Can Parachute Find Sustained Profitability as DTC's Golden Age Wanes?

Summary

From the Ground Up: Can Parachute Find Sustained Profitability as DTC's Golden Age Wanes?

Introduction

In the September 30, 2024 episode of From the Ground Up, hosts Diana Ransom and Christine Lagorio-Chafkin engage in an insightful conversation with Ariel K., the visionary founder of Parachute Home. This episode delves deep into the challenges and triumphs of maintaining sustained profitability in the evolving Direct-to-Consumer (DTC) landscape. As the golden age of DTC begins to show signs of slowing, Ariel shares her experiences, strategies, and the future roadmap for Parachute Home.

Founder’s Background and Founding Parachute Home

Ariel K. brings a rich background in advertising and marketing to Parachute Home, having spent nearly a decade in the industry before venturing into entrepreneurship. She reminisces about her early days in the East Village of New York City, highlighting how her accumulated knowledge and passion for home and design led to the inception of Parachute Home in 2014.

"I started an interior design blog called Second Story View in 2006, which was my creative outlet and laid the foundation for what would become Parachute Home." [07:28]

Evolution of DTC to Omnichannel

Ariel is recognized as a pioneer in the DTC space, having launched Parachute Home at a time when the DTC model was still gaining traction in the home goods industry. By establishing the first physical store in Venice, California, just two years after founding the company, Ariel demonstrated foresight in embracing an omnichannel approach early on.

"We were first to market in the home space. There were no other bedding or mattress brands in the DTC model when we launched." [08:34]

This strategic move allowed Parachute to bridge the gap between online and offline customer experiences, fostering deeper connections and building trust with consumers who traditionally preferred in-store purchases for home products.

Challenges in DTC and Transition to Omnichannel

As the DTC landscape becomes more saturated and capital-intensive, Ariel discusses the complexities of maintaining profitability. She acknowledges the rising costs of customer acquisition and the challenges posed by competitors offering lower-priced alternatives.

"We’re committed to quality and creating the best products, but our prices have had to fluctuate with the cost of cotton and raw materials, impacting our margins." [15:30]

Transitioning to an omnichannel model introduced additional layers of complexity, such as managing inventory across 25 stores with varying regional demands and climatic conditions. Ariel emphasizes the importance of maintaining a consistent brand experience both online and offline.

"Providing a shopping experience that meets consumers where they are, whether online or in-store, is powerful but requires immense coordination and adaptability." [22:11]

Sustainability and Circularity at Parachute

Sustainability remains a core value for Parachute Home. Ariel highlights their commitment to using organic suppliers and preferring partnerships that align with their vision of producing premium, long-lasting products without toxic chemicals.

"We were one of the first brands to talk about Okotex, ensuring no toxic chemicals throughout our manufacturing process." [12:14]

In response to shifting consumer priorities, Parachute has doubled down on sustainability by launching their circularity program, Super Circle. This initiative encourages customers to return used products for recycling or repurposing, offering a 15% discount on future purchases as an incentive.

"Super Circle allows us to take back products and give them a second life, significantly reducing landfill waste and promoting environmental responsibility." [36:05]

Mentorship and Community Building

Understanding the value of mentorship, Ariel shares Parachute’s initiative, Home for Dreams, a mentorship program designed to support emerging founders. This program provides a $25,000 grant and nine months of intensive mentorship, enabling entrepreneurs to scale their businesses effectively.

"Home for Dreams is our way of giving back, providing both financial support and guidance to founders who are building their dreams." [33:03]

Additionally, Ariel underscores the importance of community, both within Parachute and among its customer base, fostering a network of brand advocates and collaborators.

Marketing Strategies in a Changing Landscape

As the marketing ecosystem evolves, Ariel discusses the necessity of balancing brand and performance marketing. She acknowledges the saturation of traditional channels and the rising costs of online advertising, pushing Parachute to innovate its marketing approaches.

"We are learning from a marketing mix that relied heavily on performance and are now moving back into more brand spend to build long-term connections." [28:00]

Ariel emphasizes storytelling as a crucial component of their marketing strategy, leveraging partnerships and content creation to maintain engagement and relevance in a crowded market.

"Storytelling is at the heart of how we reach our customers. It’s about creating relatable and aspirational narratives that resonate." [28:00]

Future Roadmap and Sustained Profitability

Looking ahead, Ariel remains optimistic about Parachute’s potential to achieve sustained profitability through disciplined growth and strategic innovation. She recognizes the increasing challenges in scaling DTC brands but believes that their strong customer trust and commitment to quality position Parachute favorably.

"Our trust with customers and commitment to quality give us a strong place in the market, even as it becomes harder to scale." [15:16]

Ariel also highlights ongoing efforts to explore new revenue streams, such as leveraging customer data for opportunities in sales and customer service, and considering acquisitions to enhance technological capabilities.

"We’re sitting on a goldmine of data that, with AI, can unlock new sales and service opportunities." [47:14]

Conclusion

Ariel K.’s journey with Parachute Home exemplifies the resilience and adaptability required to navigate the shifting sands of the DTC landscape. While acknowledging the waning golden age of DTC, Ariel’s strategic pivot to an omnichannel model, unwavering commitment to sustainability, and innovative marketing strategies underscore Parachute’s potential for sustained profitability. Her insights offer invaluable lessons for entrepreneurs seeking to build enduring and impactful brands.

Notable Quotes

• "Founders need to balance between brand and performance marketing to ensure long-term growth." — Ariel K. [28:00]

• "Sustainability isn't just a trend for us; it's a fundamental part of who we are." — Ariel K. [12:50]

• "Creating a consistent experience across online and offline channels is incredibly challenging but essential." — Ariel K. [22:11]

• "Mentorship and community are vital for nurturing the next generation of entrepreneurs." — Ariel K. [33:06]

Takeaways

1. Adaptability is Key: Shifting from a pure DTC model to an omnichannel approach can mitigate risks associated with market saturation and changing consumer behaviors.

2. Commitment to Quality and Sustainability: Maintaining high product standards and sustainable practices fosters trust and loyalty among consumers, even in price-sensitive markets.

3. Balanced Marketing Strategy: A harmonious mix of brand storytelling and performance marketing enhances customer engagement and long-term brand equity.

4. Community and Mentorship: Building a supportive ecosystem through mentorship programs and community engagement strengthens the brand’s position and fosters innovation.

5. Strategic Innovation: Leveraging data and exploring new technologies, such as AI, can open up additional revenue streams and drive business growth.

Final Thoughts

Ariel K.'s leadership at Parachute Home serves as a compelling case study for entrepreneurs navigating the complexities of the DTC landscape. By embracing change, prioritizing sustainability, and fostering community, Parachute Home is well-positioned to achieve sustained profitability and continue its legacy of quality and innovation.

Transcript

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[Diana Ransom]

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[Diana Ransom]

Christine Diana, what brand collabs would you love to see?

[Christine Ligorio Chavkin]

Oh gosh. What if you combined like, Swarovski Crystals and Crocs?

[Diana Ransom]

Oh my God. Brilliant diamond gibbits.

[Ariel K.]

Yes.

[Diana Ransom]

Mic drop. We get a finder's fee. This is from the ground up. I'm Inc. Executive Editor Diana Ransom.

[Christine Ligorio Chavkin]

And I'm Editor at Large Christine Ligorio Chavkin.

[Diana Ransom]

Today's Episode Finding Profitability so, Christine, for today's episode, I spoke with Ariel K. Who is the founder of Parachute Home. Tell me what you know about Parachute.

[Christine Ligorio Chavkin]

Oh, I know Parachute. I know they make really nice linen sheets. And I know its founder, Ariel.

[Diana Ransom]

Yeah, yeah. You guys go back a little bit.

[Christine Ligorio Chavkin]

Actually, we were. Before she even started Parachute, we had been socially friends. Like back in the day. We had some friends in common. When she lived in the East Village of New York, like right after college.

[Diana Ransom]

That's right. Yeah. She lived in New York City and apparently spent about a decade in advertising and marketing before she even founded her company.

[Ariel K.]

Yes.

[Christine Ligorio Chavkin]

Yeah, we drifted apart during those years, but I did know her for a little bit. She was really nice. So why did you want to talk with Ariel now?

[Diana Ransom]

Well, so actually, it came out of a point that you and Anu had brought up in your conversation with her about the quote unquote death of D2C. So I wanted to talk to her because she was a pioneer in it. I mean, she started Parachute Home in 2014 and she was also early to Omnichannel which is on everybody's minds these days, too. So about two years after founding the company, she launched her first store in Venice, California. So early to D2C, early to omnichannel. So she seems very clued in.

[Christine Ligorio Chavkin]

So I feel like there are some. There's probably some lessons for founders that came out of this. Like, she was early to D2C. She had a successful first few store openings, kind of at the cusp of profitability.

[Diana Ransom]

But where.

[Christine Ligorio Chavkin]

Where's Ariel now?

[Diana Ransom]

Absolutely. It has been a wild ride, and the company has had blips of profitability in the. In the recent past, but it hasn't really had sustainable profitability. And that's something I wanted to ask her all about. But before we got to that, I wanted to ask her about what it was like to step down as CEO.

[Ariel K.]

It's something that I'm very proud of. Ten years into the business, the business changed. And I often am asked, do you still love what you do? Because being a founder is hard. There's a lot of high moments and low moments. And, you know, I think over the years, your job changes and evolves, and that's what keeps it exciting and interesting and inspiring. And for me, personally, I love the learning and the growth, but there were parts of the business that I also missed, parts of the product development, the creative exploration of the business, the storytelling that I just didn't have as much time, space, or energy for in my role as CEO. And as our business got more and more complex, it. It was a pleasure to pass off that title and role to our former coo, someone that I'd worked with for almost five years at the time and really felt a true trust with. And, yeah, it's been an interesting journey, an identity shift, and certainly not insignificant in terms of just all of it. I mean, my role, the way that I view myself, I mean, I think it took me on an interesting journey of who I am and how far we've come, and a lot of introspection. But I also think it's something really to be celebrated. You know, I'm very proud that I was CEO of this business for 10 years, and also very proud to be able to pass the baton.

[Diana Ransom]

Yeah.

[Ariel K.]

And step into a different role.

[Diana Ransom]

Well, you never. I mean, you're still the founder, and your. Your influence is still pretty important. So what is it like to, I guess, pass on the reins? Like, are you still involved in every decision, or do you just allowed the new CEO to do all that?

[Ariel K.]

I definitely give a lot of autonomy to our new CEO. But, you know, I'm still on the board. I'm chairman of the board, and I'm still involved in a lot of big decisions and strategic direction of the business. And that's really important to me. You know, I think the founder has a unique way of bringing a heart and soul into the business, and it's important that that remains and exists and perseveres as we evolve and change. But businesses also evolve and change, and businesses needs evolve and change. And in many ways, I've able to ignite my creativity that I was really missing and longing for while still feeling as connected to the brand as ever. So. And I've had the opportunity to talk to people who have been in similar positions and stepped back or stepped down or stepped away, and it's bittersweet and there's surprise emotions. I think I've really spent a lot of time just being like, oh, today I'm feeling this, you know, and giving a name to it and allowing that to be part of the journey. But it's 10 years in. It was the right thing.

[Diana Ransom]

Ready for a change to do.

[Ariel K.]

I'm ready for a change. And yeah, I'm so proud of 10 years as CEO of Fairchute.

[Diana Ransom]

Yeah, absolutely. You've built an incredible company.

[Ariel K.]

Thank you.

[Diana Ransom]

But it's also interesting because where you started, you were in advertising and marketing.

[Ariel K.]

Exactly.

[Diana Ransom]

In New York City. And then you totally changed. You, like, moved to la. You're like, I'm going to start a betting company. What happened there?

[Ariel K.]

Who saw that coming? Certainly not me. It's a journey that I think is similar to many founders. You know, I was working in advertising, and I really loved that business and I loved the way that my brain got to work in that role. I was on the strategic side of creative, and it took me a while to find a job and a career that actually really felt like I had found my place. And I was using my brain in a way that I didn't get bored easily. And that had been the case in previous jobs. But I also always loved home and design. And so when I was in grad school, I had started an interior design blog. And. Oh, cool.

[Diana Ransom]

What was it called?

[Ariel K.]

It was called Second Story View.

[Diana Ransom]

Nice.

[Ariel K.]

I lived on the second story of my apartment in New York.

[Diana Ransom]

Perfect.

[Ariel K.]

Yeah. I started in 2006. It was early days of WordPress, and it was a creative outlet for me. And as a result, I started helping friends decorate their homes and apartments and shopping a lot for products. And, yeah, I found myself at this intersection where I was surrounded by people that were joining early stage startups or starting their own companies and had my aha moment of what if I could merge my interest in brand building and consumer behavior and home and do something that was more entrepreneurial and allowed me to learn and grow in a different way. And didn't really see myself as the founder or CEO of a company, but over a few months realized that there was this huge opportunity.

[Diana Ransom]

Absolutely. And you kind of hit the market perfectly. Your timing was incredible. It was early days and the whole D2C explosion. Take us back to that moment and do you think you could have done what you did now?

[Ariel K.]

Yes and no. I mean differently. I launched in 2014. We were first to market in the home space. So there were no other bedding brands, There were no other mattress brands. I mean, we were. Clearly other people had the same idea because brands followed soon thereafter. But it was a really interesting time. D2C was established enough that we as a brand didn't have to say, direct to consumer means cutting out the middleman, going directly to a manufacturer, adding this value, creating this opportunity to connect with the customer in a new way.

[Diana Ransom]

You didn't have to spend that time.

[Ariel K.]

Yeah, the education was there, but in the home category, 90% of purchases were made offline. So it wasn't a behavioral shift that we were up against in terms of getting people to trust and to believe that you could buy these products on the Internet. And that was new and that was exciting. But that was also the opportunity that I saw. I was like, hey, this is where we're headed. And as a consumer, I was so inspired by this D2C movement in other categories, whether it was, you know, eyewear with Warby or clothes and Everlane. And, you know, I found myself thinking, like, there was a lot here, you.

[Diana Ransom]

Know, with every D2C brand, you had that issue of not being able to touch and feel the thing that you're buying and then having to overcome that, that kind of big hurdle for consumers.

[Ariel K.]

And I think that's where my background actually created an advantage for us, because I had spent so many years telling stories and really thinking about how to motivate, inspire and connect with customers, and thinking about insights and truths and things that really move people to feel connected and to build relationships with products and with brands. And that was how I launched this business. With that in mind, I was able to say, like, how do we connect with people? How are they sleeping at night? Like, how could we improve their quality of sleep, which is such a huge thing. Like, if you can Create, oh my God, life changing. Exactly. Like if you can create a better night of sleep, like, come on. And I knew that that was a great entry point for us too, because if we could build that trust, then we could move into towels and this bath and other categories throughout the home, which was always the vision. But that trust around sleep was felt impactful. But I don't know that I could have done the same thing. I mean, this was, Instagram was just getting started. I mean, you weren't shopping that way. You know, the marketing landscape has evolved in more ways than we could ever have time to discuss, you know, and so I launched with a small collection of products. I hired a PR team and got some great launch press and hit the ground running. I mean, we immediately saw this massive reaction from the customer.

[Diana Ransom]

But you also knew at the time that sustainability would be important.

[Ariel K.]

Yes.

[Diana Ransom]

I remember talking to you years ago about the manufacturing process where you, I think you were in Turkey at the time, am I wrong?

[Ariel K.]

Italy.

[Diana Ransom]

Italy.

[Ariel K.]

Was it always Portugal? Well, Turkey maybe by the time. Yeah, maybe Turkey was part of the story too at that point.

[Diana Ransom]

I guess the idea was that you were trying to find organic suppliers all over and it was a struggle.

[Ariel K.]

Yeah, we were really hyper focused on our manufacturing partners, many of which we've been working with now for 10 years. But the origin story, the manufacturing story, finding partners who did not use toxic chemicals, artificial dyes, synthetic finishes that really were aligned with our vision to create the most premium quality products with the most pure fibers, which in turn creates the best hand feel and in the most long lasting premium products that previously you could not get at that price point.

[Diana Ransom]

So it linked to having a better quality product.

[Ariel K.]

Absolutely, yeah. And for us, we were, I think, I mean, I don't know, one of the first brands to really talk about Okotex, which has now become very popular across all industries, which is basically means there's no toxic chemicals throughout the manufacturing process. And you know, we talked about that before anyone did as far as I know.

[Diana Ransom]

And is it still as important? Yeah, we see a lot of brands these days kind of like pulling back from sustainability. One example is allbirds. We recently ran a story where they were saying how they're, they're not pulling back from the idea of sustainability. They're still actively doing it, but they're not going to talk about, about it as much.

[Ariel K.]

So consumer research shows that it's not as important to customers as one might hope when it comes down to spending money. And which is just a fact and kind of disappointing. But Also, like, there's a lot of things people are looking for and the reality of prioritizing sustainable products is that they're more expensive and a lot of people are price conscious or thinking about spend in different ways. We've doubled down, I think, as a brand in continuing to prioritize sustainability. We also just launched a circularity program this summer. Super Circle with Super Circle. Yeah. Which one of the first, I think home brands to really invest in circularity. So how we talk about it, it's still one of our value propositions and something that we believe in as a brand because we believe in the impact that these choices have on the planet. And. And that's really important for us.

[Diana Ransom]

And it's also probably knowing your audience, like, you realize that this is still important for your chief consumer, right?

[Ariel K.]

Yeah, to an extent. But we also hear from our customer that it's not the most important thing, you know, and so I think at some point you make a decision based on what you believe in. Also, I mean, our team really cares about it, you know, and like when we talk about it internally, you know, there's a lot of energy around this being part of why people want to work at Parachute because they want to work for a brand that believes in protecting or people and the planet. It's just interesting, you know, it's interesting the way that people talk about things that they care about and then the way that they act when it comes to spend or making choices, and those aren't always aligned.

[Diana Ransom]

Yeah, I mean, I'm sure you come up with revelations every day that kind of shock you.

[Ariel K.]

Yeah, I mean, and it's okay, you know, and it's interesting to hear people's perspective. We do a lot of consumer research and talk to our customers a lot to really understand what does motivate them and why they shop at Parachute and. Or why they don't shop at Parachute. And you know, those learnings are helpful for us as we think about marketing and our messaging and you know, what we prioritize. But as a brand, it's still.

[Diana Ransom]

Yeah, it's gotta be number one. And then we were talking, you mentioned before about sort of like the price consciousness of the consumer, especially these days. And I'm aware that your company also wants to reach profitability soon. How are you going to go about that knowing that the consumer is so price sensitive these days?

[Ariel K.]

It's a big market. I think it's hard, you know, it's certainly hard. And the market and category continues to be more saturated and there's brands that parachute for less, you know, is their whole message.

[Diana Ransom]

Absolutely. I was going to ask you about.

[Ariel K.]

Dupes and all that and you know, it just is what it is. And you know, you can buy sheets on Amazon for $30 and they've got 20,000 five star reviews. I mean, these products exist. It just makes it more hard to be honest and it requires more discipline. And we're committed to quality and we're committed to creating the best products. And our prices have had to fluctuate. I mean, not a ton, but you know, the cost of cotton and the cost of our raw materials changes. And that all impacts our margin and our business. And our goal is to be a profitable company that is around for a very long time. And so we're in the weeds thinking about this every day. And it's our city. It's a good question. It's a great question, you know, and there's not an easy answer. You know, it just isn't. There's not a silver bullet, you know, it's not linear. But I think for us, that trust that we've built with the customer, you know, we would rather not introduce a product if it doesn't meet our standards or not introduce a product if we can't get the right price because it's just too expensive to make, you know, and so we're making choices and we're lucky to have manufacturing partners that we've worked with for so long that understand what we're trying to achieve and accomplish. And so there are real partners on that. But yeah, it's hard.

[Diana Ransom]

And you have 25 stores. Right. And there was. You just came off a spate of launching like 13.

[Ariel K.]

We had a real retail launch tear in 2022. Yeah.

[Diana Ransom]

Woo. Yeah. Do you go to all the openings?

[Ariel K.]

And not all of them, but I did for a while.

[Diana Ransom]

Pre. Children. Pre.

[Ariel K.]

Children. Pre. Covid. Pre. Yeah.

[Diana Ransom]

Well, I still also going back to the conversation that we had years ago, you had just launched the Venice beach location and I think it was your first one and you were actually on the cutting edge of going from D2C to brick and mortar or to do omnichannel. What were you seeing at the time that you thought that this was a wise idea?

[Ariel K.]

So I mentioned that when I got started, 90% of purchases were made offline. And I just knew that there's a reason for that. I mean, first, companies like ours didn't exist. But also people like to touch and feel. And for me, because of my background in consumer behavior research and my priority to build relationships not just create space for transaction was always really important to me. I wanted space to create those relationships and to allow people to touch and feel. And we did a few popups leading up to the launch of our first store. And you just saw that immediate excitement from the customer when they felt our percale, when they felt our sateen, when they felt our linen, when they saw the colors in person, when they got to talk to us about the brand and learn. And we saw those people leave and become brand advocates and evangelists for the brand. And I just knew that there was an opportunity to do it differently. Also because one of my inspirations for creating Parachute was to move away from the big box retail model where, you know, it's floor to ceiling stacked products and everything looks the same and wrapped in plastic. And I really wanted this immersive experience where people could learn about the product. And our stores were more than just stores. They were, you know, we, from day one, yeah, look like clients, right. They look like home. And we would have events and speaker series and workshops and we tried to really create a space where people could learn and get excited about the brand. And if they shopped, great, but if they didn't, totally fine too. And once we started opening stores, we saw the halo effect that had on our online shopping. We saw the connection between the customer buying first in store, then online, and we just saw it being a real additive and profitable way to grow.

[Diana Ransom]

We just finished taping an episode with Anu from Female Founders Fund. She was talking about just the overall climate and things she's excited about and just generally speaking, things that she's not so excited about. One of those things is actually D2C she's less enthusiastic about. I think that that's, generally speaking the case among investors these days is D2C is getting less excitement or approval from investors. Are you seeing any pushback from investors or any kind of issue in that department?

[Ariel K.]

We've been very capital efficient and haven't raised capital since 2018. So we're not in market, so we haven't. It is a tough time for D2C to raise capital, and I hear that from friends and it's as clear as day. I think a lot of things are cyclical, you know, and there will be times where things are in and times where things are out and time where there's a lot of enthusiasm for investors and times where people are shying away. I do think that omnichannel is important and that's part of why we.

[Diana Ransom]

Why you're doing it.

[Ariel K.]

We're doing it and have been doing it for so long. And, you know, I always believed that. And I think the most iconic brands of our time are Omnichannel. But it's challenging. And I think. I think part of that is because of how challenging online advertising has become and just the marketing challenges. But also foot traffic's down. I mean, it's just a. It's a strange time for consumer businesses.

[Diana Ransom]

People are kind of crowing about the death of D2C at this point. Do you think that we're talking about the death of D2C?

[Ariel K.]

I think it's going to continue to be harder to introduce new D2C brands to an extent. Maybe not launch and get to, you know, a certain size, but I think to really scale big businesses, it's just harder. It's harder to acquire customers. It's a different time. It's a different. There's a lot going on and it's really capital intensive and capital is really expensive. So I think that's where things get.

[Diana Ransom]

It's capital intensive, but it also. You're saving a lot. You don't have the overhead of, like a lease, for instance, or you're not hiring, you know, retail workers who work inside of a store.

[Ariel K.]

Yeah. But you're spending a lot of money to get the awareness, the marketing. So I think if you have patience to build slowly, which I think is also something we're seeing now that the expectations around growth have shifted, the prioritization around profitability has become something that you hear from everyone. Absolutely. And so, you know, the days of growing hundreds of percent year over year are just. They aren't as, you know, celebrated. I think people are celebrating healthy growth and disciplined choices. And that's something that we've always prioritized, and that's worked in our favor and I think has given us a strong place in the market.

[Diana Ransom]

You talked about Omnichannel being, you know, something you had seen early on as being the thing that you would look to. What are the downsides?

[Ariel K.]

Complexity. A lot of complexity. Consistent experience across, both on and offline, is something that is not just a given. Like, you have to really work for that. I really think that people shop in different ways. And so being able to provide a shopping experience that meets you where your consumer is, whether that is online or offline or a mix of both, is really powerful. But, yeah, there's a lot of complexity. And we're not just buying inventory for our online site, we're buying inventory for many stores. Each store operates differently, each Store is a different type of consumer. Each store, each region. You know, absolutely. It's 100 degrees on one side of the coast and, you know, 40 on the other. You know, we have to think about.

[Diana Ransom]

That is so interesting.

[Ariel K.]

The way that we're merchandising. I mean, it's just really complex. I think that's why D2C was so appealing for so long, was that there was a layer of complexity that was removed by just having one storefront.

[Diana Ransom]

So really, in the end, the problem with DTC is that marketing, just getting the word out is the downside or it's too expensive right now.

[Ariel K.]

I think that's a big part of it. And I think the way.

[Christine Ligorio Chavkin]

Can we stop here for a moment? Dana, you just touched on something with Ariel about the death of D2C.

[Ariel K.]

And.

[Christine Ligorio Chavkin]

About scaling big businesses and acquiring customers. Capital is really expensive. And that's interesting because as you pointed out, D2C helps you save on overhead like leases and retail workers.

[Diana Ransom]

Absolutely. I mean, it's clear that there were benefits to D2C. But as Ariel pointed out, the idea is to build awareness. You have to spend a lot of money, and it's getting more and more expensive. And to be frank, the priorities, as she pointed out, have shifted, too. So now founders are laser focused on healthy growth and being disciplined and making disciplined choices right now. Yeah.

[Christine Ligorio Chavkin]

And I feel like in store is a really good place for founders and their businesses to actually connect, you know, face to face, eyes to eyes with consumers. What does Ariel think about Omnichannel?

[Diana Ransom]

Well, she said it's really complex. So here, let me give you an example. So she has 25 stores. There could be one in a place that is suffering from a heatwave and another in a place where there's, you know, winter, and she has to basically fill these. Fill the shelves in these two very distinct, you know, climates with products that basically don't really adapt well. I mean, they do adapt well, but they. They're not seamless in a way that, like she has been used to with D2C. So it's a lot more complex of an environment. I mean, going from one storefront technically on the Internet to 25 is really like a mess.

[Christine Ligorio Chavkin]

So interesting.

[Diana Ransom]

We're going to take a quick break, but when we return, I ask Ariel all about how she reaches consumers. Today.

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[Diana Ransom]

So what are you doing? I mean like obviously you still you're omnichannel now, but you still do want to reach your consumer. I guess Put your marketing cap on and tell us a little bit about how does one reach the consumer right now?

[Ariel K.]

I mean I think it's really important to have a balance between both brand and performance and I think brand is harder to measure. There's not as clear ROIs always attached to kind of how you are reaching customers and those are more experiential and top of funnel. You know I think we've we are learning from a marketing mix that relied heavily on performance and are now moving back into more brand spend and but I think it's really all about that Balance. Because if you are acquiring or getting awareness at your top of funnel, then your mid and lower funnel marketing tactics are going to be more efficient and work better for you. But it's kind of like the way different categories go in and out of favor. I mean, like, we were early on podcasts and now it's really oversaturated. We were in terms of advertisers, you know, we were kind of early with catalogs. And now the catalog drop days. There's 25 catalogs. Oh, I love the catalogs in your mailbox. You know, I love catalogs. But, like, there was a time where you would get like 2 or 3, and now you get 20 because there's catalog drop days and everyone's using the same catalog providers. So, you know, it's just you're constantly recalibrating. Streaming has been really effective for us, and I think at the end of the day, it comes down to storytelling and how you can tell stories and reach your customer. But it's just everything's always changing.

[Diana Ransom]

Yeah. So what have you done that's super novel? I mean, I know you wrote a book, and I know to some degree you are always producing kind of content around home life and home lifestyle kinds of topics. Have you found that that kind of production of content is working for you?

[Ariel K.]

We view ourselves as a lifestyle brand, and I think, you know, people come to us for products and also for inspiration. There's like a level of aspiration that's like, also attainable that I think people really relate with. And I think the way that we can have brand extensions, whether it's through books or content, are really helpful. I think our partnerships and collaborations have been also very effective. Our relationships with interior designers and HOT have also set us apart. I used to joke that everyone wants to sleep with us. That was in one of our pitch decks. But it's kind of true. We've set ourselves up as a brand that people really want to align themselves with. And interior designers want to do capsule collections with us, and we have done some of those and they've been really successful. We've been able to work with brands from Kith to Golf, la, Florida.

[Diana Ransom]

I saw you have Birkenstocks right now. Birkenstock just launched Tyler, the creator.

[Ariel K.]

Yeah, we're all over the place, and I think that's fun, but it's a testament to the brand, and that's what I'm most proud of. You know, there's a reason why Tyler walked into our office on a Tuesday and said, hi, do can you make me some sheets? And we said, well, do you want to do a part a collaboration? And he said, yeah, that just happened organically.

[Diana Ransom]

Wow.

[Ariel K.]

It's fun. It's fun that people see us as a brand that they want to be aligned with. You know, it's nice that you can check into a hotel and put on a parachute robe and get excited that you're on vacation and this brand is also accessible for you at home.

[Diana Ransom]

So you talked a little bit about parachute and hotels.

[Ariel K.]

How does that work? So we have, we've partnered with a number of hotels from like boutique one off hotels to auberge properties and the proper hotel group. We offer a hospitality line that's different than our line of sheets and towels hotels can purchase. And we can become part of the amenity program. And then we also. Many hotels buy our cloud cotton robes as their robes. So it's something that happened organically and something that we leaned into because of the inbound interest. But we love it. And especially with the robes, you know, I feel like, at least for me, when I'm in a hotel, I'm always checking to see who makes the robe. And as many of, well, I guess not all, but at least in some cases, we've got stores and locations where our hotels are that have our robes. And, you know, people come to the store and say, I just, I've been wearing that cloud cotton robe and I want to buy it. Yeah, it's a nice, it's just a nice tie in.

[Diana Ransom]

Is there a way to purchase the parachute item from the hotel? Like, is that a thing yet?

[Ariel K.]

No, no, it's not. But, you know, so how do you.

[Diana Ransom]

Get in with the hotels? I feel like people would be interested in this.

[Ariel K.]

They reach out to us mostly. And now, I mean, we do have someone who runs our hospitality business who is doing, you know, some outbound. But a lot of times you're getting in as a hotel is being developed and so, but word of mouth has been huge for us. And you know, once you're in kind of like, for example, we're, we are with a few auberge properties. When they're opening new properties, they think of us. And then I think other, you know, hoteliers are visiting other hotels and just, you know, looking around. But we've. It's been primarily organic. There's definitely brokers and people that like whose job it is to help place products in hotels. And we haven't worked with someone like that yet.

[Diana Ransom]

So I'd be remiss not to ask you about Parachute's mentor program?

[Ariel K.]

Yeah.

[Diana Ransom]

What is it? Well, you would explain it better than me.

[Ariel K.]

Back in 2012, when parachute as a concept and idea came to be, I left my job early 2013, and by the end of that year, I had joined an accelerator program.

[Diana Ransom]

Which one?

[Ariel K.]

It was called Launchpad.

[Diana Ransom]

Oh, yeah.

[Ariel K.]

It changed everything for me. I mean, I was a sole founder working alone. It gave me a community of other founders. It gave me a place to work. It gave me access to mentors. It introduced me to the people that invested in my company in both my seed and then future rounds. It gave me a place to be. It was. It was so impactful. And I love mentorship and I love. I know the power of sharing information and creating community and knowledge. And I'm so grateful for my mentors and my community. And so it's something that we launched our own mentorship program called Home for Dreams a few years ago. And it was sort of my way to. It was full circle for me to create a true program because I think I found that, you know, as much as I love that 30 minute or 15 or 20 minute conversation with the founder, and I can share as much as I can in that small amount of time, actually getting to spend real time, consistent time with someone and really learn about the business. And I realized that we had this whole team of people at Parachute who also had so much knowledge and information and were excited about sharing. And so we created this program. We've now had four recipients, and it's a $25,000 grant. And six, nine. It usually extends to about nine months of mentorship where founders are able to work with people from all departments on our team. And we've also created a community of recipients so that they have their own program or continued connection. And it's something that is ongoing for us as well.

[Diana Ransom]

To build, like, a community.

[Ariel K.]

Yeah, to build a community of people who have been recipients. And our hope is that as that group grows, we're able to do more there.

[Diana Ransom]

Was it important to you to have the financial component to it, like the grant or. Why?

[Ariel K.]

Because when I joined the accelerator program, I was granted $25,000. Actually, it wasn't. It was an investment, so I had to give some equity away. This is a true grant, so we don't take anything in return, but that 25k allowed me to buy inventory and allowed me to launch. And, like, without that 25k, parachute would not be here. And so I think for the mentorship alongside, that grant allows us to also help define how people are going to spend that money and how to make it most efficient and to be there as a resource as they're thinking about deploying capital and you know, just how to make it all happen.

[Diana Ransom]

Right. It's a little bit easier to do once you actually have money in hand.

[Ariel K.]

Exactly. Yeah. And you know, it makes it more valuable. I mean, 25k in the early days is. For me, it was game changing. So I know the power.

[Diana Ransom]

Is the program just focused on black founders?

[Ariel K.]

It is, yes.

[Diana Ransom]

You glossed over this a little bit earlier. The Super Circle partnership.

[Ariel K.]

Yeah.

[Diana Ransom]

What's actually happening there?

[Ariel K.]

Oh my God. It's really exciting and something that we're super proud of. So we've partnered with Super Circle and essentially we've been talking about circularity for a long time. And in many other categories, like in fashion, we've seen a lot of opportunities for circularity. In home, it's been a harder category to make work and oftentimes that's because there's toxic chemicals or artificial dyes in the products, it's harder to give them a second life. Super Circle is an incredible organization company that has allowed us to take back not just our own products, but also take back products from other brands. And so you can go to any of parachute store and donate used products. We prefer that they're clean, but you know, ideally. And then in return, we'll give you a 15% off on your next purchase. Just as a token of our appreciation for you participating in the program and also as an incentive because the more that you bring your products in and the less they stay out of landfills. And that's again just a win for people on the planet.

[Diana Ransom]

So does Super Circle take the items that are returned?

[Ariel K.]

Yes, so they take the items and then they have a number of different partners and resources to create second lives. And some of that is, I mean, it's just a whole range of products and insulation and rag. I mean, there's a whole lot of things that our products can be used for. We also have a circularity program with our down products. So you can return down pillows and we actually recycle them ourselves and create a recycled down pillow. And people are really into that. But it's just a harder program to grow because it depends on how much you get. How much we get.

[Diana Ransom]

Yeah. Well, it sounds great. It seems like a wonderful program. I know they're working with a number of different brands too.

[Ariel K.]

Yeah, they are. And we're just one of the first in the homes.

[Diana Ransom]

Well, this is tremendous. I've really enjoyed speaking with you. And I know our audience is gotten a lot out of this, so thank you so much for joining us.

[Ariel K.]

My pleasure.

[Diana Ransom]

So in sum, sometimes in the entrepreneurial journey, it's good to go back to your roots and never forget that passion as a founder. Looking back, Ariel has accomplished a lot, seizing opportunities in the home goods industry when D2C was exploding. Even now she's reaching new customers and strengthening her fan base while expressing zeal for the brand that she has built. So yes, Ariel confessed, D2C is expensive and Omnichannel is complex. But if you have collaborators like Birkenstocks and Tyler the Creator seeking you out, you must be doing something right.

[Christine Ligorio Chavkin]

That's all for this episode of from the Ground Up.

[Diana Ransom]

Be sure to subscribe on Apple Podcasts, Spotify, or your podcast platform of choice. Also, if you like this episode or have suggestions of what topics you'd like to hear about, leave us a review on Apple Podcasts or reach out to us on Inc. Social channels on LinkedIn X or Instagram.

[Christine Ligorio Chavkin]

From the Ground up is produced by Julia Hsu and Avery Miles, Editing by Blake Odom Mix in sound design by Nicholas Torres. Our Executive Producer is Josh Christensen.

[Diana Ransom]

Thanks for listening and we'll see you next week.

[Glenfiddich Advertiser]

Hi listeners, I'm Blake Odom, producer of from the Ground Up. Today we have a special segment brought to you by Inc. In collaboration with our partners at Glenfiddick Single Malt Scotch Whiskey this year at the INK 5000 gala, Glenn Fiddick presented the inaugural Legacy Award to Stephen Marsh, founder of smarsh. This award recognizes a trailblazer, an individual who has graced the Inc. 5000 list multiple times, embodying the spirit of innovation, boldness, and a relentless drive to defy the ordinary. Much like Glenfiddich, a brand that has pushed the boundaries of excellence throughout its 130 year history to become the world's most awarded single malt Scotch whiskey. Stephen Marsh exemplifies the courage and brilliance it takes to redefine industries and elevate the game. Inc. Editor in Chief Mike Hoffman spoke with Stephen Marsh about his remarkable journey, the legacy he has built, and the honor of being the first recipient of this award presented by Glen Fiddick. Here's that captivating conversation. Enjoy and be inspired.

[F]

Hi, I'm Mike Hoffman, Editor in Chief of Ink, and I'm delighted to be here today with Steve Marsh, the founder of Smarsh, a multi time Inc. 5000 honoree and the recipient of the inaugural Inc. 5000 Legacy Award presented by Glenn Fiddick. So Steve, thanks so much for joining me.

[G]

Thanks for having me. I'm excited to be here. Mike.

[F]

Oh, yeah, this is great. So let me get this straight. You've been on the Inc. 5000 list 17 times so far?

[G]

I think that's correct. I think 17 times we double checked it.

[F]

So you've been on the list 17 times. And how many years has the company been in business?

[G]

Since 2001, so about 23, I guess.

[F]

So you've been on the list more than you've not been on the list in the 23 years of your corporate life.

[G]

I think once we finally made the revenue threshold, we made the list and have been on it since.

[F]

Well, congratulations. It's amazing to make the Inc. 5000. It's amazing to make the Inc 5000 a couple of times. And to make it 17 times puts you in really rare error. Only a few companies have made it more than 15 times. So congratulations. Now you started the company in 2001, is that right?

[G]

That's right.

[F]

Your name is Steve Marsh and the name of the company is Smarsh. Do I have it right that your original email address had something to do with the ultimate name of the company?

[G]

I incorporated to do consulting work, never thinking that the business name would see the light of day. It was just incorporated as Smarsh Inc. Because Marsh was taken by the large insurance company, so we couldn't use that. My friends at the time that my coworkers had all called me Smarsh because that was like my email handle. So I said, hey, let's just go with that. The domain name was available and many years later, with a larger marketing department and more resources available to us, more domain names available to us, we still decided to keep the name Smarsh. But that should serve as proof that I never had intention of building this business into anything.

[F]

So who was your first client?

[G]

My first client was a small brokerage out of Boston, Massachusetts and a friend of mine had worked there and had told me about this need to archive communications for regulatory compliance. And I knew virtually nothing. I mean, I knew absolutely nothing about that. I knew that I needed to make some money to pay rent and that I had some technology skills. So I set out to actually help them implement a solution that I thought I would source from another vendor and quickly found that there weren't other vendors out there doing this, at least to service the small and mid sized companies. The business at that point pivoted from being a consulting business to being the archiving and communications intelligence business. That it's Become today.

[F]

When you started on the hockey stick, like trajectory of growth, what was the sort of first moment, if you remember, where you kind of knew, oh, this is not just a consulting business, this is a real business, a technology business, and actually it's a fast growth technology business.

[G]

One moment that comes to mind is we had a large competitor in an adjacent space. They weren't archiving the way we were. They did data backup or something and they made an offer to buy the company, really in our first year of effort in trying to sell the archiving service. And it was hard as a founder to turn down. I think it was like a million dollars. But it was complicated, but we passed on. And that was a great decision. But that really validated for me that we had built something that was at least perceived to be of value to someone else. And of course, making the Inc. 5000 list for the first time after applying earlier that year and not being able to apply the year prior to that because we didn't meet the. We weren't big enough, we didn't meet the revenue thresholds. Anyway, when we made that list, that was fantastic validation for all the hard work that we had done. It gave us a sense of credibility when we would go out to our customers by being able to put the Inc. 5000 recipient logo on our emails and on our website. And that actually helped us grow, you know, to the next level beyond that.

[F]

And you at some point took growth capital, private equity, is that right?

[G]

We did. It wasn't until 2007. Yeah. First investors were minority investors in 2007. And ironically, the point at which they became interested was a point at which we no longer needed money. And I think many founders probably go through this. When you're trying to raise money, it's a lot harder than when you don't need it. When you don't need it, everybody seems to come out of the woodwork and then they try to convince you why you should take money. I think that was a key moment where we realized we needed to significantly upgrade our technology infrastructure if we wanted to win bigger and bigger customers. We were making incremental changes every year. You know, the rip and replace that you hear technology companies go through, where every six months or so we were taking out old equipment, replacing it with new, bigger and better equipment. And that really just wasn't scalable. It was becoming a distraction to have to keep going through those projects every six months or so. By raising capital, we were able to get off that hamster wheel and we were also able to start Making some acquisitions became a part of life from that moment forward.

[F]

What did you learn about business ownership and business leadership going through the process of acquisitions?

[G]

You know, we gained access to people who had operated at the level beyond where we were, which is a pattern, you know, we'll see occur over and over in our business. But there were smarter people who had more experience in a variety of areas, and they presented some of the reasons why we would want to do some acquisitions. They also educated me and the rest of my team on how to do them. But it taught me that there are a variety of ways to help grow the business. You probably don't want to grow your business just doing acquisitions, although that does create value for a lot of companies. But for us, it was a combination of organic growth through innovation and product development and serving our customers with different products and services and making some of these acquisitions to bring in new technology, to bring in additional competitors, to bring in more expertise than we otherwise would possess. And today that trend continues. We're trying to bring in more AI expertise. For example, we might look to do an acquisition there.

[F]

Can I ask, where are you guys at revenue now?

[G]

We are about 500 million.

[F]

And what's the fastest growth part of the company right now?

[G]

There's a lot of focus on leveraging the data that we have stored on behalf of our customers. If you think about the initial use case for those that don't know, is that we help customers by storing their electronic communication so that they can meet regulatory requirements. You have to have this stuff. You have to be able to produce it. That's kind of the baseline service. But what we've found is that over the years, you start to amass more and more really valuable information on behalf of our customers. So we have years and years worth of emails, text messages, zoom calls, you know, whatever it may be. In a world where artificial intelligence is taking over and people are trying to find ways to harness the value of data, we're sitting on what we think is one of the biggest goldmines out there in terms of data. It's employee communications that were captured initially for a different reason, but now can be turned into sales opportunities, customer service opportunities, new product ideas. I think we're seeing a lot of growth.

[F]

So an archive can become a large language model.

[G]

Yeah.

[F]

So this is obviously the Inc. 5000 Legacy Award, brought to you by Glenn Fiddich. As you think about the legacy of the company and your legacy as founder, what do you still hope for? What is your idea of what the legacy you want to leave is we.

[G]

Have a very unique culture, I think one that reflects what I wanted to create many, many years ago. I want it to be an organization that hopefully my kids one day look back on and say, wow, dad must have built something pretty interesting here. It's still around, it's still relevant. Our customers still find value in what we're doing. I just want to see it reach its maximum potential. Not every company, even, you know, not every company that is started or that I'm involved in or that I invest in has the same opportunity to persist through time. Some companies are better as a short term product that maybe gets sold to someone else and they integrate the technology. Some technologies have a shorter lifespan where maybe it's two to three years and then you have to move on. This is a business that I believe truly has the opportunity to exist for many, many years and to be relevant by just listening to customers and adapting and finding or addressing use cases that we found many years ago.

[F]

Steve Marsh, the founder of Smarsh, a half billion dollar company founded in a Brooklyn apartment that's been on the Inc. 5000 list 17 times. Thanks so much for joining us today.

[G]

Thanks for having me.

[F]

And before I let you go, we have these glasses of Glen Fiddick here you are the inaugural recipient of the Inc. 5000 Legacy Award presented by Glenn Fiddick. So let's cheers to your success.

[G]

Cheers.

[Glenfiddich Advertiser]

Congratulations again to Stephen Marsh. And I couldn't end this episode without getting a little taste of Glenfiddich myself. And since I got a bottle right here. Cheers to you listeners with Glen Fiddick, the world's most awarded single malt Scotch whiskey. Drink responsibly. Glenfiddich single malt Scotch Whiskey is copyrighted 2024 and imported by William Grant & Sons, Inc. New York, NY.