The innovative clothing company Nau was supposed to transform the apparel industry. Instead, it tanked. So what went wrong, and what happens next? Unfuck the world. Mark Galbraith remembers when he first heard the phrase. It was June, 2004. Galbraith was sitting in Typhoon, a pan-Asian restaurant at..
The innovative clothing company Nau was supposed to transform the apparel industry. Instead, it tanked. So what went wrong, and what happens next?Unfuck the world. Mark Galbraith remembers when he first heard the phrase. It was June, 2004. Galbraith was sitting in Typhoon, a pan-Asian restaurant at the Santa Monica airport in California. He'd driven in from Ventura, where he oversaw design, merchandising, and pricing for Patagonia. He'd been slugging back sake for a couple hours when his dinner companion, Eric Reynolds, slid a document across the table to him."I need you to sign this," Reynolds said, and excused himself to the bathroom.In front of Galbraith was a nondisclosure agreement. Given the conversation, this wasn't unusual. Reynolds had spent the afternoon getting to know Galbraith better. Now, Reynolds intended to lay out his vision for a new clothing company with a radical business model. It had potential-enough potential, Galbraith thought later, that the company, eventually dubbed Nau (Maori for "Welcome. Come in."), might redefine the outdoor industry. Reynolds' plan was inspiring: Nau would be the first major apparel company built for sustainability from scratch. The clothes would be sourced down to the fiber, made only from the most environmentally friendly material in the most socially responsible manner. And they would be fashionable.Reynolds wanted to sell the clothes directly to customers online and in stores that merged brick-and-mortar retail with an internet experience. Called "webfronts," the stores would educate customers about the products through touch-screen computers. If shoppers opted for a "ship-to-you" feature, their purchases would show up a few days later in the mail, and they'd receive a 10 percent discount for their trouble. The webfront idea would cut out middlemen and keep inventory low (along with carbon emissions). Perhaps most striking, though, was Reynolds' goal to give away 5 percent of Nau's sales to nonprofits. It was a staggering amount. Patagonia, the industry leader in charitable companies, gives away 1 percent.Risky stuff, for sure. But Galbraith was intrigued. He reached for the nondisclosure agreement. That's when he noticed the mysterious acronym printed on top: UTW. As Galbraith puzzled over the letters, Reynolds returned. He hadn't gone to the bathroom. He'd rushed out to his car and had come back wearing something other than the Patagonia polo he had on minutes earlier."He had changed sort of Superman-style into a T-shirt," Galbraith recalls. "It was a Michael Franti T-shirt that had in big letters across it: Unfuck the World."Galbraith glanced at the acronym, looked back up at Reynolds, and provided the only suitable response: "Fuck yeah!"Thus began a grand experiment. Nau would soon go from sake-soaked dream to bona fide startup with more than 60 employees, $24 million in capital, and outsized buzz for its business practices. Apparel is an unkind industry-from 2004 to 2005, nearly twice as many apparel, piece goods, and notions wholesalers died as were born, according to the U.S. Census Bureau-but Nau intended to defy the odds. It boasted an expert staff and stylish products. More important, its ideals differentiated the brand dramatically.
|Poor planning and hard luck torpedoed Nau. But to the faithful, the company's demise was more than a financial undoing. It was the failure of a movement.|
After developing an expanded version of Hinkley's code that also obligated Nau to donate 5 percent of its sales, pay fair wages, provide equal benefits to domestic partners, limit executive compensation, and promote conflict resolution, Reynolds set off to recruit his team. He had a list of impressive candidates, many of them high-level Patagonia and Nike employees. In short order, he persuaded Galbraith (who came on as VP of design) and several others to sign up. Many left good jobs and moved to Portland. The team white-boarded operations at a condo owned by Chris Van Dyke, the new CEO. With their well-placed connections, the group raised $2 million from angel investors such as Stephen Gomez, a former Nike executive, and Peter Metcalf, the CEO of Black Diamond, a manufacturer of climbing and skiing gear. Steve Luczo, the current chairman and former CEO of Seagate, invested a large amount shortly afterward.But once Van Dyke began to test the venture-capital waters, the money spigot rusted over. Van Dyke talked to almost every major venture-capital company in California. He didn't land one. The 5 percent giving was an early obstacle; Nau's original business plan was also wildly ambitious, calling for $250 million in revenue by 2010, and more than 200 webfronts by 2012. "I always advise companies that are trying to do good to be willing to grow slow," says Tim Sanders, a Fortune 500 consultant and author of Saving the World at Work. "Apparel is a dog with fleas, as they say in the business: It's pretty labor intensive."
|The irony of Nau's demise is that a company so committed to sustainability was ultimately unsustainable. But not because of its principles.|
Three-layer breathable waterproof recycled polyester. Translation: a design breakthrough. One of several, in fact, for Nau, which marched on without Reynolds and, by late 2006, had its supply chain in place and clothes in production. Nau had partnered with high-tech textile mills such as Polartec, in Massachusetts, and Teijin, in Japan, both of which produce synthetic recycled fabrics from goods such as plastic bottles and polyester yarn scrap. Instead of picking pre-existing fabrics out of a mill catalog, Nau created its own.With a focus on sustainability, 27 of the 30 fabrics in Nau's first line were original. Although Nau placed small orders, the mills welcomed the chance to be innovative, knowing that greener threads held longer-term potential."You've got to take a chance once in a while on the little guys," says Nate Simmons, the spokesman for Polartec. "The consumer market is more ready than ever to embrace eco-friendly products."Nau didn't limit itself to recycled synthetics. Clothes were also made from polylactic acid, a malleable substance created from corn sugar that can be turned into wicking fabrics and industrially composted after disposal. Since Nau assumed the stock it used was genetically modified, the company bought offsets of GMO-free corn. Nau also ensured its cotton was organic, tracking bales from field to gin to spinner and onward. Most of the wool came from Zque, a company in New Zealand with strict guidelines for animal husbandry and water use. Cut and sew facilities were in China, Hong Kong, Thailand, Canada, Turkey, and Portugal. Nau used Verité, a third-party auditor, to keep tabs on working conditions.The discerning approach forced Galbraith to work within narrow parameters, inventing stylish and sustainable clothes that could be recycled but would also hold up for a decade. He likened the process to "Haiku poetry with half the keys off the typewriter." He worked in muted greens, browns, and grays. And he laced the designs with a subtle hipness-logoless, with off-center buttons, exposed stitching, or iPod pockets. The point was to stand out while blending performance, beauty, and sustainability. Those attributes synched with Nau's three targeted customer types: the outdoor athlete, the fashion-conscious creative, and the modern activist. If a product crossed boundaries among the groups, Galbraith had done his job.In February, 2007, Nau started selling clothes through its recently launched (and admittedly clunky) website. With prices ranging from $32 for boxers to $248 for waterproof jackets, Nau's garments cost about the same as those from high-end outdoor brands like North Face, Arc'Teryx, and Patagonia. They received favorable write-ups in Men's Vogue, I.D., Time, and other slick magazines. In March and April of 2007, webfronts opened in Chicago and Seattle, along with Boulder, Colorado, and Portland, Oregon. The clothes were an instant hit with consumers, who embraced everything Nau stood for - including the ship-to-you option: nearly half of Nau's webfront customers opted in.But the ultimate victory was the 5 percent giving campaign, called Partners for Change. Nau let customers decide where the money would go, offering a menu of international, national, and local nonprofits: Mercy Corps, Kiva, the Oregon Natural Desert Association. "The idea was to ask people to pause even for a second to think about civic engagement," Yolles says.Almost $250,000 was given away. The program earned Nau ecumenical praise. This, of course, was Reynolds' intent. Instead of spending 10 percent of the budget on marketing, why not donate 5 percent of profits and reap the good publicity? Savvy customers sniff out greenwashing, but Nau clearly walked the walk.Outwardly, the company appeared on track. Nau was selling clothes at a respectable clip that would bring in around $5 million in sales that year. Behind the scenes, however, Nau was burning through cash. Building stores was expensive. And the company eventually had around 60 people on the payroll."It took the traditional startup mechanism and turned it on its ear," says Hal Arneson, Nau's creative director. "It basically required a massive amount of capital infusion to realize our goal."A major cost was Nau's pricey website, a quagmire of flash code that, according to Reynolds, made online purchases a challenge for even the most patient of shoppers. More troubling was that Nau failed to address the problem quickly.This inexperience revealed itself in other ways. In constant need of capital, a haggard Van Dyke continued to haul himself in front of money managers. (He closed four financing rounds in total.) But he'd never raised capital before. No one at Nau had. For all the blue-chip talent assembled, this was a shortcoming. Nevertheless, in the spring of 2007, Van Dyke hooked Tudor Investment Corporation for $10 million. Tudor indicated they'd pick up the rest of Nau's $25 million financing if the company hit its new benchmarks by the end of the year. (Tudor also negotiated a first right of refusal.) Nau finally had some cushion. It wouldn't last long.
|"Nau set the bar so much higher than anybody else. How much effect did Nau have in the larger context in terms of American business? I unfortunately think it had fairly little because of how it cratered." -Eric Reynolds, founder of Nau|
|In its new life, Nau no longer has to worry about raising capital to birth a fully formed brand. It will grow organically, perhaps the way it should have from the start.|