How Beyond the Rack doubled its sales growth
Online clothier Beyond the Rack grew beyond belief using a strategy of constant searching for startup financing.
Three short years ago, Yona Shtern had a lot to learn about raising capital-and that may be putting it kindly. "I didn't know a VC from a banker from a private-equity firm," admits the self-deprecating serial entrepreneur with a laugh. What he did know, though, was that he and business partner Robert Gold would need to raise at least $1 million to establish Montreal-based Beyond the Rack, a private online shopping club.
The pair managed to find way more than their million. Launched in 2009, Beyond the Rack has raised a total of $50 million from angel and venture-capital investors. Shtern says such big bucks and the brainpower behind it-so-called "smart money"-has been essential to creating one of Canada's fastest-growing firms; Beyond the Rack's sales hit $6 million in its first year, $50 million in its second and $100 million in its third. For 2012, sales are expected to double.
That's not too shabby for a company whose business model was relatively new and unproven in 2009. Private online shopping clubs allow members to buy brand-name products at huge discounts; the catch is that membership is by invitation only, and sales of individual products are short-typically, 48 hours. "You really have to educate people-especially investors, who typically like to invest in things that are tried-and-true and have track records," says Shtern. "They tend to ask, 'If it makes so much sense, then why are you doing it first? Why aren't there others doing it already?'"
Fortunately for Beyond the Rack's founders, their earliest backers had bought into private shopping clubs in other markets, allowing the investors to provide "invaluable guidance on what to do and what not to do," says Shtern.
He approached finding angels the same way he looks at any other businessdevelopment function: "We educated ourselves and started networking like crazy." Using Google and LinkedIn as a starting points, Shtern and Gold made tons of cold calls and attended "lots and lots" of meetings. "It's a force of will," Shtern says. "If you're committed to not giving up, points will start to connect for you and you'll find the right person." It took six months to close the first round of financing: "Six months, every day, fulltime- that's what it takes."
Achieving success, says Shtern, requires a lot of help. He recognized where he and Gold were lacking expertise-technology and logistics, for example-and invested in top senior talent. "Robert and I share a philosophy about great people," says Shtern. "You need people with knowledge and expertise that far outstrips your own." Hiring the rest of the team was hit or miss. Some people thrive in a startup environment; others don't. "If they ask about the hours or vacation days in the interview process, they might be the wrong fit," says Shtern, who follows the management mantra "hire slow, fire fast."
Keeping Beyond the Rack's ballooning employee base working toward the same objectives has been another challenge. Shtern's solution: monthly staff meetings in which he shares the firm's operating metrics and opens the floor to questions. "It's important that people are engaged and understand why we do things," he says. "You can turn your employees into real stakeholders."
Entrepreneurs-especially trailblazers like Stern and Gold-are continually told they'll never make it. But they've learned the merits of ignoring the naysayers. "More people will tell you more reasons why you'll fail than people who will be supportive," says Shtern. "You need to be resilient. Anyone who's done sales knows it takes nine nos to get a yes. In our business, it takes 49 nos to get a yes. But we still don't give up."
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