How do you know if it’s the right move to give up on a business you’ve been working on for over half a year? When Evan Stites-Clayton was approached by his co-founder Walker to give up on their business, a job site for college students, to work on a completely new product, a t-shirt company, he had to make this difficult decision. While throwing away months of hard work was painful, the new project was difficult to ignore. It had generated thousands of dollars after just one weekend of work, while the original business idea had no clear demand or differentiation after six months.
Soon, the pair was working on the new business idea exclusively – a way for businesses to raise money from their online audience (crowd-funding) by selling merchandise – specifically T-Shirts. Teespring was born.
In this episode, Evan outlines exactly how this idea was conceived, and what the team did in the early days to find customers. We also uncover how they stumbled upon a new marketing channel that would go on to grow their business from $250,000 dollars a month in sales, to over a million dollars a day.
Evan and his co-founder Walker’s meteoric growth helped them raise over $65 million from some of the top investors in the world, like Andreessen Horowitz and Khosla Ventures, but as the company scrambled to keep up with investor’s demands to maintain their hyper growth, the company started experiencing issues.
In our interview, Evan opens up about some of the pitfalls of growing too quickly, and how other founders should carefully think about the choices that they make especially when they’re raising money from major institutional investors at high valuations. He has incredible insight into the trials of scaling a company, and provided us with a sincere reflection of how others should manage growth while understanding their own true wishes and intentions with the company they are building.
0:20 Today on the show we have Evan Stites-Clayton of Teespring. Him and his co- founder started the company in 2011 and raised in total $65M in funding. He has also been featured in Forbes 30 Under 30 list.
1:10 We know that Evan started his entrepreneurial journey around the time he was graduating Brown. He had tried working at a few companies but didn’t really see himself working for someone else, and that’s when he decided to try and start something.
1:21 Sergei: How did you find your co-founder, and as a technical person, how did you vet him as a business founder.
1:44 Evan: Cofounder selection is so important. It’s the first step in the journey and having the right person can make the difference between a horrible experience or a wonderful one.
2:10 There was a little luck in how Evan found his cofounder. He didn’t see himself as a hotshot engineer. His co-founder wanted to find someone to hire for his project, and because his other friend in his frat who he was going to hire got a concussion he had to find someone else.
2:40 Evan happened to be in the room when he was talking about bringing on a cofounder
3:00 Sergei: did he actually hire you for the project and pay you, or did you guys just agree to work on it together?
3:11 Evan: He actually hired me. There was a incubator program that gave us $18,000 for a summer, so I got paid $6,000 for that summer which is a ton of money in Providence.
3:41 When it comes to a good cofounder pairing I think there are 3 main things that make for a good team.
3:43 First one is complementary skill sets. Building a product takes a lot of different works and some specialization of labor is helpful in getting things done.
4:06 I was doing the backend coding, and Walker (co-founder) was doing the design and front end work.
4:15 There was just enough work that it kept us both busy that summer and allowed us to jam in real time.
4:31 It’s a great dynamic to have with a cofounder where each time you complete one part of a project, that becomes the impetus for the other person to build the complementary element of that.
4:50 It creates a pinwheel of productivity which isn’t possible ot achieve with one person.
5:12 The second one is just personality fit, and you really need to be an agreeable person. If you’re not agreeable with each other then you’re always going to be miserable.
5:34 If you couldn’t imagine sitting with that person on a train for 4 hours having to make smalltalk, then you won’t be able to work together on a startup.
5:54 The third thing that’s really important is understanding hierarchy and having someone that’s ultimately in charge. Perfect democracy doesn’t work in a startup.
6:17 It’s better to have a CEO. I knew that with taking on the role of CTO, at some point if I didn’t like a decision that I would have to live with it but I was okay with that.
6:40 Vadim: Why do you think you were okay with Walker taking on the CEO role? Did you want it at some point or did you not want the weight of some of those responsibilities on your shoulders?
6:50 Evan: I didn’t necessarily want all of that responsibilities and I have a lot of respect for Walker’s courage. He never thought twice about taking on the role.
7:04 Now I think I’m ready. If I would start another company I would want to be the CEO
7:21 It was frustrating at some points because especially when we hired other executives there were sometimes decisions that I didn’t agree with, and it was a pain to not have the executive power. But overall seeing the harmoniousness of having one person make decisions was more important than me just having my way.
7:54 Vadim: It sounds like you had some innate trust there with Walker
8:06 How did you establish trust that Walker would be able to execute on the revenue side?
8:23 Evan: Part of the trust was just interpersonal dynamic, I felt like I could trust Walker. The trust also came from the fact that I saw how dedicated to the product and how deeply he felt that it was his baby.
8:37 I knew I was dealing with someone who cared even more than I did about what we were building together.
8:54 I also saw that he was a good person who had the same values as me.
9:14 Our first product together was a student job website that tried to replace Craigslist as the go to platform for students at Brown to find jobs.
9:40 Sergei + Vadim: We hear about ideas like this at NYU and other schools still in 2018. It goes back to what we talk about the who you know and what you know of thinking of business ideas, and in college what you know is that you need a job.
9:50 Sergei: So you’re working on coding this job app for 6 months, and one day Walker comes to you and says you’re going to work on something else. How did you decide it was the right time to give up on this idea and did you have any indication that the new idea would even work?
10:04 Walker saw that our original idea Jobzel wasn’t going to work out even before I did, because I was so attached to it. What really convinced us is that we had an investor who wanted to invest in this new concept TeeSpring, not Jobzel.
10:50 Not everyone will have a glaring signal like that, but everyone is resistant to change to some extent, and if you find yourself being resistant, take that into account that it’s natural.
11:03 Sergei: and why do you think that investor wanted to invest? What did you guys do to prove that the idea is viable.
11:42 We hacked together a one off TeeSpring that made more money in one weekend than the other idea did in 3 months. We made $3,000-$4,000 dollars from it. That was another big signal for us that it was a better idea to pursue.
12:21 Vadim: Can you tell us a bit more about that origin story?
12:30 Evan: The short story is that there was a bar called FishCo that was known for serving underage students, and so it was loved by all the students.
13:00 One day there was a raid and it got shut down, and there was all the buzz on campus and on Facebook about bringing back FishCo. Walker saw it as an opportunity to create a product to sell to these people so he made a “Free FishCo” T-Shirt.
14:00 Because they couldn’t know what the demand would be and what sizes to buy, and because they couldn’t pay for the tshirts up front, and didn’t want to miss the momentum of the energy around this, they decided to do pre-orders for the shirt through this website they hacked together. Right away it went viral on Facebook with people sharing, and they made $4,000 in sales.
14:20 Sergei: was this pre-KickStarter? the idea to do pre-orders of a product before making it?
14:29 Evan: KickStarter did exist at the time and we applied that logic to our concept. All credit for the idea goes to Walker.
14:40 Vadim: Was this a way to really just fund Jobzel or to just do something fun for the bar?
14:55 Evan: It was an earnest attempt to raise money, not for the bar.
15:20 I was a computer science major and had a lot of work, and Walker was a history major with more free time that he completely allocated toward entrepreneurialism. So because he had done so many hackathons and iterated on different ideas, it was natural for him to try something new.
15:50 By doing all these projects he also became a self taught front end developer.
16:03 Sergei: At what point did the investor agree to invest?
16:10 Evan: The investor invested a little bit after this campaign on the basis of its success and the fact that other organizations were reaching out interested in launching similar t-shirt campaigns.
16:30 We didn’t put so much thought into valuation at that point and just took money from the only investor who was offering it. So it was just based on whatever that investor negotiated with Walker.
17:00 Vadim: How did you find the investor? And how much did they invest?
17:10 Evan: They met us through an incubator program we did in Providence. It was about $300,000.
17:30 We did have to have a difficult conversation with the incubator that we were shutting down the Jobzel corporation and taking investment from an investor we met through their program for a new company.
18:00 We ended up selling Jobzel in a firesale to the Rhode Island Student Loan Association who wanted to use the backend code. It wasn’t for a lot of money but they still use the underlying codebase.
18:30 Sergei: So you went headsdownt to build out TeeSpring for 6 months and when you launched nobody cared. So what happened to all the excitement around it?
19:00 Evan: We had the initial users who wanted to use TeeSpring but we exhausted that pretty quickly, and then we were just another website with no traffic.
19:30 We initially thought that based on early demand, if we built it people would come, but that’s obviously not how it works.
19:57 Sergei: What was the first step to finding a bigger market for you? What did you spend the next 6 months doing?
20:13 Evan: In that moment a lot of companies have a crisis where they assume they just don’t have product market fit.
We were stubbornly on a path where we wanted to make it work. We basically refused to say this isn’t working.
21:00 How we did it was basically create a direct sales effort where we started reaching out to a lot of organizations to get them to use it.
21:10 But there was a bit of a viral coefficient because every time we would have someone use TeeSpring they would post the link and others would find out about it.
21:30 Sometimes you do have to draw the line and say something isn’t working, but one of the other things that kept us going is that those people who were using our tool were selling their shirts at a very high conversion rate to their communities. So we saw that it was working. The problem was finding people who had a following and could design something, but once we did that we saw results.
22:10 Sergei: How did you decide which companies to call and who to get on the platform? How long did it take you to figure out a repeatable process to get people on?
23:00 Evan: We never did find the repeatable process for it. We thought initially that this concept would be most attractive to nonprofits and people raising money for causes. But what we learned is that sometimes you can’t predict who the customer will be and if your product is generic enough, the right customers will find you.
23:30 Vadim: Who was taking the charge on the direct sales efforts?
24:00 Evan: Walker was leading it and we did have a team helping do ales. Our initial investor in Providence was also helping run operations.
24:29 Vadim: Were you making calls, sending emails? What worked?
24:35 Evan: It was all cold emailing and cold calling
25:00 Sergei: at a certain point you were doing fairly well with about $750k in sales and you decided to go out west and participate in YCombinator. Why give up equity at that point
25:30 Before YCombinator we did find our target customer that worked well. There was a Facebook page called Big Truckin’ Girls where the woman who was running it saw one of our non-profit campaigns and decided to run a TeeSpring of her own.
26:00 It was end of 2012 and all of the sudden we were seeing a ton of traffic on our website all coming from her page.
26:42 She made so many sales that everyone with a FB page wanted to do a TeeSpring to monetize the digital asset that is their page. That’s when we started growing really quickly.
27:00 That worked really well where it went completely viral and we didn’t really have to do anything. You would have to be stupid to have FB page and not run a campaign. But the numbers went down orders of magnitude when Facebook made changes to their algorithm.
28:04 When we applied to YC we were doing $250,000 per month in sales, and we only heard about it because one of the partners was Walker’s brother’s friend growing up.
28:30 Sergei: At this point you were doing more than a quarter of a million in monthly sales. Why then decide to give up 6% of your company and join YC?
29:09 Evan: There probably wasn’t too much logic playing into it, but what we got out of it was a lot. For a company out of Providence Rhode Island, YC put us on the map as a Silicon Valley company. It was like buying into a community.
29:44 We were able to establish an engineering office in SF and talent there, and were able to get access top tier investors.
30:00 It was honestly really exciting to become a part of it.
30:20 Sergei: It sounds like you really wanted to make this concept big too, so there was the allure of doing it in Silicon Valley. Did you see a lot of copycats crop up?
31:00 Evan: We did see a lot of copy cats starting end of 2013, including complete copies, and it sucks because there’s not much you can do about that. There’s no patent for user experience.
31:20 Sergei: You guys did a lot of cool stuff and created a lot of jobs, and It sounds like going to Silicon Valley put you on a certain trajectory where you raised a ton of money, $65 Million. Did that come easily at that point because of the growth?
31:52 Evan: When you have growth it’s so easy to raise money if the climate is good for it. And our growth was crazy. In 2013 and 2014. We went into YC doing $250k/month, ended the program at $1 Million per month, and by the 2014 we were doing over $1Million per day in top line revenue.
32:30 We owe a lot of that to Facebook’s platform and the different ways you could deliver content to a person in targeted ways on FB.
33:19 It wasn’t always the right decision for us to raise so much money even though at the time it was compelling to do so because it was so easy and the valuations are so high.
33:31 When you’re getting $100M+ valuation as a founder that’s really exciting because in the moment you’re getting a crazy high valuation on paper, and also it means that you’re committing to something where you’re committing to something that makes it difficult for you to actually realize that gain in the future, but I didn’t think about it that much back then.
34:05 I didn’t think that, oh now we have this preference stack of investors who would need to get their money back, and now we would have to continue justifying a bigger valuation. If we want to sell the company it would have to be at a much higher valuation for us to make money.
34:40 Sergei: None of your investors or advisors gave you that warning about the valuation?
34:42 Evan: No, we weren’t thinking about it that way. We just saw it as an easy way to get a lot of money for not a big piece of the company.
35:00 Vadim: What would you do differently now if you were advising a company that saw this hockey stick growth?
35:22 Evan: One thing is to spend the money less quickly. It’s in the investors best interest, and often encouraged, to spend as quickly as you can because that’s how you create motes, or a monopoly for everyone else.
36:22 You should think about a strategy where they money can help you last another 3 years not one year. It’s tempting to think that if we spend 3 times as fast we’ll grow that much faster, but that’s not true. Especially when it comes to engineering and product. There are hard limitations to how fast you can scale, including building and training your team.
36:48 You should also realize that you might not understand the best way to spend it at this moment. Slow down and try to make the money last. Focus on your core product and making it better.
37:30 Sergei: There was a Wall Street Journal article that did say you had to raise later on a significant down round, and although you did have layoffs you got to keep some of the team. Where do you see the company moving forward from here?
38:11 Evan: It makes sense that you’re asking this and I won’t ascribe it to just circumstances. Even though there was pressure to grow faster, it was in our power to raise less and slow down.
39:00 What happened was we had built the infrastructure of the company in a way that assumed it was going to continue growing, so when it stopped growing our burn rate was too high.
40:00 Vadim: But still, as young founders without experience scaling a company, how were you able to handle the growth?
40:31 We were always in one of two positions. We were either scrambling to handle growth, or scrambling to find more customers. When you have a lot coming at you you just know you have to deal all of it, and there’s a lot of putting out fires.
41:14 If you can find a way to still focus on how to make the product stickier so that users don’t leave once they come in.
We were growing so much from the virality of Facebook that we didn’t have time to focus on how to keep the customers and turn them into repeat customers.
42:30 Sergei: Now that you have this tremendous benefit of hindsight, how do you choose what founders to align yourself with when you look for people to advise/invest in.
43:28 Evan: Going back to what I said earlier, I look for the founding team that can have that pinwheel of productivity. Companies that are able to rapidly deploy products to be able to test their assumptions. People who do that often can stumble on something that does work.
44:00 It comes down to the founders having an ability to get things done and find growth, and not have excuses.