Earlier this week the monthly LAVA breakfast meeting featured a panel discussion on fast growing consumer companies that are based in California. A particular focus was how these emerging companies build brand equity in consumer markets. On the panel was Charles Lesser, CFO of True Religion, a 3 year old company that designs, manufactures and distributes premium jeans. Lesser joined the company just as it was completing a reverse merger - a difficult route to becoming a public company. Charles provided some important lessons in how to get noticed and about the duality of growing a start-up and running a public company simultaneously.
Like many successful start-ups, the founders recognized there was a market. Others had demonstrated that premium denim appealed to a younger, physically fit, fashion conscious consumer and they set out to build a company catering to those willing to spend $175 for a pair of jeans. And as with many successful start-ups the company caught a lucky break early in their existence - a fortuitous placement in Bloomingdale's in NYC. The lucky part was they sold zero pairs. With that came recognition that brand mattered and they set out to build one. With only a couple of hundred thousand in assets in the shell company, True Religion did not waste a lot of time or energy trying to build the brand through advertising or traditional means of promotion.
The innovation the company hit upon after the Bloomy disaster was their PR-based approach - sending a pair to A-list celebrities and then getting press about and photographs of the celebs wearing the jeans in public. It was a pragmatic approach with so little money to work with, low financial risk - a couple of hundred pairs of jeans - and a high payoff if successful. Of course it was uncertain whether anyone receiving the jeans would actually wear them. Turned out that they had hit a combination of sizing and style that appealed to their uncompensated endorsers and the brand has been growing briskly ever since.
Charles Lesser and the other executives improved the odds for True Religion in other ways as well. They poached the very best reps from other high end merchandisers. The company expanded rapidly overseas using a network of reps and distributors similarly hired from respected brands and retailers. There was an urgency to escape from boutiques and get shelf space with larger retailers as their primary growth strategy. And Lesser knew that creating brand equity was key to long term success in this trend driven apparel space.
The other interesting insights Charles provided were about running a public company that also happens to be a start-up. There are different priorities, vastly different reporting criteria and different tolerances for risk taking within start-ups versus public companies. True Religion became a public company overnight and from that point forward Charles and founders were running 2 companies - a public concern and the start-up. Lesser found public ownership carried responsibilities and expectations different from what he had encountered with his previous venture backed firms. Running a public company requires getting the institutional analysts to pay attention and providing owners with consistency and a quality of earnings - something most start-ups won't recognize much less deliver until they are much better established.
True Religion did have some unique characteristics that played into the rapid growth strategy. It outsources just about everything except designing the jeans - their core strength and singular claim to intellectual property (which they vigorously defend). As a quickly growing concern they were able to take advantage of factoring - accelerating cash flow by selling receivables to a 3rd party at a discount. With their analyst friends they were consistent in under-promising and over delivering (which works well when just getting coverage but is not as useful once established). And Charles from his CFO position made sure the organization was focused on bottom line fundamentals and profit maximization.
Mr. Lesser and his team have made believers out of Wall Street. During his tenure True Religion has increased sales from $2.7 M in FY03 to $85 M (est.) for 2005, completed a private placement at $1.11 per share and closed the 2nd quarter at $13.70 (it closed yesterday at $15.79). True Religion has a market cap in excess of $340 M and last quarter revenue grew 600% year over year. The company does this with fewer than 50 employees and has gross margins at nearly 50% in an industry that averages 28.5%. True Religion participated in the CIBC World Markets Consumer Growth Conference earlier this week and Piper Jaffray's 25th Annual Consumer Conference early last month.
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