Footwork VC's Mike Smith | Finding Your Fit in ECommerce

Hi everyone. Welcome to Grey Matter, the podcast from Greylock, where we share stories from company builders and business leaders. I'm Heather Mack, head of editorial at Greylock. On today's episode, Greylock General partner Mike Dubois Interviews Mike Smith. Smith, who recently co founded Footwork vc, spent the past two decades developing and scaling consumer businesses. He was an early employee at Stitch Fix and helped grow the fledging startup into a public company. Prior to Stitch Fix, Smith spent nine years at Walmart where he managed the company's multichannel business and oversaw operations. He also serves on the boards of Ulta Beauty, Herman Miller and Maven, among others. This interview is part of Greylock's Iconversations series. You can find a transcript of the podcast on our website greylock.com blog and you can subscribe to Gray Matter on SoundCloud, Apple, Spotify, YouTube, or wherever you get your podcasts.

Hi everyone. Welcome to Greylock's iconversations. I'm Mike DeBeau, a partner here at Greylock and today I'm very happy to be joined by a friend, Mike Smith. Mike is widely known as one of the most skilled operators in commerce, particularly in launching and advancing multi channel retail and growth strategies. I'm personally honored to have worked with Mike when we were both back at Stitch Fix. Mike was an early employee and held most senior roles at the company from COO to CFO and interim CEO and eventually took the company public in 2017. Prior to joining Stitch Fix, Mike spent nearly a decade building out the E commerce and multichannel offerings of Walmart. @walmart.com Mike is also a familiar face to many throughout the E commerce ecosystem. Throughout his extensive board work, he's involved with a wide range of organizations that are not only recognized for their diversity of business models and product offerings, but for their notable representation of women and people of color. He currently serves on the boards of Ulta Beauty, Maven, Herman Miller, Stitch Fix Food 52 and Goal 5 and until recently served at Imperfect Foods. Earlier this year, Mike co founded Footwork VC with Nikhil Basu Trivedi. The firm backs founders of consumer and consumerized businesses. We have plenty to cover here, from growth strategy to how to differentiate at a time of extreme competition. With that, let's get to it. Mike, thanks so much for joining us today.

Thanks for having me Mike. And obviously I'm a huge fan of yours and a huge fan of Greylock. So excited for the day.

Great. Well, you're one of the most experienced people I know in commerce and I've always admired the arc of your Career. I think it parallels some of the major transitions in the industry over the years. The rise of online and retail and subsequent innovation in multi channel retail, the explosion of direct to consumer brands and the most recent wave of new technologies and commerce infrastructure. So to understand a bit about how you got to where you are now, let's go through a brief history of your career. So maybe, maybe to start what drew you to the commerce sector in the first place?

A few things did. I mean one being very practical. I had had three jobs that weren't quite the right fit for me as I left business school and so they were all 18 to 24 months. One was kind of frankly a disaster where I just was bad at picking the right early stage company and there was a practicality to finding a company where I felt like the people would be there to support me and frankly the company would be around a while and Walmart kind of fit that bill. But more thesis driven reason was I just saw kind of the change in commerce and the way people are interacting online and believe strongly in the digitization of commerce and e commerce and multichannel and felt like it was a 10 year run that I could have at a great company, obviously the world's largest retailer and world's largest brand and thought that that would work great for me. And frankly it did. And the trends are even longer than 10 years obviously based on what kind of what we're seeing today.

So maybe to go into a little bit more detail, like what were some of those formative experiences early on in your career, even prior to Walmart?

Yeah, I'll touch on a few of them. I mean, so I grew up in Virginia and I went worked in consulting after going to University of Virginia for undergrad and consulting. Really the formative part of that was it taught me that I, I like to be in the deep end of learning because every project is different in consulting. I mean you're not doing the same thing every day. And so that helped sort of shape the I always have to sort of have a high hockey stick of learning. And then you know, I'd say after business school there were a lot of formation based on mistakes I made. Frankly the first one was right out of business school I went to Wall Street. And I made that decision primarily because I was in debt and I needed to try to get out of debt. And I thought the fastest way to get out of debt in a job I thought I would really like was going to Wall Street. And what I didn't recognize about myself is that once I Got in that job, I became more transactional and less relationship driven. So I'd be on a call with someone like you and I'd be like, is Mike rich? I need to know rich people. And I didn't like who I was becoming and as a result of that, knew that that wasn't the right fit for me. And then the next mistake, which was the one I referenced before, was going to an early stage company, really chasing money versus foundational principles that now drive my decision making. And so the foundational principles that drive my decision making today are I want to work with great people. And that definition is people that ideally are smarter than me, that'll push me to be my best self and people that I align on core values and principles. And then I also, like I said earlier, want to be always learning. And then the third one I added right as I was going into the role at Stitch Fix is I want to make sure that I have a positive impact both as a leader and culturally in driving a business. And so once I got past like chasing money or making decisions based on kind of, you know, not great decision making criteria and came back to core principles of people learning and impact, I made better career decisions and frankly, you know, did better in my career when I had those foundations that I was making my decisions on.

Yeah. And while optimizing for learning is definitely something that I took away from our time together and I think try to continue to follow and maybe part of why we're both on this side now. So you joined Walmart in the early 2000s. At that point, online commerce was really just starting to find traction, and reaching consumers was a totally different ball game since this was before, you know, smartphones and social media. So you were responsible for building out Walmart's multichannel businesses, and you did it during a time when the industry was changing pretty rapidly. So maybe you could go into a little bit more detail on your experience there.

I got really fortunate at Walmart in that I had bosses and leaders and mentors that allowed me, you know, like a lot of people, I think, you know, I get bored easily, and when I'm bored, I'm not the best employee, I would say. And I had bosses and leaders that allowed me to raise my hand and say, hey, I'd like to get stretched, and then they find a new opportunity for me. And so I had a great run where I started as a junior person on the operations team@walmart.com, kind of just helping build our warehouses and transportation network for at a time was like $150 million business and then moved into this site to store multi channel role of building that offering for Walmart, which was order online pick up in store for things not in a Walmart, which was the idea was to expand the four walls of a Walmart use like marketplace and a lot more vendors and a lot more SKUs to provide Walmart customers with a lot more choice than you can have inside the four walls of a Walmart. And that was a really hard program to pull off. I mean I think people underestimate the scale of Walmart until you're working with Walmart or work at Walmart. It was, you know, at the time 3,500 stores. There are 2 million associates that manage so the Walmart business. And when you're rolling out a multi channel offering like that, you actually have to think about what does the hourly worker in the back room like, do they care about the program that you're rolling out? And so I learned a lot about sort of trying to roll out a program bottoms up and really understand kind of all the stakeholders that are required to pull off a program like that. And then I got to be head of customer service and then chief operating officer. And so I think the range of the jobs allowed me to always be learning and getting more scale and scope in a job. And I got to see sort of the trend of multichannel as an example and sort of what Amazon's effect was going to be on a company like Walmart and then also the effect of early stage consumer direct to consumer brands and sort of develop my own opinions about who was going to win, you know, whether it was going to be a Walmart or an Amazon or a direct to consumer brand. And it does really impact how I think about my role now as an investor, sort of that experience.

Yeah. So I want to ask you more about kind of the CEO role in general later because I think it's something that probably a lot of founders in the audience would be interested in as well. I think there's pretty wide range of definitions around it. But before that it was a pretty interesting career move when you left Walmart, one of the biggest retailers in the world, to join a pretty small, I think it was 10 or so people, you know, Stitch fix startup at the time, shortly after it was launched. And so what prompted that? What was going through your mind when Katrina started talking to you? And maybe you could give us some color on like what made that pitch so compelling at the time as well?

Well, it was, I mean I went from Chief operating officer@walmart.com, responsible for between 10 and 15,000 people in the field. To. There were four employees at the time when I started sort of said yes to Katrina. And so it was a big adjustment. You know, I had a. I had a big office@walmart.com and I think our whole office holding the entire Stitch Fix crew in the early days was maybe 1.5 times my personal office. So it was just kind of maddening to think about going from 10 million square feet of warehouse space that I was responsible for to 1,000 square feet of warehouse space which we were doing pick, pack and ship out of our office. So it was a pretty big transition. And I think the thing that made it really compelling, I mean, 80% of it is Katrina. Katrina is just like, I experienced her this way when she was recruiting me and experienced her this way 9 years working with her, like very clear on vision, really, really vulnerable about sort of what she thought she was good at and what she wasn't good at and how she was seeking sort of a partners and partnership and in helping her build the company, but really clear vision for what she wanted to build. And we spent a lot of time on core values and principles of how we wanted to show up as leaders and what her expectation was of leaders and what my expectations were in my leadership profile and who we would hire. And we were very aligned on those core values and principles. And so 80% was her and how she showed up and how I thought I could be, if I was lucky enough, a good partner to her in scaling the business. And then 20% were kind of in three buckets. One was data science. I was really, really excited about the idea of using art and science, specifically in apparel and the way she talked about it. The second was the unit economics of the business. As you know, Mike, these businesses that are direct to consumer are really hard to get to. The average order value high enough and contribution margin high enough to make them work when you have to spend on paid marketing at some point. And I thought that if we executed the model really well, the unit economics of the business would be extremely compelling. And they were, as we grew the company and the third was, like I said, core values and principles that kind of translated into culture of the company. I just thought if I, you know, if we did it well, we would build an amazing company, but also a place that people were really proud to work at and for whether they were there for a year or whether they're for nine years.

Like I was, well, I want to spend a lot more time on Stitch Fix with you. I think before that, just to ask the generalized question, like for founders, I think you were a dream hire for Katrina and for many other founders out there would have loved to have hired you at the time too. What takeaways do you have for founders who are looking for their Mike Smith? When should they start looking for someone like you? Because I think in Stitch Fix, in many ways it was quite early, extremely early.

And I get asked this question a bunch as I am now an investor and whether it's advising companies that we're not invested in that ask that question or, or companies that we are invested in at footwork. And you know, what I normally say is most of these things don't work. You hire a big company person into a small company environment and it doesn't work most of the time. And I think the reason it doesn't work is because it's extremely hard. So it's very flattering and kind of you to say like sort of hire their Mike Smith. But I would say, you know, it requires kind of a lot of soul searching of the founder on a bunch of different dimensions. So let me give practical kind of examples. First of all, the founder needs to understand, founder CEO needs to understand that they actually want a true partner in helping them build the business. So one investor talked to me about COO roles and we can go deeper on CEO roles, but it could be a COO role that you're just responsible for operations. And you know, in the board context, you're just coming in to kind of talk about ops. A second version of that is you're in the board meeting for most of the board meeting like the P and L, but you get taken out on strategy or M and A or whatever. And the third example is one where you're CEO and you're almost like a partner to the, you know, co founder with the CEO. And I was looking for something that felt more like a co founder relationship. Now the way you risk reduce that if you're a founder is you spend a lot of time trying to understand what are the skill sets of, of the person you're bringing in, Are they complimentary to you? And frankly, are you willing to give up some of the control that you have in what you're doing. So for example, if you're a founder CEO that really is a chief product officer, and then you go try to hire a coo, that product is their specialty. Like those relationships don't work because the COO coming in wants to own Product. But the founder and CEO really wants to own product, considers themselves the chief product officer. So I think the thing that made it work with Katrina and I is she's very intentional about the complementary skills that each of us had. And she wanted me to sort of do, you know, ops and finance in the back end. And I really wanted to at some points do some demand gen and marketing and merchandising. And she was open to that conversation. So we had open communication lines around this. She was willing to share the stage of like having a partner in building the business. And it met the criteria that I was looking for and feeling like a partner. But a lot of that, I think, is founder driven. Like sort of looking inside yourself and deciding do you really want a partner in the business or not? And one last thing I'd say and sort of look out for sort of big company people that say they want to do early stage and can't do it. Two pieces of advice. One, Katrina was really big on try before you buy. So I came in and worked and tried to figure out, like, is this going to work for me? So there was a selfish part of it, but for her, it allowed her to decide whether it was going to work for her and how did I show up. And then another practical thing you look for is someone that is extremely frustrated with the speed and the motion of their big company, where you ask them questions like, why are you leaving Walmart.com and they answer it with, we're just not moving fast enough. I think we're not disrupting ourselves fast enough. And those are good signs that someone can actually make the transition. But the try before you buy is a practical way to kind of test whether or not a big company person could really work in a smaller company environment.

Yeah. You mentioned the economics earlier and kind of how unique it was to see a business like this that had the potential to have these kind of economics in the D2C world. You know, stitch fix was, you know, something of an anomaly in that it didn't raise a ton of money before it went public relative to others. And from my own experience there, you know, I know it wasn't always by choice, but the silver lining was that it pushed everyone to be both disciplined and creative when it came to growth and just ops. And so what were some of the takeaways from your time that are around that point? Capital constraint versus having the luxury of having more and being able to do more. And maybe like, in hindsight, do you think it was a good thing for the business?

I Mean, this week, a talk for over an hour on just this topic, because I think it's so fascinating. But let me set the stage by talking about sort of, as Mike referenced, we were a little bit of an anomaly to a lot of anomaly, like, very anomalous. So we went public in 2017. We had raised $42 million of capital. We had raised our last round $25 million of capital. We didn't spend a dime of that. We didn't spend a dime of the $139 million that we raised in the IPO. And so we got to cash flow positive and profitability on $17 million of capital. We filed to go public with almost $1 billion in sales and 10 points of operating margin. So both the scale of the business and how fast it got to $1 billion and the operating margins were unusual, to say the least. I mean, we used to laugh like, oh, my gosh, that company just raised $250 million, and they've done $50 million of total sales. Like, what are you talking about? We. We were doing almost a billion in sales on $42 million in capital. Now, that sounds great, but to your point, Mike, like, you know, there are things that if we had been able to raise more capital, we may have been more aggressive on things like, you know, building growth earlier or investing in sort of finance and ops infrastructure that the company for the last three or four years is now kind of catching up to the size of the company because we didn't have the capital to invest in the infrastructure like we should have. And so the pros were, I think we got really, really good at operating the company, at being really, really good stewards of capital. I think the cons that I learned is that we could have and should have invested more in infrastructure so that the company can launch new businesses faster and could possibly even do more things outside of apparel faster as a result of building that infrastructure earlier. So there's some really good things that we did, and then there's some areas that I think we probably, or I.

Would have done things differently that mirrors my journey there. You know, I was coming and kind of recovering from a startup that I think was probably overcapitalized ultimately, where we were taking on too much and coming to Stitch Fix, I would say was under capitalized. And, you know, we're maybe even like, overly narrow and focused on what we were doing. But I think it netted out to be. To be a positive for the company. You know, I think one of the things you mentioned around kind of the forced operating discipline. I always felt like Stitch fix put a really strong emphasis on predictability driven, you know, both out of necessity, like we're talking about, but also, you know, the data science function being so central to our culture. The business just felt very tightly run. I think a lot of this was thanks to you. But forecasts, you know, were more precise. Measurement on marketing spend was more granular. And I think this played a big role in allowing us to go public when we did. But it also comes with trade offs. And so, like, I'm curious if you have comments on that, did we get that balance right on predictability overall? And what did you learn on that?

I think for the most part, we did get that right. I mean, my experience, I was a public company exec for three years roughly. And my experience in being on our roadshow and every investor meeting and every earnings call was that you have to build trust with Wall street and with the buy side in order for them to buy your stock and hold your stock for a long time. And that trust is built by actually saying what you're going to do and then doing it. And so I think the predictability and the forecasting, like, if you look at the experience over the first three years of the company, we rarely missed a number. We didn't blow out numbers because it was so predictable, but we. We rarely missed what we said we're going to do. And I love that part because I think it helped build trust with the Street. I think the only downside to it, but I still, I don't think I would have done anything differently is just, you know, being more aggressive, I think, on growth and as a result, being willing to miss numbers potentially or blow out numbers and not be as close to the pin. But I'm not sure I would have done anything differently in the first three years because I do think it's so important to build trust with the street of just hitting your numbers. We had a meeting, I remember, with a potential shareholder, I don't know, 12 months into being public. And this guy was very honest. He could be a top 10 holder in the stock. He said, look, I don't invest in companies until they're 18 months into being public because most companies aren't really good at managing forecasts and managing their business. And so I'm just going to stick around, hang around the hoop until you show me 18 months of being really good at this, and then I'll invest. And now he's a top 10 holder in the stock. And I think it was really Important to build that trust, which came from the operational discipline and the forecast discipline that we had.

You mentioned the growth point. Let's talk about that for a bit because I think that's pretty generalizable and something that you and I both know pretty well, I think relative to most e commerce startups at the time and also now, Stitch Fit's weighted a pretty long while before investing in anything user acquisition related. And I think it led to a really healthy dynamic in that the muscle that we built was around retention first and the predictability on kind of client repeat rate and all that. And I think building the acquisition muscle late in the game also comes with trade offs though. And so you kind of hinted at earlier, maybe you would have sequenced this differently. But when you're looking at companies now that are starting to invest in user acquisition, it's hard for me to say, hey, retention isn't more important. And like you obviously want to fix the leaky bucket, you know, before you start kind of pouring water up top. But it is a balance and I'm curious what you have to say about that now, given what you look through at Stitch Fix.

I hate to be so kind of pithy about it, but I do think sort of this is an and not an or and not a sequence. I do think you have to do both whether you're an early stage company. So to bring it back to your original question, you know, Stitch Fix got to about 500 or $600 million in top line with almost no growth marketing. There was such direct product market fit that we didn't have to spend on acquisition because it was all the majority of it was coming pretty virally or through referrals, organic. And so I think that sounds great, but to your point, Mike, and you know it way better than I do, you know, building the growth muscle and actually getting good at it. And especially given how many tools and how much creative needs to change and how many different distribution channels there are between podcasts and Facebook and Instagram and Snap, you know, and TikTok. Like you actually have to build the muscle of acquisition as early as possible so that you can get good at channels and actually figure out what, what channels are most effective for user acquisition and ultimately for retention and ltv. And so I think we didn't do it early enough as a result of like, because mostly we were tapped out on supply. So again, if you get to 5 or $600 million of top line without any user acquisition needs, you know, one of the things that we were struggling with was Just holding onto our hats around having enough stylists to kind of manage the business that grew that fast, having enough warehouse workers and warehouse space to do it, having enough inventory, high quality inventory. And so one thing that the capital constraint kind of forced us to do is we couldn't over invest in the supply side, which really hurt our chances of being more aggressive on acquisition and driving acquisition and building that muscle way earlier than we did. And so I would say it was a mistake of not being able to go earlier on acquisition. And the way I advise most companies is you have to be good at both. I mean there's just no question that in today's world and how competitive it is, especially in direct to consumer, you have to be really good at understanding the reasons why people churn, the reasons why people are unhappy. But the same token, you have to get good at the top of the funnel and driving acquisition and, and get good at understanding what channels are most effective for your business.

Well, one of the things you hinted at that's really important I think adds a significant layer of complexity on what we were doing for acquisition is like quality. Acquisition is going to be a function of what supply, what merch you have on hand at any given point in time. And so actually dialing up the wrong types of users can be detrimental. And that's not necessarily the case for other kind of brands who are selling a pretty standard fixed set of a few products, products where actually overhitting your numbers will ultimately be fine. People might be waiting a few extra days or something. So I think there's more complexity to our model which goes back to the point on predictability just being really key there. One of the things related to that I think was a pretty interesting and critical decision early on at Stitch Fix was to run our own warehouses. And I would imagine, and I know you were a big part in that decision, walk us through that. Do you think things will look different if at all, given today's evolved E. Comm. Logistics landscape? Or would you have done it the same again?

I generally try to look back and be pretty self critical of things that I could have done differently or we could have done differently on this dimension as well. Like your earlier question about balancing forecasting and predictability. I actually feel good about this decision too. I mean there's plenty of decisions that I screwed up and happy to talk about those too. But I think owning your own warehouses, the reasons why I would sort of push for it then and would still push for it today is because of client and customer experience. I Think today's dynamics. It is so competitive that if you don't own your customer experience as much as possible, like all parts of it. And I'm not a control freak, but on this I am controlling the client experience, then you risk not having control of things when things are going wrong. So a funny, not so funny story about my time at Walmart. This literally happened to me in a week. My boss came to me on a Monday and said, hey, I just want to let you know something went wrong with an order. It actually went to my wife and it was an order that came from one of our drop ship vendors. And, and it came in a Costco box. Okay? That just doesn't work for a Walmart exec. Then fast forward like Thursday comes back in my office and he said, hey, we got another issue. A senior Walmart exec got a order with a half eaten apple food in his order. Okay? Now in both cases, not that I'm looking to like, you know, sort of fire people all the time. What I'm looking for is accountability. I had zero control over accountability of that mistake. I didn't have visibility into the systems. I didn't know who picked the product, I didn't know who picked the box. Neither case. So I could say, hey, Steve, this isn't my fault, you know, it's our dropship vendor network. But the reality is like, I want more control over when things go wrong so that I can fix them quickly or hold people accountable that have made the mistake, including myself. And so I think there's this idea of accountability and customer experience that really drove my decision to own our own warehouses. And I would still make that same decision today, even with amazing infrastructure that exists that is different than what existed when I started there 10 years ago and when we worked there together. That being said, it's hard, it's hard to own your own warehouses. It's hard to own. There are 10,000 people that work at the company now, I think, and 8,000 of them are in styling or warehouses. And so that's a lot of employees to own and work with. And so there's just a complexity to owning your own supply chain. But I would argue that if you want control of your customer experience and you want to make sure you can drive accountability through your network in a very competitive environment, environment, you should make that decision all day long.

What characteristics did you see in Katrina that you thought made her a successful founder? How did she operate differently from others you've worked with? And what could we as founders learn from her? In terms of building out our own teams and companies?

Well, I think the characteristics, some of them I touched on, I mean, I think, again, clear vision for what she wanted to build, I think building a company is super hard. And I think if you have to figure out how to adjust when you need to adjust, but how to sort of stay the course when the right answer, even when there are a lot of contrarians, is to stay the course. And Katrina was the best I've ever seen at sort of seeing around corners and being clear on vision in a way that I've never seen any other CEO kind of do. And so I saw that early as she was describing what she wanted to build in women's, and then I would ask her questions about men's and kids, and she was super clear on when and why we should do those things. And that's frankly how she operated. But on that more intangible side, which I touched on, you know, it takes a lot of vulnerability to say, hey, I'm not as good at operations, or I'm not as good in these areas, or I've never built a company before. And she's talked about this publicly on podcasts. Like, she had managed an intern before she, like, one intern before she managed me. And so, like, she admitted that, like, she's new at this. And I think that vulnerability really resonated with me because I've seen other founders that lack a little of that vulnerability or humility and believe that they have to do it all and be great at all these things. And frankly, when Nikhil and I think about investing in founders, we look for a number of dimensions, but one of the plank is hungry and humble. We look for founders that admit, like, they're where their mistakes are or admit where they're, you know, they lack superpowers and where they need to add people around them to help the company be successful. And Katrina showed all of that from the interview with her, multiple meetings with her, and then working with her for nine years. Like I said before, I do think sharing the stage, like, she was really open to, to me having pretty senior roles and sharing the stage with her and with the rest of the exec team as we built Stitch Fix.

Yeah, well, this brings up an interesting point. Like, I always felt like you and Katrina, both internally and externally to the street and such, were very pragmatic in describing what Stitch Fix did at any point in time without zooming out too far. And, you know, clearly there's broader potential for a personalization engine to apply, like, outside of apparel but could Katrina was always like laser focused? Like, no, this is what we do right now. That other stuff, maybe longer term, how do you think about the right balance between having that magnitude of vision versus being kind of pragmatic and nailing like near term execution when you're kind of hinting at this? But I think there are trade offs, even ones that kind of probably directly hit your valuation.

Yeah, no, I think you have to do both. I think you have to stay focused on the clear vision, but you always have to come back to like, what else could this become like? So I think it was probably every year when we did our strategic plan, we would talk about whether we should use this in other applications and we would talk about whether we were ready to do it as a company, whether we had a right to win, whether the unit economics and the capital that we'd have to deploy in order to launch something new outside of apparel was a higher rate of return than just continuing to go down the apparel path. And I think for the first five or six years, it made sense to completely stay in apparel. One of the things that I underestimated was as copycats showed up in men's and kids, I underestimated how it wasn't that worried about them getting to a scale that was going to be really challenging to stitch fix. It was more worried about them claiming they were a personalization company and doing it poorly. That then the end consumer would wonder, does personalization in this data science stuff work? And we felt it worked, we could show it worked. But if, if people were launching businesses in other kind of adjacent categories like kids and men's, and they were doing it poorly, then it would potentially mess up like our brand. And so that's why we had to sort of stay in apparel and do men's when we did it and kids when we did it in the UK when we did it. But there are such, you know, massive applications of this, this. And I think the strategy of being able to look at it at least once a year, what makes the most sense, still feels right to me. And sure, the evaluation of this company is limited in terms of what people can see it until you start doing these things. But I think staying true to the vision and make sure you're executing that really well is the right answer.

What are the key attributes to look for or ask in interviewing someone coming from a large tech company if you're at a startup?

Let me try to give some practical advice here. So again, asking the question of why you're leaving and if the answer is, I just want to join a startup. Like, that's clearly a weak answer and you should never hire someone for that. If they answer, it is like, I see the disruption in your model that is going to change the way people consume or how this product is going to be used and the future. And I wanted to build something like this in my incumbent company and I couldn't get the resources to do it. That's a much more kind of tangible and exhaustive answer that would give me more comfort that they can do it again. If someone's expressing, ask the question, like, how fast do you guys move and make decisions@walmart.com and if the answer is, well, we would put something on a personal product roadmap and it would probably show up in the fulfillment systems or on the website 18 months later. And that would drive me crazy. Like, that's another good answer because people are like, you're seeking people that want to move fast and are frustrated with like how they sort of how fast their incumbent company is moving. And you know, I think spending, you know, this is an interesting nuance and balance. I have not liked the idea of someone falling so in love with the founder or a company that they come in and basically kiss your butt about like how great you are, how great this opportunity is. But at the same time, they have to spend time on the business and talk about what they think is great about the business and what's challenging about the business. And so the level of engagement that a big company person shows for a smaller company and, and do they keep thinking about it and then do they send you an email after being like, oh my gosh, I answered that question so poorly. Now that I know more, here's how I would think about it differently. That was a really good sign for us in hiring bigger company people if they kept thinking about the complexity of Stitch fix and came back with like admitting that they had screwed up one of their answers. Like, look for things like that where they're always thinking about it and thinking about sort of how their new thinking or new ways of applying what they learn would be something that they'd be excited to work on. But baseline answers of like, oh, I heard you're going public, or I heard it's better to work at a startup. Strangely, there are execs that answer the questions that simply. And those are like huge red flags that that exec has no idea what it's going to be like working an early stage company. On the flip side, one last thing I'll point out is Katrina was super patient with me in the transition. She doesn't remember this or she says she doesn't, but I wasn't great in the first six months of the transition. I was struggling with being in an early stage company and not having the resources and not being great as a COO in the first six months. And she had the patience to help me work through not being that great the first start. And I think that requires founders to be patient if they think the person can scale into the partner and COO that they want. Awesome.

Very tactical as well. Thanks for getting into that. Let's move to today's commerce landscape more broadly and talk a little bit about growth strategy within that. So today it's easier than ever to start an E commerce business, but also more expensive than ever to scale one, maybe starting at the highest level. What generalized principles have you taken away when it comes to growth strategy for E commerce? And you know, like, what are you looking for now as an investor in.

This space as well, a few things. I mean generally I'd say like a lot of people like viral growth. It's like growth that comes from people just loving the product where you don't have to spend on acquisition initially to get to kind of some level of scale. Like I said earlier, we viral growth doesn't mean you don't do acquisition. We should have done it earlier. And I would say companies should still do it even if they have bottoms up growth. But that's what we look for is where people love the product or service at such a level that you, you know, that it's just growing organically. And I think that speaks to like is there true product market fit in whatever the consumer product is or product or service. So that's what one of the things we look for. I think another thing is do people and the founders and founding team really understand the difference between exactly what you said, which is starting a company and scaling a company and have they thought through what those transitions are going to be? So I think that you're right. It's been the easiest environment based on kind of the tools and software that's available to start companies. And, and I do think that when you're talking to founders about, well, what's required for you to scale, what are the things that you are going to own kind of in your tech stack between marketing and fulfillment and payments versus you are going to use other people's software to do it and the questions of like why are you doing that? That helps. I think Nikhil and I figure out who are the companies that are thinking already about the harder scaling problem. But I think some of these trends that we're seeing Mike today and I think you feel the same way about the thesis. Like I mentioned earlier, I got into Walmart.com thinking it was a 10 year trend of like e commerce and multi channel. I think this is like a 30 year trend and I do think the last 18 months have massively accelerated sort of where E commerce and digital is going. And people have gotten way more comfortable with shopping online, with interacting online, with doing things like we're doing in this environment versus face to face. And I do think that that will continue to accelerate kind of E commerce and brands and retailers growing but it requires them to grow efficiently and effectively which to me leads to a trend of E commerce infrastructure that you and I both feel passionately about. Like software that helps a brand or an E commerce company run more effectively by understanding like inventory levels or understanding how to do fulfillment better. I think those trends will continue for probably the next five years if not 10.

Yeah, I mean I think we're both actively investing behind this thesis that a lot of the value is going to accrue to like the enablement layer and also like the networks around kind of next gen commerce. I think dtc, I think the healthy view of it in my opinion is it's a channel, it's one of several channels. It's, it's not like its own category and I think brands who view it just as a category are going to hit a ceiling at some point where the economics might not continue to work. And so wholesale is kind of back in vogue again. Looking at the state of the tech and industry, would you build a D2C company any differently today? And also as a follow up to that, does the current environment change the parameters for which D2C may be a.

Relevant channel or not? I think I would only do things differently if I felt like I could better understand how to get to unit economic scale more quickly. So let me bring it back. Like I just believe strongly that 40 or $50 average order value business is very hard to be a successful D2C company. I just think it's hard because like if you look at the economics of like okay, how much gross margin is there in a $50 order and then how much does it cost to ship or fulfill that product? How much does it charge for payments? Like they aren't great unit economic businesses. So if I was starting a DDC company I wouldn't goal seek for high AOV But I certainly wouldn't start an AOV like a direct to consumer AOV company unless I saw the ability for AOV to grow over time be above 75 or $80 and, and where I could see gross margin expansion as a result of scale. And so when we talk to D2C companies, we asked them very specifically like what are the unit economics today and what are your plans to enhance average order value and what are the opportunities for gross margin expansion so that you have really solid contribution margins? Because at the end of the day, if you don't have the contribution margin or unit economics to invest in paid and invested people like, it's just not a good business. And I think there are very few businesses that can do that. So the only different I would say is go deep on unit economics to make sure that if I was starting a company that I felt like I could get to an AOV and a gross margin that makes sense to build a big business. Or I, you know, as an investor now that's where we spend the majority of our time and trying to understand, does a founder understand their business model enough and can they speak to where they will get expansion of sort of AOV gross margin or operating margin over time?

One of the important points you mentioned earlier was around the virality that you saw early on. And these businesses typically aren't naturally viral. It's not like a bottoms up kind of, there's not like a natural bottoms up adoption like it would be with certain software components. And there is not virality to, or at least like in the traditional sense of Stitch Fix's model. Actually there might be some like offline virality. People could see where you're wearing, where'd you get it from, etc. But like I would say that the word of mouth being so strong in the early days was a function of focusing on the right demographic and being deliberate on that. Whereas our competitors were focused on kind of, maybe the easier ones that seem more obvious, like Stitch Fix being focused on kind of, you know, maintaining middle of the country, a demographic that had the pain point that was underserved for this. Like, you know, that's where there was kind of the most. You know, it really struck a nerve and things kind of, you know, blossomed from there. So, you know, and I think that is probably generalizable to, to other founders who are thinking about, you know, scale of acquisition versus really learning who you write, you know, the people you want to acquire early on are, that's another reason why you focus on kind of the Highest, you know, highest value, highest like intensity users early on.

Well, and I think your point's a super well taken one, which is like talk about TAM and then you talk about serviceable TAM and you talk about who's actually using and loving your product today. And is that a group? That one is going to be super profitable for you for a while and two allows you to extend what you want to do into other areas. And I think a lot of founders don't spend the time to truly define serviceable tam, truly understand kind of where who's loving the product and then how do I take that loving the product to a whole nother kind of customer segment that can be just as profitable or at least make money for the company.

One dynamic here I think you might have an interesting point of view on is like the startup versus incumbent dynamic. And you know, you've been at large incumbents, you've been at emerging startups, income of, you know, broadly related spaces. I think, you know, we see this across multiple dimensions from niche D2C brands taking on century old conglomerates to new distribution channels taking on traditional department stores or even traditional, you know, like marketing channels. So I, you know, I think your vantage point here would be unique. How do you think about the incumbent versus challenger dynamic? Like in, in your roles?

I guess because I've like really appreciated sort of underdogs that become incumbents and sort of seeing the growth of that. I really love sort of smaller companies that are trying to disrupt. So let me give two perspectives. Let's start with big company and big company dynamics that I think hurt big companies from actually being successful over time. And these are probably potentially too tactical, but things I look for when I'm at a big company or I'm talking to a big company about are they really understanding the dynamics that are underneath them. I look for phrases like are you future proofing your business? Okay, I view that phrase as not disruptive enough and not innovative enough. Because future proofing your business by definition is, I have a business, I like what I'm doing there and I'm going to make sure that that business is around. Well, if you're in consumer today, regardless of how big you are, everything is getting disrupted so fast that future proofing seems like just you're already behind the eight ball. And so like that's a phrase that I think is problematic for incumbents. Another phrase that I think is problematic for incumbents is, oh, I don't want to launch this business because it's going to cannibalize My other business or it's more dilutive to my core business. Well, every new business that you have is dilutive. Like, you're investing more resources against something that has no revenue. So that's dilutive to something you could do otherwise. And so I'm not saying that you should be irresponsible on dilution, but you shouldn't let dilution or cannibalization kind of make the decision for whether you should launch something new. Because every business is dilutive when you launch it relative to the successful one. And then the third point on the large company is, and this is just a personal opinion, but innovation labs within a large company, I'm not a fan of. And the reason I'm not a fan of is like, literally everyone should be sort of thinking about how to disrupt themselves. And you shouldn't have, like, a separate group that's thinking about innovation. Whether you're in marketing or merchandising or supply chain, you should be innovating along the lines of, like, what's important in your function, not letting some separate group that doesn't have P and L responsibility do innovation. So those are like personal pet peeves I have around large companies. But switching to small companies, most companies do that, do what I just described. They talk about future proofing. They have innovation labs. They talk about not launching new businesses because it's cannibalistic or dilutive, which allows smaller companies to go take share. And I think that's great. I think it's so cool because, like, a small company like Stitch Fix, when we first started, did anyone think we were going to turn into a $2 billion revenue company? No. We got feedback from some very large retailers when they were looking at Stitch Fix that we were never going to make it and that we would at Most get to $100 million company. Well, that kind of mentality at large companies drives small companies, and it forces a small company to innovate and disrupt and hopefully be successful. And obviously most small companies are not successful. But I just like the dynamic of large companies and small companies. And my advice to large companies is to take some of that language and behavior out of kind of your lexicon and vernacular. And for small companies, keep pushing hard and not being scared of large companies, because I think most large companies are not able to disrupt themselves in the ways that they need to.

Yeah, there's a lot more to cover here, and we don't have a ton of time. I think one of the areas I wanted to make sure we got to was board work. You know, I've seen you in the boardroom. I think you're someone who founders would unequivocally want on their board now as well. And you've also been doing it on the other side of the table. And so let's talk about your experience in the boardroom a bit. So in 2016, while running Ops at Stitch Fix, you started on your first board, which was Own the Room. And since then, you've held a bunch of other board roles. Ulta Imperfect, Herman Miller, Maven, Others. So you know you've also been an advisor to a growing network of of diverse founders for years and are actively working to increase representation of women and people of color in the tech industry through your work at Footwork. So what are the some of the most important lessons you've learned from board members? And maybe are there any anecdotes that really stick with you when you think about the kind of board member you want to continue to be?

Yeah, I feel so lucky. I mean, it sounds obnoxious when you list that list of boards, because one, those brands are amazing brands and that I get to be a very small part of of as a board member. And two, it's a lot of boards. But a couple insights from being on boards. One, it is a gift. I mean, it's really fortunate to be on sort of the boards that I'm on, mostly because what you reference, the people around you that you get to learn from. I'll cite one kind of explicit example. Mary Dillon, the CEO of Ulta Beauty. They just went through a transition from, you know, sort of her being the CEO for seven or eight years and, and then transitioning to her number two, Dave Kimball. And to be able to watch Mary as a CEO, as a board member, transition to Dave, how well she supported Dave, how much the business is crushing it today as a result of being super intentional about that transition. One, it's just a joy and an inspiration to watch. But two, I can apply a lot of that learning to companies as they are thinking about a CEO transition into another role. So I feel super fortunate to be able to do that. The other thing I'd say about my boards, and this has been pretty intentional, most of the boards I'm on are with women CEOs or underrepresented CEOs, and that has been intentional. I do want to be, if I'm lucky enough, have that be the majority of my portfolio. I just love sort of that being true about sort of how I'm spending my time. And I could not be more Proud of the founders and that I get and CEOs that I get to kind of see up close and personal. So highly recommended to people that are lucky enough to get on boards. And I think I add a lot of value because I was an operator for a while. I was in a really disruptive space and I think that value hopefully helps the company and the CEO over time. But I've really, really enjoyed my board work.

What advice do you have for founders who are thinking about bringing on like an independent board member? Having seen it kind of, you know, so many times on, on the other.

Side, I'd say my advice is earlier the better but being super intentional about what you're seeking, just like the COO choice and finding kind of someone like me and how it worked with Katrina. I do think independent board members, if you find the right person, add a ton of value over investor board members. Now it's hard because I like add to your point, sitting on both sides of the table. Like I, you know, as a operator, I really liked independent board members because I felt like they could understand the journey that I was on and like how important and hard operating is. And now I'm an investor trying to work my way into, into, you know, earning the right to be on someone's cap table and I want a board seat as an investor. And so I do think you should go earlier than later with independent board members, but be super intentional about what is the right fit for you, both you personally and kind of tangible things that, you know, competences that have and then also fit culturally and core values and principles. But, but I think independent board members early is a good decision.

So let's wrap with a quick commentary on your transition into venture. So you've been kind of on the periphery of venture capital for some time now and as we both know, it's been quite an active time around all things commerce and consumer, but also just venture. And so there's probably differences between this period and other periods of high activity in venture. Why did you personally decide to get into it now?

A few things drove my decision. Some kind of professional and kind of makes sense from what the job is and some super personal. So I'll share both. On the professional side, everyone tells you, to my earlier points, it's a high hockey stick of learning. One day you're meeting with a healthcare company, the next day you're meeting with a B2B SaaS company, the next day you're meeting with an NFT creator company. And you know, there's a lot to learn in each one of those things to sort of be a value added investor and actually to win deals. And so I like the high hockey stick of learning that comes with the job. The second is that I think I have a lot to give. I had a very unique seat sitting in the number two seat with Katrina at the stage I joined, going through some really, really hard times and then coming out the other end and getting to a public market opportunity offering. And I'm learning that founders really appreciate sort of the experience and journey that I went on. And I want to be able to give that back because I do think there aren't a lot of people that have had the unique experiences that I've had. And then on the personal side, I was very deeply affected by kind of the racial unrest in 2020 and sort of George Floyd and Chris Cooper incident in particular and really thought about, okay, I could, I'm fortunate enough that I don't have to work. That's like super ridiculous thing to say. But what do I want my legacy to be? Where do I want to give time and where do I think the ecosystem needs a lot of work. And I do believe fundamentally that early stage investing, early stage founders, the LP base, all needs to be more diverse. And I think raising this fund and I think hopefully Nikhil and I being really good at this business will show that diversity matters and diversity delivers great results. I guess the last comment on me, and it means a lot to me, you know, Nikhil partnered with me. Nikhil, for those that don't know him, is a 10 year investor, he went to Princeton, he's super smart, he's very good at his job and he's taking a chance on me because I've never done this before. But I feel really lucky to be sort of, you know, with someone who is such a craftsman, who we both have mutual admiration and respect for each other. We bring complementary skills and so we feel really good about kind of where we sit today as an investor operator combo, which is one of our biggest differentiators. But I feel lucky that we get to work together.

Yeah, well, I feel lucky too, even though I don't get to work with you daily, to have you as a friend and collaborator in multiple functions here. So thanks so much, Mike. I mean, this brings us to the end of our session. I'm super thankful for you joining us. Outside of just being a great human, you bring this really rare mix, I think, of operational knowledge from some of the biggest incumbents to the earliest startups. And you know, I think your insights were really valuable to everyone who was listening in today, and so it's been a privilege. So thanks, Mike.

Thank you, Mike.

That concludes this episode of Gray Matter. If you liked what you hear and want to hear more, Please subscribe on SoundCloud, Spotify, Apple, YouTube, or wherever you get your podcasts. You can also find all Gray Matter content On our website greylock.com blog and you can follow us on Twitter at greylockvc. Thanks for listening.