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In some entrepreneurial circles, the amount of venture capital a startup raises had become a badge of honor.
But there are signs that a new breed of digital-first consumer brands feels differently.
Stitch Fix was profitable on an estimated $900-million-plus in revenue this past fiscal year, while raising just $42 million in venture capital to get there. It recently filed confidentially for an IPO.
Then there’s Tuft & Needle, a mattress startup that was profitable on sales of around $100 million in 2016 and has never raised equity financing.
Now there’s New Jersey-based startup Boll & Branch, which manufactures and sells organic bedding and towels through its own website and stores. The startup recently raised a $4.5 million Series B investment — a tiny amount for that investment stage — and has only raised $12 million total so far. It still has $10 million in the bank.
Yet the four-year-old startup has been able to build a fast-growth business that is forecasting net revenue of between $50 million and $60 million in 2017 — only its fourth year in business -- and a profit. In 2018, it projects to double revenue to at least $100 million on the back of a new product line, and to register a healthy profit again.
“The idea of raising a ton of venture capital, deploying a ton and hoping to sell almost immediately,” CEO Scott Tannen said, “that’s an invention of the last 15 years.”
And one that this CEO says is not his goal.
Tannen and his wife, Missy, launched Boll & Branch in early 2014, financed in part by personal debt. The most recent round of funding — raised earlier this year from the company’s only institutional investor, Silas Capital — was largely earmarked to help the company open brick-and-mortar stores.
Boll & Branch just opened its first one, in the Short Hills Mall in New Jersey, and plans for three more next year. But the company was able to open the shop using only its own cash flow because it grew faster than expected, and Tannen says the same will be true for the next few locations.
So the new investment money sits for now — a cushion in the event of unexpected challenges, or a small war chest for new opportunities.
How is this possible while so many digital-first consumer brands can’t get out of the cycle of raise money/blow through it, raise money/blow through it? For every Jet and Dollar Shave Club that turn VC-fueled growth into a billion-dollar sale, there are many more Fabs and One Kings Lanes that raise tons of money and then flop.
Tannen attributes the profitable growth to a variety of factors, including a New Jersey location that is cheaper than big-city rents, a lean team of just 25 employees, and a focus on marketing spending that has to produce an ROI almost immediately. Podcast ads? Yes. Subway ads? No.
Tannen also thinks Boll & Branch’s average customer, who is in their late 40s, is an advantage over competitors who might attract a more millennial customer.
“Millennials are constantly inundated by new brands and are open to discovery, so they are an awesome way to get trial,” Tannen said. “But not long-term loyalty.”
This article originally appeared on Recode.net.
