Andrew Warner: Three messages before we get started. First, do you want to build a web app that interacts with phones? Twilio makes it easy. A few months ago the founders of GroupMe used Twilio to build a group texting service. According to CNN, the company raised $9 million in funding, and is now believed to be worth $30 million. How will you use Twilio to build voice and SMS apps?
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Here’s your program.
Hey, everyone, it’s Andrew Warner. I’m the founder of Mixergy.com, home of the ambitious upstart, and how about this for an ambitious guest? Joining me is Matt Lauzon, founder of Gemvara, an online retailer which creates hand-made, made-to-order jewelry. As I researched him, I found a quote in which he basically told a reporter that Tiffany’s should watch out, because he’s planning to take them on, head to head. I love that.
Now lots of entrepreneurs make bold statements, but this guy’s got the numbers to back his statements up. Matt, what were your sales last year?
Matt Lauzon: We launched in the middle of February, so in all actuality we’ve only been live and up and running for just over ten months, but we went from zero at that time to exiting the year at a run rate annualized that’s right around $10 million.
Andrew Warner: A $10 million run rate. That means you took the last month, you multiplied by 12, and you’re expecting that that’s going to continue.
Matt Lauzon: Correct. Month over month momentum was phenomenal. Throughout the year, we managed to double sales every month or two.
Andrew Warner: OK. Now last month happened to be December of 2010. December’s always a strong month. How was the month before that?
Matt Lauzon: November was also a great month. What’s interesting — like you’re saying, seasonality in the jewelry business and the retail business is very much there — Valentine’s Day is a big one. We expect to have good sales there. Mother’s Day is big, and then the holiday season, Q4, is big. But we’ve seen great growth every month since launch. So, even when factoring in seasonality, the growth rate is really exciting.
Andrew Warner: Can we say over $5 million in revenue within the first year?
Matt Lauzon: I think we can say that there are millions of dollars in revenue in the first year. We usually don’t get into the specifics.
Andrew Warner: OK. Fair enough. What kind of jewelry are you selling, and then I’ll ask you how many you’re selling a day?
Matt Lauzon: We basically sell fine jewelry. Every piece has multiple metal options — silver, various types of gold, platinum — and then every piece has many gemstones, usually over 20 varieties, all of the birthstones, then some more exotics or our semi-precious stones. Our average order size is up around $1,000. We’re selling higher end jewelry. We sell things that start as much as — call it $60 or so — and we’ve sold pieces as big as up over $75,000.
Andrew Warner: Somebody bought a $75,000 piece online sight unseen? — or not sight unseen, but without touching it first?
Matt Lauzon: We did give a little extra special treatment with this customer. We wanted to give them a great experience, but they came to us because they wanted the highly personal customizable experience that we provide.
Andrew Warner: You sent me an article which seemed to say that your customers will see a ring on a celebrity, want one that’s similar to that, and come to you to create a knock off. Are you guys selling knock offs of celebrity jewelry?
Matt Lauzon: Well, what’s interesting is, it’s slightly different what we’re seeing. So, for instance, let’s say, in a movie — “Sex in the City” for instance — a character has a black diamond ring. One of the things that’s really interesting and I think exciting about what we do, is that we can make every ring a black diamond ring if that’s what people are looking for. So we are able to identify trends out in the market — whether it’s pop culture or even some crowd-sourcing that we do on our own — and roll those out really quickly. Which is in an industry and a world that has been so weighed down by inventory. The other companies might be taking three, six, nine months to roll something out. We can roll it out in a matter of days.
Andrew Warner: Why? How can you roll something brand new out in a matter of days?
Matt Lauzon: We’ve built a proprietary technology that basically allows us in real time to realistically render thousands and even millions of permutations of a piece of jewelry. So if you go on Gemara.com, there’s actually no photos in the shopping experience. There are some photos on the site, but almost everything you see is a realistic rendering of the piece. What that means for us is that — paired with a predictive pricing engine that we’ve also built — we are able to take unlimited inventory in pieces that may have never been made in the history of the world.
Andrew Warner: I see. So what you are basically saying, there are no photos because what you are doing is making up what the jewelry might look like, and the customer then gets to shape this vision of it. And after it’s created by you on the website and shaped by the user, then you make it in real life and send it out to them. Do I understand that process right?
Matt Lauzon: Exactly. Another way to think about it is that there are over a billion sku’s available on the site, if you think about all the available options of the rings and earrings and pendants. But what we’re focused on doing is we’ve vetted up front to make sure that we can make it with high quality in the delivery time we guarantee.
Andrew Warner: OK.
Matt Lauzon: But once it’s on the site, you can pick any metal or gemstone of your choice.
Andrew Warner: OK. All right, now that I’ve got a sense of what you’re doing today, I want to understand how you got here. When did the idea come to you — how long ago?
Matt Lauzon: I was an undergraduate student at Babson when I first started looking at the opportunity. [interrupted]
Andrew Warner: Let me stop you right there. Babson keeps coming up in my interviews with entrepreneurs. You and I talked about how Jason from RunKeeper went there. The guys from Grasshoppers went there. What is there about Babson that turns out so many entrepreneurs that end up here on Mixergy?
Matt Lauzon: I think it’s a relentless and comprehensive focus on entrepreneurship. Whether you’re out at a party, in the cafeteria, or playing intramural sports, people are somehow, someway thinking and talking about entrepreneurship. Even the course load — you can tailor it to the business or the opportunity you are focused on.
I think what’s cool about it is that, when I think about it sort of like a soccer player. I’m not athletic myself, but if I were, I’d do hours and hours of training. That we when we’re on the field we don’t have to think about which foot you should be using to kick. I think it’s sort of like that with Babson. It’s such practical learning and knowledge that when you’re out there in the real world, dealing with opportunities day to day, you’re not thinking about the fundamentals
Andrew Warner: Scott McNealy, founder of Sun Microsystems was here, and he was telling me that business classes don’t attempt to train people for entrepreneurship or business in general, because you’re learning, not doing. At Babson, do you guys actually create companies? Or are you just learning, and it happens to sink in and somehow come out of you afterwards?
Matt Lauzon: You do actually — every freshman student is required to take a course in which money is given and a company is started.
Andrew Warner: Wait. They give you money at the school?
Matt Lauzon: Yes.
Andrew Warner: OK. So how do you learn — what did you learn by using the money that they gave you. What did you create and what did you learn from it?
Matt Lauzon: For all intents and purposes, you went through the entire exercise of identifying an opportunity, vetting opportunities. You went through an exercise of modeling out the business, and thinking about what investments are required. And then you actually build up the company. Somebody was literally the CEO. The different departments were built out, and everybody had a role to drive success to the business.
Andrew Warner: What was the business you created, and how much money did they give you?
Matt Lauzon: We had a few thousand dollars, and the business was called Eventurers. What we did was host events on campus — whether it was a fund-raisers or events for different clubs.
Andrew Warner: All right. So what stuck with you after doing that?
Matt Lauzon: Well, I think what gets me really excited — even to this day — is I’m unbelievably passionate about e-commerce and the fact that I believe that commerce fundamentally is changing, and e-commerce as we know it is dead. But what gets me going every day is building an unbelievable team and tackling really difficult challenges every day. And that experience at Babson taught me how important it was to work with a great team, and get everybody motivated to [interrupted]
Andrew Warner: How? Can you give me an example?
Matt Lauzon: I think, it was interesting because one of the things that you actually had to do in this experience was — and we don’t do performance reviews like this at Gemvara — but you actually do performance reviews, and really think about how everybody in the team was performing. Well, what became clear was, the companies that were most successful — because every person, there were a lot of these classes going at once — were the companies that had the best performers and the best people. And they also seemed to be the people who were having the most fun and driving the furthest ahead. I think that really resonated with me about the power of having the right people on the bus.
Andrew Warner: I see. All right. That’s very useful. And I ask because I remember taking one entrepreneurship class at NYU where we were supposed to build a company together, and it was a team of entrepreneurs who were all supposed to collaborate to build a business.
Now you have a team of entrepreneurs — each one is naturally going to want to have his own way of doing things. One of them is going to take over the whole project, and the others are going to say, “Screw it. I’ll go do my own thing. I don’t need the A that badly.” And so, it was as they say, “Too many chiefs, not enough Indians.” I don’t know if we’re supposed to say things like that anymore, but the main message was, “Too many coaches, not enough players.”
Matt Lauzon: Well, I think what’s interesting is that Babson I think statistics would say, it’s not a huge percentage of people who go on to start a company right away. One of the things I think Babson is really good about is making it about entrepreneurial thinking and entrepreneurial thought and action, opposed to 100% going out and starting a company. I think what you’d find probably if you looked at Babson grads, is that many people go out and work for larger companies or establish companies, but they bring sort of an entrepreneurial edge to the table in a way. Perhaps that class at the very beginning of things helps people figure out which direction to go, and how to navigate that. I think I figured out that I wanted to start my own thing.
Andrew Warner: OK. All right. I’ve got to get somebody from Babson to come on here and do an interview with me to help me understand what it is about them. I think I get a sense of how it helped you. Can you continue with your story? You said you went to Babson, and what happened then?
Matt Lauzon: Yeah, I was fascinated with mass customization originally, and then fell in love with trying to understand retail and the jewelry industry. What I found was that the way things are done or have been done are sort of broken. What I saw or thought was what if you could give an experience where consumers could actually get exactly what they want? And that original vision — to be candid — was different from where we ended up today in that number one, it made the assumption that everyone wanted to customize, and number two, made the assumption that everybody wanted to be able to go to a store. So we were going to give you the ability to completely customize and then choose between going to the store or going to the consumer web, where we were rolling out a site.
And coming out of Babson, we were fortunate to get some attention — having gone through a business plan competition — and linked up with Highland Capital who was in the area. And they offered us the ability to incubate in their space. They later seed funded us, and did our series A, along with another great firm, Candid Partners. But what we did was to roll out into fifty jewelry stores a web-based experience, where you could customize jewelry. And that was linked with an experience at home.
What we found as we were doing that, and in parallel we were building out the consumer site which eventually became Gemvara.com. What we found was the closer we could interact with the consumer, the better experience we could give. Consumers who were working with us from home were having a great experience, and what was really interesting and telling is that the more we worked with jewelers, the more we realized that there was a certain approach ingrained in the way they do business, in the sense that it’s all about inventory.
I’ll tell you a funny story. I went into a jewelry store, and I say, “Hey, I want to get an amethyst engagement ring.” I just want to see how it works. And this is something that sells great for us. We sell it all the time. One jeweler I went in to said to me, “If you really love her, you’ll get her a diamond.” Another jeweler said to me, “Sorry. We don’t sell those. Maybe we’re not the right store for you.” Basically kicked me out. Another jeweler laughed at me. And the reality is, if you want to every jeweler in America, most would tell you that nobody wants an amethyst engagement ring, and that they buy diamond engagement rings. But that’s because that’s what they want to sell. That’s what’s sitting in their inventory.
And what we believe — and what we found we could deliver direct to the consumer — was an experience that said, “Let’s make it about you, the consumer, not us, the company. Give you exactly what you want.”
Andrew Warner: Do you have diamond rings now?
Matt Lauzon: We do. We sell diamonds — that’s one of the over 20 gemstones that we offer.
Andrew Warner: OK. Because I thought in the beginning you were saying semi-precious stones and so, in the back of my head I was thinking probably isn’t selling diamonds. OK.
Matt Lauzon: OK. We do precious and semi-precious.
Andrew Warner: Got you.
Matt Lauzon: It’s diamond, emerald, ruby, sapphire, and then a whole number of other gemstones.
Andrew Warner: OK. All right. The idea you had makes sense. I can understand the expectation that consumers want to go into a store where they can talk to someone about the ring that they are going to buy. Where they get to get some feedback on it. When I bought my wife her engagement ring, I didn’t know anything about rings. I needed somebody there as a consultant. So I can understand why you’d expect that. I can understand why you’d expect that I’d want to make it myself, but of course, I have no interest in making it myself, so I also understand the realization that you came to afterwards.
You have now this vision that makes sense. It not nuts — the vision you ended up going with — but it’s not nuts. What’s the first thing that you do? Do you raise money? Do you start building out tests to this idea, a prototype? What do you do?
Matt Lauzon: What we decided to do — and this was a little more than a year ago — we said, let’s focus all of our energy on launching this site, and let’s figure out how to launch the minimum viable product here, and get validation from the market. Let’s see [interrupted]
Andrew Warner: And this is before you even took it into stores?
Matt Lauzon: Oh.
Andrew Warner: I mean, going back to when you had this idea that won the business plan competition. Did you have anything besides the business plan?
Matt Lauzon: No, and this is interesting, because I’m not a technical guy myself, so I’m not able to build the technology itself. And actually the people that I worked with early on were not technical folks either. What we ended up having to do was raise seed capital in order to work with some folks that could help us build out the initial prototype. So what we did when we moved in the incubator space, we found a bunch of ways to validate that the opportunity was there, and we used that to get a seed round done.
I think one of the things that’s really important at the beginning if you’re an entrepreneur, particularly a first-time entrepreneur is find ways to build credibility and leverage. I think that’s something I and our early team did really well. We’d say, “Hey, here is what we’re going to do,” and we did it. And we used that leverage and we raised the money, and then we did that again.
Andrew Warner: If you’re not technical, then you had the idea, how — besides the idea — what were the investors at Highland Capital banking on when they gave you this seed amount?
Matt Lauzon: I think — and Bob and I laugh at it to this day — Bob, and I asked him this question really early on. “Why are you making an investment?” He said, “Well, you know, I look for entrepreneurs who are PSD.” I asked, “What’s PSD?” He said, “Poor, smart and driven, and you are all three, and that’s great.” And I said, “All right. Thanks. All right. I guess that’s good.”
And then I think the other side of it is Highland as an investment firm and Bob Davis in particular — they look at team, market, and product. I think everybody looks at those things, but I think that what they saw was, “Hey. Here’s a huge market ready for disruption. Maybe it needs a fresh look. Maybe it needs a fresh way of thinking and we believe that Matt and his team have a way to bring on other people that can figure that out with them, and build a product that people want.”
Andrew Warner: Why? What did you have that made him say, “I believe this guy can pull it through. I believe he can do it.”?
Matt Lauzon: I think it was the constant process of — Bob and I never talked about it — a constant process of building credibility and building leverage.
Andrew Warner: How did you build credibility and leverage before you got funded?
Matt Lauzon: Starting literally the first day I met Bob, I asked Bob, “Why are you willing to take this meeting? You’re a leading venture capitalist. We’re just a random young guy. What are you thinking?” And he said, “In the last few days, I have had a dozen people call me or email me and tell me that I need to meet you. Now, I’m smart enough to know that you arranged for that to happen, but I am also smart enough to know that if you could arrange for these powerful people to do that all at one time, then you’ve got something going right.”
Andrew Warner: Which powerful people did you arrange to have call Bob?
Matt Lauzon: It was various people locally, and then business people, and a few people from Babson.
Andrew Warner: OK. Can you give me the names? Can you give me an example of one of the people?
Matt Lauzon: I think one person would be Steve Spinelli, who was at Babson at the time. He was the founder of Jiffy Lube, and now president at Philadelphia University, who [interrupted]
Andrew Warner: Again, his name comes up.
Matt Lauzon: . . . is a great mentor.
Andrew Warner: So he was a mentor to you. OK. The founder of gourmetgiftbaskets.com, who also went to Babson, told me about him, too. I’ve got to get him on as an interviewee. So how do you get him to call up Bob on your behalf.
Matt Lauzon: Well, first, I’m going to hold on, hold on.
Andrew Warner: For people listening on mp3, he’s looking around the room.
Matt Lauzon: One sec, one sec. I’m going to show you. I’ll be right back.
Andrew Warner: OK. All right. Now we’re just looking at the wall in his office while he’s going to pull something mysterious from behind the camera. Let’s see what he’s got with him.
Matt Lauzon: That says [interrupted]
Andrew Warner: It’s a bottle of wine that says “Babson” on it.
Matt Lauzon: And then it says, “Make Spinelli famous.”
Andrew Warner: OK.
Matt Lauzon: but it’s a funny joke, because Steve is a great mentor to a lot of entrepreneurs, and he often gives out these bottles that say, “Make Spinelli famous.” And that’s the payment for all the great coaching and support that he gives, is making him famous.
Andrew Warner: OK. So he’s saying, take what I’ve taught you here. You now are going to carry on my name, my legacy, my reputation is in your hands. Go out there and make me famous. And that’s his way of firing you up, and pushing you out there in the world with a specific direction in mind. How does he know now that you can follow through on that, and you’re not just some schmuck kid in the class, who has a vision but nothing else. Why you? How did you get him to make the phone call to Bob on your behalf?
Matt Lauzon: I don’t know the answer to that question, but I believe that a powerful concept for any young entrepreneur is that if you can acknowledge that you don’t know all the answers, and reach out to people for help, a lot of times they will give you that help. I’m a big time believer that a great entrepreneur doesn’t necessarily know all the answers. In fact, a great entrepreneur is good at recognizing that they don’t, but finding the best possible people to help them get that answer.
Andrew Warner: OK. So more concretely, did you say, “Professor Spinelli, please call up Bob. Tell him that I have an interesting idea, and that he should take a meeting with me.”
Matt Lauzon: Yes.
Andrew Warner: You did. And so Professor Spinelli got to see you in class. He got to see — what characteristic was it about you that would make someone like him feel confident in you? That would make other people feel confident about your abilities?
Matt Lauzon: I think in the case of Steve, I had the opportunity to work with him as he was the Vice Provost of Entrepreneurship directly — like literally work with him. I wrote case studies with him, and worked on special initiatives as he was doing his work. So we were able to develop a relationship where — once again — I think he just saw time after time that I was commited to doing what I said I was going to do, which I think is important.
Andrew Warner: OK. All right. We know it’s hard to get in the room. You get in the room, though, and it’s even harder to win the person over. How many people are in his room that Bob says, “Had a great meeting with you. Don’t call us. We’ll call you” in essence. What is it about you that won him over in the early days, before there was anything concrete?
Matt Lauzon: Well, I just think that he recognized that we have a huge vision — Gemvara and I had that vision — for completely, not just changing the way that people buy and sell jewelry, but fundamentally changing the rules of how commerce is done. And I think he said, “You know what? I love smart, driven, young entrepreneurs. I love huge fragmented markets, and I love disruptive opportunities. And this is all of those things.
And at that time — and I think it speaks to building a relationship — what Bob offered was an investment, not of money but an investment of “Hey. Take a desk in our building, and I’ll give you a few hours of my time a week.” It was over the course of a few months in those hours that a.) I benefited and the team benefited greatly from his feedback, but b.) we were able to build a relationship where I think he got the confidence that we could be trusted and we could build this.
Andrew Warner: I see. OK. So the first thing he did was not invest cash in you. He gave you office space. “I’ve got office space here. He had office space at his office.” He basically said, “Matt, you and your team — sit in my office. You get to ask me some questions. I’ll give you a little bit of feedback, but I’m not going to give you any money yet.” Is that true?
Matt Lauzon: Yes. Exactly. What he said was, “Let’s see where this takes us. There’s no commitments. At the end of this, you’d like to go with another investor, you’re free to do this. If at the end of this, you’d like to come to us for an investment, we’ll consider it then.” And at the end of the summer, we had done what we had said we were going to do, and they invested seed money at that time.
Andrew Warner: OK. All right. So now you get the office. You have to do something. What’s the first thing that you do? In fact, not even the first thing. I don’t want to go too slowly here, because I might be driving my audience nuts here with my obsessive need for details. What do you create in that period between when he gave you office space and before he gave you money? What comes out of that time?
Matt Lauzon: Well, frankly, I think we could have done a better job, and when we launched Gemvara.com, I think we did do a better job. But I think at that time, what we tried to do was — as quickly and cheaply as possible — validate whether or not this would work. First what we did was, sign on jewelers to put this into their store, which for them was an investment in money, but it was also a big investment of reputation and counter-space and training. Then we were looking to validate — will consumers use this platform? Call it — over the course of 2009 that we did that.
Andrew Warner: Wait. I want to stick with the part in the period before you got money. Before you got money, did you actually sign up stores that would allow you to put their computer in there?
Matt Lauzon: Before we got money, what we did was we marked up what a prototype would look like, or what this system would look like. And we got jewelers to agree that this would be something that they would use.
Andrew Warner: Oh, wow. All right. I see. So you go to a jeweler and you say, “If I made this, would you put it in your store?” And they said, “Yes.” “If I made this and put it in your store, would you train your people on it, because otherwise it’s useless.” They said, “Yes.”
Matt Lauzon: Uh-huh.
Andrew Warner: OK. So now you know that the stores are going to let you in. You know also that they are going to invest money — those HP computers that this software would run on, the shopkeeper would pay for, not you?
Matt Lauzon: Correct. Now, of course, we worked out different deals with different people, but the premise was payment up front to cover getting everything up and running, and then the business model behind really was selling the jewelry in more of a wholesale model there.
Andrew Warner: OK. Jewelry stores are not very progressive, from what I saw. And they are definitely not open to outsiders coming in. How did you get a jewelry store to say, “Yes, we will invest money. We will invest time. We’ll invest our reputation on this thing which doesn’t even exist from a college student essentially, who happens to have office space somewhere.” How did you convince them to do that? That’s very impressive.
Matt Lauzon: We were willing to hear a lot of people say no to us, so we talked to a lot of folks to find the ones that were willing to really give this a try. What we found was there were particular other products or lines that if the jeweler was carrying that, they seemed to be more likely to be willing or open to this. And that might have meant that certain types of technology. That might have meant having a website. That might have meant selling certain brands of jewelry that required them to be a little bit more outside the box in how they train people.
Andrew Warner: Got you. OK. All right. So now you’ve identified the prospect. You’ve gone over. You’ve closed 50 sales, give or take. You’ve gotten people who are willing to do this.
Now you have to prove that you can create it. Did you have to do it before you raised money? Did you have to prove that you can create the software and create the whole process for manufacturing the jewelry?
Matt Lauzon: No. It was with the seed funding that we built out the original versions of the software, and that was what we used to launch out into the stores.
Andrew Warner: So before you got money, you just got stores to say “Yes, we’ll take this.” And you had a wire frame of what they would take or a mock-up of what they would take. Then you took that over to Bob and you said, “Bob, I’ve got the stores that want this. I’ve got an idea of what I’m going to build if you give me money. Give me money, and I’ll show you that I can create it.” That’s essentially true?
Matt Lauzon: That’s right.
Andrew Warner: Interesting. OK. All right. So Bob gives you money. He invests, from what I understand, is it half a million dollars?
Matt Lauzon: Half a million, yeah.
Andrew Warner: Half a million dollars. That number is public. OK. He gives you that. You have to go and create it. You’re not a developer yourself. You can’t code stuff up in Ruby. How do you have this done?
Matt Lauzon: We went out — and I am maniacal about getting the absolute best people to come on board and become a Gemvarian now. At that time, I said, “I want to find the absolute CTO for this company, because we’ve got to build something that’s game changing, and we need somebody who can lead that. And I think I interviewed — I think Morale would have been the 34th person I interviewed, but he’s a serial CTO who had some great successes under his belt at startups that grew big. He joined us full time, and recruited our early core development team, and we built out the product.
Andrew Warner: So Morale — this is the guy who is a serial CTO. Why would he take the position with you? How did you convince him to sign up with you?
Matt Lauzon: Well, I will never forget the original conversation, because it started with him coming into where my desk was, closing the door, and saying, “So, is this seriously a jewelry company?” I was like, “Yes. What do you mean?” He’s like, “Oh, I thought that was some sort of stealth thing.” It’s like, “No.” But three hours later, and a whiteboard filled with all sorts of things, and I think Morale and I looked at each other and said, “You know, this feels like good chemistry. We’re both really excited at the prospect about changing a huge, old, fragmented industry.” And Morale had had an experience early in his career where he had worked with a couple of younger founders and found that to be really rewarding. But I think it’s interesting because really Morale and I share a lot by way of how we approach business, how we approach people — a philosophy about having an open mind and driving the business. And I think chemistry between us was really important.
Andrew Warner: OK. That covers the software part of the business. If you were just building a web app, everything’s done. You’ve got your guy. You can go out to market. You had one other layer you had to add to it. You had to actually create the jewelry. How did you build the system to manufacture — to hand create — the jewelry that you eventually sold to customers or the shopkeepers who agreed to have your software in their store?
Matt Lauzon: A lot of trial and error. Basically, key developments really were, on the front end, we built this platform. And basically what we said was, “Let’s figure out how, in a really fast, speedy realistic way, we can allow someone to truly customize jewelry over the web.” And we focused on that. And on the back end, we tried to figure out how do we make sure that in all of those versions, we can know how much it’s going to cost to produce the piece. Because in many of these cases, the piece had never been produced that way. And at that time in particular, every piece was going through a full-fledged custom process. Over time we actually layered on a process that said, “How do we vett to make sure that every piece can be produced in the time frame that we want and also with the very high level quality that we want, which is part of what allows this thing to scale.
Andrew Warner: OK. I understand. All of that stuff seems to be front end — you need to tell people what their jewelry is going to cost before they buy it. You need to give them the ability to adjust it before they buy it, and all that. What about manufacturing it? Did you partner up with a jewelry store and say, “You are going to create all the jewelry that we sell online until we can take it in-house, or was there some other system? How’d you get this stuff made?
Matt Lauzon: Yes. Great question. The same way we went to jewelers early. We went out to people who were in the business of manufacturing jewelry and supplying gemstones, and tried to find the most forward thinking folks. And what’s interesting about the jewelry business, is that there’s a lot of reasons couldn’t have been done five, ten years ago. One of them is that there was a period when almost all jewelry manufacturing went offshore. What happened was, was that the companies that stayed here realized that to be competitive, they need to move towards just-in-time manufacturing. And then now, especially once the economy was bad, a lot of people realized that the Achilles’ heel of the business was inventory. More and more people who had gone offshore sort of said, “Oh, I’ve got to come back and figure out how to do this just-in-time, because inventory is a thing of the past.”
So what we did is find some of the people who were at the front of the movement toward just-in-time manufacturing, and say, “We have figured out on the front end how to make this the future of how people buy jewelry. You’re doing it with people who are customizing, but we’ve got something that’s much bigger than that. We’ve partnered with them, and we built the business that way. We can focus on giving a great experience, and they can focus on delivering a great piece of jewelry.
Oh, I think I lost you. The sound is off.
Andrew Warner: We fixed it. OK. I didn’t know that. If I understand you right, it seems that there are people in the jewelry industry already who are selling, making custom jewelry for sale. And all you needed to do was find the most forward thinking of those people, and team up with them. Hand them the order, and have them create it and send it out on your behalf. Is that right?
Matt Lauzon: I would say that is probably the simplest way of thinking about it. It’s then figuring out how do we together build systems and process that support this, building $100s of millions worth of transactions.
Andrew Warner: OK. All right. It’s probably beyond the scope of this interview to go into the details of how you did that, because that’s a pretty tough system to break down in — what do we have? About 20 or so more minutes. But can you give me, can you help me understand one surprising thing that you learned in that process of working with the makers of the jewelry that you just hadn’t thought of before?
Matt Lauzon: That’s a good question. There have been so many things I haven’t thought of before, because the business of jewelry and the process of handcrafting jewelry is unbelievable. I guess the biggest thing was the realization of how much work goes into creating a piece of jewelry. I mean, it’s absolutely fascinating. Most people probably underestimate the number of hours and the process and the art requred to make a piece of jewelry like that. It really is a mind-blowing experience to see that for the first time.
Andrew Warner: Did you have any experience in this business at all? Maybe your parents were in the jewelry business or an uncle? Anything at all?
Matt Lauzon: No, there’s no secret sauce. My dad was a mailman, my mom is a receptionist and I spent most of my career lifeguarding and mowing lawns. So, that’s it.
Andrew Warner: All right. It does seem like an insular business, doesn’t it? Ethnically insular, within the families, they don’t seem to open up much. Is that what you’ve found?
Matt Lauzon: It’s definitely a really, really family-focused industry. Retail, supply side, all over the industry — there’s a ton of family businesses. And you know, it makes sense. It’s a business based on trust and relationships and emotion. And it’s worked for quite a while. But you look at companies like Blue Nile that’s a publicly traded company, and there’s not an ounce of family business in there.
Andrew Warner: OK. All right. I think I’ve got a sense of this now. You take it out into the stores. What’s the initial feedback once you get the finished product — the working version of the software — into stores?
Matt Lauzon: We’re talking about what time period here?
Andrew Warner: Right after the early days of you putting the software — putting the computer into a store that’s trusted you, that’s took a look at your mock-ups and said, “Yes, if you build it we will pay, we will train, and we will push it.” They now have this built product. They’re showing it to their customers. What’s the feedback from the customers? What’s the feedback from the stores themselves to you?
Matt Lauzon: Well, I think there was a “Wow!” because it was something new that nobody had seen before. Customers in particular, I think, were extremely excited. But the biggest “wow” was that we enabled an at home experience as well.
Andrew Warner: At the same time.
Matt Lauzon: At the same time. So you could come into the store, and start the experience or start from home, and go to the store. But what we found was that people were spending hours finding beautiful pieces of jewelry and customizing pieces of jewelry, and that was an “ah hah” and a “wow” moment for everybody around the table.
Andrew Warner: What do you mean by that? Was the “ah hah” moment that people liked the home version more than they liked the store version, or just was it something else?
Matt Lauzon: It was that the home version was so powerful. It was also the fact that engagement was so high — that viewers spent so much time in that process.
Andrew Warner: What I’m curious about is how did you come to the realization that the stores were not the way to go. How did you know that?
Matt Lauzon: The “ah hah” moment for me was that I had actually started doing something I called “office hours” for jewelers, where there was a day a week where I carved out a few hours and jewelers could call in with any questions. Actually, I would talk to them about anything they wanted. We’d talk about online marketing. We’d talk about technology. We’d talk about the internet. No matter what, I would spend that time with them.
And from there I made this commitment: you know what, in the next three to four weeks, I’m going to talk to every single jeweler and ask them a series of questions. And at the end of that, the last question was, “If you were me, and you were running this company, what would you do to make you more successful?” And I had a jeweler pause, and just say, “Hmm. There’s no silver bullet. I’d just go direct to consumer, because you’re just going to change the way this all works.”
And I went home and I said, “You know what? We’ve got to pull the trigger. It’s time to do this, because it’s the right thing to do for [xx 39:08] letting it be the absolute best experience for the consumer, and if we want to build a game-changing company, this is the road we’ve got to go down. At that point, we made the decision. We said that we’ll support the jewelers that are on board. We don’t want to leave them high and dry. But let’s not sign on any more, and let’s focus everything we have building Gemvara.com.
Andrew Warner: The office hours — was it in-bound phone calls, or were you also making phone calls out to retailers who you hadn’t worked with?
Matt Lauzon: I was spending that time with the jewelers we were working with.
Andrew Warner: OK. So the jewelers you were working with, and you had a set of questions you that you would ask them. And one of them, if I understood you right, was “If you were in my place, and you wanted to be successful, what would you do?” And they said, “Cut me out.”?
Matt Lauzon: Correct.
Andrew Warner: Interesting. Now, before that you hadn’t thought of going all the way to the Internet? You hadn’t thought of going direct to consumer?
Matt Lauzon: No, we certainly were seeing the value of that at-home component, and the ability to work directly with the consumer. If you look at what makes us so powerful, it’s that there are many paths to the perfect piece of jewelry. The technology that we built and the supply chain we built enables us to offer all these pieces, made to order with the metal and gemstone of your choice. But that alone doesn’t solve the equation, because if it’s just about custom, that’s overwhelming, and not top of mind for most people. If it’s just about a huge inventory, you’ve got a paradox of choice problem. And what we’re really good at — and what I think we started seeing in the stores that we couldn’t do — was figuring out what combination of great customer care, call it seamless discovery — the way that Netflix matches you with the perfect movie — and customization, like Dell does with computers — gets you to that perfect piece. And unless you’re absolutely in control of what you merchandise, how you merchandise it, how the site works, what customer care says — you can’t do that. So we were starting to see the opportunity, but that was definitely the straw on the camel’s back — that phone call — one of the jewelers actually telling me we should go.
Andrew Warner: How hard was it — once you had that realization — how hard was it or how easy was it to cut off the retailers and go direct?
Matt Lauzon: Well, we had made a commitment to those retailers, so we continue to support them. I think the harder thing was — this was a big shift in focus in terms of the amount of resource that was going to the consumer site relative to the stores. Which means that number one, you’ve got to have investors that — and we had two, Bob from Highland, and Dan Ciporin from Canaan — who believe in the team and the big opportunity, rather than necessarily the business model of today. And you also needed to have some new people joining the team. So we had to go out and recruit some people who had consumer web experience, which could help drive the success of the website.
Andrew Warner: I see. There we go. It looks like we might have lost the video — there we go. Let’s see if my video will come back up. I see that yours is there, and mine might have frozen up. There it is now. What happened there — the reason that we lost the video for a moment is — I went to Gemvara.com in the background as we were talking, because I wanted to be prepared for future questions, and that just sucked up some band width. In fact, it’s still happening right now. There we go.
All right. I understand. You then had a new direction. Is that when you raised the $5.2 million from Highland Capital, and Canaan Partners?
Matt Lauzon: That’s correct.
Andrew Warner: OK. Once you had the new direction. You said, “We’re ready to charge in this direction.” Then you raised money for it.
Matt Lauzon: Correct.
Andrew Warner: This is all, by the way, in a very short period of time. Company launch 2008. February 2009 [sic] is when you redirected, and here we are in now in January 2011. So this is all very quick. Actually, no, it was February 2010 that you redirected, right, and went all web?
Matt Lauzon: Correct.
Andrew Warner: What else do I want to know? Now I understand the new model. What I’m curious about is, how do you get customers to come to your own website and buy from you?
Matt Lauzon: Yeah, obviously traffic has been something that’s grown tremendously over the course of the year. A lot of people find us — more and more people are finding us through referrals and organic search. One of the things that’s interesting is that because we have so many options available on the site, someone who is out looking for some piece with a particular metal and a particular gemstone in a particular way may be out there, never even thinking about custom jewelry but arrives at our site and is shown immediately exactly what they are looking for. I would say that’s the biggest source of traffic for us, is people out there in the midst of searching for something, and when they get to our site where recognizing that and rendering every design the way that they are looking for.
Andrew Warner: I see. Organic search engine traffic gives you more than 50% of your revenue?
Matt Lauzon: Search engine traffic in all does — which would be a combination of the organic as well as paid, so we’re active in a whole number of channels. Paid search marketing. We do a lot to enhance our organic traffic by having great content. We have an affiliate program, which is turning out to be very profitable for some folks out there. And some other things that we do online that are a little bit more proprietary.
Andrew Warner: OK. I’m actually going to hold off on asking too many questions about this, only because I know that when I do I end up getting evasive answers from entrepreneurs who are still going through their business, or I end up getting pushed in the wrong direction, which I think is worse for my audience than to have them hear “It’s too early for us to reveal how you’re getting all of your customers.” But I do hear that SCO is playing a part. I’m looking at your website here. The URL structure is what every SCO person I have interviewed has said you need to do. The one I am happy to be looking at right here is gemvara.com/Round-Black-Diamond-White-Gold etc. The title tag says “Carrie Ring” and I guess that would be like Carrie Bradshaw? Is that what that is?
Matt Lauzon: Yeah. That is.
Andrew Warner: So Carrie Bradshaw wore a black diamond on the show or on the movie?
Matt Lauzon: She did, and what was interesting was that there was a huge spike in popularity in the market, and there was about a three month period where all the big jewelers, all the traditional folks were trying to make inventory, and we were continuing to ramp up sales. So it’s pretty exciting.
Andrew Warner: All right. So Carrie Ring comes up first, even though — yeah, Carrie Ring comes up first in the title tag, and then the rest of the information. How did you learn search engine optimization? Or who did you hire to teach you and set this up for you?
Matt Lauzon: This is almost all of our online marketing is done in-house. We work with some people externally, but one of the things that we think is core to the success of our business, is taking very seriously cutting edge online marketing. And as I’m sure many other entrepreneurs say, without getting into all the details — the technology that we built in terms of the rendering and this huge inventory enables some pretty crazy advantages in terms of how we are able to connect with potential customers, but — long way of saying — we do it all in-house. We have hired a few people with a specialty in that.
Andrew Warner: OK. All right. I see. This ring that I’m looking at — it looks like a photo, but the Carrie Ring is not a photo, right?
Matt Lauzon: That is correct. It is not a photo.
Andrew Warner: This is fricking stunning. It looks just like a ring until I really pay attention. And then I realize no, it’s not a ring. OK. So what you’re saying is that you’re system can generate pages for rings that don’t physically exist yet, but customers might be searching for on Google, and your system can also — and tell me if this is right, because this will blow my mind — can also create pictures of those rings that haven’t yet been created or photographed ever?
Matt Lauzon: You are wise beyond your years, sir. I think that this is the new face of commerce. I believe in that. If you look at the way retail is done — not just in jewelry — it is all about inventory and pushing inventory. And look at the big jewelers. The whole business model is predicated on the following: Let’s figure out — we’ll decide in the board room what designs we want people to buy. Let’s invest tons and tons of money in inventory. Then let’s focus all of our energy in figuring out ways to convince people to buy those. And then, maybe we’ll make the whole experience with just enough smoke and mirrors that the person feels OK settling at the end. And maybe it’s the Gen Y in me, but I just don’t think that that’s OK. I think there’s a better way, and what we are figuring out is ways to deliver that to everybody — not just the people looking for custom. Not just the people that are unbelievably savvy at finding this perfect piece. We want to become the destination that it’s impossible to shop for jewelry without having visited Gemvara in the process.
Andrew Warner: OK. I see. So for someone like me, I would see this ring. I would be done. I can’t customize. I have no patience in customizing. I can come here and buy what you created. If I have just a little bit of input into the ring. Like maybe I’m looking at this white gold ring — the Carrie Ring — and in addition to the big — I don’t know if it’s gold or not — but in addition to the big black diamond in the center, there are also smaller diamonds — I don’t know if they are diamonds or not, but they look like diamonds to me — if I say, “My wife doesn’t need all the diamonds around there.” I can hit the customize button, and get rid of it. It doesn’t matter to you guys. You guys aren’t sitting on inventory of it. And I can remake this. And if I’m somebody who’s really creative, I can create my own brand new one right here from scratch, pretty much.
Matt Lauzon: Basically, for any given piece, you can select the gemstones and metals of your choice. In the case of collet pendants, you can even select the type of chain. And what we try to do is strike a balance in any given piece that there’s enough customization that people can get exactly what they want, but it’s not so much that it’s overwhelming.
Andrew Warner: How did you know that this would be possible? As a non-developer — a person without experience creating sites like this — how did you know someone could build a system that would create a photo-looking image of a ring that doesn’t exist and that isn’t even a photo? How did you even know that that was possible?
Matt Lauzon: It was a vision, but in terms of the mechanics of how it could be done or if it could be done — those details I didn’t know. But I believe that if we worked hard enough to find the absolute smartest people to join our team that we could figure it out. And it goes back to that first hire and every other hire we’ve made since then.
One of the things that I think is really cool is that day after day, we figure things out — many of which, by the way, I certainly could not have explained or figured out myself — that most people would say would be impossible. And this was absolutely one of them, this ability to customize on the fly. What our team has figured out how to do, and even some of the things that you’ll see us roll out this year which will be very exciting. They’re complicated, but they are the result of focus on creating a great experience.
Andrew Warner: All right. You know what? I was going to ask you the last question, but I got to ask you this. Your hair — it’s all over the place. You’ve got a beard on. You’re a guy in the jewelry business. I’m used to guys in the jewelry business looking all proper with a tie, with every hair in place. What’s the deal?
Matt Lauzon: So are you saying I’m not a good-looking guy? Is that what’s going on here?
Andrew Warner: I’m saying you’re a very good-looking guy, but you’re not . . .
Matt Lauzon: I’m just messing around with you
Andrew Warner: . . . you’re not as put together — I wouldn’t even say you’re not as put together. What’s the deal with the presentation? Is it because you’re an Internet guy, you can let yourself be comfortable? Is it the kind of culture you are trying to create in the company? What’s the deal? We’ve talked about — you brought it up before the interview — I said I’m not going to address it before the interview. I’ll keep it fresh for the interview, and let you finish the thought here now on tape. So what’s the deal?
Matt Lauzon: I think that it’s interesting because a lot of people ask, “Matt, you know, you don’t look like you’re on the cutting edge of being a fashion plate. You’re not wearing a ton of jewelry yourself. Why jewelry? What’s going on with jewelry?” For me, it’s the ability to redefine commerce and redefine the way people are able to make what is one of the most emotional and important purchases of their life in many cases in a way that is perfect for them.
I think as far as myself, I turn 26 I think a week from now. A young guy was never involved in jewelry prior to this, but I think one of the fascinating things that that does is that it takes away the lens that the industry entirely sees the way things should be done. Who am I to say what’s a good-looking piece or not a good-looking piece? Who am I to say what gemstones we should offer? I want you to tell me what gemstones we should offer and what designs that we should have. And I want every action that consumers take to define that. And I guess out of respect that they would just let me wear my hair however I want.
Andrew Warner: What a good way to put it. All right. I love that. Our video has been acting a little funky towards the end of the interview. You are now in letterbox, for some reason. I don’t know why. But thankfully the audio has come through crystal clear, so we’ve got the ideas here well-preserved.
What do I want to end with? How about this? Anyone else who is now in e-commerce or online retail — whatever you want to call it — and wants some advice from you, a guy who’s building his business so quickly and so big, what advice do you give him?
Matt Lauzon: I would say, it’s not about the transaction. What I mean by that, is, if you really look at e-commerce over the course of let’s call it the last decade — it’s been stagnant. It hasn’t been changing. And I believe that that is changing, and I believe that the way that it’s been done is dying, in that when e-commerce started picking up, people knew what the widget was they wanted to buy. They wanted to buy cheaper, faster, selection. And that was the name of the game. It was about an easier, better transaction.
I would say, focus on the experience. Focus on the story that that tells. Focus on doing it better. When somebody comes to Gemvara, buys a piece and gets a “wow” experience, and goes and tells their friends about it, I would be horrified if what they said was that it was a better deal. Or it was that they didn’t have to spend so much time doing it. When we survey our customers, most of them say that they did it because they had a better experience than going to a store.
And that’s what I would challenge the next wave of e-commerce entrepreneurs. You can be better than the store. You can be better than the transaction players. We can redefine it. I call it “me-commerce.” It’s more than mass customization. It’s about people getting exactly what they want.
Andrew Warner: All right. The website for anybody who wants to go check out what I’ve been looking at during this interview, check out Gemvara G-E-M-V-A-R-A.
Do you think that Professor Spinelli would mind if I stole his line and said to my audience, “Make me famous.”
Matt Lauzon: I don’t think he’d mind at all. And all you need is a bottle of wine like this. You can start saying that to your most ambitious entrepreneurs as they go out there and make you famous.
Andrew Warner: All right. All right. Well, for now, while we’ve got them all here online, and I’ve got you back on video — guys, go out there. Use the ideas that Matt just gave us here today. Find a way to implement them in your business. Build that business up, and go out there and make me famous. If you like, you can even name your company after me. Or your first child. Is that inappropriate to ask? Professor Spinelli probably wouldn’t have gone that far. I’ll take it back on the first child. But go out there and make me famous, would you?
Because God knows these videos that I’m doing here, where I can’t even maintain the video connection with my own guest — they’re not going to make me famous. Only you guys can do it. So thanks for watching. Go out there and build something great. Bye.
Matt Lauzon: Thanks.
