Three Dollar Unicorn
Image by Merritt Thomas via Unsplash
Would you invest in a company making $3.00 worth of merchandise per hour and selling it from the back of a car? What if your genie told you this company would improve almost all the equipment used in a very niche market and eventually turn “into one of the most popular and desirable outdoor brands in the world” (but it would not happen overnight). Would you do it, knowing at some point it would eventually grow into a unicorn ($1Billion valuation)?
The company I am talking about is Patagonia. Yvon Chouinard started out making $1.50 rock climbing spikes called pitons at a rate of two per hour. The history of Yvon’s start and what turned into Patagonia is fascinating and inspiring to me. I have a deep respect for the consideration given to the impact of their business activity. You may have heard of 1% for the Planet; Patagonia was one of the co-founders.
If you want a sure thing on a $3 unicorn, it’s probably inflatable and made for the pool. If you are an investor trying to corral the next start-up projecting their way to unicorn status, you may find one, but it’s not easy, and it may only take a pin prick to find a lot of hot air.
Patagonia is a “real unicorn;” it has achieved the $1B valuation and it makes a profit. You would be surprised by the number of unicorns that are actually not profitable. Patagonia is also a company that balances purpose and profit and backs that up as a Certified B Corporation. That’s one of our goals for JogAlong.
To be clear, we are making no claims we are or ever will be a unicorn, but we do believe JogAlong can be a great company, profitable and driven by purpose.
Why do I bring all this up? Because we are trying to do things in a responsible way. That means building a plan on what we believe are realistic and well-researched financial forecasts. We are designing a product with a high safety factor for children, allowing time for extensive testing, and projecting manageable growth that’s shaped more like one side of a smiley face than a hockey stick. That combination can make capital raising more challenging in today’s instant reward climate. After a brief update, I will explain what I mean.
JogAlong News
There is a freshly updated JogAlong Stroller in my garage anxiously waiting to do some traveling. Between the manufacturer and some of the other component suppliers, we are working to schedule a trip for the JogAlong and me to make the rounds. Typically, I like to have updates done at the manufacturer’s home base. It gives everyone involved an opportunity to provide input and buy in on changes. That wasn’t realistic for the last 15 months, so I made the updates here in Wichita. That version of the JogAlong is complete. With that design in hand, we will get a refresh on pricing and scheduling from all involved to update our path to production.
But there may be an interesting twist.
Some of you may have seen our attempt to raise capital for production tooling using an equity crowdfunding platform during 2020; thank you to those who participated. We did not reach the minimum amount required, so all capital was returned. During the process, we discovered things about the investing process and investor psychology related to our situation.
More than 80% of equity crowdfunding investors are men
Unfortunately, that did not mesh well with the thousands of people in our database interested in the JogAlong, because around 85% of you are women. We started out strong with our family and friends during the ten day pre-launch period of the campaign. But the boost we planned from our database to go over $100k did not materialize. Our fundraising consultant knew clearing that amount early in the campaign was important to bringing in larger checks. We had nearly two hundred investors registered within the crowdfunding platform following our campaign, but without the early momentum to clear $100k, the larger checks did not come in. We made changes to try and recover, but the momentum was gone.
Side effect of reducing risk
We learned that a revenue share offering, even at a multiple of 3x (maximum allowed by the crowdfunding platform), was not as attractive to investors as we anticipated. My thought process for offering a revenue share was anchored in showing a direct path to financial return to investors; sales=investor return. Sharing revenue seemed like a great option compared to the unknown timing of another investment round, a liquidity event (being acquired), or the highly unlikely IPO for a company like JogAlong in the next few years. Interestingly, some investors commented that they did see it as a way to reduce risk, but said they preferred more risk and thus wanted the opportunity to take the chance for more reward. Translation: they wanted equity.
Investor psychology is powerful
Competition for investor capital is high, and companies achieving unicorn status get the lion’s share of media attention driving up expectations for incredible returns, 10x up to 100x or more for early investors in a short amount of time. This puts pressure on start-ups to show they can achieve exponential growth in order to make themselves attractive to investors. Some companies have legitimate projections and a plan to do it, but even then it is rare. We better understand that psychology now and know we are not going to change people’s investment strategy or dreams, so we have to improve our process to find investors interested in the how and why JogAlong plans to do business, and believes JogAlong’s balance of risk and reward is worthwhile.
Next Steps for JogAlong
On the capital side, we are doing a better job researching the type of investor most likely to champion our approach. We are always interested to have a conversation; if you want to know more, send me a note.
There is usually more than one way to design a product. If you have seen our videos and look closely, you’ll notice that most of the parts on the early prototypes were aluminum. There are still some aluminum parts, but we also have a significant number of parts made from metal replacement plastics as well as more common injection molding grades of plastics. Designing with injection molding in mind can help to reduce part count, reduce part price, and make aesthetics easier to control. But the drawback of injection molding is the high cost of tooling required to make those parts.
So, I am working on an alternate design with more emphasis on using parts made with methods other than injection molding to help lower the capital required to get to production. It may make the manufactured cost higher, but with a lower tooling bill, it should average out for the first couple thousand units. If we go this route, we could invest in high volume tooling at a later date.
One way or another, we will forge a path to production. For those with a manufacturing eye, we have a few forged parts. One is a part of the wheel hub, another is the bike hitch mount and the third is for you to have fun figuring it out.
The first person to write me back with the correct guess as to the third forged part will get a JogAlong exercise t-shirt.
I will give you a hint: there are two of them, and they are visible, but it’s the same part used in two places.
Would you like to have a tree planted in your name?
We have a pricing survey open and would love to have your input. As a thank you, we are partnering with One Tree Planted to plant a tree in the continent of your choice for the first 500 responders. Just click the link below. For those who have recently completed this survey thank you.
Take the survey and JogAlong plants a tree for you
Thank you for your support.
