264: How Revolve’s Founders Went from Finance and Engineering to Running a Billion-Dollar Fashion Brand

Where Data Meets Denim How Revolve founders Michael Mente and Mike Karanikolas, a duo with backgrounds in finance and engineering, used data to take the fashion world by storm. You would think that finance, computer engineering, and fashion have nothing in common. But Michael Mente and Mike Karanikolas, the founders of the wildly popular online clothing company Revolve, would beg to differ. It’s true that when they first met each other at a software startup, they never thought fashion was in their cards. After all, Mente was a finance guy and Karanikolas was a computer engineer. They weren’t exactly cozying up to the catwalk. And yet, a series of unfortunate events led Mente and Karanikolas to the retail business, which ended up yielding quite the fortunate outcome—together, they built a billion-dollar business that serves as inspiration for any entrepreneur looking to get into the online apparel game. Using their respective strengths in analytics and number crunching, they developed a hunch that there was a gap in the market when it came to places young, millennial women could buy fashion brands online. Their hunch proved to be correct. From there, it was Revolve's famously prescient marketing strategy — in particular, the company's influencer marketing — that set them apart from other online clothing brands coming onto the market. "We had first-mover advantage and recognized power of social early on. We’re been working with influencers before they were even called influencers — before instagram even existed," Karanikolas says. With their near-perfect product-market fit and the love of influencers like Chrissy Teigen, Chanel Iman, and Jessica Alba, the California-based company has grown from being a small online store to an iconic billion-dollar business. Challenging the Mainstream Mente and Karanikolas were both working at the software startup NextStrat when the dotcom bubble burst, kicking off a recession that eventually led to the company’s collapse. That’s when the duo started to brainstorm ideas for a new venture. They knew they made a great team and had a feeling they could achieve big things together, it was simply a matter of finding the right opportunity. Given their math and engineering backgrounds, they approached the research process of finding that new endeavor in a very methodical way. Ecommerce was on the rise, and after digging into keyword search data, they noticed there was growing interest around online apparel. There were other attractive aspects of the apparel business too, such as the fact that it promised high gross margins and was a relatively untouched market in the late 90s and early 2000s. “There were a lot of questions about whether apparel made sense online at that time,” Karanikolas says. “But any time there’s a new space, that means there’s room for innovation. We recognized that online represented a wealth of opportunities, and it was just a matter of figuring how this new medium worked for apparel and how to make it appealing for consumers.” It didn’t take them long. From Denim to Dominance Mente and Karanikolas launched Revolve in 2003 with $50,000 of their own savings. That meant carefully watching cash flow was extremely important, which forced the duo to be highly disciplined about how they made decisions. Even early on, they leaned heavily on data to inform what products to sell. The core of their business model was to sell clothing from other brands, start with existing numbers, and then test and iterate as they identified what worked and what didn’t. For instance, they initially assumed denim would be one of the hardest types of clothing to sell online, since fit is so important and there are lots of size variations. Through data analysis, however, they discovered that people actually did shop for jeans online and even returned them less frequently than other clothing categories. So for the first year or two of running Revolve, denim made up a majority of their business, which led to their first wave of success with the company. They also weren’t afraid to go against the grain in how they ran an online store. When they realized the inherent risk that came with buying online due to fit issues, they instituted a policy of free shipping and returns. Mente and Karanikolas also quickly recognized the importance of having big, high-quality photos of their apparel—so they kicked standard web guidelines to the curb and covered their site with beautiful images, even if it meant it took a little longer to load. “There were all sorts of different ways we approached retail and online fashion that ended up working out really well for us,” Mente says. “Eventually, we came to understand the creative and aesthetic side of things more and become expert in areas we weren’t before. That piece took us many years to develop, and it wasn’t easy because it didn’t leverage our initial core strengths. But building that expertise on top of our existing strengths helped us become really powerful.” Struggling to Survive Mente and Karanikolas’ journey wasn’t without difficult times. They were still self funded when the Great Recession hit in 2008. Demand plummeted, and they saw that competitors were responding with extreme discounts, which made it challenging to make money. Despite the fact that they were fighting for their lives, Mente and Karanikolas agree that this period actually led to incredible personal and professional growth. It also showed them they had the right company culture and people to get them through these challenging times. The duo recalls one particular memory with fondness. Since Revolve also had to offer discounts to make sales during the recession, they had to ship a massive volume of product to remain profitable. During this time, every single employee voluntarily came out to the warehouse on weekends to help get all the products out on time. That’s when Karanikolas and Mente knew they would survive and come out on the other side as a stronger company. Standing Out Revolve is now a major player in an incredibly competitive online apparel market. But Mente and Karanikolas aren’t worried because they’ve come to deeply understand one of the most important lessons in marketing: You’ve got to stand out from the noise. The way they do this is by leaning into the authenticity of their brand. Everything, from the events they host to the people they work with, is saturated with a genuine desire to grow relationships with consumers. It has never been about trying to outspend their competitors. This type of commitment to their consumers is also what led the founders to start Revolve’s own line of clothing back in 2010. Through data and conversations with their audience, they knew that there were products they either didn’t have a big enough selection of, or weren’t stocking fast enough. They realized they had the ability to provide a better product and have since launched an array of new clothing lines to meet the different needs of their customers. Next Level of Growth Karanikolas and Mente are optimistic about the future of Revolve. “There are more opportunities today than ever, and we’re the best positioned we’ve ever been in the history of our company. We’re trying to build one of the biggest fashion and apparel companies out there,” Karanikolas says. The duo plan to continue focusing on their core business of building a better experience for their target consumers, youthful women in 20s-30s looking for premium fashion. They’re passionate about getting better at everything they do, from improving their data to creating better products. Thoughts of further international expansion are top of mind for the founders as well, given that more than 40% of their social media following is international. When it comes to the secret of success, the duo say there isn’t one—it’s simply about putting in the hard work, grit, and perseverance. “There’s so much chance involved in the short term, but if you keep making the right steps, over the long run you’ll go in the direction you want, even though there are periods of time where it feels like things aren’t working for you,” Karanikolas says. “It’s a lot of hard work, but it’s going to be more rewarding than anything you’ve ever done.” Mente agrees and leaves aspiring entrepreneurs with an additional piece of wisdom. “Hard work and dedication are 100% important, but another aspect is to take care of yourself and your life,” he says. “Your physical, mental, friendships, and relationships are all important as well. When you’re living well, you’re thinking clearly, healthier, and more productive over the long run. You need to recharge and have some balance in your life. It’s something I’m still trying to learn.” 3 Tips to Build a Powerful Consumer Brand, From Michael Mente & Mike Karanikolas Define core principles. It’s important to clearly identify which principles drive your brand—make sure those values are authentic to your organization and aren’t just an imitation of other organizations. From there, all decisions should map back to these principles to ensure the brand is consistent. Understand the landscape. You have to know who you’re competing against so you can figure out how to spread your message more broadly in the market. This also means figuring out who your primary consumers are and where they’re spending their time, as well as discovering your own message that’s positioned well and unique enough to mean something, but not so niche that your target audience is too small. Be consistent, but don’t be afraid to be flexible. “Know what you stand for and make sure you’re consistent in communicating that message. What you stand for has to make sense for the consumer segment you’re targeting in comparison to the competitive space,” Karanikolas says. However, he also says that it’s okay to refine your brand message. “We actually have consistently used data to refine our brand message. In other words, what are consumers responding to? There are things we knew from the start but also evolved as we learned from data.” Interview by Nathan Chan, feature article reprinted from Foundr Magazine, by Sophia Lee Key Takeaways How Mente and Karanikolas’ paths crossed while working at a software startup How the dotcom bubble led the duo to start brainstorming new ventures How their backgrounds in finance and engineering helped them decide on an online apparel business The launch of Revolve, with $14,000 out of pocket Why every business decision was driven by data The duo’s breakthrough with denim How Revolve survived (and thrived) through the Great Recession in 2008 Mente and Karanikolas’ recommendations on standing out in a crowded market How Revolve changed the game of influencer marketing The importance of knowing your consumers, not outspending your competitors The future of Revolve’s global presence