Goodbye Atlanta, Hello Fayetteville: Menguin Thrives as Big Fish in a Small Pond
February 6, 2017 | By: Andy Levine(Episode 11 of “The Project: Inside Corporate Location Decisions”)
This week, we bring you the story of Menguin, a company that sought to bring the somewhat dated and often frustrating world of tuxedo rentals into the digital age with an online retail platform. The company was conceived on the campus of Indiana University and got its start in Atlanta, Georgia, but really found its stride when its co-founders took the advice of investor John James of Hayseed Ventures and relocated to Fayetteville, Arkansas. We talk to Justin Delaney, CEO of Menguin, and Brett Amerine, COO of Startup Junkie Consulting, to get the full story.
Andy Levine (DCI): Attention male listeners. Chances are you’re going to relate to a problem addressed by the company in this next episode. So you’ve been invited to be part of your friend’s wedding. So of course you need a tuxedo that matches the rest of the wedding party. Like you did for your senior prom, you go to get fitted, then you go back to pick up the tuxedo. Maybe it fits well, maybe it doesn’t. You have a great time at the wedding, and then on Monday morning, you take off from work to return the tux. That’s essentially your third roundtrip to the tuxedo store. And in the end, you’ve spent about $200 and four hours of your life, wearing a suit that you’ll never see again.
Patience Fairbrother (DCI): Justin Delaney, CEO of Menguin, sought to find a better way, by bringing tuxedo rentals to the world of online retailing. And he eventually found the right place to make this idea a reality, in Fayetteville, Arkansas. So welcome to Episode 11 of The Project: Inside Corporate Location Decisions. I’m Patience Fairbrother, of Development Counselors International.
Andy: And I’m Andy Levine, also with DCI, and Patience’s co-host of The Project. Today, we bring you a great story. It’s the story of a company called Menguin. Yes, that’s the right name, Menguin. They are an online retailer that figured out how to deliver tuxedo rentals to grooms and groomsmen, and it’s all done via the internet. The company started out as an idea in Bloomington, Indiana, on the campus of Indiana University. It then took shape in Atlanta, Georgia. But then it really took off with a relocation to Fayetteville, Arkansas.
Patience: We start our story with Justin Delaney. Justin is the 38-year-old CEO of Menguin. He shared the original idea for the company that came while he was a graduate student at Indiana University.
Justin Delaney (Menguin): I went to business school and I met one of my co-founders and he just one weekend happened to rent a tux for a wedding, and had a really bad experience. And that sort of led to this domino effect of us discovering that this was an industry that people hated using. We got a bunch of data and it was about an 85% negative sentiment in the industry. And it’s also an industry that some incumbents were just making or are making a ton of money in.
It was about, you know, a company like Men’s Wearhouse makes an 80% to 85% gross margin in the rental business. So it’s kind of like… It’s retail and consumer, but it’s getting a software like margin, software like gross margin. And so it just seemed very very attractive.
Patience: After graduation from Indiana University, Justin took a job in Atlanta, but he kept working on Menguin.
Justin: So, we started the company in Indiana, and I had actually received a pretty awesome offer to work for Delta Airlines in revenue management, where I was doing algorithmic pricing and stuff like that. And it was a cool job and I love travel and I got to be able, you know, working for an airline, you get to travel for free, so that was really cool.
But so I moved to Atlanta right after graduation and was kind of working on Menguin nights and weekends, and working at Delta, you know, during the day. And so basically, we started kind of in Atlanta. Our first warehouse was in Atlanta.
Andy: But there were frustrations being a budding entrepreneur in a big city like Atlanta.
Justin: And so, you know, we were kind of just hammering it out in Atlanta, and we were there that first year in 2014, and we were trying to get funding and no one in Atlanta want to fund us. It was just, you know, very dire. It’s not a very good consumer market for VC, or angels, or anything, but we just were hitting every wall and it was very frustrating.
And so, we knew all these guys at Silicon Valley Bank and one of them said, “Do you know who you should meet? This guy John James in Northwest Arkansas.’ And we’re like, “Where? Who?” You know, we didn’t know Northwest Arkansas at all. We’d never been here before in our lives. None of us at the company.
Patience: John James is a bit of a legend in Northwest Arkansas. He trained as a doctor, but after trying his hand at medicine, decided he was better suited to being an entrepreneur. He focused on online retailing for a range of products. His company grew from 3 employees to over 200 in less than a year.
Andy: After six years of building his company into an e-commerce giant, he decided it was time to do something different. He started Hayseed Ventures, a tongue in cheek reference to how outsiders often view the state of Arkansas. He called the new company a venture production studios. His goal was to help startups succeed.
Patience: And the very first company he founded was Menguin, with a \$150,000 investment. Let’s go back to Justin.
Justin: And then, the cool thing about it is John believed in us and he was like, “You know, I’m actually kind of winding down with Acumen. I’m starting my own fund. I want you guys to be my first investment.” And he didn’t say, you know “You have to move to Fayetteville.” He just kind of, you know, was a very smart guy and Bogdan, Kurt, and myself, and then a gentleman named Nathan, who was also at the company at the time.
We all sort of talked about it and we were like, “What do we have to lose. Let’s just move to Fayetteville and we’ll try to learn as much as possible from John.” We settled down with John, he taught us a great deal, and from there, that’s when just incredible things started to happen.
Andy: Menguin’s growth has been phenomenal. In 2014, the company did about \$40,000 in revenue. In 2015, the year they moved to Fayetteville, that increased to $750,000. In 2016, they hit $3 million, and in the year ahead, Justin expects they’ll be in the \$10 to \$12 million range. That’s obviously a lot of tuxedo rentals.
Justin: I mean, he sold us on Fayetteville and that… He showed us around and he showed that it could be done here, and we were kind of looking for a home at the time. And John’s a very clever salesman. I don’t know if he intentionally, you know, tried to get us to move here, but he never was explicit about it certainly. But he kinda just showed us. He had noticed other smart people here and we just really could see ourselves here. And I’m really a big fan of old school competitive advantages.
And the cost dynamic here is unlike anywhere else in the U.S. It’s an outlier in terms of how inexpensive it is to operate a company. I can hire three people to every one I could hire in Silicon Valley for example.
Andy: Justin and the Menguin team never expected to permanently move to Fayetteville, but the community grew on them over time.
Justin: All right, we’ll be here for three or four months, and then we’ll move to Dallas, or we’ll move to New York, or something along those lines. But what happened was, we moved here and they just…they really welcomed us. I mean, I’d gone from Atlanta where we were, you know, doing cool stuff, but no one really cared to we came here and, you know, I’d speak at events and people would be like, “You know, these guys moved here from Atlanta. Let’s…” You know, and they’d like give us, you know, standing ovations and stuff. It was almost borderline ridiculous, but it was welcoming.
Patience: The Northwest Arkansas region has a long history of successful entrepreneurs. We spoke to Brett Amerine, COO of Startup Junkie Consulting. A firm that helps companies in the region grow.
Brett Amerine (Startup Junkie Consulting): There would be no one here if it weren’t for entrepreneurship. I mean, there might be 25,000 people in all of Northwest Arkansas if it were not for entrepreneurship. If it weren’t for Sam Walton and his family starting Wal-Mart, and the Tyson family, and Tyson, and J.B. Hunt, and Johnelle Hunt, there really wouldn’t be much of anything here.
Because of those entrepreneurs and those companies, there is a ton going on here.
Patience: Wal-Mart, Tyson Foods, and J.B. Hunt were all homegrown success stories. But now with companies like Menguin, the region is starting to see individuals bringing their startups to Northwest Arkansas.
Brett: We’re seeing a lot of folks starting to take interest in relocating their ventures here. It makes a lot of sense if you’re a venture backed company to raise capital on the coasts, and then come here because your dollar goes a lot further. Your purchasing power here is a lot better. In Menguin’s case, it made a ton of sense for a lot of reasons. One, there’s more retail expertise per capita here than anywhere else in the world. There’s e-commerce expertise here with John James and Hayseed Ventures.
The founders were young founders, but they had families. And if you’ve got a family, this is a great place to bring your family. Low cost of living, high purchasing power, clean air, clean water, no real traffic to speak of, no real crime to speak of, great education system. I mean, the list goes on and on and on.
Andy: Talent, but also a lack of turnover was a big part of the equation for Menguin’s perspective. We asked Justin to compare the region with Silicon Valley.
Justin: You know, if you’re out in somewhere like San Francisco for example, and say we go out and we raise a big round of financing. We’re gonna hire a bunch of people. Say we hire 5 people, and then the next company that’s like us is gonna go out and they’re gonna raise a big round of financing, and they’re gonna hire 10 people, and 3 of those people are gonna be our 5 people, right? And that’s what you see play out over and over again in the valley, and in San Francisco, and in New York to some respect. And so it’s very hard to get employees that will stick around for a long time. Turnover is a big issue, and we don’t have to really worry about that.
Patience: So as a final question, we asked Justin what would have happened if he and the Menguin team had stayed in Atlanta.
Andy: So, just if you could sort of replay the tapes and let’s say you stayed in Atlanta. What do you think Menguin would look like today as opposed to what it looks like, you know, in reality now in Fayetteville?
Justin: I think there’d be some files saved on a computer of mine and that’s it honestly. I don’t think we would have survived in Atlanta.
Patience: So we’re up to the takeaways portion of the episode. First of all, we just loved profiling this story. It was such a cool company to cover.
Andy: Justin was a delight to interview. Brett was as well, and it just…it was…you could just sort of feel the energy of the whole company as well as the region.
Patience: Great energy. So what stood out to me as far as a takeaway was the advantage of being a big fish in a small pond, which is what we titled this episode ultimately. So in Atlanta, Menguin felt a bit lost. Yes, they had trouble getting funding, but they also couldn’t really easily access the expertise that they needed.
Andy: And you could just see that really what made the difference to this company was this connection to John James. So, yes, he helped, yes, he invested \$150,000 in Menguin, but really what was more important and we heard this really clearly from Justin, was the time that he spent to mentor Menguin, and to help them find their place in the world of online retailing.
Patience: And clearly, this new environment in Fayetteville was more supportive for them. They also found a more devoted workforce with less turnover than they would have in Atlanta. And the cost structure particularly in terms of talent, was much more competitive than places like Silicon Valley, New York, and Atlanta, of course where they started.
Andy: So one of the things that we often hear is, “Gee, with the internet, you can now start a company anywhere.” And what Menguin’s story tells us, and this is what I get out of it Patience, is that, place really matters to a company’s success. We really hear that in the final question that we posed to Justin when we asked, what would have happened if he stayed in Atlanta? Now that doesn’t mean that successful startups aren’t being built in Atlanta, we all know that’s the case. But for Menguin and for Justin Delaney, Arkansas proved to be the right location for success.
Patience: So that is a wrap on Episode 11 of The Project: Inside Corporate Location Decisions.
Andy: We have a number of people we’d like to thank. We’re gonna start with Rob Smith of the Northwest Arkansas Council. Rob called us a couple of months ago, after we did a story about CAEK, a Northwest Arkansas company that had left the region for Reno, Nevada. Now, as you might expect, Rob wasn’t terribly happy about that story.
Patience: Andy, what do you think are the chances we’ll get a similar call from Metro Atlanta Chamber after this episode airs?
Andy: 70% to 80%. I think fairly likely, so. And this is perhaps good advice for Metro Atlanta. Rob took the positive steps of suggesting Menguin as a future episode of the project. He then helped connect us with Justin Delaney of Menguin, he connected us with Brett Amerine of Startup Junkie Consulting, and we thank both of them for taking the time to speak with us. As you’ve heard, they really have a great story to tell.
Patience: The project is sponsored by DCI. We are the leader in marketing places and have served over 450 cities, states, regions, and countries. You can learn more about us at aboutdci.com. Now, if you like what you’ve been hearing, we encourage you to tell your friends.
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Andy: Wouldn’t it be cool to be on the jumbotron?
Patience: That’s my next goal.
Andy: Okay, good. Now, we’re also open to your feedback. If there is an episode you’d like to hear about a company in your area, please let us know. If there’s anything we can do to make the podcast better, we’d love your feedback.
Patience: We’ve got some great episodes in the works with some very big companies including Ford Motor company, ADP, and Amazon. But we’ll also keep profiling smaller companies like Menguin and CAEK, that we’re also very interested in. We hope you will keep listening. There are many more projects to come in the year ahead.
