What’s the secret of Bonobos’s success? Simplicity. The company’s cofounders focused on the dead simple goal of making a better-fitting pant, without any further complications. In doing so, they removed friction from a process nobody even realized was fraught with it. They followed that with a frictionless way to market and then stores without inventory. By removing friction everywhere they could find it, Bonobos revolutionized the market for men’s pants.
The following story might be the most surprising in this book. I’m not going to surprise you by telling you about a company you’ve never heard of. I’m going to do so by telling you something very surprising about one of the best-known companies on earth: Walmart. And about an entrepreneur who, like many readers of this book, would have laughed if you’d told him that he’d be working for Walmart one day. That entrepreneur is Andy Dunn, the cofounder of men’s apparel brand Bonobos.
When I think of Andy Dunn’s career, I think of a puzzle where seemingly independent pieces have come together to make one big, coherent whole. We’ll get to the Walmart part in a bit, but let’s start with the puzzle pieces themselves.
A graduate of Northwestern University, with a bachelor’s degree in economics and history, Dunn’s first job was as a consultant for Bain & Company. One of the clients that he worked for during that time was catalog-based retailer Lands’ End.
“When I worked with Lands’ End’s call center, I saw the crazy connections you can make when you rip out the generally not-that-interesting brick-and-mortar experience and insert a direct relationship with the customer,” says Dunn. “Later, when we were launching Bonobos, it was based on the premise that the Internet was going to be just like the catalog business, except better because you can personalize it.” It didn’t surprise Dunn in the least when Lands’ End was ranked number two in J.D. Power’s 2012 Online Apparel Retailer Satisfaction Report, second only to another catalog veteran, L.L.Bean.
After Bain, Dunn worked as a private equity analyst at Wind Point Partners. He worked on retail there, too, and the time spent at Wind Point solidified his love of working with consumer brands. “You get to think a lot about people and how they make decisions,” he says.
Then came Stanford Business School. If it gives some readers hope that even the most successful entrepreneurs have some ideas that don’t get off the ground, Dunn has three for you. He’d been noodling around with the idea of getting into the import business, bringing really cool things he’d discovered in other countries to the United States. “I know that’s not a new idea,” says Dunn, “but I was thinking I could build a whole venture capital incubator around it.” His candidates: South African beef jerky, called Biltong; superpremium sippable rum; and a fast-food chain centered on falafel and hummus. “Falafel and hummus are the only things that people in the Middle East agree on,” he says.
He went to one of his business school professors and told him that he wanted to start a venture capital firm based around the triumvirate. The professor told him it was a terrible idea. Biltong, for what it’s worth, is illegal in the United States, as it’s uncooked meat. Sippable rum was a good idea—Diageo, one of the world’s largest producers of spirits, later bought the brand that had inspired Dunn’s idea, Guatemala’s Zacapa Rum. It was the fast-food chain, though, that earned the bulk of his professor’s scorn. The upside of backing brick-and-mortar, inventory-driven businesses was not big enough to offset the downside of the losers for venture capitalists, he told Dunn, who was crushed.
Not completely deterred, Dunn spent the summer between his two years of business school working for the only venture capital firm he knew of that would invest in those kinds of companies: Maveron, created by Starbucks’s Howard Schultz. At the end of the summer, when Dunn received an offer to join Maveron after graduation, he still harbored dreams of backing his Biltong business. But then the man who’d helped him get the summer job at Maveron in the first place told him not to accept the offer. Why? “You’re an entrepreneur, not a venture capitalist,” he was told. Dunn wasn’t so sure about that—entrepreneurship seemed too risky to him—but the words resonated enough that he began wondering whether he did have what it took to be a founder, not just an investor.
Back at Stanford in 2007, Dunn’s roommate Brian Spaly told him about his plan to start a business.
“I’m going to make pants,” he told Dunn.
And why was that?
“Because pants don’t fit.”
Dunn was stunned. “I had all these big ideas and talked about them a lot,” he says. “And there was Brian, who didn’t talk nearly as much. He was just like, ‘Pants don’t fit.’” Spaly was an athlete and had what’s known as “hockey butt”—small waist, big butt and thighs—and he could never find pants that fit. He ended up buying pants with too large a waist (and therefore the right-sized thigh) and altering them. So he’d decided he was going to make them for the masses, something no one in men’s apparel had ever done before. That, dear reader, is what’s known as a dead simple idea. And the Internet loves dead simple ideas.
A service trip to Kenya to help a family with their grocery store finally showed Dunn the light. That family’s shower was a warmed-up bucket of water in an outdoor stall. Once back in Atherton, California, while standing under his double showerheads, he realized, “Fuck this. There’s no risk in starting a company in the United States. Risk is not having health care. Risk is not knowing where your next meal is coming from. Having reflected on that aha moment, I came to believe that if you have the privilege to do something that spiritually excites you, you’re kind of obligated to try.” For the rest of our sakes, we should be grateful that Spaly and Dunn did just that. Because otherwise, there still wouldn’t be pants that fit.
Spaly was supposed to have gone to a wedding in Brazil while Dunn was in Kenya, but he hadn’t; he’d gone to Los Angles to buy fabric instead. “He had two sets of fabrics for each pant,” recalls Dunn. “The outer fabric and a liner fabric. His insight was that we were going to have pocket liners that peek through in the back pockets that were really cool prints, so there was a little bit of wink in the product. He’s super dapper. He took his altered pants to a pattern maker in San Francisco and she made him a pattern.” They launched as an exclusively online brand in 2007. JetBlue chairman and Stanford lecturer Joel Peterson signed on as a founding board member.
Another thing Dunn had noticed while working with Lands’ End was the idea of the long tail—the opportunity provided by the Internet to sell low volumes of hard-to-find products as well as large volumes of popular ones. Lands’ End was selling into Sears stores at the time, having just been purchased by the struggling retailer. “We had this great pink cashmere sweater, which was a beautiful product,” he says, “but we couldn’t assort it anywhere because we don’t sell enough pink cashmere sweaters anywhere in the country to know where to put it in what size. America buys enough pink cashmere sweaters in aggregate that someone like Lands’ End should carry it, but at any given location, you couldn’t assort it because there was never enough local demand. So you take out style and enthusiasm for cool stuff, colors, and prints, and then you also have to take out fit. Brian and I decided to solve for that with an endless aisle—we were going to out-assort from a fit, color, and size standpoint.”
Dunn moved to New York with four hundred pairs of pants. When the orders came in, he packed and shipped them out of his own apartment. Within six months, they had a $1 million revenue run rate. But they kept it scrappy. Dunn says he found their first customer service reps on Craigslist by advertising for “customer support ninjas.” (If that sounds overplayed in 2020, it wasn’t in 2007.) Things just kept picking up speed from there. They raised $18.5 million in their first institutionally driven financing round in 2010, another $16.4 million in 2012, and another $30 million in 2013. Four years later, Walmart bought the company for $310 million. (We’re getting to that soon, we promise.)
Looking back, Dunn says Bonobos can lay claim to three inventions. The first was a better-fitting men’s pant. The second was a new way to build brands on the Internet. The third was retail stores without stock, the Bonobos Guideshop.
It’s not a revolutionary idea today, but in 2011, Bonobos was one of the first online retailers to begin experimenting with a physical location that wasn’t a store but simply a place to “try before you buy.” The first Guideshop was in the company’s New York City headquarters. Within two years, they’d opened nine.
Guideshop addressed the dirty little secret of online-only retail: almost no one in e-commerce makes money. “Online businesses are so hard because you have the costs of shipping, returns, marketing, and your team,” says Dunn. “And your team needs to be an apparel team, a customer service team, a technical team, and an operations and fulfillment team. Add that up, add in the cost of promotions, free shipping and returns, and you have nothing left.” Dunn even wrote a paper in 2012 called “E-Commerce Is a Bear.”
What does make money? “Omni-channel makes money. If you can build a four-wall model that makes money, that can cover the losses of your e-commerce business. The reason the four-wall model can make money is that you don’t have to spend on marketing because people still exist in the physical universe and, surprisingly, they go places to get stuff. So you get all this leverage on your fixed costs in brick-and-mortar that, in theory, could come with e-commerce. But it never does. Unless you hit some ginormous amount of scale, and you can sell other brands, you’re not going to make money.”
But what about all that talk about disintermediation—the removal of wholesalers from the supply chain by direct-to-consumer brands? That happened, says Dunn, but those middlemen were then replaced with new middlemen—Mark Zuckerberg and Larry Page, the toll collectors of the majority of e-commerce happening today. “With Bonobos Guideshop, we figured out that you just can’t be online,” says Dunn. “You need physical retail.” He even coined an acronym to describe the idea: Digitally Native with a Vertical Brand, or DNVB.
In 2007, Dunn and Spaly had thought that owning their own brand would protect their margins enough that they’d eventually make money. The only problem was that “eventually” was actually a very big number—Dunn’s own estimate is that you need about $200 million in sales to get there. Otherwise, the giants of e-commerce will eventually crush you.
“That’s one of the main reasons we sold to Walmart,” he says. “I was worried that being a public company would be really hard.” Dunn knew that the news Bonobos had sold to Walmart wouldn’t necessarily be cheered by everyone. The day of the announcement, Walmart stock fell 5 percent. “I’m looking at my iPhone,” he says, “and thinking, ‘Is Bonobos that bad of an investment?’” But it wasn’t that: the very same day, Amazon announced that it had purchased Whole Foods, and the stock market took it as a sign that Walmart’s grocery franchise was now at risk.
Here’s where things start to get surprising: another reason that Dunn thought Walmart was the right place to be was because he thinks that the company is a force for good. Yes, you read that right: a company that many considered the poster child for bad corporate behavior in the 1990s has begun to refashion itself as a retailer that’s doing right by its employees and the environment. What’s more, having been trounced by Amazon when it comes to e-commerce, Walmart is now, unexpectedly, an underdog. And America loves its underdogs.
“What Walmart cares about is much bigger than what I’ve spent my life’s work doing, which has been digital,” he says. “They bought Bonobos because of that, but we sold Bonobos to them for reasons other than that it would ensure the company’s survival.”
Among them: Walmart’s sustainability initiatives. Dunn’s wife, Manuela Zoninsein, has been focused on sustainability longer than he has, and when he came home to try and convince her to move to Bentonville, Arkansas (at least temporarily), he thought an appeal to her passion would help. “Walmart is really progressive on sustainability,” he told her. Her reply? “Listen, you idiot, it’s the most progressive supply chain in development in the world.”
“Walmart’s work in sustainability is far bigger and more advanced on so many vectors than what we were doing at Bonobos,” says Dunn. “Apparel is number two, after oil and gas, as the most polluting industry there is, so there’s a lot of interesting work to be done in sustainability.” He points to Project Gigaton, Walmart’s initiative to reduce a gigaton of emissions from the atmosphere between now and 2025, as an example, but says there are many more. “The more time I spent with them, the more I realized we would be lucky to belong to what’s nothing less than a once-in-a-generation transformation.”
Dunn joined Walmart as SVP of Digital Brands, Walmart eCommerce, heading up the company’s digital, direct-to-consumer brands, reporting to Marc Lore, president and CEO of Walmart eCommerce US. He was tasked with building or buying what he and Walmart CEO Doug McMillon call soulful brands. “It’s not about the business,” says Dunn. “It’s whether or not the brand matters to the world.”
The way Dunn saw it, the way to create those brands was to have independent, spirited teams able to do their own thing, with their own story, and a social purpose. “Could we create that inside Walmart?” he wondered. “Most people would say no, but that’s the experiment we tried.” In time, they landed on four: Bonobos, ModCloth (an indie vintage women’s brand out of Los Angeles with a feminist tilt), Eloquii (a plus-size women’s brand out of Long Island City), and Allswell (an internally incubated bed-in-a-box brand). The Allswell team doesn’t work at Walmart corporate but out of a WeWork facility. Visit it, and it feels like a venture-backed startup, except they don’t have to worry about fundraising. That’s what Dunn did.
You can learn a lot from people who can see the world of e-commerce from a perch like that which Dunn held, and we asked him what trends he thought had come to an end, the places that we shouldn’t be placing our bets anymore. He offered up two.
In direct-to-consumer brands, he pointed out that the early winners online were in categories where people hated the experience, like razors and eyeglasses and mattresses. “The bar is higher now,” he said. “All the really broken categories have been done. And as customer experience problems get harder to solve, it may even amplify the issues around soul and passion because you have to be good at all the esoteric stuff. There’s a lot left to do in fashion and beauty online, but I think the bar is much higher than it was.
“I wouldn’t want to go into the multibrand business in e-commerce either,” he added, “because you’re going to be running right up against Amazon and Walmart and Target and Costco. Stitch Fix is cool, and Chewy is doing well, but I don’t think there’s a lot of room left in that. You could do niche plays, like a tennis e-commerce brand or fishing or golf, and you could build a $10 to $20 million business, but if you’re obligated for a larger outcome due to venture capital, that’s going to be tough.”
Speaking of Amazon, Dunn wrote in 2010 that Amazon’s market capitalization would soon surpass Walmart’s. He was right. He now thinks that Wal-Market could leapfrog its younger rival once again. “This is going to be a clash of the titans,” he says. As Dunn’s barber told him after the sale to Walmart, “Andy, you’re riding with the elephant now, but this guy in Seattle, he’s an octopus.” Dunn smiled as he thought about it: “That would be a great name for a book, wouldn’t it? The Elephant and the Octopus.”
How long would he stick around to ride that elephant? Dunn said he was in it for the long haul. But he also admitted finding out the very same thing I found out when I went to Wayfair: “When you’ve been an entrepreneur, becoming an employee again is a really humbling journey,” he said. “I’m like, ‘Oh, I suddenly remember what it’s like to be an employee. This is hard.’”
In December 2019, Walmart announced that Dunn would be leaving the company. The initial strategy didn’t pan out as planned—Modcloth was sold in October—and Walmart decided that it would shift to an incubation strategy as opposed to an acquisition-based one. It was time for Dunn to move on to his next opportunity, and he handled his departure with typical grace. What’s next? Only time will tell. But at least his pants still fit.