Do Something Really Fucking Big

Resonance Companies, Inc. 2019 Annual Shareholder Letter

January 6, 2020

To our shareholders,

“DO SOMETHING REALLY FUCKING BIG” was our first battle cry. I said it, somewhat offhandedly, during our first official company meeting in July 2015. One of the consultants working with us at the time decided she would put it on a mouse pad. People liked it, so we made more and passed them around our small office. At the time, we didn’t know what to say on our website, so we made a single landing page with just that phrase and it has been with us ever since. As we’ve “grown-up” we’ve thought about moving it to the background (lest we offend someone or appear less serious in our mission) but each time, after lots of internal debate where we pretty much convince ourselves to dump it, we’d sleep on it and, in the morning, come back more convinced than ever that it is central to who we are and what we are building at Resonance. There is an energy to it that resonates with people in our company (outside too!) and it rallies us all around a central mission.

There is a reason for this: DO SOMETHING REALLY FUCKING BIG is entropy. Look it up: Entropy is the central element to the Laws of Thermodynamics, and it pretty much describes how the universe functions. It’s about the energy of randomness and disorder and how systems that dynamically come together reach new equilibria as energy from one is transferred to the other. DO SOMETHING REALLY FUCKING BIG is measurably entropic. One morning when I got wobbly about the phrase and was lobbying our team to eliminate it, our CEO, Christian Gheorghe, who happens to be a genius mathematician in addition to being a brilliant leader and technologist, countered my argument for removal by offering up a theory on communication called Shannon Entropy, which calculates the amount of information conveyed in a word or phrase. The higher the Shannon Entropy, the more powerfully a simple phrase conveys information. DO SOMETHING REALLY FUCKING BIG scores, well, really fucking big! Try it out yourself here! So, it remains with us (thankfully) and now functions not only as the summary of our 2019 at Resonance, but also as the signpost for our goals in 2020.

The reason I said “DO SOMETHING REALLY FUCKING BIG” back in 2015 was that it described the opportunity to fix this beautiful, but broken, fashion industry — a gigantic, global industry that has completely lost its way, and taken the power of creativity down with it. As I wrote in our original manifesto, “I Know Nothing,” the magic of creation and creators — unique, and discontinuous and, therefore, completely unpredictable — has been throttled by legacy business models, costly supply chain overhead, “big data analytics” and cultural inertia, all of which has pushed fashion to a point where creation has become an ever-diminishing cog in a vast industrial manufacturing machine. It is destroying designers and brands and it’s destroying our planet.

So, the “SOMETHING” in the incredibly entropic DO SOMETHING REALLY FUCKING BIG refers to our goal to transform this $3 trillion industry. Really fucking big? Yes! But, not entropic without describing how to accomplish this goal, it stands, energy-less in the same crowd of “disruption” sloganeering that describes the goal to transform everything from democracy to pizza delivery and everything in between. The entropy comes from the how — by enabling a creation-driven fashion brand to DESIGN, SELL, and MAKE one garment as efficiently (time and total cost) as 1000 or more garments. Not t-shirts or pre-made templates that could be stamped out on an assembly line. Anything. In real-time. In volumes of one unit. The concept is called ONE. In 2019, we launched v1.0 of our technology platform: Resonance create.ONETM.

Here is what create.ONE looks like:

You are inspired this afternoon. You imagine a design for a beautiful dress (or collection of dresses), create the garment digitally, and launch it on your online store this evening. Your customer buys it tomorrow morning and is wearing it later this week. In her size, customized and personalized for her.

Resonance create.ONE enables creation-driven fashion brands to build valuable businesses and to be quantifiably sustainable, a goal that most of this industry cannot come even close to achieving. The goal of ONE is that an article of clothing that you purchase only exists when it is needed and only where it is needed. Not mass-market garbage copies of products, made in massive sweatshops and sold by nameless offshore manufacturers on Amazon; elevated products, sustainably and ethically made (and provably so).

How does create.ONE build a valuable business? There is no inventory to stock, no working capital tied up in products going through the manufacturing process. A brand always makes the right amount of product — no unintended stock-outs and no excess inventory that needs to be liquidated (or in some cases, just burned in landfills). There are no minimums in fabric or manufacturing, so the cost of experimenting (and possibly failing) is tiny. There are no production people, no purchasing teams, no tech designers, no merchandising teams, and almost no overhead. Sounds too good to be true? Our first brand, Tucker, has a three person team and exceeded $4 million in revenue last year. Yes, really.

The create.ONE platform went live in May 2019 with our partner brands, Tucker, JCRT, and THE KIT. Since launching on create.ONE, none of these brands has sold a product at less than full price. How? If the brand does not SELL the garment offered on their site, the garment is not made. There is no excess inventory to unload with sale-after-sale, discount-after-discount. Our partner brands have periodic sales to clear out returns and samples (if made), but the brands use these sales to reward their best customers rather than train them to wait until the product they covet goes on sale or to acquire the capricious bargain shopper who is as loyal only as your discount is large.

Resonance create.ONE is, as the name suggests, about creation. It’s not about data and trends and trying to predict what your customer will be looking for this “season”. How can you predict what your customer wants if she has never seen anything like it before? Isn’t that the essence of creation? We don’t believe in trend forecasting because we don’t have to — if you can create one garment almost instantly and at practically no cost, you don’t need to forecast trends. Yes, you can react instantly so you never miss a trend but, more importantly, you can make the trend. For example:

· JCRT launched a new category, sweatshirts, in November 2019. To make an impact, they launched with 150 different sweatshirt designs simultaneously! Imagine the cost of that launch without create.ONE — samples, material purchases, minimums for materials and manufacturing — it would be impossible for even the biggest of brands.

· In July 2019, THE KIT launched a simple tank dress for the first time. Ordinarily, a small brand might order 30 to 50 units of inventory to test a new product to mitigate the risk of failure. If it’s a success, the piece is sold out but can’t be replaced for 6 to 12 months, costing the brand incremental revenue and profit it could have had if the product were available. THE KIT sold 20 dresses the first day and 50 the second day. And then kept selling — more than 2000 in all over the next month. Daniel Vosovic, the founder and designer, designed new prints on that body, then designed new bodies for those prints and then made them all in different materials, selling thousands of these garments all originating from one simple design. This is #creationdriven. This is to DO SOMETHING REALLY FUCKING BIG!

The opposite of ONE is MANY, a word that describes traditional large global manufacturing supply chains driven by economies of scale. When we started Resonance, we thought the choice was stark: ONE or MANY. What we discovered in 2019 is that the answer is ONE and MANY. create.ONE enables large global brands to change their business and value chains in the same way a small brand can. It enables customization and personalization, a lab to test new markets and ideas, and a platform to react to changing market trends instantaneously. In essence, by making the product central to a dynamic conversation with their customers, a large global brand can change their business and value chains and be as nimble and efficient as a small brand using our platform. We launched several initiatives with large global brands on the create.ONE platform in 2019 and you’ll hear more about these activities in 2020.

Many pages into this letter you might be wondering, “so, what exactly is Resonance?” Resonance builds fashion brands that are valuable and sustainable using our platform, create.ONE. Our full name is Resonance Companies, Inc. and we are a collection of companies (some existing, many more to be formed) that are maniacally focused on that singular mission. These companies are grouped into three business areas: Resonance create.ONE, our technology platform business; Resonance Brands Group, our portfolio of partner brands and partnerships; and Resonance MAKE, our manufacturing business for create.ONE customers.

Resonance create.ONE, an enterprise technology platform

Enabling a brand to execute ONE; to DESIGN, SELL, MAKE one garment as efficiently and effectively as 1000 (or more) garments is incredibly complex. It is the melding of analog (a physical product with physical and chemical processes and physical machines) with digital (the software, AI, blockchain) to re-imagine and re-architect every single element of the fashion industry value chain with the end goal to create one (or, if needed, many) garment that is beautiful, elevated, of lasting quality, and that measurably minimizes the impact on our planet and positively impacts our society. In 2019, we implemented v1.0 of our technology platform, create.ONE.

The create.ONE platform encompasses three different broad functions: DESIGN, the tools to enable creators to build their products; SELL, the business tools to enable a brand to execute its business across online, wholesale, physical retail and partnerships; and MAKE, the software, mechanical, and chemical infrastructure to manufacture the physical product.

Integrated into each element of create.ONE are business analytics, finance and accounting, and quantified sustainability impact functions. create.ONE is a technology platform that we plan to launch as a software-as-a-service (SaaS) rolling it out over the coming 24 months. We will offer these products through one or more technology companies within the Resonance Companies, Inc. umbrella.

Resonance Brands Group, creation-driven fashion brands

We believe in an industry that is driven by creators and creation, not one where creators are muted cogs in vast industrial machine and creation is an accidental byproduct of a data- and analytics-driven design process. Investments and partnerships with these creation-driven brands form the Resonance Brands Group.

In 2020 we will continue to implement create.ONE as a service offering to a limited number of brands. Our offer to any creator who wants to be partners with us is simple: we will enable you to create anything you want without any interference, we will run your business for you with complete visibility and transparency, we will provide capital as needed, we will build you a brand that is measurably sustainable and ethical, and your brand will provide you with income and build equity value for you because it is profitable and generates cash. In return, you will grant us with 30% to 50% of your company, the range based on the current level of business success (revenue) and customer base of the brand.

We will build out our portfolio of brands in 2020. We will launch collaborations with brands to demonstrate our capabilities and to “live together before we get married”. Our goal is to bring more than 20 brands into the Resonance Brands Group in 2020.

Resonance MAKE, manufacturing clothing in a way that has never been done before

We built a 125,000 square foot manufacturing facility that went live in May 2019. We have developed proprietary and patented intellectual property that enables us to meld analog and digital to make elevated products in a way never before executed in this industry. We call the digital and analog merging DxA and it is central to every element of our technology. Our factory in Santiago, Dominican Republic is the first of a handful of facilities that we will build across the globe (including in the United States) to prove that the most effective and sustainable manufacturing process is one where a garment only exists when it is needed (on demand manufacturing) and where it is needed (distributed manufacturing).

This network of factories will enable us to continue to build out our MAKE capabilities, expanding to new materials, new chemistries and new machines and electronics as well as integrate further down into the fashion industry supply chain into knitting and weaving, process and color chemistry, spinning and even fiber development.

Resonance makes money in different ways across each of the three profit centers. In our Brands Group, we make money through our share of the brands’ revenue and profits. Our MAKE business generates revenue and profits through the manufacturing of product for our Brands Group companies. Our create.ONE unit will generate revenue and profits through the licensing of our technology, network transaction fees and support services when we begin to market and implement the create.ONE products outside of our Brands Group companies. In the future, we will expand the number of businesses in these three areas and, perhaps, the number of areas in which we compete.

But most of all, Resonance Companies is a platform to attract the best and the brightest inside and outside of this industry who share the passion to change it and courage to do something really fucking big! This shared umbrella of resources and vision will provide individual opportunities for everyone who joins our team — an opportunity to start a brand, create a service company, build a technology company or anything else that leverages our core assets. We are the seed funders for these businesses — capital and technology and we will participate in the growth of the businesses on our platform. But we have committed to every member of Resonance today and every member who joins in the future, that they will be owners of Resonance and that they have the opportunity to build something really fucking big on our platform that they can own directly too.

So, what is Resonance? Our goal is that it becomes the canvas upon which the future of this industry will be painted. It is a holding company consisting of brands, technology, and services. It is the enabler in which creators of brands, creators of technology, creators of process, creators of innovation transform this simultaneously beautiful and terrible industry into one that celebrates creation and embraces environmental and social responsibility. It is opportunity and value for everyone who is a part of it. Something really fucking big? We think so.

Lawrence

Lawrence Lenihan

Chairman and co-Founder