HIGHLAND — Rachel Nilsson is forging an entrepreneurial path that is all about taking the road less traveled.
Her novel design for a kid's onsie crushed it on "Shark Tank," earning three offers, but she took a pass on taking any checks from the show's celebrity investors because none felt like the right deal.
She demurred on a partnership offer from entertainment and merchandise giant Disney as her business was getting off the ground because she knew she wasn't ready for it. And while shunning opportunities many founders would view as once-in-a-lifetime, she has quietly built her children's clothing business — Rags — through a powerful word-of-mouth network and social media presence that's caught the attention of Forbes, Vogue, People, Us Weekly and Pop Sugar, and landed her on Huffington Post's list of the 15 coolest kids brands.
Oh, and Nilsson's revamp on the onesie — she dispensed with the infuriating buttons and snaps for a garment originally made for one of her son's that goes on and off via a patented stretchy neck hole — has spawned an aftermarket where her limited-edition designs are highly sought after and regularly fetch 10 to 20 times their original sale price.
Now, with a just-announced infusion of $1.5 million in fresh capital thanks to a venture funding round led by Utah's Kickstart Seed Fund, Nilsson is ready to ratchet up Rags, building from her base of direct-to-consumer sales with new retail opportunities.
"We could have kept bootstrapping (self-financing) and been comfortable, but this is a great opportunity for me as owner and CEO to really grow the brand quickly and expand into different markets," Nilsson said. "I'd like to see Rags become a household name."
Nilsson's mission of putting a Rag in every kid's dresser drawer is one that will be seeing a huge boost from some heavy-hitting strategic partnerships, for which she is finally ready.
Those include a deal with the aforementioned Disney, a company that Nilsson kept in touch with over the past few years, even though she wasn't ready to ink a deal when the company first came knocking. Luxury department store Nordstrom is also onboard to carry Rags, and Nilsson said she has other partnership deals in the works that will help keep her empire-building on track.
Exclusivity has been one of the keys to Nilsson's success, and she noted the limited design runs of her clothes "sometimes sell out in a matter of hours, or minutes." Kickstart partner Curt Roberts wrote recently about how this has positively impacted Rags' ability to build a loyal customer market, particularly among one of the most sought-after consumer demographics.
"The new generation of consumers (namely millennials) demand that brands are social media-literate and express the same values as they do — namely personalization, uniqueness, simplicity, quality and lifestyle over materialism," Roberts wrote for Silicon Slopes Magazine in October. "A great example is the Utah-based children’s clothing company, Rags. Twice a week, she posts high-quality, unique and exclusive products to her website in limited quantities, selling out every time.
"Why? Her audience has learned that if you don’t get an item when it’s available, you may never get it at all."
Roberts told the Deseret News he believes Nilsson's company is just scratching the surface of the $70 billion U.S. children's apparel market.
"Rags is one of the most impressive consumer companies we’ve seen, not just in Utah, but anywhere," Roberts said. "Rachel has succeeded in creating a followership that’s truly rabid about her product (which really is that good) and herself as the founder. She’s inspiring, skilled and passionate about what she’s doing with Rags.
"We believe in what Rachel is doing to create a very special and big company."
Nilsson said Rags is her second foray into the apparel business following a brief turn at selling a line of self-designed shirts to a national retailer that spotted her wearing one while she was still a student at Utah Valley University. Nilsson said she hit double walls of frustration with the effort, both because she was doing all the sewing herself and the retailer was keeping 50 percent of the shirts' retail price.
"The amount of work was totally overwhelming, and I couldn't believe how big a cut the retailer got," Nilsson said.
This time around, Nilsson has outsourced the manufacturing to a local firm and surrounded herself with a team, albeit a small one of just 15 employees, to help keep Rags on a growth track. She has also, however, attracted the interest and financial backing of two of Utah's most successful and idiosyncratic consumer product gurus — Davis Smith of Cotopaxi and Jeremy Andrus of SkullCandy and Traeger Grills. Adding to the mix of expertise at Nilsson's disposal is Kickstart's Roberts, who before joining the venture capital firm ran brand strategy for a little athletic gear company called Nike.
Nilsson said having people like Smith, Andrus and Roberts getting her back confirms that she made the right decisions in holding off on signing megadeals in Rags' early days.
"I think a lot of the appeal for these guys, and what I’m attracted to as well, is they are not rule followers and they’ve actually made it work," Nilsson said. "They're realization about Rags is we're not doing it the way everyone else does, and that's something they want to be a part of."