Transforming DTC via supply chain innovations with Boll & Branch CEO Scott Tannen | E1809

0:00So when you carry that Fairtrade logo as Patagonia does as we do and many, many other brands. you know that those come from completely economically sustainable. It's like a nonprofit that certifies some amount of standards. Yeah. And again, I knew them from the food business and they are fairly ubiquitous. If you walk into Whole Foods, you'll see the logo everywhere. And Paul Rice is the gentleman that started it and runs Fair Trade USA. And it was one phone call saying, hey, I don't know anything, but I'm starting a sheets company. I don't know how to make sure that I'm paying enough for the raw material.

0:37I don't know how I make sure that I'm, that my factories are charging me enough for the products and that the money ends up going into the hands of the right people. That is the key thing. This Week in Startups is brought to you by Squarespace. Turn your idea into a new website. Go to squarespace.com slash twist for a free trial. When you're ready to launch, Use offer code TWIST to save 10 % off your first purchase of a website or domain. Plunge. Go to plunge.com and use code TWIST150 for$150 off your cold plunge tub. And NetSuite. Once your business gets to a certain size, the cracks start to emerge.

1:20Things you used to do in a day take a week. You deserve a customized solution, and that's NetSuite. Learn more when you download NetSuite's popular KPI checklist absolutely free at netsuite.com slash twist. All right, everybody, welcome back to this week in startups. Our all-star summer continues. D2C, direct to consumer, has been a feast and famine of a vertical for venture capital and for entrepreneurs. Really hard to connect with consumers. and you've got all kinds of copycat third-party sellers any kind of innovation you make in the product space is quickly copied and it's a race to the bottom in terms of your margins and competing i mean heck you put something on amazon you might even get amazon competing with you and uh i'll be honest i've gotten my ass kicked in the d2c space and we kicked a little bit of with some products like eight sleep uh we did okay but i have been wondering how do the companies that win win so uh scott tannen is the co-founder and ceo of bowlin branch welcome to the program you and i met because i was like hey what are the best sheets in the world and i was because i you know i'm i'm really focused on my health i'm trying to get my sleep dialed in i got this incredible eight sleep bed it lets me do my temperatures and full uh disclosure i'm a small investor in it uh but i'm trying to get everything dialed in i'm doing my cold plunge i'm doing my sauna and i thought sheets i gotta get my sheets correct uh and so i got some bowling branch sheets very nice uh you guys i i thought bowling branch was like the discount value brand but i found out you have some higher end sheets so maybe you could explain where does bowling branch stand in terms of market for sheets.

3:12Yeah, I was straight up horrified by that assumption. But the truth is where we sit in the market is we're a premium product, actually a super premium product. And we've been that way from the get-go. Because we have a lot of control of our supply chain, we're able to, it's sort of the old DTC cut out the middleman, except you're actually cutting out the middleman, which sits on the back end of the supply chain, right? So it sits between the raw material and the manufacturer. So rather than ordering finished goods from a manufacturer and having a container load show up that's private labeled, we actually create the products.

3:51And because we have that full chain of custody, we're able to pass along a lot of savings to the customer, but deliver a lot more value to the customer. So our product's not inexpensive, but it's a really good value at the price point relative to a super premium brand. The super premium brand would be something like Frette. Is that the, because when I was asking people, Frette came up over and over again. These are like$1 ,000 sheets for your bed, right? Yeah. And I would argue they probably don't even stack up when it comes from a cotton grade standpoint or even manufacturing quality to where we are.

4:23But those are the heritage brands that have been around for 100 years. So they've built reputation. But a lot of the brands that you might have historically seen at a Bloomingdale's or Saks Fifth Avenue and above and thinking about retail channels having dominated the category. And we started, most people couldn't identify what brand of bedding they even had. Maybe they'd throw out the store. And so even heritage brands like Fretaic don't have a lot of market awareness even today. But they make a beautiful product. It's just very, very expensive. So talk to me about where the products come from and how, because you've been at this for a decade.

4:59Yeah. And so a decade ago when you said, hey, I want to take on betting. Number one, how did you come to that conclusion that betting was the right approach as an entrepreneur that you wanted to go after? And then what did you learn about the supply chain and building a better product? Because my perception, and this is the big picture I want to talk about, but I want to get the foundation of what you learned here. All of this through the lens of we now live in this copycat world. Margins go low. And then what is the value of brand? Because I have some thesis about this, but I don't want to I don't want to get there too soon.

5:36Let's start with the origin story here. And then what you learned about the supply chain and the markups and the margin and cutting out the middleman. Yeah. So, I mean, you know, I actually made I made flash games. I made casual games for the first part of my career. I actually early in my career as a marketing guy at Kraft Foods and places like that. And then I had a website called candystand.com. And we were one of the biggest casual game publishers in America. And I sold that company. And as anybody that comes from the video game industry might do, they want to sit on their couch all day and just play video games because you've got a little money in the account and no accountability and you're tired.

6:14And my wife let me know that was pretty much not going to be acceptable to her or to anybody else. And I found a way to get fat, but I didn't do so. by sitting on my couch playing games. But I wanted to start another business and I missed the idea of tangible products. Having done a tour of duty in the tech space, and I love the tech space, I invest in the tech space. But I love the idea of creating something for people, by people, and trying to do it better. And so I had a ton of different business ideas and we were at a place. And this kind of unpacks maybe how a customer enters the betting market, right?

6:52Because it's the most commoditized category in consumer goods you can really think about because everybody participates in the category. All price points, all socioeconomic status, everybody has a bed and sleeps in a bed and buys sheets. Yet it's a category nobody, including me, knew anything about. And so when we think about a space that's just sort of crowded, undifferentiated, but really, really big TAM, um i just was i was attracted to it uh and and you know we were in our our own process i mean truly my wife missy was was we were moving from a queen bed to a king bed we just renovated our bedroom uh and and during the process she was like i you know i went to bloomingdale's went to bed bath and beyond i just don't know what the difference is with all this stuff and i was like i'll google it and figure it out um and i found an article uh the only thing i thought i knew right which is probably the only thing you might have known is thread count right that's that's some numb magical number that i hear means something or maybe means nothing uh i mean it is by definition it's the number of threads in a square inch of fabric right okay a lot of really low quality threads is a high thread count but is that a great product probably not right so and when you think about brands like frette i mean for years they'll sell two thousand dollar sets of sheets that are 200 thread count but they're using incredibly high quality cotton and really high quality cotton threads and what they do with it is, you know, is also part of the equation.

8:21So there's the count and then there's the quality and the count and the quality are two separate things. So you start going down this rabbit hole, you find some article that starts to explain this? Yeah, exactly. It was actually an article in the Times from, gosh, it had been like the mid 90s and somebody had talked about it. I just, it sort of blew my mind at that moment, right? As I was knee deep in trying to buy sheets, which that was my big task of the day. and you start unpacking the industry from there. So you find one thing in thread count that doesn't mean anything. What's the other thing I knew?

8:49Egyptian cotton. And it didn't take long to start learning about Egyptian cotton. It's like, wow, Egyptian cotton doesn't actually come from Egypt. I'm psyched. I'm like, all right, I'm going to start a business. I want Egyptian cotton. I want to see the pyramids. I'm going to write off this whole trip. It's going to be amazing. And I'm talking, I mean, I'm fast forwarding a little bit, but I'm talking to a supplier and I'm like, all right, let's go. Because I'm thinking this guy with a straw hat, banks of the Nile River with his hoe, you know, family farm and fertile soil. Yeah, like, like, this is going to be amazing.

9:17You're Indiana Jones of sheets. Let's go. Dude, let's do it. Right. And he's like, well, you know, I don't really know where in Egypt, I end up reverse engineering their supply chain and find their Egyptian cotton is grown in China. Right. Okay. And they're made in Italy sheets are actually made in China and finished in Italy. And so as I started learning more about just what goes into this product, I was like, nobody, including the people that are in the industry, have any idea how any of this works. So I'm completely unqualified to start a sheets company. But I just felt like, wow, this is a massive, massive category that is, we think about ripe for disruption.

9:55I mean, it was ripe for somebody to just try to change the game. And so, look, law of simultaneous invention. I'm thinking about this at the time, the guys that eat sleep are thinking about the sleep category. Casper's thinking about that category. All these other kind of DTCs are thinking about the category. So there's something in the water that made us all get there. But we took a little bit different approach. If your landing page is terrible, I'm out, right? Most consumers are. It's 2023. You can't have an ugly website. Stop selling for okay or good and have great. And great means you're using Squarespace.

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12:22First thing you're going to do is you're going to go into New York City or any of the surrounding suburbs, like in New Jersey, which is where we live. So I can't speak poorly. But you walk into a showroom of this old company and they're like, here's model five, model six, model seven. And this is the Westin Heavenly bed. You can private label that. This is what we make for Pottery Barn. You can private label that. Here's Target. You could private label that. These are the costs. And you find really quickly, You have all these different salespeople that ladder up to five, six mills, mostly in India, Bangladesh, Pakistan, China, that are making the product for everybody.

13:01I used to have my office over on 37th, 38th Street and 9th Avenue. Exactly. You were in the heart of it. I was in the heart of it. You took a different path. No, in the Silicon Valley days in the late 90s, I had an office there. And on other floors were people literally processing dresses and sheets and everything. They're running around like maniacs with racks of dresses and shirts. Does it still exist in that area? The schmata business? It does. Actually, the textile building just kind of closed, but that was up until COVID. Wow. But yeah, it's still just like that. I always wondered how that real estate operated because I got my space at$18 a square foot, which is$1.50 a month.

13:39And I had 10 ,000 square feet. So I had 10 ,000 square feet for like$15 ,000 a month. Oh my gosh. It was crazy at that time, but yeah. And it's totally nuts. And so, you know, these are showrooms and the way the industry typically works is buyers from department stores are walking in and then ultimately ordering into their house labels, right? So if you go to Macy's, they have the hotel collection. That's one of their brands. You go to Bloomingdale's, they have Hudson Park. Largely the same product, probably from the same factory. So you jumped the fence and you went straight to the sources? You went to Bangladesh, you went to Sri Lanka, you went to India?

14:12I started learning about the sources because I was just fascinated by it. And what I couldn't believe is you start talking to these very same factories and you try to learn a little bit about their sources. They don't even have an idea. Right. So just like you're buying from a middleman, so to speak, or an agent, if you're one of these big box retailers, the factories they're dealing with are also dealing with middlemen. So they're not they're not buying the cotton, say, directly from a cotton farm. There's a lot of different steps. And these middlemen, you know, you've got someone that secures the cotton, someone that takes it to the gin, someone that takes it to a dye house, and so on and so forth.

14:51And so I started thinking about it in two ways. Number one, and I can go deep and I'll avoid it unless you want to. The actual textile trade from a farming standpoint, an agricultural standpoint, is awful. It's environmentally awful and it's humanitarily, from a humanitarian standpoint, it's horrendous. you know i was like 35 and we're doing this and life expectancy of a conventional cotton farmer in india is 36 right because wow well we think about it like if you ever drive cross country you see these big farms and this this equipment if you walk into india and you go to these rural villages right this is a family with two acres of farmland they buy their seeds from monsanto they buy their chemicals from monsanto they're not protected they're wearing a backpack with these chemicals and walking into the fields and then they're getting their water for their family right from the ground that that it comes from so i started there's a lot of pollution from pesticides and tremendous so this is the this is the challenge of supply chain for a company from the united states is yeah maybe some people you know may i don't know i'm gonna single out anybody but you know maybe some department store likes the fact that this is all being abstracted from them so they don't need to know i think yeah it's it's a convenience right um But when you know nothing and you decide you want to know something about it, you end up starting at the very base level.

16:14And that's when I started learning a lot about organic cotton. And I was going down this interesting path where, you know, I started to understand the environmental, the humanitarian benefits of organic cotton. But at the same time, you know, everybody that knew me was like, oh, you know, I've got a friend that works on the cotton board. Go talk to him. I've got a friend that works at this company. Go talk to her. and you hear consistent, well, there's no interest in organic, right? And you don't want to get into that because once you start unpacking and buying organic cotton, well, it's like kosher food.

16:45You can't then throw it into a conventional supply chain. So all these people that have made it really easy by making these products for years, you can't use them because they're not set up for it. So I realized really early on, if we're going to do this, we have to do it ourselves. And this is where the whole book standpoint came in because I was honestly questioning whether you could make a product in an environmentally humanitarian way that you feel proud of, build your own supply chain, bring it to the US and actually be competitive from a price standpoint. And what I realized is, as we went through it, we ended up with a massive cost of goods advantage.

17:25Because what we were doing is actually pre-financing the cotton. We were actually buying the cotton at the point that it was a seed. So, we were going to these farmers. And rather than them loading up on debt and having all these chemicals, we were walking in. And we were the first demand that they had seen. And we were tiny, right? We were buying, it was like my life savings at the time, but it was, you know, our first order was$250 ,000 in finished goods, you know. So what is that$100 ,000 worth of cotton? And so we were. But that gives you control over the supply chain because you pick the farmer and you can monitor what they're using.

18:04And because you're paying them in advance, you get some guarantees that this is going to be organic and not be totally pesticide filled. Well, what was important to us was going to be traceability. And I think that's what really sets Bowen Branch apart from pretty much everybody else in textiles, whether it's home textiles or we with every single purchase order of every product that we make. I have a tag inside that that sheet that you can flip over and read me that number. And soon you're going to be able to put it in on the website. We're launching that within a few weeks here. And it'll tell you this is where it came from.

18:34This is the farm. Here's where it was. Jan here is woven, spun, dyed the whole nine yards all the way through to the warehouse. So when you have that chain of custody, I mean, look, if you're going to go out there and talk about building sustainability into your business from day one, you need to have your act together. And so. Does this matter to your customers? Does all this matter or does price matter? Because that, I guess, is where the rubber hits the road. I was talking about, hey, maybe the department store doesn't care, but, you know, do consumers actually care? Quality matters more than anything else.

19:04Okay. So quality first. I mean, this is where we could have a conversation around brand. Yeah. And when you think about building brand over a long haul, I mean, look, I come from a place where I worked on Oreo, right? This brand was built over 100 years. And what a lot of DTCs try to do is they try to fast track that. It's like video game talk. It's like, I want to speed run brand building. So I'm just going to spend through the market and build brand that way. But the truth is you can't build trust and loyalty with a customer that way. So we focus on quality, good value for the money. And at the end of the day, that's what the customer wants.

19:37They want a product that is soft, that gets softer with time, that lasts, that doesn't get holes in it, that's beautiful, and all of those things. They want it at a price that they feel is fair. So there's a big segment of the market that buys only on price, but they're never going to be able to play with a product that has some of the sustainable attributes. Although, hopefully, the market moves that way. It's just unfortunately the reality that if you're going to pay$49 retail for a sheet set at a big box store, and I tell you I have more than$49 that I'm paying a cotton farmer for his unginned cotton in my sheet set, right?

20:13Like that's a big difference. And you have to educate customers as to the quality of this product. So practically speaking, how do you do that? You don't want to speed run it. So how have you done it over time? A couple of things. you give a lot of it away right it's and again coming from the food business that was the key like when when i was at wrigley and we came out with a new gum we launched five gum the goal is let's just get it in people's mouths and and so we've we've applied that same approach i mean that's why you know you'll see me on twitter all the time and and yes you know and i'm always like you got to see that some kind of a search set up no i just did it myself oh you just do i wish i was i wish i was i mean i followed you anyway and i saw it i'm like oh my gosh um but but you know So the truth is, is that you just need to build reputation.

20:59We focus a lot on customer experience, customer service, and then we make sure our communication is super high quality and educational where we can. Because we believe in a category where no one's ever been educated. When the customer becomes educated, we have a true opportunity to become the default choice. See, this is what I think the future of this D2C stuff is. I agree. Everybody now knows, hey, you can get a knockoff brand. So I think consumers now expect if you were going to go for high end sheets, uh, you know, there's going to be knockoffs. If you are going to, I'm sure somebody has knocked off Casper or eight sleep or any other product.

21:36So if there's going to be knockoff products, then I think, and, uh, this, uh, sheen, is that the, is that the disposable clothing website sheen or shine? I don't know how to pronounce it, but this thing is like horrific to me, but people buy clothes, you know, to go to a party. and then they throw them away they get one or two uh chances at it right and i understand you're a young person you want to look great so you buy some fast fashion you throw it away but it's the worst possible thing for the environment yeah the stuff should be outlawed but you know whatever free markets i think what that's going to train everybody to is hey these are the quality products if you buy this pan if you buy this jacket you could have this jacket for 10 years you could have this for 20 years i have boots that i could have for 20 years i got jackets that'll last me 20 years i got a pair of jeans that'll last me 10 years you want to buy value i think that's where the consumers especially the high-end ones are going to wind up yeah which is hey what's a brand where i i trust it right and then i think that's where you're probably now getting to in your second decade yeah and and you know even it's one of the very first like brand thesis decks before we launched that put together was we want to be the first trusted brand in this category right again coming from big CPG in a world where you have Oreo planters, chips, ahoy there there's, we can all say what we want about whether it's junk food and, and you probably are right, but these are trusted brands and they're woven into the fabric of, of Americana.

22:59So how do you take the right approach where, especially like, look, we launched around the same time Casper's on this like massive race to nowhere, wherever they got and spending a ton of VC. Like you're not a tech company. You're actually, you just make mattresses and, And we feel the same way. We make betting. We make amazing products. But we're not on a race to nowhere here. We're trying to build a real business and a real brand. And I've now got, I mean, separately, I've got 50 ,000, 60 ,000 cotton farmers and factory workers on the other side of the world that are living above the poverty line for the first time in their lives because of how we run our supply chain that are relying on this business being around for a long time.

23:39But I think the customer, again, getting back to your original question, the customer is not buying us for that. The customer is absolutely buying the quality of the product, but they're beginning to trust us because it's what, you know, people talk about transparency and transparency means I'll tell you everything I know, but if you don't know very much, how great is that for us? We've taken the other approach. We want to know everything we can. We're only 10 years old and, you know, Missy is my wife and co-founder. I'd put her in the top basis point of textile experts in the world, certainly in the home category at this point, because she just goes over to India.

24:12She spends a ton of time. She learns. And that is something that our customers end up feeling. Literally. Literally. Not figuratively. Not from the website, but from sleeping in the sheets. Exactly. Most people have never slept on a$1 ,000 set of Frecte sheets in their life and may never. And we've democratized it. We've brought it down to a$250 price point. Not inexpensive, but if you buy it on your$1 ,000 phone, it's not a leap. Yeah. All right. You're an entrepreneur. you're a VC, you're an executive, you're listening to this, you know, that your exercise, your sleep, your diet, that's all critical.

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27:04The truth is the names that you're talking about are working with the very same mills and private labeling. However, it's the mythology, right? So if we think Weston was the first one that did it, believe it or not, and they came up with this concept of the heavenly bed and they put it into their marketing communications and they got an extra plush mattress and you're sleeping on it for a night or two and it feels so elevated over where you are. And I think that the notion of the hotel or the resort, if you walk into the Four Seasons and the Bahamas, I don't care what you're sleeping on. It's going to feel good when you're looking.

27:35And so many of them, and we're starting to actually, we're just now starting to build our hospitality business because we're getting a lot of demand for more sustainable products. And again, that's been challenging for a Four Seasons or somebody like that, to actually go in and get a product that they feel good about the traceability and the story. Again, they could do a lot of brand damage unintentionally by the person that just says, yeah sure it's organic i mean famously uh the uyghurs in china are uh in you know basically slave camps picking cotton and so how does somebody know that their cotton is not from a uyghur slave death camp so in our case we we brought in fair trade um to come in and we do so fair trade is an organization that has um they work globally they started in things like coffee and chocolate um and and they go trade is a term but it's also like organization it's a certifier so what they do is they take a look at a local area and say okay what's the living wage how do i back off to the raw material cost here to make sure that those who are growing it um are being paid above a living wage and in many of these developing countries the the minimum wage when you start talking about factories and things like that is below the living wage so when you carry that fair trade logo as patagonia does as we do and and many many other brands um you know that that those come from you know completely economically sustainable non-profit that certifies some amount of standards yeah and they again i knew them from the food business and they are fairly ubiquitous if you walk into whole foods you'll see the logo everywhere um and and paul rice is is the gentleman that started it and runs fair trade usa um and and you know it was one phone call saying hey i don't know anything but i'm starting a sheets company i don't know how to make sure that i'm paying enough for the raw material i don't know how i make sure that i'm that my factories are charging me enough for the products and and that the money ends up going into the hands of the right people the key thing you know i had a group of people when i was doing a search engine called mahalo.com back in the day i had a group of people in manila that we were testing to just check for spam links in the search engine and to organize information and then it would go to american folks and um you know i was sold on this by somebody who had a business process outsourcing there it was unbelievably cheap like two dollars an hour three dollars an hour for a knowledge worker and we were that was the most you could spend at the time this is 15 years ago the most you could spend was two or three dollars so a shift was 30 bucks you know obviously compared to an american at the time maybe 15 an hour um for for that level of work um you know 10 to 15 bucks that was the minimum wage back then uh in california anyway long story short we got leaked to us from one of the workers that they weren't getting the pay because we were told from the business processing person hey we're paying them three dollars an hour and uh we take 50 cents or something right so it was 250 to the worker three dollars to them like i'm trying to remember here the exact numbers they told us they were getting paid a dollar and so then we said to them okay um and i had i sent somebody over there an american over there to sit in the office and work with them to train them and also to make sure and then we found out that they sent us like pay slips and they had doctored the pay slips and somebody said listen you're in manila you're in the philippines this is the absolutely most unethical like you know banana republic you could ever imagine if there is a way to angle shoot you they will angle shoot you that's their business and i was like okay i don't know if it's that dire but certainly you can get duped a hundred percent and and i would tell you if we were not working with fair trade we would be getting duped um and and i'm quite certain that the workers would as well but but with fair trade we now bring in independent auditors constantly.

31:31We're evaluating their books. We look at the flow of cash. And we also, it's crazy to say this, but in a sense, we actually encourage the workers to unionize. And they create committees. So we take, for instance, at our factories, anywhere, depending on the local area, 1 % to 2 % in addition to our cost of goods. And we put it in an account and then it's up to them how they want to distribute it. Could be cash bonuses. Last Last year, one of our factories bought induction cooktops for all of their workers. Another one bought bicycles so they could get to and from work and things like that. So you have to empower the worker and you have to demand that your suppliers...

32:09Now we have leverage, right? We're the biggest game in town from an organic cotton standpoint. And one of the bigger games in town in general from a betting standpoint. So we have leverage to walk into larger mills at this point and say, you'd love to work with us. You're going to have to reinvent your business because how you work with this retailer or this retailer is not going to meet our standards. And that's the most empowering thing we see and even feel is that you have the ability to start moving the market because you can have a little different set of demands. But compliance testing out there that exists, it's garbage.