Business, Professional Growth Lin Jiang Business, Professional Growth Lin Jiang

How Yishi Survived (Again) — A Brief Fundraising Story

As an entrepreneur, I often get asked what challenges I’m faced with, and sometimes, if my business has almost died before. There have always been challenges since I launched my business two years ago – the pandemic, supply chain disruptions, ingredient shortages due to a rare drought and an ongoing war, an economy that flipped overnight, a cold funding environment, and now bank run fears. Being a small business owner has certainly not been easy, but those challenges never scared me, and I never thought my business could die, until August last year.  

In August, I started our second round of fundraising as planned, to raise $1.5M to extend our runway. Knowing that the private capital market was tightening, I felt some stress but remained optimistic because I thought that early-stage investment might remain relatively resilient and that the good relationships I had with existing and interested investors would make this round quick and easy.  

Oh, how naive I was.

This round could not have been slower and more difficult: the passionate interest from investors turn to “a conservative strategy”, the cross-sector investors went back to stick with their own sectors (mostly tech), and the investors that committed $1.5M and turn cold feet last minute before signing the document. It was obvious—everyone was nervous about a confusing future or even faced financial challenges. I was able to raise a fraction of the initial goal over the course of three months, during incredibly busy daily nitty-gritty and exhausting travels to trade shows and conferences, and the fundraising difficulty was only getting stronger as time went on.

Mid-November, I was under deep stress. As the only person responsible for fundraising, it was my job to get new capital to cover our high cash burn (even though it was reducing) of over $100K per month. We would run out of money soon.

I felt stuck. I felt hopeless to close the funding deficit before the holiday season (investment is usually quiet from November to January) and our cash reserve will be depleted by January. What’s more, I hated the idea of telling my team that I couldn’t raise money. We had a team of ten employees who were passionate and loyal. We see each other as family and the company is the baby of all of us. How can I fail their trust?

After depleting every investor lead, I put together all my courage and made a difficult, but I believed the right decision to aggressively cut costs. With the support of my co-founder and investors, I first talked to my team, explaining our business performance (even though we were growing, some of the challenges we went through did financial damage), fundraising progress, and finally, the decision to lay off employees. I had one-on-one meetings with every team member. There were tears, confusion, and deep frustration; but they were all understanding and express trust in me and the remaining team to continue our mission. After laying off half of the team in December, we further cut SG&A expenses such as our downtown office, some nice-to-have software tools, and any non-core marketing activities.

These changes saved us. We were able to keep the light on, keep shipping products to retailers, and we even launched new products and made strategic improvements to our products and supply chain. Most amazingly, we are on the path to profitability and our top line continues to grow at an accelerating pace. It was only six months ago when we were on the verge of shutting down the business. Well, we survived another challenge, and I will be ready for the next one!

This morning, I was reading about all the SVB-related fiascos and saw a closing comment from a WSJ journalist: no one saw it coming. That’s not an answer or a solution; always being prepared and acting quickly is. Never feel comfortable, and maybe you will never be surprised.

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Business Lin Jiang Business Lin Jiang

Do You Believe In Stitch Fix?

Stitch Fix has been in the headlines a lot in the past two years. A few weeks ago, on January 5, Stitch Fix announced that it will cut 20% of the company’s salaried jobs, its second downsizing in the past year and that its founder Katrina Lake would return to lead the personal shopping and styling service.  

What does Stitch Fix do?

Stitch Fix is a personal styling service that uses data science to personalize clothing items. By paying a monthly styling fee, customers fill out their styling profiles online and a Stitch Fix stylist chooses five items to send them. Once received, the customer has three days to choose which items are worth keeping and which ones to return. If the customer keeps all five items, she gets 25% off the total cost.

A few news articles that can provide context:

I have not always followed Stitch Fix, because as someone who rarely spends money on clothing or shops online, I don’t truly understand Stitch Fix’s mission and market, and I don’t know anyone that is actually using its service or that even mentioned Stitch Fix on social media or directly to me. However, after learning about the company's history, I have a few observations and thoughts. 

1. Shifting consumer trends.

Consumer behaviors and preferences are always changing. How, and to what extent, a company reacts to these changes is another topic. But this makes me wonder if Stich Fix was born out of a trend too and if its subscription-based, “data science-based” styling model has a limited market that seems to be declining these days.

According to this WSJ podcast, after finding success in women’s apparel, Stitch Fix expanded into Men and Children – neither succeeded and they are faced with a lot of excessive inventories that they actually own.

Another question I have is that if the world is truly moving to an increasingly environmentally-conscious future, will e-commerce eventually decline? What do the investors that invest in both food delivery and sustainability think about their contradictory natures? How does that affect personal travel? I’m not proposing aggressive changes. I’m just thinking about the good and the bad that all the changes or revolutions brought to our society and the people – e.g. Amazon Go stores don’t mark down the products even though they don’t incur as much labor expenses as traditional stores. Where did the extra profit go and did it make our lives better?

Something that I believe never changes in the consumer world: the mass market, most people that are not the 1%, always care for value. Good products, low price – that’s always a winning strategy.

2. Is Stitch Fix’s data science positioning a solid part of their business model?

“Stitch Fix claimed to track body dimensions, pattern preferences, and which clothing customers kept. They could also compare customer data to track patterns and similarities. With all of this info, Stitch Fix was able to deliver very accurate predictions.” Fundamentally, I believe that data science presents a historical picture and should be used simply as a reference, instead of as a sole input, for future predictions. Saying that these data provide very accurate predictions is a red flag. I have watched a retail data science startup fail closely – they had many issues, but one major issue that I questioned was is what they were building truly that much more valuable than all the priority data that retailers and brands have and the public data out there. What additional, critical insights can they provide that answer any unanswered questions?

As of July 30, last year, the company had about 7,920 full- and part-time employees, including about 3,400 stylists and 3,100 fulfillment-center workers. When a company is positioned as a data science and tech company, why do they still have many stylists? To me, they sound like a tech-forward retailer - which is what Stitch Fix aims to replace.

3. Startup companies need to be rigorous and cautious about what they say.

“In 2018, a number of class action lawsuits were filed against Stitch Fix, claiming the company violated federal securities laws by making misleading statements about its prospects for growth, plans for advertising on television, and overall profit. The class action complaints were filed on behalf of company shareholders. That June, the company announced that the client base had grown by 30% in Q3. However, the next quarterly report in October revealed that its client base had only grown by 25%.” Stitch Fix won the case in 2022 because the judge believed that the statements were broad and not misleading.

A reminder, after watching Stitch Fix go through this legal battle, is that founders and startup companies need to be rigorous and cautious about what they say, even though it might not be in their nature. Lies, once created, tend to pile up. We do not need another Sam Bankman-Fried or Charlie Javice.

4. Leadership seems to be a serious problem.

Read what the employees are saying on Glassdoor about senior management in the past year under Elizabeth Spaulding’s leadership:

  • “Horrible C-level management, Low accountability”

  • “CEO is not qualified to run a tech company, makes bad decisions, and talks like she's trying gaslight the company”

  • “CEO is a deeply insecure career salesperson from consulting; she is completely unqualified to lead the company and resists self reflection on every opportunity”

  • “CEO has created many toxic dynamics/politics at the company”

  • “Before Eric, Brad, Mike, and Katrina left, this organization was influential and impactful. Each month, another high level departure is announced, and with it, the org goes further downhill. The most obvious problem is the terrible management. The management issues are so bad that they are now referred to out in the open during all-hands by Data Scientists. We've recently had two entire teams leave the company of their own volition because things are insufferable. Levels make no sense, managers are incapable of feedback, and most ppl in leadership got there via politics. Now they are asking data scientists to make dashboards, and they ignore the experiment results because they're obsessed with pushing garbage features to look like we are making progress. It's a real shame. Look at the attrition and ask yourself why.”

I do not know much about Spaulding. She seems to be a capable strategist - she is a former partner at consulting firm Bain; she joined Stitch Fix as president in early 2020 and took over as CEO in August 2021. But there is obviously a problem.

Was the leadership transition too fast? What are the reasons why Lake handed her baby to Spaulding? Would Lake be able to save the downward trajectory of Stitch Fix? We will see.

5. The stock price has been declining after its pandemic surge.

According to CNBC, Stitch Fix’s few venture-capital investors include Baseline Ventures and Benchmark Capital, which invested in the company at a $300 million valuation in 2014.

  • When Stitch Fix went IPO in 2017, they had an opening price of $16.90, valuing the company at roughly $1.63 billion.

  • In January 2021, stock price peaked at about $100 per share due to the pandemic e-comm boom.

  • Yesterday (Friday, Jan 27, 2023), its stock closed at $4.94 with the market cap being $547.39 M.

What a fun ride. I'm curious about when Stitch Fix’s pre-IPO investors and its leadership sold their stock, if they did.

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Business Lin Jiang Business Lin Jiang

Inside the Sudden Rise of China’s Mysterious $15 Billion Fast Fashion Retailer - Shein

I read some stories about Shein's success, at least marketing and financial-wise, on Dec 13, 2022, when there was news about Shein exploring the online marketplace business model. I’m not sharing my opinions of whether the potential business model would work for them in this blog article (that could be another article), or whether we should boycott Shein because of its negative environmental impact and controversial working conditions.

Today I want to share my initial learnings on their lightning-speed business success.

Here are two helpful articles. I especially enjoyed reading the Wired one.

My high-level takeaways: Growth drivers: Product + Channel (maybe + Master of Consumer Behavior)

  • Products that the target market wants (the competitive advantage can be low price, technology, or economy of scale, for us - Yishi’s founding story) +

  • Channels, of both sales and marketing, that are mainstream and can scale fast in a relatively low-touch way.

Some smaller, specific notes:

  1. Mid-size influencers are their influencer marketing sweet spot now but they started with small influencers and used a site called Lookbook.nu to find small-time influencers in the US and Europe and started sending them free clothing.

  2. SEO helped early days too

  3. Low working capital: "only when an item began selling did they place a small bulk order with a given wholesaler."

  4. Software and automation make they work better and faster - their decision-making process, product optimization, loss cutting are all faster

  5. "Under an international agreement, it often costs less to ship small packages from China to the US than from other countries, or even from within the US itself."

  6. Overall, its business model is unique and may not be the "role model" business by all standards, but I do think there are many things we can learn from its success to date. 

I hope you find something useful in Shein’s story.

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Professional Growth Lin Jiang Professional Growth Lin Jiang

One Of Silicon Valley's Most Powerful VCs Says This Recession Will Resemble 2000, Not 2008 | Forbes 

Watch the full view here.

The headline is a bit misleading – the interview is not about Theresia Gouw’s economic predictions; it’s more about her insights on how she has grown her career, working as a female tech investor in Silicon Valley, and how she balances her career and life. She also shares advice for female entrepreneurs and early-career females and her comments on the near-term startup fundraising environment. 

Some of my quick takeaways: 

  • She believes the fundamental points that enable the American dream because of her family’s and personal journey. (I believe that the American dream still lives too.) 

  • She learned about more career options as she advances in her education and career; and she made new career decisions courageously, leveraging the resources and assets that she accumulates over time, to pursue what she loves to do now.  

  • Becoming an entrepreneur is you betting on yourself, which may sound scary but it’s the most informed bet with calculated risks. (To me, it’s the safest bet.) 

  • She gives a fairly honest comment about trying to fit in a male-dominated industry in her early career and shares a healthy perspective on focusing on the positives and advantageous opportunities women have (e.g., females may leave a stronger impression at a tech trade show). 

  • Lastly, I think there’s a lot to learn from the interviewer, Maggie McGrath, too – the way she portrayed herself is professional, friendly, and intelligent and empathetic.  

  • Overall, it’s an inspiring interview that I recommend other women to watch, whether they are in the startup world or not.  

Enjoy!

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