Warby Parker's leap: From affordable glasses to AI game-changer

26:08But it's so interesting because I think I read that, is it true you didn't initially even send out the site to your own friends and family before the site launched? Yeah, none of us are technical and we had lots of ups and downs. It still had lots of bugs in it and not something that we really weren't proud. And there was kind of a whole roadmap to improve the site over the next few weeks. And then our publicist called us and said, hey, guys, the GQ is hitting newsstands tomorrow. I just went to your site. It says coming soon. What's going on here? And this was in the middle. It was kind of, I think it was like right around Valentine's Day on Feb 14th.

26:50and we knew that GQ was coming out. It was the March edition, and so we thought we had until March. We didn't realize that the March edition actually comes out in Feb. Punn it. Yeah, so we kind of stayed up until 4 in the morning working with our developer, tried to squash as many of the bugs on the site as possible, but it still wasn't something we were proud of. So, yeah, my mom didn't know the site was live. Our best friends didn't know the site was live, but we just had to push go. So, yeah, these articles started hitting newsstands and all of a sudden there's just a massive influx of orders.

27:23And, yeah, it really caught us by surprise. We had been working for a year and a half to kind of get everything perfect. And then we just kind of had to let go and wing it from there. No one goes through this without facing rejection. I think you kind of alluded to that just now. You know, in those early days, what kind of pushback did you receive when it came time to approach, let's say, partners or vendors? and how did you navigate critics who seriously doubted the concept? Was there a specific mindset that you felt like you had to employ? Almost everyone we talked to told us why this idea would never work.

27:54We were all students at Wharton. There was a business school competition, and we'd been working on this business plan, and we were really excited about it. And so we said, you know, let's enter the MBA business plan competition, and we didn't even make the finals. And there were a lot of very successful alumni judges that provide very detailed feedback, And they provided a whole host of reasons why this idea would never work, that primarily that we were trying to do too much and that it's hard enough to launch an e-commerce site. It's hard enough to launch a brand. It's hard enough to launch a company that has a social mission and a social enterprise.

28:31And doing all those things together is never going to work. Pick one lane, be a retailer of other brands of glasses, be your own brand of glasses, but sell through existing distribution channels. start to either be a for-profit or non-profit, but don't try to have a social mission as a for-profit business. It was too much new. Yeah. We recognized that there were really smart people that provided very thoughtful feedback. If we had been a solo founder, it's likely that we would have been really discouraged and maybe so discouraged that it would have kind of caused us to not move forward with what we were building.

29:06But I think because there were four of us, we were immediately able to kind of pick each other up and say like, yes, this is valid feedback, but here are the five ways that we're going to overcome these things. We really trusted each other. I think it just put a chip on our shoulder and made us want to prove these critics wrong. When we were talking to potential partners early on, whether it was factories that we had to work with or lend suppliers that had kind of had to take a bet on us and introduce us to important relationships they had. I think what probably got us over the hump was just the passion that we had, the conviction that we had around building a brand that stood for something that made the world better and that there was this unique opportunity to kind of blend design and technology and social entrepreneurship to do something that hadn't been done before.

30:00While we recognize that that added a degree of difficulty. That's what made it so exciting. And that's what kind of created the passion that enabled us to convince these early partners to take a bet on us. Did you also experience pushback when it came to perceptions around pricing? Yes, absolutely. Being in business school, we had an advantage of having access to some of the brightest minds in business, where the professors at Wharton are often paid sometimes millions of dollars by the biggest companies in the world to be consultants on everything from how to optimize their supply chain to how to optimize pricing.

30:40And we talked to every single professor, kind of got their advice on what we were building. And we were very open about our perspective and wanted people to poke holes in it. Remember distinctly, we walked into a pricing expert's office and he knew nothing about glasses. But we said, we're going to introduce this new brand. We're going to sell prescription glasses for$45. And he stopped us. He said, that's never going to work. I said, well, we have all these slides. We can showcase all our analysis, like why we think this is going to be really compelling to consumers and why we think they can make it work.

31:15He said, I don't need to look at those slides. I can tell you that your costs are going to be much higher than you think they are. And you're not allocating nearly enough money for marketing, especially for introducing something that is going to be new to the consumer landscape. You need to raise prices to account for both of those things. Of course, he was right. And with his help, we ended up doing a big conjoint analysis and a survey of consumers. And we found that likelihood that someone would purchase actually increased as the price went up. They thought$45 was just too low. It was a tenth of the price of what people were used to paying and that there was just way too much skepticism around the quality, you know, paying a tenth of the cost.

31:59And so as the price went up, people were actually more likely to purchase. But then after we hit$100, the... Your summer runs just got a boost of energy in Lululemon's Shake It Out shorts. Made in our ultra breezy, lightweight, swift fabric, the Shake It Out shorts have a flowy, layered hem and a comfy built-in liner. These shorts keep you locked in for miles with distraction-free storage and a waistband that doesn't budge. They might just be the shortcut to your summer goals. Shop the Shake It Out shorts now at lululemon.com.

32:33This episode is brought to you by State Farm. Listening to this podcast instead of doom scrolling? Smart move. Another smart move? Getting help from one of State Farm's 19 ,000 local agents when you choose to bundle home and auto. Bundling, just another way to save with the personal price plan. Prices are based on rating plans that vary by state. Coverage options are selected by the customer. Availability, amount of discounts and savings, and eligibility vary by state. That likelihood to purchase plummeted, and so there's just kind of a psychological barrier around$100. Now, there's been a lot of inflation since then, so maybe that type of analysis would be different today.

33:12But that's how we landed on$95 as our entry price. And we really wanted one all-in price that included not only the frames, but lenses, coatings, shipping, that people weren't worried about being upsold or having additional hidden charges that they were kind of used to seeing when they were purchasing glasses. We wanted to be very transparent and include everything that a customer needs. Yeah. And we still have that pricing today. So the majority of our glasses are still available for$95. Now, 15 years later, and we've introduced a variety of products at different price points that have really always wanted to make sure that we stand for transparent and fair pricing.

33:58Still waiting in line? Again? That's time you'll never get back. Save time and money with Stamps.com. Over 4 million businesses have skipped the line with Stamps.com. Join them to save up to 90 % off carrier rates from your computer or phone right now. Print postage for certified mail, registered mail, and packages in seconds. Then schedule a pickup right from your home or office. For a limited time, go to stamps.com and use code podcast for a free welcome gift. Taxes and fees apply. Let's talk about financing, actually, because Warby Parker is now listed. But before that, at what point did you guys decide to go out and seek external funding?

34:37Yeah, so we tried to bootstrap the business for as long as possible. Tried to find some kind of creative, non-dilutive sources of financing. like SBA loans and had one of our suppliers, our distribution vendor that got really excited by what we were doing, kind of offered us some non-dilutive financings to help us scale. But a couple of years into the business, we realized that the main thing that was holding us back was not having enough inventory. In those early days when we had a wait list of 20 ,000 customers for our home try-on, it took us nine months to get through that backlog. And then And we could just never keep up to have enough inventory to keep up with our growth.

35:18Then we went out and said, OK, well, it's probably time to raise some money. This was now a couple of years into the business. And we were doing a few million dollars a year in revenue. And so at that point, we're able to raise our seed round at pretty favorable terms with kind of a mix of technology and fashion investors and a bunch of founders. But we still tried to raise as little money as possible just to kind of get us through that next hump to finance inventory. Over the years, kind of as the company scaled and we had more visibility into how we could deploy those dollars to accelerate growth through marketing and hiring and investing in our own infrastructure.

35:59Before we got public, we went up to our Series G. So it was a lot of rounds of financing, raised over half a billion dollars in total, and then took the company public in 2021. Wow. I was going to ask about highlights. That must have been, surely, just a real highlight of your career. Our IPO day was really fun and exciting. It was in 2021. COVID was very much a factor in all of our lives. It was one of the first times that we were able to bring lots of people together, all of our employees, some of our former employees, a lot of the kind of consultants and partners that we had worked with over previous 11 years, family members, friends, all to the floor of the New York Stock Exchange.

36:44And we were the ninth company in history to do a direct listing. We didn't need to raise capital. We didn't do a traditional IPO because we didn't want to take on a needed dilution. We also didn't want to have any lockups for our employees or investors. And so as soon as the stock started trading, anyone who owned a share could start trading those shares. And we had a lot of our early employees who full liquidity for the first time. Before that, you had raised half a billion dollars. How on earth did you do that? Like, you know, just tell us a little bit about, you know, anything you did to kind of mentally get yourself in the zone for those meetings.

37:20For anyone listening who, you know, might be going out and trying to do their own thing right now. Yeah, it started off in, you know, pretty small chunks. So I think our seed round was a couple million dollars. And then our Series A was$12 million. And then our Series B, I think, was$40 million. And, you know, the rounds got progressively bigger. And by the time we were raising really big rounds of capital, the business was quite large, doing hundreds of millions in revenue. And it didn't feel quite as daunting to raise those large sums. I'd say probably the more nail-biting times were in the very early days.

37:59But we really just focused on getting to know investors before we needed capital so that we had really deep relationships that we could kind of share both the ups and downs of the journey with those potential investors, make sure that they were really familiar with the story, really familiar with the metrics, comfortable with kind of how we were building the business. And that enabled us, I think, to attract really high quality investors that were very much aligned with how we wanted to build the business. So we never really had any horror stories where investors wanted to go left and we wanted to go right.

38:36We were always very transparent around what was important to us to build a business, including things like having a social mission where we're with our buy a pair, give a pair program that certainly we would be generating more dollars to the bottom line in the near term if we didn't invest money for those types of efforts. but we were transparent that it is really important to us as founders. It's the number one reason that people want to work for Orby Parker. And I do believe that it makes us a better business because it enables us to attract and retain some of the most talented and passionate people in the world.

39:12And just being kind of upfront, that's how we were planning to run the business. And we didn't want the only thing that people cared about was, you know, what is our profit going to be this quarter and how to maximize that and cut everything that doesn't achieve that goal. That's not going to be the type of investor that we want to attract. And so building deep and long relationships ahead of when we needed capital was something that we spent a lot of time around over the last 15 years. So that was something that you guys were steadfast on, obviously, the ability to continue to give away pairs of glasses to people in need alongside selling.

39:50It sounds like you did face some pressure from potential investors who might not have bought into that mission, maybe wanted you to do away with the program due to expenses. Did you actually have to say no to some people or walk away from conversations from people that were not maybe so aligned with that? Yeah, we certainly got questions from folks, but that was a pretty easy filtering mechanism for us that made it easy for us to recognize that those weren't the right types of investors or partners that we want around the table. Yeah, we've never had a conversation at a board meeting or management meeting where that's a real discussion topic.

40:25In fact, the questions are, how can we do more and how can we amplify our impact even more? It's something that, yeah, every one of our board members and every one of our team members is very passionate about. And we're proud that we've now distributed over 20 million pairs of glasses to people in need around the world. There's still a billion people around the globe that need access to glasses and don't have access to it. And so that's a pretty staggering number, given that this technology has been around for 800 years. And so we're now with 20 million pairs distributed, we're starting to make a dent, but there's still a lot more work to do and something that motivates all of us every day.

41:03Why is that so meaningful to you guys? Is it because obviously Neil had that background already in philanthropy, and I'm guessing you've also traveled a lot and kind of seen the need. Absolutely. I think all of us as founders, yeah, I've spent time all over the world, including, you know, regions where people don't have access to the same resources, the same healthcare. Certainly access to glasses is a massive need in many regions. And we also understand the power of it. Been wearing glasses since I was 12 years old. I can't imagine, you know, living a day without access to glasses or contacts.

41:39about 15 % of the world's population. That's how they live their life every day. And we know through some studies that our nonprofit partners have done that giving someone a pair of glasses is one of the most effective poverty alleviation tools in the world and shown to increase someone's income and earning potential by 20 to 35%. And what we find is that when that happens, those individuals tend to spend that increased earning potential on the health and education of their family. And so it not only helps them live their lives with dignity, but enables them to really transform the path for themselves and their families.

42:15And so, yeah, we've just seen how powerful these interventions are. And kind of once you see that, you can't unsee it. It continues to drive every decision that we make in the company. How can we grow faster so that our impact can grow faster? Really profound. I'm curious about the evolution of the model, Dave. Warby Parker has made its name, obviously, as an e-commerce pioneer, but you now have 300 stores, and brick and mortar has been a huge part of your focus in recent years with an eventual goal of 900 stores. What made you want to shift more from online to offline? And is it true that actually about two-thirds of your sales actually come from physical retail?

42:54Yeah, so the majority of our sales now come from stores. I think we surprised a lot of people when we started opening stores, but for us it was a natural evolution just from listening to our customers. Going back to the early days when we had our home try-on wait list, we started getting calls from the week after we launched. We started getting calls from strangers saying, I read about you in GQ or I read about you in Vogue. You're telling me there's a six-month waiting list right now. Can I come to your store or your office to try on the glasses? And we said, well, the store and our office is Neil's apartment, but come on over.

43:25I think Philly had the second highest murder rate in the country at the time. We started just inviting strangers into mostly Neil's apartment and sometimes mine and Jeff and Andy's. We laid out the glasses on kitchen table and just had a laptop open for people to check out. And we found that people loved that experience. They loved getting to meet people behind the brand. They loved trying on the entire collection of frames. And we learned so much from those interactions of kind of which frames people thought they would buy, the ones they originally graduated to versus the ones they ended up purchasing, getting feedback as they were trying on different styles that gave us ideas around colors and shapes and what people were looking for.

44:08And then when we graduated, we moved to New York City and we got an office around Union Square. We were on the sixth floor of a commercial building and we dedicated a couple hundred square feet to what we called a customer showroom. We basically bought a West Elm table and had a couple computers open. And all of a sudden, we had hundreds of people a day coming in to try on those glasses. We were doing millions of dollars just from our office. Then we did some pop-up shops. We bought an old yellow school bus that we gutted and put shelving in the back and had a few people from our customer experience team just drive around the country.

44:43And they tweeted out their location wherever they parked. And that was a pop-up shop. And we found that drove a ton of sales and excitement and press. and it drove sustained e-commerce sales even after the bus had left and gone to a different city. And so all those things gave us the confidence to then sign our first lease on Green Street in Soho in New York in 2013. That store blew away our expectations, so then we opened a couple more. Those did really well, and over time we recognized how important physical retail would be for our business. There's still 44 ,000 optical shops in the U.S., and the vast majority of our glasses in the U.S.

45:21are sold in the offline world. And so if we want to have the biggest business possible, if we want to offer the most convenience to our customers, it makes sense for us to have an omni-channel model. Yeah, we just opened our 300th store. We have plans to open hundreds more in the coming years and are excited to offer a really seamless experience for our customers and patients, whether they want to get their prescription, buy glasses, buy contacts, explore any part of that customer journey using our online channels or offline channels. Yeah, it's really fascinating because it's clear from the get-go that you were not interested in doing things the conventional way, even when it came to physical retail.

46:01I was going to ask how these early experiments informed how you approach building out your own stores. You've kind of answered that now, but, you know, how do you seek to kind of distinguish yourself even now when you continue on your journey of opening more and more stores from those tens of thousands of other optical shops across the country? If you walk into a typical optical shop, it tends to be a cramped space. There are frames behind lock and key. There's no prices on anything. There's a salesperson who is watching you try on glasses because they have to unlock the frames. And then we check out.

46:33You're upsold on different lenses and coatings and scratch guarantees and things that you don't really know what you're paying for. And all of a sudden, you have a bill for hundreds of dollars. We wanted our shopping experience to feel very different. We think glasses are fun accessories. We think the process for shopping for them should be fun. And so if you walk into our stores, we have our glasses displayed on open library shelving. We work with local artists to create custom murals or custom artwork for every store. We have team members that are available to help or not help, depending on what the customer's preference is.

47:07We've developed our own point of sale that we call a point of everything that is iPad-based, that kind of stores all your customer information. So if you've done a home try-on, if you've bought bosses online before, if you've been to another store, any of our associates can just pull up your customer record, help you with a very personalized experience, and just make the process as easy and fun as possible. As Warby Parker has scaled, what were some of the most pivotal product or brand decisions that helped shape the company's trajectory in your life? Plan B is a backup birth control option that's there for you when things don't go according to plan.

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48:20Find Starbucks Frappuccino drinks wherever you buy your groceries. Yeah, I think we've tried to focus on only expanding when there's a really compelling reason that we're hearing from our customers, whether that is how we distribute our products or the actual products that we sell. Expanding into physical retail, that really started from listening to our customers and then learning from what's working and then doubling down once we saw that our stores were working. When it comes to the products that we sell, in 2019, we introduced contact lenses. And that was really also just from listening to customer demand.

48:55We heard that customers loved the experience of buying glasses from us, but they were frustrated that they had to go somewhere else to buy contact lenses. And so we just wanted to reduce that friction and make it as easy as possible. Similar with eye exams, we're probably the only optical retailer, only optical brand at scale that didn't start by investing in eye exams and eye doctors. Historically, the vast majority of our customers have had to go somewhere else to get their eye exam, have the awkward conversation with that doctor around why they're not buying glasses from them, bring their prescription to us.

49:28So when we kind of kept hearing complaints about that, we'd said, hey, we now have stores throughout the U.S. and Canada. Let's build out an eye exam business. And now every one of our new stores has an eye exam, at least one eye exam room, sometimes multiple. And we've really focused on creating a one-stop shop for our customers, again, in response to just the feedback that we're hearing from them. Still waiting in line? Again? That's time you'll never get back. Save time and money with Stamps.com. Over 4 million businesses have skipped the line with Stamps.com. Join them to save up to 90 % off carrier rates from your computer or phone right now.

50:10Print postage for certified mail, registered mail, and packages in seconds. Then schedule a pickup right from your home or office. For a limited time, go to Stamps.com and use code PODCAST for a free welcome gift. Taxes and fees apply. And in May, you announced a new partnership with Google to develop smart glasses, including an equity investment in Warby Parker. So congrats. How did that partnership come together? and what can you tease so far? Yeah, so we've been excited by the potential for smart glasses for a long time. We actually kind of had some conversations with Google back in 2012 around the original Google Glass and have chatted with lots of companies along the way about potential partnerships, but didn't move forward with any of them, frankly, because we didn't think that the products provided enough utility or looked good enough.

50:57And we were skeptical that they were going to generate real consumer adoption. I think a couple things have changed. One is that actual hardware technology has advanced to the point where you can fit batteries and cameras and speakers, chips into a frame that isn't much bigger than what I'm wearing today that lasts all day. The second, probably more meaningful advance is around AI, where we believe that connecting glasses to multimodal AI models enables them to provide really meaningful utility for consumers. And frankly, we think that the best way to experience AI is going to be through our glasses, where you'll have an always-on assistant that can see what you see, that can hear what you hear, that understands kind of everything about you because it's connected to your Google Calendar and Gmail and Google Maps.

51:52So you can ask questions ranging from, you know, what kind of tree am I looking at? Or what is that building over there? Or what kind of bird is chirping? What was the person I met with last Tuesday at 2 p.m.? Or someone is speaking to you in a different language that would automatically translate in their voice functionality that has never existed before. We're excited. We believe that, you know, Google has the best technology out there. and we're excited to partner with them to bring really innovative products to market as soon as next year. So AI has really unlocked a bunch of use cases, you think, that gives you confidence that this will succeed where other people maybe happen until now.

52:33That's exactly right. We think in a world where glasses can only take photos or kind of replace AirPods, some interesting use cases, but wouldn't compel most people to wear these glasses all day, every day. Once you're able to connect to AI models like Gemini, we do think that there's enough utility that people will wear these glasses and they'll replace their traditional glasses for the first time. All right. This brings me to a segment we're calling What It Takes, where an audience member gets to ask for advice or hear more on what it takes to get where you are. So today, Drishin, a menswear D2C founder based in Hong Kong, asks, looking back on the early days when you proved that people were loving your product range, the value and the brand you're building, what would be your top advice now in pushing businesses to the next level and driving brand growth when you're still bootstrapping and cash is limited?

53:28Yeah, so any business only succeeds if it's exceeding customer expectations. And for a small company that is bootstrapped, that doesn't have a big marketing budget, they're never going to be able to compete head on with massive companies that are spending tons of money on advertising. but they can out-compete them in doing things to show customers how much they care about them that most big companies are not going to do because they're too worried about profitability. In the early days from us as founders, when we had a waitlist of 20 ,000 customers, we personally called every single person on that waitlist just to show them that we actually cared and we offered, even though we had no money, we offered tons of people free glasses or discounts on glasses just because we wanted to make sure that everyone that kind of got excited about our brand walked away with a positive initial experience.

54:23We started getting customer service calls and emails and people that bought glasses from us and had their dog chew on their glasses. We would send them free glasses and then also a dog chew toy that kind of a custom Warby Parker dog chew toy for those customers. And we found that those customers became loyal for life. And they kind of told everyone that they came in contact with how much we cared and what a cool experience that was. Now, could a huge company do that? Yes, but they're probably not because they have a CFO and a finance department and a board that's asking how can they improve incremental profitability this quarter.

55:05And so I think the most important advantage that a young company has is that they can really obsess over every single customer, show that customer how much they care in ways that large companies are probably not going to. Thanks, Dave. Now, we're going to end with a quick rapid fire round. Don't overthink it. Just say whatever comes to mind. Ready? Remote, hybrid, or in office? In office. Favorite frame name you've ever approved? Let's go Roosevelt, our first one. Yeah. What's your favorite way to unwind after a long day? Running or surfing. What would you be doing if you weren't doing this now?

55:40Probably working in health, you know, for a different, some sort of healthcare startup. What do you like to ask when you're hiring? What's the hardest problem you've ever solved? Biggest pet peeve in the workplace. When people don't meet deadlines. What's one piece of advice you come back to often? Strategy is what you say no to. Interesting. Dave, thank you so much. I've enjoyed our conversation. Great. Thank you. This was fun. Thanks for joining us on Behind the Business. For more stories on business and leadership, follow our show on Apple Podcasts, Spotify, YouTube, or wherever you get your podcasts.

56:15See you next week.

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