Andrew: Hey, everyone. My name is Andrew Warner. I’m the founder of Mixergy, where I interview entrepreneurs about how they built their businesses.
Joining me today direct from Germany and drinking a beer, because it’s late at night where he is even though I’m just getting started with my day, is an entrepreneur who at 23 years old launched Casacanda, a flash ecommerce site. Nine months later, he sold the business. He followed that up by creating an even bigger, faster growing company. It’s called Lesara. It’s an ecommerce site that offers shockingly low prices because it partners directly with factories in China.
His name is Roman Kirsch, and I’m excited to find out about him. If you’re in the U.S., you may not have known as much about him as people in Europe, but I’ve been doing a lot of reading about him. He is like a hero to the European startup community, and I’m excited to find out how he built his businesses.
This interview is sponsored by the company that will host your website right. It’s called HostGator. And the company that will help you hire your next great developer so you can build phenomenal businesses, it’s called Toptal. I’ll tell you more about them later. First, Roman, welcome.
Roman: It’s a pleasure to be here. Thanks so much.
Andrew: What did you sell the first business for?
Roman: Well, we sold it to a U.S. business, and the story behind the sale is actually quite interesting. It was a very short amount of time, as you said, nine months from founding the company and actually selling it. We never planned on selling it, by no means that early. But we sold it to a U.S. business called Fab.com, which a lot of people might know from at least the older generation.
Andrew: Yeah. Fab.com was this fast-growing ecommerce site. Actually, it started out as like a portal for the gay community, something like that, then it became a flash site. It became worth about $1 billion. And then rumors were that it was sold for low millions of dollars.
Roman: Exactly. We ended up selling our business to Fab.com in the joint effort to kind of build up a global brand. At the age of 23, it made perfect sense, because we as young entrepreneurs, we’re always hustling trying to go to the next fundraise, although having good metrics, you’re still 23 and people say, “What have you done before?” You’re like, “Just study.” It just made perfect sense for us to partner up. So we ended up partnering with Fab.com in I can disclose now an all equity deal. So we got shares in Fab.com.
Andrew: How much money was it worth?
Roman: Our business was worth back then $30 million US.
Andrew: That’s what you sold it to Fab for in equity, right?
Roman: Exactly. Fab was, I think, back then valued at $150 million. So we took the whole ride to $1 billion and then to what you said was basically nothing in the end.
Andrew: So you basically ended up with nothing at the end of that?
Roman: Exactly. I was very rich in experiences. I did a rollercoaster ride in probably 18 months from being a poor student with big credit, and we didn’t pay ourselves salary. I ended up being poor afterwards. But the experiences and the insights that I gathered there were so impressive. I was able to kind of build up the European base to more than 300 employees. At the age of 23. 24, I was the youngest person in the room running the whole business there. We were generating almost half of the revenue for the company.
Andrew: For all of Fab, half the revenue was coming from your business you were running?
Roman: Exactly, from the European business.
Andrew: I want to understand the story of how you built it up, why you sold it. It’s a short story, so we’ll spend a little bit of time on it in this interview, and then we’re going to go on to Lesara. But just real quick just to give you a sense of proportion, Lesara’s annual revenue is how much now?
Roman: We’re now in our fourth year, so last year we ended our third year doing , we ended up at $100 plus million run rate. We’ll try to double that this year. We were still very small compared to the massive size of the industry that we’re tackling, but we obviously want to continue doubling at least every single year.
Andrew: Wow. That’s fast-growing, and it’s all ecommerce direct to individuals selling things like pants and shoes, right?
Roman: Dresses, yeah.
Andrew: Let’s understand your background a little bit. Going back to when you were 14 years old, you were an entrepreneur back then. You told our producer you used to import products then and sell them. What did you import when you were just 14 years old?
Roman: I love to hang around. I grew up in a city called Hamburg, which is the second biggest city in Germany, close to the ports. There were a lot of tourists. It was actually the main hub for people to immigrate to the U.S. 200 years ago. So it’s a big port. A lot of tourists come there to visit. I actually went to the souvenir shops and asked what they would like to have. There was a special Hamburg thing where you have some sort of clock that circulates and you put all kinds of weird looking figures on it.
Andrew: That’s what tourists wanted. They wanted one of these clocks?
Andrew: So the store said if you had them, we can sell them?
Roman: Exactly. The store said it’s super hard to buy them, and we always run out of business and their supplier is really not good, so if you can provide them to us, we’ll happily take them. I made this a school project. I had a few people working with me in school on it. We imported the stuff. It was kind of strange as 13, 14 year old kids to call and buy something. We put all our money together. We sold our shares to our parents so that they could get a part of the business.
Actually, the first step was a big failure, because we ended up actually buying those things. They arrived way too late, of course. I gave them to a friend to kind of keep them because they were living close to school. He had a cleaning lady in his house, and the cleaning lady looked at it and regarded it as trash and threw it away. That’s where our first money went.
Andrew: Were you the kind of person who would go into the dumpster and look for it again?
Roman: It was gone. Yeah. It was gone.
Andrew: I see. It was broken by then, but it was a waste of time to go through it.
Roman: We had one more shot with the remaining money. That was the products that arrived. We had to sell them at a bit of a higher price. It worked out well. We sold all of it. But we weren’t able to pay ourselves salary. We just said it’s too much effort, just got to close it down. It’s not scalable. That was the first experience. It was really humbling, exciting but humbling at the same time, because we realized how much effort we have to put in to sell to people and talk to them and convince them. That’s one of the things that impressed me in the very early days already.
Andrew: So then, as I said earlier, you were 23, you founded Casacanda. It was focused on design and home décor, right?
Andrew: What I’m wondering is how much inspiration did you take from what Fab was doing? Fab, I got it wrong earlier. They weren’t a content site. It was a social network site that pivoted towards ecommerce. How much were you saying, “There’s this Fab thing in the U.S. Let’s just create something that here”?
Roman: To be honest, none. Fab didn’t even exist when we started. What we did, we spent all summer — so I was studying in London. We spent all summer researching ideas. The really big new trend was actually flash sales sites and shopping clubs and outlets for fashion. The biggest one to this very day is in France called Vente-Privée. It’s a $3 billion business. There’s a few in the U.S. like Gilt, the Gilt Group. There are a few in all sorts of countries. We said fashion is great, but no one is really focusing on design and furniture and home décor. Why don’t we do that? That’s not as big as fashion, but way less competition and makes sense.
That’s actually what we researched and what we tried to raise money on. We ended up raising money in, I think, July 2011. That’s also, by the way, the time I think Fab pivoted from a gay social network to selling products also around the same time. We only found out about that a bit later in October/November. So, for us, we were inspired by fashion shopping clubs and thought we could actually work in a different segment, different industry. The target group was different. The logistics model was different because it’s two men handling, it’s not small dresses, but you kind of have to ship furniture all across Europe.
And also the problems of the designers and suppliers were different. Whereas in fashion, you kind of get a lot of overstock from the season and need to sell that off, there’s not so much overstock in the design business, and home décor business there are less seasons. Their main problem was to get heard, to get promotion, to help them leap into the online world. So we focused our pitch on that and less on the whole overstock story.
Andrew: Meaning it’s less about how many sales you can get for them and more about how much recognition you could get for them?
Roman: So exactly. The brand recognition was for them just as important. Obviously, sales matter as well. The products we sold were not out of season products or leftovers, but the products we sold were some of their top selling products.
Andrew: I see. What I’m wondering is how did you get people to your site in such a short period of time? How did you get anyone to notice it, sign up? It was an email newsletter-based business, right? How did you do that back then?
Roman: So I think we just continued to share our story. When we started, before we actually started, that was the times before Facebook really was big or before there was any social networks whatsoever. So it was really the time of Google and paid search. So when we launched, we looked at is there a lot of competition on certain keywords. There was actually none. So it was really a paid search play.
Plus, we started creating also a lot of buzz with the designers themselves. They had a few followers in their niche group, but there was not so much intersection. So if someone had like super nice ceramic design glasses, there would be different followership than someone who was painting really nice posters or pictures. So we kind of used their communities and got all of the communities onto our site and that was kind of the very early starts.
Andrew: So you were building this business up. Do you remember how much revenue you had just before you sold?
Roman: Yeah. So it was just amazing when we launched, we said, “Is anyone going to look at the site? Is something going to happen?” We ended up having 10 to 15 customers on the very first day, shipping everything with our hands. That was a very, very cool feeling. We repeated that. We started, as I said, in July. We went live, I think, in August, September.
Around Christmas time, we kind of had two logistics workers. So we went into a warehouse and picked everything up and shipped it just in time for Christmas, which was also very, very exciting. By the time we sold, we were doing roughly $250,000 a month. So we were at like a $3+ million run rate, which was, again, after eight or nine months, something that back then was like a lot of money. For us, that was just incredible that we were able to scale it that fast at just 23.
Andrew: Okay. So you were starting to get some traction. You went out looking to raise money, and that’s when right around that time, as I understand it, the Rocket Internet guys said, “Hey, this Fab thing is working in the U.S. Our business is copying them fast.” They created Bamarang, which was kind of similar to Fab. At that point, you said, “You know what? I think we should . . .” At that point, why did you sell then? What led you to the sale?
Roman: So, basically, what happened is as you exactly said. We were kind of doing well. We said, “Fantastic business. You guys are hungry for that. Let’s work together. Here are the term sheets.” We had a few term sheets. Back then, Rocket was this big beast, like probably Google was five years ago when everyone in the U.S. was asking, “What would you do if Google went into kind of your business?”
Roman: And the same happened to us when Rocket copied us and Fab and said, “We’re just going to go spend $20 million on that.” That’s when the VCs wanted to negotiate the deal. I said, “Now it’s getting more risky. We have to readjust our risk preferences.” For us, it was a tough time because we were — the more orders we got, the more cost we also add. So time was ticking. But the positive thing that happened then is because Rocket went into the European market, also Fab said, “Shit, they’re eating our lunch. We should be moving aggressively into Europe.” That’s when they kind of knocked on the door and said, “Would you guys be willing to cooperate and make sure we as a brand build a global business and a global platform?”
That was for us very, very exciting and thrilling, especially because at that time, those guys were really good in fundraising and just raised $40 million from Andreessen Horowitz, ended up raising more than $100 million a month later with two investments in European business. That just gave us way, way bigger and better capabilities. So it was not that we always wanted to do it, but we were very pragmatic about it and said that’s the best way to grow something amazing and great. You want to work with the winning business and that’s why we went in.
Andrew: Roman, I’m looking at an article from that time written by Alexia Tsotsis on TechCrunch. It says you had a quarter-million members at the time of your purchase?
Roman: Exactly. Yeah.
Andrew: How do you get a quarter-million subscribers? I understand this whole ad —
Roman: How many do you have, Andrew?
Andrew: I don’t have a quarter-million members. A quarter-million is huge for an ecommerce site, number one, which is more valuable than a content site like mine, because they’re potential buyers and number two, to be able to do it in less than a year. Am I wrong to be in awe of that and to push a little further for more detail about how you did it, because I feel like there’s a lot to learn from that? How did you get a quarter-million subscribers?
Roman: No, listen, we were at the right time. We were at the right moment at the right time. How we think or how I think to this very day in marketing is in waves. I believe that there’s a lot of innovation and change happening. Back then, for example, paid search, Google tried to push that into the market, but it was not used so much. So we were one of the first to actually say, “Hey, there’s a lot of traffic going there. Let’s go for not only keywords, but also a lot of the longtail keywords,” and that’s how we started.
Andrew: It was nothing but ad buys?
Roman: No, it was, of course, more. Once we had the customers, we started working with a lot of different email marketing providers to really think about how to introduce smart CRM chains. As you open the email, what time does he usually open the email? So send very personalized and individualized content. We tried to innovate with the little money in the budget that we had around that and make the best use out of kind of what we had.
So it was not just ad buys. It was also how smart we tried to be around reengaging customers, building up CRM chains. It was about how we asked our designers and the suppliers we work with to create buzz in their networks and incentivize them to sign up. We tried a lot and A/B tested a lot how to make friends refer other friends. We incentivized that heavily. Now it sounds obvious, but we’re talking about 2011, where people were still very reluctant and hesitant to incentivize referrals.
Andrew: What was the incentive that you guys offered?
Roman: The more people you invited, the more you got as a referral bonus and you got some extra when they bought and your friends also benefit. So you could save a lot of money by doing that.
Andrew: I see. It wasn’t that you were sending them checks, you were just reducing the cost for the next —
Roman: For the next order, exactly. So they could kind of keep ordering more and more frequently as well.
Andrew: I think a year or two before you launched, I had Andrew Mason from Groupon on here. He was doing it at like $5 or $10 per registration and I see how it grew. All right. I got a sense of how you grew it. Let me ask you this other question. The TechCrunch article from the time of the sale says that you guys sold for $10 million. I saw an article online that said — sorry, TechCrunch said $11 million. I saw an article online that said $10 million. I thought you said $13 million. What was the amount?
Roman: It was $13 million.
Andrew: It was $13 million.
Roman: Because there was also some earnout and some additional options. It ended up being $13 million.
Andrew: At the height when the company was worth about $1 billion, take me through that. How did you feel then or how did your life? Was there any celebratory or exciting moment is what I’m fishing for?
Roman: No. We were never looking actually — so what excited us most was actually being part of the vision. We were really believing we were part of something special. That’s, I think, what excited us most, like literally no one in the company looked at share price or how much are we valued. It was very, very — remember, I was a student before, so it was weird numbers for me. I couldn’t relate to them in any way.
So the most exciting thing for us was really kind of connecting to the suppliers, continuing to grow. We were in this process where everything we touched and did was actually working and adding a lot of countries in a short amount of time. That was kind of the most exciting part there.
Andrew: Okay. Let me take a moment to talk about my sponsor. Then I’m going to come back and find out how you found the seed for the next idea. You know what? Last night I was at a dinner and I saw this entrepreneur at the dinner sitting next to me. I said, “What are you doing here?” He said, “I’m partially trying to partner with the company that’s hosting this dinner.” I said, “Great, what are you going to do to partner with them?”
He said, “I built a website.” I said, “What do you mean you built a website?” He said, “I built a whole website to try to explain to them why a partnership makes sense.” He gave me the domain and showed me the website. I said, “This looks gorgeous, what a smart idea.” I said, “How did you do it?”
Basically, what I learned is — and I knew this, but he reminded me — if you have the right hosting package, adding another website costs you practically nothing, just the cost of the domain, which is less than $10, right? And then you own that domain. So think about the impression, Roman, that it makes. Someone wants to partner with you and they send you email where they want to partner with you and they created a whole website to explain why you should partner up.
Well, if anyone out there wants to do that, you should know that HostGator’s baby plan, just to give you a sense of how inexpensive it is, their baby plan comes with unlimited domains, which means if you want to partner with unlimited number of companies, it’s all included in the price of your hosting package.
If you follow the link I’m about to give you guys, it’s less than $5 a month and you get unlimited domains. Imagine you want to sell to a company, you want to partner with a company, you want to recruit somebody onto your team, you want to get a job, frankly, any number of different use cases, for each one of them, you could quickly fire up a new WordPress site, get a theme that’s free and looks good, put a little bit of content and boom, you’ve got a URL to give them. It makes a big impression. That’s one of many uses of HostGator.
If you want to try them out, they’re giving you an incredible offer, 50% off their already low prices. All you have to do is go to this URL I’m about to give you. It is HostGator.com/Mixergy. As I said, that baby plan will cost you less than $5 a month, come with unlimited domains, unmetered bandwidth and unmetered disk space, a lot of other freebies and great things included in there.
If you’re not happy, they have a 45-day money back guarantee. That URL again is HostGator.com/Mixergy. Imagine you want to partner with Roman and you say PartnerWithMeRoman.com and you send them that link. Boom.
So while you were at Fab, Roman, coming back to your story, you started to notice something that led you to launch a new business. What was it you noticed as you were traveling around?
Roman: For us at Fab, the problem with actually working with the designers was actually two things. One, obviously, those guys didn’t really commit to a lot of volume, so they were kind of small, which means a lot of things were immediately sold out and it was hard to scale.
Andrew: You mean at Fab, a lot of the things they were buying were small lots?
Roman: Yeah. So basically that was number one. Number two was obviously that we didn’t really make enough. Our margins were not amazing. That’s when the idea came to actually, “What can we produce ourselves? Where can we pull the designs, approach factories?” That process started talking to a lot of different factories and really tried to spend a lot of time figuring out where this industry on the supply side is going.
So I left Fab, took off for a few months, traveled the world. One of the things I realized is that there was a lot of middle men, but this was changing quickly thanks to platforms like Alibaba, where factories were not having electricity five years ago but then ended up having smartphones and laptops and selling to all kinds of customers around the world to countries they didn’t know existed before. That was kind of exciting for me because the whole industry was ripe for disruption.
That’s actually one of the things that we learned and said, “What if we could actually do fantastic business around that?” And looked at different markets, different industries and ended up, again, in fashion and saw that there was a big opportunity to —
Andrew: Why fashion specifically?
Roman: Well, first of all, if you look at the fashion market, and that’s also how we see it, it’s the biggest retail market together with food, but obviously we don’t want to do cross-border food. For us, it was just — usually innovation trickles down. If you think of it as a pyramid, then a lot of innovation happens in the high-end side, in the luxury side at the beginning because that’s where the early adopters are, they have money.
So a lot of the new digitization is happening in any vertical in the luxury high-end segment. That’s what happened 10 years ago, where there are companies like Yoox, Net-a-Porter, Farfetch that actually connect with boutiques or high-end products. Then seven years ago, it kind of trickled down to the full price segment, the typical department store business, where there’s a lot of online retailers like Amazon in the U.S. or Zalando, which is a 10 billion euro company here in Europe, basically consolidate all the different brands and sell them at full price.
But the biggest segment in fashion, that’s the one that we are tackling is Forever 21, H&M, Zara, [inaudible 00:25:24] are actually in and that people call fast fashion, which is completely vertically integrated, so they own usually the whole supply chain and can provide consumers very good value for money, usually 60% to 70% cheaper than those full price branded retailers because they don’t work with middle men. They don’t charge for a lot of marketing and advertising because the logo looks like nice, but because they try to provide good value for money and fashionable styles.
That was a very underserved market online because a lot of companies are focusing on the high end market and the upper middle class. What we saw is with the increased penetration of smartphones, everyone, also the middle class, lower income class, will have access to the internet and will start shopping on the internet, we want to give them an offer. If those people shop a lot with Walmart or with Primark or with a kind of H&M, they’re going to go digital and we want to be the platform where they’re actually going to end up buying.
Andrew: The idea is to see what’s hot right now. Because you partner directly with these factories that suddenly have access to mobile phones, electricity and everything else that it takes to work in the modern world, you can very quickly create something similar to what’s selling for very expensive and make it available on your site for much less.
Roman: Yeah. Exactly. So we’re not really only digitizing this fast fashion value segment, we’re also changing the way it works by using technology. So to give you an impression of how that works in traditional retailers, you have a bunch of purchasers in the merchant business who go to fashion weeks, they sip a lot of cocktails and have a good time. And then they say, “You know what? I think green is the color of the season.” And someone else says, “No, it’s going to be yellow.”
Then they chit chat a bit and then place orders for billions of dollars for what’s going to happen in a year, right? Sometimes they’re right. Sometimes they’re not. If someone has a 51% hit rate, it’s better than he’s already winning. He’s not rolling the dice. That’s the industry that we went into. It felt a bit weird for two reasons. One, there was so much data out there. Why did no one really use it?
Number two is how can people now commit to what’s going to sell in a year when I don’t even know what’s going to happen next week? We’re living in a world are people are with Snapchat, Instagram Stories, the attention spans are super — I’m 28 now. My cousins, they’re like 18 to 20. They cannot focus for longer than 20 seconds, right? I need to catch their attention. If they see something now to be on Instagram, they want to buy it also now in the next few days and not wait a year. That’s kind of what we saw.
We said we’ve got to, first of all, not send our people to fashion shows, although it’s cool, and have them sip cocktails. But we’re going to crawl the web and see what’s trending real time now. What do people search for? What’s very popular? What do people share? What do people like? What’s on other websites? Aggregate all this data and make this whole process not subjective but actually very, very data-driven.
Andrew: How can you do that for style, for design? I can understand how you did it before with keywords to understand what you should bid on, but design is much harder to figure out what’s hot.
Roman: Yeah. It’s a lot of things. You’re looking actually at — you can do it for keywords, no problem. If you see a lot of people look for a bikini with a certain shape and color, you know that’s trending real time, right?
Andrew: I can search for that? How do I find out what shape and color people are looking for, for bikinis?
Roman: You see what people are Googling and what’s actually trending.
Andrew: You just go to Google Trends? If I type in on Google Trends “bikini,” I can see —
Roman: Yeah. You can see that. There are also companies that provide the information like SimilarWeb and others. I think that’s not the big problem. The challenge is more the images. So basically, when you look at what people share on Instagram or on Facebook or what’s maybe trending and hot on full price or high-end luxury websites, that’s kind of we need to invest in your engineering team to understand image recognition and how you actually aggregate this data.
Accessing your data is not the issue, aggregating and making sense out of it is challenging. We invested the last three and a half years kind of stepping our capabilities up there. We have 50 engineers who work on that. That’s something that we define as core USP because it kind of is a big game-changer. Normally hit rate of a retail business is 51% versus 49% and you can increase that hit rate to 70% to 80% of the products that you source and design and put on the website work well.
That’s a major game-changer because what that means is you’re more relevant for consumers. They see, “This company is always spot on with trends.” But also, you have less products at the end of the season you need to throw away or write off or say it didn’t really work out, which costs a lot of money and we don’t have those costs and that’s also how we can offer our consumers better prices to start with.
Andrew: So, as you’re talking, I’m kind of making sure I understand it and that I can follow along. What I did was I went to Google Trends and I typed in “bikini” because that somehow came up in our conversation. Immediately underneath the search option, I realized, “I can limit my search to image search,” and I did that and then underneath that I could see related queries. One of the hot queries is “Selena Gomez bikini.” That’s one of the big trends.
So I clicked on that. Apparently, Selena Gomez’s bikini is really hot and PopSugar is covering it. HecklerSpray is covering it. But she has a bunch of photos of herself in this bikini that people are now talking about. So this is a very crude way of doing it, but essentially that’s what you’re talking about. You’re saying a lot of people care about her bikini. If we partner up with these factories in China, we can produce it fast, make it available for them to buy on our site. That’s what it was?
Roman: Exactly. People actually look for that. Everyone wants to buy it. But when is it coming into the stores, probably six to twelve months because that’s the traditional turnaround time of retailers, right? Whereas we see it’s super, super popular. The style that she’s wearing and kind of the shapes, we’re just going to go all in and create a few different styles around exactly this topic and are going to be one of the first companies to really offer that to consumers all across 24 countries that we sell to at really amazing prices.
Andrew: Okay. I get now the thinking behind it. I know you had some connections to Chinese factories, but you needed a whole business around it. You partnered with a CTO. You said to him, “I need you to build a website,” how fast?
Roman: Yeah. This was September, 2013, and I said we need it in eight weeks.
Andrew: You said to him, “I need you to build a website for me for this new business idea in eight weeks?”
Roman: Exactly. That’s the timeline. He asked a question that any smart person would ask, “Why?” It was actually Christmas and holiday season, so everyone knows this is kind of the most popular season, so you want to be live with your website in time, which is in our case November. That was enough to convince him to commit to this timeline. That’s what happened. We launched exactly eight weeks later.
Andrew: He built the website. While he was building the website, what were you supposed to do?
Roman: So basically, I was like — I was hoping that he would be able to do it in eight weeks. Roughly one and a half weeks before we were about to launch, he said, “You know, Roman, the website looks quite good. I’m confident we can go live, but there’s one big issue.” “Yeah, what is it? Surely we can fix it.” “We kind of need products to be able to present on the website because we want to sell.” I was like, “Yeah, shit, we haven’t really thought about that.”
Where do you find products, especially when you want to make them at a good price and make sure they’re selling well? I was really busy with closing our financing rounds and hiring the first employees. Basically, what we said is we hired engineers, we hired people for the graphics team, for the marketing team, for the supply chain team, everyone except the engineers got into my car and we actually drove to the port and there are a lot of containers from China arriving. So we went there and asked the guys, “Do you know what’s arriving? We’re looking for some fashion, some shoes, whatever you can give to us.” They said, “We have no idea what’s arriving. Just open the container.”
So we open the container. There’s a bunch of things. We said, “We’re just going to take most of it. Tell us the price.” They were quoting us a price. We couldn’t believe how amazingly affordable it is. Then we said, “What if it’s going to sell? Can we actually replenish with you guys and reorder?” “No, it’s just stuff arriving, and we cannot make sure it’s always the same stuff that arrives.” It was really unprofessional, in a way.
We took the products, drove back. I asked my other cofounder, Matthias, to go into the backyard in November. It’s grey, almost raining. We did a few pictures with a smartphone camera and put it on the website. Because I had the experience of my previous company, I didn’t expect a lot of sales. We actually had one or two news articles and sales went through the roof the very first day.
Andrew: Wait, because you got some news articles about this?
Roman: Yeah. We didn’t really promote it that much. We emailed all of our friends about it. We said, “Here guys, we hope you like it. There are some really nice shirts for $2.99 and there’s some really nice pants for $4.99.” Everyone was like, “Is this a scam? How can those cool things be so cheap?” They kept forwarding it. There were one or two news articles. By the end of the day, we were super surprised how much revenue generated, especially because I knew how hard it was at my first company.
Andrew: Roman, you were supposed to be testing can you create fashion fast. All you were doing though was testing can you take anything that comes off the boat literally in Hamburg and put it online and sell it.
Roman: Exactly. That was what we said. We said if we can launch in eight weeks—let’s be honest, you cannot create an amazing website. We said, “Ship it, let’s do it live and then we can continuously improve.” That’s kind of our mentality to this very day. Speed is so important. I just want to launch and continuously improve versus waiting weeks and months and years to make it picture perfect.
The same is true for everything. We launched the website. It was clear to us that in eight weeks we weren’t able to kind of convince supplies to even produce for us, so we just took what’s available and the same for pictures, we were not doing amazing pictures or smartphone pictures, but because it’s software, it came as a huge confidence because we said if all of this, we see so much potential for improvement, but if it works already like this, we’re really up to something great. That was kind of a very motivating moment for all of us.
Andrew: So what you were proving was we could sell cheap fashion on our site, not necessarily the kind of fashion we want to sell, but we can sell. How did you get people to notice beyond the media?
Roman: It was, I think, when we started, there was really a big growth and two things, it was especially mobile. So there was a lot of mobile traffic and there was also a lot of especially social networks but also like Facebook, but also Google invested a lot of time improving their mobile websites, their apps. So there was a lot of traffic on those platforms, but not too many online retailers having really great responsive websites, A and B, advertising a lot on mobile.
That’s where we came in. We thought this is just perfect for us because our customers, they don’t necessarily own a big laptop or big computer at home. They spend most of the time on social networks, browsing around gaming websites. We’ve partnered with a lot of gaming websites, dating websites, so all those places where there’s a lot of traffic but it’s hard to monetize and it was all mobile. That’s kind of what we tried to be really great at and also innovate around making our commerce website as mobile-friendly as possible and continuing to improve there and that’s how we scaled in the very first few months and quarters.
Andrew: By the way, I’m still looking as you’re talking to see how this stuff works. Here’s something. Tell me if I’m wrong about this. Apparently, there was a post on Reddit about a guy named Giorgio Di Mare. He went into the desert wrapped in fur, so people were talking about him. Then others were Googling Giorgio Di Mare to find it. According to SimilarWeb, that’s one of the top keywords that links to your website. When I go to your website to see what comes up for Giorgio Di Mare, I see a Giorgio Di Mare black shirt at 70% off.
Is that it, or am I being a little too clever here? Is that what happens, this guy goes into the desert, people start Googling him, then his fashion starts to become a little interesting and then people are looking for clothes with him, inspired by him end up on your site and buy?
Roman: That’s one way. There are obviously a lot of different ways how people work. But I think the traffic itself is by now for us very, very — at least a big chunk is organic. So we kind of invested a lot into our brand. We did a lot of TV commercials. We did a lot of collections with celebrities and influencers. So it’s not really a traffic source for us. But the whole aspect of a lot of things and trends happening at real time and us making use of that, that is definitely how we actually select our merchandise. It’s more kind of inspiration for what merchandise to select and less of a traffic source. But a good idea, we should probably put more on that.
Andrew: Yeah. You do get a lot of traffic from Google, but I don’t see that much traffic headed over to your website, at least according to SimilarWeb. Is it Lesara.com? Is that what I should be looking at?
Roman: No. We have local domains for all the countries, so .de . . .
Andrew: Let me look at .de.
Roman: Yeah, .it for Italy.
Andrew: I see.
Roman: .nl for Netherlands.
Andrew: You’re not really in the U.S., right?
Andrew: Even if I go to Lesara.com, I see prices in Europe.
Roman: Yeah. We’re not shipping to the U.S. yet.
Andrew: According to SimilarWeb, Lesara.com, one of the top keywords is hoverboard and I can understand why that would be so big — excuse me, Lesara.de, one of the top keywords is hoverboard. All right. Let me take a moment to talk about my second sponsor and then we’re going to find out what happened after the short test and how did you keep growing from there and what happened with the 7-Eleven copycat down the street that caused trouble with your packages.
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Roman, you were saying that you were initially moving very fast. You didn’t have a warehouse. What’s the 7-Eleven copycat? How did that factor into your original launch?
Roman: Yeah. That was a big challenge because obviously we didn’t have a warehouse, as you said. We stored everything in our office. We called actually the delivery partner, which is in our case, DHL, and said, “We have 10 orders, 15 orders, can you actually pick it up?” They actually said, “No, guys, call us back when you have hundreds of day.”
Andrew: DHL won’t pick up even ten orders from you?
Roman: No. They said, “Go to our state post station,” which was one and a half kilometers away, more than a mile. They’ll do that. So, basically, we had a 7-Eleven style business which is open 24/7 and they usually partner with DHL and you could actually leave your parcels and your packages there. We asked the guy, “You earn some extra bucks, just keep it for us, hand it over to the DHL kids when they come over.” He said, “Yeah, no problem. I’m always happy to support entrepreneurs, always happy to do that.”
We did this the first day, second day, then obviously we were kind of scaling really fast. We ended up having over 100 orders a day I think two weeks later. What happened was actually at some point, they called and said, “That’s it. Get DHL to pick up your stuff. My customers, my clients cannot enter the store anymore because it’s full with your packages. Get your shit back.”
That was kind of an interesting thing. We ended up working with a partner to set up a warehouse, which we did back then, but it was funny how quick things went. I still buy my water or my chewing gum there and we have a good laugh about that.
Andrew: And one of the things you did after was you actually went to Asia and you set up an operation there. Why? We’re living in a very distributed world. You can get on Skype. You can get on WhatsApp. You can communicate with factories anywhere in the world, frankly. Why did you decide you had to be in Asia and have a physical presence there as a company?
Roman: We were growing super fast. So we were one of the fastest growing tech companies in Europe. We were trying to have our suppliers scale with us. Obviously, today you’re ordering 1,000 pieces and the next week you’re ordering 2,000 and not everyone can scale with that. They’re risk-averse, so they wouldn’t add up their capacity. What happened is we started connecting with those factories via email, via Skype, as you mentioned.
It just felt at some point in time weird, because you’re doing pre-payments partially and the Skype ID of the guy is SugarCandy99 and you’re transferring him $50,000. It just felt a bit weird because he wouldn’t show his camera. We said, “We’ve got to fly over and see what’s going on.” I flew over with two other colleagues. We said we need to be there.
At the end of the day, supply chain is what makes us special. We want to be fast. We want to offer great quality, we want to control the whole supply chain to make sure there are no delays there whatsoever. That’s why we need to kind of be there, control everything and also help the guys that we work together with, the entrepreneurs.
At the end of the day, it’s also entrepreneurs, help them professionalizing and digitizing. That’s one of our core missions, to help factories digitize their own work to make them more efficient. If they’re more efficient, they can get more done. If we help them prioritize, we connect them to our interface and our technology. They set costs and they have more output and that’s kind of beneficial for all of us. That’s the vision or that’s where we are now three years after.
When I first went there, it was actually mission impossible because you have to imagine are we going to those factories that we knew from the fair? No one else speaks Chinese whatsoever. So, obviously there are only a few people that speak English. We went around and asked those factories, “We know that you produce for H&M. You produce for Hugo Boss. You produce for Nike big quantities, millions of products.” What we want to do is something else. We believe that online is the future, fast, agile retail is the future. We want to test that, A/B test and be agile.
So instead of producing a few million, you just produce 100 pieces for us, you give us the same price as the big guys, who produce millions and instead of waiting nine months for the other, we want to have it in two weeks. Literally one after the other kicked us out. What’s in it for them? So, we were very, very frustrated. At some point in time, there was a guy that was not the owner of the factory but a sales person that said after the meeting, we went [inaudible 00:50:21].
The guy said, “You can either pay ten times the price or you get kicked out because I’m not going to do 100 quantities. Come back if you want to order 100,000.” The sales guy went out with us and said, “Sorry how the meeting went, but I completely buy into your vision. I believe this is the future. If you can give me a chance, give me a few orders, I’ll set up my own factory and I’ll do it with you.” This was kind of where we got our first supplier.
Andrew: The sales guy who was working for another factory said, “I’ll start a whole new business here just to partner with you guys. You’ll be my first client.” You said, “All right.”
Roman: Yes. You know we did it. We had a leap of faith and we believed in this guy. He was super, super professional, our age. So we said, “Why not?” Now it’s one of our biggest partners. We are very, very happy. He is one of the role models in how he digitizes his whole operation and how he manages the whole flow and it’s always very happy, but now we work very, very closely, almost exclusively with over 200 factories and it’s just fun to work with them and change the world of how fashion and retail works without any middle men in between and being very flexible and agile and data-driven.
Andrew: One of the things that I heard was that the first office you set up there was actually not an office at all but an apartment and when you first say it, you gave marching orders to the team. Do you remember what that was?
Roman: Yeah. We went into the — we didn’t have any license whatsoever. Actually, we went back to colleagues and we hired our very first employees. One was the one that helped us with the translation. She was this amazing translator. We’ll give her a chance. She now runs our sourcing division with over 40 people that just do sourcing. The second one that actually being our office manager, we actually went into a Japanese supermarket. It’s super hard because no one speaks English.
We said, “We want to have soap and we want to have toothbrushes.” No one could actually refer us. They referred us to this small little kid. She was literally 1 meter 40 or so. She’s the only one who speaks English. We talk to her and she’s like, “I work in the Japanese supermarket. I like it. I like the international culture. I’m super helpful.” I said, “What are you doing here? You should come and join us.” She’s now running our office management.
So these were our first two hires, amazing people. This is how we got started. You have to imagine that back then, we didn’t have a license, we didn’t have an office. We showed them the office, which was an apartment, basically, three-room apartment. We said, “Pick a room. That’s going to be your room.” They were also confused because they thought they were going to work with an international western company with tiny offices.
But we scaled quite quickly and after a few weeks, we had 20 people there. Again, it was still a three-bedroom apartment. We ended up having supplier meetings in the living room. Then if you had another meeting, outside on the terrace. That’s like 40 degrees Celsius, that’s like 100 degrees Fahrenheit, sweating, but meeting. If you had an interview with another candidate, you could say, “Do you want to be interviewed in the kitchen or on a toilet?” Still, a lot of people came because they felt that they were a part of something great and felt our passion. But it was definitely those typical startup times.
Andrew: What does Lesara mean?
Roman: It’s a combination of the two most popular female kids’ names in Europe. We tried to look for something that’s available on all domains, .com, .it, .de.
Roman: You know that better than me. It’s virtually impossible because you want to do something people can remember. If you do a TV campaign, people can actually memorize. I was looking hours and hours, and then I just browse and saw what were the most popular names. One was Leah and the second was Sara. Leah.com was obviously gone, Sara.com was around, but Lesara, which is now the combination was not gone.
Andrew: Yeah. You do have it on so many different top level domains. You seem to have partnerships that send over business, like T-Mobile’s Shopping Experience sends you guys traffic and that’s one of the biggest sites in Germany.
Roman: Exactly. We do a lot of partnerships with — that’s, I think, the beauty about us being in Berlin. We have a very international company. So 80% of our team is actually non-German. We have a completely localized experience no matter where you buy. If you buy from France, if you buy from the UK, if you buy from Sweden, you have your local payment methods, your local delivery options.
And we advertise, obviously, with a lot of local companies. One of the biggest email portals in Germany, we have per country usually 50 to 100 affiliate partners that we really generate a lot of traffic with, which helps us to kind of provide a localized experience while leveraging our global scale.
Andrew: Yeah. I see that. I do see the value of these partnerships that you’re embedded in some of these companies’ sales sites. And then also there’s some fashion sites that you send you guys a lot of traffic. I can’t tell. Do you partner with the fashion sites or are they just recommending you or is it a combination of both?
Roman: It’s like fashion aggregator blogs. It’s a lot of — it’s a mix. Sometimes it’s just an aggregator, like a typical affiliate, where the aggregate addresses from all sorts of websites, beauty, us working with them, a lot of people filter by price. So the top 20 dresses, 18 or 15 are from us, plus obviously great amazing products and prices increase the click-throughs, so they actually generate way more click outs with us. So that’s why we kind of get —
Andrew: And you pay them affiliate commissions, right?
Roman: Yes, of course. We pay them on a click, on a sale basis depending on the model and how they operate.
Andrew: I see. I see MyLiveShopping.de, for example, it’s a German language shopping site, they send links out to a lot of different sites, but when it comes to clothing, I can see like your sweatpants are really inexpensive. So they bubble up to the top if I’m looking for sweatpants. Then they link over to you.
One final question. It seems like this whole thing was an easy right for you, right? Young guy in his 20s, everything just kind of fell into place, no big challenges.
Roman: Well, I wouldn’t call it [inaudible 00:57:14], but I think it’s a state of mind mentality because to be honest, there’s every single day, kind of a bump coming, be it some legal actions against you or an employee maybe quitting.
Andrew: What’s a big one? What’s one that actually was tough for you?
Roman: I think there was no one single thing that was tough. Kind of your relation also changes. In the first days as an entrepreneur running a company, the first time, we got a letter from a lawyer, it was like, “Oh my god, we have to close down,” and shit hits the fan. Now it’s kind of — it’s all relative in a way.
Andrew: Do you remember what that first one was? What was that first letter from a lawyer that worked?
Roman: It was some sort of guy. We have something called double opt-in. He claimed that he didn’t do a double opt-in and then there was a lot of in all countries, regulations around how you have to kind of ride on your product that’s what material composition is in there and what pictures you have to add and what not.
Basically, there are big industries making money with that, but the first time you get this, you’re like, “I never had to do something with a lawyer. Am I going to end up in jail?” But you kind of get used to that. I think for every negative thing, there are ten positive things that I think we try to focus on really the positive things that give us a lot of energy and take us to the next level. I think that’s what’s most exciting. I feel that really made a difference.
So, at some point in time for us, we figured out as a tech company, we don’t have natural resources. We basically have just the talent that we own and that we kind of bring together. So we started investing a lot into company culture, so literally treating it as a return on investment. Where can we invest in company culture? What can we do around employer branding just as you would do online marketing? That kind of paid off super, super well for us and increased the loyalty of team members with the company and brought us to the next level.
Andrew: Why do you think Mickey Drexler of J. Crew failed? He’s the guy who was behind Gap. I need to close it out, but I’ve got to ask your opinion about it. This is a company and an entrepreneur that should be super successful right now but they’re struggling. Why do you think?
Roman: I think it’s a different industry, in a way. Of course, it’s also fashion, but I don’t think it’s a more general comment around the whole fashion industry. People think running a fashion offline store is the same thing as running an online business, but it’s not. If you’re an offline guy, you need to be the best around finding real estate. You’re basically a real estate agent who knows how to window dress shop, right?
Roman: And do a bit of PR and branding. I’m not a real good real estate guy. That’s why I wouldn’t be able to run an offline store. Actually, running an online store is completely different. It’s way more data driven, tech driven, speed driven, every day something else is happening. The company culture and DNA is very, very different. So it’s completely different business.
I think those people never made the transition, never thought selling online is the same as selling offline. The trend is against them because online penetration at the moment is 12% to 14% depending on which country you look at. If you look at it by generation, kids under 25 spend 50% of their money online. As those kids are going to grow up, 50% of the spend is going to be online. So, basically, half of the companies offline will disappear. A lot of billion-dollar companies will disappear in the next five to ten years and just as many billion-dollar companies will appear in the online world.
I think that’s the way it is because retail has been changing over the last decade. Every single decade, there’s been a new trend. You remember shopping malls didn’t exist 50 years ago. People went into farmers markets. I think that’s a natural cause. Either you adapt and try to embrace the change and innovation or you’re going to die. I think that’s what’s happening here.
Andrew: I think he said as much. I think it was in a Wall Street Journal article where he said that’s where they dropped the ball. It’s shocking because he was a former board member of Apple. He was on Apple’s board of directors, so it’s shocking —
Roman: He should have seen it coming.
Andrew: Yeah. That’s one of the problems with technology changing things. Even if you see it coming, even if you should, it’s really hard to adapt. It’s really hard to change. You guys are. The website, for anyone who wants to check it out is Lesara, dot whatever top level domain you happen to be in. I’m in the U.S., I did .com. If you guys are in the UK, it’s .co.uk, etc. All right. Let me close it out by saying thank you to my two sponsors. If you’re looking for a great web hosting solution, go check out HostGator.com/Mixergy. If you want to hire great developers, go check out Toptal.com/Mixergy. Thank you. Roman, congratulations on your success.
Roman: Thanks a lot, Andrew. It’s been an honor and a pleasure to be with you.
Andrew: Thank you. Have a good evening.