THE WARBY PARKER YOU DONT KNOW

WHY WARBY PARKER’S FOUNDERS ARE DOU­BLING DOWN ON DEEP TECH AND RE­TAIL STORES— RE­ALLY—TO VAULT THEIR BELOVED STARTUP INTO ITS NEXT PHASE

Inc. (USA) - - FRONT PAGE - BY TOM FOSTER

Neil Blu­men­thal and Dave Gilboa, the be­spec­ta­cled and boy­ishly hand­some co-founders and co- CEOs of the eye­glasses pur­veyor, sit in wood-and-leather mid­cen­tury chairs around a long li­brary ta­ble in a room lined to the ceil­ing with books shelved ac­cord­ing to the color of their spines to cre­ate a rain­bow ef­fect. Ev­ery­thing at Warby’s of­fices in the SoHo neigh­bor­hood of Manhattan is as im­pec­ca­bly styled as this—a mashup of Mad Men– era ad agency and Ivy League read­ing room, with hid­den doors to se­cret nooks and hand- drawn wall­pa­per de­pict­ing fa­vorite mo­ments in the com­pany’s his­tory. The pair, both 36, are here with sev­eral staffers to demo a prod­uct that, they say, starts a new chap­ter for Warby.

Lau­ra­lynn Drury, a for­mer JPMor­gan Chase VP on Warby’s strat­egy team, holds an iPhone in front of her and moves back­ward from a lap­top fac­ing her on a ta­ble. When she has stepped back a pre­cise dis­tance, the phone vi­brates and a graphic tells her to stop. She’s ready to start tak­ing a vision test—no op­tometrist ap­point­ment nec­es­sary, noth­ing needed but 20 min­utes and two screens found in al­most ev­ery house­hold.

Her phone has al­ready asked her ques­tions to de­ter­mine whether she’s el­i­gi­ble for the test. (When it launches, only un­changed pre­scrip­tions will go through, and pa­tients with eye com­pli­ca­tions will be dis­qual­i­fied.) Now, the lap­top starts show­ing a se­ries of C’s— Lan­dolt C’s, in med­i­cal par­lance—in dif­fer­ent sizes, and asks her to swipe her phone in the di­rec­tion each faces. There are a few glitches when I see the demo in Fe­bru­ary, but it’s a rev­e­la­tion. Were Drury a cus­tomer, the re­sults would be sent to an eye doc­tor for re­view, and within 24 hours she would have her new pre­scrip­tion.

Get­ting what Warby is call­ing Pre­scrip­tion Check as slick as this room, be­fore a pi­lot ver­sion rolls out to users this sum­mer, has been vi­tal for the founders since they started work­ing on it two years ago. “Some­body has to be­lieve in it, be con­fi­dent in it, feel like it’s bet­ter than go­ing to the eye doc­tor,” Blu­men­thal says. Tech­ni­cally, he runs mar­ket­ing and re­tail while Gilboa over­sees tech­nol­ogy and fi­nance, but it’s hard to over­state how col­lab­o­ra­tive their style is. Their desks are ad­ja­cent, and they of­ten speak in tan­dem, one of them be­gin­ning and the other jump­ing in to sup­ple­ment. Right now, for in­stance. “It’s like when Jeff Be­zos says you’d be ir­re­spon­si­ble not to use Ama­zon Prime,” Gilboa of­fers. “We’re try­ing to change be­hav­ior around a med­i­cal prod­uct, so the value has to be that strong.”

The vision test is a win­dow onto the fu­ture of one of the most im­i­tated star­tups of this cen­tury—a pi­o­neer­ing di­rectto-con­sumer on­line play when it launched in 2010, which has since in­spired count­less com­pa­nies to ap­ply its model to, among other things, mat­tresses, lug­gage, ra­zors, and lin­gerie. Sev­eral years ago, Warby started to ex­per­i­ment with brickand-mor­tar re­tail lo­ca­tions; that on­line-to-off­line mi­gra­tion has been widely im­i­tated too. While the com­pany has grown tremen­dously—it will haul in more than $250 mil­lion this year, Inc. es­ti­mates—it has moved de­lib­er­ately, even slowly, for a trend­set­ting, ven­ture cap­i­tal–backed startup.

Un­like Uber, per­haps the only in­spi­ra­tion for more copy­cats in re­cent years, Warby has not tram­pled reg­u­la­tions or burned through bil­lions in fund­ing. Blu­men­thal and Gilboa have re­sisted leap­ing into new prod­uct cat­e­gories and in­stead dili­gently hew to the path on which they started. They’ve raised $215 mil­lion in ven­ture cap­i­tal—the last round, in early 2015, val­ued Warby at $1.2 bil­lion. “The ma­jor­ity is still sit­ting on our bal­ance sheet,” Gilboa says.

“There are so many op­por­tu­ni­ties where we could use that cap­i­tal and grow faster in the near term, but we think that would re­sult in dis­trac­tion,” he adds. “We be­lieve you have to

be the best in the world at the prod­uct or ser­vices you’re of­fer­ing. That’s how you win.” It’s a typ­i­cal state­ment for him and Blu­men­thal, a busi­nesss­chool bro­mide that, on sec­ond glance, re­veals strik­ingly dis­ci­plined am­bi­tion: Warby wants to win by go­ing deep, not wide.

That’s why, aside from the vision test, ear­lier this year Warby qui­etly opened an op­ti­cal lab—where lenses are cut, in­serted into frames, and shipped—in the Hud­son Val­ley town of Sloats­burg, New York, a first step to tak­ing over more of its man­u­fac­tur­ing. It’s ag­gres­sively open­ing brick-and-mor­tar re­tail lo­ca­tions, and this year it will add 19 to its ex­ist­ing 50. In the past year, Gilboa says, such out­lets brought in about half of Warby’s rev­enue; as­tound­ingly, in 2017, Warby will be pri­mar­ily a brick-and-mor­tar re­tailer.

What the founders won’t say, as they rile in­dus­try gi­ants more than ever and pre­pare to wade into a fight with reg­u­la­tors over their vision-test tech, is that this next phase will probe the lim­its of their well-honed im­age as B-schooled Boy Scouts. This beloved—even cud­dly—com­pany’s path for­ward will re­quire chan­nel­ing Uber or Ama­zon as much as Wes An­der­son.

BLU­MEN­THAL AND GILBOA launched Warby along with two other Whar­ton class­mates af­ter Gilboa lost a pair of $700 Prada glasses while trav­el­ing. When he strug­gled to get a re­place­ment pair quickly and cheaply, Gilboa had a clas­sic founder’s spark: Why are glasses so damn ex­pen­sive? They all soon learned that one com­pany—Ital­ian con­glom­er­ate Lux­ot­tica— dom­i­nates al­most ev­ery as­pect of the in­dus­try, from brands such as Ray-Ban and Oak­ley to re­tail­ers in­clud­ing Len­sCrafters, Sun­glass Hut, and Pearle Vision. Blu­men­thal had run a non­profit called Vi­sionSpring that dis­trib­utes glasses to those in need and had some in­dus­try con­nec­tions. A busi­ness idea was born: Warby would sell its wares on­line, slash­ing re­tail markups and keep­ing prices low. For ev­ery pair it sold, it would do­nate to eye care in de­vel­op­ing coun­tries, so cus­tomers felt good about their pur­chases. By em­pha­siz­ing trendy de­sign and clever, lit­er­ary-themed mar­ket­ing, it would seem like a must-have ac­ces­sory, not some­thing from the bar­gain bin. Af­ter a year and a half of in­cu­bat­ing while the founders fin­ished school (An­drew Hunt and Jeffrey Raider have left the com­pany but re­main on the board), Warby launched to im­me­di­ate buzz.

Two key in­no­va­tions have un­der­pinned its suc­cess. The first came when the founders de­vised a home try- on pro­gram, thus mak­ing peo­ple com­fort­able buy­ing eye­glasses on­line. The sec­ond in­no­va­tion came three years later, when Warby started open­ing phys­i­cal stores that turned buy­ing glasses into a fun fash­ion ex­pe­ri­ence.

In both cases, Warby rein­vented a shop­ping process. Peo­ple want to try frames on be­fore buy­ing, so Warby sends on­line shop­pers five pairs of blanks. In the age of In­sta­gram, peo­ple want to see how glasses com­plete their look, so the stores have full-length mir­rors. “Noth­ing we’re do­ing is rocket sci­ence,” says Gilboa. “They’re things that make sense for cus­tomers.”

But the next chap­ter is a lit­tle more like rocket sci­ence. “The con­ven­tional wis­dom is that th­ese are brand guys, not tech guys,” says Ben Lerer, co-founder of Thril­list and one of Warby’s ear­li­est in­vestors. “And steps one and two were so much about brand. Step three is about tech­nol­ogy

CUD­DLY? SOME­TIMES. “THEY HAVE VERY, VERY SHARP EL­BOWS,” WARNS AN AS­SO­CI­ATE.

and ver­ti­cal in­te­gra­tion.”

Warby’s vision test is not just an eas­ier, quicker way to get a pre­scrip­tion. It’s a bid to elim­i­nate a huge road­block. You can browse hun­dreds of styles on Warby’s site or at one of the stores—but since doc­tors are not in all shops, you of­ten need to go else­where to get a pre­scrip­tion. And when Warby sends a cus­tomer to an op­tometrist, “we’re send­ing them to a di­rect com­peti­tor,” Gilboa says. “You get an eye exam, and they say, ‘Let’s go to the front of the store,’ ” where they have a wall of frames. In­de­pen­dent op­tometrists make about 45 per­cent of their money sell­ing glasses, so there’s am­ple in­cen­tive to dis­suade peo­ple from tak­ing their pre­scrip­tions to Warby.

About two years ago, Warby cre­ated an in-house “ap­plied re­search” team. “We wanted to make a prod­uct that would al­low some­one to take an eye exam, but only if we could have an in­tu­itive way to solve the dis­tance prob­lem,” says Joe Car­rafa, man­ag­ing en­gi­neer on the project. He’s re­fer­ring to mea­sur­ing how far a user is from the screen dis­play­ing the ac­tual test. The team con­sid­ered ev­ery­thing from tape mea­sures to sonar be­fore hit­ting on a clever hack in which a phone’s cam­era de­ter­mines dis­tance by mea­sur­ing the size of ob­jects on the com­puter screen—a so­lu­tion for which Warby was granted a patent last year.

Warby is al­ready a threat to the op­tom­e­try in­dus­try, so get­ting into vision tests won’t go over easy. A com­pany in Chicago called Opter­na­tive al­ready mar­kets an app-based vision test that works like Warby’s ex­cept that it mea­sures dis­tance (a bit crudely) by hav­ing users walk toe-to-heel. The Amer­i­can Op­to­met­ric As­so­ci­a­tion has called Opter­na­tive’s test “fool­hardy” and “dan­ger­ous,” and last year filed an FDA com­plaint. Sev­eral states have laws lim­it­ing telemedicine, and the AOA is lob­by­ing hard for more. By ex­pand­ing into vision care, Warby is ask­ing for a big pub­lic fight.

“What they do bet­ter than any­one ever is mar­ket them­selves, and, in my opin­ion, that’s all they are do­ing,” says Alan Glazier, a Mary­land op­tometrist and AOA mem­ber who fash­ioned him­self a leader of the Warby re­sis­tance when he gave a talk called “Wag­ing War on Warby” at an eyewear in­dus­try con­fer­ence in 2015. He strode on­stage in bat­tle fa­tigues and be­gan by throw­ing a pair of Warby glasses across the room—and this was be­fore Warby got into eye tests.

“No leg­is­la­tor in their right mind would leg­is­late a lower stan­dard of care,” Glazier says. “Most peo­ple don’t un­der­stand that a vision test is only one piece of what hap­pens in an eye exam. You could have glau­coma or di­a­betes, and only a doc­tor is go­ing to check for that. [Th­ese apps] want to elim­i­nate doc­tors from the process, and that’s hor­ri­ble.”

Blu­men­thal and Gilboa ar­gue that they’re not try­ing to re­place com­pre­hen­sive eye ex­ams, that the tech­nol­ogy be­hind their test makes it pre­cise, that ev­ery re­sult will be re­viewed by an eye doc­tor, and that, at least for starters, the test will be avail­able only to low-risk con­sumers. “We want to take a very con­ser­va­tive ap­proach with reg­u­la­tions,” Gilboa says. “Very dif­fer­ent from Uber’s ap­proach.” For now, at least, the com­pany is send­ing rep­re­sen­ta­tives to tes­tify in front of state leg­is­la­tures, and en­cour­ag­ing doc­tors to use the tech­nol­ogy.

Warby shares in­vestors with both Uber and Airbnb, so it knows a more ag­gres­sive play­book if play­ing nice doesn’t work. But Blu­men­thal sug­gests Warby would never go there: “This is not an ex­is­ten­tial threat to us. We’ll still be able to sell glasses and grow the com­pany if we don’t solve this vi­sion­test­ing piece.” Still, just a few min­utes later, Gilboa says vision test­ing “will be trans­for­ma­tional for our busi­ness,” and Blu­men­thal points out that it rep­re­sents a new, $6 bil­lion mar­ket for the com­pany. That’s worth fight­ing for. And, make no mis­take, one per­son close to the com­pany says, the founders’ guy-next- door vibe be­lies re­al­ity: “They have very, very sharp el­bows. They do not like peo­ple who get in their way.”

AS RE­CENTLY AS TWO YEARS AGO, Gilboa and Blu­men­thal say, Warby’s phys­i­cal shops were some­what ex­per­i­men­tal—mar­ket­ing, mostly. The CEOs fig­ured they might end up with five. Then the num­bers came in. Those first few shops were gen­er­at­ing nearly un­matched sales fig­ures— $3,000 per square foot, a num­ber topped only by Ap­ple stores.

At the same time, other cal­cu­la­tions they made were overly op­ti­mistic. “When we launched, we said that e-com­merce would by now be 10 or 20 per­cent of the eye­glasses mar­ket,” Gilboa says. “It’s grown a lot since then”—to about 3 per­cent— “but it’s not as big as we an­tic­i­pated, and that is one of the things com­pelling us to do more stores.”

If it’s sur­pris­ing that phys­i­cal stores have be­come Warby’s big­gest growth driv­ers, it’s per­haps even more sur­pris­ing that, ac­cord­ing to Gilboa, av­er­age sales per square foot have stayed in the same strato­spheric range—this while count­less long­time re­tail stal­warts are col­laps­ing. One read might be that Warby’s stores can­ni­bal­ize its on­line sales—with higher over­head—but Gilboa says that’s not true: “Once we open a store, we see a short-term slow­down in our e-com­merce busi­ness in that mar­ket. But af­ter nine or 12 months, we see e-com­merce sales ac­cel­er­ate and grow faster than they had been be­fore the store opened. We’ve seen that pat­tern in vir­tu­ally ev­ery mar­ket.”

Key to the com­pany’s re­tail suc­cess has been an in­creas­ingly

so­phis­ti­cated reliance on data and tech­nol­ogy. The com­pany built its own point-of-sale sys­tem, Point of Ev­ery­thing, so sales­peo­ple, who carry iPad Mi­nis, can quickly see cus­tomers’ his­to­ries—fa­vorite frames from the web­site; past cor­re­spon­dence; ship­ping, pay­ment and pre­scrip­tion in­for­ma­tion—and, say, di­rect the cus­tomer to the frames she “fa­vor­ited” on­line. If a cus­tomer likes a pair of frames in the store, a sales­per­son can take a snap­shot on the iPad and the sys­tem will send it to the shop­per in a cus­tom email so she can buy that pair later with one click. More than 70 per­cent of peo­ple who get that email open it, says Gilboa, and more than 30 per­cent end up buy­ing.

Build­ing the busi­ness on­line first has also given the com­pany deep in­sight into where its cus­tomers are: It’s been ship­ping to their homes for years. In the early days, in a famed mar­ket­ing stunt, Warby turned a yel­low school bus into a clubby mo­bile shop (dark wood shelv­ing, old books) and sent it around the U.S. on a “Class Trip.” It parked the bus on var­i­ous corners in dif­fer­ent cities and used the re­sponse it got to help de­ter­mine where to open stores. That ap­proach worked well enough in hip­stery places like Austin, but now that the com­pany is open­ing in Birm­ing­ham, Alabama, the de­ci­sions aren’t as ob­vi­ous.

En­ter Warby’s new data sci­ence team, which over the past year has built a model that an­a­lyzes cen­sus tracts of a few thou­sand peo­ple, scans where ex­ist­ing cus­tomers live, and goes be­yond age, in­come, and ed­u­ca­tion to de­ter­mine whether peo­ple buy on­line and whether they buy from fash­ion brands or shop at gourmet food stores—129 vari­ables, all told. The model not only spits out pre­cise ar­eas to tar­get but, be­cause the com­pany has a few years of its own store data now, also of­fers a first-year rev­enue pro­jec­tion from any lo­ca­tion. A staffer can type a shop’s po­ten­tial ad­dress into a tool the data team built and get in­stant feed­back.

As the com­pany ramps up its new op­ti­cal lab, it’s reap­ing key ben­e­fits of con­trol­ling pro­duc­tion and dis­tri­bu­tion—bet­ter qual­ity in­spec­tions, fewer ship­ping de­lays. So the data team is an­a­lyz­ing ad­di­tional lab lo­ca­tions. “How big should the labs be?” asks Max Shron, Warby’s chief data sci­en­tist. “How much does it cost to ship from any ZIP code to an­other? How much does la­bor cost for each step? There are bil­lions of pos­si­ble com­bi­na­tions. It’s not some­thing a hu­man be­ing could rea­son through.”

Sucharita Mulpuru, a re­tail an­a­lyst who’s fol­lowed Warby from the be­gin­ning, says its data strat­egy is sur­pris­ingly ad­vanced for a com­pany its size, but won­ders whether Warby is “us­ing a nu­clear weapon to go deer hunt­ing.” But, she says, “maybe it could pro­duc­tize the soft­ware and sell it [to other busi­nesses]—the mar­gins are much more lu­cra­tive than re­tail.”

IT’S 8:30 A.M., AND BLU­MEN­THAL looks es­pe­cially spry con­sid­er­ing he bolted home yes­ter­day, ghostly white, stricken with the symp­toms of food poi­son­ing. Af­ter about eight hours hud­dled on the floor vom­it­ing, he says, he or­dered a home IV treat­ment from the hy­dra­tion-ther­apy com­pany the IV Doc, got pumped full of anti-nau­sea medicine and To­radol and saline, and to­day is much im­proved. There is no time to be sick: He flies to Bos­ton in a few hours to give a talk at Har­vard (“Re­tail Is Not Dead; Medi­ocre Re­tail Is Dead”), and will then hurry back to New York to­mor­row for an­other speak­ing gig.

But first, he and Gilboa lead Warby through its weekly all­hands meet­ing. Stand­ing on a wooden land­ing at the base of a sleek stair­case that rises through an atrium at the cen­ter of the of­fice, Blu­men­thal starts with an up­date on a closely watched num­ber, the Net Pro­moter Score, which mea­sures the like­li­hood cus­tomers will rec­om­mend Warby. In Jan­uary, Warby’s NPS was 83 (out of 100), Blu­men­thal an­nounces, the 12th con­sec­u­tive month it’s topped 80—“in­cred­i­ble, be­cause we haven’t found a com­pany in any in­dus­try with an NPS this high. Ku­dos to you!” Sev­eral hun­dred em­ploy­ees on the floor and lean­ing over the mez­za­nine ap­plaud. “Even more ex­cit­ing,” he adds, “the NPS for cus­tomers served out of the new lab is 89!” The em­ploy­ees erupt into cheers.

Like all things Warby, the meet­ing is tightly scripted and up­beat. The CEOs wear sneak­ers, un­tucked but­ton- downs, and Warby glasses (Blu­men­thal’s are non­pre­scrip­tion)— chic and geek, per­fectly on-brand. “Neil and Dave are the most de­lib­er­ate founders I’ve ever met,” says Lerer. “They have this metic­u­lous, very care­ful ap­proach to ev­ery sin­gle thing about how they are pre­sented and per­ceived— it’s amaz­ing and in­fu­ri­at­ing. They have been that way since the minute they started the com­pany. I can see one of them [still] run­ning Warby in 30 years.”

Yet the com­pany needs to sat­isfy its ven­ture cap­i­tal in­vestors, who, no mat­ter how pa­tient and care­fully cho­sen they are (as the founders like to tout), ex­pect mon­ster pay­outs, most likely from an IPO. What might the next big moves be? “Peo­ple ask us all the time if we’re think­ing about get­ting into fash­ion ac­ces­sories or ap­parel, and that’s too sim­plis­tic,” Blu­men­thal says. “We look at things like Ama­zon Web Ser­vices”—the com­merce gi­ant’s cloud-stor­age di­vi­sion. “AWS be­came a prof­itable busi­ness unit be­cause Ama­zon needed cloud stor­age and ser­vices, and it re­al­ized it could do it bet­ter than any­one else.”

In line with Mulpuru’s sug­ges­tion that Warby sell its data sci­ence ap­proach, the com­pany has con­sid­ered li­cens­ing its Point of Ev­ery­thing sys­tem and reg­u­larly fields in­quiries from other busi­nesses about it, as it does about its in­ter­nal taskrank­ing sys­tem, War­bles. (Opter­na­tive has al­ready li­censed its vision test to 1-800 Con­tacts.) “It’s a very real pos­si­bil­ity that vision tests could be our first cat­e­gory ex­pan­sion,” Blu­men­thal says. “And POE could one day be sold to other cus­tomers. We have an un­fair advantage in those ar­eas.” De­spite the se­duc­tive sur­faces, what’s most in­ter­est­ing at Warby lies un­der the hood.

IS WARBY “US­ING A NU­CLEAR WEAPON TO GO DEER HUNT­ING?” ONE OB­SERVER WON­DERS.

GO­ING DEEP

Rather than ex­pand into new cat­e­gories, Warby seeks to per­fect eye­glasses. Its new op­ti­cal lab, in Sloats­burg, New York, is the com­pany’s first move into man­u­fac­tur­ing.

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