Reformers [Episode 8]: Andy Prochazka, Article

The Co-founder & COO at Article shares his thoughts on getting your foot in the door, questioning industry norms, seeking win-win outcomes in negotiations, and navigating the global supply chain during the pandemic.

For our eighth episode of?Reformers: The gritty details behind the world’s greatest bootstrap successes, we are excited to share our interview with?Andy Prochazka, the Co-founder & COO at?Article, which is the leading e-commerce brand for beautiful modern furniture. Andy is an engineer by background and a serial entrepreneur who has launched a handful of companies during his career, the most recent being Article in 2011. Since its founding, Article has grown from four co-founders into a profitable, global organization consisting of more than 1,000 employees and nine-figures in revenue, all while being majority self-funded by the founders. In this interview, Andy shares his key insights and lessons learned that can be implemented in your own business.?You can listen to the full interview here.

Get your foot in the door…the rest will follow

When Article was just being started, Andy and Aamir (Article’s Co-founder & CEO) traveled to China to do a product sourcing trip. While in China, they attended a trade show where they proceeded to pitch a number of manufacturers on their idea for Article. After many manufacturers questioned Article’s credibility given its infancy, Andy and Aamir found their way to the booth of a large manufacturer, where the CEO was present. Despite their high hopes and direct path to the decision-maker, they were turned away once again. However, this rejection came with a bit of guidance: “You’re too small and just started out, so we’re not interested. But if you go down the hall over there, you should speak to those guys, they’ll help you out.”

Andy and Aamir made their way over to the suggested vendor and, after speaking with with them, realized that their production process actually aligned quite nicely with what Article was looking for. Ultimately, Article wound up working with this vendor as the company’s first manufacturer. And, fast forward a few years, the CEO who recommended this vendor wound up becoming a major manufacturer for Article, which Andy reflected upon:

“It was a foot in the door moment that allowed us to get started. I would be lying if I said there was anything more than determination, patience, and a bit of coincidence in the whole equation.”

Raise capital in-line with your DNA

If you rewind and look at the various trends over the last decade, there was the daily deal fiasco (Groupon, Fab.com, One Kings Lane) followed by DTC mania. These brands were characterized by their focus on news cycle popularity, large amounts of venture capital raised, and growth at all costs, with no concern for profitability and efficiency in the near-term.

During the daily deals period, Andy recalls having many discussions with his three other co-founders about whether they should raise some VC money and enter the same growth-at-all-cost race as some of their competitors.

“Every time the result of the conversation was the same: It’s just not us. The foundation of our business rests on efficiency, starting with the efficiency of the supply chain and cutting out the inefficiency of waste. It simply was not in our DNA to take a bunch of VC money in order to pump it into digital direct response ads at ridiculously expensive rates without worrying about profitability.”

After the daily deals fad came and went, the DTC mania began and Andy and his co-founders agonized once again over the topic of raising VC money. Article was a DTC brand before the term was even coined, so the founders debated internally whether they should be buying full subway ad wraps and national television campaigns. But once again, they came back to their DNA.

“We looked at the math and evidence from various performance marketing channels and couldn’t justify raising VC to spend it on similar style ads since we couldn’t see a path to profitable growth. It went against our DNA.”

Question industry norms

Selling furniture is historically a very capital inefficient business. You have to buy inventory and pay for the manufacturing up front, then wait 4–6 weeks for your inventory to cross the ocean (assuming it comes from overseas), then you store it in a warehouse, and eventually fulfill it to customers. And that doesn’t even account for the fact that furniture tends to be a large, bulky, and heavy item that comes in a box.

However, there is another fundamental about the furniture business that isn’t broadly popularized, yet contributes dramatically to the cost inefficiencies of the industry. Damage rates on furniture deliveries are ridiculously high, which results in high return and refund rates (which leads to a company expense that includes both the purchase price and the cost of reverse logistics). Andy and his co-founders examined this issue very early on and were shocked to learn how bad the industry standard was. They then set out to find a better approach for Article.

What they concluded was that, in order to keep damage rates and return rates low, Article had to sell high quality products and package them properly. They decided to invest heavily into packaging technology, materials, and processes, which went against the grain in the industry since none of their competitors thought to buck the industry standard. As a result, Article’s damage rate is now 1/10th of its competition’s and consequently has far lower return rates.

Andy credits this improvement to Article’s relentless pursuit of excellence and willingness to question industry norms:

“That industry-accepted overhead cost, which is inevitably passed onto customers, is something we don’t suffer from.”

Manage negotiations to a win-win

Every brand knows that early in its lifecycle it has little to no negotiating leverage. Likewise, every brand knows that as it scales its negotiating leverage increases. What is rarely discussed, however, is how the counter-party should feel when a negotiation has been completed.

Early on in Andy’s career he was negotiating a deal and, when the two parties came to terms, the other party asked Andy if he knew what a win-win was. Although the definition of a win-win seems obvious, Andy admits he did not know what it truly meant at that moment. However, achieving a win-win is now a core part of Andy’s negotiating philosophy.

“A feature of a well-structured deal is when everybody on both sides of the table feels like they have won. That is a win-win.”

Though most companies take the negotiating tactic to go for everything and try to get a one-sided deal, Andy and Article have shied away from that approach. Article works very closely with its vendors and has been pragmatic about things as the company has grown. Article doesn’t seek to squeeze every possible penny out of something (which Andy notes could lead to unintended negative consequences, such as lower quality materials being substituted into the product).

“While our ability to negotiate has increased, we strive to maintain level-headedness so that we don’t sacrifice relationships that will be valuable over the long-term.”

Wartime COO

Last March, when the pandemic seemed to take hold of the US, there was a lot of uncertainty for all types of businesses. At Article, as at many other companies, battle plans were drawn up that were largely focused on cash preservation and general survival. Many of Article’s competitors even went as far as cancelling their orders with their vendors, effectively throwing in the towel on new business. Yet just a few weeks later, the unexpected happened: an enormous surge in demand took place within the furniture industry. Very quickly, cash preservation mode at Article (and elsewhere) had to be switched to demand fulfillment mode.

Article was able to capitalize on this surge in demand. Rather than cancelling orders with vendors, Andy and the team instead remained committed to their vendors. In most cases, Article forged ahead with their purchase orders because they believed cancelling would be too disruptive; in other cases, Article delayed some purchase orders, but never outright cancelled. Fortunately, this enabled Article to ramp up quite effectively while competitors lagged. However, global supply chain became and continues to be an incredibly dynamic challenge. As Andy summarizes the complexity:

“There are lockdowns happening elsewhere in the world, such as East Asia, which will have tremendous ramifications on supply chain in a few months. There are also tariff challenges. In addition, just when you think you’re in the clear with finished good vendors, you then discover you can’t get containers. And when you finally get a container and get it loaded, you realize trucking it to the port is an issue. And then once you get it to the port, you need to get it loaded onto the boat. Then you hope the boat makes it to a North American port without a major traffic jam and, when it finally arrives, you try to unload it as fast as you possibly can. The challenges go on and on.”

In addition to supply chain concerns, Andy and his co-founders had a huge concern for the safety of their employees (who they call “Particles”) and customers. Andy notes that Article quickly adjusted its policies and was among the first companies to launch and execute on contactless delivery. Reflecting on Article’s wholistic reaction to the global pandemic, Andy is most proud of how the company returned to its startup roots to creatively and efficiently problem-solve across the supply chain, from the supplier all the way to the customer.

“We went into scrappy startup mode and moved very quickly to do what needed to be done. We’ve now remained in that highly-agile startup mode for more than a year on the supply chain side.”