James Reinhart (00:00:00):
I actually remember a board meeting with one of our early investors who when I said, "Hey, this kids' business is just okay, but I think the biggest opportunity is in women's." He was like, "I don't know what you guys are thinking. You guys are idiots. You haven't even cracked this thing. Now you're trying to do this other thing. You're out of your mind." Then obviously, a year or two later, he's like, "That was the best decision you ever made." Then I was like-

Eric Ries (00:00:23):
I knew it all along. I told you it was going to work. If you think your business is hard, try transforming an entire industry. [00:00:30] That's what today's guest, James Reinhart, the founder and CEO of ThredUp is trying to do. Fashion is one of the leading polluters and sources of waste in the world, and James Reinhart and ThredUp have been pioneers in changing consumer behavior to think secondhand first to reuse clothing instead of throwing it away and to monetize the massive inventory of clothes we all have in our closets that are never being worn. He's built his company in a different way. [00:01:00] They've been pioneers of the four-day work week. They have a very cohesive culture, and he's one of the foremost thinkers about how fashion can be a leader in ecological sustainability as well as economic performance. Today, ThredUp is a publicly traded company, and just to give you a sense of the size, in the first quarter of 2024, generated $80 million in revenue.

(00:01:21):
In our conversation, James tells the whole founding story from being in a classroom at the Harvard Business School all the way through the IPO [00:01:30] and running the company as a public company CEO. He's seen a lot in the intervening time, stock market's highs and lows, valuations, investors who believed and didn't believe, and he's had a really daunting and difficult challenge. We talk a lot in this episode about how harder is easier. Sometimes by tackling the challenge in a harder way, by solving the problem for customers in a more fulsome way, even though it's more logistically difficult to get these counterintuitive advantages, a talent recruiting advantage, a competitive [00:02:00] advantage, better investors, and quite a few other surprises. In this conversation, I hope you'll see why there's this emerging movement of CEO's who are thinking about how to build companies in a different way. I hope you'll enjoy this conversation with James Reinhart.

(00:02:19):
I've started a lot of companies and I've helped a lot more people start companies too, and therefore, I've had a lot of banks and a lot of bank accounts. I'm really delighted that this episode is brought to you by Mercury, [00:02:30] the company I trust for startup banking. Every time someone on my team uses their Mercury Link debit card, I get an email with the details. Just that little bit of financial intelligence always in my inbox gives me a much clearer understanding of what we're spending. That's what Mercury is like through all its financial workflows. They're all powered by the bank account, everything is automatic. For those of us that remember the recent banking crisis, Mercury was there for a lot of startups who needed them. They've since launched features [00:03:00] like Mercury Treasury and Mercury Vault with up to $5 million in FDIC insurance through their partner bank and their sweep networks. Certain conditions must be satisfied for pass through FDIC insurance to apply. Apply in minutes at mercury.com and join over 100,000 ambitious startups that trust Mercury to get them performing at their best.

(00:03:19):
Mercury, the art of simplified finances. Mercury is a financial technology company, not a bank. Banking services provided by Choice Financial Group and Evolve Bank and Trust members, FDIC. [00:03:30] This episode is brought to you by DigitalOcean, the cloud love by developers and founders alike. Developing and deploying applications can be tough, but it doesn't have to be. Scaling a startup can be a painful road, but it doesn't have to be. When you have the right cloud infrastructure, you can skip the complexity and focus on what matters most. DigitalOcean offers virtual machines managed Kubernetes, plus new solutions like GPU Compute [00:04:00] with a renewed focus on ensuring excellent performance for users all over the world. DigitalOcean has the essential tools developers need for today's modern applications with the predictable pricing that startups want. Join the more than 600,000 developers who trust DigitalOcean today with $200 in free credits and even more exclusive offers just for listeners, at do.co/eric. Terms and conditions apply.

(00:04:26):
All right, James, thank you so much for being on the podcast. Thanks for coming to the show. Really appreciate it.

James Reinhart (00:04:30):
[00:04:30] Great to be here. Thanks for having me.

Eric Ries (00:04:32):
I thought maybe we start with, I think we first met, you were still at Harvard Business School.

James Reinhart (00:04:37):
I think so, yeah.

Eric Ries (00:04:39):
Quite a while ago. Maybe just start talking about being an entrepreneur at HBS and what was it like being at Harvard, just give us a little bit of that backstory.

James Reinhart (00:04:49):
I think I did the classic HBS pit dive where you were in some class and I rushed down to be like the eager entrepreneur. "Hey Eric, I think you're really great." [00:05:00] I do think that's actually how we met. I think being at HBS back, this was 2006 to '09, it wasn't really peak entrepreneurship there. I think even in your early emergent phase with the Lean Startup, it was very early. Most of my friends at that time were going to be bankers and consultants and do all the normal stuff, and the entrepreneurs were in the basement. I think at that time [00:05:30] it became, because it was a small and mighty group, there was a lot of comradery across the number of entrepreneurs who were there and then shortly thereafter. You actually had this group of hardcore entrepreneurs, and I think that helped us hold together and support one another at a time when it wasn't as cool to be an entrepreneur as maybe it is today.

Eric Ries (00:05:53):
I've been rushed by a lot of people in a lot of stages over the years, but very few of them go to become CEOs of public companies, [00:06:00] so you're a very select group.

James Reinhart (00:06:02):
That Venn diagram would look really weird.

Eric Ries (00:06:06):
That's really great. Why'd you go to Harvard?

James Reinhart (00:06:08):
I was a joint degree student, so I did the Kennedy School Government and then at HBS. Before school, I was a teacher, and then I helped run and work at a public charter schools called Pacific Collegiate. At the time, I was very, very much obsessed with education policy. I was very passionate [00:06:30] about the relationship between public and private partnerships. I was very interested about the role of government in stimulating new ways for students to learn, innovation. I became very interested in the charter school movement. That really drew me to where can I go and be steeped in a little bit of pedagogy around how does this all work, and I was a history and philosophy major as an undergrad.

(00:06:55):
There was a bunch of stuff I just didn't know. I didn't know, I didn't know how to do, and I thought business school, Kennedy [00:07:00] School, policy business would be a great fit. That's really how I ended up at school. I think the little-known fact though about that is I actually didn't get in to Harvard Business School the first time I applied. I got into the Kennedy School and HBS was like, "Sorry." I had this moment of, well, do I still want to do this? The answer was yes, and so I went to the Kennedy School and I think maybe indicative of my entrepreneurial learn [00:07:30] from failure, I reapplied with an entirely new approach to my application, and then I got in and it was a great experience.

Eric Ries (00:07:38):
A harbinger of things to come.

James Reinhart (00:07:40):
Yeah, maybe. I don't know.

Eric Ries (00:07:42):
When did you decide you wanted to be an entrepreneur?

James Reinhart (00:07:45):
I'm not sure you ever... I don't know. I'd be curious your take on this. I don't know whether you decide or it just becomes obvious that this is the thing you're pretty good at. I think it became obvious that I was pretty good at it [00:08:00] early in the ThredUp journey where I just became resilient and passionate and not taking no for an answer and being willing to do crazy things to secure a positive outcome. I think that was really the moment where I guess, I knew. I think the story that I like to tell about when I think I owned up to it [00:08:30] is, so I was in my second year and Brian Spaly, who, I don't know if you know Brian, but Brian was the co-founder of Bonobos, with Andy Dunn. Brian came to campus to talk about founding Bonobos. Similarly, I befriended him and I said, "Brian, I need some advice. I'm working on this thing. It's used clothes, it's the internet."

(00:08:52):
He's like, "Uh-huh. Uh-huh. Uh-huh." He said to me basically, "Well, I don't know whether your idea is any good or not, but what [00:09:00] I do know is that you should give yourself another semester to try." He put it so thoughtfully, he's like, "What if you were just on the slow plan at HBS? Instead of doing your degree in four semesters, it took you five." He said, "Think about this as another semester and school ends in May." He said, "Give yourself through the end of the year." I so have valued that advice because I think if Brian hadn't made it okay for me to be on the slow plan so to [00:09:30] speak and take another semester, I don't know if I would've stuck with it. He gave me permission, and I often share that with entrepreneurs giving you permission take that six months and fail epically, or maybe something works out.

Eric Ries (00:09:43):
A lot of us have had that experience. You know what's interesting about your story, I always talk about how entrepreneurship really at its root is a journey of self-discovery. You discover things about yourself that you didn't know when you began the journey, and people find this hard to believe, and I think you've done this, I do the same thing when I tell this story. [00:10:00] I asked you when you knew you were an entrepreneur, but you didn't know until after you already had a company up and running. I want to rewind the tape a little bit because just talk about what it was like to not be sure if you were or were not, and to do it anyway. How did you go from teacher, public policy, to starting ThredUp? ThredUp is pretty far afield. From the outside, you might seem like, oh, you've traveled a far distance to go from point A to point B. Just talk about that.

James Reinhart (00:10:27):
Look, I think on the outside, [00:10:30] yes, it looks like it might be a pretty far afield, but when you peel the onion a little bit, I think you find some commonalities to what I was doing for 25-year or 28 years before I started ThredUp. I was always immensely interested in how to make the world a better place. I think from the very beginning, I cared about making a difference and creating impact. I think when I graduated from Boston College with a [00:11:00] four-year degree, I was a reasonably good student, I had other job offers and instead I decided I wanted to be a teacher because I wanted to make a difference.

(00:11:08):
I took a job working part-time for $24,000 a year because I wanted to make a difference and have impact. There's obviously a through line there with what I've done with ThredUp. I was always very comfortable in front of people, rallying people, inspiring people, convincing people that what I was working on mattered. [00:11:30] As you know, entrepreneurship is from the very beginning, you are selling every day. I think, I naturally, there was a through line of I was good at convincing people that I wasn't crazy and that my ideas were worth supporting. Then I think the emergent thing for me as an entrepreneur was that you could make a living doing something that you were really mission-driven about that then played [00:12:00] to your natural skills as a leader.

(00:12:04):
As I'm even saying it out loud, you start to see these through lines of like, "Oh, I can make a difference. That's cool. I can play to my strengths where leading people and inspiring teams." That's a huge strength of mine, like being able to see the big picture. I hate the phrase see around corners, but yeah, a little bit, I think I'm a pretty good interpreter of trend. The third is, "Oh, and I can make a living [00:12:30] doing those things. That sounds great." I never started ThredUp thinking it would be public someday, but I did believe it would make a difference. I did believe I would be good at it, and I did believe I could make some money at some point doing it. That's probably the best synopsis of that journey to ThredUp.

Eric Ries (00:12:53):
Tell me the ThredUp story.

James Reinhart (00:12:56):
Oh, man. The story is, as [00:13:00] I said, I was a teacher, I went to business school. That is shorthand for a guy who has a lot of debt and no money. I woke up one day and I had always been a guy who had bought clothes and liked to have things, reasonably stylish things, and I had all these clothes that I wasn't really wearing. I was like, well, this stuff has value. Let me just go sell this stuff and then I can use that for whatever I was doing at the time. [00:13:30] I went to the local consignment store on Mass Ave and Cambridge, second time around, which we should come back to because there's an interesting story there. I went the second time around and I brought this stuff and I said, "Hey, this is stuff I need to sell." They said, "Well, we don't take this stuff." I was like, "What do you mean you don't take this? I'm staring at a whole store full of this stuff. What do you mean you don't take it?" They're like, "Oh, well, we don't really do men's and we just do more luxury brands."

(00:13:56):
It was a J. Crew cashmere sweater. It was a Brooks Brothers coat, [00:14:00] and I was like, it can't be worth zero. Commensurate with that, so I went home with all my stuff and commensurate with that, I was in a class called, I think it was called Strategic Markets and Technology or it was something to that effect, and it was fundamentally about market mismatches, like how do markets fail. I thought, well, this is a great example of I'm sure there's a buyer out there who would love this stuff and I'm a seller [00:14:30] who wants to sell this stuff, and the problem is there's no mechanism for it to work. That was the real insight. I remember actually just a few days later going to a bar with some buddies and after a couple drinks, I was just pitching them the story. To the entrepreneurial jeans I was starting to sell. I'm like, "I got this idea, I'm going to sell it to you. What do you think?" I just became obsessed with it. We [00:15:00] started with something that I knew well, which was men's clothing.

(00:15:05):
We started with trying to create a peer-to-peer experience, a men's shirt swapping service, which in retrospect was just a terrible idea. Well, not even in retrospect, it was obvious just a few months later, it was a terrible idea. The instinct was that there was this inefficient market [00:15:30] between buyers and sellers, and there need to be a better way. I think from there we went from men's shirts, swapping men's shirts, to the feedback I consistently heard, which was, "Oh, that's a neat idea. I wouldn't use it." Which is really code for you, this is not a good idea, to, but I would use it for my kids. Very quickly we were like, "Ah, kid's market." That's a market where there's four obsolescence. If you're a parent, kids are growing, [00:16:00] you got to get rid of this stuff.

Eric Ries (00:16:02):
I know it.

James Reinhart (00:16:02):
You're living this right now. We moved to the kids' market. Our first tagline was clothes don't grow, kids do. That's how we got started. I can keep going to where we are today or we can talk about that early.

Eric Ries (00:16:17):
Well, I mean that's actually a great pivot story already right there. How long did it take you to figure out that the first MVP was no good?

James Reinhart (00:16:25):
It took basically the spring, so call it February, [00:16:30] March through June. Three, four months. I'll tell you, so our friend, our mutual friend, Tom Eisman, was very instrumental in that first pivot because he said to me, I went into his office, said, "I'm working on this thing." He said, "James." I said, "Well, how will I know if the sample size for what I'm working on is big enough?" This is 2009, mind you, so the numbers are very different for the audience listening today of what the right sample size is. Then [00:17:00] he said to me, "Well, you need 10,000 people using it." I was like, "What? 10,000?" I had 300 at the time. He's like, "If you can't get 10,000 people using something in its early adoption phase, you're not going to get reliable data." I just could not believe that. By God, he was totally right because we pivoted out of shirts, we launched kids, and in a few months, we had 10,000 people using it. Then we started to get really [00:17:30] interesting data around that use case and where we would go from there.

Eric Ries (00:17:34):
People always think iteration pivots, MVPs, this is all about the local maximum, but that's such a great illustration of you could add all the features you want to the men's shirt swap, and you could work on that for the rest of your life and you might never get 10,000. Just the contrast when you finally have something that's working, the difference, it's like for people who haven't experienced it, it's so obvious that now your experiments are being more productive, now you're making some progress, you get there. [00:18:00] It can be hard to let go of the idea and be willing to do the next thing.

James Reinhart (00:18:05):
I think you really do have to really hold space in your brain for a product that can work, product market fit, and a big market. Because I think the next pivot was kids is interesting, there's obviously a product market fit of a use case of kids outgrowing stuff, [00:18:30] but what you find when you then dig into it is that the kids' market is much, much smaller than people think, because the informal hand-me-down market is so robust. When you think about markets and companies that invent new markets, there's a whole point of view around are you taking a gray market, turning it into a real market opportunity? What we found in the kid's business was that [00:19:00] our product worked very well for a subset, but that the informal work in the market did the job to Christensen's job theory. It actually did the job pretty well. My guess is, I don't know, how old is your oldest now?

Eric Ries (00:19:16):
10.

James Reinhart (00:19:18):
Chances are you got enough people in your life at 9, 8, 7 that it works okay. It's not perfect.

Eric Ries (00:19:24):
It's very hard. It's hard to get 10X better of something that works okay.

James Reinhart (00:19:28):
I think what we then realized [00:19:30] was kids was interesting, but when you then went to a thrift store or you went to a consignment store, by and large, it was full of women's clothes. There was a kids' section, there was a men's section, but 90% of the store was women's section. Then you're like, "Ah, now I see what's happening here." I think then we pivoted into the women's market, but that took about 18 months. 18 months to two years. We raised money against the kids' business and we really had something there, it just wasn't the big business that I thought we [00:20:00] could build.

Eric Ries (00:20:01):
People always think pivots are about failure, but it's actually much harder to pivot out of something that's working, but just where the market opportunity is not where you want it to be. How did you feel having to give up something that was working for the unproven thing that was not?

James Reinhart (00:20:16):
I think I made the sin that many entrepreneurs make in the beginning, which is I tried to do both. I tried to straddle, and you're like, "No, no."

Eric Ries (00:20:23):
Welcome to the club. We've all done it. Everyone has done it.

James Reinhart (00:20:25):
I feel like it's like a rite of passage. Any entrepreneur who doesn't admit to it is lying to themselves. [00:20:30] I tried to have it both ways, we'll do kids. I actually remember a board meeting with one of our early investors when I said, "Hey, this kids' business is just okay, but I think the biggest opportunity is in women's." He's like, "I don't know what you guys are thinking. You guys are idiots. You haven't even cracked this thing, now you're trying to do this other thing. You're out of your mind." Then obviously, a year or two later, he's like, "That was the [00:21:00] best decision you ever made." Then I was like-

Eric Ries (00:21:02):
I knew it all along. I told you it was going to work.

James Reinhart (00:21:05):
To his credit, he was like, "That's why I'm a venture investor and you're an entrepreneur."

Eric Ries (00:21:09):
That's very rare, actually. Kudos, whoever that investor is, they get the psychic shout out. That is extremely rare to have the awareness to say that.

James Reinhart (00:21:19):
I can tell you, it's Dan Nova at Highland Capital. I think Dan gets a lot of credit for, he's willing to be like, "You're crazy, but I'm willing to back [00:21:30] you because I'm backing you and your instinct."

Eric Ries (00:21:33):
One of the marks of a great investor. It's actually hard for people who've never done that to imagine.

James Reinhart (00:21:38):
A few times, it's like since where Dan has pushed me on something and he's been right and pushes me in ways that I think have been really good. There is a really healthy VC entrepreneur dynamic. As you know, when it works well, it can be extraordinary. When it works poorly, it's a disaster.

Eric Ries (00:21:57):
We've all lived through that too. Let me just [00:22:00] ask one more question going back. What I think is really interesting about this story is you started with men's and kid's and then made to women's, but I think a lot of people, I can imagine some of your classmates must have said this to you at the time, the women's clothing market is obviously so much bigger. Why didn't you just start with that?

James Reinhart (00:22:16):
I'm sure that people gave me that advice. I think I probably at the time had blinders on around the kids' business and the men's business, and then I think as you raise money against a strategy, as I raised [00:22:30] money against the kids' business, everything was measured against that, and so it was harder to break out. I think in the early days, I'm guessing I was more of the like, "Yeah, you might be right, but I'm going to do this thing."

Eric Ries (00:22:48):
Well, I guess the reason I asked is, do you think you would've been able to appreciate the benefits of being in that market if you hadn't had the prior experience of hitting your head against the wall of a market that's too small?

James Reinhart (00:22:59):
That's a really [00:23:00] good question. I don't know if banging my head against the wall with kids' and men's or having gotten to women's faster would have ultimately made a difference to where we were. I will say that I think it made me get conviction that I wanted to be an entrepreneur and that I was willing to fight my way through it to figure out how to get the best product and the best market to [00:23:30] fit together. I often talk about just the battle scars of those periods. They did actually, to your point, steal me for the future. I think actually derivative to that is probably the biggest pivot we made was when we started to take on inventory.

Eric Ries (00:23:50):
That was very countercyclical or counter of asset light businesses, and everyone thought we were going to live in a world where companies didn't have to have inventory [00:24:00] anymore. What was it like to be a contrarian on that point?

James Reinhart (00:24:04):
Well, that was definitely the contrarian move that I think actually is the biggest switch that I think has made ThredUp into the company today, which is, and it's part of the customer discovery process of where the friction points were, which was the friction wasn't that people wanted to get rid of their stuff. We all give away stuff to Goodwill all the time. The friction point that [00:24:30] I think we got right and I think continue to get right is that people want it to be super easy and convenient, but they do want some economic value for it. The idea of just dropping stuff off at Goodwill, willy-nilly, when you probe people of like, "Oh, well that's what you do today. How good do you feel when you do that?" Nobody's like, "You know what? I feel amazing." Everyone's like, "That's just what I do."

(00:24:56):
I think we kept poking and prodding at the, "Well, why do you do that?" I'm [00:25:00] like, "Wow, there isn't really any other way for me to do that. I think the ability for us to then invent the Clean Out Kit, the bag, and start to process the inventory was very contrarian at the time. If you indulge me, I'll tell you two funny stories about that one. One is Tim Haley, who is one of the greatest investors of all time, sits on my board today, very early at Netflix. He invested in the business pre-owning inventory. I took him around the distribution [00:25:30] center, this very small distribution center that we had built in San Francisco, 9,000 square feet in San Francisco. I showed him all these clothes and he said, he just laughed. He was like, "Man, James, I would never have invested in this business if you had shown me this."

(00:25:48):
Then now that I showed him how the customer was responding, he's like, "I'm so glad this is the direction that we took." Because ultimately the customer experience was much, much better on both sides of the platform. It's kind of funny how you're [00:26:00] right, the asset light was definitely in vogue. That's how people were raising money, but it ultimately wasn't solving the customer problem. I give Tim, again, a lot of credit for just being like, and then he was very instrumental in the future capital that we raised. Then the other funny story of where you need to spend time with other entrepreneurs because other entrepreneurs have insights that you may not have about your business. Before I [00:26:30] ever did a thing for ThredUp, raised any money, I met with a guy who you might be from a name Lloyd Tabb. Lloyd was, most recently, he has a new company, but most recently he was chief technical Officer, co-founder at Looker, which was a great company that everybody uses now that's now owned by Google.

(00:26:51):
Lloyd was a Santa Cruz guy, and I met him through working at these schools, and I sat down with Lloyd in the fall of [00:27:00] '08, holiday of '08, and I sat down with him like, "Hey, I'm working on this thing. I'm going to do shirts and blah, blah." Gave him the whole pitch. "What do you think?" He was like, "I don't know. I think it's a pretty bad idea." He's like, "You know what's a good idea? Why don't I just send you all my shit and you just take care of it for me? Do everything." He's like, "Be an online Goodwill." I was like, "That's a terrible idea." It's funny, because his instinct was exactly right, [00:27:30] which was the customer problem was do it for me. I had too many blinders on at that moment to see that insight. I have such a laugh now because Lloyd and I have become friends that Lloyd really got some of the credit for founding ThredUp.

Eric Ries (00:27:49):
I wanted to take you back to the idea that you wanted to have impact, a positive impact. That was such a motivator for you to become an entrepreneur. Because I think you were the first person [00:28:00] to ever talk to me about the environmental impact of clothing and cloth production, the importance of secondhand clothing as an environment. If you had asked me at that time whether this could be an impact business, a positive business, I would've said it's just clothing, who cares? I think, like I certainly didn't see it. I'm curious what it was like. Obviously, you've spent a lot of time thinking and talking about this, but talk to me about what was your insight on the impact you thought you could have at that time and was that part of your original motivation or did that come later?

James Reinhart (00:28:28):
I will admit, it was not [00:28:30] part of the original motivation for the business. I was very motivated by the market inefficiency of the business. I think implicit in that was that there's waste in the system, but to be totally honest, it was not a mission play from the outset. It was a market inefficiency insight. I think what quickly became clear though as we started to get close in process close, [00:29:00] just how much waste. It really was 2011, so two years after the founding into 2012 where we started to see the waste stream of just how much stuff was coming back that we just couldn't even resell, couldn't reuse because it had been broken down. I think that was the moment where I started to go deeper on, man, where does all this stuff go? A big part [00:29:30] of our story from 2012 on was this stuff is ending up in landfills. There's massive overproduction.

(00:29:40):
I think that Goodwill as being the place where a lot of us have given our stuff over the years, to no fault of Goodwill's, about 70% of the apparel, cloth that gets donated to them ends up in a landfill. They're doing [00:30:00] the best they can, there's just so much stuff and the supply chains and infrastructure just does not exist to process that amount of stuff. I think beginning in 2012, 2013, we started to say, "Hey, actually, we can really change the way the secondhand apparel market works because we can build infrastructure to get stuff out of people's homes, repurpose it, resell it, and be a real compliment to what's happening offline." I think that, Eric, [00:30:30] is when I started to get much more inspired by the mission.

(00:30:34):
Then when you start to go deeper and you see where all that clothing is going in Africa, where you see where it's going in a Chilean desert, it just makes you really sad around just how wasteful it is. I think the thing I did not appreciate also was that we have gotten comfortable as Americans about the stuff we give away ending up in landfills, but it doesn't end up in landfills in the US. [00:31:00] Most of it ends up in landfills in other countries. Now, look, there's economic benefits of clothing being exported, and we can talk about that if it's interesting. I do think at the end of the day, there's overproduction, there aren't great systems to recycle and resell, and that's what we got excited about.

Eric Ries (00:31:17):
Tell me what the mission of ThredUp is.

James Reinhart (00:31:21):
The mission is to inspire the world to think secondhand first. That mission has been, and when we say secondhand [00:31:30] first, we really want people to, on the seller side, because I think it's buyers and sellers, on the seller side, it's that the minute your clothing becomes no longer useful to you, the answer isn't keep bearing it in your closet until it becomes not useful to anyone and it's got moth eating away at it. The minute you're like, "Oh." Then you're like, "Oh, secondhand, I should just put it back in the service of secondhand. I can sell [00:32:00] it myself. I can send it to ThredUp. I can do something with it." Bringing agency to the seller point of view. Then for buyers, my dream is that we live in a world where your instinct for your 10-year-old when you need a new thing is, well, let me just see if there's something secondhand available."

(00:32:20):
It doesn't mean you're going to buy everything secondhand, but that you have that instinct of I should just check. I think what I want to see, [00:32:30] the change I want to see in the world is there was a time we didn't recycle, and now you go to places that don't recycle, you're like, "What are these people doing?" It's become so anathema to how we live in the world. I want people to have that same experience in secondhand apparel where it's just crazy that you would not put your stuff back in and be circular and it's just kind of crazy. You wouldn't at least consider finding [00:33:00] something secondhand. To me, that would be a massive, massive home run.

Eric Ries (00:33:06):
We all live in this very consumerist society where with all this overproduction and the environmental consequences, the ethical issues and the supply chain and of this. There's so much we could talk about there. Yet, we all, I think are required just to function in our society, to tune that stuff out to some degree or another and to say, "I live my life. I can't always be thinking about all of these consequences." [00:33:30] I think what's so interesting to me about ThredUp is it's an example of it's a for-profit company, you built the product and it's a convenience company. It's a company where you want to make this behavior that I think all of us, if we really thought, if we sat down to think about it, would say, "Oh, yeah, this is a behavior we should do." In order to actually do it, it has to be so convenient that you actually think of it. You actually do.

(00:33:56):
There's so many things we all wish we would do, but if it's not convenient enough, you don't do it. [00:34:00] The idea that social change can come from a for-profit company actually trying to solve what is fundamentally a usability issue first and foremost. Then you just think about the contrast between clothes that might have been questionably, ethically produced, then being overproduced so that they never get sold, they wind up in a landfill, or even worse, clogging up someone's closet. Now it's a source of anxiety and stress for them that they've got this overburdened closet and it has to be thrown. Then I need to get somebody else to come in and Marie Kondo it to get this stuff out of there.

James Reinhart (00:34:30):
[00:34:30] Yes. All of it.

Eric Ries (00:34:30):
It's like, all of these problems are just the second, third, fourth order symptoms of the waste of overproduction and the lack of reuse. Even the engineer in me, just the antipathy I feel towards waste, the idea that, that could be eradicated is so satisfying, let alone all these other social consequences. I'm curious what your experience has been like when people hear that you're a mission-driven company, you're a business with a social [00:35:00] impact, for a lot of people that conjures up activism, nonprofit, there's a lot of skepticism I think in the world that can really a for-profit company actually be a force for good. You must have encountered that in your many, many conversations about it. What do you think about that supposed conflict?

James Reinhart (00:35:17):
Look, what we're trying to do is break the mold. I think back to how did I end up an entrepreneur, I think a lot of it was my innate interest [00:35:30] in leading and making a difference, I think comes back to, I think I want to show the world. I think that's why we've started to work together. It's like show the world that you can actually build businesses that make the world a better place, and you can do it in a way that balances profits and purpose. That's what we're trying to do. Wouldn't it be great if we had systems in place that were designed to help businesses [00:36:00] do the right thing?

(00:36:02):
I think for me, what I spend time now thinking about is what would help us accelerate our impact faster? I think what I've come to is that the bigger ThredUp gets, the more impact it can make, the bigger voice it can have. The question is, what's the right relationship to getting that flywheel going faster? Because I think when ThredUp is a 10 billion or 15 [00:36:30] billion or $20-billion-company, the impact that we can make in the world is profound. It's not just because of the amount of clothes that are running through the system, it's that our team can show other founders of like, "Hey, there is a path to profits and purpose, and it's not always easy, but it can be done." There are entrepreneurs out there that are doing this in many other places, but I do think we're a minority.

Eric Ries (00:36:59):
It's an elite club, [00:37:00] I think.

James Reinhart (00:37:00):
Well, I appreciate that. It's just harder. I remember to your point about making an impact. We were on the IPO roadshow and we were meeting with this investor. It was an ESG fund within a very, very large mutual fund. It was such a funny conversation because this young guy said, he's like, "Yeah, but how do you give back?" [00:37:30] The conventional thing is you have a for-profit corporation that for whatever or worse doesn't do a lot of good in the world. The way they contribute to society is they have a foundation or they do something that does good in the world. The implication of this question was like, that is the thing that matters. I was like, the worst thing to be like, "Dude, our existence does good. Every day we take stuff that was headed for a landfill and we recirculate it and put, right?" Eric, that [00:38:00] is a lot of what goes on in the investor community is that approach. I hope that we can at least break the mold a little bit and show people that intrinsically good businesses, they're good for bottom lines, they're good for the world.

Eric Ries (00:38:15):
This episode is brought to you by my longtime friends at Neo4j. The graph database and analytics leader. Graph databases are based on the idea that relationships are everywhere. They help us understand the world around us. It's how our brains work, how the world [00:38:30] works, and how data should work as a digital expression of our world. Graph is different, relationships are the heart of graph databases. They find hidden patterns across billions of data connections deeply, easily, and quickly. It's why Neo4j is used by more than 75 of the Fortune 100 to solve problems such as curing cancer, going to Mars, investigative journalism, and hundreds of other use cases. Knowledge graphs have emerged as a central part of the generative AI stack. [00:39:00] Gartner calls them the missing link between data and AI. Adding a knowledge graph to your AI applications leads to more accurate and complete results, accelerated development and explainable AI decisions, all on the foundation of an enterprise strength cloud database. Go to neo4j.com/eric to learn more.

(00:39:21):
One of the things I've learned, very counterintuitive thing I've learned working with so many mission-aligned investors and companies is that harder [00:39:30] is actually easier in certain respects. By taking on the inventory, you make your life a million times harder. Now you're dealing with your logistics and you're responsible for the thing you've given up your software like margins. You have staff, you have to take care of those employees. I have to tell you, I mean, just like, what?

James Reinhart (00:39:49):
Yeah, totally.

Eric Ries (00:39:50):
A lot of people look at me like, they're like, "What a nightmare. You could've been asset light, why did you do that?" You did it not because you thought it would be fun, but because it gave you a huge competitive advantage because [00:40:00] now you can actually solve the customer problem in a profound way. I've gotten to meet a lot of people over the years on your team, and I know just for meeting them, the level of talent that you can recruit, the level of morale and cultural alignment you have because the mission is so aligned with what's in people's hearts. You punch way above your weight from a recruiting perspective.

James Reinhart (00:40:20):
100%.

Eric Ries (00:40:22):
You'd be able to attract these incredible investors. Talk a little bit about the advantages of taking the harder path.

James Reinhart (00:40:28):
You've hit one piece of this [00:40:30] very important matrix. The recruiting, hiring, retention of employees has been extraordinary at ThredUp. I genuinely think, look, there are lots of people in the world that given the choice to work at a place where they can make money but do no good and work at a place where they can make money and do good, overwhelmingly, people are going to want to work at the other place. We have had a huge recruiting and retention [00:41:00] advantage from the very beginning, and it has allowed us in times when things were hard, fundraising was hard, when the pandemic hit. All these things that were very difficult, people are like, "Okay, I know it's hard, but I love this company. I will do whatever it takes because I believe in the mission." I think we have benefited so much from that, the quality of the people.

(00:41:27):
I think the other piece on the investor side is, yeah, we've [00:41:30] been able to surround ourselves with investors who matter, who care. Not all of them, but that genuinely speaking right back from the early days, Patricia Nakache, she's our investor at Trinity, it was clear from our first meeting she was interested in building and investing in a company that was going to generate a great return. She was like, "Man, this is really good for the world." When you align investors and employees, stakeholders, all along this mission, [00:42:00] I think you can do really powerful things. I feel enormously grateful that, that has happened. It's made my job easier. I don't have to convince people that we're doing something that's marginally good or that we're not doing harm. A lot of founder CEOs have to stand up in front of their companies and convince them they're not making the world worse. I don't have that problem, and I sleep really well at night.

Eric Ries (00:42:26):
Man, that is such an underrated attribute. I know [00:42:30] a lot of founders, a lot of very successful founders even who are totally miserable. For that exact reason, the compromises you have to make are really brutal. For people who've never experienced the kind of organization stakeholder alignment that you're describing, we don't even have language to describe it, honestly. It's such a special experience. For people who've worked in an environment like that, invested in companies like that, it's still, as you say, the minority, but a powerful minority.

(00:42:58):
To me, it's like, the [00:43:00] best analogy I can think of is it's like the flow state they talk about for individuals, like conditions are just right. Sometimes we have these feeling, we get this moment where you're super humanly productive, the creativity is going, everything is just right. You have that special feeling, almost a spiritual experience. This is like the equivalent of that flow state for an organization. What's interesting about flow state is it's extremely difficult to get into, but awfully easy to get bumped out of it. The phone rings, one bad, just the tiniest thing can knock you out. [00:43:30] I'm curious, tell me about the measures you've taken, the way you think about protecting that culture, protecting that alignment from a world that often doesn't understand it and sometimes is actively hostile towards it existing. What's that like?

James Reinhart (00:43:45):
One is that I don't think that as a CEO, as a co-founder, that I can convince people of something that they don't intrinsically already believe. I think more than anything, it is I'm tapping into something [00:44:00] that's deeply intrinsic to the people who work here and the people who work around our business that speaks to them. When things do get hard, and they've been very hard over the years, I remind them of what we're trying to do, the change we're trying to make. It almost like, Eric, to your point, it just shakes them back to center, like, "Oh, shit. Yeah." I shouldn't worry about that thing, because at the end of the day, my values, my principles are about what I'm trying to do here.

Eric Ries (00:44:28):
Give me an example.

James Reinhart (00:44:29):
Look, we've [00:44:30] been public now for a few years. It was great for a year, and then the stock has not done as well over the last year and a half. Some of that's uncalled.

Eric Ries (00:44:38):
Join the club

James Reinhart (00:44:38):
Yeah, it's another, actually.

Eric Ries (00:44:42):
Quite the direction of tech stocks. Yeah, exactly.

James Reinhart (00:44:43):
It's another elite club. It hasn't done as well as we like. I remind people that like, especially if you're a 30 something employee at ThredUp, I was like, "Well, were you planning to retire tomorrow?"

Eric Ries (00:44:58):
This quarter?

James Reinhart (00:44:59):
The answer is, of course [00:45:00] not. I'm like, we want to do good in the world. You didn't come here to retire at 33. You came here to work on hard problems, work with smart people. I think reminding people of, "Hey, we didn't do this just to be public." That isn't the answer. That's the example that I often tell people is I'm not going anywhere. My life is not complete with a high stock price. That's not why I exist in the world. [00:45:30] It'd be nicer, but at the end of the day, I'm not sure I'd be any happier. That's when I tap into some of that.

Eric Ries (00:45:39):
Talk about the IPO process, just tell me about the decision to go public. You are a high-flying private company, life could be good. Being a high-flying private company is pretty fun. Talk about the process, deciding to go public and then tell me what have you noticed that's different before and after having an IPO.

James Reinhart (00:45:56):
Yeah. I think if you go back to the founding principles and impact [00:46:00] that we're trying to make, it became very clear to me late '20 into '21 that we could make a much bigger impact in the world if we were a public company. You had not had any companies of our ilk that were really trying to do good in the world, be public in a recent timeframe. To me, it was an opportunity to accelerate everything we were trying to do. Accelerate the impact, accelerate the business, accelerate the quality of our employees. [00:46:30] I thought about the IPO process as an acceleration of everything we were trying to do in the world. I remember having these conversations about, well, why not sell the business? I remember thinking, look, I would sell the business if I believe that, that was actually going to help me make a bigger impact.

(00:46:52):
If I could be nested inside some large company that was going to give me the freedom to make the biggest impact possible, inspire the world [00:47:00] to think secondhand first, sure. I don't have religion about one way or the other. I think in those conversations it became clear that the number of companies for whom we could be a part of that would let me do that were probably very small. The IPO process ultimately became about accelerating what we were trying to do. That's on the core fundamentals of the business, and the business was working, we were executing our plan.

(00:47:29):
The other piece [00:47:30] is that as Fred Wilson, I think said 15, 20 years ago, "You go public when you can and you take your chances on the field later." I remember reading the blog post when Etsy went public because people really had a problem with Etsy didn't perform quite as well or blah, blah. The IPO wasn't as great. I just remember, it's always stuck with me. Fred's like, "Everybody should shut up. You go publicly and you can, and let's take the long [00:48:00] view on Etsy and the good they're trying to do in the world." That always stuck with me and I was like, okay, well, look, there's a moment in time when we could do it, we could do it effectively, and let's go do it. Those were the two conditions of the IPO process.

Eric Ries (00:48:16):
If someone's thinking about going public now, any advice you'd give them? Anything you would do differently if you could do it over again or you think was really important that you're glad you did?

James Reinhart (00:48:24):
I think that the going public has made us such a better organization. [00:48:30] The rigor around what we're trying to accomplish. I mean, we're just a better organization everywhere. I think that the downside to it is that a lot of, like if your business is more volatile than you would like, and I would describe volatility as I was with a couple founders yesterday, and we were talking about how their quarters shaped up and I can't talk about our quarter, but they were like, "Oh, it [00:49:00] was a little bit better or a little bit worse."

(00:49:02):
The guy who said it was a little bit worse, I was like, that's the reason why you don't want to be public just yet. If you cannot predict that with certainty, you just get punished for these things, which I find immensely frustrating. I think the amount of brain damage that exists in the earnings process is extraordinary. If I could write it all over again, since you asked or didn't ask, I don't know why we don't just tell people what we think is going to happen and then we [00:49:30] either do it or we don't. This consistent game theory that goes on in the public markets drives me bonkers. I would tell founders, if you don't want to deal with that kind of brain damage, you should stay private. On the other hand, it can create enormous opportunities for you.

Eric Ries (00:49:48):
You've struck me always as having a very long-term approach. The research shows having a philosophy of long-term thinking is it's ultimately what's required to have sustained performance over long-time [00:50:00] horizons and to have the culture alignment that you have to be able to resist the brain damage of quarterly pressures and the guidance gained and just the number of distractions available, especially to a public company, that can pull you away from performances immense. Just talk about what does that long-term generational scale impact bug come from? How do you experience that personally, and what steps have you taken in the company to make sure the company is focused on long term?

James Reinhart (00:50:30):
[00:50:30] There's these loops in this conversation. It does come back to being mission driven. I think when you're mission driven, you're optimizing for a long term.

Eric Ries (00:50:43):
They're inseparable. Can't have one without the other.

James Reinhart (00:50:46):
I think part of it is just my long-term thinking is I do really believe in the mission, and so it's easy for me to take a 10, 15, 20, 25-year view. I think the other thing is when I look around at entrepreneurs [00:51:00] who have run businesses for a very long time with singular focus, I think about Reed Hastings and Netflix, who 30 years of running Netflix, and I know Reed a little bit and we've talked a little bit about this. He's just like, "Look, this is where I have passion. This is what the mark I want to live, leave on the world is this." Retiring or doing something else is not the mark he wanted to leave on the world [00:51:30] because that's an incredibly gifted, talented person who could have done extraordinary things.

(00:51:36):
He was very passionate about a handful of things that he wanted to get right. I think a lot about that. If I were to think about doing something else, I don't know if I would have the passion that I have for ThredUp. I mean, our business is so complicated that it's so much fun. The problems are so great, [00:52:00] which makes the opportunity so great. I laugh when people think about trying to compete with us. Because when people are like, "Oh, I'm thinking about doing this." I'm like, "Good luck." I see startups that compete with us today, founders, I'm like, "Look, I just want you to know, I want you to be committed to this thing for 15 years. Because that's how long it's going to take for you to play catch up." There's just something about [00:52:30] the mission piece, the joy I take in the work, the quality of the people.

(00:52:36):
I would say one other thing which is around mission, is that I also get to have incredibly, insightful, powerful conversations all the time. I wouldn't get to have the opportunity to do this podcast if I weren't doing something that was making a difference. I get into invited to all sorts of cool things, and I get to hang out with super smart people because [00:53:00] of the work that I'm doing. I don't want to under-appreciate that because I do actually feel really lucky about the places I get to go. Sometimes I'm like, "Phew." Congressional committees call and they want me to weigh in on stuff, and I'm like, "Really?" Then I get invited to certain interesting things, and it's not because I want to be with the cool kids, but the intellectual stimulation of it is incredibly enriching for me.

Eric Ries (00:53:29):
Got to love [00:53:30] the work itself. You can't sustain it.

James Reinhart (00:53:31):
Absolutely.

Eric Ries (00:53:32):
It's another such a great example of the harder is easier thing because investors are always looking for moat. I've found that the most powerful moats in the world are businesses where they just make you want to cry, contemplating doing them. Just they're so hard and the pain is so immense, and you have to solve this huge number of problems. If you're the kind of person and you have the passion for the mission such that chewing on the glass of solving those problems is worth it to you, actually, you start to enjoy [00:54:00] it after a while because you care enough about the outcome. That is hard for anybody to replicate, and I think there's a lot of businesses that in theory should be vulnerable to competition, but just the complexity and the pain of it, it's too hard, and so you get this huge competitive advantage also from doing something extraordinarily difficult.

James Reinhart (00:54:16):
Well, and I think it's the combination of the hardness, the competitive advantage piece with the quality of the people who are still at the helm.

Eric Ries (00:54:24):
Those things are definitely less. That's a good point.

James Reinhart (00:54:25):
Because it's like, if there were a bunch of monkeys running ThredUp, then [00:54:30] maybe you can compete. When you combine just rigor, attention, passion at the top with those deep competitive advantages, that is a recipe for companies to be very successful over time. They're obviously linked, but that's why I think founder-led companies, I think the data shows, I mean, I don't have it in front of me, but I think they're more successful over time.

Eric Ries (00:54:56):
That's right. That data shows, yeah.

James Reinhart (00:54:58):
Because there's something about founders [00:55:00] and employees working together on the hardest problems.

Eric Ries (00:55:02):
You made the decision to list it up on the long-term stock exchange, which of course, I was very excited when you decided to do that. I really appreciate it. First of all, thank you. Just talk a little bit about the decision to do that and how it's turned out so far.

James Reinhart (00:55:17):
I remember, and I don't remember if I've shared this with you directly, but I remember learning about the long-term stock exchange. I remember even where I was on the street. I was in front of [00:55:30] our office on Sansome Street in San Francisco, and I had read an article, I think in the Journal, about this thing that Eric Ries was working on, we had only met briefly by that point. I'm like, "This is so smart." Because I was deep in a mission driven kind of moment where I was like, "This is kind of stuff we need because markets are broken and everything is very short-term-y." I remember back then thinking, "Boy, this is a crazy idea. It's a great idea. Man, it sounds super hard." I was like, "But [00:56:00] that Eric guy, he can do it." Obviously, you had your twists and turns along the way. I think when we came back together and really the team came to me and was like, "Hey, we're thinking about this thing." I'm like, "Well, I've been thinking about this thing for years."

Eric Ries (00:56:19):
As long as it's gifted, basically.

James Reinhart (00:56:21):
Yeah, dormant in my brain. I was very excited about the principled approach for it. [00:56:30] It's been really positive. I think though, for you, I'm curious how you're feeling about it, is it's one of those things that's just going to take time and the capital markets are wonky right now, but I think more and more companies will get there. If I take the long view, which I do, are there going to be lots and lots and lots and lots of companies do listed on LTSE and NASDAQ or New York Stock Exchange 20 years [00:57:00] from now? Unequivocally, yes, and I'll be super proud to have been one of the first. From a leadership perspective, I'm thrilled about it.

Eric Ries (00:57:13):
Thanks for saying that. To answer your question, it's really interesting. I've noticed a real disjunct, I was actually just before we were recording this, I was on Zoom with CEO of really awesome company, public company, big company that every single person listening to this knows who this person is and knows their company. Very, very cool entrepreneur. [00:57:30] When I talked to someone like that and I explained about LTSE, he was very positive about it and I was explaining the progress that we've made. Civilians, people who don't know the system and how it works, always ask me, how come it hasn't happened faster? Why hasn't this happened, or when is that happening? People who are in it, the CEOs I talked to, he's like, "That's an incredible amount of progress. It's far more than I would've thought possible." That, honestly, talk about hard business, because people view what we're doing as impossible. [00:58:00] Any progress is unbelievable.

(00:58:02):
We're supposed to be dead 20 times over. Believe me, people have tried to make it so, so I get it. First of all, thank you for believing in it, but I think also what you said is absolutely right, that if you zoom out and take the long view, today in our degraded understanding of capitalism and what we're doing, we think that being exploitative, taking advantage of your customers and employees and your investors, that's what it means to be [00:58:30] ruthlessly efficient and that's a source of competitive advantage. There's just this new breed of companies that are proving that, that's just not true. Every time you do that behavior, you're creating a liability that some startup, I was talking to a CEO the other day, I was like, "Every time you do that, some startup in the world is high-fiving. You just created an opportunity for them to come in and compete with you."

(00:58:49):
The companies that truly are ruthlessly efficient are the ones you really don't want to compete with are the ones where everything is aligned and they've really taken the harder path. That's ultimately where the returns are because that's [00:59:00] where the competitive advantage is. I thank you for being one of the avatars of that way of thinking. I do think 20 years from now, whatever happens with LTSE, we'll see what, it depends. We got to execute, we got to earn it. I think as a society, we're going to look back and say, wow, there was a moment there when people had a very confused understanding of what business is. We're so glad we got through that adolescent phase. We have a more mature perspective. We're having better social consequences, but more importantly, we're actually being more profitable. We're making more [00:59:30] money, the returns are superior.

James Reinhart (00:59:33):
Look, as I mentioned earlier, I was a history major as an undergrad and studied a bunch of philosophy, and I think there's something about my appreciation for the arc of history and how these things change over time, that for whatever reason, I'm very comfortable thinking about the world in much larger segments of time. Yes, we got to run the day-to-day, but I think sometimes when I think about, hey, the mark I want [01:00:00] to leave on the world or the mark this company want to leaves on the world, I'm able to contextualize that over how change has really happened over the last few thousand years and how these things take a lot of time. I don't know if you've read this, Dawn of Everything, like tome. That's out there.

Eric Ries (01:00:22):
When you were talking about, I was just thinking about that book, actually. Those who haven't read it, we'll put a link in the show notes.

James Reinhart (01:00:27):
Please, do. It's just as a reminder [01:00:30] of these things and what we think we know about how history actually evolved. There's so much conjecture there. It's thought-provoking in the is what we really think we know actually true? I think it asks some really important questions, and then it's just a reminder of the arc of how long these things take. There's something about the fact that I'm reading that and I've read that, that informs how I think about LTSC and [01:01:00] how I think about ThredUp.

Eric Ries (01:01:01):
One of the things I really took away from that book is every civilization, no matter how small, from the tiniest city state up to the largest empire, every civilization, and really every organization, if you think about it, it's like a little bubble of utopia. It's a tiny little spaceship, it carries its own environment in it, and it's an attempt to show what the relations between humans should be. For organizations super hierarchical, and there's subordinates who [01:01:30] are mistreated, that's a view of human nature and what is best. I always talk to people who run law firm. Law firms are notorious for all the power at the top and the subordinates. You climb this ladder and it's a brutal churn and that's viewed as the way that it ought to be done. Then you have other companies, think about a holacracy where everyone's equal.

(01:01:47):
You have other organizations that are very performance-oriented, they're engineering-oriented, sales-oriented. We have organizations that are basically just bureaucracies designed to perpetuate themselves. You have ones that are outright total frauds, not to name [01:02:00] any names, but just look at the headlines of late. We got a few. The idea that human evolution, human society has just, it's almost in our nature to experiment with these forms. To me, that opens up the space of possibilities for the kinds of companies that we could run. I talk to founders about this a lot. We don't often get into the dawn of everything, but we talk about, because I feel like founders especially are told by the gatekeepers of our [01:02:30] current society that there's only one best way, and they have to conform this very narrow idea of what a company should be structurally, culturally, how the relationship with investors, what it should be.

(01:02:39):
Talk a little bit about how you felt like bucking that trend. You do things very differently. You have a very different culture, you've had a different philosophy. You've gone against the grain multiple times. You've pivoted away from the, I'm thinking about going back to the asset light conversation, pivoting directly away from the conventional wisdom at multiple moments, and yet you've had this incredible success. [01:03:00] It puts the lie to the conventional wisdom in the first place. Just tell me about how you've explored that sense of possibility, and as a history major, how do you think about the little bubble of utopia you've created for ThredUp?

James Reinhart (01:03:10):
Well, I think this notion of how we've bucked the trend is I think taking a first principles approach to everything.

Eric Ries (01:03:22):
Explain what that means.

James Reinhart (01:03:26):
First principles thinking is, as I interpret and understand [01:03:30] it is, just forgetting about the way the world is supposed to work and asking yourself intrinsically, how should a company focus or how should somebody operate in a world that doesn't have all those constraints and baggage around the way the world has been designed? When we think about first principles, we have thought about everything from, in the earliest days of ThredUp, we decided to [01:04:00] build remote work and out of the office work into our regular rhythm.

(01:04:08):
It came from, so on during the week, this was in the early days, 2010, 2011, I would not come into the office certain days because I was highly productive at home. I was like, "I'm not going to go the office. I have to crank all this work." I would go to a coffee shop, I would get highly caffeinated and I would crank through stuff and I would be wildly productive. We [01:04:30] then experimented with, okay, well, if that's so good for me, and I think this is the humanity part where I think you could go one of two ways, which is you could be like, "Well, that's really good for me, so all of you other idiots, you should all keep doing what you're doing."

Eric Ries (01:04:45):
I was just going to say, that's actually a very common pattern at work.

James Reinhart (01:04:49):
I was like, "If this is so good for me, why would I not give all of my team that same opportunity?" I think this is where it becomes iterative. [01:05:00] We started with, okay, well Fridays will be work remote days. Terrible idea because work remote Fridays means people work like a half day because we just cannot resist the temptation to go to Tahoe a few hours early or catch an earlier flight or all the other things we convince ourselves, we've rationalized away as, okay. I was like, "Okay, well, how about we move to Wednesdays?" Sort of hump day, right in the middle, and we did that for a long time, and for years. Then I surveyed people, [01:05:30] I said, "Hey, tell me about how you're using," this is very important, we called them maker days. The idea of a maker day was that there could be no meetings. It was to make stuff. The thesis was, I want you to solve the hardest problems at ThredUp. My belief is that the hardest problems at ThredUp are not going to be solved sitting in meetings. Find time to focus your energy.

(01:05:52):
I got consistent feedback after a few years of people were like, "Man, I love maker days. You know what I'd be able to do if I had more than one?" [01:06:00] I was like, "Oh, that's interesting." We moved to a Tuesday, Thursday maker day schedule, and we ran that for years and years and years. I think it was some of the most creative and highly productive time of the company. Then as we fast-forward, and I'll keep it brief, as we fast-forward in the pandemic, instead of laying people off, we actually did a 20% furlough. The furlough [01:06:30] conversation was, "Hey, look, the world has rapidly changed and we all have different obligations. I don't want to lay people off because we still have a great company to run, so we're going to do a 20% furlough, but I'm only going to ask you to work four days a week." There's a quid pro quo there.

(01:06:46):
People loved that, especially as the world started to open back up. As the world started to open back up and we lapped a year, I said, "Look, you know what we're going to do? It seems like we've been able to get everything done we've ever wanted to get done on four [01:07:00] days, so I'm going to take the salaries back to your full-time salaries, but we're going to keep a four-day work week." We have been, I think, pioneers, I mean there's obviously been other people who've done this, but we weren't very public about it early, but very early around the four-day work week. Now you have a Tuesday maker day, so we come into the office Monday, Wednesday, Thursday, Tuesday, maker day, and a four-day work week. Because the second thing on a first principles' basis thinking is I deeply, deeply, deeply believe that happy, [01:07:30] well-rested employees are highly productive and highly insightful. I just don't believe that at the end of the day, the biggest inventions, the biggest innovations come from just grinding, grind-out hours. That's the way we run the business today, and I feel like it's working.

Eric Ries (01:07:52):
It's one of the ways you can tell if an organization actually believes that their success depends on creativity versus just rote. [01:08:00] If they actually believe the work is hard, they actually believe human creativity is needed, they're going to replace everybody with AI tomorrow. Really, you can tell. The tell is always, do they have the actual support systems for human beings to be well-rested to do creative work or not? Again, it's such the counterculture to what we have today where people think being hardcore is to treat people like crap and then make them work tons and crazy hours. I learned this as an engineer in the early days, the code you write at 4:00 [01:08:30] AM on a multi-day death march, you may as well not have written it. You're worse off having written it. It's just creating problems for yourself down the road.

(01:08:38):
It's not hardcore, it's actually stupid. What's hardcore is to work in a sustainable way that is highly productive. I got to ask you, because I know there's plenty of people who are encountering this idea for the first time. Right now, four-day work week. The data is in, the experiments have been run. People have a really hard time believing that a company could be as productive in four days as they are in five days. It's like, I think maybe there's a cognitive dissonance. You'd have to admit [01:09:00] how wasteful our normal work weeks are to accept this. If I was skeptical, what's the evidence? Are you just some softy who doesn't like people working hard? Just explain to me, honestly. I know there's somebody listening right now who's just like, "I can't believe, their stock price would be higher if they work hard or whatever." Like nonsense people think. Let's just get right to it. How do you know? How do you know that it's working?

James Reinhart (01:09:22):
Look, I think part of it is you have to have a point of view on what's productive. I'm guessing, Eric, to your point, we probably write fewer [01:09:30] lines of code. I probably stipulate to that. We probably write better code that serves the customer better because we have a point of view, and whether that's rest or insight or whatever, that helps us make better decisions. I just fundamentally believe that the decisions that every employee makes, the insight they have about how to serve the customer better is the most powerful thing. [01:10:00] I think the other way to think about productivity is the company unit producing in aggregate better outcomes on behalf of the customer. Let's loop back to employee recruitment and retention. Now you've got a mission-driven company where people are well-compensated with this incredible work life balance schedule, that's the recipe to have the most talented people on the planet.

(01:10:30):
[01:10:30] You're like, "Wait a minute, I get to have it all?" That is a recipe for really high beta outcomes. I think that part is also important. I think about it as the stew of activities that we put together, is it creating something that's really, really tasty? I think it is. Also, I think we all know the companies that [01:11:00] work six days a week, and some of them are potentially producing superior outcomes, but I don't believe all of them are. My guess is that there are four-day work week companies out there that are underperforming. I just don't think I have one. Look, am I prepared to go back to five days? Yes, I've told everybody like, look, we have to prove that it works and it's on all of us to make sure that it works.

Eric Ries (01:11:29):
Performance to build the standards. [01:11:30] I think that's really an important subtlety that you have to be an extremely performance-oriented culture for that kind of thing to work and not see the results.

James Reinhart (01:11:39):
I will say one side note, which is, have you ever worked a Saturday in your life?

Eric Ries (01:11:44):
Me? Oh, yeah.

James Reinhart (01:11:45):
Yeah, me too.

Eric Ries (01:11:45):
Ask any founder. What are you talking about?

James Reinhart (01:11:48):
Most high-quality employees have worked a Saturday. We have a four-day work week, but I can assure you through no obligation, people will put in a half day on a Friday. It's not [01:12:00] because they have to.

Eric Ries (01:12:02):
Yeah, of course.

James Reinhart (01:12:02):
When I talk to people, the psychology is like, it's different.

Eric Ries (01:12:06):
It's different. It's your choice.

James Reinhart (01:12:08):
It's your choice, and it doesn't start and stop on a fixed window, and so it feels different. I think there's power in that freedom.

Eric Ries (01:12:17):
You've been a pioneer of using AI in your business. Tell us a little bit about the role of AI at ThredUp.

James Reinhart (01:12:24):
Well, I think that the AI, so I've been public recently about I think AI is under-hyped. [01:12:30] I think a lot of people think it's over-hyped. I think it's under hyped. I think for us, because of the unique nature of the problem we're trying to solve, this incredibly long tail of products, brands, search is a problem, fit, consumer preference. At any one time we've got four or 5 million unique items on ThredUp. I think AI-

Eric Ries (01:12:51):
Just identifying what you have must be such an interesting challenge.

James Reinhart (01:12:54):
Identifying the products, categorizing them, helping users find them, [01:13:00] all those things, I think AI disproportionately benefits us relative to a traditional retail experience. The best example I can give you is that we've been working on search at ThredUp, and search is, it's a huge problem. Search and discovery and getting consumers the most relevant products. We've been working on search for seven-plus years. We built a new search product on top of some open AI, open-source software in about six weeks, [01:13:30] and we got the search in the six-week build to be on par with the search in the seven-year build. I'm oversimplifying a little, but that scale is just extraordinary. I think there's so many things that I'm excited about in AI and maybe you'll have me back on the podcast in a year and I can talk about all the cool stuff we've built, but I'm excited for that.

Eric Ries (01:13:53):
I'm looking forward to it. That's going to be really fun. You mentioned in one of your earlier answers that part of this new movement, thinking about [01:14:00] the purpose of business, the structure of business is also thinking about the role of government.

James Reinhart (01:14:04):
I think that government, if you look at industries that had negative externalities, you look at tobacco, you look at coal and oil industries, you look at gas guzzling cars just to pick on three or you look at record labels and how we think about out [01:14:30] limits, teams and stuff like that. There has always been a role of government in stick and carrot around how to make the consumer experiences better, how to remove these negative externalities. I think putting warning labels on cigarettes, that did more than anything else to change the shape.

(01:14:52):
I think adding tax credits for solar panels and electric vehicles, credits to build battery plants and all these [01:15:00] types of things that I think helped usher in a more just and sustainable future. I think the same thing can be true in fashion, which is one of the most polluting industries in the world. There have been two bills in Congress, one, the Made in the USA Act, one, the Americas Act that have been introduced just in the last few months that I think really speak to what's the role of government in helping build a more circular, sustainable fashion. I'm a big believer in the role of government and we'll see whether [01:15:30] government can get something done in this vein, but it does feel like it's something that has bipartisan support.

Eric Ries (01:15:36):
One of the things that's come up on this show in a couple episodes is people think about the relationship of government to business as like, government sets the rules and then business does whatever they can within the rules. Hidden in that framework is this premise that as a founder, as a company, as a manager, as a CEO, as a leader, we should want to do whatever we can get away with. [01:16:00] We talk to actual leaders who actually think long term, none of them think that way, they think that's bizarre. If you call out the hidden assumption, they think it's really bizarre. I feel like part of this new movement is trying to decide what should we, as leaders, want to do? What ought we to want for our organization? Does that resonate with you?

James Reinhart (01:16:19):
Absolutely. It's imagining what the world should be versus what we can get away with. Again, I think that's where [01:16:30] mission-driven organizations, long-term stock exchange companies, companies with that perspective, we're trying to shape the future versus just figure out a way to make money in the near term and to take advantage. It's breaking the boundary towards exploitative capital versus creative capitalism. I think there's something in there that I think is really powerful, and I think that's what you and I are trying to do, and that's probably why we get along so well.

Eric Ries (01:16:59):
I think, [01:17:00] yeah, exploitation is a vulnerability. That's a liability. We got to teach people that, that's true. I feel like I got to ask you about the resale report you guys just put out. At the time we're recording this, this report just came out. It was full of tidbits that I don't know the secondhand market that well. Fashion is not an industry that I follow closely. To me, it was full of really interesting engineering tidbits. The one that really caught my eye and a book I love to talk about a lot of it, it was said that it was a generational [01:17:30] thing. There's Gen Z people who are becoming, I can't remember the phrase they use now, I think it's something like resale natives. That really caught my idea. Talking to companies, you're seeing these generational shift trends really with Gen Z. A lot of behaviors that we've taken for granted are turning over. Anyway, just talk about the resale reporting and what you're seeing in the market.

James Reinhart (01:17:50):
This resale report is something we put out back to first principles. We put our first report out 12 years ago, and I remember putting it together with Karen Clark, [01:18:00] who was the original person who worked on it, worked on it for many years, and she's like, "Is anybody going to read this?" I was like, "Not today." I was like, "I bet 10 years from now, it'll become something." She's like, "I don't know, James, maybe." Taking the long view, I was like, "Well, look, nobody's putting together an industry standard report. Why not us?" Fast-forward, 12 years later, it has become the standard for what's happening in the resale industry. I think there's [01:18:30] a number of things that come out of it. One is the growth of our market and broadly what's happening. Resale is growing three times faster than traditional retail, and that's a big number.

(01:18:45):
You're starting to see all these consumers move into resale. Your point about the generational thing is that what's become obvious to us is that resale is not just a young person's game. [01:19:00] Yes, it is, like young people play this game, but everybody plays this game. I think the power in the industry is that it's teens, it's 20 somethings, it's 30 somethings, all the way up to Boomers. I think there's real power in a movement that transcends generations. I think that's what gets me excited because many years ago, I always wanted to believe that a kid who grew up, and I hope your 10-year-old, [01:19:30] who grows up in a house where, hey, there's secondhand product coming in. There's a ThredUp polka dot Clean Out Kit in the house that somehow it seeps into their brain that secondhand is cool and powerful, and that over time it helps us realize our mission. Anyway, that's the point of the report and it's got some juicy stuff in it.

Eric Ries (01:19:52):
We'll put a link in the show notes. Frankly, the market is so much bigger than I really understood, and the rate of growth is really phenomenal. [01:20:00] I learned a lot from it. Hopefully, people will read it. Can we do a lightning round of just a couple of things we didn't get to do?

James Reinhart (01:20:06):
Yeah, I love it.

Eric Ries (01:20:07):
Lightning round is my favorite part of the show because I get to ask just about stuff that I learned in my research and quotes that I've heard, things I've heard you say over the years. We'll do as many as you got time for.

James Reinhart (01:20:18):
Okay.

Eric Ries (01:20:18):
First of all, we didn't get to talk about the 27 rejections when you're raising money for ThredUp. I love that story so much. I know you've [01:20:30] talked about how that really created a lot of resilience in you, and that's been a theme of our conversation is all the different setbacks build up resilience. Talk about actually how it felt, that 27 rejections.

James Reinhart (01:20:40):
It sucked. It really sucked each time, but it sucked less and less each time. Because what I realized was that I was talking to the wrong people or the pitch was wrong. After I got over the tail between my legs part of the experience, [01:21:00] it built me up stronger. I think that failing and failing fast was helpful. I think the two takeaways I would share, one is that you can never convince an investor to say yes if they're a no, so stop trying. The implication is you got to find people who are going to be able to get to yes. As an entrepreneur, you got to figure that out earlier. Because I probably shouldn't have talked to 20 of those people the first time. Then [01:21:30] the second is that in every conversation that you have where people tell you your baby is ugly, they're saying something small and insightful for you to find out. The challenge as an entrepreneur is to figure out what that is, because 99% of it is useless, but there's 1% where you're like, "Man, that was right. I should have thought..." I'm really glad about that experience.

Eric Ries (01:21:54):
You've also said that all you need is one yes. Related, talk about that.

James Reinhart (01:22:00):
[01:22:00] Look, I think Patricia Nakache at Trinity, she gets an enormous amount of credit for just being the first real big yes. Again, back to it is when I came in to talk about the company, we talked for a while, but the essence of it was, "Hey, I already understand this consumer problem. Just tell me how this business can work." I did not have to convince her of the problem. I did not have to convince her of the market. I did not have to convince her that [01:22:30] it could grow. I just needed to convince her that we could figure out how to make the math work, and so that was the most powerful yes.

Eric Ries (01:22:38):
This is a favorite quote of mine, and I've heard you're a subscriber to the idea that you should have strong convictions loosely held. I think a lot of people who find that phrase confusing, explain.

James Reinhart (01:22:49):
Look, I think as a CEO, as a co-founder, you need to be able to bring people into battle. You need to know which battles to fight [01:23:00] and the strategy upon which to fight those battles. Therefore, when new information comes to you, you need to be able to change course with conviction. I think one of the things that I, I don't know whether it's a character, trait or what, but there's something where I'm like, I'm willing to be like, "Look, this is absolutely what we need to do. Get on the bus. We're going, we're going, we're going, we're going." Then like, "Oh, shit." We've learned something new. Get off this bus, get on this bus.

Eric Ries (01:23:28):
Get on the new bus.

James Reinhart (01:23:30):
[01:23:30] I think there has to be a humility to that where it's like, "Look, I'm giving you the best bus. I think we should get on. We might need a different bus." I think the more you're humble and honest about that with folks, people are like, "Great, new information. Let's go do something else."

Eric Ries (01:23:46):
You said it's hard to see disruption when you're too zoomed in.

James Reinhart (01:23:49):
Well, this is part of our conversation of you got to take the long view. You can't see the shape of Clay Christensen's [01:24:00] disruption curve if you're zoomed all the way in 100X on the magnifier because you can't see the shape of the line. I think it just requires constant vigilance of zooming out. I think it gets back to this arc of history question, this patience that allows you to be, I think I see the shape of this curve different than other people. Then the other thing of being, maybe this is on your list, you got to be contrarian [01:24:30] and you got to be right. You don't need to be right.

Eric Ries (01:24:37):
Andy Rachleff isn't like that, I don't think.

James Reinhart (01:24:38):
You don't need to be right all the time. If what you're working on is consensus, nobody will care. I don't think, anyway.

Eric Ries (01:24:48):
I think we were talking about this sometime. I couldn't figure out where I had heard this from you. I hope I'm not misattributing it to you, but I thought about it often. You talked about we're going to have a circular fashion future [01:25:00] that, well, I'll let you explain, what does that mean and how would it be different if we actually lived in that world?

James Reinhart (01:25:06):
I think that the circular fashion future is the same way we're going to have an electric car future. I just think it's going to be so obvious, like 10 years from now, you're going to shop from a brand and you're going to ask the brand, and then how do I give this back to you? What's the take-back program? It's going to be the expectation that everything is circular.

Eric Ries (01:25:28):
You just throw it out when you're done.

James Reinhart (01:25:30):
[01:25:30] Yeah, and renewable in the world. The same way as we've talked about recycling, I just think it's going to be obvious. I think what we're trying to do is prepare the world, prepare brands for that inevitability. Now, whether it's five years, seven years, 10 years, 15 years, 20 years, we can debate the timescale, but I find it hard to believe that in the future that we're going to live in a world where we just make stuff, wear it and put it in a landfill. It just doesn't seem like the future.

Eric Ries (01:25:58):
You've got a track record of having said [01:26:00] something is going to happen in 10 years, and then here you are. You've even mentioned a few on this call, so I don't know, people should probably pay attention who says something is going to happen in the next 10 years, it probably is. You were talking about being a founder. You said you'd never shut your love of the company off.

James Reinhart (01:26:14):
My wife sometimes wishes I would.

Eric Ries (01:26:16):
Sure. We can all relate to that, I'm sure.

James Reinhart (01:26:20):
Look, I live and breathe ThredUp, I love it. I would say, Eric, what's changed is I don't love it in the way now where [01:26:30] I'm obsessed every moment. I just love it intrinsically because it's doing good in the world. I think there's a distinction of the founder journey where I'm obsessed that I'm working 100 hours a week to get it off the ground versus it's just always with me. I love it in a way that I want to nurture it and I want it to be wildly successful, and I don't ever really turn it off. I'll be out [01:27:00] in the world and I'll be like, "We could work on that. That's interesting." I just think that's part of the founder DNA, and I think the minute you stop loving your company or the minute you start thinking about other projects to work on, I think that's the other sign. It all comes in, it seeps into us, we're like, "Oh, maybe I should work on that thing." I found I had to always tune those voices out for a few years. Anyway, that's my take.

Eric Ries (01:27:25):
James, I got to say thank you for taking the time to come on the show. Thank you for being a pioneer, [01:27:30] for a leader, and someone who really thinks from first principles. Try to figure out how we can in this new elite club of companies, meet people who make a business that makes the world a better place. That's not a punchline, that's not a joke. It's not ironic. I really believe it. Thank you for all you're doing.

James Reinhart (01:27:47):
Yeah, thank you for having me. This was great. I really appreciate your time and the opportunity, so hopefully, we'll go do it again sometime.

Eric Ries (01:27:53):
Awesome. James, thank you for coming on the show, really appreciate it. James Reinhart, founder and CEO of ThredUp, thanks for a great conversation. [01:28:00] You've been listening to The Eric Ries Show. Special thanks to the sponsors for this episode, DigitalOcean, Mercury and Neo4j. The Eric Ries Show is produced by Jordan Bornstein and Kiki Garthwaite. Research by Tom White and Melanie Rehack. Visual design by Reform Collective. Title theme by DB Music. I'm your host, Eric Ries. Thanks for listening and watching. See you next time.

‍