Not every 10-month old startup can say that it has crossed a handful of oceans and international borders to purchase a 93-year-old factory — or raised $122.5 million to do so. Yet, not every Internet startup is trying to make waves in the prosaic world of shaving, where 85 percent of the market is controlled by a couple of weathered giants like Gillette and Schick. What’s more, while adopting a purely online and direct-to-consumer model can help startups cut out that pesky middle man, to truly reduce the friction and high costs in the market and iterate more quickly, you have to control manufacturing.
So, that’s what Jeff Raider and co-founder Andy Katz-Mayfield have done with Harry’s. Raising $122.5 million from Tiger Global, Thrive Capital, Highland Capital, SV Angel and a handful of others, Harry’s shelled out $100 million to purchase Feintechnik — a company and factory that have been manufacturing razor blades since 1920 and the source of Harry’s shaving products.
Prior to launching their online shaving supply startup, the Harry’s co-founders traveled all over the world to source the best manufacturers, but ultimately they settled on Feintechnik. The reason, Raider explains, begins with the fact that the company is itself a weathered veteran in the industry, having produced billions of razorblades over its 90-plus year history. Over the years, the company has predominantly made its name manufacturing high-quality double-edged blades, selling to leading distributors across Europe.
However, ultimately the founders said that they were attracted to Feintechnik because of its flexibility, having not only produced blades that end up in low-end razors, but the more complicated, tougher-to-produce blades that end up in higher-end, five-blade razor. It is these five blade razors that have become the staple of Harry’s since it launched 10 months ago.
But more so than the company’s strict quality control (it literally takes photographs of every blade it produces, Raider says) or that it customizes and makes its own equipment, the acquisition is a strategic move towards vertical integration. With the purchase of Feintechnik, Harry’s now has the ability to control the design and manufacturing of its products, and sell directly to consumers.
In the shaving industry, it’s a very exclusive group that can lay claim to the advantages of a vertically integrated production and supply chain. So, while it may seem like a frighteningly large investment for such a young company, the co-founders believe it will pay huge dividends over the long term. Plus, Harry’s can now say that it has joined Schick and Gillette in the land of the vertically integrated — and that the shaving market’s exclusive group now counts three.
While Harry’s is part of a new generation of sexy eCommerce companies attempting to bring a new spin to familiar, everyday products and businesses — like Warby Parker had done for eyewear and Bonobos is doing for men’s clothing — these innovative young brands still rely largely on third-party manufacturers. Though Raider is a Warby Parker co-founder himself and his former company has become the poster child for the direct-to-consumer model, not even Warby Parker can say that it truly controls the entire customer experience — from design and distribution to manufacturing.
With the ability to control the production of its razors, as well as the sales funnel and iterate more quickly based on customer feedback, it’s no surprise then that each of Raider’s fellow co-founders at Warby Parker invested in the startup’s latest round. Not only that, but the investment allows Harry’s, which, like so many young companies, currently operates at a loss to vault into the black thanks to the profitability of Feintechnik’s business.
Combined with the remaining $22.5 million of the investment left over after its purchase of Feintechnik, Harry’s to expand its portfolio of Warby Parker-inspired trendy shaving products. In explaining the success of its product that both led to its whopping investment and to its selling “over 100,000 razors” since launch, the co-founders tout Harry’s position in the market as one that combines value with a boutique, classic feel.
Harry’s shaving kits offer a razor, three replacement blades and shaving cream for $12 a pop, which most would consider a deal compared to say, popular Gillette razors that sell for $12 but only include two replacement blades. Even its five-blade razor, which sells for $25, is still a fairly good deal compared to similar products offered by Gillette and Schick. On top of its value-oriented approach, Harry’s near-term and long-term plans are aimed at increasing its appeal to young, tech-savvy consumers.
This means that the company not only offers a Warby Parker-esque buy-one-we-donate-one approach to add the feel-good aspect to patronizing their online store, but is also working to develop its data-based chops. Today, for example, Harry’s has begun to track customer purchasing habits in order to allow them to email those customers when they think it’s time for them to buy new blades. As its customer base expands and it gathers more data on their style and tastes, the company will look to expand this kind of functionality to bring more Amazon-style personalization to its shopping experience.
Furthermore, while Harry’s razors have traditionally come in a limited number of designs and kits, with its new investment and vertically-integrated supply chain, going forward, the company will look to add to its product roster. In the near-term, this means that customers can likely expect Harry’s to both expand its seasonally-inspired product lines as well as its core shaving kits.
Though the founders contend that they have nothing concrete on the radar today, it wouldn’t be a surprise to see the company tiptoe its way into, say, electronic shavers and, further down the line, expand into the larger men’s grooming market. So don’t be surprised if one day in the not-so-distant future, you find yourself perusing not only its razors but Harry’s-brand aftershave or deodorant.
In the meantime, however, the founders said they’re content to be an example to a new generation of what they call “vCommerce” companies — or those looking to offer better customer experiences through vertical integration.
via TechCrunch » Startups http://ift.tt/1mFX2Mq
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