no longer going to get from that person, except for very fortunate friends and business partners where it can kind of all the magic can come together. And then for us, it just became talking about big decisions at the company and frequently not seeing not seeing eye to eye. And so it really, it unwound. How do you resolve that conflict? Because we were 50, 50 partners. You know, I had the title of CEO, but Brian had a ton of. a business acumen. And so it really was a partnership of equals, and it becomes difficult to figure out who makes the call. And how are you personally coping with it? Was it like weighing on you, or did you have like sleepless nights? I got depressed. So it turns out I have a propensity clinically for depression. And so I got to the place where I kind of had to fake it at work that I was doing okay, drag myself out of bed and come to the office and kind of put on a show. Yeah.

It was super tough to navigate that because you're definitely on display in a small company. So what was the office environment like? Like were there days where you and Brian were just not speaking or was it just like clipped conversation or what? I thought we were doing a pretty good job of talking in private and then presenting a unified front. Right? Yeah. Kind of the way you talk about, you know, parents and kids. And then I got a call from one of our investors.

And he said, I heard that you and Brian are fighting a lot in front of your team. Huh. And I thought, wow, how did that happen? And he said, that's really bad. And I said, you know, what do I do? And he said, you got to kind of get to the bottom of what's causing that and, you know, get to a place where you can work together. and that was the beginning of a process of figuring out, you know, how do you resolve it? I cannot imagine that because you have this business that's growing and it's exciting and you can start to see where this might be headed.

But the whole thing could also unravel. Like there was a, you must have thought in your mind maybe this thing's just kind of crash and burn. It was a little different than that in that I thought, you know, Bonobos is going to make. make it and it's got to make it. It was more, should I leave or should Brian leave? Because I thought the company was going to do fine. It was just, it, it, it, we needed a clear CEO. But you had come to this conclusion in your mind, or maybe Brian had to, that you were not going to be able to to do this together. Yeah, I didn't have the, the ability to do it just based on the, the depression. And someone said, hey, see a, see a therapist, uh, a loved one said,

And I had some shame or embarrassment around that at that time. And I finally said, all right, I got to go do it. So you did? I did. And you probably were so busy. Like you had to probably carve out that time as well. Yeah, I used to take a taxi up to random part of the Upper West Side and do work calls on the way there. And then went and saw this therapist.

And we were a few sessions in. And she said, hey, Andy, are you in touch with anger? And I said, anger. what's anger? You know? And that was the beginning of this realization that like, hey, if you're, if you actually are angry or you have an emotion, you've got to express it because if it's sublimated, she goes, you know, sublimated anger can become depression. And so that was when I realized actually, gosh, I'm angry about a lot of these dynamics and, and we've got to figure something out. So you're going through this and kind of trying to work through your depression and also.

Related to that depression, obviously, was what was clearly the beginning of a breakup with your co-founder and friend. What happened? How did you guys solve this? So it was a very bad way to do it, probably speaking to the challenges I had with difficult conversations and candor in person. But I wrote Brian a long email where I basically said, look, I think one of us should become the chairman and the other be the CEO. and I'll take either side of the trade. And the CEO can run the day-to-day and run the company and the chairman can focus on external work. That was how the conversation started was through that to kind of open it up. And then one day, we were in the office on us. We used to work on Saturdays and just get stuff done at the office. And one day I just asked him, I said, hey, would you be willing to step aside, you know, given everything that's going on?

And he got a little teary and he looked at me and he said, yeah. Wow. Which was so weird because I had envisioned that conversation so many times and was so terrified to have it. And he was just unbelievably dignified about the whole thing. And that was when I learned. You learn a lot about a person by the way they leave something that they love. Yeah. I mean, it speaks to the kind of person he is that he,

had the foresight to know that one of you had to go and he was willing to be the one. It was an unbelievable gift. I mean, he gifted the company that he had originally conceived of to me. And to this day, the loyalty that I feel to him for having done that. And then the fact that afterwards it's difficult, right? That friendship has has been eviscerated by that business issues. And it took kind of years before we could sit down and have dinner and go to Cubs games together. So you've reconciled. By this point, you've reconciled today.

Yeah, I think so. If you could do it all over again with Brian, do you think you guys could have worked through those things? I don't think unless I could have been more enlightened. at the time about how to how to do it. I think we were both so young and in some ways insecure and trying to prove ourselves and, you know, in some regards, I think, arrogant. I think that it was going to be hard at that stage of both of our lives to figure it out. But I wouldn't do it any other way.

You know, the way that we did it was how it had to be done. And, you know, Brian went out and built another company called Trunk Club and did an amazing job with that. And he's got two amazing stories. And so I'm so grateful to him that he enabled Bonobos to thrive and gave me the opportunity to continue to build it. So Brian leaves. This is 2009, and you're left, I guess, as the CEO,

as the top decision maker. 2008 was the co-founder separation. I thought that would, and all this depression, I thought that would be the worst year of my life. 2009 was far worse. Because I could no longer blame anything on Brian. I had to blame it on myself. When we come back in just a moment,

how Andy kept Bonobos alive, despite mistake after mistake, after mistake. I'm Guy Raz. Stay with us. You're listening to How I Built This. Hey, welcome back to How I Built This. So it's the beginning of 2009, and Andy just went through the hardest year of his life. His co-founder, Brian Spaley, left the company.

And Andy is now alone at the top. And it's not too dramatic to say that the company was in a bit of a crisis. It was a scary year. I thought I was good at hiring and a bunch of people I had hired didn't work out. I thought that I was good at fundraising and we were running out of money. Like how close were you to insolvency? I flew to Silicon Valley one day from New York because our then head of finance told me that we weren't going to make payroll. We had enough cash in the bank I thought to make payroll, but then we had, I guess, promised a supplier through a letter of credit.

And we were about eight days away from not making payroll, which is not an inspiring moment for your employees. and I went to Hertz rent a car in San Francisco to rent a car and I swiped the card and it was declined. So, you know, I swiped my personal credit card, which was somehow still solvent in spite of all the debt that I had. And I drove to a Starbucks and sat down with someone who knew about the company and explained to him our growth and said, we definitely need some more money. I didn't say we need it in the next week. And he offered to invest $300,000 in the business. And then I had another 90 conversations like that over the course of the next couple months and pieced together another round. And we ended up raising our first $8 million from, you know, over over 120 investors.

So we just pieced it together. Because you had, I mean, the trajectory looked good. I mean, you were still presumably growing every month, but I have to imagine that sales were not able to fund the business. It was not profitable. Yeah, we did $2 million in that first year and of kind of full operations in 08 and then 4 in 09. And then we were heading towards seven or so. And I think we made one of the cardinal errors that an entrepreneur makes, which is the second angel round that we raised, we raised at too high of a price. And actually, Joel was pretty

upset about this. Actually, I think I wrote the email to Joel that was a condescending email in some regard around supporting the company. And it was the dumbest email I've ever written. And Joel then said he wanted to sell his shares and created a whole issue for ourselves. Wow. And then ultimately, ultimately figure out a way to get the round done. And Joel didn't invest. So you, I mean, your patron, like the guy who was your first investor, he's out. He's out of that next round. He was out. Wow. That's a big deal because he was like a mentor to you. It was terrible. It was really, really bad. And so I flew out to apologize to him and I said, I really screwed this up.

And I said, would you consider, now that we have this discussion, would you consider ever investing again? And he said, look, not right now. but maybe let's talk later. And for the next round that I raised, I went out and saw him and I said, look, I've learned so much from you. I learned a ton from you in terms of how badly I handled that situation. You actually tell me the truth and hold me to account. Would you consider coming onto our board? Not only investing, but coming onto the board. And he said yes.

Wow. Aside from raising money, you were still running a company. It was both a men's fashion company and a technology company, right? Because this is e-commerce. This is not brick-and-mortar stuff. So how was the technology side of bonobos? Like, how was that working? It was a huge challenge because at the time, the New York tech ecosystem was pretty small,

or at least it felt small to me. And at the same time, it was really hard to attract talented, you know, software engineers. Because they were all in the Bay Area, I guess. They were in the Bay Area or, you know, they wanted to work at a company. where the core enterprise is technology versus a pants company. Yeah. It was really a rift between the folks who worked on technology and the folks who worked on the rest of the business.

It wasn't... Why was there a rift? There was a battle over the soul of the company. You know, was it a technology company or was it a menswear company? But it was both. It was both, which is the challenge. I mean, if I had been a better leader, Maybe I could have figured out how to do that.

You know, we opened an office in Palo Alto, and it turned out to be a catastrophic error. Because all of a sudden, now you've got your New York office, and then the technology people were in Palo Alto. Exactly. And if you think tribalism and human nature is still alive within one office, when you have people in different places with different ideas about what the soul of the company is, and you increase the expense, And by the way, you're now competing to hire software engineers with Facebook and Netflix. And the pay is higher. You know, all those ingredients came together and it was clear after about a year that we had hired the people, but it wasn't working. It deepened the divide between, let's just call it tech and retail.

And it's hard enough to be a good CEO when you've got five days a week in the same office. all of a sudden you're two days a week in each office. You were flying back and forth between New York and Palo Alto. Yeah. And then you're letting people down on both sides. And so I'm trying to imagine you as a CEO going back and forth and trying to kind of, I guess, keep everybody happy. But the tech folks, right, the engineers, like they have knowledge that you just didn't have.

You're not a tech guy. That's not your like skill set. So did you feel like you couldn't just tell them what to do? I don't think you can tell anyone in this life what to do. I mean, I think you can try. But human beings are a gallant species. We don't love authority. And so what you want to do is inspire people.

Yeah. And you want to set a common vision and context and shared values. And then there are times where you have to step and intervene and make important and difficult calls. But what it was was it was clear to me in my gut that the organizational harmony at the company was being destroyed by this cross-coastal conflict. And so in some regard, it became pretty straightforward. And I brought it to the board and they couldn't believe that we were going to pull the plug a year in. You went to the board and you said, I want to pull the plug on this West Coast office.

I said, this isn't working. And they said, well, how do you know in a year? Yeah. Why don't we give it two or three? And I said, look, this is becoming more costly. This is becoming harder by the day. The culture is deteriorating. This is just wrong.

And spending more time is going to only make it more expensive, more doubling down on a sunk cost. Let's adjust. Let's be intellectually honest here and let's adjust course. But how could you do that? I mean, your business depended on these engineers. Like you are, were, are a technology company too. I mean, how do you just say, let's pull the plug on it and we'll figure it out? I mean, that's, that seems like crazy.

A lot of stuff in this entrepreneurial world is crazy. But weren't you scared to do that? I mean, how do you just pull the plug on the whole division? I was really scared. But what I've learned in 11 years of doing this is sometimes when you're the most afraid is when you're, you're making one of the most important decisions, right? Like if it's not scary, it's not hard. And I think ultimately what we need to value more in this life for everyone,

not just entrepreneurs, is courage. The courage to look at yourself honestly, look at the decisions you're making honestly, and say to yourself, you know what, that was my fault. I got that wrong. I'm not going to blame anyone else. I'm going to take responsibility for it and I'm going to fix it. So it's 2013. You've closed this office on the West Coast. You have almost no engineering staff left.

You've got no chief technology officer, I'm assuming, at this point either, right? No. So what did you do? We got, you know, two engineers and this data scientist to relocate. Literally, I remember sitting at a coffee shop in Palo Alto, just begging. I mean, literally begging. I mean, literally begging. being like, will you please come to New York at least for one to two years? And so it really did work out. I don't even want to think about running that play in retrospect, you know, without those two

who came. So once you kind of recovered from the kind of the tech, you know, mini disaster or more than many disaster and things started to stabilize. First of all, was the company profitable? Was it making money in 2013, 2014? Not yet. But we were massively turning the corner towards break-even. I would be freaking out.

Like, I mean, how are you able to kind of stay optimistic? I mean, were you just looking at projections and saying, this is going to be fine? Stay optimistic. What makes you think that I was optimistic? I was defiant in the face of a terrifying reality. And ultimately, you just got to believe. It's almost religious. It is religious.

It's faith. And there's a really good saying, I don't want to say this is true because I've been lucky, but that companies don't die because the companies fail. They die because the entrepreneur gives up. And that was the approach.

Just keep the lights on, keep growing, keep learning, and that's what we did. So what was the thing that enabled you to turn the corner, just more customers, more awareness, more what? I think it was actually more focused.

So what really changed the company was the move from single channel to multi-channel. Meaning the build-out of the relationship with Nordstrom and the reinvention of the retail store with the guide shop model. And this was an incredible paradox because everyone was betting on e-commerce. Venture capital was flowing into e-commerce. Countless companies were rising and falling.

And the irony of our business was, after years of being told that wholesale was going away and that department stores were dying, our most profitable business, became Nordstrom. Wow. And our second most profitable were our retail stores. And those two businesses profits were funding losses from the e-commerce business, which is a wonderful paradox to the way that we conceived of the company. Yeah. So I guess I guess we should explain this for people who have not been in a shop, because I've been to a guide shop. Generally, you don't go in and then walk out with a pair of trousers, right? You go in and get fitted, and then the trousers are sent to you. Exactly. It's a fit-to-ship concept. And so when you think

about our, and this was another really fun board meeting, was this debate around, is this an e-commerce company or is this a menswear experience company? And I made the case, and this is to people that funded the company with the view of e-commerce being at the core, that our company was actually not an e-commerce company. It was about serving this customer. And if we could invent a way to deliver the same level of fit and service in person, then that would actually actually actually be consistent in a deepening of who we are, getting us closer to who we are, to our soul as a business, versus getting away from it. And so the question was, well, how do you do that with physical inventory? If the whole model of bonobos is offering a lot more sizing and a lot more

fits and a lot more colors, and if you look at our Chinos business, we've got 36 waist and inseam combinations, four different fit silhouettes, and we might be running 15 to 20 colors. So if you do the math, that's 4 to 5,000 variants. How do you possibly stock that? And so the incredible insight was, you don't. You don't stock it. You create a clothing store that has no clothing. When we come back after the break, how Andy's clothing stores with no clothing began to bring more money to the business and how he handled the anxious mood at Bonobos when word leaked out that Walmart wanted to buy them. Hey, welcome back to to how I built this. I'm Guy Raz. So it's around 2012 and Andy opens his first guide shop in New York.

And soon, other cities follow. And his idea is that you can have a men's clothing store without any men's clothing actually in it. Basically, you stock enough for people to try on, but then they order the stuff they want online. And that was the insight, which is the customer doesn't need it right away. And that flew in the face of everything everyone in retail told me from the traditional industry, instant gratification. And it turns out for a busy customer, that's just not true. If they get great service, which is what you can put out, if you rip the inventory out, you put the service in, it actually is a much more magical combination in terms of dollars per square foot productivity and customer delight. Yeah. As you, I mean, as you started to turn a corner,

I guess you also started to attract more and more investors and more and more capital to fuel the growth. What did that mean for your own stake? Were you just getting more and more diluted? And did you care? Was it important to you? Oh, wow. This is a fun question. What it leads to, you know, I think a lot of times as a founder, you're thinking,

I'm going to go do this for two years and see if it works. And then I'm going to do it for five. What you don't realize is it takes a decade to build a real business. And so what happens is after four years, you're fully vested. And then you've got a debate, which is stay where you are, take on more capital, get diluted, which is what's happening to all the other shareholders, or ask for more equity. One day I woke up and said, you know what, I'm going to ask for more. I want to get my stake back to a more meaningful level. And then I had this really unusual kind of zero-sum game standoff.

You went to the board and said, I want more equity. seems like a fair request and what do they say? They said no at first and you know said hey like you need to work you need to work for the shares that you've got and then you know ultimately I just warm down

and I got some alternative perspectives from people in the venture capital backed company space and said hey this is this feels right to me was there I mean you know we've interviewed you have you lots of entrepreneurs, some who take on capital, some who don't, who bootstrap and then, you know, sell it for hundreds of millions of dollars. As you saw the value of the company go up, but your cut of it, you know, going down, did you, did you care or did you

say, you know, at a certain point, I mean, a certain number is just a number and that's great. you know, if this works, I'll have a, you know, a little bit of money. Oh, my God, I thought I'll be so lucky to have any of this. And I think it's warped to live in a world where, let's say, you're going to make $20 million. The difference between $20 million and $100 million, it's not clear. Yeah. Right? You know, for me, the only things that excess capital are good for is giving money to

family and loved ones who were a part of getting you to where you were. In my case, you know, an immigrant mom and a high school history teacher, dad. That's number one. Number two is investing in other entrepreneurs and companies. Number three is making political contributions if you want to influence the future. And number four is being philanthropic. Now, I'd love to throw in some nice seats to the Cubs game too. But the idea that you're trying to optimize for making more than, yeah, yeah, it's just, I don't

I think you get warped because you start to hear about what other founders are making and you hear about you start to, it's the human problem, right? You start to circle with people where you start to live in these bubbles where people have so much money. Yeah. And then I would just cut back to, hey, when I graduated at business school, I had $3,000 in the bank and $160,000 of debt. And I started a company with that balance sheet. That was scary. And so I tried to stay true to that. and think instead about how do I make sure everyone else makes money?

How do I make sure that our shareholders from every round, you know, that we're up into the right on the post-money evaluation and ultimately going to make people money? How do I make sure the management team has enough stock and employees have stock? And I'm going to be fine. Yeah. And I'm speaking out of two sides of my mouth because on the one hand, that's what my philosophy is.

On the other hand, I did say, look, look, I want to be incentivized. I do feel like at the end of the day, you know, owning two or three percent of the company is probably not commensurate with the work put in. And while it sort of is my fault that we had to raise so much capital, it also is the price of innovation. If you're the first mover in the digital native brand space and you're going to invent that model, I can't go back in time and do this company on 20 to 30 million, which is what I think it would take, knowing what I now know. But wow, did we get to have fun learning everything we did? And wow, is it gratifying to be the pioneer in the category? And if raising a lot of capital was the price of that, you know, then

that's what the price of it was. So you guys, you know, you finally turn a corner and you're growing and this brand is out in the world. And then what seemed to hit the rest of the, you know, what seemed to hit the rest of us following this like lightning was in 2017, you sold to Walmart. How did that happen? Did they approach you guys? Did they say, hey, you know, we want to buy you? Did you go to them or you? Did you get to a point where you thought, okay, we've got to find a buyer because I've got to pay these investors back? I was at a wedding and I was talking to a friend and he knew one of our angel investors. And that angel investor said, you know, bonobos is great, but I wonder if I'll ever get paid.

And I think at that point he'd invested eight or nine years ago in the very first round. And that wasn't the only reason, but once you've got venture investors who've been in for seven years and angel investors who've been in for 10, it just would be wrong to not make other people money. So I felt like we were at that stage where the company needed to get ready for the next stage. We had discovered our soul as a consumer retail company. And we needed to learn from people that were good at taking consumer retail companies public. So that's the point we're at. And then at the 11th hour, I got a phone call to do a reference. And I did the reference.

And then the individual who was calling me said, how are things going? This is someone that I, a colleague from way back, and I said, look, we're in the middle of this process. And the colleague says, hey, why don't you come talk to us? And he worked at jet.com. And I was like, I knew Jet had been acquired by Walmart. I've known Mark Lurie for years. And every time I saw him, we had a game changing, for me, a game changing conversation. Glory was the founder of Jet.

Right. So probably the best third-party e-commerce entrepreneur on the East Coast. And I said, you know what, I know Mark. I can't understand how would Walmart and bonobos be a fit? That just doesn't make sense. And he's like, just talked to him. And I thought, you know what? Every time I've talked to Mark, I've found him to be a bit of a Jedi.

And we sat down and it was amazing. I didn't think Mark cared about brands. And then we had this incredible mind-melt that the future of e-commerce was going look a little bit like the history of Netflix, that a platform that was streaming other people's content and distributing other people's content would vertically integrate and start to develop their own proprietary content. Right. And Mark and I mind melded that that was going to happen in commerce and that Bonobos was going to be the brand that would lead that and that we would go and lo and behold, that long, that long dreamed of multi-brand vision was going to go.

come to fruition in the least expected way I could have ever imagined, which is with the power of Walmart and Walmart's balance sheet behind it. How long did it take before you close the deal? Yeah, it took months, and it was made tricky by the fact that the deal leaked in the middle of the process, and because Walmart's a public company, the world's largest in revenues, I couldn't say anything. You had to go to the office and show up, like nothing was going on? Well, that wasn't the approach, ultimately, because people,

You know, the quote-unquote water cooler talk was jamming, and then there were messages on Slack saying, this is a catastrophe for the brand. With no context, Walmart acquiring bonobos, I get it. Like, that wouldn't, if you didn't have the understanding of the strategy in the way that Walmart and Jet.com are transforming e-commerce for the company, it wouldn't make sense. And so I had to call a very strange meeting. This is before you close a deal. This was leaking out internally. It leaked. I was out of the office. I was actually working on the deal elsewhere. And I rushed back to the office and I got everyone together. And I said, we're going to have a very unusual meeting. Here's that I can tell you. I love this company at least as much as you do. You know me. I would never guide us to doing anything that wasn't in our self-interest as a brand and as a company and as shareholders and employees of the brand. What has been published is not a fact.

It's not an announcement. It's speculation. We have not decided on our path in our process. And when we have news versus rumors, of course you'll be the first to know when we have news. And in the meanwhile, please get back to work. It was the weirdest meeting I've ever had. Everyone just got up and went back to work. And I'm sure the conversations continued.

But it just, the energy changed. by directly addressing it, it felt like, wow, that turns out that just telling people like it is the truth. And the truth was we hadn't decided at that moment. And then I think it was another couple months before we actually could announce. Andy, there's a big difference in going into Walmart and buying a pair of jeans and going and buying bonobos. I mean, it's a premium brand, right? Like, there were people who said, wait a minute, now I own Walmart, a closet full of Walmart clothes. You know, I can't blame some people for kind of reacting that way.

No, not at all. So we anticipated meaningful blowback. And if you go back and look at what I wrote at the time, I was pretty direct the day of the day of the announcement around the future of Bonobos. And I said, look, I think a lot of people are going to be confused by this. and it was fascinating for 72 hours there's a really big reaction in an availability bias of the most vocal people and then and then business returns to normal the vast majority of people don't think about this stuff that much every day and for me what i couldn't say to them is hey bonobos gets to continue to exist right like we get us we get a home you know how hard that is to actually like secure the hours

come. Yeah. Walmart reportedly paid $310 million for bonobos, which is impressive. I mean, it's a lot of money. How did you respond to that number? Did it mean anything to you? Were you proud that you got it to that point? Or was it just a signature at the bottom of a sheet? Oh, I'm so proud. It's so hard to do that. It's so hard to build a company that ends up being worth something really meaningful. And it was just a staggering number. And I was so grateful that we got that done and got a chance to, you know,

there are very few things in this life that you can look at and say, we did that. And selling a company is one of those moments. And so I'm so proud that we got to chalk that win up and that we get to keep going in a really safe home. You know, people ask, why are we doing this? And part of it is, hey, I'm excited about the strategy.

But part of it is we get to exist now. if we do our jobs well for a long time. Maybe 50 years or more. Maybe 100 years. Bonobos will be around. And that's rare. Andy, I always ask this question, most often ask this question to the people I interview, which is how much of what happened to you and the creation of bonobos and its success

was because of you and your talent and what are the decisions you made and how much, of it was because of luck. Luck is a concept that I thought of in a straightforward way for a while and then when I converted to Judaism last February I became acquainted with this concept of Kismet which is

not even pronouncing it right probably but it's kind of the intersection of luck and serendipity and maybe even some measure of destiny I don't want to go that far because I still don't know why really bad things happen to good people so I think you've got to be open in life

to the way that the universe is trying to help you. The people who love you, who if you just listen to them and cultivate relationships with the people who are direct will tell you what you need to hear if it's not what you want to hear. The same thing at a company, the people along the way, you're bored, your investors, your employees, who know as a collective what to do,

more so than you, but in combination, and you can unlock that. So I think if you bring self-awareness and you bring empathy and you bring positivity and you bring intellectual honesty and courage and you ultimately try to make good decisions. I think you can influence a lot. But I would attribute this outcome and this company

at the end of the day to three things to the quality of the people around me on all fronts, to the hard work of those people who really believed in this and made this happen, the team. And then a healthy, healthy dose. of self-awareness and the pursuit of Kismet. So you're not a believer in luck?

I am. I am. I think that the two things that you're, the two really big things that influence your life, the family that you're born into, and I don't know what I call it, that your DNA, the genetic stock, you know, how you show up as a creature,

as a human being, you have no control over those two things. And so I feel like in life I was dealt, if we call it luck, you know, I don't want to say pocket aces because I don't know how to think about my genetic makeup. But I was born into the most incredible family ever. And I was given the best of all opportunities, wanting for nothing, educationally or experientially, the best mom, the best dad, the best sister. Now I've got the best wife. So with all that and all the amazing groups of people I've been around, I owe it to everyone to do something akin to this.

And at the end of the day, the credit goes to them in so many ways. That's Andy Dunn, co-founder of Bonobos. Last year, after working for a while at Walmart, as a senior vice president, Andy left the company to pursue other business ideas. In the meantime, he's still the chairman of a children's apparel company that he started with his sister Monica. It's called Monica and Andy. And by the way, Andy and Brian Spaley's story

has been used as a case study at Stanford Business School, including the email Andy sent to Brian that eventually led to Brian leaving the company. It's a sort of what to do and what not to do guide for new students. Hey, thanks so much for listening to the show this week. If you want to hear the next episode of the show one week early, check out Amazon Music. If you want to listen one week early and ad free, subscribe to Wondery Plus in Apple Podcasts or on the Wondery app.

Please do follow us on your podcast app so you always have the latest episode downloaded. And another way to support the show is by filling out a survey at Wondery.com slash survey. If you want to follow us on Twitter, our account is at How I Built This and mine is at Guy Raz. On Instagram, I'm at guy.org. This episode was produced by Rachel Falkner with music composed by Rumtin Arableu. He was edited by Neva Grant with research help from J.C. Howard. Our production staff also includes Casey Herman, Julia Carney, Elaine Coates, Liz Metzker, Carrie Thompson, and Alex Chung. Our intern is Margaret Serino.

I'm Guy Raz, and you've been listening to How I Built This.