Dave Gilboa and Neil Blumenthal: A vision for business
Dave Gilboa and Neil Blumenthal:
A vision for business
Published Wednesday, XX May 2019 12:00 AM ET
hen Wharton professor Adam Grant heard about his students' idea for a company that sold $95 glasses online, his response was: “Absurd,” “ridiculous” and “sort of insane,” he told CNBC's “The Brave Ones.”
“My first reaction was: that’s ridiculous. You can’t buy glasses over the internet. You have to go get your eyes tested. And then you have to try them on. This is not going to work,” he added.
When the students asked him to invest in their business, which they later named Warby Parker, he turned them down. He wasn’t convinced people would buy eyewear online, and he didn’t think the founders — Dave Gilboa, Neil Blumenthal, Jeff Raider and Andrew Hunt — were taking their idea seriously enough.
“They had all committed to internships over the summer, after their first year of business school. And, you know, last I checked, if you want to start a company, that’s a full-time commitment. In fact, it’s much bigger than a full-time commitment … It just seemed like they weren’t serious,” Grant said.
He wasn’t the only person who wasn’t convinced.
“We talked to a lot of entrepreneurs, and a lot of people that had launched ecommerce businesses before,” Gilboa told “The Brave Ones.” “And everyone we talked to caused us to temper our expectations. They said, ‘Just because you think you have a great idea doesn't mean that anyone is going to know you exist.’”
The four students had submitted a 40-page document to Wharton’s Business Plan Competition and made it to the semi-finals, but they didn’t win. “Some people were encouraging, and a lot of people told us the reasons why it wouldn't work. And I think entrepreneurs can take that kind of negative, constructive feedback in one of two ways. One, it can be demoralizing or on the other hand, it can be really motivating ... And we chose to take the latter path,” Gilboa recalled.
The founders were so convinced their idea would be successful because consumers told them so. People were frustrated that glasses cost so much — usually several hundred dollars — and visiting a store often meant waiting for an assistant to unlock a display. And if people were buying shoes, diapers and even engagement rings online, surely they would be willing to buy glasses.
That was in 2010, and Warby Parker (with Gilboa and Blumenthal as co-CEOs) has since become one of the best-known direct-to-consumer businesses, valued at a reported $1.75 billion. It has more than 100 stores in North America and has given away more than 5 million pairs of glasses to those who need them in developing countries through its “buy a pair, give a pair” initiative.
Grant (who has since invested) was so curious about why he had misjudged Warby Parker in its early days that he ended up writing a book about it in 2016, "Originals: How Non-Conformists Move the World,” exploring what makes new ideas work.
lumenthal was raised in Greenwich Village, New York City, by a nurse mother and accountant father, and he had an entrepreneurial spirit from a young age.
“I remember vividly, I was with my parents, I was watching TV. And an infomercial came on for a food dehydrator. And it was this amazing thing that you could make beef jerky and you could take grapes and make raisins … I was just enthralled with this idea of using this food dehydrator to make a dry fruit stand and figured that I could make a lot of money making fresh dried fruit. And so, I ended up convincing my parents to let me borrow money to buy this thing,” he told “The Brave Ones.”
Blumenthal went to a Quaker school called Friends Seminary, which was focused on “building consensus, giving back to the community,” he said. After a major in international relations and history at Tufts University in Massachusetts, he “wanted to change the world,” and joined a think tank that made policies to resolve conflict. But rather than lobbying politicians to adopt those policies, he wanted to have a more direct impact on communities.
“A family friend introduced me to an eye doctor named Jordan Kassalow, and he had this great idea to train low-income women to start their own businesses, giving vision tests and selling glasses in their communities throughout the developing world where people are living on less than $4 a day … And Jordan was telling me how, you know, over a billion people around the planet need glasses and they don't have them and that glasses were invented 800 years ago. And I just thought, ‘Wow, this is crazy. Why is a technology that's 800 years old not available to every human on the planet? Right? Something's wrong,’” Blumenthal said.
Kassalow hired Blumenthal to work on the pilot project for his non-profit, VisionSpring, providing glasses to people in developing countries. “There's nothing quite like seeing somebody put on a pair of glasses for the first time, right? This smile emerges ear to ear and it’s this really special moment where somebody sort of regains this critical sense that you know is going to enable them to do everything that they want to,” Blumenthal said.
While Blumenthal was working for a non-profit, Gilboa’s career took a different path. He was born in Sweden and moved to San Diego aged six and was “100% sure” he would follow in the footsteps of his parents, both doctors. But while he was studying bio-engineering at Berkeley, there were major changes to the medical insurance system. “HMOs (health maintenance organizations) and managed care were starting to take over large parts of the industry. And talking to my parents who were doctors, and their friends who were doctors, they kind of missed the good old days when they could spend time with patients and helping people. And they felt like there was so much bureaucracy moving into the system,” Gilboa said.
This got him thinking about alternative careers. “I still had the values instilled in me from my parents that my career, my job, should be an opportunity to help people, not just to earn a pay check. But I started talking to some other people that said, ‘Hey, if you learn something about business, maybe one day you could be in the management of a company that helps improve the lives of people as well.’”
Gilboa joined management consultancy Bain & Company in 2003, the same year Blumenthal started at VisionSpring. Although the two hadn’t yet met, they had a similar passion for changing lives. “I thought it'd be great to get a foundation around a broad set of business skills. And then one day, I could combine that with my passion for wanting to have a positive impact on people's lives,” Gilboa said. He also had a frustration with the price of glasses, having lost a pair while traveling around the world.
“I came back to the U.S.; I was a full-time student and I had to buy two things: a new phone (and) a new pair of glasses. And the iPhone 3G had just come out. I went to the Apple store and spent $200 on this magical device that did things that I couldn't have imagined were possible even a few years earlier. And meanwhile, I was going to have to pay several times that for a new pair of glasses. It's technology that's been around for 800 years and it just didn't make sense to me as a consumer.”
Gilboa and Blumenthal enrolled on the MBA program at the University of Pennsylvania’s Wharton School in 2008, along with Raider and Hunt. The four participated in an ice hockey league and became firm friends and also bonded over shared frustrations over the price of glasses.
“I remember vividly the four of us were in a computer lab, one of the first couple weeks of school, and knew that Neil had spent some time in the eyewear world and Andy and I had been talking about why we were so frustrated as glasses consumers,” Gilboa recalled. “And … we realized that there was this kind of massive category that really didn't make sense from a consumer standpoint. (We) didn't understand why prices were so expensive, why the shopping process was so inefficient and why there hadn't been more innovation.”
lumenthal had direct experience of how eyewear was manufactured from his time at VisionSpring, having seen the production lines that made both the high-end glasses for the developed world and those that were sold much more cheaply in developing countries.
“We realized that there was kind of nothing in the cost of materials or nothing in the manufacturing process that justified these high prices. And so, that just really got us passionate and started talking about (that) this world doesn't make sense. And we should be able to create … a different model,” Gilboa stated.
Investigating the eyewear industry, worth more than $130 billion a year globally, the founders realized that it was dominated by players such as Italian firm Luxottica (it announced a $49 billion merger deal with French company Essilor in 2017), which has licensing agreements with luxury fashion brands like Chanel and Burberry.
“As consumers walk into a LensCrafters or Sunglass Hut, they see 50 different brands of glasses but don't realize that all those brands are owned by the same company that owns the store that they're standing in, that probably owns the vision insurance plan they're using to pay for those glasses. And so, it's no surprise that a lot of those glasses are marked up 10 to 20 times what they cost to manufacture,” Gilboa explained.
Over a few beers at the Roosevelt Pub (now closed) in the basement of Hunt’s building in Philadelphia, walking distance from Wharton, the four of them discussed whether there could be a different way to sell glasses. They talked about people being able to buy online for a fraction of the regular price but with the same quality of materials as a $500 pair.
“We didn't know that we were going to start a company. We didn't know that we wanted to create a direct-to-consumer brand … We were just talking about the problem that we were trying to solve and realized that the best businesses solve real problems … We just got really excited and it kind of almost felt like we had that childlike wonder,” Gilboa said.
But their excitement wasn’t enough to convince Grant, their professor. “We asked if he wanted to invest and he said, ‘Well, you guys don't seem like you're really that serious about it so I'm going to … wish you the best but I'm going to sit on the sidelines. And now, Adam (Grant) has become a really good friend and he's been hugely impactful to the business as we've scaled. But I think he probably regrets that financial decision,” Gilboa said.
The four pressed on, electing to take a class in health care entrepreneurship and wrote a business plan for what would become Warby Parker, as part of their studies. They designed a website using PowerPoint slides and bought Starbucks customers a cup of coffee in return for their feedback and spent hours in eyewear stores watching how people shopped. “(It) typically involved a customer having to ask a salesperson to unlock a case because the frames were behind lock and key, being upsold on different coatings and lenses … And next thing they know, they had a bill for several hundred dollars,” Gilboa said.
The four worked on designing glasses, setting up their supply chain, finding factories and working on branding. They also wanted there to be a charitable element to the business, so they looked for non-profit partners, and Warby Parker is now VisionSpring’s largest donor.
But they needed to address one big issue: how to solve people’s uncertainty about buying glasses online. They created a home try-on program, where they would ship five frames for free, with a free returns label. “Once we incorporated that as a piece of the offering, every person that we asked, ‘Would you try this if we had a free home try-on,’ everyone said, ‘Yeah, I'd give it a shot,’” Gilboa said. A $95 price tag “invites skepticism about the quality,” but people were convinced when they saw the frames, he added.
Working out a name for their brand proved one of the hardest things the founders had to do, with the four going through 2,000 names over about six months, Blumenthal recalled. “We looked around and saw that most fashion brands had names (using two words) like Ralph Lauren, and we looked at our own names and didn't think that ‘Gilboa Blumenthal’ really rolled off the tongue,” Gilboa said. At a Jack Kerouac exhibit at the New York Public Library that Gilboa visited, two characters named Warby Pepper and Zag Parker stood out. They combined the two and then tested the name on their classmates. “We asked them: ‘Hey, do you have a negative, neutral or positive reaction to this name?’ And overwhelmingly, it was positive or neutral,” Blumenthal said.
The founders each put their life savings into Warby Parker, starting it with $120,000, which was enough to buy an inventory of frames and build a basic website. The first shipment arrived at Blumenthal’s building and the founders spent about four hours moving them from the lobby and into his apartment, before inspecting each frame. They also hired a fashion publicist. “We realized that four Wharton MBAs maybe isn't kind of the sexiest founding team from a design/fashion perspective,” Gilboa said, and the founders would jump on the bus from Philadelphia to New York with a bag of samples in the hope of convincing fashion editors to cover their new brand.
Warby Parker was featured in the March 2020 issue of GQ, but the founders hadn’t realized it hit newsstands in mid-February. Their website was barely ready, Blumenthal recalled. “And we get a call from the fashion director at GQ. And she said: ‘Hey guys when is the website going up?’ And we're, like, ‘Oh, don't worry. We'll have it up well before … the March issue comes out." And she said, ‘Guys, the March issue comes out in February. You guys have got to get this website up.’”
n February 15, 2010, the site went live. “That was a wild day because just the amount of emails that came in, orders started to come in. We hit our first year's sales targets in three weeks, sold out of our top 15 styles in four weeks. It was complete mayhem,” Blumenthal said.
They sold out of stock and got their developer to build a wait-list functionality for the 20,000 customers who wanted to buy. “We were full-time students, completely overwhelmed. And it was kind of an incredibly scary, exhilarating hectic few weeks as we tried to reach out to every one of these customers. We were terrified that we were going to disappoint those early adopters and realized that it was going to take us months to get some people their glasses,” Gilboa explained.
One day the four founders sat in class, deliberately on the back row so that they could process orders and respond to emails. Suddenly, all went quiet as everyone turned to stare at them as they were clearly not listening to the professor.
“That was the moment where … we thought we had a real business, right? We had product-market fit, we had customers coming in and we thought we were on to something,” Blumenthal said.
Some customers even approached Warby Parker asking if there was somewhere they could try on glasses, even though they were sold out online. “And all of a sudden, we had strangers from all over Philadelphia coming into our apartments. Neil's was kind of our primary home base because it was the most central. And we laid out the glasses on the dining room table,” Gilboa recalled. When the business opened its first office in New York City, they used part of their building as a showroom, which worked so well they bought an old yellow school bus that became a pop-up shop, driving all over the U.S.
By the time the four graduated from Wharton in 2010, they had decided that Gilboa and Blumenthal would run the business, and the two became co-CEOs. Raider had committed to returning to private equity fund Charlesbank Capital Partners and went on to found razor subscription business Harry’s, and Hunt joined VC Highland Capital Partners, but both remain on the board of Warby Parker.
How do Gilboa and Blumenthal work together? “Early on, we made the commitment to each other that we're friends first … I think people are often asked this, like, ‘Isn't that really difficult?’ But it's like, ‘Not really. We all know how one should treat friends, right?’ You should be honest, and direct at times, transparent, fair with one another, and that’s what we’ve always done,” Blumenthal said.
Now the company has 130 stores, 2,000 staff and launched its contact lens line Scout in November. It has also tripled the number of optometrists on its staff and has a prescription check smartphone app.
It was also one of the first businesses to launch a shopping function on Instagram, chosen by its Director of Fashion Partnerships Eva Chen. The brand’s sense of humor and personality does well on the platform, Chen told “The Brave Ones.” “I've worked with … luxury fashion houses, they've done things a certain way for a very long time. And they're afraid to step out of that (traditional) box, whereas I think one of the great things about Warby is that they're always experimenting. They'll do something goofy, like launch ‘Warby Barker’ on April Fool's Day, or … they did this video called ‘Warby Parkour,’ and they had one of their employees like literally like running through the hallways, literally bouncing off walls,” Chen explained.
Warby Parker’s personality appeals to older as well as younger consumers, as does its stores, Chen added. “You walk into the store (and) there's a photo booth with different backgrounds that you can pull on. They're in a lot of the college towns, for instance ... I think they do a brilliant job of hiring salespeople as well, who epitomize the brand … that don't bat an eye when a customer takes out a phone and takes an Instagram Story and like asks their friends in a poll, ‘Yes or no?’ … They've created an experience, and I think that's what the next generation wants when we're thinking about shopping.”
Health care has become an important focus, Blumenthal said. When we started Warby Parker, right, we envisioned that it was at the intersection of fashion and design, the tech start-up world and the social enterprise world. Now increasingly, we also view … health care as sort of the fourth bucket. So, us launching contact lenses, having a more robust vision care offering and offering eye exams and vision tests, right, enables us to better serve our customers.”
As with other successful businesses, copycat brands have sprung up. “I still have this sort of really negative visceral emotional reaction every time a new copycat emerges. But at the end of the day, we focus on our customers. And if we make our customers happy, it doesn't matter what our competitors do,” Blumenthal stated.
As well as distributing free glasses to people in more than 50 countries, Warby Parker works with VisionSpring to train people to administer eye exams — and also sell eyewear, giving them a source of income. In 2015, it launched Pupils Project, partnering with government agencies to provide U.S. schoolchildren with eye exams and glasses, and contributes to the community with initiatives such as Mirror Mirror, which saw artists design hand-held mirrors that were auctioned for charity Free Arts.
Beyond providing “vision to the world,” the company also wants to show that business can be done differently, Blumenthal stated. “We also want Warby Parker to influence the way business is done. If we can demonstrate that we can scale, be profitable, and do good in the world, without charging a premium for that, then hopefully that will influence the way that other executives and entrepreneurs run their businesses.”
On March 14, Warby Parker announced the closure of all of its 130 stores due to the coronavirus pandemic and last week it said it would continue to pay store staff for the first four weeks of the closures, at a minimum. “Our retail employees will continue to be paid and receive benefits for as long as possible without endangering the long-term viability of the business,” founders Gilboa and Blumenthal said in a statement released on Twitter. The company’s lab in Sloatsburg, New York, is still making glasses for home try-on and online shopping.
Design and code: Bryn Bache
Editor: Matt Clinch
Executive producer, The Brave Ones: Betsy Alexander
Producer, The Brave Ones: Kevin Kane
Images: CNBC, and Getty Images