Editor's Note: The U.S. Small Business Administration handed out several awards during its National Entrepreneurship Conference & Expo, held in Washington D.C. Sept. 17-19. Among these were three special advocacy awards given to small businesses that, in the SBA's words, showcase "the vital importance" of America's entrepreneurs. BusinessWeek Online spoke with each of these small-biz champions and is publishing the interviews as a series.
In 1996, cash-strapped college junior Scott Jones couldn't afford a fleece jacket -- a major problem for an avid outdoorsman with a growing passion for gear-heavy sports like mountaineering, rock climbing, and hiking. So he high-tailed it to the craft center at the University of Oregon, ordered a pattern and two yards of fleece, and started sewing. "I didn't know the zipper had to be a certain length. I didn't know the seams had to line up," Jones says. "The whole thing was pretty mismatched, but everybody seemed to like it. All my friends were saying, 'Hey, I want one, too.' So I kept making them."
Today, 27-year-old Jones heads Beyond Fleece Clothing, an e-tailer that's out to prove the concept of mass customization isn't a contradiction in terms. Specializing in high-quality outdoor clothing made to each customer's individual specifications, his brainchild is developing a devoted following among outdoors lovers tired of cookie-cutter, off-the-rack items, and also tapping some potentially lucrative markets by catering to the unique needs of police departments and military combat units. The strategy appears to be working. Jones expects sales to top $500,000 in 2003, and $1 million next year.
There's just one problem: cash flow. Growing that fast will require a financial infusion -- and soon. Jones has taken out a loan or two from the U.S. Small Business Administration, which last month honored him with a special young entrepreneur award. But Jones figures he'll need something more if he's going to take his business where he's convinced it has the potential to go. Recently, he spoke with BusinessWeek Online's Lisa Miller about the challenges ahead, the advantages of customization, and why cops don't want jackets that flare out over their hips. Edited excerpts of their conversation follow:
Q: Mass customization has been hyped before. Is it now the way of the future or just a fad?
A:I think it's the way of the future. Mass customization has been around since World War II, when Toyota started doing it. And then Dell (DELL ) started doing it. And Dell's example is a really good way of getting people to understand what we do.
We don't just let you design your product and customize it for you...the jackets would be incredibly expensive. But we do create a color selection, a diverse-options selection that you get to choose from, and then we make it specifically to your measurements. Kind of like what Dell does: They give you a product, you can customize it, they then make it, and they ship it out to you. The greatest thing about that is you get what you want, but they don't have extra inventory, because they haven't made it [in advance]. And we don't make ours [in advance]. All we have is fabric, until the order comes in.
Q: Your main focus is the Internet, through beyondfleece.com, but you also plan to establish relationships with retail stores, so customers can see sample products, correct?
A:Yes, we're going to start in a very few towns here in the Northwest, starting out in Ashland, [Ore.]. We're going to work our way up to Seattle with between one and five stores over the next six months. We're going to learn a lot about how do we develop the relationship with the retailer, how do we develop the relationship with the consumer. Then, hopefully, within 12 to 24 months, we'll be able to go nationwide, and the entire industry will just completely be revolutionized because of it.
People say, "Well, won't the big boys come in and just do it, too, and totally knock your socks off?" And the answer is no. [It's] been proven that you can't be a mass producer and a mass customizer at the same time. The mentality is totally different. Whenever someone tries to do it, they fail. So we are pretty much the only business plan available that can't have a big boy knock us off. It's impossible, unless they want to throw a huge amount of money at it. And they're just not willing to do it.
Q: So, will we see your samples in stores like Target someday?
A:What we want to do is only go into a high-quality, niche, hunting/climbing/skiing store, where we know the customer service is great. Where we know it's a local management that will really take care of us and take care of the consumer, because the way they treat their customer reflects upon us. I think that staying [in that] niche will make it seem like this is a really cool niche product that everybody is going to want. If we go into the Targets of the world, it just wouldn't be that [special] anymore. It just would be mainstream. I don't think that would be a healthy way to go.
Q: Who is your typical customer?
A:We're finding that our customer base is the usual 19- to 45-year-olds, [and most] are 25 to 45, they have to be comfortable going online, and they are weekend warriors. They do these really cool trips [on the weekend] and then they go back to work. They're not ski bums or anything like that, where they go out and they adventure all the time.
We find that they mostly come from the East Coast, which is interesting. We get a lot of Texas, we get a lot of North Carolina and Georgia, which [seems] kind of odd at first. But it's because there aren't a lot of ski shops, and there isn't a lot of cold-weather clothing in the stores there, so they have to go online. So we can gain that niche. And we can stay online with them, or we could even go into those retail stores down there. [Our] customer base also is probably 30% women, 70% men.
Q: Why so few women?
A:I don't think they are as gung-ho. They're a little bit more timid about getting online. They're a little more timid about giving the measurements, those kinds of things.... Why do the customers come to us? Is it because of the customization? At first, we thought that would be the full reason -- that people would come to us because of the custom sizing. Well, we're finding that's not really the case. We break it up into thirds. One third of our customers need a custom fit: They've got really long arms. they're 6-foot-10, [or] they're five foot nothing [and] tired of going into...the kids' section to get a jacket. And so they come to us for that.
Another third wants to be a part of something neat. They want something new and fresh that comes from a small company and that's American-made.
And the final third is with us because they get to customize the options. Because if you're a student and you're in Minnesota, you want a really warm fleece jacket, but no bells and whistles because you can't afford it. You get our Cold Blooded jacket with no options. Now, say you are a search-and-rescue person in Yosemite. You want the lightest-weight, windproof, warmest, compressible fleece you can get, but also you want pit-zips, and thumb loops, and bicep pockets, and a zip-off hood -- and they get to have that, too.
Q: What about your labor costs?
A:Labor costs are high. [Nearly] everyone who makes this type of product is overseas...in China, Taiwan, Korea, so they are paying pennies on the dollar compared to us. But we feel that it's important to stay in America. We feel that it's just a part of who we are. If we went overseas, we would lose something that we just do not want to lose.
Q: When do you expect to get profitable?
A:I expect that to happen very quickly. Right now, theoretically, the customization process should be very profitable. We're just going through slow times, like the summer, so…we're not as efficient as when we're just pounding out product, like during the holidays. So it's not really efficient enough now to get us to the profitability point.
But there's this one thing that is incredibly profitable: The Navy Seals just gave us a contract for 786 Cold Fusion decked-out jackets. Now, when that happens, we're able to become incredibly efficient.... And all of a sudden, at the end of this contract, we'll have 40% still in the bank.… And [the Seals] are now going to give us their uniform contracts.
Q: Are these your first military orders?
A:These are our first big military orders. We've had the Navy Seals come to us for a couple of years -- 10 here, 1 or 2 there -- [and] we send a lot of [orders to] military personnel overseas who can't get a fleece jacket from the Army because they ran out or whatever. They'll purchase from us. But this is the first major contract.
And the Eugene Police Dept. just [gave us] a contract. We've got 100 jackets going out to them. They said, we don't want these jackets to cover our gun belts, but we need them big enough to go over our bulletproof vests. So I completely redesigned our patterns. They're really short; they dive into the waist instead of flaring out at the hips. And now we have a fully operational police jacket that I believe we can probably take to every cold-weather police market in the nation. And that was just because one of the Eugene Police Department ladies was cold and she was finding that the jackets didn't fit her. Because of how dynamic we are, we were able to get that [order], and now we can march right into that market.
Q: What are your big challenges?
A:Financing. It's always been that way. We have two micro loans through the SBA, and I just finalized a city loan from Eugene to purchase our new computerized cutting table. Other than that, we are debt-free. We don't have investors. I'm the sole owner. And so now we have a company that will probably break half a million [dollars] this year and probably jump to $1 million next year. I don't know how we're going to do that without extra cash flow. Hopefully, someone [will be] able to come in and help us out financially, and possibly even managerially, because like I said, I majored in history. I don't have a business background. And I'm surprised that it's gone so well so far. I probably will need some help when this thing gets as big as it's going to get.
Other interviews with SBA award-winners in this series:
• "The Top of the Barrel"
Edited by Roger Franklin