The Next Big Thing discusses topics that other hardware entrepreneurs will find useful, such as prototyping and manufacturing, tools the companies use to keep moving forward, sales channels that have been effective (as well as others that have been complete failures), and managing cash flow.
In Episode 6 we chat with Mountain Evan Chang, the founder of Carets. He tells us about how running the LA marathon was inspiration to start the company and how they got around inventory issues that plague other shoe brands.
Listen to the full chat below.
Product: The world’s comfiest dress shoes
Growth: 50% in past year
Founded: 2010
Location: San Diego (HQ); Mexico (manufacturer); Utah (fulfillment)
Sales channels: 100% online direct to consumer
Team: 4
What is the founding story of Carets?
Carets came from me scratching my own itch. The year was 2010 and I was a corporate accountant fresh out of college. I had been a lifelong athlete, but after college–and feeling like my career was on a secure path–I decided to really explore, and what came up on my radar was barefoot running.
There are two benefits to barefoot running. The first part is sensory. Our feet are really, really sensitive. That’s why they’re so ticklish. This is because our feet are the primary way that we interact with the earth and they give us so much important data about how we’re moving. Particularly for a runner, when you run barefoot it’s like having a really strict running coach who will let you know, ‘Hey, you’re not doing this right, so please fix this before you hurt yourself.’
The other half is structural. A lot of people tend to think of their feet as a stick of bone, when actually it is this really mobile living thing that can twist and turn and expand and contract. When we put our feet into a very stiff, overly supportive shoe, we take away all this freedom of movement. And when we take that away for even a moment, the muscles start to atrophy and that leads to structural issues–like fallen arches, bunions or neuromas. Serious things that you need surgery for. So by removing as much of the shoes interference as possible, we’re able to allow our feet to grow stronger.
So those are the two benefits of barefoot: structural and sensory. I started barefoot running and I did the LA marathon without any shoes. I think at that point I was like, ‘I know that my office dress shoes are bad for me, but what can I do?’ I wore Five Fingers (those toe shoes) into work on a casual Friday and I freaked out all my coworkers. That wasn’t exactly the reputation that I wanted to have as an accountant. We try to portray this very stable, secure type of personality. I got so frustrated with my dress shoes, I tried to saw off the heel and I just totally ruined them. So it was in these moments of defeat where I looked online and I just couldn’t find anything that met my ergonomic needs–my health needs–while meeting other people’s aesthetic and social expectations. So I decided I just had to make it myself and that’s how Carets was born.
There must have been a huge amount of experimentation at the start of the business trying to find something you could create that had the comfort plus aesthetics. How did you fund that initial part for the business?
I roughly remember the start up costs. It was less than $10k for us to move through all of the fixed equipment investments. We got design patents that were about $3k and we created an Indiegogo video to debut our product, raise some funds and test the market. I think that cost about $2k to $3k. In order for us to get to a point where we can test the market, it came in under $10k. I thought that was a pretty reasonable amount to be able to find out whether I had a viable business or not.
How has the funding evolved between that initial testing of the market to where you are today?
We raised $13k [from the Indiegogo campaign]. Between my wife and I, we had about $40k saved up. We got $25k from an SBA loan with our bank and that paid for the fixed equipment. And then I also got about $30k from friends. I did it the right way. I sent them a contract and I pay them interest.
How do you go about dealing with the shear amount of SKUs you need to order with all the size and color variants?
Well I think we can deal with it in a much better way. So far we are just using Excel and I am in talks with accounting firms in order to get a more sophisticated inventory management system. But you’re right, it is pretty frustrating that we have eight sizes: 7-14, US men’s. Once we add women’s, that’s going to be more SKUs. Every time we add a color, that does create another eight SKUs just because of how many sizes we have. But so far, it’s been manageable.
Have you guys seen an 80:20 rule with that? (20% of the SKU’s being sold generate 80% of the revenue).
Oh for sure. Sizing happens in a bell curve and the middle sizes sell a lot more than the end sizes. One of the only reasons why we make size 7 (it’s a slow seller) is because I wear it.
When you started off did you focus on a couple of sizes at the top of the bell curve or did you launch with all sizes?
We launched with the full size run that we currently have–7 through 14 in black. It took us seven years for us to add another color. But part of this was because we had manufacturing challenges with our first supplier. But now we have four colors on our website and the colors are coming a lot easier now. And now we have a really strong supply team down in Mexico.
When you are negotiating with a new supplier, do you find that every size has its own minimum order quantity (MOQ)?
It really comes down to the supplier and their terms. With our current supplier, there is a total MOQ [calculated over all SKUs] and also a minimum for the leather because they had to buy that in bulk from the tannery.
One of the ways that we can be adaptable with the leather minimums is by restocking leather, so we won’t necessarily use all of the minimum that we ordered [in one manufacturing run] and we can save that for a future production run. This is actually very strategic for us because one of the longer bottlenecks of the production process is waiting for the leather to arrive. If we already have a stock sitting at the shoemaker’s warehouse, then they can go into production right away. As far as different size [for MOQs] with a previous manufacturer, they said they only work in increments of 12 [order sizes], but with our current manufacturer they can do it in increments of 1. So it really depends on the manufacturer.
What have you found to be the most difficult aspects of running a footwear eCommerce business?
I would say the return rate. [Sizing] doesn’t really follow any sort of international standard. Of course there are guidelines, rough sizing guides that are out there. There’s the Brannock device, the one at the shoe store where you have a little scale and you can measure things, but even that can change. People’s feet change sizes as they grow older. Shoe sizing is definitely more of an art than a science. So our return rate is high.
But not any higher than the industry standard. From what I read, Zappos has a return rate of about 35%. Ours is about 25%, but still that does result in a lot of shoes that we can’t sell brand new. One of the solutions we found for that was to have an outlet store where we take the returns that can’t be sold as brand new and we list them at a lower price. And this way we are able to tap into a more price conscious market and consumer while also reducing waste and recovering some of our costs too.
Do you have a fear that selling at a reduced price could undermine the premium feel of the brand?
Not really. What keeps that from happening is the fact that we still offer it at a premium price with premium service. A lot of the times when you go to an outlet store it’s ‘all sales final’ and you go to a separate website or you have to drive out to the desert in order to go to the outlet store. For us, it’s on our website and it’s not that much of a discount. I think the fact that it’s on our website, it’s presented well, and it’s backed by our same, very strong guarantee of 365 days free returns and shipping within the US (even if they’re worn)–I think those all contribute to the luxury experience of shopping on Carets.com.
What have you found the most successful user acquisition channels?
It would definitely be blogs that specialize in barefoot shoes. Through 2017 we hadn’t spent any money on advertising except for sending free products to blogs where they specialize in barefoot shoes. They would write up a review and that would send traffic our way. It also supports our position on page one of Google whenever you search for barefoot dress shoes or minimalist dress shoes.
What sort of ROI do you see on those channels?
That’s a good question because there are some reviewers who I don’t think have sent any sales our way. We do track things using Post Affiliate Pro, as well as Refersion. I don’t have a hard number on the ROI, but I know that they do send traffic our way and it does build up our SEO as well.
Have you tried any channels that were a complete flop?
Yeah, we haven’t been able to get paid advertising to work consistently. We’ve tried Google ads, and Facebook ads and it might work for about a week and then it would bottom at zero. So we haven’t been able to get that to work as consistently.
What do you think is the cause of that? Most eCommerce stores see Instagram or Facebook as their main source for new customers.
I think it’s because we’re a very niche product and we have a very high price point [which] makes it a non-impulse purchase. I think the buying cycle for our product is a couple of weeks in order for the consumer to learn more about the landscape and really ask themselves ‘Do I want this?’ I’ve seen emails from customers saying, ‘I remember you from your Indiegogo campaign back in 2011’–they just got around to buying the shoes.
What tools does Carets use to keep the lights on?
- Kickpay – it helps us with funding and I really like how it ties into our inventory and that way it’s always associated.
- Slack – team communication.
- Intercom – customer support.
- Shopify – powers our website.
- Xero – accounting.
- Return Magic – for return management and they integrate very well with Easypost fulfillment.
What is some advice to other eCommerce entrepreneurs?
Something that comes up very often is people will say ‘It’ll get easier once you’re all established. Right?’ I think that’s totally inaccurate. I think things only get harder as you get bigger. This isn’t so much advice, but more so just setting expectations. When you’re starting off, people basically expect you to fail and you have permission to fail because there’s that stat that most businesses don’t last longer than five years. So you have room to play with, but once you’re established you have something to lose and you have people counting on you. So what I’d like to say is: it doesn’t get easier, but you do get better. You have more challenges and more complicated challenges to face as the business grows, but you’re also more experienced and able to take those on.
Interested in getting financing like Carets? – Connect with the team here.
