SAN FRANCISCO – On a sunny June morning, Felipe Servín positions his cell phone on a tripod at Bespoke, a co-working space for startups in the heart of San Francisco. Dressed in a blue sports coat, a dark shirt and pants, and metal-framed glasses, the 31-year-old Servín is more formal than most in San Francisco's startup tribe, who favor sweatshirts and sandals. His oval face seems baby-like, despite a rough beard.
Servín, a Mexican citizen, is the founder and CEO of Shoe Lovers, the company behind the brand Yo Amo Los Zapatos (I Love Shoes). Also known as YALZ for short, it's a website, cell phone app and Facebook page for shoe lovers. Earlier this month, the Facebook page reached 40 million followers -- mostly women in the United States and Mexico.
But despite being a promising Latin American entrepreneur in Silicon Valley, right now Servín is just another member of a film crew. Today, his team is streaming their first Facebook Live transmission of a makeup lesson. As they prepare, Servín smiles a lot. His instructions sound like requests, and he doesn’t raise his voice. Outside, tourists line up to take rides on the city's iconic cable cars.
Colombian makeup artist Carolina Uribe prepares the powders and eyeliners she will use to create a “summer look” for the model. Alejandro Santamaría, the company's co-founder and CTO, readies one computer to monitor the images on Facebook and another to play pop music on Spotify. Tania Haro, a data analyst with a political science degree from Berkeley who hates to be on camera, reluctantly agrees when Servín says she will be the announcer. She writes her script on a white board behind the cameras.
After a few minutes, Servín hits a red button on his cell phone to start the transmission. “Hi girls,” Uribe begins. “We are here with Carolina Uribe.”
Within minutes, more than 10,000 women from across the United States and Latin America are watching the video, sending greetings and asking for makeup advice. Eventually, the video will be shared 500,000 times.
That kind of huge impact is not unusual for YALZ. On August 10, it reached 40 million followers. Among consumer brands, those numbers put YALZ on par with Oreo and KFC, each with 42 million page “likes,” and PlayStation with 38 million. It easily beats Victoria's Secret, Zara and Levi's. Among communications media, it trails giants like Facebook, YouTube and Disney but is ahead of History, Discovery, Instagram and BuzzFeed.
It’s not bad for a startup for women launched in Mexico, with 18 employees (four in San Francisco, two fashion experts in Buenos Aires and 12 engineers and content producers in Mexico).
Sevin is “one of the leading 'growth hackers'” in the world of Silicon Valley digital enterprises, said Doug Renert, the investor who brought him from Mexico to San Francisco.
“The most important part of this [company] is the reach it has achieved and the organic growth of its fans,” said Juan Carlos Luján, SocialBakers' regional director for Latin America.
YALZ posts about 40 to 50 items per day, mostly shoes in all colors and styles. Every time it posts a photo of a pair of shoes, followers in the United States and Mexico respond with thousands of “likes,” “loves” and other positive reactions. They also type comments like “OMG I could eat them,” or “Wow … I love them” or “I want them for my birthday, pleeeease” or “Where can I buy them?” (in Spanish).
One photo of a pair of sandals posted in April drew close to one million reactions.
In contrast, a popular post on BuzzFeed usually draws a few hundred to a few thousand reactions (some posts do go viral, like the video of an exploding watermelon).
Servín stands out among entrepreneurs in Silicon Valley, said Ángel Saad, a Mexican investor with Oak Investment Partners. “By Hispanic standards, I think he wins it all. He's done a great job,” said Saad, who knows Servín but has not invested in the company. “And by American standards he's also done really surprising things … and with very few resources.”
But YALZ's impressive audience doesn't mean guaranteed financial success. Shoe Lovers has raised a little over $2 million in two rounds of fundraising, much less than other similar startups. (Brit+Co raised more than $28 million, Thrillist about $15 million and the Clique Media Group, which owns WhoWhatWear, raised at least $8 million, according to a report by CB Insights, a technology market intelligence platform.)
With financing for Silicon Valley startups drying up, Servín and his team face a critical challenge: make a profit. They promise to do that before Christmas.
“We’re on the path to break even, so far this year we exceeded our projections by 15 percent,” Servín says. “We’re likely to make it without a problem.”
A GEEK FROM A SHOE FAMILY
Servín was born into a shoe manufacturing family and grew up in León, Guanajuato. But as a self-described geek, he told his father, “You will never, ever, see me making shoes.”
He studied computer systems at a local branch of the Monterrey Technological institute, but was bored in class. By age 13, he had started to program in Java and develop websites, using a computer with a 486 processor his parents bought for him.
After graduation he worked for the state government, but then won a scholarship to complete a masters degree in e-commerce in England. That's where he learned the concept of social currency, a digital item exchanged among people with similar interests.
“The best social currency was photos,” Servín said during an interview in one of Bespoke's meeting rooms. “The most viral were shoes, babies and puppies.”
He put that knowledge together with his family history and his programming skills and started to work on an algorithm – think of it as “a little machine,” he says – to measure the level of engagement by users with a piece of content. He was so eager to use the algorithm in a business context that he almost didn’t finish school. His professors had to force him to finish his masters.
After returning to Guanajuato, the capital of Mexico's shoe industry, he and a group of local shoe manufacturers created CalzaClick in 2011, based on the highly successful online shoe retailer Zappos.
But it was difficult to do business in Mexico. Deliveries and internet payments were challenging. Shoe makers still used fax machines, and often forgot to check email.
“It was was like having a mall full of shoes and no shoppers,” he recalls.
So he launched a marketing campaign to attract clients using the algorithm. He called it Yo Amo Los Zapatos. “It practically exploded,” he said. “It had one million (followers) in just months. That was the way to go.”
CONNECTING TO WIFI AT STARBUCKS
The Silicon Valley accelerator 500 Startups, which had launched a program in Mexico City, took on CalzaClick in 2013. Its training and product development program included an investment of $50,000.
Servín persuaded Santamaría, whom he had met in a course for entrepreneurs, to join him full time. “It was time to say, 'We're betting the house on this’,” said Santamaría, who quit his job and started living on his savings.
During the accelerator program, they built the website and iPhone and Android apps. They then spent a month in China, studying the local market, learning how cheap shoes are manufactured.
“It was a bit of an adventure,” said Santamaría. “Our funding from (500 Startups) was running out.”
They were in fact so low in funds that when they returned to Mexico, Servín and another marketer moved into a maids' room on the roof of Santamaría 's apartment building.
They had no money for an office. “Sometimes not even for Starbucks,” Santamaría jokes.
They were operating on “cockroach mode,” Servín recalled, just trying to survive. He started looking for risk capitalists who would invest in the company, and sent his plans to a number of accelerators in the United States.
What saved them was its attractively powerful growth in “likes.” In early 2014, the team finally found the “secret sauce” for YALZ, a just-right mix of algorithms and human decision-making that grew its audience at a stunning pace. In just three months, the number of followers soared from 3 million to 9 million.
They were soon approached by two of the largest U.S. accelerators, TechStars and the main office of 500 Startups, and one in Great Britain. But Renert, who brought him to San Francisco, also saw the explosion of “likes.” His company, Tandem, which had already rejected Servín twice, offered him $500,000 to grow the business from Silicon Valley.
“We needed $50,000 to keep it alive,” Servín said. “And all of a sudden we were negotiating for $500,000.”
After they finalized the deal, Servín, Santamaría and another employee went to Tandem for what they thought would be a meeting with Renert and some of his partners. Instead, about 100 people filled the room, including investors who fund Tandem, to hear Servín's pitch. They were wildly ill-prepared.
“The overhead projector broke down,” Servín recalled. He did his best to finish the presentation, and it was good enough. He closed a $100,000 deal with a new investor on the spot.
That's also where he met Beatriz Infante, a former director of tech companies and Tandem investor who became his mentor. “I've been advising him ever since. We meet every two or three weeks,” said Infante. “I have seen him mature and his business grow.”
Infante recalled that Servín printed a contract, with hundreds of pages, at a time when all of Silicon Valley was using electronic documents signed through DocuSign.
“He was a little green,” she said. “When we went into a meeting, I would tell him what to say and how to say it, so he felt comfortable. But after a couple of months he started coming into his own, now he’s great. He’s very polished, really articulate in his vision for the company.”
Attracting attention amid a sea of information on the internet is difficult. Those passionate interactions that YALZ generates are the dream of marketers, advertisers, content producers and anyone else who lives by luring online “eyeballs.” And Shoe Lovers didn't do it by accident. Behind every text, photo or video of shoes, makeup or clothes is a formula that Servín began developing in England and has been perfecting since.
He won't go into the deep details – it's a “secret sauce,” after all. But he says Shoe Lovers uses an algorithm – a chain of computer instructions for actions that depend on information received – that monitors shoe collections, categorizes each image or text and verifies their impact on users. This search for trends within massive amounts of information is called data mining.
That’s when humans get involved. A computer knows that three pairs of shoes are red, but it has no idea whether red sandals, canvas shoes or boots are in fashion. So a human fashion expert, or curator, gives the process a final “fashionista” touch. The director of that operation is Yanina Peralta, a co-founder who works from Buenos Aires.
“The person is assisted by the data mining, but the human makes the decision,” said Servín.
When a user “likes” a photo or video, the system learns the type of content she favors and sends her more. The user in turn accesses the pages more often and shares more content, multiplying the impact of the content. YALZ generates more than 600 million interactions per month between its posts and its audience.
“These guys know very, very, very well what their audience wants,” Infante said.
THE PLAN FOR PROFITS
But Shoe Lovers, like many digital startups, faces a critical question: “How to make a profit?”
Servín won't reveal company revenues, but he says they’re covering 50 percent of operating costs and will reach 100 percent by the last quarter of this year. “We'll probably make it without any problem,” he said.
Until recently, profits were not a big concern among Silicon Valley startups. The usual goal was to invest and grow to dominate a market, and only then look for a profit. That's what Uber and WhatsApp are trying to do.
But investors have become more demanding since last year. They want to see both growth and profits. Many startups have cut staff or closed, and many others have seen their estimated values drop.
“I think many of the entrepreneurs who are spending too much will ‘die’ this year,” Servín said. “It's not a bubble, but are seeing a return to normalcy.”
His original plan was to continue investing in growth – “burning money” in investor slang – until the end of 2017, and then focus on balancing revenues and spending. But meetings with investors like Khosla Ventures, Greylock Capital Partners and CRV did not go well. “We started to get rejected,” Servín said.
Shoe Lovers had long been focused on growing user numbers, not income. Four of its 14 employees at the time were focused on growing audience, and they were not cheap. One earned nearly $250,000 per year, four times more than the founders.
Between late last year and early this year, Servín dismissed the employees in charge of growth – he said he helped them move on to other companies – and hired sales experts. The easy stroll toward 2017 turned into a race to break even as soon as possible.
“It’s hard for anybody, but personally I don’t know of any company that has had a straight arrow from idea to what comes out,” Infante said. “It was extremely difficult for him but yeah he did what he needed to do.
A MEDIA COMPANY 2.0
Shoe Lovers' office at Bespoke sits off a central hall, behind a glass wall that separates its space from the wood tables and stools where employees of other startups work elbow to elbow.
The office has barely enough room for a big table with four work stations. Two piles of cardboard boxes, filled with women' shoes, cover most of one wall. One open box holds a striking pair, white with high heels and platforms covered in iridescent sequins.
Servín and his team work in the cramped office to answer their big challenge. They need to convert their initial success – an enormous audience – into big profits.
“So far in terms of community, content, it’s at the level of the largest web properties,” Renart said. “Now is a really good time to turn on the business model.”
Servín and his investors believe they can achieve profits by connecting brands with audiences. They can guarantee advertisers the “eyeballs” of millions of Hispanic fashionistas, and provide them with detailed data about their online interests and relationships with brands. It's a promising market.
Hispanics in the United States will have an estimated $1.7 trillion in purchasing power by 2020.
“Companies pay a lot of money for people who deliver clicks and Yo Amo can deliver clicks at an unprecedented rate in this demographic,” Infante said.
YALZ today distributes sponsored content like this video and offers product placement opportunities like those in the entertainment industry – payments to use brand name items in movies, videos and other productions that will be seen by mass audiences.
“We want to be the next-generation media company,” said Servín, who sees his company as a sort of Latino offspring of Refinery29, a portal with content for women, and the newsy BuzzFeed. “We want to beat Cosmopolitan at its own game.”
Randi Zuckerberg, sister of Mark Zuckerberg and a former Facebook executive, praised YALZ during a public event in Mexico in June. She also brainstormed about the future of the company. “It could be posting its own soap operas, posting its own content,” she said. “It could charge other brands for advertisements on its Facebook page.”
Servín plans to launch several media properties for different products, not just shoes, that will use the same growth formula. Stylish, an online beauty brand, will launch in the next few weeks and may soon be followed by other brands focusing on lifestyles, home or fashion.
But the Hispanic market also poses various challenges.
“The Hispanic community doesn't have as much access to digital financial services,” said Saad, the Oak investor. “It does have purchasing power, but how many of them really buy online?”
Younger Hispanics do use banks and shop online more often, but they tend to speak less Spanish than their parents, he added. Shoe Lovers is totally in Spanish.
The sale of online advertisements offers bigger profit margins than e-commerce and does not require handling physical goods. But Shoe Lovers is not ruling out a return to its roots in CalzaClick.
Those boxes of shoes in the office have been there since last year, when the company experimented with online sales. “More than anything it was an effort to understand the opportunities for e-commerce and the maturity of the market,” Servín said.
E-commerce today is dominated by Amazon, however, and consumers are not used to shopping on social networks.
“Shoe Lovers can do very well from a traditional media business while they build an audience and be in a perfect position to become a commerce platform when the market is ready,” said Renert.
The founders of Shoe Lovers have the talent to overcome any challenge, said Saad, a Stanford University graduate who knows many Silicon Valley entrepreneurs. “I think they are very smart,” he said, “on the same level as many of the guys in Silicon Valley.”
Not many entrepreneurs can claim the experience of Servín and Shoe Lovers.
“So it’s a great story,” said Renert. “It’s also fairly rare to see this kind of story coming in from Mexico or Latin America generally. You see a lot from India, Asia, Israel Europe but you don’t see as many coming out from Lat America.”
But anyone can fail in the world of startups. And Servín knows it.
If he succeeds, Shoe Lovers could become a company worth hundreds of millions of dollars, with digital publications for different items, an e-commerce platform, its own advertising and even original video programs. It's already negotiating an alliance with the Telemundo TV chain.
“At the end of the day, the name Shoe Lovers becomes a romantic presentation, a tribute to our roots,” he said. “But that does not limit us to shoes or fashion. We want to be the entity that connects brands with an audience.”
He also knows, however, what can happen if the company does not meet its revenue goals. In the worst-case scenario, the company would be forced to sell its secrets for growing its audience to another enterprise.
If that happens, Shoe Lovers' co-founders and investors most likely would still walk away with a profit. But they would be left with many doubts about what might have been.
“Even if we fail, we will have had one success,” said Servín. He paused for a moment, then added, “but we would not be satisfied.”