How Cladwell CEO Erin Flynn grew Cladwell to $759K revenue and 17K customers in 2024.

hello everyone my guest today is blake smith he's the founder and ceo of cladwell a digital closet manager cladwell's goal is to manage the world's closets by helping people to do more with less the company resides at the intersection between math and art much like blake who used his background in computational mathematics as a hedge fund analyst before joining the founding team of an agency that produced movies for walmart png and many other fortune 500 brands in addition to cladwell blake and his wife chandler raise and homeschool four kids blake are you ready to take us to the top let's do it all right so help us understand how cloudwall works yeah yeah so it's based on a really simple thesis was that when you look at the retail industry number two largest industry on earth um number two only to the oil industry one in six human beings works in it and what we found is that it's pretty much all obsessed about getting what are you going to buy next that's the main focus of the retail world right what are you going to buy next which is interesting when you look at the human experience of clothing it's not focused on really what you're going to buy next it's about what are you going to wear next tomorrow morning what are you going to put on your body and the thesis of the company is like if we could create a company that was more focused on the human experience of clothing which is helping people get dressed every day through proprietary algorithms that we've developed and an app called cladwell you can download the app store for free and from there if we could actually make getting dressed more pleasant help you use more of your clothes in more creative ways then that's a better service that would result in more people coming to us and actually eventually would drive towards a much better um environment to sell clothing than just trying to push you to buy you know so so how does it work right because my my closet is a mess i mean i have one stack of black t-shirts i wear them every day and i have about you know black pants stacked next to my wear those every day everything else is a mess it's stacked in piles i would never go in and fold it much less sort it much let's take a picture and upload it to a consumer app yeah how do i use you yeah um so that was a big deal it was like being concerned especially about the idea of taking pictures so we did is we curated about 30 000 items of just images so literally we have based on the data we've had you know a couple hundred thousand people go through this process we know what most people have already so we provide a feed of the most commonly occurring items and you just tap on the stuff you own so our average customer this is not a good customer average customer adds 60 items from the clothes in their closet in the first month of use um and so that's like if you think about it the average person in the us only wears 20 of the clothes in the closet which is a staggering statistic we only wear one in five of our items and on average we have 150 items so we have literally double what most people wear and that's in the first month yeah and look again i believe that you you once some things you buy for like one night out and then they sit in the closet the whole year and others you wear every day repeatedly over and over and you stretch how long they can go before you have to wash them um so okay how do you make money yeah um that's been a big process for us because i think that's a big deal by the way blake yeah yeah making money is a big deal isn't it um we've gone through a couple processes i'd say of trying to find our way and we actually just made a pretty aggressive move this fall um we were a b2c subscription company just thing like spotify right you're paying for a subscription for this service and um what we found is that we were able to get to the real core person who really needed what we have which was really awesome but what we found is that that kind of very linear and we kind of could see where that was going and our vision is that we want to manage the world's closets so just this fall for a limited time we've actually gone completely and totally free and we did that because we were funded two ways one through venture capital and two through some pretty big partnerships with some tier one retailers how much have you raised um we raised three million okay yeah and so our uh i think everyone kind of said let's go after that idea of managing the world's closets and so we've actually signed a couple partnerships with some major retailers um right now we're not announcing who those names are but everybody knows these folks and um the idea is that this is there's one time of day that you're actually thinking about your clothes and that's when you get dressed every day and right now the way most retailers interact with you is they're going to try to interrupt you while you're working by sending you an email right and your email inbox is like hey you need new shoes you're like really why why are you trying to do this this is not the time to talk about this or an instagram or somewhere else we think that we have the best environment on earth which is the one time every day average is 15 minutes people think about their clothes so how many consumers do you have actively using the app actively um 20 000. okay and define active they're all paying actively is they're using it um they're using they are wearing outfits every single month um and our average customer who wears an outfit they're going to use it five for five days out of the week they're gonna wear what we prescribe okay so and those twenty thousand people pay how much per month for this um it varies uh right now um if they wish to they can transfer over for free and they can use the app for free um that being said there are a lot of people who are like like they see people who we've like emailed them and told them they can switch over that are actually still paying currently because this kind of limited promotion what so what did you go a revenue to before you pivoted we were over a million a year in revenue okay so you're over 83 grand a month was it recurring subscriptions yes okay and what is it at now um we lost around 15 percent okay um got it so you're down to maybe 73.72 ish per month now but a lot of those people just don't realize they can use it for free yeah and it's gonna be what we're looking to do is we're gonna probably in the spring we've got some huge features that we're pushing right now in the spring we're gonna split it between like your freemium like really switch to like a true freemium where you can use part of it for free and part of it where were you a year ago if you're at a million bucks a month uh just recently where were you a year ago sorry nine bucks a year yeah millions wait honestly we're about probably the same which is a big reason why for the aggressive that was like the reason for the kind of aggressive move is that we could what we found is we could get essentially three month payback um on our cac so like we could actually grow that million but we what we found is that it started to feel like you're on this treadmill where you know call it 40 to 50 of your marketing is going to replenishing people who are churning out in money yeah you have to what was your price point again uh it was eight bucks a month yeah you have to sign up so many people to build a meaningful business right and that was a piece where at the same time though if you look at like the value of american closets it's just it's completely unreal it dwarfs the value of retail and no one's kind of going after it so if i think we truly are maybe finally realizing what we are which is we're just a true venture capital play which is if we can grab the market and own it like at scale this thing is really significant especially from a data standpoint so of the 20 000 how many are paying um half a little over half a little over half yeah that makes sense 10 000 paying eight bucks a month is 80 grand a month right something like that um interesting and when did you launch the company what year oh goodness we we launched launch in 2012 um and then we pivoted hard uh from a product standpoint uh we went to we went from focusing on a very different sales experience to actually getting dressed that was about 18 months ago as well as from a target standpoint we switched from men to women so 18 months is this business here but we didn't change the name and actually that piece um in some ways i regret i think it would have been better to change the name yeah because it's clearer to people are you burning capital right now yeah yeah uh what's the team size uh there's only five of us six five okay wait so how are you i mean a million bucks a year should more than cover five people plus have cushion on top where are you burning money um we're spending a lot on the actual technology itself there's a good amount of technology costs these algorithms are pretty complex um so like from amazon web services um it's pretty legit if you think about the permutations of outfits that we're creating it's in the billions if not trillions okay got it so a lot of your spent expenses are kind of cost to goods sold to like aws of the world yes okay the rest is five with head count so when you say burning per month are we talking like 20 30 grand a month yes okay so it's not it's not a crazy amount and like we've got we're backed by science incorporated on santa monica and so we're really kind of in this spot where i think we're if you think about product market fit i think there's one final piece right now that we're trying to de-risk in our business before it's truly scalable ready and that piece is how does this company grow itself naturally at an aggressive rate and up until this point we've grown through paid media and i just don't think that that's a good business to be in because just effectively the bigger you get the more expensive it gets so we're actually trying to make this shift over to growing ourselves through our user base and so it's a huge feature that we're rolling out next month yeah but like what do you let's say you get a million users or 10 million users how do you start making money yeah it's through these partnerships with retailers retailers are so interested in what people are wearing on a daily consumer data basically yes because it's actually the lead indicator and what you're going to buy next right now the only data they have is what you bought last which is actually a horrible indicator of what you're gonna buy next um how okay you sell my closet to target what will they start doing with that like how do they know what i'm gonna buy next based off me using you and you selling them in my data so when you come every day to cladwell which right now we're five and a half outfits a week for most of our customers every day when you come to cladwell when you're getting dressed it says hey i love this outfit if you had this one item you could create a thousand more outfits and here's why celebrities are wearing that this item right now so it's actually it's selling within the context i see what you're saying do people really need this much help getting dr like i don't even think about in the morning i would never think like let me open my app and have this app tell me what looks good on me it's black every day black on black on black like do people need this much help we're 90 women um and so it is i'd say the world of fashion is uh ten times more complex and filled with pressure for women than it is for men yeah i don't love that fact but um it is the case what is your wife thing does she use it oh yeah yeah very much seven days a week yep so our target is a millennial working woman with children and so my wife really fits into that very nicely interesting so are you looking now at like like churn expansion revenue the typical sas metrics are not really that those stop mattering when you pivoted really we're much more focused on uh so we started off jumping right into b2c metrics like d-a-u-m-a-u-w-a right um but then we we actually shifted it and we started making up our own metrics which is how many humans do we dress a day how many closets do we have under management on a monthly basis and then how many outfits are they actually wearing on a weekly basis is it this so it's like we're decided what are the metrics that actually physically matter in the world to us and then that's what we're using and it's kind of cool i feel like it just is clear and also when you present to investors they have to actually take it for a unique business as opposed to just comparing us in the line i know that bird did that um if you look at bird's deck it's insane everything is branded to like flights and nests and all this different stuff and so it's like you by having new names for things it makes it um where can we look at birds where can we look at bird's deck oh that's a good question i don't know how did you see it i found it where did you find it a friend oh got it this wasn't like you didn't stumble across some website this is like an email thread you happen to get lucky and beyond yes but if you look at like even just look at all their terminology they have named everything uniquely to their unique business and i think that's really advantageous because it makes it so you don't have a pre-formed way of categorizing their business when you come to it and that's really sexy interesting all right uh let's wrap up here with the famous five number one what's your favorite business book uh my favorite business book you said yep it's a good question oh man that's what it was when you read it uh like i'd say one of my favorites on st for startup specifically is the hard thing about hard things i feel like he captures the emotional journey really well with entrepreneurship number two is there a ceo you're following or studying um who's his face from spotify i really like the way he talks about product um i feel like he's probably the most that i really like good number three what's your favorite online tool for building your company favorite online tool for building my company i don't know slack google docs number four how many hours of sleep to get every night oh like i don't know eight eight or nine and situate well we know you're married any kiddos yeah i have four children oh my gosh and how old are you i'm 33 33 last question blake what do you wish your 20 year old self knew oh man uh i think just you don't have to you don't have to justify everything that you do with reason it's okay just to do things because you want to do them yeah guys you don't have to justify everything with reason you can just follow your heart sometimes whatever you're excited or to work on right blake lunch cladwell back in 2012 to help manage your closet today got about ten thousand paying customers eight bucks a month about a million bucks in terms of run rate they're flat though as they pivot to a brand new model raise some additional funding three million today they're now burning 30 grand a month team of five spending a lot of money on algorithms to help understand what closets could look like many different variations permutations in the trillions as they look now to partner with big retailers and then sell consumer data around clothing back to the retailers over the long term once they get scale blake thanks for taking us to the top thanks a lot man