587: She Built a $1 Billion Brand Selling Other Peoples Clothes | Julie Wainwright

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0:39Just head to omnisend.com forward slash founder without the E to get started. All right, now let's jump back into the show. Welcome back to the founder podcast. So I want you to imagine building a billion dollar business by tackling an industry Amazon could never dominate. And that's exactly what today's guest did with The RealReal. Julie Wainwright transformed luxury resale into a mainstream movement, scaling her company to over a billion in revenue with 38 million members. But her story isn't just about wins. She's also navigated the most infamous dot-com bust with pets.com and she's brutally honest about the lessons that she carried forward.

1:20So in this conversation, she's going to explain how you can spot opportunities that others overlook, the scrappy tactics you can use to build supply from day one, what it really takes to scale from your kitchen table to millions of products a month, and why building on values and culture is critical if you want your company to last. Hear the stories, learn the proven methods, and accelerate your growth and future through entrepreneurship. Welcome to the Founder Podcast with Nathan Chan.

1:52All right. So Julie, welcome to the Founder Podcast, the real, real billion dollar company. How'd you start it? I'll give you the short version and then I'll fill it in. But the short version is I was looking for an opportunity that Amazon could not replicate in the commerce world. I didn't want to be out Amazon and clearly they can do almost everything. And I had identified the luxury space as a space they'll never be good at. I know they keep dabbling, but I would say they're still never going to be good at. But I also thought I'll never do a luxury brand. So then I'm like, well, what if I did this or what if I did that?

2:38I was also looking at possibly developing a line of beautifully designed but eco sound cleaning products because I actually started my career at Clorox in brand management. So I knew a lot about the Klaus Hold product division, how to do it. But I thought I'll sell it online. It'll be eco friendly and also beautiful bottles, not looking so clinical. um and I even but I thought okay I don't I don't know if I want to go backwards in my career maybe there's something I can do that's really more technology driven not just leveraging the internet so then I had and I had other categories I was pretty sure Amazon would struggle but I mean there's just not that many they're going to struggle because they can basically throw enough money at anything.

3:29So then that was in August, September. And you know, my personality is such that I kept looking and looking. And then I'm just like, you know what? I, you know, I'll have to, I'm just going to let it go for a moment here. Then I'm shopping with a girlfriend in a boutique and they had a little bit of luxury consignment in the back. It was a full price boutique. that's where she shopped and I've shopped with her before and I didn't I've never seen her do that before so then I kept then I was like oh my god look what and and by the way this is a venture capitalist she has a lot of money she can pay full price so we get out and I'm like what happened you just bought previously owned things she goes I just bought Louis Vuitton Gucci and Saint Laurent at a great deal.

4:22And I go, it didn't bug you that someone else wore them before? She goes, not at all. I go, well, how do you know they're authentic? She goes, I trust the owner. She knows who gave these to her. And then I started, have you ever shopped on eBay? She said, never would. Too many fakes. Have you ever been in a consignment store? I would never walk in one. She said, I don't like them. I don't like the experience. They're kind of gross. This is back then. And I said, have you ever consigned? She said, no. And I knew right then the light bulb went on and I'm like, I said, and why? It's too hard. I don't have time.

4:57So right then I set up the whole tenants for the business. And then the next thing I did was size the market to see, and it's hard. It was harder to size than it is now. Size what I thought I could find that eBay was already doing in the luxury space. And then I tested every vehicle for selling handbags, jewelry, clothing. And they were all so subpar, especially selling jewelry, because I had to walk into a pawn shop, which I describe in my book, Time to Get Real, because it was so creepy. It was just so creepy. And one of those things where she kept trying to tell me that if I didn't agree with her price today, tomorrow, it could change.

5:45And I had a Cartier watch and how it had gone out of fashion. It was two years old. And I kept thinking, it's a watch and it's Cartier. She's like, nope, no one wears these anymore. It's only two years old. And anyway, but she kept wanting, basically she wanted to degrade my products so she can get a better price. And even when I left, she goes, you know, this price is only good for one day. I'm like, okay. Anyway, I guess I walked out of there thinking I can kill the competition. This is a big market. The internet will bring all the economies you need and the size. And the next day, within two months, I called the owner of the boutique and said, do you want to do this with me because she had been a tech entrepreneur at one point.

6:33And she said, oh, sure, let's set up a meeting. She was clearly not that interested because by the time she set up the meeting, I had a name, I'd raise money and I was moving on. And just as the world goes, five years later, she came back and wanted to work in the company. We didn't have a job for her then where she could have, yeah, but that happens. That's just missed opportunity. um but that's it it was like having some framework in my head having no solutions and I had shut down that luxury idea but clearly not all the way because there you go then all of a sudden I had like the app you know there it was when I saw it I'm like that's it and then I just here's I always saw this idea which has proven to be true at least in the BC world here that I deal in the venture capital world I deal in, if I got that idea, someone else was picking it up too.

7:29And then it became, I better execute as fast as I can because someone else will do this also. And I better move fast and make sure that I put a nice barrier, competitive barrier. And sure enough, in the same time frame, Poshmark, which is a company that was then sold, was started, ThredUp, which is sort of a low end, they do all the work for you, but really low end, like$29 price point started and got funding. Another company called ThreadFlip, which could have competed directly with the RealReal, went out to get funding. But in my observation of ThreadFlip, they focused on the wrong thing. Just put that out there because we'll go back to that.

8:18And then the real real. So all of a sudden you had no resale businesses. And by the way, all in the clothing fashion world, by the way, no resale businesses focused in this area. And then all of a sudden you have four going out to meet with venture capitalists all overnight. It was pretty wild. Yeah, there you go. And how, when was this? That was 20. Well, I didn't start raising money to 2012 because I wanted to get the business in shape. And also I didn't. It's such a the real world was such a new concept that I didn't think it was going to be easy to raise capital. So I got the business to$10 million on seed financing before I raised venture capital.

9:04And that worked out really well. So 2012, I would say all of us are knocking on the doors trying to get capital. And all of a sudden they're seeing no resale businesses. And now they're seeing all these new ones come out at the same time. And you guys had over 30 million paying members. 38 million. when I left. Yeah, 38 million. But that was, that was, you know, 2022. So that's from 2011, so that's 11 years. Yeah, but still, that's pretty impressive. So talk me through like, how'd you bring this idea to life? You said you didn't raise money before you were at 10 mil. Well, I raised, no, I raised seed money.

9:50So friends and family and so, So, and this is really important, I think, I'm trying to make it somewhat generic because, but I think the key was I knew I had to move fast. I also knew I had to make resale cool because no one was really thinking about resale at the time. So I had to make it cool. And I knew that I wasn't cool. So I had to find someone that was a good fashion merchant that could make it, make what we were doing appealing to someone. to make a mass market. And that came down to making it look contemporary, even if things were, you know, three or four years old, making it look like you need it now and beautiful.

10:35And I hired a really good young merchant. Her name was Rati Levesque. She's now the CEO of the company, but she had had a brick and mortar store. She was a really good merchant. She had been cited by different sites early on as being one of the people to watch in San Francisco because she was such a talented merchant. She realized that being in the brick and mortar business wasn't really where she wanted to be and was young and signed on immediately and shut her store down. But she knew how to do merchandising. And she was the first employee. I think I paid, I could only pay her$2 ,000 a month.

11:17And she signed on. And then we worked out of my kitchen for about six weeks. And then I got a warehouse that was 2 ,300 square feet before we started shipping product in a pretty dodgy part of town here up north and northern, still in Marin County, but it was pretty dodgy to the point where there were other, it was a little tiny area in an industrial area. So there were other businesses next to us, but I put up black baggies on the windows to like make sure no one looked in at night and um was right next to a sandwich shop run by a cop and it smelled like bacon every morning because they'd fry up their bacon so i was always worried the clothes would smell like bacon when we shipped but um anyway it you know it was everything was bad trying to recruit there was almost hilarious people would walk in and they'd go, oh no, I literally opened the door and they'd be like, I can't do this.

12:22But you know, that's how you get started. And we were there for about 18, probably 12 now, probably 14 months. And then the next place was better, but not much better because you know, you have to pay a lot of rent and that's such a fixed cost. So when you're just getting started, it becomes, and the question is, I think it's hard when you're doing e-commerce because I I really, we had to control the e-commerce experience, meaning we had to pick up the goods. And I can talk about how we generated actually supply, but we had to go get the goods. We had to skew the goods. So, you know, record it.

12:59We had to authenticate them, take pictures, pick, pack, and ship. There was absolutely no way I could outsource that because everything we did had to be, was A, a competitive barrier, but B, there was no software for this. So we had to invent our own software to support the business. No one else could handle the number of SKUs every single day that we were getting, even in the early days. So that all had to be done, which meant I was always forward planning. And it always felt scary. Like the first time you go from 2 ,500 to 30 ,000 square feet to 100 ,000 square feet, you're like, will this even fill up?

13:42You know, am I going to be able to pay the rent on this? And when I left, we had 1.5 million square feet of office space. And we're getting in between 300 ,000 to 500 ,000 items every single month. So 300 ,000 to 500 ,000 unique products being created every month. And that was all systems driven by then. You know, systems and people. But by then, the software was really sophisticated. Yeah. So you had a pretty good run. Your first employee ended up becoming the CEO. You picked very, very, very well. Yeah, on that one. But I've made a lot of other mistakes. So and I, you know, because here's the thing and people know this.

14:32And I don't know if it's. I don't know if this is a universal problem, but in the US, I mean, first of all, giving someone a reference is always hard because someone can see you. So no one wants to give a legitimate reference. and then startups are hard because you need people that will do anything because that's what you have to do right you have to like take out the trash and we we I mean the we used to put people to work at the warehouse before we'd hire them and we were above the warehouse for many years we're like can you help us pick pack and ship because we won't be able to get our orders out today and if they didn't want to do that they weren't the right first employee so you want Someone will just throw it in and get the job done.

15:13But you also want them to be able to work independently and make recommendations. Because especially at the beginning, you don't want to have to, you want them to, you want to be aligned and you want to make sure they're on the same page as you, but you don't want to be managing them so tightly you're doing their job. You've got to delegate. So you've got, they've got to act independently, do anything. And at some point, expertise is important in their job. But I would say at the beginning, you know, they have to and also they have to work hard, you know. So startups are hard and getting employees that really want to work this hard.

15:49They're like, well, what's in it for me? And I'm like, well, and, you know, we had a lot of employees that just like I'm not going to work a weekend or they wanted a lifestyle. They want a more balance. And I said, well, that's fine. But this isn't the job for you then. I mean, Rati worked for two years. We were working seven days a week. And when she came in about two days, two years later, she was like, I cannot work on Sundays anymore. And I'm like, I was like thrown. I'm like, forever? Are you really? This is it on a Sunday? Are you kidding me? She's like, I'm too burnt out. And I'm like, I can do it.

16:30You know, I was like as old as her mom. I'm like, come on. And anyway, she never worked another Sunday and I got over it. But, you know, that's the, you know, but how many people would do that? Seriously, really give all that time and energy and just make it happen. And yet that's what you need. You need all that dedication. You need people that are logical. And very early on, you need people that are comfortable with data and technology, regardless of the company you're running. It's got to be, it's got to be integral to the company. These are hard things to fill. And then just to tell you how bad I was at hiring, our op center, well, I mean, I was good mostly.

17:12I was more good than bad, but I made some doozies. I hired a guy from Walmart, a top exec in their op centers. He was the worst. He was the worst. I mean, he just sat in his office and did charts. I'm like, are you seeing what's happening? We're like, we went from having, so think of product coming in every single day and consignors wondering when their product's going to be listed on the site. Because you have to open the box, you have to authenticate it, you have to photograph it, you have to price it. You have to, in some cases, well, all pictures are photo edited, which we, mostly for light balance and cropping, which at one time we didn't have our own software solution.

17:57So we'd be sending that overseas. So that adds a couple of days. So you send off something or someone picks it up. Your items disappear. You don't see it on the site for maybe two weeks, especially if you're a new business. So like, where did my things go? You know, because we had to change consumer behavior too. So it took us usually 10 days. We'd try to set expectations, 10 working days, then it'll be up in the site. And this guy was not managing the team, was not staffing properly. and we went from a 10-day time to an eight-week time to get your things up on the site. And the company would have died because the other thing we were doing is pricing optimally, which meant that 90 % of all products will sell through in 90 days.

18:46With the idea that you can keep your op centers, you don't have to keep scaling an op center just to store a product. you're actually scaling it because you have real growth and you keep the product flowing. So anyway, this guy had no sense of urgency, didn't understand the business, very senior guy, came with glowing reviews, and I had to fire him fast. And then we all jumped in to get that product process because the business was really in trouble. And it doesn't take long for something to go awry in a startup. It's sort of like you try to give people some autonomy and you look back in three weeks and all of a sudden like oh we're in trouble we gotta we gotta do a reset especially when you went the company went from 10 million to 20 to 50 million this is top line revenue to 100 million to 250 million to 500 million to 750 million to a billion yeah you yeah so you hit a billion in revenue in what sub 10 years right Right.

19:49That's crazy growth. It is. It was crazy growth. And especially given the fact that we had all that backend ops side. So our limits were really size, our physical space for processing and people, not demand or supply at one point. So talk me through how you got the marketplace started, right? Because a lot of our founders I was sharing offline while I was really excited to speak with you is a lot of our founders they want to create a brand like like you know you originally wanted to you want to create a consumer facing brand and you know order the product manufacture the product build an audience build a community you know build customer relationships and they'll come back but it took a bit of a different spin in the I guess the physical product space you you know you basically built somewhat of a general store but it was a two-sided marketplace and built a massive massive massive business so how did you seed product like what came first supply or demand no it was absolutely uh supply and the premise was my premise was at this early stage having a basic e-commerce platform is good enough.

21:12This is, but it's also 2011, 2012, and it's all going to be about supply. So I'm going to not put that much money into technology now. I'm going to put money into generating supply. And then I, so I started an aggregator program, which is for that business was around stylists. So that was my first big idea. Let's go talk to stylus it's given them an incentive to recommend working with us um so that was it we i did direct mail of all things mailing postcards into high income um mailboxes through the post through postal service you know just really cheap cards they cost like i think the whole thing was less than 30 cents to get that postcard printed mailed into a high zip um some of these little communities have free newspapers.

22:06We're advertising in those free to the user. People just get it thrown on their doorstep. So we're taking out full page ads and something like the Beverly Hills Courier for$1 ,000. And it started to work, but it was a slow go. First, the first thing we did was go to our friends and then friends of friends, hey, we're starting this business. We want to resell. We'll pick it up. We always had this idea that we'll go to your house and pick it up. Don't worry. And then everything was done in the spreadsheet that we'd bring in. Every consigner needed a unique ID. So we had systemized that database because we had to pay someone.

22:47But for the general pickup, we had the unique ID and then everything went into an Excel spreadsheet. About a year later, we had an app for everyone. And it was much easier, but we got started really rough. and we said we'll go pick it up so the first sale when we first opened the virtual doors it was mid june and we had enough product to put groups of 30 products together every other day for six weeks that thinking that you know some products will roll over so what happened was the first sale everything sold out in 20 minutes, gone. And then we're like, uh-oh. And we're going into summer, which means getting people's attention or knocking on doors or doing any kind of marketing felt hard.

23:38And we really thought it was going to be bad. And by July 10th, I mean, I'm like, I don't know how we're going to get through the summer because everything was selling and you needed to make it look bigger than it was. So doing anything less than 30 products every day felt bad. And then we got a call. And also, I had assumed that my stylist program wasn't getting the right ears. It wasn't working. So I kept going to LA and knocking doors. But we got a call from the stylist and said, in July, my client wants to clean out her warehouses. Can you send someone with a truck. And we're like, yes, we'll be there tomorrow.

24:21What size truck? And that got us through the summer. I think we picked up six or 700 things from that one client. Well, we didn't pick it up. Rati, Rati picked it up. I said, no, no, no, I'll stay here. And we hadn't, listen, it was so bad. We had a summer intern. I had a part-time CTO. There was me, there was Rati. We had another person who was a just a friend who would help us with customer service and pick, pack and ship. And that was it. So we had a 17 year old summer intern working with us because it was a friend of a friend. And obviously we were going to pay her, but almost nothing. I had to call her mom and say, can she spend the night in LA and help?

25:08Because the other thing this celebrity did, she we did get those goods but she wanted to try everything on again one more time so it wasn't like just load the truck and inspect it it was like try it on and because the real world doesn't take everything we only took certain things again we were a curated luxury market things some things we rejected and I wasn't there but supposedly was she would try on everything she had the the Ratsy and the student student sitting in her living room. She'd come up, what do you think of this? And we're like, they would always go, I'd talk to you. And then she would model.

25:47And that went on for hours. I mean, 600 things. It went on for two days. And then they'd have to tell her, well, we don't take that brand. And then she would throw it back in there. So then we're like, oh God, we better just, it was so bad. But it got us through the summer and we got shoes and handbags from her. And then that stylist told other stylists. And then we just cranked up the advertising. But it really was postcards and local newspapers and then setting up an affiliate program to get people to help us do it. And the affiliates in this case were the stylists to begin with. Later on, there were other people.

26:28But it was rocky. It was really rocky. But it was clear to me that first sale, if we wouldn't have sold out so quickly, maybe I would have had a demand problem. But it was clear we had a supply problem. And that's where I always focused on the supply. Now, that other company that I mentioned, there was Threadflip that probably could have given us a real run because, but they weren't, they were, they did self-posting and they did, we'll pick it up for you or you can send it in. They didn't have a sales team. They focused on technology. And they had a better technology solution, but they had the wrong model.

27:06And, you know, at some point, we just killed them. They never made it past Series C. But, you know, a lot of people lost a lot of money on them. And when did you introduce the membership concept? Because I think that's really clever. Well, we always had the gate from day one. So you always had to sign up. And that was because we were worried about letting people know. And so we had two things from day one. Well, we had one thing from day one. We always had to sign up. We always had a gate. And people would grouse about it. But then we got their email. And we didn't have to give an incentive. About two years later, we did something called First Look, which means the people that were really dedicated would pay up to, I think it wasn't even that much.

28:01I think it was like $20 a year just to get in three days before anyone else on the sale. And that was just money going right to the bottom line. So it was pure profit. I remember we had, you know, whenever you get marketing people in, they're always got, everyone's got an opinion, right? And sometimes they're good, but most people in marketing have an opinion. That's what they're paid for. Some of them are trained opinions. Some of them, you know, anyway, an opinion, everyone's got one. Let's just leave it at that. So whenever we get a new marketing person, like, I hate this first look. It's ridiculous.

28:37You know, there's only, I think at that time there was only like 2 million members. Only? Only? You know, and I'm like, okay, do me a favor. find a way to replace that money right to the bottom line you can kill it if you can come up with some other way that just is pure cash then I'm happy to kill it if you can't then we're leaving the first look and of course they never did because it was you know we're selling access not selling products for that the margin was 100 so it's it's it's really clever I have to ask so you eventually listed the company on the NASDAQ. How much did you make from that?

29:23Well, you know, all right, I'm plugging my book here in my book. Time to get real. I talk about, which is true. I mean, you're blocked from selling for six months. and then because we all have insider information then we can sell in an open window and that's it but you sell with you just put your sales forward and anyone anyone can sell including me but when there's anyone in the executive team had to actually six months ahead say how much you were out. And you had to do it every, you know, how, how often you're going to do it when you're going to do it. And you had to give it out and it had to be filed with the SCC.

30:14So consequently, you're never, I mean, I don't think I ever sold on a good day. How's that? So, um, but on paper, I was worth a lot in actuality. I did great. So on paper at day one, um, which caused some problems in my relationship bit. It was paper. On paper, I was worth more than$100 million. Yeah, but then on reality, it was better than half that at the end of the day, but still, it wasn't$100 million. And I didn't exactly take a big salary for 11 years either. But on paper, it felt like a lot, But, you know, it's funny money. It's funny money till you have it in the bank. It's the same way I feel about all when people are like, this company's worth$10 billion.