As the adage goes necessity is the mother of invention. Rachel Nilsson, a stay-at-home mom with three boys, needed money. She started selling her kids’ used clothes online in 2014. Only one month later, this mompreneur started making innovative children’s rompers herself and grew her side gig into a million-dollar clothing brand —Rags To Raches in Pleasant Grove, Utah.
Nilsson decided at the last minute to audition for Shark Tank at an open casting call in Salt Lake City. She was the very last contestant to arrive and the producers were packing up and getting ready to head out. She managed to pitch in front of all seven producers of ABC’s business reality show and they loved her products.
Nilsson appeared in a patriotic Shark Tank episode featuring all made-in-America products in February 2016, seeking $200,000 for 10% of her company. Computer security titan Robert Herjavec, educational software mogul Kevin O’Leary and fashion maven Daymond John each offered her $200,000 for 20%. They argued with each other over the best strategy for growing the business. Nilsson cut a $200,000 deal with Herjavec for 15%.
In less than a month since her Shark Tank episode aired, daily sales quintupled. Nilsson hired a fulfillment company to help her four full-time employees and four part-time ones fill orders and manage inventory. At least 100 retailers reached out to her to sell Rags to Raches products.
Rags to Raches’ rompers cost $7 to $10 to manufacture and retail for $37 to $49. It doesn’t take returns unless the product is defective, in which case customers get an exchange. The company sells mostly online. About 12% of sales come from 100 brick-and-mortar retailers. The company’s total life-time sales come to $1,066,036.21 — an extraordinary amount for a venture that’s still in diapers.
Nilsson explains how she gave birth to a business on Instagram, why she manufactures in the U.S., and how she won over the Shark Tank producers.
Necessity is the Mother of Invention
Ky Trang Ho: What were you doing before you started your business?
Rachel Nilsson: Before I started my clothing business I was a full-time mom. I was always interested in fashion. When I was 19, I made funky t-shirts for a local business here in Utah. People really took to them because of the fit and overall look. I soon went from one retail location to all five in less than two weeks. They were ordering 500 pieces from me a week. I was hand sewing everything.
Soon after the orders were being placed, I quickly reached out for help and hired an older neighbor lady, who was a seamstress and could help out. I continued doing this for six months. I ended up walking away because I wasn’t interested in sewing all day, every day. I learned a valuable lesson and knew if I wanted to do clothing again, design is what I was best at. I knew I needed to manufacture the next time around.
Ho: How did you come up with the idea for your business?
Nilsson: When I started my company my family was in need of money. My husband was just finishing up with grad school and funds were running low. I knew I needed to do something to help make ends meet. I started a separate Instagram page and called it ‘Rags To Raches.’
There I started selling my kids hand-me-down clothing to help make a little cash. I learned as I was selling their clothes that the things that were selling the most were the things I had made for them. That is when it dawned on me, ‘I should make clothing and sell it directly to my customers. It is so much better direct. I think I can make it work. So that is what I did.
Ho: What problem were you seeking to solve? What is the market for your service or product? What made you think it could be a successful product and/or service?
Nilsson: I loved the comfort of a one piece. But I hated the hassle of snaps around the bottom. My little guy was so wriggly and those became such a pain. Then it dawned on me, ‘I should really try making a snapless onesie.’
So I took one of my husband’s old tees and cut into it. I sewed it together and slid it on my little boy through the neck. It was so easy to get on and off, plus it was super cute! Changing diapers just became ten minutes easier. I decided to share that on my Instagram and the response was incredible.
I knew that mom’s everywhere were in my same boat. And this Romper had also solved an issue for them. My overall goal was I wanted to develop a product that was super comfortable, stylish and most of all practical. I was always on the go and so was my little one. This piece totally fit the bill.
Nurturing a Social Media Following
Ho: How did you attract people to your Instagram page and create a following? What did you post? What did you say exactly?
Nilsson: Honestly, this was not an easy task. When I started my Instagram I had to really try and analyze what my focus is and what I wanted to get out of it. I knew Instagram could be insanely powerful if I did it right.
I came up with a vision of how I would want my product to be displayed aesthetically. And I stuck to that and tried to be consistent. I decided almost immediately that my main focus was, ‘I’m marketing to myself.’ I targeted consumers just like me. I am a young mom with three boys. I care how they look but I also wasn’t willing to negotiate on comfort or practicality.
The romper really did fit the bill. I felt like my audience really took to that because they were also young moms who were feeling the same way. I tried really hard to be authentic and hopefully share my passion behind my posts. Most of the time they were short and sweet. Others were genuine sentiments as a mother. I not only wanted people to purchase my products but also wanted them to emotionally connect with the brand and myself.
Ho: Your children’s clothes are rather expensive compared to most children’s brands. Considering that most people don’t want to pay a lot for children’s clothes because they outgrow them so fast and stain them very easily, how do you convince people to buy your product?
Nilsson: We are considered a little more expensive than most. But there is a lot that goes into each piece of garment. We use the best of the best fabrics. They are amazing quality and made in the U.S.A. What others don’t realize is that when you buy a romper at $37-$47, you are essentially buying a shirt and pant.
So if you break it down, you are probably spending less for a romper. It is easy to style — no hassle to get on. And you only have one garment to worry about. I have no doubt that our customers are buying a premium product at a great price.
Born in the U.S.A.
Ho: How did you go about making a prototype, sourcing the materials and finding a manufacturer?
Nilsson: My prototype was handmade out of my husband’s tee shirt. I created my own patterns for all sizes and eventually got them professionally made and graded for manufacturing. I started at a local manufacturer and once we started really growing, we moved to California.
We actually were referred a great manufacturer and ended up flying to Los Angeles to meet with them. They have been great for us. Finding a manufacturer is tricky but we really lucked out.
Ho: Who manufactures your clothes? How did you go about vetting them and selecting a contract manufacturer?
Nilsson: We manufacture out of Los Angeles. Everything we do and make is in the U.S. I had some rough goes with other manufacturers and learned early on that manufacturing is a beast. I soon researched and with some help from a friend in the industry. I finally found one who was a perfect fit for us.
Ho: Why did you opt to contract with a U.S.-based operation versus China or another developing country?
Nilsson: I love supporting the U.S.A! I think about how many jobs my small company has provided. And it really does mean a lot. I also love the turn-around times. We can get product within a couple weeks of ordering. If I can afford to stay in the U.S., I will forever.
Ho: Do you have any plans to move manufacturing overseas to lower costs? Why or why not?
Nilsson: Not in the near future. I love creating jobs for people here in America. Supporting other small businesses and helping others live their “American Dream” is what it is all about. Also, we have pretty great margins to stay stateside so that helps as well.
Ho: How much did you personally invest in your business? How did you get the money to start your business initially?
Nilsson: My personal investment was the money that I had made selling my kids’ old clothing. I was able to float my company for awhile by rolling money back into the business. As soon as I went through my first round of manufacturing, I reached out for a small loan to help fund that initial upfront cost. Since then, we have been able to float and run everything with the cash we’ve brought in.
5X Growth Spurt
Ho: What do you hope a Shark will do for your business? And how are you working together?
Nilsson: I am hoping their connections and expertise will help launch us into the next level. I don’t just need a banking relationship, it is more than that.
Ho: What are you doing now to move your business forward and expand?
Nilsson: Right now we are just trying to keep up! We have plans to keep moving forward and we are excited about it. We will expand our line but still keep things really simple, practical and of course with a ‘RAGS’ unique twist. We have some really great things in the works and we can’t wait to share.
Ho: What are your goals for your business over the next year and five years?
Nilsson: My goals for my business have stayed the same. The sky is the limit! Keep growing. Keep things fresh and exciting. I would love to be the ‘Amazon’ of baby clothing. I hope to keep doing this for as long as it’s fun for me. Right now it is so empowering. And I truly feel like I am living the dream.
Ho: What is your marketing strategy? How do you acquire new customers and what are your customer acquisition costs?
Nilsson: Right now we do almost all of our marketing through social media. That is how I started. I feel like there is so much power and influence throughout those platforms. We will stick to the same marketing strategy that has worked for us and that is just to keep things “cool” and fresh.
The sky is the limit and ideas are endless. Basically, I am my consumer. That is how I have approached my marketing. I am literally targeting people just like me so it makes things easy.
Ho: How do you find business partners, instructors, salespeople etc? What qualities do you look for?
Nilsson: This is a great question. I feel like I know what my strengths are. But I also know where I am weak. I understand I can’t do everything and be a pro at it. Once you come to realize that you become really good at hiring out those positions in which you know you don’t excel in.
When I do hire people, some key qualities are, personality, drive and creativeness. I want someone who jives with me, who is motivated and can think ‘outside the box.’
Ho: Have you gotten other investors to invest in your business?
Nilsson: The only “investment” I have taken was early on when I needed funding for my first round of production. I think it was around $10,000 total. Other than that, I literally rolled every dime that I made, from my kids hand-me-down clothing, into new inventory and materials.
Ho: What other products do you have in the works? When are they set to launch?
Nilsson: We are continually trying to find ways to expand. We have an amazing summer dress, pants and some really cool add-ons as well. We have been working with a great illustrator and author on a cute ‘RAGS’ themed board book for babies. I am really excited about the future. It is only going to get better!
Fashioning a Shark Tank Appearance and Cutting a Deal
Ho: How did you prepare for your Shark Tank appearance? What made it a success?
Nilsson: I am not sure you can fully prepare for something like that. It is hard because you have no idea if the Sharks are going to take to your business or not. You have a 50/50 chance and that is scary. You can’t control them and their reaction.
With that being said, I needed to be sure I was on the ball. I wanted to be so prepared in what I did know and that was my numbers, product, consumer and business. I think being confident and relatable was huge. I also feel my story of literally starting from the bottom and hustling to the top was undeniably attractive and hopefully inspiring.
Whether or not I did get a deal, there was no doubt that it is inspiring and I was grateful to be able to share that with the world.
Ho: How did you value your company when you appeared on Shark Tank? What did you asked for?
Nilsson: I had a private equity group help with the valuation. My company is still in its infancy so the valuation was a little bit tricky because you don’t want to be so out of line and I didn’t want the focus to be on my valuation.
Ho: What are the next steps in working with the Sharks after getting a deal?
Nilsson: I was able to meet with Robert’s team right after my episode. We discussed how to move forward and what to expect as things roll along. So far they have been great to work with. And I am excited about our relationship.
Ho: What can you teach others about your Shark Tank experience?
Nilsson: Honestly, Ignorance is bliss… to an extent. Does that sound crazy! Probably. I just didn’t want to psych myself out. I wanted to go in there totally prepared with all of my facts and info correct. But I didn’t want to know every single little thing about the show. I didn’t want that to consume and totally overwhelm me.
I felt that if I can go in there and really explain my story and where I started, be confident and authentic, and know my stuff, that is all that mattered. I also had to realize that these guys had a lot of money. But they are real people too. They aren’t scary and they were once just like me.
I needed to just pretend like I was chatting with an old friend about something I was very passionate about. It seemed like my approach worked for me and I was happy with the way it turned out.
Ho: What are the secrets of a successful audition and appearance?
Nilsson: Honestly, I feel like it was my casual and authentic personality. I was confident and so sure of my product. I had fun with them and we laughed together. I believe that approach immediately captured their attention.
In fact, I was the last one to arrive at the audition. They were packing up, getting ready to leave and I invited them to them sit down and hear me out. They did, and we ended up having fun and they loved my story and products.