Deal Radar 2010: Thread Logic

Thread Logic creates custom logo embroidered apparel for businesses and organizations. Products include everything from polo shirts to aprons to fleece blankets. In a business that has been slow to go online, Thread Logic has focused almost exclusively on Internet sales while maintaining close customer relationships.

Jeff Taxdahl founded the company in January 2002. The economy and nation were still reeling from September 11, 2001. To say it was a bad time to start a company would be an understatement, said Taxdahl. Competition in the industry had always been fierce, not only from other embroidery shops, but also from promotional product distributors (PPDs) that sell logo apparel. Many in the industry, especially PPDs, compete on price, but Taxdahl was not interested in a price war. He positioned the company against PPDs with the fact that Thread Logic owned the embroidery machines and did its own work (which many PPDs do not do). In addition, many in the industry work to be the one-stop-shop by providing screen printing, embroidery, digital garment printing, and promotional products. Thread Logic positions itself as “the logo apparel experts; it’s all we do and we do it well.”

Since 2005, Taxdahl has marketed the company almost exclusively on the Internet using pay-per-click advertising and search engine optimization to gain visibility with customers. This is in contrast to many businesses in this industry, which serve a customer base within a 10-mile radius of their location. Taxdahl didn’t start with an Internet model in mind; the company used traditional marketing techniques for the first couple of years. But the time came when Taxdahl needed to expand and grow sales. Traditionally, that meant hiring a sales person, which he did not want to do. Taxdahl’s brother, Jon, suggested the Internet. Taxdahl said that he pushed back initially because he was trying to build relationships; he had the perception that e-commerce was a very price-driven and transactional business, and that was not the model he was trying to build. But, he said, “I decided to dip my toe in the pool and see if the water was warm. I quickly discovered the Internet water was warm and the pool was very deep.”

There were two stages to market penetration: at start-up and at site launch. The beachhead to gain early traction was network of contacts. Business owners that Taxdahl knew got him started. He then started doing direct mail to a targeted mailing list, which helped the company to take the next step. In terms of an online strategy, early traction was gained through PPC advertising on Yahoo. After learning the ropes there, the company graduated to Google.

The company aims to differentiate itself in three ways. First is flat pricing. Traditionally, pricing is determined by the number of stitches is takes to create a logo in embroidery, since every order is different. But customers have no idea how many stitches are in their logo, and that creates a barrier in the buying process since all the pricing information is in the control of the seller. Thread Logic created a more uniform pricing model to remove the need for quotes and custom pricing based on stitch counts. Every item on the website is priced to include the embroidery of the company logo.

The second point is no minimum order. While an order for one piece is not necessarily profitable, the goal is to establish a relationship with that customer. Thread Logic’s model is lifetime value vs. order value, which would require a minimum. The final point is free logo evaluation. Because not every logo transfers well to embroidery, the company offers potential customers the opportunity to find out front how their logo will transfer to embroidery. About 30% of the logos sent to Thread Logic for evaluation are converted to orders.

The company is currently in a growth/revenue stage. In 2009, sales were $1.1 million, up 27% over 2008. Over the past three years growth has increased an average of 25% each year. When measured in sales, Thread Logic is among the top 10% of embroidery shops nationwide. The company is working to lower its cost of acquisition while increasing repeat business from current customers. Half of its customers place more than one order.

Embroidered logo apparel is a $4 billion to $6 billion industry, and it is a mature industry with a commonly accepted product where many companies recognize the value it brings to their marketing strategy. It is also a fragmented industry: no one company, or group of companies, holds any significant market share.

The top market segments are small to medium-sized businesses in the United States. Sixty-six percent of customers are companies with fewer than 100 employees, and recently, a number of small start-up companies have become customers.

Taxdahl said that it took about $50,000 to get started. That was financed by savings, a loan against a life insurance policy, and a $10,000 gift from a relative. In 2004, Taxdahl had the opportunity purchase a small shop which included a bigger embroidery machine and its customer list. That $40,000 was financed by a loan from Taxdahl’s brother. In late 2006 the company added another machine that increased production capacity in a $60,000 transaction that was also financed by Taxdahl’s brother. At that time the company combined the two notes. The website construction, PPC advertising, and website enhancements have all been bootstrapped.

As for an exit, Taxdahl says that traditionally, exit strategy in the industry has meant passing the business onto a family member or child. That could be an option for Thread Logic, but the Taxdahls’ children are too young at this point to gauge any interest. Selling a business in this industry has proven difficult in the past; the value in these types of businesses has been the Rolodex and not necessarily in the company or its products and processes. Taxdahl’s goal, with the Internet model, is to build significant value in the business to sell one day.

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This segment is a part in the series : Deal Radar 2010