Davis Smith (WG’11)
This article is a part of a special series on the Wharton Business Plan Competition (WBPC). Davis Smith started his entrepreneurial career in pool tables where he went on to build the largest pool table retailer in the US. His next venture, Baby.com.br, took 3rd place in the WBPC 2010-2011 and is now Brazil’s leading baby products e-commerce company. Davis shares with us his advice for aspiring entrepreneurs and tells us more about what the future holds in store for him.
Wharton Journal: Can you tell us a little bit about your entrepreneurial background?
DS: I started my first business right after graduating from Brigham Young University. In 2004, the direct to consumer e-commerce model was in its infancy. Frankly, I hadn’t even heard the phrase “vertical integration” until after I had started the business. I simply believed that if I could find a factory in China that could manufacture my own brand of pool tables I could sell them online, bypassing traditional retailers. Within a year, I had generated a million dollars in revenue and ultimately built the largest retailer of pool tables in America with retail stores dotting the country. E-commerce had facilitated vertical integration in a new way, and we had disrupted a 100+ year-old industry.
After graduating from Wharton, I went on to start Baby.com.br and Dinda.com.br in Brazil, but it was that first entrepreneurial experience that got me onto my entrepreneurial path.
WJ: Coming into Wharton as an experienced entrepreneur, how did you go about finding your next big thing to work on?
DS: I came to Wharton with some self-doubt, wondering if I could start another business as successful as the last. I knew that coming to school would give me two years to reflect on lessons learned from my last business and to come up with the next big idea. I took a class during my first quarter at Wharton where we held an innovation tournament and that class concreted the importance of idea generation as part of the entrepreneurial process. My cousin and I came up with 60 ideas during our first year in business school and then spent the summer in Silicon Valley working through those ideas. By the end of the summer we were convinced that we were onto something big with our idea to launch a baby focused e-commerce company in Brazil.
WJ: Any advice for our 25 semifinalists who are about to enter the 2nd round of the competition?
DS: Business plan competitions are hit and miss. I competed in my first business plan competition with PoolTables.com and won some local and national competitions, but didn’t even place in the top 25 in others. With Baby.com.br, my cousin and I won Harvard’s competition, won 3rd place in Wharton’s Competition and didn’t even make the finals in other competitions. Your goal for these competitions shouldn’t be to win, but to learn how to tell your company’s story. Do your best to enjoy the process and make sure you get to know some of the other founders in the competition!
WJ: What are the challenges you faced operating in an emerging economy like Brazil?
DS: Brazil is an amazing country, full of opportunity, but it is also an extremely challenging place to do business. The World Bank reports that it takes 175 hours for the average business to complete their taxes in the United States. It takes 2,600 hours in Brazil, the most of any country in the world. For reference, the second worst country worldwide is Bolivia at 1,025 hours per year.
It took us 6 months to setup a business entity and get the necessary licenses to operate our business. Labor laws, employee taxes and other issues make operating a business extremely difficult. While these challenges can be frustrating, they also create barriers to entry, reducing competition.
WJ: Did you find it challenging juggling academics, a social life and working on a startup while at Wharton?
DS:Certainly one of the hardest parts of business school is balancing and prioritizing all of life’s demands. I was very involved in the entrepreneurial ecosystem at school and in the Lauder community. I also had my wife and two daughters with me at school, and I volunteered with a Philadelphia youth group twice a week. My best advice is to be disciplined and set boundaries. I never did school work or had school related meetings on Sundays so that I could use that time to spend with my family. I told my learning team about this from Day 1 and they were 100% supportive of me, which made all the difference.
WJ: What do you think are the most important elements of a winning business plan?
DS: I believe a founder’s ability to put together a world-class team is the largest determining factor in his/her success. You should never compromise when it comes to hiring. Hire only A-players. Don’t rush into a hire, no matter how badly you need a position filled – this includes a co-founder. Take the time to really understand your company’s needs and to get to know your future hire well. If you make a hiring mistake, fire fast. Build a team of experts. You need people smarter, more experienced and more specialized than you.
WJ: You’ve been very successful in raising capital for all your ventures. Any tips for entrepreneurs seeking funding?
DS: First of all, not all business can (or need) to raise venture capital. If your business is likely to do $10-$50M after 5+ years, you likely won’t be able to raise venture capital, and you probably don’t want to raise venture capital in that situation anyway. If you have a $100M-$1B idea, then you really have no choice but to raise venture capital. You’ll need to grow quickly and will need large amounts of capital to build your team/product.
When starting the fundraising process, start by targeting angels and seed stage investors who have domain expertise. It will be a lot easier to convince someone to invest in your business if they already believe in and understand your market/category. Kick things off by meeting with local and smaller VC’s that can give you open and honest feedback. Larger, more established VC’s (in my experience) typically want social proof before they’re willing to pull the trigger, so work to fill as much of your round as possible before approaching some of the bigger VC brands. Always use your network to get intros to VC’s.
WJ: What else have you been working on after baby.com.br? What’s next for you?
DS: In 2001, I participated in an unpaid non-profit internship in Peru that changed my life. During this internship, I took some time to go to Cusco so that I could visit Machu Picchu. My first day there, I befriended a little street kid named Edgar. Having lived in Latin America for 15 years, I immediately connected with this little kid. I didn’t have much money, but I began buying an extra meal every day and looking for Edgar. It was the highlight of my day, everyday. I could see it meant a lot to him, and that gratitude made me want to help him even more. My last night in Cusco, I was walking back to my hotel when I saw two children sleeping on the side of the street – one of them was Edgar. Someone had stolen his shoeshine kit and he was too afraid to go home and confront his father. It was heartbreaking to see my little friend with so much fear. I gave him some of the little money I had, knowing I’d probably never see him again. The next day as I sat on a bus waiting to go to the airport, I saw Edgar running up to the bus. I opened the window just in time to say goodbye to him as we drove away. He ran next to the bus, waving and smiling, with his other hand tightly gripping a large bag of candy he had bought to sell on the streets. I made a commitment that day that I would make a difference in the world. I went to Cusco to see Machu Picchu, but it is actually the memory of Edgar that has dominated my memories of Peru over the last thirteen years.
After several successful runs as an entrepreneur, I knew I was ready to fulfill that promise I had made to myself. I also realized that I could have the largest impact if I could build a business with the purpose of supporting my interest in doing good.
I grew up in the shadows of Mt. Cotopaxi, in Ecuador, and have decided to name my new company after that beautiful volcano. Cotopaxi is a vertically integrated outdoor gear and apparel brand, with a social mission at its core. We have a pack called the Cusco, which will raise money for a little school in Peru that helps lift street children out of poverty. A buyer of this pack will give one week’s worth of education to a street child in Cusco. Every one of our products has a story to tell, and a specific cause it will support.
As business leaders, we have an obligation to make the world a better place. There are millions of “Edgars,” and it is our challenge to find them and help them. I hope that each of you will look for ways that you can have a positive impact on the planet and on humanity.