01 Mar 2019
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Case Study: Off to a Fine Art

Creating a rental market for original pottery
Re: Jules Pieri (MBA 1986); Brad Cowdrey (OPM 49); Sean Eldridge (MBA 2009); Philippe Cahuzac (MBA 2014)
by Jen McFarland Flint

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Launched in 2017, Clay is an artisanal ceramics startup for the sharing economy. Founder and CEO Rukmini Giridharadas (MBA 2014) has partnered with potters in the Bay Area to offer their wares online to the chefs, caterers, and florists fueling the locally made movement. Clients include West Elm, which was sourcing originals for its new hotel in Oakland, for example, and a florist who was staging a large-scale but short-term installation at Instagram’s headquarters.

At first Giridharadas was simply hoping to build a better market for area ceramists. She set out to identify emerging talent—which is a little like picking a stock before it goes up, she says—and then shopped their prototypes of plates and bowls, platters and vases around to gauge interest. The responses she got confirmed her hunch that chefs were eager to find original dishes on which to plate their food. But it was a request from a florist that finally clarified the concept: “Beautiful products,” the florist said, “but do you do bulk rentals?”

“It suddenly made a lot of sense to me. People want access, not necessarily ownership, and nothing like that existed for crafts,” Giridharadas says.

After adding the rental option to her online consignment ceramics offerings, Giridharadas recouped about half of her investment within four months. Now she sees a bigger opportunity: Party supply rentals were a $5 billion industry in the United States in 2017, about $1 billion of which are tabletop rentals, she estimates.

Photo courtesy of James Ellerker Photography

The Question:

There’s a necessary element of bulk in the rental business—if you only needed one or two pieces you’d just buy them, Giridharadas says. Her question is how to get there. A chef servicing a wedding might need two or three different styles of platters in counts of 30 each. “But for me to have 100 original pieces to offer a catering company, that’s a relatively big investment for a small and young business,” she says. Rentals accounted for a third of Clay’s revenue in the first year, and they’re the sole focus moving forward. Should Clay go all in, purchasing inventory at volume up front to enter the market with an abundance of options? Or should the company continue to take pieces on consignment, offering a limited assortment of plates and bowls to test the demands of the rental market?

The Answers:

My spidey sense tells me that Clay is filling a market need, and the first-year revenue response is confirmatory. Since many events like weddings are planned far in advance, I suspect that Clay can still deploy a consignment model until it builds up the needed inventory by offering a wide range of options as live market research to determine specific style demands, then only ordering inventory against confirmed bookings. Clay will lose access to last-minute renters, but it will preserve precious capital, which is better used for building a strong social and web presence. Clay should invest deeply in search engine optimization, as its distinctive market offering is a meaningful advantage.
—Jules Pieri (MBA 1986)

In a startup business or new business unit, creative thinking in finance can be a huge advantage. Consider reaching out to large clients and asking them to share the risk. They want to drive new sources of revenue too. Perhaps they can offset the upfront cost of capital until order volume reaches the appropriate tipping point. The company can purchase inventory with a traditional financial vehicle from there.
—Brad Cowdrey (OPM 49, 2017)

I appreciate the experimental approach you’re taking to find product/market fit (PMF). On that note, my recommendation would be to continue to test and learn in search of PMF, starting with your sales approach. One way to do this would be to meet with dozens of florists and caterers to see if you can sell them on a bulk rental contract. If several of them want to buy a bulk rental contract and the unit economics work, then you likely have PMF, and it probably makes sense to purchase the inventory required to service these bulk rental contracts.
—Sean Eldridge (MBA 2009)

Got a case? To take part in a future “Case Study,” send an outline of your company’s challenge to bulletin@hbs.edu

Case Study Update: GAIA Design

When they launched Gaia Design in 2014, Philippe Cahuzac (MBA 2014) and his cofounders set their sights on building an iconic modern furniture brand for Mexico’s young urbanites. But by 2016 the team wondered if they might have to delve into the logistics business first. The reason? Last-mile delivery is a challenge the world over, but even more so in Mexico—and particularly when your product is sofa-sized.

Their solution: Some Bulletin readers suggested partnering with established international players like DHL or shifting the sales focus to the United States, where infrastructure already exists. Ultimately, GAIA decided to invest in its own supply chain. Today the company has a fleet of 20 delivery trucks and 40 drivers, plus a centralized warehouse. The staff has grown from 50 in 2016 to 250, a huge investment that enabled the company to offer the personalized and consistent experience the cofounders imagined. Customers can now schedule delivery online in three to ten days (down from six weeks) and within a four-hour window. “We were able to do this because we had our own products in stock and our own trucks,” Cahuzac says. “It’s been a great boost, and top-line results followed.”

What’s ahead: Last spring the company raised $15 million in Series B funding, which will help GAIA expand into other densely populated urban areas in Mexico, as well as on the mobile and retail fronts. The company is also strengthening HR and IT functions—the “backbone” services that will allow it to scale its infrastructure, says Cahuzac.

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Featured Alumni

Class of MBA 2014, Section H

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