Susan and Eric Koger: Modcloth

Eric Koger co- founded and is CEO of Modcloth, the leading vintage and indie clothes site. His high school girlfriend, now his wife, Susan Koger, is his partner and co-founder. This is one couple that works! And there are others like them, many of whom will be featured in this blog.

Eric. Like many entrepreneurs, Eric’s entrepreneurial soul was born at a young age. His first business was a web hosting company in Florida that Eric started with three partners during his sophomore year in high school. That was the year 2000. The son of a single mom, Eric’s exposure to entrepreneurial ventures began even before that. During his early teenage summers, Eric was head inn keeper at his grandmother’s inn located in rural north Georgia. Eric recalls, “My grandmother was a hoot; she screened the guests and only let certain ones stay there. But, once they were there, I did everything else: I cleaned, cooked, gardened, and checked guests in and out. I was real autonomous. And that was a fun, entrepreneurial experience!”

Eric’s web hosting business stemmed from a job that a buddy and he got managing a data center on weekends. Eric recounts. “It was crazy. Just the two of us. We did these 10-hour shifts on Saturdays and Sundays. I learned a huge amount about server administration and hosting. Eventually we realized that we were more knowledgeable than the customers that we were serving. We felt that we were worth more than the $12 per hour they were paying us. So we pitched them on space in the data center and that’s how we started Bizinesshosting.com for Linux and Windows.” The business grew to include web design and search engine optimization. Their biggest client was Discovery Cruise Line. But the business was all-consuming and Eric ended up exiting that business by selling part of the business to one partner in 2002 and the rest of the business to another partner in 2005.

Enter Susan. Just before his senior year of high school, Eric had met and wooed his future wife, Susan. They went to prom together that year. Whereas Eric didn’t take high school studies very seriously, Susan was #4 in her class. She was wait-listed at Penn’s Wharton School. Eric, tells of the dilemma, “I was #21 in my class. And I was technical. I wanted CMU. And I wanted us to go to the same school. Susan got into CMU and NYU. And I convinced her that CMU was the one!”

Modcloth owes its origins to that summer of 2002 between high school and college. As Eric tells the story, “We had never seen snow and we knew we needed winter clothes for Pittsburgh. Susan had always been into fashion and she was a super shopper at thrift stores and consignment shops. I went with her for fun and we stumbled upon a huge supply of cool winter wear. There were lots of these awesome no-name brand winter coats and other gear. So we started buying tons of product and then selling them on eBay. But we couldn’t get a good price for no-name brands. I was familiar with how to get traffic on the Internet. I offered to help her launch a site that would sell these clothes. And that was the beginning of Modcloth.”

They actually launched Modcloth as a vintage and indie clothes site in early 2003, after their first semester at CMU. In the beginning, Eric was really tech support for Susan’s website as they progressed through school as business majors at CMU’s Tepper School of Business. The entrepreneurial pair were married in 2006 just after graduation and Eric began his MBA studies at the Tepper School. In 2005 Modcloth had earned $18,000 in revenues. In 2006 revenues grew to $90,000, and in 2007 the company grossed $538,000. They had raised a bit of seed capital from family and friends, but were growing like a weed on revenues and sweat!

Modcloth. When Eric finished his MBA in 2007 he joined the company full-time. The funding ramp was quick and steep. A presentation at the MIT Enterprise Forum led to an introduction to Glen Meakem (founder of Freemarkets) and subsequently to Marlee Meyers (lawyer with Morgan Lewis), who in turn introduced them to Jeff Fluhr, former investment banker and founder of StubHub, which was sold to eBay. After subsequent introductions, Modcloth closed on their first round of financing in 2008 with First Round Capital leading and slightly oversubscribed with just over $1M. By then, Modcloth was doing $150,000 per month in sales. 2008 saw just under $1M in sales for the year.

Modcloth grew rapidly and needed more cash. So Eric and Susan went out to the Bay Area in 2009 after the economic collapse, and closed a $2.1M round with Floodgate Fund and others in a year where Modcloth had revenues, net of returns, of $15.6M. In 2010, Modcloth was featured as #2 in the Inc 500 list of fastest growing companies. In June of 2010, ModCloth raised $19.8 million in Series B funding in a round led by Accel Partners, with participation from existing investors Floodgate and First Round Capital. The company relocated some of its employees and corporate office to the Bay Area and opened an office in Los Angeles but kept much of the technical development in Pittsburgh, focused on supply chain and operations.

Today, Modcloth is growing – fast. Eric has focused on rounding out the executive team. But he is careful to point out that the company’s vision was and is Susan’s. While Eric takes care of the business side of things, Susan is the creative force behind Modcloth. In her own words, “I am living my dream job. I work with amazing people. And I get to shop for a living. What’s better than that? I am lucky that I get to help build a positive retail experience for our customers – I am the customer and so I understand that world.”

And Modcloth is true to Susan’s image. Customer focus, Modcloth leverages social media and lots of customer interaction to ensure that product and inventory matches what customers want and what they will buy.

Modcloth is poised to fundamentally change the fashion industry. As Susan says on their website, “For so long, creating fashion has been this top-down process where the few insiders at the top get to say what’s cool and what we should wear, and then it trickles down to everyone else six months later. We think that since the customers are the ones actually wearing the merchandise, they should have the loudest voice! I am living proof that you don’t have to be an insider to be knowledgeable about fashion and have an impact on the industry.”

Susan and Eric break the mold of the idea that couples can’t work together, can’t run a company together, and can’t get funding together. Modcloth is testament to the idea that couples can and should be entrepreneurs together, at least if that’s what they want, and if it makes sense. The best businesses spring from the passion to do something really well. And Susan and Eric have done just that – created a great business from a passion and a hobby. And the couple’s cute little pug, Winston, has become the company mascot! Go Modcloth!