Touch of Modern, an e-commerce service aimed at men, passed the $100 million annual recurring revenue mark (ARR) in October, the company told TechCrunch in an interview at its SOMA offices. It also processed its millionth order in September.
The company has an interesting history. It pivoted several times before becoming its current incarnation in May of 2012. At the Time, TechCrunch’s Ingrid Lunden asked in a headline: “Third Pivot’s The Charm?”
It seems so.
Touch of Modern offers selected goods to subscribers of its service, ranging in price from a few dollars to tens of thousands. I asked CEO Jerry Hum what they had sold at that price point, and he listed a watch, and, somehow, a bench.
Part of Touch of Modern’s business operates around sourcing goods and then negotiating a discount from the provider. The startup holds very little inventory at any moment, which allows it to execute on a lean basis, looking at its business from an operational margin basis.
A Touch Of Money
ARR is a common statistic in modern startup finance. When a company grows quickly, its trailing revenue, which is a more common statistic among mature companies, may not do a decent job showing off its current strength. As you can see, the steeper a company’s growth curve, the more useful ARR is compared to trailing revenue.
Touch of Modern told TechCrunch that it is growing at around 150 percent per year. Given that, I don’t mind it sharing ARR instead of its total top line recorded in the past year. It has a staff of around 150.
The company shared two round figures, which is common. The difficulty, however, is that they are both out of date. The million order figure is from last quarter, and the October ARR number comes before the holiday season, which, and I doubt my supposition here is wildly off base, is an important sales cycle for Touch of Modern.
Regardless, numbers are numbers. All that top line is nice, but what about making money?
It’s All About The Margins
Let’s start in reverse. After wrapping our interview, I took a short tour through the company’s office. The usual tools were in place: Lots of screens, people quietly typing, and the like. It was EverywhereVille, TechnologyLand.
I noticed something different, however. The offices were notably spartan. In the Cribs era of technology offices, many firms spend heavily to load up their spaces with accoutrement by the mile. And none of it accretive on a revenue basis. Yes, there is a talent crunch, but at the same time, oh my.
Why were Touch of Modern’s offices simple, if the company is growing as quickly as it claims to be? Margins. Any dollar you spend, is a dollar of revenue you just iced from becoming profit.
During our chat, the concept of margins was brought up in two main contexts. Primarily, that it claims it hasn’t a need to raise additional outside capital. Touch of Modern raised the bulk of its funds in mid-2014 when it picked up $14 million. Normally, it would be actively shopping for more by now.
Its CEO essentially shrugged, saying that the company “has been very capital efficient,” and that it has been “very focused on core unit economics.”
I can translate for you. Both comments imply that Touch of Modern has worked to not torch as much money as possible. Capital efficiency implies smart investment, and the unit economics point means that the company is carefully tracking the long-term revenue it can derive from users, compared to their costs.
But what about growth?
In the current capital climate, which is mostly a typhoon of bored cash looking for something to do, many startups are raising ever-larger rounds to grow as quickly as possible. “Taking up your burn,” as it is known, is a fine way to grow. But if you aren’t sure about the long-term economics of your business, you can, by accident, buy quite a lot of unprofitable revenue.
That’s the bad kind.
Touch of Modern, it seems, is trying to grow, but not at a pace that requires that sort of expense. In fact, the company told TechCrunch that its unit economics have improved over time, even as its user base has grown.
But, growing companies are capital hungry, and that means that Touch of Modern will, in my view, return to capital-havers for some more. When it does the next time, it will not be through an IPO, however. The company flatly told TechCrunch that it does not have plans to go public at the moment.
So, a private round.
Two challenges, at least, are in front of Touch of Modern: Continuing its domestic growth at a pace that meets investor requirements, and the international market. How long it takes the company to reach $150 million ARR will also be interesting.
I don’t know much about e-commerce from an “actually buying myself shit” side of things, but I think that Touch of Modern, from a purely financial perspective, is interesting.
That is, if it can keep the momentum rolling.
Source:: Tech Crunch