Matt Kaye
WG'07 |
Good morning. We are very happy to have Seth Berger with us today. Seth is a member of the Wharton MBA Class of 1993 and is the founder and former CEO of AND 1. |
Matt Kaye
WG'07 |
For the participants of this chat, please submit any questions you have for Seth in the "Ask" window in the chat room. |
Matt Kaye
WG'07 |
Seth, in the early 1990s when you were contemplating your business plan, how did you identify an opportunity in a muture market with a the existing dominant players? |
Seth Berger |
Good Question! |
Seth Berger |
we viewed the existing players as multi sport brands that did not speak directly to the basketball consumer in his/her own language |
Blake Sonnek-Schmelz
WG'08 |
How confident were you that your business was feasible? Why? Analysis? |
Seth Berger |
still can't believe it worked today! actually, i started AND 1 as a database marketing biz that we moved away from within 3 months and went into clothing. |
Gregory Itzenson
W'07 |
What were some of your biggest challenges early on (brought about by your young age if applicable) and how did you go about overcoming them? |
Seth Berger |
lack of experience, but that can always be overcome by getting smart partners (i had 2 to start) and hard work. i have never found lack of experience to be a predictor of failure. |
Juanita Sharper
W'03 |
Thank you for taking the time to meet with us, Mr. Berger. I have always been interested in sports and love basketball. Your company is quite unique in an already competitive market. How was the concept derived? And what role did Wharton resources play in your company's start-up? |
Seth Berger |
actually, AND 1 was a full year ASP for me in my 2nd year. my background was in politics, so there is no way i could have started AND 1 without the basic knowledge acquire at Wharton. Dave Reibstein was on my board and quite helpful, as was Ken Shropshire. |
panasonic |
It seems as if you went after the urban market. How did you learn / understand the culture well enough to capitalize on the opportunity? |
Seth Berger |
really, we went after the hoops market and were not conscious of demo. however, i am from nyc and so some of the city feel probably came through in our brand. |
Blake Sonnek-Schmelz
WG'08 |
How did you make the first sample products for your idea? |
Seth Berger |
we literally acted out t shirts on polaroid pictures, then submitted them to a comic artist with slogans. he made them into drawings and we went to a screenprinter to get our first tees. |
Lola Sergeant
WG'92 |
Businesses that are not in the IT/Tech space seem to have a tougher time attracting investors. What advice can you give to a small (retail goods) start-up that needs to raise $100K? |
Seth Berger |
i borrowed as much as i could on my student loans, then went to VISA for some more. when i had orders for products, i borrowed money against existing purchase orders. if i had raised money up front, i would have given away too much equity. figure out how you can do everything as cheaply as possible, then see how much $ you really need. |
Seth Berger |
michael dell spoke when i was at school and said that raising money just leads to mistakes. i have had that experience too. |
Greg Bibas
WG'08 |
I'd be very interested to hear about whether the business started with bootstrapping or with Angel investors. |
Seth Berger |
boostrap...tuna fish and ramen...we literally had a shoe box for weekly salaries...in my first year i made $1,218, and there are no 000s on the end of that! |
Muchemi Wandimi
W'07 |
My first question to Seth would be: how involved are you with AND1 at this point in time? |
Seth Berger |
not at all. we sold the biz last year and i have no contact with the current owners. i also got a fat nike deal to wear their shoes! |
Gregory
Itzenson
W'07 |
describe the very early days of the venture and your tactics for sourcing, marketing and pushing the product |
Seth Berger |
whatever we could think of for marketing...i sold soda at yankee stadium when i was a kid...it was easy when i sold coke on the hot days and not when i sold ice cream in april...same thing here...if the product was right, we could sell it...if not, well, like selling ice in alaska |
Blake Sonnek-Schmelz
WG'08 |
What was the first thing you did when you came up with this idea? |
Seth Berger |
went out and got drunk, just to make sure i wanted to do it. when i woke up still drunk the next day, it seemed like as good idea. |
Juanita Sharper
W'03 |
What's next since you have proven success in the industry? |
Seth Berger |
i have 3 boys, age 7 1/2, almost 5 and 3. i play games with them and was an assistant high school varsity hoops coach at westtown friends last year. |
Jeff To
EMTM'04 |
Wow. That was quite a big shift into clothing. As a newcomer, how did you insert yourself into the value chain and build credibility with your retailers/wholesalers? Did you already have connections in that space? |
Seth Berger |
had no connections. our product was cool enough that when people saw it, word spread. early on, we got an order from foot locker. that gave us instant credibility. within a year after starting, AND 1 was in 1500 foot lockers nationwide. |
Gregory Itzenson
W'07 |
who were some of your partners other than the marketing firm and what did it cost you (equity) to get them? would you take that same approach if you were to start over again? |
Seth Berger |
no marketing firm. one was my best friend from home. he was a stanford grad and mckiney consultant. genius. |
Seth Berger |
the other was a kid getting out of wharton undergrad with 3.96 gpa. he also played hoops non stop and is maybe the smartest person i know. we chopped the equity in a way that we thought was fair and we were all committed to AND 1. |
Joshua Feinberg
W'07 |
How did you go about contacting manufacturers once you decided to increase production? Were your manufacturers abroad? |
Seth Berger |
here, we literally used the yellow pages for screenprinters. overseas, we got agents, referrals from our accountants. the first ones totally screwed us, then we learned what we were doing and got good people. |
Blake Sonnek-Schmelz
WG'08 |
Was one of your goals, from the beginning, to sell the business? How much to founders, to investors (if any)? |
Seth Berger |
the goal of any business is to make money. whatever the best way is to do that. i never planned on working my whole life and have always wanted to major in fun. so, yeah, i figured one day i would be chilling if it all worked out. |
Seth Berger |
original investors got 60x in cash on their money in 6 years and a valuation on 150x |
Linda Farquhar
WG'93 |
What kind of volume did you need for Asia production to make sense? |
Seth Berger |
not much. they always need new sources of business. |
John Dillon
WG'03 |
Did your initial sales confirm that you had found an untapped market segment? Or did you have to revise your prototype (I guess in your case the design and slogans on your clothing) several times before you found the market opportunity you were looking for? If you didn't have success with your initial prototype what gave you the faith that there was something there, and that you just needed to keep at it? |
Seth Berger |
actually, we were pretty close with the first tees. our second versions went into stores in spring 04 and sold out like crazy. it was absolutely nuts. |
Muchemi Wandimi
W'07 |
I would be interested to know, how did you manage to get people to buy into your idea and work with. for you with so little to pay them upfront? |
Seth Berger |
equity. i believe that you get great people around you and give them the incentive to crush. if they are good and the idea is right, you all get paid. if not, no worries. i do not believe in hoarding equity. |
Adam Erlebacher
WG'08 |
Hi Seth...What made you decide to sell AND1 and how was the sale initiated? Were there other bidders and how did you manage the process? |
Seth Berger |
we were 2 years late in selling the whole biz. we had sold a chunk to vc in 1999 and had a nice cash out. once a vc is in, you know you will sell or ipo. i retained an ib to sell when we had turned the business back in the right direction. then i would not sign an exclusive until we had a signed contract, wanting to keep maximum leverage. that was unusual. |
Bruno Occhipinti
WG'08 |
Your success story is also rooted into friendship. Do you believe it is better to launch business with friends? |
Seth Berger |
yes. you never have to worry about trust and greed. plus, i got to sleep with all my partner's wives on a regular basis, so that was really cool. |
panasonic |
As you previously mentioned, you raised some debt to fund the company. Did you raise any equity as well? If so, what was your cap structure? |
Seth Berger |
the first $ we raised was actually equity for debt purposes. after that, only debt with a factoring company. |
Gregory Itzenson
W'07 |
do you have any new projects brewing now that you are retired from AND1? |
Seth Berger |
i spent a year as part time ceo of Lightning Poker. see lighningpoker.net. i did that one day per week. my partner took over now, and i am chairman. i will only work again if the opportunity is huge, if it would be a lot of fun, or i could make a huge difference in the community. otherwise, i have a wife and kids at home that i love to be with. i also loved coaching hoops last winter. |
panasonic |
Would you consider yourself a serial entrepreneur? If so, what is your next venture? Are you an angel investor? |
Seth Berger |
some angel investments. i am not a serial entrepreneur, cause i don't really care about being that rich. i am a one wife one house kind of guy. |
Jeff To
EMTM'04 |
how did you expand so rapidly into the other countries? And how did you become #1 in so many of them? Did you do joint ventures with local partners? |
Seth Berger |
very good question. we hired a head of international away from reebok. he gotus distributors all around the world, and within 2 years we had gone from $1m to $40 million internationally. |
Bruno Occhipinti
WG'08 |
I am very impressed to see you how well does AND1 in an over competitive business. What is different about AND1? |
Seth Berger |
today, i really don't know. back in the day, we just focused on the hoops consumer, period. everyone else was meaningless to us. we wanted to provide great product at a fair price. |
panasonic |
are you saying you used the equity for debt-coverage? |
Seth Berger |
no. sorry. we used the equity for the purchases of tees, after that we did p.o. financing with a factor. we never raised any money for SG&A expenses. |
Laura Mack
Cert'89 |
Nice to see you still have your sense of humor Seth! |
Seth Berger |
lol...hope my partners think so! |
Greg Bibas
WG'08 |
What was your experience like working with VCs? |
Seth Berger |
very good. they were patient in good times and bad. and they paid us a lot of scrilla! |
Lola Sergeant
WG'92 |
What did you like most/least about running the biz? |
Seth Berger |
the challenge of winning a game. business really is like sports, it is constant competition. add that to the unbelievable people we had at AND 1, and it was like being part of a young team in the NBA getting ready to do damage. |
panasonic |
would you be open to sharing your thoughts on any emerging market opportunities? In other words, where do you see the next millions being made (social networking / myspace / facebook). |
Seth Berger |
i guarantee that you would know more than i. i read the wsj on my first day at wharton and the first day of my second year at wharton. since then, i have only "read" the wsj pictures and the usa today sports section. |
Linda Farquhar
WG'93 |
How long did you run it loosely, before you had to formalize accounting for things like salaries & other expenses for you & your partners? |
Seth Berger |
2 years for salaries, probably 4 years before expense reports, etc. i hated that stuff and never managed it. in fact, i never kept my travel expenses cause it was such a pain. |
Muchemi Wandimi
W'07 |
what advice would you give as concerns making a pitch to VC's? what are some key things to remember when trying to get VC help? |
Seth Berger |
i also did a lot of that with hoopstv.com. we raised $15m bucks. at the end of the day, can you shrink your idea to one sentence that will light a bulb? if so, the idea is good. also, they would always rather invest in a good team with an ok idea, then a mediocre team with a great idea. get a great team before seeing them. also, understand that they want to be in and out fast, no matter what they say. |
panasonic |
How did you garner the sponsorships of famous athletes (did you have to pay them a lot of scrilla?) |
Seth Berger |
some yes, some no. in 2004, 25% of the NBA wore AND 1, and our total budget, including product, was around $2m. Reebok paid more than 2x that just for their rookies last year. we knew players, they liked our gear, and we gave them great service. for marbury, though, it was always about the check. |
panasonic |
What percentage of the company were you able to hold onto up to the time of sale? |
Seth Berger |
a little complicated, because we had a sub debt note with the vc. we got enough on the first deal that the second was just a little more. once you you have your house and kids college paid for, the rest is just stuff. |
Blake Sonnek-Schmelz
WG'08 |
How did you get a contract from Nike to wear their shoes? |
Seth Berger |
they saw me play hoops in the local mens league |
Muchemi Wandimi
W'07 |
The last time you spoke at Wharton, you mentioned that you had offers from top I banks but that you turned them down for AND1. What inspired this? the potential to make money or the possibility of building your own business? |
Seth Berger |
i chose fun over money, but i also thought i could make more in the long run working for myself than working for someone else. |
Puneet Singh
W'08 |
hey seth, thanks for doing this. what advice would you give to those of us who are also hoping to start up entrepreneurial ventures? should we work first or just go for it? |
Seth Berger |
go for it now. before you have responsibilities that will make you risk averse. if i had 3 kids and a wife, i would have taken a job to put food on the table. but i was broke and did not care if i was broke. in fact, i was broke until the day i was rich. if you start now, you don't know what you cannot do. if you start after having "experience", you know what you cannot achieve. the world rewards courage, or something like that! |
Blake Sonnek-Schmelz
WG'08 |
The Wharton Basketball club plays pick up Fridays at 11. Let me know when you can make a run. |
Seth Berger |
you kids could not handle me, especially since my vert has gone from 32' to 11'! |
Linda Farquhar
WG'93 |
Was the Wharton Entrepreneurial Center a resource for you? Any thoughts on that as a resource to get an idea started? (Assuming it's still there!) |
Seth Berger |
yes. i did my asp with the center. very helpful. if you are serious about an idea, do an asp. |
John Dillon
WG'03 |
Do you see similarities between the strategy you used to enter the athletic apparel market and that used by Under Armour? Were your strategies the same in that you picked a specific segment and maintained a laser focus on that segment? Is that what you need to do to win a market with a very large leader? |
Seth Berger |
yes. kevin plank is a good friend of mine. he really did it! he is totally committed to UAand has done an unbelievable job building a brand. |
Bruno Occhipinti
WG'08 |
What do you think was useful in the Entrepreneurship course in Wharton? what could be done to improve it to generate more ventures? |
Seth Berger |
that course inspired me to start a biz, whereas i was thinking of ib or consulting before that. Myles Bass really got me started. |
Laura Mack
Cert'89 |
Was there anything in particular about your experience/education at Wharton that you feel if you didn't have, you wouldn't have succeeded in this business? |
Seth Berger |
definitely. basic fin and acctg, and a great mgt course with Mike Useem. |
Matt Kaye
WG'07 |
Seth, we have time for two more questions. Thanks |
Casey Rudzinski |
Seth, I actually go to Temple University and work in the athletics department with your old basketball coach Fran Dunphy sometimes. What are some resources I can use to gain experience? |
Seth Berger |
don't understand the question. please tell dunph i say hey. he is the man. |
Matt Kaye
WG'07 |
Do you follow the current progress of AND 1 with the current owners, American Sporting Goods? Can they do anything with the brand that your team couldn't? |
Seth Berger |
not at all |
denni manzatto |
What do you think is the key element these days to start up a successful clothing firm? |
Seth Berger |
pick a better industry. these days, margins are getting crushed. |
Gregory Itzenson |
whats an ASP? |
Seth Berger |
advanced study project |
Matt Kaye
WG'07 |
Seth, on behalf of the entire Wharton Community, thank you very much for joining us today! |
Matt Kaye
WG'07 |
I hope that everyone can also join us for the next WEP Alumni Chat on Friday, December 8 at 11:30AM EST. We are excited to be hosting Michelle Peluso (W93), CEO of Travelocity and co-founder of Site59.com. Michelle, who was named by the Wall Street Journal one of "50 Women to Watch," will talk about building a world wide travel leader while facing such challenges as the aftermath of 9/11, a global workforce and increasing industry competition. |
Matt Kaye
WG'07 |
Visit the WEP website in the coming days for a complete transcript of this chat. |
