How Modify Watches Validated a Million Dollar Idea With an Imperfect Product

Felix: Today, I’m joined by Aaron Schwartz from modifywatches.com. Modify Watches sells custom watches that are hand-assembled in San Francisco, California and were started in 2010. Welcome Aaron.

Aaron: Thanks for having me.

Felix: Excited to have you on. Tell us a little bit more about your story and these watches.

Aaron: We started Modify Watches in 2010. I got my MBA at Berkeley and during school started a company that didn’t really go anywhere. I learned a ton, and at the end, I actually started this business with a buddy of mine, Gary. The idea was, in the same way you could put anything you want on a t-shirt, we thought it’d be pretty fun to put anything you want on a watch. If you met either of the two of us, you’d notice we’re not super fashionable. It was pretty strange but we started a consumer brand that was not about us saying “Hey, this is the fall collection or the spring/summer collection.” It was much more “What do you want?”

We, over the years, worked our way to doing everything custom, and as of 2014, we did a kick starter campaign that enabled us to actually launch custom products made in the city. Now, people literally get whatever they want whether it’s a photo of their kid, or we’ve done some custom watches for Twitter or Facebook or Lift and a bunch of big companies. That’s our story.

Felix: Very cool. Definitely want to talk about the kick starter in a little bit. Before we get there, you mentioned that you tried starting a business in college, it didn’t work, but then … Was it just your second business attempt that born Modify Watches?

Aaron: Yeah, this is the second one. The first one was an awesome experience, but we had four founders, none of them were technical. We were trying to double dig sustainability business, and we basically bit off more than we could chew, and then, it was my second year in B school where we took a class from Steve Blank and Eric Ries who lean startup, get out that thought, and I think getting to hear those guys talk to us and all the speakers, we realized that we’d legitimately done everything wrong. When I started Modify, it was much more about how can we move as fast as possible even if it means we draw out a sub-par product or a sub-par website or sub-par whatever just to learn quickly. That was basically the first three or six months was getting in front of as many people as possible, learning, iterating, and going from there.

Felix: Definitely also want to talk about the lean startup motto in a bit. Before we get there, the second business that you started being Modify Watches, what did you do wrong in the first one? What did you learn from that first experience that you knew the second time around definitely to fix before you launch a new business?

Aaron: I think there are a couple obvious ones. The first is not having a technical person on the team for business. We were trying to do near-field communications. I think internet of things in 2009, trying to get it to for you to record when you drink a full bottle of water. The idea being if you drank something form a refilled container like a nalgene or a cantene, you weren’t buying a bottle of soda or buying even a bottle of water. It was reducing plastic waste. We were doing this really, really complex thing and we had no technical talent on our team. It was a lot of business development with no actual proof that we could make anything work. I think that was number one.

I think number two was we did way too much thinking instead of doing. We had all these huge hypotheses but it must have taken us nine months, a year before we tested any of them, truly truly tested them. Theoretically, they were right and we would make very good business school professors and that we were smart and thought we had the right answer but the reality is not until you actually test it do you learn. By that point, it had been too long. Whether we lost momentum. There were a lot of things that obviously happened. We just didn’t make the progress that we wanted. I think the first is the need for great technical help. It doesn’t need to be best in class but it needs to exist, just having strong tech is important, and then, actually moving to test and grade things first before you assume you’re right. We just had way too many assumptions with too little proof.

Felix: Obviously, the first business was an honest attempt. You actually were trying to start business, but there were a lot of issues along the way that you encountered that led to its ultimate failure. How did you know when to stop with that business? I think this is a key, even if a business is successful or if an entrepreneur is at a stage where they’re at a crossroads thinking should they continue and maybe pivot or just start from scratch and scrap the entire thing. It sounds like you guys just scrapped the entire thing. How did you make that decision? Talk to us about that thought process.

Aaron: It had been four of us who started the company, and the company was called Refill Revolution. We started it together, and then, come maybe six months in, it was two of us who were going full-time a third one who was still interested but had a wife and a kid and needed to make money. He didn’t really have the luxury that we did of just living cheaply and figuring things out. We spent basically three, maybe six, months intensely doing it during school. I basically didn’t take any classes that didn’t directly impact this business, or if I did, I just kind of skipped those classes or was okay not doing great.

By the business school, you know you’ve already had a job. Your competitive nature in terms of trying to an A disappears, or at least I think it should. We hit a point where we didn’t have a clear business model. We had applied for some grants, Actually, because it was a sustainability business, we could apply for some grants. We’d applied for a sustainability accelerator. We’d gone after a little bit of funding and we didn’t have any meaningful success. We had maybe 100 users who were interested in what we were doing. Maybe 1,000 other people said “Yeah, I would do that if …” We didn’t have a clear business model. We didn’t have a good tech stack. We didn’t have anything outside of our belief that this should work.

I think at some point we just hit a wall frankly of there’s opportunity costs, like maybe this could work and maybe we could figure it out but is this the right investment. I think most of the time that’s the question for the entrepreneur. The story is you should … you need to see something come to life so you bust your butt until it comes to life. That’s a really sexy story after the fact, but at the end of the day at some point, you need to be realistic of “Okay, is this the best path for me to make my mark or to make capital if I need to make capital or to learn as much as possible.” I think I had exhausted my learning without having a clear path and how we were ever going to make money. I think that’s probably how I would put it. Studying that class with Blank and Eric Ries and realizing we’d just done so much wrong and that the idea of kind of jumping back in, I think at that point, just wasn’t exciting if that makes sense.

Felix: That does make sense. When you started a second business, did you have the same kind of criteria, I guess personal criteria?

Aaron: Yeah.

Felix: How long did it take you … How much time did you give yourself to answer those questions?

Aaron: That’s a great question. Probably April of our second year, so this is April 2010. My buddy Gary had come back from traveling in Southeast Asia with his family and he bought all these silicone watches, big garish rubber watches that are yellow or pink or green or whatever, and he said to me “Hey, my mom loves them, my younger sister loves them, and I love them, so three completely distinct demographics. Do you want to try and sell these with me? I don’t know anything about starting a company?” I said “Sure, I don’t know anything either, but I’m in this class and what they tell me is figure out all my assumptions and test them immediately.”

We started with the express goal of having it be a summer project and ten going to get our real jobs. He ended up getting a real job and on some level I envy him a bit. They own a nice apartment. Things are great for him, but he stayed involved as an advisor and obviously a close friend. I never went back to get my real job. The path to me differing and then saying no to the company I was going to go back to was Gary and I sat … This was in April. We had an hour long meeting where we basically white-boarded everything that we knew about selling products, and it wasn’t very much but we listed out 20 people who we knew who could help us, somebody had been an importer wholesaler, somebody who was a banker who could help us build out our financial model, somebody who had worked in marketing at the MBA who actually ended up joining the company a couple years later. It was a buddy of mine from college.

We went down the list and said “Here are all of the things we don’t know and here are our assumptions,” and then we proceeded to try and test those assumptions in terms of … The priority order was what would the impact be, if it was right or wrong. The first we did was we actually bought watches from eBay and they were $5 a piece and they were really low quality. We knew that we were going to sell them to friends and family, no stranger was going to stumble across our website at the start, but what we wanted to see was when people bought these watches how did they buy the watches. Modify was originally called The Swap Watch. The idea is that the watch face and the watch strap are interchangeable. You could actually pull apart the pink strap and put it onto a different style design.

What we wanted to see was did people buy individual pieces or did they buy a full watch. The thing that we were testing for was if people cared, if there was value to the modularity, if somebody would buy one watch face and two watch straps. They would change their look on a daily basis. Maybe they buy a black strap for a more formal or a more conservative look and then a pink or a green strap for a more bold statement look. Our test wasn’t did people like the watches when they get them, when they received them, it was how did they consume the product because our thought process was if you buy a green strap and black watch face you’re buying a watch, but if you buy a green strap and a black watch face and a blue strap as well, then you’re actually saying “Hey, I’m going to mix and match these because it’s an odd number.”

For our first couple hundred sales, what we saw was … I think it was 1.3 or 1.4 straps per watch face. We have validated that people would consume the product that way. Then, we had to worry about actually getting a product that worked. Our first products, we would send you one and we’d add an extra battery in the package and we would add normally a second watch as a “Hey thank, Mom or Jimmy or whoever bought the product,” it didn’t matter, and we would have a business card that had our cell phone numbers because we wanted them to … if they had any issue, we didn’t want there to be any friction with customer service. It wasn’t help at Modify. It was Aaron@theswapwatch.com. I would deal with all the service and everything just to figure out what was right or wrong about our business. Does that make sense? I know it’s a little nuance.

Felix: It does make sense. I think the question that comes up though is what was the hypothesis? Was it that you wanted to see if people would buy watches that were interchangeable?

Aaron: The hypothesis was that there was room in the market for more customization in the watch space. If the idea is … that the ability to accessorize with watches was something that people were interested in. That was kind of that in parallel. If you want to get the best watch for $50 you should go buy a Swatch. Swatch is this incredible watch product. There is no … They’ve been doing it for decades. They are unbelievable, but if you buy three Swatch watches you have three watches. If you bought three of our watches you really have nine different combinations. A black and black, a blue and a blue, and a green and green, you can put each of those straps with each of those watch faces. We wanted to test to see if people would use it that way because if we were going to be competing on just watch design and style, like somebody was going to buy a single watch, they were going to mix and match but only buy one watch face and one watch strap, we weren’t going to win building basic watches.

We weren’t passionate about watches. We didn’t have a family history of watch-making. We had no competitive advantage, but if it was about people interchanging and coming back and maybe coming back to the site a month later and buying one more strap or one more watch face, it’s a more accessible second purchase, third purchase, we thought we could at least make a mark in terms of building a strong brand.

Felix: How did you come up with this hypothesis because it sounds like an exercise that a lot of especially new businesses or a business that have not started yet should consider going down, but I wonder if it also makes sense for existing businesses to come up with a hypothesis if they haven’t done so already. How did you come up with yours?

Aaron: That’s a good question. How do we come up with out hypothesis? I’m trying to think back. Right now, I’m gray and I have a baby and everything has changed in the last six years. I’ve got to go back to Day 1 which is kind of unfair of you. The idea was if we’re going to play in this space we need to be different. What are the different ways that we could be different? One was custom. Could we make a custom watch where you could get a photo of your kid or a photo of your company or your logo of your company or whatever on there? At the start of the business, the answer was no. Then, we kind of looked at how all of these products were being sold. At the time, they were called Jelly Watches, and if you were to Google Jelly Watches I’ll bet you could still find products like this, or if you traveled to Taiwan or basically a bunch of different Asian countries and you look in markets you’ll see still this style of watch being sold but except for not they copied our mold which is pretty cool. Having somebody was pretty neat. It was a weird milestone to celebrate.

What we noticed was everybody who’s selling these products which were interchangeable were selling them in a monochromatic fashion. It was pink and pink, blue and blue, green and green, and it just struck us as we played with and as we used the product that this is a different way to use it and that it wasn’t restricted only to doing it with silicone or rubber watches. Now, we have leather straps and stainless steel watches and nylon straps. Soon, we’re going to launch metal straps as well. It was more about consumer behavior hypothesis. I don’t think you need to try to be differentiated in terms of “Hey, we’re doing something that nobody has ever done in this space to be successful.” I think there are a lot of other things that go into making a business successful. For us though, that was a more fun experiment. We knew we could probably sell some random watches and do something but we weren’t going to learn from that, it was just be “Hey, put up a website and sell something.” We wanted to see if we could actually create a new category as a different way of thinking about it.

Felix: That makes sense. I want to go back to an earlier thing you said that’s related to this is that you mentioned that you and your co-founder, you guys … it didn’t seem like the ideal customer for a product like this because, like you’re saying, it’s a fashion-based and that’s not something that you consider yourself in that type of industry. Were there difficulties in starting up a business or creating a product when you aren’t the ideal customer that comes to mind?

Aaron: Actually, I think we are the ideal customer for this type of product. We’re not the ideal person to start a fashion brand is what I meant and is how I think about it. I’m not a trendsetter. I still wear New Balance 993 and just very gray Basics because they’re comfortable, but we were really good at creating a brand that was accessible to everybody. The voice that we had at the time, which is still kind of it, was a little bit quirky, a little bit snarky, pretty positive, pretty jokey. We’d reference Indian Jones and The Last Crusade or random stuff that we grew up with, but it was something our peers could understand the brand voice, our parents could understand the brand voice, and Gary’s younger siblings and my younger cousins could understand it. We tried to make it a brand that was open to everybody, and still, if you go to our website or our Instagram or Facebook, you’ll see that it’s not a pretentious brand. The idea has always been you tell your story and use Modify to help you do it.

The reason I think we were actually the right customers is I’ve never had somebody say “Hey, that’s cool,” when they see a t-shirt I’m wearing or some jeans or some shoes or anything. Nobody has even stopped me on the street and said “Cool look, man. That’s awesome,” but when I would wear our bold green or pink or whatever color Modify Watches, people would stop me. We had so many customers write in about that, “Yeah, people stop me on the street and I tell them all about you, and I show them how it’s interchangeable.” We’ve never had a big marketing budget. We’ve always gone through word of mouth and that high-touch service that I talked about, which is a hand-written note in our packages when we started. We’ve kept that through even still today. The idea of the brand being open to everybody was one thing where you get to do whatever you want to, just use this as your t-shirt template except for you’re wearing it on your wrist. I don’t know if that answers your question.

Felix: No, it does, and because you didn’t seem like the ideal entrepreneur to start a business like this or a business in this industry, what do you feel like you had to, definitely, learn or pick up along the way to be successful?

Aaron: That’s a good question. We had a lot of theory. We done business school. We’ve each been consultants and had friends who were entrepreneurs and came from business-minded families and all this stuff. I think we basically just got to put everything into practice. We learned very quickly how to do Facebook in terms of … not just Facebook in terms of putting stuff out there but actually getting engaged and learning and testing to figure out you don’t want to do a giveaway too often because people will stop buying your product, but you want to do a giveaway once every two weeks to get more Facebook likes and you want to boost posts this way and you want to do fan voting as much as possible, so really bring your fans in because they’ll tag their friends and it will show up in everybody’s feed. Think about that for Facebook and then think about it for every other social channel. We did the same amount of testing with our newsletter, what’s the cadence of our weekly email that we had sent out to people. Should it be weekly? Should it be bi-weekly? Should it be three times a week? How do we segment that in terms of our website in the [story we told 00:20:11], in terms of the pricing.

We basically tested everything, and I think it was that mindset of we don’t know what we don’t know about selling watches that helped define our business. I’ll give a tangible example of that. Early on, we had a customer who worked at Google and some rep from branding company called Canary Marketing walked by his desk and said “Hey, that’s a cool watch. Where did you get it?” He told him the story about Modify. He said “Yeah, these guys are great, really good service, and blah blah blah.” I’ve got a bunch of them and they’re interchangeable. I got an email from Canary Marketing who’s been an awesome partner to us over the years. They said “Yeah, why don’t you come in. We’re looking to buy a gift for our thousand clients.” Canary Marketing is the type of company that works with Google or Facebook or think of a big brand, and they help them come up with year end swag and gift for employees, maybe even the pens on the receptionist’s desk and that sort of stuff.

I went into their office and I said “Yeah, this is our product,” and this is not an exaggeration. It was eight women and one guy and then myself around the table. All of them were cooler, more fashionable, or whatever and all of them knew products better than I did. We’re only six months into the business. They said “Tell us about the brand,” and I told them a little bit about us and our ideas. I said “Yeah and our price point for the watch is $29,” and they said “Ooh. Mmm. It should probably be a little bit higher,” and I said “Yeah, we’re actually thinking to raise it to $39,” and I made that decision on the spot. They said “Yeah, that sounds about right.” It was that sort of thing.

Then, they bought 1,000 watches and then some of their clients bought including Google. We had a $40,000 or $60,000 quarter. This was six months after starting the business. What that quarter did is it brought us into this corporate promotional product space, which has always been half or more of our business. We’ve worked with 200 of the Fortune 500 companies, some have bought 25 watches, some have bought 5,000, but we’ve been able to … It wasn’t a pivot of the business by any means, it was just here’s a great new channel that we can work with, and it was all because we walked in, basically, with an open mind saying “Here’s what we’re thinking, what do you think?” I think that mindset is carried on through the company.

We’ve picked up sports licensing because our fans want us to be NBA licensees. We now do stuff with nonprofits and print on demand and we let people stuff, create their own shop on our site which we actually run through Shopify of course. It’s this really complex thing that we say to people, “Hey, we will be your merchandise shop. You don’t have to do a thing. We’ll do the design, production, everything. You just bring your audience.” Then, we share the revenue.

Felix: I like that you said that when you went into these meetings, especially early on when you’re talking to potential customers, you valued their opinion, you’re asking about what they think, and I think you said early that the brand is obviously not pretentious at all. I think this is on one end of the spectrum, and on the other end of the spectrum, people will say or recommend that you establish yourself as an authority, as an expert and put yourself on a pedestal and lead from that point of view. What are your thoughts on those two ends of the spectrum? What have you found … Why do you think this has worked for you to go down this route rather the other route that other folks talk about?

Aaron: I’m always very cautious in press or on podcast or when I’m writing or whatever to give definitive advice because I think everybody is very different. I think the main message is that you should be true to yourself. We raised money a couple of years ago and I had all this advice that I needed to be the authoritative whatever and be very definitive and I went into one meeting like that and it was an awful meeting because it wasn’t comfortable for me to say “This is what we’re doing and this is the future and whatever,” and then, I’ve gone into other meetings where I’ve been myself and I say “Hey, these are our plans but you know a ton, talk to me.” That’s bit me in the butt. We had an opportunity to raise a lot of money earlier this year and I got into the final partner meeting and I was too nonchalant. It wasn’t I was nonchalant like “Oh, it’s in the bag.” It was “Hey guys, I want to have a discussion with you,” and they didn’t want a discussion and I found this out after the fact. They wanted to be wowed. They wanted to say “This guys has a vision and whatever.”

I think it kind of depends on what your situation is. My approach is actually pretty much in line with one of the core tenants of UC Berkeley, the Haas Business School, Haas School of Business that I attended which is confidence without attitude. I know I know a lot about this space. I know a lot about print on demand. I know a lot about watches. I know a lot about influence or marketing, making everybody micro-influencer because they’re wearing something cool and they can engage their friends and family, but I know what I know and if I walk in and just tell you what I know, I’m not going to learn anything from you. My wife would probably say that I talk more than listen but I think I’m most successful when I actually shut up. I learn from whoever I’m speaking with.

The reason I was late to the podcast is I had some technical difficulties but before that I was running late because we were talking to a sports agency about working with their athletes. The woman asked me why are we the best or whatever, and I laid out what we were good at but I also made it clear, I said “Listen, we’re only good if we don’t take any of your time so that your return on investment is incredibly high. We will do everything. We’re great at design. We’re great at service. We’ll be great working with your athletes, and if we’re not, you can just tell us and we’ll fix it or you can walk away.” I think being brutally honest with folks about what you can do and what you can’t but then figuring out what they care most about. She didn’t care about the revenue that they were going to generate, she cared about was this going to be a pain in the butt for them to execute.

I know I’m bringing in a couple different examples, but I think trying to posture and be the hardass if you’re not or trying to be a softie if you’re not is just a mistake. You as the entrepreneur, you need … Assume most of your relationships are going to be very long-lasting, either because you keep working with that partner or because they’re a referral for you for future business or future whatever for your company. If you change who you are for different people, that’s going to be a real issue. It’s going to bite you in the butt down the road.

Felix: Yeah, and I think that what you’re saying about how when you were yourself and you were being yourself and being a much more open about when you went to this investor meeting when you were super open and nonchalant about it but it turned out poorly for you, does that mean that you cannot pursue those opportunities that do require you to … I guess not change the way you are but I guess essentially change the way that you represent yourself, does that mean you can’t pursue those opportunities, or how do you deal with that that you want to be yourself? I’ve heard this advice plenty of times with other entrepreneurs that are super successful just like you, but then, there’s the opportunities that seem to favor people that are different, maybe even opposite, of the way that you are. How do you justify or balance those two opposing issues?

Aaron: Listen, next time I try to raise a couple million dollars from somebody, I’m going to do much more research. I talked to one or two people who had met with them and they said “Yeah, here’s how you do it or whatever.” I should have talked to a dozen or 50. I don’t think I put … It was a quick turnaround. I found out I was going to have the meeting on a Friday morning and the meeting was Monday afternoon, and I prepped but I prepped internally. That was basically going back to the Steve Blank idea of get outside your building. I prepped by thinking about my business and why it would be great for them and why they would be great for us but I didn’t actually talk to people. I talked to one or two folks, but I didn’t talk to the dozen people who had interacted with the senior partner at that firm. I had no experience and I took for granted that if I just talked about us that we would be great.

I think what I take from that is next time I go to raise $2,000,000 or $3,000,000 or whatever the check could have been, I prep in a different way. The way I describe it to my team in general is when they’re making decisions if it’s a high-impact decision put the work in. If it’s a low-impact decision that you can come back from. If a customer has an issue and you can’t resolve it, you don’t know what to do and you think that the best thing to do is to refund them and send them two extra watches, just do it. At the end of the day, it’s going to cost us $100 but it’s probably not worth your time to keep going back and forth. It’s not worth your time to bring it to me or to somebody else and to debate it, make the $100 decision. If it’s a $10,000 decision, think a little bit harder. If it’s a $1,000,000 decision, really prep hard.

I think I treated this meeting like it was any other investor meeting. Most investor meetings are “Hey, it’s great to meet you. Let’s start a relationship,” and in six months we might be raising her. Hey, we’ve already got a round coming together, do you want to invest $100,000." This was the lead investor who is going to write the check that was twenty times bigger than anybody else’s check, and I treated it like it was a normal meeting instead of treating it like it was do or die for my business. Does that make sense? It’s not that I needed to walk in and posture and be somebody, but I needed to know that I could still be myself and still smile and still make jokes during the presentation but that they wanted a very black and white road map to what we were going to do and that they know and I know that that road map is not going to work, but they want me to have absolute confidence that given all the information that I have this is how I see the future.

Felix: That makes sense. That does. Let’s talk about this MVP, how to lean startup a model that you built your business using that and I think that’s what contributed to your success. I want to compare to the first business that you tried to start. Maybe, let’s start off by talking about the lean startup model. Can you give us a brief general idea of what does it mean to follow the lean startup methodology and how is it different than a typical business that does not follow that?

Aaron: Sure. I’m going to absolutely not do justice to lean startup. I apologize to Eric Ries and everybody else who is behind it or preaches it. I’ll talk about how I internalize it. Eric Ries pulled together … I think the first thing I ever read was an interview that he did in 2008 or 2009 on venture hacks. If you look up minimal viable product and lean startup and Eric Ries you’ll find an awesome interview that he did. The way that I internalize it is … the bigger tenants that I care about is, one, test all of your assumptions. Everything that you think is an assumption. Is this the right price point? Is this the right product feature? Do we need any of these features? Do we need five buttons or 1 button? Does this brand resonate? Literally test as much as possible.

The second one is test with what’s called a minimum viable product, MVP. Going back to the anecdote I said before, our first watches did not work. They had a 30% defect rate, but for all intensive purposes, they were bad watches. The test that I wanted to see wasn’t did people like these watches that work, it was how did people purchase these watches. The minimum viable product, I didn’t even get down to minimum. To me, it was selling a broken, again not completely broken but a pretty much broken watch, was okay because the only thing I was testing was would people buy this product in a certain way. Would they buy them and take advantage of the interchangeable nature of the product or would they treat it like a normal watch.

The minimum viable product would have been if I put up that website, and we made the website look really good. We spent three days on it. We could have made it look really bad and spent one day on it and just had a nice logo but no bells and whistles, no about us section, or whatever. We could have spent a little bit less time on it, and we didn’t even need to have the product in hand. What we could have done is let people purchase the product online and then written to them immediately and said “Jimmy, I’m so sorry we sold out of that watch,” because we didn’t actually care about getting them the watch, we just cared about their buying decision. I think that’s the beginning piece of it.

The word viable really matters. Me walking out on the street with a piece of paper and saying “Would you buy this watch,” doesn’t actually let me know if somebody would buy the watch. I needed a website that accepted credit cards. I needed to test that piece, but the minimum piece is I didn’t technically need to have watches, though we took it a little bit further and we had watches that just weren’t very good. I think that’s … The minimum viable product is a huge piece of it. Go ahead.

Felix: I was going to ask the idea behind it is so that you can move quickly and then just get out there so that you can start testing your assumptions. How do you determine though … I think you were kind of talking about this a little bit, but maybe we can expand on this a bit more. How do you determine what is considered a minimum viable product because obviously you don’t want to do more than you have to, and this is probably more of an art than a science, but you don’t want to do more than you have to but you also … Is there a danger in not doing or not having enough of a product that’s maybe below minimum viable but obviously you’re not aware of it?

Aaron: Yeah, absolutely. The big idea, and this is not a one time at the start of your business, you’re meant to do this throughout your whole life cycle of a company. Again, I’m not doing this justice. It’s you learn, you build something new, you measure it, and you learn from it. You build a new page on the website and before you transition the entire website to this new template, you drive traffic there, you test. Are people interested, yes. Does it perform better, yes. Maybe you roll it out to your entire website, you test the next thing. Does it work better or worse? The word viable is really critical. You need to be confident that what you’re … It’s like any scientific experiment, you actually need to … you probably want to have some sort of control. You want to think through what it is that you’re testing.

For us, I made a joke a minute ago that I could probably have just done the website in 12 hours. The reality is I probably needed to spend three days on that website with Gary because we probably … If we’d had a 12-hour website, people would have thought we were a scam. We needed people to trust that there was a brand and trust that they were going to get watches delivered and that those watches would work, and then, that was enough. We didn’t actually need to have the watches in hand because we didn’t care if they actually got it and what they did with the watch once they got it. I think in that example that would be it. I think it’s more … You can test your way … You can test everything. At the end of the day, you need to have core tenants of your business and a core, a defining vision of your business.

For Modify, the idea has always been you get to wear what you want and we’re going to do it with watches. For us to drop watches and go into video games and let you build an avatar doesn’t really line up. We might test that there’s more engagement that way but it’s not actually core to what our business is. It’s more about … You still need to follow your vision. You can very easily distracted an entrepreneur, and I think the second piece is what’s underlying that. For us, it was always A+ design and A+ customer service. There were certain things that we were willing to change. We were willing to change the price of our product, as I mentioned before, from $29 to $39. We leveled up our product. We’re willing to test discount codes. We’re willing to test different social channels. We’re willing to test where we sell our products. Do we sell to big companies or individuals or what not, but we’re not willing to compromise on really good service and really good design, and that kind of runs all the way through the whole history of Modify.

Felix: I think the concern that entrepreneurs have, and this idea of minimum viable product has been super popular over the last few years. I guess that’s when it came out really, but I think the concern that a lot of entrepreneurs have is that they don’t want to tarnish their reputation by releasing a product too soon. What are you thoughts on that? I think it is a real concern. I do wonder how much maybe it’s overblown. What are you thoughts on this fear?

Aaron: I think it’s a good question. I get the concern. I think if you’re doing a life sciences business you shouldn’t launch something too early if you’re playing with somebody’s life, if you’re doing it like a glucose monitor or measuring allergies or what not, don’t play around. I think for everything else, I would look at it a different way, which is if you’re trying to build a small business … You’re building a local corner store, which is great. You can build a cash-line business. You can give a lot of people jobs and really enjoy it. You absolutely cannot tarnish your brand or your business. You don’t want to launch … You don’t want to open your shop with prices all over the place and the register not working and giving people a bad experience because you need them to come back because you have a finite audience.

If you’re launching a tech company or you’re launching anything that’s basically … Let me change that. If you’re launching something that you intend to scale … I didn’t want Modify to only have 500 customers and local in San Francisco or go home to Cleveland where I grew up and only have people know us there. The idea was for us to be a huge brand. If I frustrate 100 people or a 1,000 people or 10,000 people and I give them a bad … the product doesn’t live up to it or whatever and I then refund them and I apologize and I did everything possible to make it right by them and to take away their pain, the reality is they weren’t going to be negative, they weren’t going to follow the business and write me bad Yelp reviews. They would go away. That wasn’t the goal obviously, but the reality is if we are going to be a big scalable business and millions of people are going to know us, that first batch is one one-thousandth of 1% of the total people who are going to know the business.

I take the trade off of if you wait for six months or twelve months or eighteen months or twenty-four months to build something perfect before you introduce it to somebody because you’re afraid that those first people aren’t going to love it or you’re going to tarnish the brand, the reality is somebody else has probably already launched and learned a lot more and what you launch is only going to be what you think is right. The reality is you need to figure out what your customers want. The sooner you get something out the more likely you are to be successful. I think it’s a trade off. I don’t think you do something that can injure somebody. I don’t think you do something that doesn’t line up with what the future of your business is going to be, but if you keep it in your garage for too long you’re just going to be doing cycles in your own head instead of actually learning what’s relevant and figuring out people will pay for it.

Felix: I think this is also another question that gets raised here is how do you know if maybe you’re spending too much time in your own head, too much time thinking rather than going out and talking to the customers. There are certain things, like you were saying, especially if they’re low-impact that you can just make the decision yourself but then when it’s big-impact you need to spend more time on it, bring in other people. Is there a filter or a criteria that you walk through either quantitatively or qualitatively that allows you to quickly identify “Okay, I’m spending too much time thinking about this. I need to go out and talk to customers?”

Aaron: That’s interesting. I think for me personally I know that I’m spending too much time on something if it’s on my plate for more than two days. There are very few projects that require … At this point in the business, I don’t need to build super-complex financial models with thousands of assumptions. I’m not building 30-page presentations, maybe if we’re doing a fundraiser or something, but that’s one off project. If I don’t knock something out immediately it means I’m thinking too much about it. If it’s on my plate for two days, three days, four days, that probably means I’m just stalling and I’m either afraid to make a decision or I’m being lazy. I need to bring it to somebody or my team or a customer and say “Hey, what do you think? This is how I’m leaning. Does this make sense,” and let them help guide me and help me get it done. My advice to anybody who’s starting a company is to find an individual or a small group of people who are at your same stage of business and talk to them and talk to them frequently.

One of my best friends is a guy named Bhavin who is a CEO of a company called Magoosh, and they do test prep, GMAT, GRE. The company is killing it. They are Inc. 500. They were just number 186. That was just announced. Super fast growing ed tech company and couldn’t be a different business. Magoosh is doing GMAT and GRE test prep and we are selling watches, fundamentally different, but he and his co-founder started the business about a year before me. I’ve always thought about them as a year ahead of us, and he and I talk almost every day. Now that we both have kids it’s a little less frequently but three to four times a week. On my walk to work this morning, he gave me a ring.

The value of having this guy who I talk to is that I don’t have to go in very far into the issue that I’m having because he has complete context. I can say “Oh you know Mike on our team was thinking about doing XYZ, what do you think?” He knows who Mike is and he knows our business and he knows my revenue and he knows our channels and he knows our strategy. This is a guy who is incredibly smart and capable and I’d be lucky for him to be on our team who I can just go to and say “Hey, what do you think?” His concern is for the business and for me. He won’t let me make a decision that would screw me up and he won’t let me make a decision that would screw up the business.

I know a couple other folks who have groups of three, four, five peer founders, and I think having that peer individual or peer group is incredibly valuable because you need to get outside of your own four walls of your business. You can’t bring everything to your board. You can’t call your investors all the time. Your husband or wife or girlfriend or dog or whatever don’t care. You need somebody who’s in it who cares. I think that’s … Anytime you feel maybe it’s time to bring it outside, that would be the first person I would turn to. I think that’s something that both sides get value from. I know nothing about ed tech and I know nothing about test prep but I can talk to him about all the people stuff. I can talk to him about all the fundraising stuff. I can talk to him about all the sales stuff that goes on with his business, and I can talk to him about the psychological piece of “Man, we had a really bad month.” For them, it’s normally like “We had an awesome month, how do we take in more awesome?” I think that’s more of a tactic to get outside of it.

Felix: I think it’s a great piece of advice, these mastermind groups it sounds like is what you’re getting at. Maybe it’s formalized, “mastermind group” or a just a peer mentor or something like that, like you’re saying is at the same stage as you. The whole journey of entrepreneurship is lonely, not just it’s lonely because you don’t see many people but it’s lonely in that there’s not many people that are on that same journey or are at that particular stage, but when you do find these people they’re valuable to bounce ideas off. I think, like you’re saying, it’s mutually beneficial for both parties.

Aaron: I also … If I can just add one more thing to that. I think it’s not just that it’s lonely. The psychological help is great but the reality is everything that I do right now is focused on Modify Watches. If I think about sports, I think about how do I get athletes on our watches, or I think about nonprofit work or if I think about the gamification of X, Y, and Z or I think about internet of things. Everything is about watches, and for him, nothing is about watches, which means that we’re able to have a discussion and he’s bringing in topics or ideas or angles on the business that I just don’t have because I am so narrowly focused, and if the roles were reversed it would be the exact opposite. If I was in ed tech and he was in watches, it would be the same thing. It’s about finding capable people who can actually give you strategic insights that you’re not thinking outside of your own business, you’re just stuck in it.

Felix: I think that makes sense. It’s the issue where you’re just one inch away from your business. You can’t see it in it’s whole entirety unless you have someone else from a different perspective giving you advice on that. Once you’ve done this and spoken to people internally and you want to start actually testing some assumptions that you’re coming up with, what’s your process today? How do you even begin to test an assumption? Obviously, it varies from what you’re actually trying to test, but in general, what kind of key steps are trying to include when you are trying to test an assumption?

Aaron: It depends on, again, what the grade of the assumption is. Is it a company changing decision or is it a “Hey, we don’t know of a discount code, if we should do 20% or 30% off.” If something small like that, we have our own internal process where we use optimizing, we AB test the site and we see what happens if we do a 20% discount code on the page versus a 30% and what’s the uplift in sales. If you think about contribution margins, how much cash actually comes in the business, which one has a bigger impact that way. It’s a small decision where we might have a process where we do it on our Shopify site. We might test two different pages, for example, for the most basic.

If it is a big strategic decision, like I have a big assumption that our audience really wants us to get into music licensing. We have the NBA and Major League Baseball. Do people want us to get Foo Fighters watches or Wu Tang watches or should we go after Bruno Mars or whatever? That’s the type of thing where we can float an idea to our audience and we can either do a survey, which surveys are notoriously not great because it’s a sell sucking audience who might do it. We can do some social posts where you say “Hey, who should be the one next artist that we partner with,” or something like that and try to access out what would interesting to our audience.

We also have a network of advisors who I’ve cultivated over the years. This could be anybody from a legit BC who is never going to invest in our business but knows me personally and is happy to help once a quarter, who I can send this out to. We’ve got anybody from that through a private equity person through somebody who is in the music industry through X, Y, and Z and we do that. We bring it out to people who either, if they were investors, they could put on that investor hat and say “Would I be excited by you taking the strategic shift?”

At the end of the day with a brand like ours, we had a very active audience. It is a very forgiving audience. We’re able to present something and if they’re not interested they don’t say “God, I hate you guys. I’m never coming back here.” They say “No, it’s not for us.” We’ve built that into the business from Day 1. We do quarterly surveys. We post a lot of questions on social. At the beginning of the business we’d have our fans actually name every [inaudible 00:47:42] of watch. The green and white was called Wimbledon, something like that. We would have our fans vote on stuff like that and what products to launch. I think we’ve been fortunate in that we have a consumer brand. It’s harder if you’re an enterprise brand, and you have ten customers and those guys might make your business, to test those sorts of things, but at the end of the day, I think if you’re really honest with your clients or your customers, you say “Hey, I don’t know but we’re thinking about doing this, what do you think?” People will give you an honest answer. I think for the bigger things it’s actually just being aware that you don’t know and being open about it.

I’ve always found that to be successful, even for company changing decisions. Should we write a $50,000 check to go pick up a license, which was more money than we had at the time. Should we launch smart watches or should be stay analog for right now, at least we’re staying analog. I’ve been able to bring that out to basically our entire fan base and ask very openly what they think.

Felix: For a listener out there that has a store that hasn’t done any testing, they haven’t tested any part of their website or their products, are there some generic or general tests that you think every e-commerce store should consider testing?

Aaron: That’s a great question. Yes, I think the basic things to test … Again, if there are fundamental things about your business that you … You want to be a luxury brand, don’t play around with pricing. If you want to be a luxury brand, don’t sell stuff for $30, you sell stuff for $300, going more generic. The easy things to test, one is price points. Testing, it’s very hard to raise a price once you’ve lowered it. You can test with discount codes and say “Hey, if I do something for 10% off to sign up to my newsletter or whatnot, does that happen?” The second thing is actually with a newsletter or with social is get people to sign up and then you can … that’s a very easy way. We use MailChimp.

There are a ton of great tools out there to send different newsletters “Group A gets one newsletter. Group B gets another. Hey, we’re testing new messaging.” You can send the first set of messaging to Group A and see what’s their click to rate to the website and not just their click through rate but what’s their rate because if you only look to rate but you don’t actually see if they make any sales, you might get one thing that gets a lot of clicks and the other one actually makes more money. The classic example would be if you said “Biggest Sale Ever,” and then basically it’s a bait and switch and then on the site there’s nothing about a sale, you might get a huge click through rate from the newsletter but no revenue.

The other one says “Hey, 10% off today.” You might get a smaller click through rate because it’s less exciting but people who click it are interested in taking 10% off that day, if that makes sense. You can use your newsletter to test messaging very easily. If you’re thinking about bringing it, making it more of a formal lifestyle brand, you can do a quick photo shoot with somebody who dresses up as if it was a model shoot and see if people engage with that more or if they engage with really high-quality product shots or you can do a third run which is quirky product shots. You can play around with your brand and see what resonates.

You test button sizes and button colors which sounds so silly, but getting people to click checkout, we make it big and orange, and we’ve tested big and blue and small and green and all this stuff and we see that big and orange is the right thing. It draws your eye and it makes you think about checking out, at least on a high level. The thing that we started to invest more time into is figuring out the number of clicks it takes to purchase. Our initial assumption was fewer clicks would make a higher conversion rate on our site but what we’re finding now is that we have such a breadth of products … At this point, I think we’ve got 5,000 or 10,000 watch designs on our site, that it’s not about fewer clicks but it’s about guiding people to the products that they want.

It’s okay if somebody clicks ten different pages if they’re narrowing down. On the homepage, it says Design Your Own or Browse, and you click Browse,“ and then you can go into ”Best Sellers“ or ”Sports“ or whatever. Let’s say you go into sports, do you want to then go into NBA or NHL or MLB? MLB, okay. Cleveland Indians. Okay, which player?” That’s how we’ve learned our customers perform, but I think you can think about your website in that way as well, which is what is the ideal path that you want you customers to take and then you can test that pretty quickly.

Felix: Makes sense. One other thing that you mentioned earlier that I think you also mentioned in the preinterview notes is that one of the keys to success is A+ customer service and you guys hand write notes. Is this for every single order that goes out?

Aaron: Yeah, it is. My approach, and this goes to the idea of we didn’t know anything about watches when we started our watch company, is we still don’t really know anything. We want … As a small brand, we need to hear from our fans and we need our fans to advocate for us. By writing a small note with a note card or with a business card that says “Here’s our email address, write in if you have any issues.” It used to be a cell phone but now we’re much faster with email. We realized it was better to get rid of the phone number because we would get better service if we only got emails. By saying “Hey, thank you so much for your order. We really appreciate it. Any issues or any advice or anything at all, reach out to us here.”

One is if somebody has an issue they immediately reach out because it’s a personal relationship on some level. Nobody else signs my name, everybody signs their own name, whoever writes the card even if it’s an intern who is in for two days a week and it’s like “Thank you so much for your order. Bobby.” If there’s an issue, people tell us immediately and similarly if we did something really well. There’s no friction for somebody to be like “Oh, I’ll send them a quick note or I’ll take a photo and email it to them of me and my cool new watch or I put the watch on the dog or whatever.” I’ve always thought that was important was what we didn’t want was apathy.

We didn’t want people who had a bad experience to either be really negative or not to say anything. I just had a terrible experience with our water service company where we needed to cancel and I had to wait on hold for over an hour a couple times. We needed to cancel because we were moving office spaces but there was no way I’m going to go back to that water company, as silly as it sounds, because they didn’t make it easy for me to take care of the transaction that I needed. We’ve always wanted to take away friction on the service side.

The flip of that is we don’t have a big marketing budget. We grow through word of mouth. By giving that little extra literally ten seconds of handwriting, people feel better connection, and if we screw up, they’ll write in and then we can make it up to them and we can wow them, or if we did a great job, they still feel a little bit warmer to us versus getting something from a big box store or getting something in a generic box. By having that better experience, we hope that they’ll advocate for us to their friends, when they’re on the street. Hopefully, when someone stops them and says “Cool watch,” they’ll say “The brand is awesome. They really took care of me …” We’ve always grown through word of mouth.

I think for us it’s part of my ethos and any company I start is going to have that ethos. I don’t think that part is necessary. I think when you start the business it’s absolutely critical to have great service. You need to hear from your customers because you need to figure out what’s good and what’s bad.

Felix: The idea behind this or at least one of the key benefits from doing these hand written notes is just to open up that channel of communication to get them to feel comfortable reaching out to you guys?

Aaron: That’s it. It’s to say “We are here if you need anything. If you need a special order or if we screwed something up.” I keep saying if we screwed something up. We mess up one in 200 orders. I always send a blue strap instead of a navy blue or whatever. We want to hear it immediately because “Hey, you gave us $50 out of your pocket or $30 or $500, you deserve to feel like you got two times as much value out of it.” It’s basically just to say “We’re here, talk to us. If there’s anything we can do, let us know.” There reality is 95% of people don’t every write anything and that’s okay, but we want to make sure that those 5%,m because we don’t know who they are, have that opportunity.

Felix: It makes sense. Can you give us an idea of how successful the business is today?

Aaron: Yes, sure. We’ve got a little over ten people. Our throughput is maybe 500 or 600 watches a week. We’re growing that, which is pretty cool because they’re all handmade in San Francisco. It’s pretty neat to see different designs pop out. We’re going to do a little over a million in revenue this year. We’ve got a bunch of different channels. Our consumer brand is really good at modifywatches.com. We do a ton of corporate gifting like the ten to 5,000 unit orders, and we do a ton of custom stuff now, which is frankly very exciting for me. Send us a photo, put it on a watch and that sort of thing is a really cool gift to give to a loved one. I think the only other cool part of our business is we’ve got sports licensing or NBA, Major League, NHL which always helps come holiday time.

Felix: I think the corporate promotional products space is definitely something that’s going to be interesting to a lot of listeners being able to break into that space because, like you’re saying, it’s just another sales channel but it could be a big boom to a cashflow for a lot of businesses by getting these clients or these customers on especially early on. What do you think has been successful for you guys? How are you able to … It sounds like you had some personal connections in there but what do you think it was about your business or about your product that made it friendly or made it appealing as a promotion product for a business?

Aaron: I think the first thing is our original product was very bright and bold. If you’re Google and you wanted a green, red, yellow, and blue product, we could get that to you and it would be really bold and it would bring your brand to life. I think our sustained success in the promotional product space is, one, we do a lot of design work and we do it all for free. If Twitter comes in and says “Hey, we want to see this design,” a lot of companies will say “All right, it’s $150 for the first design,” and our answer is “It’s free and we’ll do five designs because we need to nail a product that you love.”

The reality is in the promotional product space for anybody who has worked at a big company or has gone to business school or undergrad even and gotten recruited, you get a lot of crappy stuff. You get it and you put it in … Our approach is always like “Hey, this is an opportunity for us to help that brand.” Actually, either it’s their customers or their investors or their employees actually wear something on a daily basis that they’re really proud of, and if they wear it, one, it’s good for Modify because somebody else will see it and they’ll tell a story but more importantly is it’s great for that brand because it’s not going in the a drawer. They might come back and want to do more. I think free design is absolutely critical on that, and that kind of goes back to that service piece but let’s get them something that they absolutely love.

The second is we have awesome partners. I mentioned Canary Marketing. We work with a company called BrandVia. We work with BDA. We’ve got all these different distribution partners because while I’ve had maybe half a dozen people who when we started the company, I was like “Hey, I know these people. Let’s go and sell them watches.” We are really good at watches, at design, at service. Those companies are awesome at the sales aspect. If somebody comes into us, we introduce them to one of our sales partners, if that makes sense because those guys … I can go get a sale for $2,000 to an XYZ company but if those guys can get a set sale and we do a great job and we help them look like heroes to their client, they can get us that $2,000 sale five more times at that one company and to any of their other thousand companies that they rep. Just from a scale perspective, we try not … we just try to build a better distribution relationships.

Felix: It makes sense. Thanks so much, Aaron. What do you have planned for the remainder of this … for the next year? What can listeners look out for from you guys at Modify Watches?

Aaron: It’s funny to think about 2017 because right now all we’re thinking about is 2016 holiday. We will be launching at least one new industrial design, a new watch style. We are hitting the custom product side really hard. We built our own custom app on Shopify. If you go to modifywatches.com/custom, we built that all on there which is awesome. It’s a very easy way for you to add your photo. We’re going to make it a little more robust. Right now, its very simple and clean. You can upload an Instagram photo for example and add hour markers and go, but we’ll be adding some more bells and whistles to that. Then, we intend to launch a couple more styles next year, but at the end of the day, we’ve gone very, very broad over the years and now we’re bringing it back narrow. We just want to be the destination where you can get that custom watch that you love. I think you’ll see us start trending more and more and more that way.

Felix: This app, I’m looking at it now, at modifywatches.com/custom is pretty awesome. It looks like you guys put a lot of effort into developing this. It looks like a great product.

Aaron: Thanks man. That was all our CTO. I had nothing to do with it. Congrats to Steve.

Felix: Thanks again so much, Aaron. Modifywatches.com again is the site. Anywhere else you recommend the listeners check out if they want to follow along with what you guys are up to?

Aaron: I think our most fun social channel is Instagram. Instagram.com/modifywatches. We do a lot of stuff elsewhere too, but our best and our boldest goes there.

Felix: Awesome. Thanks so much, Aaron.

Aaron: Thank you.

Felix: Thanks for listening to Shopify Masters, the e-commerce marketing podcast for ambitious entrepreneurs. To start your store today, visit shopify.com/masters to claim your extended 30-day free trial.