Kristi Soomer created Encircled as a womenswear brand focused on sustainable, comfy, and stylish clothing designed as essential pieces for travel. Since launching in 2012, the brand has grown from designing for traveling light to living light, creating pieces that do more with less in customers’ closets. In this episode of Shopify Masters, Kristi shares with us the process of working with designers and how pitching her business on national TV propelled her business.
For the full transcript of this episode, click here.
How this slow fashion brand positioned its MVP for success
Felix: Where did the idea behind the business come from?
Kristi: Originally the business started as a travel clothing line. In my previous career I was a management consultant, so I worked in strategy consulting and retail. I used to live out of a suitcase. I would travel to client sites weekly via plane, and I really got obsessed with the idea of packing light, but being stylish and comfortable while sitting on those long flights. I came up with a product idea which we still have in our collection today called the Chrysalis Cardi. Essentially it’s an eight-in-one garment that can transition from a one-shoulder gown into a cardigan, a scarf, or a dress, and it’s made from really beautiful, luxe, sustainable fabric. It’s super comfortable and really versatile.
That became our first piece and the foundation of the brand. It was known as a travel piece, but over the years we’ve evolved our positioning to focus on the idea of everyday essentials that people can wear over and over again to maximize versatility in their closet.
Felix: Your business merges the worlds of slow fashion and technology. Tell us about the challenges that you’ve faced in your unique position.
Kristi: I come from a very corporate background, so I was 10 years into my career when I came up with this idea. I have a finance degree and an MBA, so I have no business designing fashion products, and I had no idea what I was doing. And back then–was around 2012–the internet was not where it is today in terms of online courses and up work and all these freelancer databases. A lot of it was figuring it out on my own and using resources locally in Toronto. We have an incubator in Toronto called The Toronto Fashion Incubator, and they had a resume database. I was able to find a technical designer through that. That was key in helping me figure out how to create the garment. I had ideas of course how I wanted it to function and I sewed up my own prototype on a sewing machine that I bought off of Craigslist that I broke the first time I used because I didn’t know what I was doing.
I was able to play around with it, figure out the concept, and take it to somebody who knew a little bit more about design to create a pattern and then find manufacturers locally who could make it. That was definitely one of the most challenging parts because the garment was not your standard garment. A lot of people thought I was crazy for what I was doing, and a lot of manufacturers laughed me out of their factories. It took some time but with some persistence, I was able to find a manufacturer in Toronto who really believed in what I was trying to do. It connected with him, so he was able to convince his boss to take us on and make the first run of them.
Felix: What is the process like collaborating with a technical designer? How do you work to incorporate the vision with the expertise?
Kristi: There’s been a bit of back and forth. We have an in-house design team, and we also use a few freelancers, but a lot of the time the ideas come from me. I have these really crazy, zany ideas of things I want to do. I want a blazer that looks like a blazer but feels like a sweatshirt, and I want to do certain things like put cool pockets in different places. I would pitch that idea to a technical designer and then they would tell me what’s impossible in the world of fashion because some things are just not possible, or potentially they’re possible but they’re really expensive from a manufacturing standpoint, or complicated, or they don’t work with the way the fabric works. Garments at the end of the day require a lot of construction elements and there are certain fabrics that you can’t make do certain things or they just won’t look nice, or last–maybe they’ll fall apart.
We’ve always been very intentional with our designs. A technical designer essentially would take that idea and come up with a technical sketch that would show all the features and finishes. From there they would take it to the first muslin or sample, create a prototype and pattern, and then work on perfecting the fit. Right now we go up to size XXL but we’re launching up to 3X soon. The next step would be getting pre-production samples done and grading that pattern up to all the different sizes and then going into production and finishing the technical pack which would be all the dimensions and measurements.
It’s a fairly technical process, so I recommend that if people are thinking of starting a fashion design business, hire an expert in this area, because unless you have a background in it, it’s really hard to figure it out on your own.
The interview process that yielded the most ROI
Felix: What’s your advice for working with someone who has more expertise in an area than you do? How do you approach that kind of situation?
Kristi: I’ve had to hire a lot of people where I don’t necessarily know how to handle if they say they can do something, for example, somebody says, “Yeah, I can do tech packs.” And I’m like okay, great, they can be a technical designer. Then I realized we need somebody who can do pattern making as well because we are small, so we need somebody who can also sew a sample competently. Some of it is just learning over time the things you need in the business. You learn and you start asking the right questions in the recruiting period and looking at portfolios. Another thing you can do in the recruiting time frame is to give people a bit of a project–if you want to pay them for that, that’s cool too–but give them something to test their skills so you can see what they can do.
Can they take this idea, sketch it, and make a pattern? Would they get stuck? That’s a good assessment of how they would do in real life in your business. It’s good to get that out of the way upfront. If you want to pay them to do contract work or something like that before hiring then that’s also an option as well.
Felix: So the next step is finding manufacturers who believe in your vision. How do you make sure that your vision is being carried out?
Kristi: It’s a really important step to find somebody who believes in your vision and what you’re trying to do, especially with us, because a lot of our designs are versatile. Even now we have designs that are reversible, or that change shape or form–they turn from a dress to a tunic, or they change length or the sleeves come off or something like that. We integrate a lot of that, and it’s not very common in fashion. You need a manufacturer who’s ready to work with you, gets what you’re trying to do, and can adapt to that. You really need to figure out if they have the skill to be able to do that, especially in the fashion industry. You have to be really specific with your requirements and test, test, test. Do samples with factories before you get them made because that will show you their level of competence and ability to sew.
In terms of getting them on board, we’ve been very lucky in Toronto. Aside from that first run where the product was awful–it needed hand-sewn snaps. That’s what the secret was to the versatility for creating all these different looks, and people just thought that was insane. Some of it was showing them this is the vision, this is what I’m trying to do, this is why I’m trying to do it, this is why it matters to me, and this is why I think it will be good. Then showing them some of the success. When I was first getting started, we had a couple of small manufacturers we were working with, I’d say, “Hey, guess what? Those dressy sweatpants you made for us, they’re sold out already in a week.” Our manufacturers would get really excited. They’re like, “Oh my god, that’s so amazing, I can’t wait to get the next order.” Involving your manufacturers in your business planning and sharing some successes and results can help them stay motivated to want to work with you.
Felix: How did you validate the product? What kind of market research were you doing?
Kristi: The first product I tested a lot on my friends before I launched it. The original prototype had 20 snaps on it. I started testing it with my friends and I was like look at all the cool looks you can do. Nobody could figure it out and I realized I was having trouble figuring out some of the ways to do all the different looks because it was so complex. That process brought it down to six snaps, which is what it is today, and that was so much easier to use. I would honestly have a friend over to my place because my friends were pretty close to my core demographic, I’d be like, “Hey, do you want to try this on? Do you think this is cool?”
Early on–especially with that product–I did a lot of research online to see if somebody else has done this, is this really that unique? Although people had done these versatile infinity scarves like American Apparel had one back in the day where you could tie it, I bought that product and I realized that our product was way better made. It was hemmed, the fabric was higher quality, it’s just so much more functional. I did a little bit of that and I started to see that people thought it was cool. I knew I was onto something in my gut, but I do think from an online perspective if you are starting a business in this area–or just generally with product-based business–if you have an audience that you can reach out to, that can be a great source for product development ideas. We’ve definitely had some really successful products that have been developed in conjunction with our customers.
We launched a T-shirt dress three or four years ago and that was fully developed with our customers on Instagram. We asked them what they loathe and love about a T-shirt dress, and developed a T-shirt dress based on all of that. That product sold out in 24 hours. The more you can integrate people along the way, and test your product with them, you’ll get great feedback that you can iterate on and ultimately make a better product.
Why you should avoid open-ended questions to get the most out of your consumer surveys
Felix: When you were surveying your customers on Instagram, how do you ensure that you’re still maintaining direction and control?
Kristi: Usually it starts with a concept. We have an idea of something we want to make. For example, for years we’ve been trying to make the perfect comfy work pants. We’ve struggled a lot in terms of finding a fabric that checks the boxes on sustainability, ethics, and performance, and we finally found a fabric. A few years ago we did a survey through email with our customers, and we promoted it on social media as well. We asked them “what would be your dream work pant?” We phrased a few questions, like, “what kind of waistband do you want?” We gave visual examples so people could see, okay that’s a flat waistband, this is belt loops. “Do you want a zipper or not? Do you want it to be hand-washed, dry clean only, or would you prefer machine washable?”
We’d ask those questions and I found that to be the most valuable. Doing that traditional market research survey where they have a forced choice. If you open it up like what we did with the T-shirt dress, we had like 500 comments and we had to sort through and then try and figure out which ones were the most valid and had the most weight behind them. Part of my background is consumer packaged goods and we used to do a lot of insight testing and research. There’s value in having both that qualitative verbatim stuff from people, but then turning that into an actual quantitative survey is the best bet when it comes to product development.
Felix: Have you ever run into a situation where there are conflicting opinions regarding features or benefits? How do you determine which direction to go?
Kristi: It is really difficult. The thing that comes up surprisingly often in our business is does this garment have pockets? Women love pockets in clothing, but sometimes having a pocket, for example in a dress, depending on the material, it just won’t look good no matter what you do to that pocket in production. You can make it the most lightweight, hidden pocket, but if it’s a very drapey, soft fabric you’ll probably see the pocket. Then if you put something in the pocket, like an iPhone, which nowadays are as big as iPads, you’ll see that in the pocket. It’s really not that functional. Oftentimes customers will be like oh I just wish it had pockets, but you have to make the best decision based on your gut.
You also have to look at the capabilities of the products materials you’re using, to see if it even makes sense. A lot of times I want to do something with a product and then somebody who has technical background will be like yeah you could put a zipper there, but this is what’s probably going to happen, it’s probably going to get wavy after the first wash or whatever, and I’m like okay that’s not in alignment with our quality, so we really want long-lasting, easy to wash and care for garments. So some of it is tapping back into your values as well, and then just really connecting back into the intention of the product. Ultimately you can take input from a lot of people on your product, but it’s your brand vision, so it really needs to align with what you want to put out there in the market.
Felix: How do you educate your customers on the intentionality behind the decisions that you’re making?
Kristi: It’s definitely something we call out when we’re launching a product. We launch products, we don’t launch collections, which is very different from a lot of fashion designers. We make a product a hero of our launches. For example, we have a dress coming up where the sleeves change the length and it’s based on an existing top in our collection. This dress will not have pockets, and the reason it does not have pockets is because it’s a slip dress–it’s very slim fitting–and it would not look good with pockets. That’s something specific that we’ll call out in the marketing and tell a story around it.
The marketing will look something like, when we were designing this dress, we tested it and we did all these things. We do a lot of storytelling not only on social media but in our emails as well. I’m used to writing a lot of long form emails explaining the design process behind our products, just so people see what goes into that. If you haven’t worked in a fashion brand or in a product based business you don’t know how much thought goes into these decisions. We like to be really transparent and open and share that with our customers. We will actually call it out in our features on the product description page we might even say, no pockets but slim curve hugging silhouette. We’ll put it into the actual product details.
Felix: You show them your intentions by including them in the decision-making process. I think this also works to enhance perceived value for the customer.
Kristi: It’s been hard over the past two years in the pandemic because we’ve been working largely remote with a few people coming in and out of the studio. We used to do a lot more real-time sharing of product development. For example, when we were developing the T-shirt dress, we were taking photos of it and videos of the fitting in the office, and we’d ask, “what length do you guys think it should be? Do you think it should be the midi length, or full length, or knee-length?” We would literally cut it with scissors on the model on the video to show people that we were doing this. When you involve your customers and your community in that process they also start to understand just how much work and effort goes into that product. They see that you’re considering them and thinking of what’s best for them in that process versus how a lot of fast fashion brands will pump out as many products as possible and they don’t even have time to do proper fittings on them often. If you’re really going for that quality over quantity, it’s important to share that process with people so they understand that it is something that means something to you.
How this brand achieved 70% growth through the pandemic
Felix: What is your decision-making process for ensuring these core values of keeping the customer in mind by delivering high-quality products? How do you make sure you’re upholding those core values in every decision?
Kristi: I would say we have almost too much integrity. We very much live by our values at Encircled. We’re certified B Corp, and we will literally not make products if we can’t find the right fabric that meets our sustainability criteria. The example I gave you with the work pant; we had a full design, we had done a survey with over 1200 women and female-identifying people to talk about work pants and what they’re missing, and then we went ahead and we found three or four fabrics, they met the sustainability criteria for us, and performance-wise they were okay. However, when we washed them, they all bled dye, faded, and shrunk. They were not performing what we would want to be in terms of quality. We literally canceled that launch, and we’ve canceled launches this year because the product just didn’t meet our standards. Maybe we couldn’t hit a price point where we thought it would be successful.
We do live and die by our values quite a bit. It’s important for us to make products that are impactful because we are a slow fashion brand and we only have so many resources. We won’t launch something just because we think it’s going to make us a ton of money. Our supply chain being local as well, we’re really in this to make a difference in the fashion industry in a positive way. It’s a tough balance, though, because we do know that new products drive revenue and new customers. We try to find that balance of doing new things. That being said, I’m not afraid to cancel a product if I don’t think it’s going to work, and we’ve definitely done that before. Entrepreneurs have to be ready to make some of those tough decisions and build in that buffer, whether it’s having other products in the queue to replace or just being ready to tell that story to customers as to why there are no products launching. It’s something we’ve done for a really, really long time and it’s something that we’ll keep as we scale.
Felix: Have you ever faced external pressure from either direct competitors or other companies in the industry that have unbalanced or upset your adherence to those core values?
Kristi: In the last couple of years, even before the pandemic, we’ve seen an increase in slow fashion brands coming to market, which is really great. It also leaves room for a lot of replication, and we’ve definitely had designs copied, which is really unfortunate–where we are in Canada, there’s very little protection for fashion design copyright. It’s just something that happens. As much as I can, I try to keep my eyes on my own page, but there is that pressure to raise capital and scale and grow. They recently released this list in Canada, “The Globe and Mail fastest-growing companies,” and actually in my state of overwhelm of 2021 I didn’t even apply for it with Encircled, even though we would have made the list, but I forgot. I was looking at the growth of those companies on that list and some of them are growing 2000, 3000% year over year which is massive. There’s always that pressure in ecommerce to be bigger, faster, etcetera.
Which does sometimes run into an issue where it’s at odds with our values, the structure of our business, and our supply chain. It’s something that I’ve had to personally reconcile over the last year because we did grow almost 70% in 2020–and that was massive growth for us. Being able to keep up with that from a production standpoint and then also keep the design pipeline going in a pandemic and designing virtually, has been a lot. I always come back to what kind of business and lifestyle I want to have and run. Bigger isn’t necessarily always better, but there’s something to running a more simplified business model for sure.
We’re definitely actively looking at how can we simplify. Throughout the pandemic, we got involved in some products where we wouldn’t have necessarily launched them previously, but there was so much market demand. We started selling nonmedical, organic cotton masks at the beginning of the pandemic. We were one of the first brands to move on that in Canada, and it got us the number one placement in SEO on Google for face masks, and our business blew up with face masks. Was I hoping to sell face masks as my primary product for the first six months of 2020? No, but it’s something we could step into from both a sales and a donation perspective to the community.
We try to roll with the punches as much as possible, but I really want to get back to our core products and design these really innovative garments that can stand the test of time. We do have products, like our dressy sweatpant, that we’ve had in our collection for seven years, and that’s something that a lot of fashion brands could never say. The incremental value of having a product like that is so good because you’ve put all this design work into it and now you can produce it over and over again. That is really our core focus–getting back to those hero products that really deliver for our customers.
Using an Entrepreneurial Operating System to optimize internal processes
Felix: Your business has always emphasized quality and diversification over quantity in terms of your product line. What are some of the main benefits you’ve noticed by choosing a more simplified model, rather than releasing whole collections at a time?
Kristi: We have about 40 SKUs right now in total, so 40 products. Simplification is good because it allows you to have better control over your inventory. You can manage your inventory on hand a little bit more closely, you can have a sense of what’s driving your business and what’s not driving your business. It reduces the complexity of fulfillment in your business as well as your marketing message. It’s good to have basket builders on your website and smaller products that can add value to that but getting spread too thin as a small business can be something that can destroy you, because oftentimes when you go into products, especially if they’re not in your core zone of genius–let’s say, if you were a T-shirt brand and you want to launch denim. It’s a whole different supply chain. You’re going to need a whole different design team and supply network. That’s a lot of distraction.
One of the things we did in late 2019, is we put into place the entrepreneur’s organizational system–EOS. That’s been critical to aligning everybody in the business, keeping them focused on what the priorities are for the quarter, and really engaging with our leadership team to make sure that we’re focusing on the right things. There’s always work to be done in a small business, so it’s important to keep the team focused on less is more and what’s really going to move the needle not just on sales but on profitability as well.
Felix: Can you tell us more about the entrepreneurial operating system?
Kristi: There’s a book called Traction by Gino Wickman–I highly recommend as a read for all entrepreneurs–and he recommends a system of business management called EOS that basically is a quarterly system. You run your business in 90-day increments and have an annual planning session where you develop company rocks, which are essentially annual priorities for the brand. You break that into 90-day sprints with your team, if your team has a team, they also get 90-day rocks. You have a scorecard and you meet pretty much weekly as a leadership team. We meet for 90 minutes where we talk about all the priorities, we go through the scorecard metrics, and we flag anything that’s on track or off track and then we take action against that.
That’s been super helpful in terms of achieving opportunities. There are always things that come into the business where you could do this, but at what cost and at what other opportunity? You only have so many resources, right? In identifying challenges in the business, how can we fix this and what are we going to do moving forward to keep everyone on the same page. I don’t know how we would have gotten through the last two years without that system in place. Being a remote business it’s definitely a little bit more challenging.
Felix: What kinds of pains were you feeling that made you realize that you needed to create this system?
Kristi: In 2018 we grew massively. We almost doubled our business. In 2019 I started to see a flattening of the business revenue, and it felt really hard to get more sales. I was like why is that? What’s going on? Am I missing something? I started to realize that a lot of processes in the business were breaking. As your business scales, if you experience big growth and you start to feel like it gets really hard, I would encourage you to look at your processes, people, and product to see if there are any opportunities for improvement. For us at that stage, we had no processes. People were off just working on whatever came on their plate or inbox for the day. Not everybody was focused in the same direction. Even managers didn’t really know what targets we were going for in sales. It was accidental that we were achieving them.
“As your business scales, if you experience big growth and you start to feel like it gets really hard, I would encourage you to look at your processes, people, and product to see if there are any opportunities for improvement.”
Through this process, we’ve been able to share more financial transparency with the team so they know this is the target for Q4, and these are the key metrics we want to improve. That’s helped guide the actions. If anybody experiences a slip in sales, or their gross margin is declining, or perhaps profitability is declining–I even if you’re not experiencing any of those–and you want to grow a business that’s sustainable and possibly sellable, it’s a great system to put in place. I know a lot of top entrepreneurs run businesses with this system, that’s originally where I got the idea to do it. Even if you have like five employees, you can put this in place.
Felix: I can imagine it’s difficult to integrate a new system into a larger scale startup. How were you able to build the EOS into the business after you grew?
Kristi: People are used to making decisions based on what they know in their head–and that’s great as long as those employees stick around–but if they leave or if they’re sick, oftentimes those systems and processes disappear with them. It was a gradual process. EOS takes a little bit to get it right. We hired somebody recently to come in for our planning session last quarter to help guide it because we wanted to get that outside perspective and make sure we’re doing things right. It’s just been a bit of a transition for the team. We started off just doing, we didn’t jump right in and have everybody have rocks, we just gave the management team rocks, so my four managers now have these priorities and that’s it. Through 2020 we ran like that, and then this year we’ve started to break that down into departmental KPIs, so marketing would have specific key performance indicators that they’re tracking too.
We didn’t dive headfirst into it. We gradually started to roll that out. There is a part of EOS which is to document all your processes and make them centralized. We started and that, and it was definitely very helpful. Processes are something that you can’t just put on the shelf. You always have to evolve them. It’s something we’re actively working on right now prior to Black Friday trying to get a refresh of those, make sure they’re up to date, and all the training. It’s a lot of work. You can definitely hire somebody, you can hire EOS-trained integrators who can put in these systems for you. We decided to do it ourselves. There are pros and cons to each. But don’t expect your team to take it on all at once. There’s a lot of changes that have to be made, so the more gradual the rollout, the better.
Felix: What were some of the key learnings you walked away with after introducing the new system? Were there any surprises?
Kristi: We had a couple. How we were managing returns was one of them that bubbled up as an issue this year. Previously we had a pretty tight system in place for returns. We had a couple of people not following that system because they were new and they weren’t trained on it, so we built up a huge backlog of returns in the middle of the pandemic. We had to process all of those and customers were not happy. If we had a process for taking them and making sure we processed a certain amount every day, we wouldn’t have been in that situation, but somebody let them build up for 30 days. We wouldn’t have discovered that had we not been checking those KPIs because the big flag was that our return rate was really low for a couple of weeks, and we were like why is that so low? Is it all final sale? What are people buying? As soon as we did that investigation we realized that somebody wasn’t processing returns, that’s why it was so low. Leaning on those scorecards and KPIs as flags for possible problems is really important in the business as well.
Using customer feedback as a compass when transitioning your business
Felix: When you transitioned from focusing on traveling light to emphasizing a more minimalistic overall lifestyle, what kind of changes did you have to integrate and address as your target market expanding?
Kristi: It required a bit of a change. We went through a rebranding exercise with a small agency in 2016. That’s originally when we started to move away from travel messaging and we started talking about being more with less, and integrating that throughout not only the consumer-facing but back office as well. It ranged in changing everything from our opt-in incentive for our email newsletter. Before it was a carry-on only packing list, so we developed a whole printable minimalist wardrobe workbook that people could use to streamline their wardrobe as our new opt-in incentive. Of course, all of our colors and photography and content changed. We used to work with a ton of travel influencers, so we started working with more minimalist lifestyle influencers. We didn’t move away from convertible clothing, but we started introducing some basics into our assortment, like really high-quality T-shirts and stuff to fill in and round out the wardrobe.
It was a holistic process of reviewing all customer-facing touchpoints and everything that needed to change, which was quite an exercise. Luckily we were still fairly small. It was a lot easier than it would be now to reorient the ship. It was a good time to do it and I’m very thankful that previous to the pandemic we switched our messaging. Anybody in the travel space unfortunately has been hit really hard in the last two years.
Felix: How quickly did you see the benefits of this transition, in terms of validation that you were serving a greater market with new types of pain points?
Kristi: We tried to coordinate it to all flip over one day. We had an Instagram live and we bought this big cookie with our new logo because we changed our logo also at that time, and we did this our whole life, and we did a newsletter talking about why we changed it, and we did a blog post. We really tried to cover off all the touchpoints that a customer would interact with, and then obviously anything else like press or influencers, we tried to proactively pitch them on the new concept and stuff like that just so it would kind of roll out. People still think of us for sure in a travel context, but I definitely think we’ve been able to come up as more everyday apparel for people for sure, and that’s just reflected through our assortment as well.
Felix: Where does the original idea behind your new releases come from?
Kristi: A lot of it comes from need. I’ll look at our customers and what needs we can fulfill in their wardrobe. What gaps do we have in our assortment? What’s missing? We just launched a new fabric in our collection which is a Tencel micro modal scuba. It’s like your workwear stretch meets activewear fabric. It has a lot of stretchy, comfortable properties, but it looks very dressy. It looks almost like suiting, but it feels like legging fabric. That’s a new fabric for us, so we’ve launched a couple of styles in that. I thought it would be really great to have a complimentary piece like a shorter cropped jacket or cardigan, so I started playing around with that idea. Then I came up with this idea of doing the perfect blend between a jacket and a cardigan–a jardigan basically over piece for that.
It will start from my eyes and I’ll think, “this is a good idea.” Then I’ll test it with people. I might go into our Facebook group where we have over 1000 customers and say these are some of the ideas that we have coming up, what do you think? Sometimes we just know enough about the product that we can line extend off of it very comfortably. For example, we have two styles that are top-selling styles. We have the evolve top and the dressy sweatpants. We’re about to launch size extensions in that up to 3X, and we just know those will do very well because it’s something people have been asking for.
It’s a little bit of push and pulls. We consistently get a lot of feedback from customers. Not just online, but there’s also an email flow that we have that goes out through Klaviyo where it asks customers specifically for feedback after their first order. I get a lot of insights from that in terms of what people are looking for in their wardrobe and it all culminates into the design vision.
How to handle risk and disappointment as a risk-averse entrepreneur
Felix: You were also featured on Dragons Den. What was that experience like?
Kristi: I went on Dragons Den in 2015. I had done a pitch for the show, they loved it and they wanted me to go on and record. I worked with a producer to develop a pitch and actually hired eight of my friends to come in and wear each of the eight ways you could wear the Chrysalis Cardi, which was our hero product at the time. I did this whole pitch to the Dragons, and they loved the idea, they loved the business, they were very complimentary to me on knowing my numbers and everything and they thought the valuation was fair, and then we ended up getting two offers from two Dragons each. One was more of a line of credit, royalties deal, and then the other one was more of a straight equity placement. We went with the equity placement, and I was super excited. I went and I leased office space because I was still working out of my house, then I found out that they decided not to move forward with the deal.
I was obviously really devastated because I also leased this office. I had hired somebody part-time as well to help me. Then I found out that they rejected the deal because they felt like the business wasn’t big enough for them. Then I found out that our episode never even aired. We didn’t get the promotional push from it. Not that it was wasted time, though. I knew a lot of them didn’t air, only 5% of deals or less go through apparently, and then about 50% of the episodes ever air. It was devastating for me pretty early on because I took it pretty hard. I thought, “oh my gosh, is this business concept not good?” I was able to pick myself back up again and figure out an alternate plan pretty quickly.
Felix: How were you able to pick yourself up again after? Defeat is something that entrepreneurs face constantly, how did you find the motivation to continue going?
Kristi: It took a few weeks for sure. I felt a little sorry for myself. I had a mentor at that time and I had talked to them about it and told them what the feedback was. My mentor said that it’s probably not the right business for them, but that doesn’t mean it’s not the right business for you, which was really good advice. I took what I learned from it, which was that our business valuation was really fair. We had strong numbers, we had good metrics in our business. I re-pitched another investor with a higher valuation actually. I ended up bumping up my valuation and then we ended up working out a small angel investment placement with that investor who’s still an investor with us today.
Had that not happened, I don’t think I would have met this investor, who has been a really great partner of ours throughout this journey. They’re a better fit than any of the Dragons would have been. It all worked out, but I definitely recommend leaning on not only mentors but also your entrepreneurial network. It’s really important to have friends who are entrepreneurs as you are becoming an entrepreneur. I love my other friends but they don’t understand. It’s a different lifestyle and when you’re really passionate about your business and something goes wrong it’s not just business, it feels personal. Having that network that can pick you up when you fall down is really critical to recovering from a failure like that.
Felix: I’m sure in hindsight these setbacks don’t feel as huge and catastrophic, but at the time it was a big demotivating setback. How has that experience influenced your approach to risk?
Kristi: I’m a pretty risk-averse person generally. I’m probably not your typical entrepreneur profile. I’m very financially driven in terms of management of the business, so I’m really into cash flow and I watch a lot of the metrics really closely. I would say that was a big leap for me for sure, but I do realize that you have to make some of those leaps sometimes. You’re never going to have that certainty a lot of people crave in their lives when you choose the life of an entrepreneur. As an example, we were in that studio for three years or something like that, and then we outgrew the space and there was a much larger space down the street. It was way more expensive– five times the rent–and we were way too small for it at that point but I was like you know what, we could get really big and we could take over this space. What would that look like?
It’s more about making calculated decisions. Now I would take that space–say like $6000 a month in rent–you calculate how long can you afford that, and at what point is a break-even. I would do a lot of financial analysis around a big investment like that. Back then our lease was $1000, which is pretty sustainable. If it’s a major deal, definitely do your own due diligence and your own financial analysis to see if it is good. If it isn’t good, and your business couldn’t manage that financially what would be the impact? Looking at all sides of that if you are a little bit more risk-averse is important. You’ll never know the answer–that’s the problem–but you just have to go with your gut at the end of the day.
Felix: You made the commitment to going 100% ecommerce. What went into that decision-making process?
Kristi: Originally we started off doing a little bit of wholesale because people were emailing us asking if they could sell our product. I was pretty new in the business so I was like “sure, they’ll make us money, that’s fine. I don’t know how wholesale works, but it sounds good.” The more we started to do a little bit of wholesale, I realized that our business model is not set up for wholesale. Not only did we not have the pricing structure for it, but wholesale retail at the time would buy in seasons. If they’re buying right now they would be buying next year, spring, summer. We don’t even know what we’re making in Q4 yet. We don’t have the business model to support that buying strategy. It started to become a fit for us and with our pricing structure, it was very margin dilutive. We weren’t making a lot of margin off of it. So we decided to really switch.
It was always a fairly small part of our business but we decided to go fully ecommerce, and that was really important too. Having your products in retail stores is important, but you have to have people there who are committed to telling your story as well as showing off the garment. We can sometimes do a better job of that online, especially with these multi-way pieces where you can have videos and instructions and all this educational content. That was a pretty deliberate decision and it was necessary given our supply chain. We wanted to be competitive in price with Lululemon to make it more accessible for people to switch to a sustainable activewear alternative. We realized we couldn’t do that if we went wholesale either. You can’t have it all, so it was a matter of simplifying down and creating a different business model that would support our business.
How Encircled used virtual fittings to maintain the elevated customer experience of in-person shopping
Felix: One unique aspect of your site is you offer virtual fittings. Tell us a little bit about that feature and how you make that work for your business.
Kristi: Previous to the pandemic we actually had a retail space within our studio, and that was pretty popular. We were getting into a lot of pop-up events, so we would have people book in on a schedule, come into the studio, and have a one-on-one fitting with our customer love team at our retail space. Those were really great interactions and we found people would end up buying more, return less, and they would leave really happy–they were excited to see the space and people working in the space. When we lost that space in March 2020, we wanted to figure out how we could reconnect with our customers and offer them that type of service within the restraints of being one of the cities that’s been in one of the longest lockdowns.
We came to the online model, doing virtual fittings. We set that up with an app called Acuity, which is like a scheduling software where people can go online and learn about what a virtual fitting is. They can book directly in the calendar, and then one of our customer love reps will either FaceTime them or does a Zoom call. Customers can ask any questions they have about the garment, or they can pull stuff from the backroom to show them. Customer love reps can give them fit advice. We’ve found these to be pretty helpful because oftentimes there’s a lot of questions on sizing and fit that come up as a barrier to why somebody might purchase, especially if they’re ordering from overseas or outside of Canada. We found this to be a really helpful tool for answering all those questions and improving conversions online.
Felix: What is the next big area of focus or initiative that we can look out for from Encircle?
Kristi: For us, it’s probably continuing some of that simplification, not just in the process, but in product and in the way we work. What we’ve seen in the industry in the last year is that prices are going up, there’s a lot of labor market changes, there’s a lot of changes in general in how people are working and living. It’s really important to stay focused, streamline as much as possible, and work as efficiently as we can, as well as we can within the new paradigm of how people want to work. We’re thinking forward about a lot, and developing collections that really fit into somebody’s life today and what they need in their closet today to live comfortably and have a versatile wardrobe.