By Sanghoon Kwak G’14/WG’14, Team Leader for Slidejoy
Team Members: Jaeho Chung WG’14, Robert Seo WG’12
Slidejoy is an intelligent Android app that pays users to view beautifully designed ads every time they unlock their phones. Over time, the app learns the preferences of a user based off of previous behaviors during different times of day and at different locations and curates a more profitable and relevant user experience.
Editor’s note: This article was originally published in the Wharton Journal.
This article is a part of a special series on the Wharton Business Plan Competition (WBPC). Stylitics, the grand prize winner of the 2011 WBPC, is on a mission to bring fashion analytics into the digital world – one closet at a time. I caught up with co-founder Rohan Deuskar (WG’11) to find out what’s been keeping him busy. Started in Rohan’s small Brooklyn apartment, Stylitics has raised over $3.2M, grown to 16 people, and helped thousands of fashionistas find their unique styles.
Wharton Journal: Where did you get the idea to start Stylitics?
RD: Stylitics is the confluence of my personal need as a consumer and a major need in the fashion industry.
Stylitics was born from my frustration that although like most people I was spending a decent amount of money and time on buying clothes and deciding what to wear, my closet was still one of the most inefficient parts of my life. I’d wear only 20% of my stuff, I’d forget what I owned, and I’d buy duplicates of clothes I already owned. It struck me that the closet was one of those central experiences in people’s lives that is still completely analog and tied to one physical location. I realized that if you had a digital version of your closet – essentially all your clothing data in one place online – then you could unlock an amazing set of new capabilities. Imagine putting together packing lists on the go, or tracking stats like cost per wear of each item, or getting online outfit advice from your friend or a digital stylist.
And not only would consumers be better off, but with the user’s permission brands and retailers could see what people are wearing and buying in real-time, for the first time. That means better and more personal recommendations, more targeted offers, and better insights.
WJ: How did you meet your co-founder, Zach Davis?
RD: Zach is a friend and colleague from Chicago. We were both early at a mobile startup called Vibes Media. In 2010, he was in Seattle while was I interning at Amazon so we talked a lot about startups. During Sell Weekend I was back in Seattle and shared this concept with him. He got it immediately and began working remotely on it with me on top of his full-time job. Then he quit his job, I turned down my job offer, and the day after my graduation we were working on this full-time in New York!
WJ: Both you and your co-founder didn’t have technical backgrounds – can you tell us how you were able to get your business started?
RD: While I believe it is absolutely feasible to have two non-technical founders build a technology-based business, you are definitely starting with a lot more risk and at a disadvantage. For the first 2 years, finding good and affordable developers was the most difficult and challenging thing. For our first engineer, we hired a new grad in Iraq who was referred through my cousin at Berkeley. He ended up working with us for 2 years. Our first designer is a stay-at-home mom in Serbia who at the time had very little English but had the right attitude and talent. She is still with us. For our first senior engineer, I went to a Ruby on Rails meetup, made sure to walk back to Center City with the speaker, took him to dinner, and sold him on the vision. He was with us for a couple of years.
If this sounds easy – it was not. We’ve scoured LinkedIn and sent messages to hundreds of developers to get one great one. In fact, to put together the great 9 person engineering team we have now meant going through about 20 contractors and a couple full-timers.
If I can offer a few lessons learned that will make the process easier:
You are responsible for understanding how engineers work, how technology works, and how product development works. This is not someone else’s problem. To hire and manage engineers, you need to know this. You don’t have to learn to code, but you do need to understand the principles and culture of software engineering. It’ll save you and your engineers a lot of grief.
Until you know all the above really well, only consider engineers or contractors who score very high on communication and attitude. Doesn’t matter where in the world they are, or if they are “senior”. If there are red flags about irregular and unprofessional communication, walk away as soon as you can. Nothing is more costly and frustrating than chasing down your engineers for updates.
Pay your engineers from Day 1. Even a little. It works better for everyone that way. There are too many good opportunities for decent engineers for you to show up empty handed. Options don’t count.
Software engineering is a creative endeavor. It is not an assembly line for code. Treat development and developers accordingly.
WJ: When developing the pitch presentation for the competition, what were some of the most important pieces of the narrative?
RD: I think you have to sell the big vision and then solve the big roadblocks. The judges are coming in cold and watching critically, but they are also there for the love of business and bold ideas. Hook them early. Our pitch started with “There’s a massive gap in fashion. Unlike nearly every other major industry, there is no billion dollar analytics company in fashion.” We then explained why we thought that was the case, why that had to change given market forces, and what our plan was for becoming that company.
Then you have to anticipate and answer the questions that will inevitably spring up. One trend I’ve noticed while judging business plans is that teams leave a lot of obvious questions unanswered. The audience will think of those difficult questions so you might as well address them. You don’t need the perfect solution, but you do have to show you have thought about realistic solutions to the big problems.
And finally, I think any pilots/tests/proofs of concept that you do will go a long way. We did a very low tech pilot to prove that people were willing to share their outfits in detail for a small incentive. Rather than saying – “we believe it will work” we were able to say “given our test with 250 people, we believe we can get 25,000 people to do this, which becomes one of the largest fashion panels in the world.”
WJ: Can you tell us how the trajectory of Stylitics changed after winning the competition?
RD: I’m not sure if the trajectory changed so much as the number of opportunities increased. We met a few judges who made intros to people who made intros to other people …and so on down the chain until we met the angel investors who led our early rounds and continue to be great supporters.
Actually, the most important impact was that it kicked off a “spiral of success” (do they still teach that?). It solidified in our company the confidence that we can dream big and actually achieve unlikely goals, even as a tiny startup. I have no doubt that luck was a big ingredient in winning the competition, but we also felt like winners. Feeling like winners and expecting to win has a powerful impact on culture. It gives you the confidence to attempt things that are out of your league. If we succeed, it reinforces our confidence. If we fail, we think “we know we can succeed, so let’s figure out why we failed this time and fix it.” vs. “Well, of course we failed. We’re just a startup. Let’s stick to what’s manageable today.” In fact, as part of their daily status email, each Stylitics employee lists any big wins they had the previous day.
WJ: How has Stylitics been able to keep up with the latest technology trends and keep competitors away?
RD: We were a little late to building on mobile, which now has about 4X the activity as web. We could have been quicker there. Besides that, we tend to be ahead of the curve with the technology and concepts we use, especially in the fashion industry. We tend to have a bias for innovation, so our challenge is making sure that we don’t get too far ahead of the market without testing what clients and consumers actually want.
We tend not to worry about competitors too much. We’re really competing with our own shortcomings and with the status quo in the fashion industry. What we’re doing is hard and the opportunity is huge, so good luck to all – for now
WJ: You’ve managed to successfully navigate a great entrepreneurial career at Wharton and onwards. Looking back, what was the most memorable experience at Wharton? (aside from winning the competition of course)
RD: Well, I would not call it “a great entrepreneurial career” yet…someday, hopefully!
A memorable experience:
When I arrived at Wharton, I was on crutches with a broken ankle. While I was hobbling by the river one morning, I saw these beautiful, streamlined boats go by with the rowers in perfect sync and wondered what kind of discipline and training it must take to be one of those people. It seemed unreachably far.
Fast forward a year and I was stepping out of a Wharton Crew novice team boat after an intense race at the Dad Vail Regatta where we won the silver medal. I owe 95% of that experience to my Wharton/Penn classmates. My coaches, team captains, teammates were mostly students and all volunteers. Many had raced at top undergrad programs, but would train with the novice team (their classmates) in the freezing rain at 6 a.m. so we could get better. The next year, we second-years tried to pay it forward, by spending hours each week organizing, practicing, and coaching. There is something really special at Wharton that calls on people to help each other achieve their personal goals.
WJ: Any professors or courses you’d recommend?
RD: Prof. Kartik Hosanagar was one of my favorites. I also loved the advanced communications class on speaking with the press. Classes on corporate taxes, managing people, and financing were helpful post-Wharton.
WJ: Best thing about being an entrepreneur?
RD: You get to dedicate your entire mind to creating something good and useful in the world and you get to see others take up your cause as you grow. And if you’re lucky, someone will hand you millions of dollars to pursue your dream. That still blows my mind.
WJ: What’s next for Stylitics?
RD: Today Stylitics has the largest digital closet platform, with over 100,000 closets via word-of-mouth. We expect to cross 500,000 this year, but hopefully 1 million. Starting later this year, our users will be able to sync their purchases instantly to their closet from major retailers.
On the analytics side, I believe we can have 50 of the top 100 retailers using our insights dashboard by the end of the year.
We’d love support from the Wharton/Penn community. You can download the Stylitics app on iPhone and Android, and use it to track your outfits, chat with stylists, and take your closet on the go! More details at www.stylitics.com/mobile.
Bio: Izzy Park WG’15 a Vice President of the Wharton Design Club and a regular contributor to the Wharton Journal. Before Wharton, she was part of Deloitte’s Innovation+Growth team and served in the Office of the CTO, bringing new digital products and services to market.
The 2014 FOUNDER.org Penn Launch is February 17: Get more info here and register here.
By Vinay Mahadik WG’13, co-founder of Securly
I am a co-founder of Securly, a cloud-based service that keeps kids, schools and families safe online. This post is about our wonderful experience with the FOUNDER.org program so far – about half way into the yearlong program for founders chasing big ideas.
We got introduced to FOUNDER.org via Wharton while I was finishing up my Executive MBA at Wharton San Francisco. We applied to the FOUNDER.org $100K Competition, and were among the 10 startups that were selected (from a pool of over 500 who applied) for the first cohort. FOUNDER.org started by Michael Baum (WG ’89), the CEO and founder of the highly successful enterprise company and darling of many IT admins, Splunk. I still remember our face-to-face Skype presentation to FOUNDER.org. My co-founder and I had boot-strapped Securly and were debugging a server crash when we jumped on a call with Michael. It was perhaps the least prepared presentation I have ever given simply given how long it had been since I had pitched the company. At the end of the essentially improvised pitch, Michael said something to the effect of, “your presentation could be better, but I believe in the problem and really love your solution.” It was a refreshing change from having pitched to investors who ask a company with two first-time entrepreneurs, with no sales background, but a $250K+ recurring revenue in six months to “try making your product viral first.”
Fast forward by a month, before the program even began, and FOUNDER.org stepped up to lead our seed funding with FOUNDER.org Capital, their fund focused on student founders. This was in addition to the $100K grant prize we received from the competition. Michael also got on a call with other investors we had lined up to both accelerate the due diligence and serve as a reference. With the FOUNDER.org investment as a catalyst, Securly was able to go from being a boot-strapped startup to an over-subscribed $1M+ round within a month. We were able to attract investments from some Wharton professors, the New Schools Venture Fund and Imagine K-12 founders all of whom have been strong networks to have access to.
FOUNDER.org isn’t a typical incubator or accelerator – it is a company building experience. The FOUNDER.org University program (of which we are now part) lasts an entire year. We get an office hour every week with Michael and access several times a month to FOUNDER.org’s network of industry experts. The best part are the quarterly 3 day get togethers with all the other founder. It is clear that the University curriculum and program have not only shaped our company, but has also molded us into substantially better entrepreneurs. The program is extremely well thought through and executed upon. It is hard to believe that this is simply the first cohort.
The first quarter kickoff event was an entire day of immersion into the world of whole-brained thinking and high impact team building. This was a clear indicator of the kind of rigor the program exposes founders to. The hypothesis is that while a good product-market fit can easily get some early traction, it takes a lot of discipline to go from that early traction to a sustainable company with dozens of employees, all of whom collectively define the company. FOUNDER.org University kicks off with an in-depth HDBI assessment and follow-on consultation that allows the founders to build a strong founding team, and later on, an entire organization, that collectively uses the whole-brain thinking and decision making processes. This ties well into the subsequent “A-player hiring and management workshop” where we learned how we can systematically recruit A-players and develop powerful competitive advantage through hiring when most entrepreneurs only seek competitive advantage via product and strategy.
Right after the first quarter kickoff, all the companies got individual appointments with Ondi Timoner, a two-time Sundance Film Festival award winning film director and producer. Ondi and her team spent an afternoon interviewing and filming Securly at our offices along with the rest of our team. The goal has been to capture our entrepreneurial journeys so far in the form of a documentary and also allow us to use several of these video assets for our own marketing efforts.
We recently had our second quarter FOUNDER.org University event that covered all aspects of user experience, marketing and sales. After two years of MBA studies at a prestigious program, and having graduated from two well recognized accelerators/incubators, I thought I had seen it all. However, within a short period of time, we have seen immense value from mantras I had not picked up anywhere else – “Always be hiring”, “Create a marketing-driven self-serve sales model”, “Create a vision of an alternate future that is uniquely possible only with your company” to name a few. Several of these strategies were covered at length by demand-generation, sales and positioning experts we get unlimited access to, not just at the events, but even as consultants or advisors afterwards. We have already consulted with Jef Bekes, a seasoned UX expert who helped shape the Splunk brand and product UI substantially and with pricing guru, Rich Mironov.
We pride ourselves on being part of the first cohort of the FOUNDER.org phenomenon – encouraging student entrepreneurs to dream of big ideas, helping them with seed-level financing, having experts spend 100+ hours of their time advising us, getting our team ready for a series-A funding, and eventually creating both economic value and jobs by becoming sustainable and thriving entities. My co-founder and I have worked at large enterprises for about 10 years each. Today, within a short time, we have created high paying and rewarding jobs for seven additional founding team members of which two have received career/life changing breaks thanks to Securly and FOUNDER.org. We are looking forward to the continued success of the FOUNDER.org mission.
Bio: Vinay Mahadik WG’13 is the co-founder/CEO of Securly – a cloud-based service that keeps kids, schools and families safe online. He has over 10 years of experience in the network security space working most recently at McAfee as a senior R&D manager leading the next generation firewall, botnet and intrusion prevention teams and was the primary inventor on several patents there. He and his wife spend most of their free time traveling and running after their two year old. Vinay holds a masters in computer networking from NCState, and an MBA from The Wharton School.
It’s an exciting time to be a venture capitalist. As an investor at NEA in Silicon Valley, I’m seeing some of today’s greatest technology and business revolutions up close:
Software-as-a-Service: the new model for business applications
Cloud computing: enabling unprecedented infrastructure performance and flexibility
Payments: now being integrating into mobile devices and apps
Education: democratized and globalized for the first time ever
But these revolutions also present a challenge. Eager investors are driving valuations to extremely high levels. In the public markets, fast-growing leaders like Workday are trading at 25x forward revenue. In the private markets, zero revenue companies such as Instagram are being valued at $1 billion or more.
No matter how great the company, long-term investment success requires a careful approach to valuation. Ignoring fundamentals leads to disasters like the 1997-2000 tech bubble. On the other hand, big valuations often reflect big opportunities, even if the companies are small at the time. Valuations often just get ahead of companies’ true progress. We saw this during the bubble as well, when the stock prices of great companies (Amazon, eBay, Intel, etc.) crashed, despite ultimately achieving long-term success. The devastation was even more brutal for venture-stage companies. Being early can be just as bad as being wrong.
How should VCs think about valuation when we make venture-stage investments? A Wharton class may advise a DCF, but due to long-term uncertainty and the large volume of deals we evaluate, this is impractical for day-to-day work. Similarly, a rigorous comps-based analysis is difficult, since many of the startups we back are unlike any companies that have existed before.
At NEA, we find opportunities by looking for fundamental technology, disruptive transformations, great teams, and big markets. Once we identify something exciting, we think about a range of components of value to determine an entry valuation that will lead to strong returns when the company IPOs or gets acquired down the road:
Company stage: early stage companies must have appropriate valuations to compensate investors for the time it will take to build the company and the risk involved
Growth rate: faster growing companies will get big faster, justifying higher valuations
Market size: a company that is credibly attacking a big market, or trying to create a potentially big market, will get a higher valuation
Achievable market share: even if the market is huge, the startup has to be a credible attacker
Profitability and strategic importance: some markets and technologies are more likely to support profitable or strategically important companies, leading to higher valuations
As a very rough example, we can look at Workday (a leading enterprise SaaS company) and Palo Alto Networks (a leading network security company):
Workday is trading at 25x revenue and Palo Alto at 6x revenue. So, Workday has about 4 times the revenue multiple of Palo Alto.
However, if you divide the revenue multiples by consensus estimates of future revenue growth, Workday then has a 0.42x multiple and Palo Alto has a 0.16x multiple. Based on this adjusted measure, Workday’s multiple is only 2.6 times that of Palo Alto.
Analysts believe that Workday’s total available market (TAM) is ~$19 billion in HCM and Financials, and assume it will get 25% market share (=$4.75 billion). For Palo Alto, they see a smaller TAM of ~$10 billion, and 20% market share (=$2 billion).
If you take the companies’ adjustment multiples, you can make yet another adjustment, and divide by the expected market share (0.42x/$4.75 for Workday and 0.16x/$2 for Palo Alto). Now these adjusted measures come to 0.09x and 0.08x. Surprisingly close, even though Workday has a revenue multiple much greater than Palo Alto Networks.
On this “twice adjusted” basis, then, these two leading companies actually trade pretty close together. Although this is a very rough analysis, it explains much of how public and private markets place values on fast-growing companies.
For venture capitalists, a thought process like this offers a workable heuristic for heavier-grade valuation exercises such as DCFs. We need to be both disciplined in thinking about the company’s future value, but not so disciplined that we’re frozen in our tracks by the challenges of uncertainty. Venture capital is high risk, low liquidity investing, so these tools are critical to moving forward confidently.
Bios: Ravi Viswanathan joined NEA in 2004 and co-heads the firm’s Technology Venture Growth Equity effort and Energy Technology investment practice. Prior to NEA, Ravi worked at Goldman, Sachs & Co. as co-head of the technology practice in their private equity group. Ravi has also worked for McKinsey & Company and Raychem Corporation focusing on R&D in various materials systems. Ravi received an MBA from Wharton and a PhD in Chemical Engineering from UCSB. Ravi also earned a BS in Bioengineering from the University of Pennsylvania. He currently serves on the Wharton Entrepreneurship Advisory Board.