- Max Rhodes, founder and CEO of FAIR, discusses the early days of the company and how they came up with the idea.
- Initially, they explored different ideas, including selling dental drills from Brazil, but realized it wasn't what they should be doing.
- They decided to focus on the wholesale problem in the local retail market, as they saw a comeback in local retail and identified the fear of inventory risk as a major challenge for small retailers.
- FAIR is a wholesale marketplace that connects small retailers and craft brands online, allowing them to move their businesses online and manage inventory risk more effectively.

- FAIR is using the concept of free returns, commonly used in consumer e-commerce, to differentiate themselves in the local retail industry.
- The ability to offer free returns is especially important for FAIR due to inventory risks.
- FAIR is able to predict what products will sell and use that data to help retailers make smarter buying decisions.
- FAIR aims to level the playing field for small retailers by providing them with advantages traditionally held by big box retailers.
- The future of retail is believed to be local, as people are craving a return to community-focused shopping.
- FAIR initially struggled to find product-market fit but found success when they switched to a try-before-you-buy model.
- After implementing the try-before-you-buy model, FAIR experienced overnight growth and saw significant increases in sales.

- The company experienced a significant increase in sales, going from $100,000 in August to $1 million in October.
- The key to success for many companies is finding strong product-market fit and going through defining moments.
- Instacart's defining moment was switching from searching for a tomato to searching by store, which dramatically changed buying behavior.
- Constant application of force and pushing against the vision sets apart great companies from those that don't do as well.
- The CEO struggled with transitioning from a product management background to people management, but learned the importance of building relationships and trust with employees.
- Hiring a leadership coach and reading the book Radical Candor helped the CEO improve in giving feedback and creating a more comfortable work environment.
- The CEO found ways to calm down and reduce stress, such as meditating and developing awareness of their own state of mind.
- The company's success and finding a stronger product-market fit helped alleviate stress and create a more enjoyable work environment.
- The CEO realized that it's okay to fail and would be willing to try again if needed.
- The team is crucial for scaling a company, and the first 10 hires included a founding designer who was important for the company's success.

- The importance of design and creating a strong brand for small businesses was recognized based on the experience with Square.
- Design and assortment were key hires in the early stages of the company.
- Olivia, who came from a management consulting firm, played a crucial role in understanding the business and managing the assortment.
- Olivia also took over Facebook advertising and significantly improved growth rates.
- The decision to hire Olivia as the first product manager turned out to be successful.
- Shan, who initially turned down the offer, was hired as the first outside executive for customer support.
- Shan's positive energy and ability to scale customer support greatly improved metrics and unlocked a growth channel.
- Fundraising was seen as a necessary step to scale the business, and a quick and competitive process was preferred to minimize distractions.

- The speaker raised $100 million in capital in a short period of time to take advantage of growth opportunities.
- The speaker advises founders to raise funds when they have momentum in their business and have a clear vision for the future.
- Having a big vision and brand name investors can help with fundraising and recruiting.
- Winning the talent war is important for success, and raising capital from the right investors can help with that.
- The speaker studied history because they believe history repeats itself and understanding it can predict the future.
- The success of Square Cash was attributed to focusing on the user experience, building a network, and having a clear vision.
- Square Cash tapped into a different network than Venmo, which contributed to its success.

- Max Rhodes, founder and CEO of FAIR, discusses the early days of the company and their focus on solving the wholesale problem in the local retail market.
- FAIR is a wholesale marketplace that connects small retailers and craft brands online, helping them move their businesses online and manage inventory risk.
- They differentiate themselves by offering free returns, which is especially important for managing inventory risks.
- FAIR uses data to predict what products will sell and helps retailers make smarter buying decisions.
- The future of retail is believed to be local, and FAIR aims to level the playing field for small retailers.
- The company found success with a try-before-you-buy model, experiencing significant sales growth.
- The CEO learned the importance of building relationships and trust with employees and managing stress.
- Hiring key team members, such as a founding designer and a product manager, contributed to the company's success.
- Fundraising was seen as a necessary step to scale the business, and having a clear vision and brand name investors can help with that.
- Understanding history and focusing on user experience and building a network contributed to the success of Square Cash.

Max Rhodes is the cofounder and CEO of Faire. Faire helps retailers find and buy unique wholesale merchandise for their stores. They were in the Winter 2017 batch of YC.

https://twitter.com/maxrhodesok
https://www.faire.com/

Anu Hariharan is a Partner at YC.

https://twitter.com/anuhariharan

***

Topics

00:00 - Max's intro

00:34 - Leaving Square and coming up with the idea for Faire

7:05 - Changes to SMBs in the past five years

9:05 - What is Faire?

11:25 - Max’s vision for Faire

14:40 - Finding product/market fit

17:40 - Switching to try before you buy

20:50 - What separates the great companies

22:00 - Scaling as a CEO

26:00 - Calming down

29:10 - Faire's first hires

33:10 - Faire's first executive hire

37:55 - Fundraising and fundraising advice

43:00 - Ryan McCarthy asks - Why did Max study history at Yale?

44:00 - Why does Max think Square Cash became a successful app?

Today we have Max Rhodes, founder and CEO of FAIR.

FAIR went through YC's Winter 17 batch and YC Continuity also led FAIR's CDC round.

So we have a lot of questions from our Twitter audience, but I think we're going to touch on 3 topics, broad topics today.

1 is the early days of FAIR, and 2 we'll talk about scaling, and Third, we'll talk about fundraising and how you choose partners.

So we'd like to start with the first 1, which is the early days of FAIR.

It's not often we see companies trying to disrupt retail and local retail, especially given the strength of Amazon.

So can you talk a little bit about how did you come up with the idea of FAIR?

And what were some of the early days like which gave you conviction that there was something here to build?

I went against the advice of almost everybody I knew and left Square about 3 years ago specifically to start a company.

And I explored a bunch of different ideas.

And did everyone tell you not to leave Square?

Everyone told me not to leave without a burning need to start a company.

Don't start a company just to start a company.

I actually think in retrospect they were probably right, and I think we got kind of lucky.

We explored 3 or 4 different ideas in the process.

And it was actually around the third idea that we were exploring.

We were trying to sell dental drills from Brazil.

From Square to dental drills from Brazil?

1 of my co-founders had a connection in Brazil to this dental drill manufacturer, and it was diamond coated, and it supposedly didn't cause pain, and it was quiet.

And this was actually the moment where I realized this is why people tell you not to just go leave to start a company, because you can end up trapped with an idea that you're not really that excited about, but you feel this pressure to do it, because it's what you set out to do.

We actually started to try to raise money with it and it got bogged down in the legal questions of can we actually extract the IP from Brazil and I remember being on the phone with Marcelo, my now CTO, after 1 of these hour long discussions where we were racking up crazy legal bills and just saying, like, what are we doing?

And so We made the very difficult decision for our third idea to just scrap it and start from scratch again and decided to work on what ultimately became FAIR.

And the reason why we picked this idea was I had this experience of introducing this product called the Blunt Umbrella to the US market.

And I knew firsthand how painful the wholesale market was, how hard it was to get products into stores.

In the whole time that I was doing Blunt, because I did it while I was on the side at Square, I kept going to these trade shows and kept thinking, like, there really should be a better way to do this.

I wasn't sure if local retail had a future.

And to be honest, that was kind of where my hangup was.

And so I just decided, I know this problem exists.

Maybe it's a small market, but let's just start somewhere.

And I started to dig into the data, and lo and behold, local retail actually is making this comeback, which now is starting to get a little bit more attention now.

But at the time, it was just sort of stitching together census data.

Local bookstores have been coming back since 2011, since borders went bankrupt.

You're seeing this renaissance of shop local in communities all across the United States.

And so we started to build confidence that, OK, maybe there is something here.

Maybe there is a wave that we can ride here if we can figure out how to crack the actual problem itself, which is the wholesale problem.

And so I started doing customer interviews, and it was in the customer interviews that we uncovered, I think, a pretty interesting insight, which is if you ask a local retailer, if you ask a small shop owner, what's your favorite part of your job?

That's what gets them out of bed in the morning.

Connecting with makers, bringing new products into their stores, and that's what excites their customers, too.

It's that moment of Somebody walks in and sees something, oh, this is so cool.

And that delight that they see in their customers, that's what it's all about for them.

And then if you ask them, well, how many of the products that you carry are new?

And most of the time, it'll be somewhere between 20% and 30%.

And that was where I started to dig in of well why?

And the answer always was because It's scary to bring on new products.

If you're a local retailer and you're buying new products that you've never carried before, you don't know if it's going to sell.

You don't have a relationship with the vendor, so they're not going to give you terms.

So you're going to be shelling out your cash, which is a very precious resource for a small business.

And so you're 1 bad buying season away from going out of business.

And so they have a portfolio approach where they mostly stick with what they know is going to work and then occasionally spice it up with a few new things.

Even though the new products actually generate a lot of sales.

And even though that's the fun part of the job, yeah, it's very important to get it right.

I realized why nobody had ever figured out how to move this market online, it's because they're going to trade shows to solve inventory risk, to like get over that fear so that they can touch and feel the products and really feel good that this is something that's going to do well in my store.

And that ultimately led to us thinking, well, how can we fix this?

How can we help them fix their inventory risk?

And that's where we really drew upon the Square experience where we started thinking, you know, what has changed?

And 1 of the big things that has changed is that all of this data about S&Bs, about their inventory, about their social media presence, about who their customers are, on both sides of the market, both makers and retailers.

It's changed over the course of the last 5 years.

What prompted it to happen only in the 5 years?

S&B started adopting social media, so they started really relying on Instagram.

And then they started adopting cloud-based point-of-sale systems.

Before Square, most point-of-sale systems were on-premise systems.

And so the data lived on a server inside the store, if they even used a point of sale

And a lot of times it was just like paper and pen with a cash register.

So it was this confluence of social media, e-commerce presence as well was a new thing with Shopify.

So it was this big wave and we a little bit made the bet based on our experience from Square that we could take on the inventory risk for these stores and eventually build machine learning algorithms that would predict what would sell where and actually get better at managing inventory risk for the store looking across thousands of stores than what you could do if you're an individual store owner.

And it's actually fascinating because at YC, we often say, especially that early in the batch, it's about finding a market fit.

It's about solving your own problem, which you had from your experience having launched Blunt Umbrellas, and the unique experiences you all shared from Square to really understand the SMB market.

Now, some of the things you described as part of the unique insight, which was people like to touch and feel, people want to manage inventory risk, still exist even if you move online.

What does it do and how does it help solve some of those?

If you don't have that context, it's important.

We connect small retailers, 1 to 10 location stores, the kind of stores that you'd find on Main Street all across the United States that are coming back.

And then we have makers, craft brands, smaller manufacturers on the other side, kind of the maker revolution types of folks.

And we connect them together with this wholesale marketplace.

So rather than going to trade shows or hiring sales reps and doing this all face to face or over with pen and paper, they move their whole business online and it works just, it's like a wholesale version of Amazon.

And the key insight or the key differentiator for us is actually something that's been used in consumer e-commerce for decades to move consumers online.

So we're just replicating that playbook that's been used before.

So that's how they do the touch and feel, because you give them free returns and it's over a set duration?

And I think the free returns matters more in our business, even than it does in the consumer business, because of that inventory risk that I was referring to earlier.

Free returns really would not have been possible even 5 years ago, I think.

But with all of this data, we're able to predict what sells where, And that's how we're actually able to.

So the better matching will help you also solve for the returns issue.

But then you offer returns so that they still have the touch and feel.

So it's a value proposition that both draws the retailers in and then it also actually makes the system smarter.

And it then turns into another value proposition, which is, we are seeing what's selling, what's being returned, and we can then use that data to help retailers make smarter buying decisions.

So if you come in and you place an order and you return part of it, we then know the types of products that don't do well for you and will recommend you other products that are more likely to do well.

What do you think happens to local retail 5 years from now or 10 years from now, given what you are trying to do?

I think that local retail has some big advantages over particularly big box retail, but even over Amazon.

The reason for that is these retailers have spent the past 50 years figuring out how to compete with larger competitors that have larger assortments, lower prices.

And the ones that survived were the ones who evolved and figured out how to offer more curated assortments, better experiences.

A lot of the things that people are now talking about is the future of offline shopping.

That's what local retail has been doing for the past 20 years and that's why they're doing well.

The technology industry has basically ignored this whole space, sort of assuming Amazon's coming, it's going to go away, like I did 2 years ago when I was kind of hesitant to move into it.

And so what I believe we're going to do is we're going to accelerate the shop local movement by basically eliminating a lot of the advantages that big box competitors have traditionally had over retailers.

If you're a big box retailer, 1 of the ways that you made life hard for small retailers is you had more data, so you had your assortments much more optimized.

There was less cost in your supply chain, so you could offer lower prices.

You were able to get capital, so you had larger assortments.

These were things that smaller retailers never had.

Big box retailers have had free returns for decades.

And so we're leveling the playing field for these small retailers.

And so you have the tandem advantage of this seismic shift in consumer sentiment towards shopping local, and then the leveling the playing field with technology.

And I think the future of retail is going to be local.

If you look back over thousands of years, trade and retail was about community.

Trade is what brought us together in the first place.

I would trade some pots to somebody who was maybe a great blacksmith.

And I think over the course of the past 100 years, we lost that a little bit.

And I think that people are craving a return to that.

And I think we can help use technology to support that revival of community and that revival of

And also access to unique supply is real.

And you're also seeing a lot of makers, individual makers, trying to establish themselves in that regard.

So I think that movement is definitely happening.

So Quite a few founders have a really good vision and a clarity of thought, but when it comes to execution you still have to go through the ups and downs of the motion.

Right from when you went through I see demo day and post demo day.

When did you really start thinking you have some early signs of product market fit?

But when did you really actually see that?

They would lean forward in customer interviews.

And then I remember our first order, I brought a printed sheet of paper with just the names of the products and the prices.

And I said, if I let you buy this on consignment where there's no inventory risk, do you want it?

And the retailer said, yes, I want all of it.

Not on a website, not on this vision that you have laid out for FAIR.

Okay, so you took a printout and went, and which store was this?

And that was the way we got most of our first probably 10 customers came that way.

As we started to try to scale the business, we definitely started to have doubts because it was feeling too hard.

Like I could just through sheer force of will sit somebody down and get them to buy the products.

And once we hired a couple more salespeople, every time we added a little bit more friction to the process, the excitement and the conversion rate and everything just started to deteriorate.

Did it manifest into slower growth or was it that you couldn't access it?

A little bit, but it wasn't accelerating.

have the inflection point where you hit an escape velocity.

And so we played around with a bunch of different value props.

We did away with the net 60 payment terms or the net 90 payment terms.

And I remember at 1 point we were at a trade show and I literally was trying to give the products away.

And it turns out trade shows are a terrible venue for us because the customers tend to be a little more old school.

Well, they're trying to see other products that are available.

They're not there to order on a computer.

We went to the New York Now trade show, which was actually where I originally got the idea of launching Blunt Umbrellas.

It was there that we were trying all these dumb value propositions, just throwing stuff against the wall, trying to sell a dollar for 90 cents.

And I called Daniele, 1 of my co-founders, and I said, it's not working.

I think we should go back to the try before you buy, you know, inventory risk thing.

Because all these other things aren't working.

We were on the same page that he also felt like something was off.

And we went in that morning to the trade show booth, and 9 AM, retailers started showing up, and I started pitching Try Before You Buy.

And they started seeing the products that we had.

We sort of wandered in the wilderness for a few months trying different value propositions and honestly not maintaining our conviction while Olivia was building up the assortment.

And it turned out the reason that we were struggling was we just didn't have enough supply.

The value proposition was amazing, but without the supply it didn't matter.

And when you combined the 2 together on that morning, it was magic.

And how much did the growth change after that?

And you could, again, you could see it in their faces.

People were spending hours shopping on the site and buying and placing big orders.

And I called Danielle and I said, this is it.

We'd been all hand-to-hand combat sales, and we decided, this is it.

And so it took us about 2 weeks to rebuild the website and pull it out of invite-only.

Thank God we have a website from printouts.

I was, funny enough, on my honeymoon the week that we launched.

You're always on your honeymoon when that's the moment.

And I remember sort of sneakily checking the metrics from the Galapagos.

And it was just green, just all green every day, 10%, 15%, 20%, 30%.

And we went from doing $100,000 in sales in August to a million in October.

And I think many companies in YC we've seen who have actually found really strong product market fit go through 1 of those defining moments.

And if I remember for Instacart, it was actually switching from search for a tomato to search by a store.

It was literally, because people buy groceries by looking at a store.

If you're buying shampoo, you know whether you want pantene or something else, But your groceries, you know whether you go to Trader Joe's or Whole Foods or Safeway.

So switching to buy store search dramatically changed the buying behavior.

I remember asking Mike Moritz at a Sequoia event, who obviously an amazing investor and has seen a lot.

I think he was on the board of Instacart.

I asked him what sets apart the great companies from those that don't do as well.

He thought about it for a minute and then he said, constant application of force.

They have a vision and they just keep pushing against it.

I think that's a great way to describe it.

That's spot on, because I think 1 of the founders last week had told us this, which is from the outside it feels like we were genius in figuring out all the strategy, but only the inside we know.

We tried 100 things and the 1 thing that worked, we didn't know was going to work.

So I think that's a great way to move from the early day story to scaling people management.

Because clearly now you have very strong product market fit.

And how many people do you have right now?

So the second phase of company building is really about scaling people management, right?

And especially scaling yourself as a CEO.

What has been your biggest learnings so far as you've scaled as a CEO?

1 or 2 things that you'd love to share with the other founders.

It's been an interesting experience for me because I came from a product management background.

I had just a tiny bit of people management experience at the tail end of my time.

Gita Gopinath How many people did you manage at Square?

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Max Rhodes of Faire with Anu Hariharan on Scaling and Fundraising