Felix: Today I'm joined by Aaron from Caraa. Caraa sells handbags re-imagined, the perfect balance of form and function designed for life in motion and was started in 2015 and based out in New York. Welcome Aaron.
Aaron: Hey, thanks Felix for having me.
Felix: Yeah. So the idea behind this business came when I believe you and your partner both moved to New York City. Tell us more about that. What did you discover once you had spent life in New York City?
Aaron: Yeah. Yeah, so a little background behind the brand. So both my co founder and I, we always say that we don't come from fashion, especially myself, but we do in the sense that my family has been doing luxury handbag manufacturing for the last 30 years. And my co founder Carmen Chen Wu, she is a CFD awarded fashion designer, spend a lot of her time working with high end design houses in terms of designing for the runway. So when we came together back in 2015 in the city, we obviously knew the handbag space fairly well. A lot of cool things are happening in the space especially for a lot of luxury houses. When I think about some of the larger couture type of brand names coming from Europe, again, very cool things coming from design standpoint, but one thing we felt that needed a little bit of improvement, I guess, it's lack of functionality, right?
Aaron: So woman handbag or handbag specifically plays such an intricate part of her wardrobe on a daily basis. But we just felt that a lot of the handbags couldn't have the functionalities that will keep up with her active lifestyle, at least for the millennial consumers that we initially aim to service. So the idea behind the brand really is around creating a luxury item at kind of direct to consumer price point or contemporary price point, but very much focused on the functionality and keeping up with the lifestyle. And I'm sure we're going to get into a little more later on, but if you take out one of our hero products, our studio bag, the bag is produced in the same factories like some of the world's leading luxury brands from Europe.
Aaron: We keep the prices below $400 in terms of the price point. So it's a lot less than a luxury item. And when it comes to functionality, you will see that you can wear our bag in three different ways. So as a backpack, cross body, satchel and then it's going to have different compartments for different type of activities that you would do throughout the day. So there's a compartment for the gym, compartment for your tech, compartment for your makeup, wallets, keys, phones, and so on and so forth. So that's kind of the idea behind how we initially started is to really give her like, because it's mainly a woman's brand, a product that really can keep up with her lifestyle and something that she wouldn't really need two or three more bags throughout the day, just one bag will serve all the purposes.
Felix: So it sounds like an amazing partnership or two different experiences and skill sets combined that obviously contributes a lot to the success of your business. Now, how did you meet your co founder?
Aaron: Yeah, it's an interesting story. So we both are from Chinese background, but we both grew up in Spain actually. And it's funny because unlike the US, Spain similar to some of the European countries back in the '70s and '80s, there weren't that many immigrants per se. And we actually came to knew each other more from our time spent in New York. But when we start connecting and start sharing some notes and worst stories about highlight of our time in Spain, we realized that our families actually knew each other. Another fact that our grandparents at one point id business together, which was a ... we always joke around, it's some somewhat of a fate. So yeah, I mean and it's somewhat magical, right? To a certain extent because when we came together and we started discussing different ideas ... and full disclosure, Caraa wasn't really our first venture. We had a sourcing agency before that, helping smaller brands to source and manufacture all of Asia.
Aaron: But when we started coming together and thinking through just a number of different ideas, we quickly realized that at the end of the day we really liked the entrepreneurial path. We specifically love the manufacturing, supply chain and handbag industry just because we feel that even though it's a mature industry, there were some areas that was ripe for disruption. So yeah, we came together and was a perfect time in our lives to start thinking about the next chapter in our lives.
Aaron: If you look ourselves in terms of skillsets, we always say that we have the perfect ying and yang. I'm more the business person. I'll go in a little bit and I'm more salesy type of personality. And Carmen, besides her design background and product background and just overall tastemaking background, she grounds me quite a bit, right? So I always say this, the number one advice I give to a lot of entrepreneurs that we get the chance to work with or me is if you do end up having a business partner, which I fully recommend, make sure that you find somebody that can compliment your skill sets, that can be really great at what you are not so that it's a complimentary relationship as you thrive.
Felix: Now, how do you know that you are a good fit? How can you pick that up as early as possible to understand that you are going to this longterm relationship with a partner that is actually going to be a good fit over the longterm?
Aaron: Yeah. It's tricky. It's almost like dating, right? It's like, how do you know ... some people start dating and realize that, "Oh, let's stay for a while and see what happens." Some people date and it's like, "Nope, I'm marrying you tomorrow. I'm getting a ring and taking you to church." Right?
Felix: Mm-hmm (affirmative).
Aaron: So for us, I think it was very clear to us pretty early that we share a lot of the same values and I think it has to do a lot with the fact that we grew up in a European country from Chinese backgrounds. I think, we're, I guess you can call it, first generation immigrants, but our parents were all born in China and we were the first generation that really had the opportunity to really grow outside of China, still with very connected roots back to China.
Aaron: But I think when you are growing up in that kind of way, I feel like a lot of your values are very much the same. We'll both think about investments the same way. We'll both think about value the same way. We'll both think about how to service our customers the same way. So when we sat down and start comparing notes, if you may, you quickly realize that there's a lot of similarities in how we're thinking about the world, if you may. But even though, well, our skillsets, like I mentioned before, are very, very, very different. So it is somewhat of art and like I said, often allude to dating a little bit. It's a little bit of dancing in the beginning, but for us, we're both looking back and say pretty quickly we realized that, you know what? There's something here and we should definitely give it a try. And five and a half years later, here we are with a thriving brand. So we think we've made the right choice.
Felix: Yeah. Yeah, I think one thing you mentioned, I've heard other entrepreneurs mention to depth, that have partnerships is having the shared value systems helps you overcome a lot of the differences that will come up. Like in any relationship, dating, marriage, or co-founders, there are going to be differences and potential clashing of work styles, especially when you mentioned how you want to find a partner that compliments and not just repeats your skillsets, which could lead to maybe different priorities, different beliefs on what's more important. How do you make sure that you work well together with someone that is a compliment, which it usually means in opposite, in a lot of cases, from you?
Aaron: Yeah, yeah. It's a good question. I think communication is key. I think that you need to establish very early on to openly communicate, no holding anything back from each other and in an amicable and polite way. Right? I mean, we're never really get into any shouting match, if you may. But yeah, it's having a really open communication and from the get go of expectations of what's important for each other. Right? To your point, sometimes the priorities do conflict a little bit, but it's all about, again, having a conversation and having the ability to compromise, right? And say, "Look, it is a team effort at the end of the day."
Aaron: And this is especially true as our team started to grow beyond just Carmen and I when we first started the brand, is to kind of not only just have the communication among ourselves, but even with our first, and second, and third, and the 10th hire, right? In terms of what is important to them. So that's a company culture that we kind of strive to continue as we grow as a brand. But yeah, communication probably is the top number one priority for us in terms of the company as far as having that open communication and open dialogue among each other.
Felix: Got it. Yeah. So you mentioned that before starting, Caraa, you both had started a sourcing agency, which I believe you mentioned was helping companies domestically here in the United States source manufacturing overseas. Can you say a little more about that? How useful was that experience when starting Caraa?
Aaron: Yeah, so we both have passion about product, right? I mean, we're product geeks at the heart. So even before starting a brand ... starting brands is very difficult and I'm going to get into afterwards a little bit. Anybody who has attempted to start off the brand would tell you that it's a long journey. It's a treacherous road. So we didn't really want to get into the product or didn't really want to get into the brand side when we first started working together. Right? But we knew that our passion was around supply chain, manufacturing, global supply chain, logistics. Just because my background is in finance, but like I said, my family has been doing it for so long, that's embedded in our DNA. And similar story with Carmen, even though she comes from a luxury designer background, her family has always been in manufacturing and supply chain as well.
Aaron: We started a small sourcing agency in Kotara called Our Partners. And the idea behind it is we saw back then ... this was six and a half years ago, back then we realized that there were few large sourcing agencies that were helping larger brands in the US, but other parts of the world too. Right? So think of like these are the Walmart's, the Costco's, the Tommy Hilfiger's, the Victoria Secrets, large brands that work a lot with sourcing agencies in order to help them to not only just source from different parts of the world, but also manage logistics and supply chain.
Aaron: And as results, they are able to enjoy a lot of the benefits that comes with sourcing agencies because sourcing agencies, especially if you work with larger brands, have a lot of scale, meaning that you can get a lot cheaper price for your product. But of course you have to have a lot of volume. We wanted to take that, but give it to the little guys, right? We said, "Okay, that's great, but what about those emerging brands that has been doing business for a little bit of time, but is looking to scale, but it has to be maybe manufacturing, primarily domestically, but it's ready to take the next leap." Whether it's China whether it's Brazil, whether it's Mexico, right? So the idea was to take in that sourcing model, but really working and helping smaller brands to scale.
Aaron: And it was a wildly successful agency. We grow very rapidly in the first two years. But then like I said, we start exploring the idea of Caraa, just mainly because we felt that that space that I described before back then, we feel that we could actually tell a story that nobody was really doing it, right? So back to my initial idea and value proposition, how do we give a functional bag that is truly luxurious and we can claim? That because, like I said, we make it from the same factory as some of the world's leading luxury brands. We source it from the sun of the tanneries and mills, the same tanneries that worked for some of the European houses, but keeping the prices really affordable, right? So giving that value of product, but really keeping the design really functional.
Aaron: And one of the things I didn't mention before is we knew from the start that we also wanted to go DTC right away. And if you look at our business, we do have a healthy amount of wholesale partners currently, but going directly to customers was very important to us and obviously Shopify plays a big role in that. But it was something that is important to us because then we can have that two way dialogue with our customers, which helped us tremendously, which I will touch on later on.
Aaron: So I know I addressed a question with a bunch of different answers. But I think initially, again that the pivot between agency to brand was really A, knowing that we have the strengths of design and supply chain. So we know that we have the goods to really create a brand. But again, most importantly, we just felt that there was a void that needed to be filled and we took a shot at it. I think because we were one of the first to market, we're able to actually establish in this category quite strongly I think for the short period of time that we've been around.
Felix: And you recognize that there was a void, but then specifically you were going to be able to fill it because of your sourcing agency experience or was it something else that you saw?
Aaron: Correct.
Felix: Okay, got it. Now, from an entrepreneur's perspective, because it sounded like you worked with a lot of more smaller brands, are you talking about like solo founders, like small teams? Do you see the advantage for a typical entrepreneur that's listening to this podcast as maybe solo founder or a team of 10 or less? Does it make sense for them to go with the sourcing agency or can they do it themselves or what's your recommendation these days?
Aaron: I think it depends a little bit on your product and your market a little bit. So if I think about the main customers that we work with on the sourcing side, usually is below 20 to $25 million in sales. So a thriving business, but still smaller and easier to manage. So that's kind of more or less gives you an idea in terms of the size of the business. As far as manufacturing, look, all of the customers that we work with on the sourcing side, they already have some type of footprint in terms of manufacturing, right? Whether it's locally or ... when I say locally, domestically, US, or overseas. I think a lot of them come to us for different reasons, I would say, some of them is looking to consolidate.
Aaron: I can think of one customer that will come to us and say, "Look, I have manufactured a little bit in the US, a little bit in Mexico, a little bit in Canada, and a bunch of in Malaysia." Right? "So I can't keep up. Logistics is a nightmare. And these particular customer do a lot of wholesale. So every time a season comes, I go nuts." Right? "In terms of managing logistics and so on and so forth. How can you help us consolidate?" So that's one of the reasons that you will want to go to a sourcing agency from a consolidation and simplification standpoint to help you streamline your operations a little bit. Right? So that could be one of the reasons. So if you were in a similar boat where you just have a lot of different areas that you're touching on for a sourcing manufacturing standpoint, Sure, think about working maybe with a sourcing agency that can help you actually manage through that.
Aaron: Some other brands come to us because they have been paying domestic prices and joined domestic volumes, but just looking to scale and for whatever reason, they can't or don't want to pay domestic prices in terms of scale. They're thinking about going overseas. Going overseas, it's a minefield, right? A lot of people think that you can just pick up a website, find a few factories, start emailing them, and viola! You can show up in China one day and started producing. Sure, at a thousand fee levels that's what happens. But it's a minefield. I mean, there's so many things that can go wrong in logistics and supply chain. So I always recommend to my customers, right?
Aaron: If you've never done it before, sure, either to hire somebody in-house who have done this before or go with a sourcing agency that can help you hold your hands a little bit. Two, three, four years down the road when you are mature enough, you can think about making changes, whatever that change is. But I don't see anything wrong with ... again, you can perfectly hire a good logistic production person to help you through that. But sourcing agencies a lot of the time fill that gap where you don't have that kind of access to those resources.
Felix: So it sounds like for most smaller brands that are starting out, they probably don't need a sourcing agencies more for brands that have a bit of a more mature and established business first. So now when you recognized that there was this void, you and your co founder, and decided to go to start tackling it, what are some of the most critical skill sets that you now to pick up now that you're more focused on building a brand?
Aaron: Yeah, I think first and foremost ... and again, you probably are going to hear from different people different answers. For us, our point of view is that you have to have production and sourcing nailed down before anything, right? And there's so many great designers out there and we were fortunate enough to work with a bunch of them through our sourcing agency. But the reality is that having an idea is just part of the equation. I think getting that sampled produce, shipped, sold, that it's a mammoth effort, right? So for us, we knew if we didn't really have that kind of supply chain production background and we purely had design and marketing, I'll probably think twice before starting any brand really. So I will say for us and for any entrepreneurs that we meet and mentor and so on and so forth, that's the number one thing we always ask is, "What does your supply chain look like and how are you going to produce this? How are you going to scale up and down and what are you going to do if something happens to a particular location if you need to pivot?" Right?
Aaron: So those are some of the more intricate questions that we ask. Once you have the product, you have the substance, right? Because a lot of times I always say your product, your design to substance marketing to a certain extent, it's how you tell the brand story. I think once you have the product then you have the right to start thinking about storytelling and communicating to your customers and start building your community based on the product. But like I said, and again you might hear this ... some other people would definitely disagree with me and have other points of view, but for me product is substance. At the end of the day, you're selling product, you're not selling fluff, right? So if your product is not great and you don't have a unique point of view or you don't even have the production, the supply chain to produce it, I think your business plan would probably need to be looked at.
Felix: Yeah. I mean, I think there's a lot of people on your side where they are product focused, product first business, and believe the same philosophies that you believe. For someone out there then that that is looking to enter a space like fashion or a space where product is the most important aspect of the business, it sounds like a lot to learn, a lot of dark arts of manufacturing and supply chain. Where would someone even begin if their goal is to build some fashion brand, but don't have any experience with manufacturing? And if they listen to your advice and that's where they want to start first, how do they even start there?
Aaron: Yeah, so I would say when you're just starting, right? So without even ... because I think I mainly touched on businesses that are a little more established and is looking to scale, I think if I take a step back and talking to those first time entrepreneurs or entrepreneur just starting at the stealth mold age or stealth mode stage, I would say, of your business, forget about overseas manufacturing. You're going to get killed with minimums, you're going to get killed with complexity, stick to local manufacturing, prototype. Come up with a set of prototype. Don't think about mass production. Think about small production. First and most important thing is prove your concept, right? And going back to touching on Shopify a little bit, there are tools out there like Shopify that can allow you to actually test your concept very quickly and very easily.
Aaron: Your first prototype, it's not going to be perfect. I think if you clearly communicate that with your customers a little bit, I think there'll be a more forgiving in the beginning. Don't pretend something that you are not. Don't go out there and even feel like one person company with 30 products or 30 units. Don't pretend that you're the next Nike, just be transparent with your customers that "Listen, we're a startup." And obviously there are crowd funding channels or platforms that you can also use. Be straightforward with your customers, and tell them your story in a genuine way, and prove the concept with your product, thus have a market fit, right?
Aaron: Product market fit, and that's a term that I think a lot of people borrow from tech side, the tech world. Right? The first question that I ask a lot of people I interact and meet with is how do you know you have a product market fit, right? You have a concept, you have an idea, you have this hunch of this thing that you want to build, but that's your hunch. It's in your mind. You haven't proved anything yet. Right? So how do you go and prove that your hunch, your concept is valid and there's a market for it that you can actually make a business, right? I joke around with some entrepreneurs I meet is that, "Is this a project." Right? "Is this a home project or is this a business?" And there's nothing wrong with projects. You can have your day job and keep your project aside, but if you have a project, don't treat it as a real P&L because you can think of a project as a hobby, if you may. Right?
Aaron: But once you think about business, then the question is, can you sell it? And now you profit from selling and so on and so forth. So I think tying that back a little bit to your point or to your question about how do you go about that from the production site, and I would say forget about mass production, forget about cost even in the beginning. Just prove your concept as quickly as you can to prove that you have product market fit. If you don't, go back to the drawing board. If you do, then think about your second batch, third batch, and eventually think about mass production.
Felix: Okay. So I like this. So let's break this down a little bit. So you first said that you have to first make sure you have product market fit and then prove that the concept is a valid one, is that something that actually can sell? So do you have prototype at this point? What are you putting out into the market to test if there's a product market fit?
Aaron: Yeah, so for us, in the beginning we started the brand initially with 50 units. It was 50 units and I used that as a caveat because really the first 50 units were sold that way, but it was offered in the family. So that never counts. I always joke around and say, "Look, your first 50 bags, your mom and your brother and your cousins bought it, I wouldn't call that a product market fit test yet." Right? But our true test was the first hundred units that we made. And I knew these sell really well. We got a lot of feedback and we were very transparent with our customers in the beginning in terms of, "Listen, we are an emerging brand. This is our story. This is what we're trying to fix in the market space, and here's our products, and we welcome any feedback."
Aaron: And our customers or the first hundred customers ... And I don't remember, sadly, all hundred of them, but I do remember actually the first 20. Those 20 customers stuck with me because those 20 customers actually gave us very great feedback. They bought the bag even though in the beginning there were a few issues with some of the design aspect of the bag. They came back and said, "I'm keeping the bag, here's a reason I'm keeping it, but here are some of the recommendations in terms of making the bag better." So that's one area that we ... or that's how we went about, if you may, in terms of proving product market fit.
Aaron: We also had the chance to work with a lot of influencers in the beginning. That's kind of our core community. So we work with our influencer community that we had a previous relationship with to test the product and get the feedback that way as well, because you don't want to launch the product going through that blind. So you want to use people that you know that will be your customers and having tests and give you feedback along the way. So again, just a couple of different ways that we went about proving the product market fit and making sure the product actually it's going to be a viable product.
Felix: Got it. Okay. So you mentioned, I guess, influencers that you were working with and at this stage it's still kind of a beta stage where you aren't sure, you still got to prove that the product is a product market fit. Now when you're working with influencers, how similar are they to the actual market? Are they skewing more towards a certain way or they're under, I guess, skewing towards a different way depending on how they compare to your actual target customers?
Aaron: Yeah, it's I think a mixed bag. Unfortunately, I think in fashion specifically, there are a bunch of influencers that we had a privilege to work with in the past. And they all vary depending on the influence you work with. On the fitness side, you will say that in a lot of them, their followers are very much like our target customers, so you approach marketing slightly different when you work with that particular influencer and on the fashion and lifestyle side, it's a little bit of a mixed bag. So I think it comes down a little bit to understanding the influencer that you work with and get to know her and get to know her audience. Right? And depending on who follows her, I think you change your questions and you'll go off testing slightly different depending on who they are. So it's not a one size fit all. It really is a ... again, first and foremost, build a connection and build that relationship with the influencer. But then asking those questions of like, "Who are the people who are following you and what does that mean for my brand?"
Felix: Now, did you know ... is that how you got the initial I guess eyeballs get to sell those first hundred units through those influencers or are there other ways to try to get just some test customers to buy?
Aaron: Yeah. Boy, I mean in the beginning was everything. So we didn't do advertising for a long time actually, paid advertising, just because we wanted to create an organic community before anything. Right? I mean, this day and age, there's so many venture backed retail brands that are popping out left or right. And before even taking any time building their own core community, they start buying ads left and right. Right? Which first of all, it's not a sustainable business model in my opinion. But also unfortunately for brands like ours, it creates a lot of bad noise for us. So we didn't want to do that. We wanted to create an organic community for the first two and a half years really. And to answer your question in terms of how we went about generating traffic and putting eyeballs on the brand, you just have to test.
Aaron: I mean, we tested all, right? We tested from standing in the corner in Soho it and handing out flyers, asking people, "Have you heard of Caraa? Because we'd like to tell you our story." All the way to getting on national television, right? Where we were invited by The Lifetime Nut, their work, to appear in Project Runway. And that was a great opportunity to get on. So I gave you two very drastic examples in terms of like you go from the street corner essentially telling the story of your brand and the street corner to anybody that want to hear, listening to you, all the way to national TV. And that goes with the entrepreneurial spirit a little bit, right? You have to be relentless.
Felix: So would you recommend then the early focus for anyone out there that's trying to test product market fit, but doesn't have customers, is that should be your only focus just any way possible to find some target customers to test your product?
Aaron: Absolutely. Number one priority is to ... and you shouldn't give it for free because there's a certain cost that went into you producing the product, right? But it's getting as many people's hands and eyeballs on your product as possible, getting the question of product market fit. And then you're not going to get it right the first time. I've never seen a brand that got it right the first time even you feel listened to like Nike and how Phil Knight started the brand. Nike product was horrendous in the beginning, but that's okay. That's okay because your goal is to get people to give you feedback as quickly as possible and then evolve, and improve, and elaborate from that initial feedback. So to answer your question, absolutely. I think in my opinion at least, that should be the number one thing you focus on. Forget about marketing, forget about anything else. Get the product market fit right.
Felix: Yeah. It's amazing how I think a lot of entrepreneurs will shoot their shot once, and then fail, and then just abandon the entire thing. I think going out there and putting a product out there and it fails, that's great because now you actually can get feedback on what needs to change. Now we talk about product market fit. You come back and you find out that there is not a product market fit yet, where do you go next? Do you look at the product? Do you look at the market? Maybe you're targeting the wrong people. What is that next step that you take just so that you don't start chasing your tail?
Aaron: Fail quick, fail cheap. I always say that to people that ask us about ... in a similar situation that you described, right? Is to your point, you will fail. So the point is if you're going into it with the idea of you will fail, the next question is how do you do it quickly and as cheaply as possible? Because if you take all your funds, right? All the money you have, you finally get the core to start a business, and you've got the loans, maybe some money from friends and family and if you put all of that money into the first test and you fail, you're in a tough spot. So don't do that, right? Try to test as cheaply as possible. And then if you fail, that's okay. Have a contingency plan. And say, "Okay, what's plan B?" And the most important part, a lot of times I think, it's also just understanding truly why you failed.
Aaron: I think people, a lot of times gets too bugged down, I think, and then too honing on the idea of, "Gosh, I've failed." Versus really truly understand the root cause of the failure. And if you dig deep enough, there's always that one cost. It could be pricing, it could be product, it could be market, it could be seasonality, gosh, I mean there's a thousand different things and obviously this varies a little bit depending on the category that you're in. But yeah, fail quick, and fail fast, and fail cheaply. That's what I would say. And have the courage a little bit to stand up again. It's not about when and how you fall, it's all about how you get up from that. Right? So I think yeah, it's setting expectations before you start, is that you will fail and that's great. You shouldn't see it as a failure. You should see it as a learning experience.
Felix: Yeah. I think that's important about failing quick and cheap because you want that momentum behind you. Otherwise, there's such long periods in between. Is it really easy to lose that motivation, that momentum, and then of course the budget to stay in the game, right? You're spending so much money failing, you're going to run out of cash pretty soon. Now for your particular situation, how much did you know about your customer, who your customer was like at the beginning? And how much did that change over time?
Aaron: It changed a lot. I mean, you're always going to have your target customer or your actual customer, right? And you obviously don't know what your actual customer is until you're ready to start selling. And in a matter of fact, I would argue that you will continue to learn throughout the lifetime of the brand because the actual customer will evolve over time. And your goal or your job really is to evolve with her or with him in some cases. For us, I will say we got about 55%, right? In terms of our customer base. We were targeting active woman millennial living primarily in urban areas. And we were somewhat of a ... we didn't really look into the average household income and the city. We didn't look too much into that.
Aaron: For us, it was more just a lifestyle, understanding how does she live. And I think once we understood that, I think it was a lot more apparent for us to understand who she was or how we want to go about targeting her if you may. But yeah, I would say I got about 55%. Right? I think the rest we're still learning. But just have the expectations that your actual customers, it's not going to be the same as your target customers. So just be ready to be ready to change.
Felix: Got it. So definitely want to talk a little bit about how learning this affects things like the product decision and marketing decisions in a second. Before we get there, how do you pull out this information in the first place? When you do have, let's say your hustle, maybe you're selling on the street corners, like you said, which is obviously very assessable for anyone out there that wants to try to get first customers. If you're able to first get those 100 customers, what questions or how do you get the valuable feedback to actually make decisions?
Aaron: Yeah, I think there's a couple of different things and really there's no one answer because depending on the data point, the feedback you get for different parts, I think you will interpret it differently. On the product, we always break down the product feedback in a couple of different compartments or a couple of different segments. When it comes to functionality and features and so on and so forth, we do listen quite a bit to our customers, right? And when I say that it's all about number of pockets, or the size of the pockets, or location of the pockets and so on and so forth. So when it comes to that type of feedback, we do take it very seriously and none of the product team takes that very, very seriously.
Aaron: When it comes to product, when it comes to tastemaking design, when it comes to statics, that's where our creative director or my co founder takes the lead a little bit, right? Truthfully speaking the way I think about it is that that's the hardest. That's the art behind our brand because we think of ourselves as a tastemaker because our co founder is a tastemaker and she is a fashion designer. And then the beauty and I think the uniqueness about her or any artists, if you may, is that they're able to set trends versus following trends. Right? And what that means is that a lot of times she will be able to tell you something that you need before you even know it. Right?
Aaron: So that's, I think, the difference in terms of design a little bit when we are the one who are setting the trends, and leading the trend, and being the tastemaker versus I think some other brands who would go about design more on the data way than looking at what's the trend and then let's catch up with the trend a little bit. Right? So that's how we think about it in terms of gathering product feedback or feedback in general from our customers and how to incorporate that into the brand.
Felix: I think that's super insightful where basically the feedback that you get when it is more on the functionality side, that's driven more by the customer. But if you are a tastemaker or a trendsetting brand, the form is driven by the brand itself.
Aaron: Absolutely. That's Carmen's backyard, right? I mean, it's the area where she still is looking for input and feedback I think from not just the customer, but from the market, from the external world, if you may. But this is an area where she's very clear that she's making the call. And again, that's the Juju behind the brand. If you look at a lot of European fashion houses at the end of the day, right? We're talking about different brands between Caraa and a European brand, but if I think about those European brands, the reason that you paying such a premium at the end of the day, it really is for the tastes of the designer, the taste of that brand. Right?
Aaron: Yeah, so to your point, we are very clear about that, is that when it comes to aesthetics, when it comes to a form, right? Because we always say we balance form and function, when it comes to form, it is our call. I think we don't want to be influenced by the external when it comes to that. So that's on the product side in terms of how we take product feedback or external feedback from our customers. And all the marketing side, I think it's a little bit of a mixed bag. Obviously, if you know certain things about your customers in terms of their social graphics or demographics and so on and so forth, you probably want to target your marketing messaging differently just because you want to resonate with your customers once you know who she is.
Aaron: So there, it's a little more dynamic in terms of how you take the marketing information and put that into your brand, how to leverage that data if you may. But yeah, on the product side, I think we're pretty comfortable with the formula that we came up with in terms of how do we go about designing and producing value product for the customers.
Felix: Got it. Now I want to talk a little bit about the pricing. At what point does that come in where you're able to test and finalize pricing for your product?
Aaron: Yeah, I think I would say in the beginning you should really think about cost plus and I have a finance background, so I don't want to be too geeked out in terms of the different pricing models. But I always say cost plus is probably something that you want to think about when you first start the brand. I think once your brand becomes a little more established ... and when I say a little more established, I would say at least be in business for five to 10 years where people start knowing you, and wanting to come to you, and start trusting you more, and giving you more goodwill, right? In finance, we call it goodwill that's seen in the balance sheet. So that's the goodwill that you generate over time. Then you think about value driven pricing where you can start thinking about charging premiums. I will never tell you how much a Hermes bag or a Birkin bag will actually cost to make, right? I can tell you probably it's not the tens of thousand dollars they charge, but they are a mess. So they can charge value driven pricing, right?
Aaron: That's not a cost plus model. But in the beginning I think for the audience who are listening to this, who are thinking about starting for the first time and how to set the price, I think it's a combination of primarily cost plus because you've got to cover your bases. But also just do your market research and understand, "Hey, what are your competitors charging?" And what kind of pay you want to make. Again, this is a case by case answer just because I think let's say if you are in a category that is a commodity category, right? Where in that case price is very sensitive, so then you got to think about am I competing on price? Because you are in the commodity space or am I competing with something else?
Aaron: If you're in a different space where you know that your price can be a little more elastic, right? We talk about pricing elasticity and so on and so forth. Then you think about, "Okay, how elastic do I want to make my pricing?" But then if it's lower or higher, "What's my value proposition, right? To the customer." So I think it's a little case by case. Again, it's very industry driven and I think you just got to do your homework a little bit and think that through. It's a very important point that you bring up though because I think a lot of entrepreneurs fail to think about that in the early stages. Obviously, most people think they just want to maximize the margin as much as possible. But I think it's an important question to answer right off the bat in terms of A, what's your pricing going to look like?
Felix: Yeah. And is this something that you have to keep in mind early on when you're going through this validation of the product market fit? Do you need to know off the bat is this profitable or can this be profitable?
Aaron: Yeah, well, that should be a question that you should answer right away. To my earlier point, maybe it's okay to not be profitable for the first week or first month because you're going through that testing period whatever the testing period means for you. But if you don't have a profitable business, you have a hobby. You don't have a business, right? I mean, it's an expense. It's a personal expense that you get to write it down from your personal expenses at the end of the year, right? It's not a P&L. So profitability has to always be there. I think, is it okay to change your pricing throughout your journey? Sure, everybody does it. Is it recommended? I like to not change pricing and have the rigor not to do that. Right? Just because even though you could argue in the beginning your reach, it's small, right? You have a smaller customer base, those customers are still going to be loyal to if you treat them well.
Aaron: And I just believe that every single customer counts. And I don't want to lose the small group of people that I create a connection with in the early stages because I didn't have my stuff together and messed up pricing, you know what I mean? So it's an important question. I think obviously, like I said, if you need to change it down the road to protect your profitability, do it, but get it right. Get it right early on. I think it's important.
Felix: Got it. Now I want to go back to your earlier point or earlier question about now knowing the lifestyle of your customer, can you give us some actual examples of how this played out in terms of marketing? Once you understood more about your customer, how did that change how you marketed the product?
Aaron: Yeah, like I said, we didn't do much marketing in the beginning. I mean, it was all about ... and when you say marketing and I allude mainly to paid marketing or paid media, right? We didn't. I mean, it was a lot of ... it's a little bit of hustling to your point earlier. So just attend events and try to get included in communities or trunk shows. I mean, however you think the best, cheapest way you can to get your product in front of others. Right? When I think about marketing in general, we just failed. First of all, it's a huge expense when it comes to marketing. So we just didn't want to spend the money on that aspect of business very early on.
Aaron: We didn't have VC funding. We didn't want a VC funding in the beginning. So what that translated to was that most of our costs went into product improvements and product development. So to be kind of frank, we didn't really have a lot of budget for marketing. Later on, I think as we grew as a company and as we started evolving and so on and so forth, I think marketing became a lot more important of a question to answer. I think Felix, your question was how do we think about marketing?
Felix: Yeah. Just now that once you learn more about your customer about their lifestyle, how does that play out in your messaging or the way that you market the product?
Aaron: Yeah. So it's important, right? So half of the battle is understanding who she is. Once you become a certain scale, and once we started realizing that we want to start doing more and more marketing ... and this is where a lot of technology comes in play. There's handful of vendors I can think of in terms of offering the right platforms to help you understand who your customers are. And once you understand it, I think it's absolutely empirical that you do change and target those customers with different marketing messages. And I mean there's kazillion material out there that you can read and obviously you can definitely hire the right team to actually help you with this as well. But I don't believe in one message fits all. I think if you talk to any savvy marketer, they will probably all agree with me.
Aaron: So the idea is how do you segment it into the right buckets, not too many because then your message gets very diluted, but you segment it into a few major buckets and then come out with slightly different messages to target that, right? Because by default you're going to have different groups of people within your customer demographic, right? You're going to have the ones that love your brand, but don't want to spend maybe as much as that your MSRP is and looking for deals, then you talk to them in one way. You have the other group of people that it's not really price sensitive, but really wants a message or wants a product that resonates with the lifestyle, that want to feel that you're talking to them and having that dialogue with them, you talk to them slightly differently. So again, I think understand your demographics, understand your customers is really half of the battle. Once you have that, definitely segment your messaging and tailor it as much as you can to the different groups that you have within your customer segmentation.
Felix: Are there any tools that you rely on for the segmentation or any other marketing related tools or apps that you rely on to run the business?
Aaron: Yeah, there's definitely a few tools out there. I wish I can give a few shout outs to a few. Honestly, we're still thinking through that a little bit ourselves. The truth is the good ones out there are very expensive and you have to answer your question of, "Can I afford that? Or is the investment going to payout, if you may?" We like to be scrappy and I think scrappy is good no matter how big you are as a company. So we're using a bunch of different tools and put them into SQL internally and hyper analyze them. We find that that's the best way that we get to rack and stack the data in the way we find it. It's interesting and find it inside the form, if you may. But no, I guess I wish I can give a few shout outs to some platform out there that we work with. But most of the members on my team, they're pretty data savvy. And SQL is our friend.
Felix: Got it. Awesome. So caraasport.com is a website, C-A-R-A-A-S-P-O-R-T.com, caraasport.com. I'll leave this last question. What's been the biggest lesson that you or you and the company learned last year that you wanted to apply this year?
Aaron: Yeah, I think getting the right team. We will not be who we are without the men or women that works with us on a everyday basis and we actually are looking to expand our team in a number of different areas. That is critical. I think for the first few years during the ramming periods of any brands, I think that the founder or the co founders are critical for the business. But once you start getting certain scale, hiring the right team to help you grow and scale is critical. So we were very fortunate to have found all the right members of our team. But again, because we're growing, we're scaling and we're looking to increase our team. So for all those folks out there, I think, looking to create a brand and scale and build something unique and amazing, find the right partner and the right team to help you build because I think that you're going to go a long way if you have that versus not.
Felix: Awesome. Thank you so much for coming on and sharing your story and experience, Aaron.
Aaron: No. Thanks for having me-