It started with an umbrella. A really, really good umbrella.

It was 2010, and the umbrella – a marvel of weather-beating engineering, made by a New Zealand company called Blunt – had found its way into the hands of a guy named Max Rhodes.

So impressed was the young American business consultant that he made it his mission to bring the Blunt umbrella to select shops in the United States.

And that’s when the often-ugly realities of local retail began to rain down.

Rhodes and his business partner quickly learned how cumbersome and costly it can be to get a new product – even a great one – onto store shelves.

They paid sales agents to visit retailers in search of orders, which were taken on paper. They went to big trade shows in hopes of landing customers, but any sales made fell far short of covering the costs of being there.

They eventually got the Blunt umbrella into more than 100 stores, but it took five years for the effort to start making any meaningful money.

There had to be a better way. Rhodes knew it, and so would a pair of colleagues he would go on to meet at Square, the mobile-payments company launched in 2009 by Twitter co-founder Jack Dorsey, where Rhodes landed in 2011.

Now, he and those two colleagues – Marcelo Cortes, formerly of Square’s Waterloo Region office, and Daniele Perito – have left Square and, in January, launched what they believe to be that better way: Indigo Fair, a company they describe as “Amazon for local retailers.”

Instead of buying from catalogue-toting sales agents and burning through time and money at trade shows, merchants can order inventory online through Indigo Fair, try the items out for 90 days and return anything that doesn’t sell for a full refund.

Perhaps more significant is why Indigo Fair is able to do this. The company has managed to drastically reduce the likelihood of returns in the first place, by utilizing a proprietary machine-learning algorithm that scours the Internet to identify products most likely to sell at a particular store.

Thanks to that algorithm, the company not only can offer easy online ordering and hassle-free returns, but a deeply curated and always-current list of goods that are virtually guaranteed to sell.

This capability, combined with the massive market opportunity inherent in modernizing local retail, caught the attention of investors and observers at last month’s Y Combinator Winter 2017 Demo Day. Indigo Fair was named one of Tech Crunch’s top 15 companies from the latest 103 to come through the exclusive California accelerator.

indigo fair marcelo cortes

Indigo Fair co-founder Marcelo Cortes is building the company’s engineering team in the University of Waterloo’s Velocity Garage. (Communitech photo: Anthony Reinhart)

The company has yet to release any funding details, but its growth ambitions are clear – and that growth is poised to happen simultaneously in the U.S., where product, design and sales will be centred, and in Waterloo Region, where Cortes will lead the engineering team.

As such, Indigo Fair is taking an approach that’s increasingly familiar in tech, particularly in Waterloo Region: building distinct teams in different locations based on local advantages, mainly related to talent.

“It would definitely be easier to have everyone in the same place; no questions there,” Cortes said in a lengthy interview with Communitech News. “But in the way that technology works today, if you’re trying to find the top talent in all of these different categories of design, engineering, product management, it’s very hard to find them all in the same place. Especially in Silicon Valley, where the demand is so high and companies are fighting for these people very hard, with bigger and bigger offers to steal them from one company or another.”

Cortes speaks from experience. After immigrating to Canada to learn English in the early 2000s, the Brazilian software engineer hoped to land work in the U.S., but married and decided to stay in Canada.

He wrote code for a string of companies before he joined Google’s Waterloo Region operation in 2010, where he spent two years.

In early 2013, Cortes joined Square along with Jesse Wilson, another ex-Googler, who had previously worked in California but, like Cortes, preferred to live in Waterloo Region.

“We were working out of Waterloo as engineers and at the time we were kind of mercenaries,” Cortes recalled. “We were working on different products . . . and then Square Cash started. Very quickly we became the core engineering team for Square Cash.”

On the strength of the talent of Cortes, Wilson and their small group engineers with strong Waterloo Region ties, Dorsey – a billionaire tech celebrity thanks to the success of Twitter – opened a Square office in downtown Kitchener rather than try and force a move to San Francisco.

Square, of course, is how Cortes would get to know Rhodes and Perito, his future Indigo Fair co-founders, though they were based on opposite sides of the continent.

“Max and Daniele were in San Francisco” working on the product side of Square Cash, while “I was with Jesse and the rest of the team in Waterloo, building everything else that was needed on the engineering side.

“Since we saw how well we worked together from the early days of Cash, we were always talking about ‘what’s the future going to be like?’,” he said. “We knew we worked very well together as a team and we could possibly build a company. This conversation kept going and getting more serious.”

Two-and-a-half years ago, during a conversation on WhatsApp, Cortes, Rhodes and Perito discussed the idea that would become Indigo Fair, but it was among many they were kicking around. These kinds of conversations continued through Rhodes’s departure from Square a year ago, and culminated late last November, when the three decided to make Indigo Fair the basis for a last-minute application to Y Combinator’s winter 2017 cohort.

“We didn’t really expect to be accepted,” Cortes said. “We [thought] that most companies that got into Y Combinator had been building their product for, like, six months to a year, but we applied with an idea and a team.

“I guess the idea . . . .and the team obviously had a good background, and they accepted us. That made us accelerate the decision process of starting this.”

Cortes left Square in early December and Perito followed in early January, during the week they started at Y Combinator. That’s when they started building and testing Indigo Fair in earnest – and it was soon clear they were onto something.

Concentrating initially on the gifts segment – watches, wallets, stationery and the like; a niche worth $25 billion a year in the U.S. alone – the Indigo Fair team quickly identified 20,000 products it could sell to merchants, but offered its early customers only the top 1,000 as ranked by its algorithm.

“When a store comes to us, we get this big database that we have with 20,000 products and we filter out only the good ones,” Cortes said, “and then we match products that are good and belong in their store, based on the category of the store, the location, the price range, the style, whether they carry local products or not.

“So basically, it’s a very curated list of top products that we believe are going to sell in their store. And it has proven to work.”

Customers placed 50 per cent more orders in February than they did in January, resulting in “negative churn” – a much-coveted circumstance in which month-over-month revenue growth from existing customers outpaces lost revenue through lost or less-active customers.

“A lot of them called us and asked, “Can we buy all of our products from you? We don’t want to be dealing with 1,000 different companies any more. We want to go through you and follow this model,’” Cortes said. “Another thing that happened is, a lot of these customers are actually calling us to recommend products to us. They’re like, ‘Can you put these products on your algorithm and see if they’re going to be good so that we can also buy them through you?’

“So, the initial feedback has been pretty amazing.”

A few days after Y Combinator’s March 21 Demo Day, Cortes was back in Waterloo Region and occupying a single desk in the University of Waterloo’s Velocity Garage in the Tannery, where he’ll begin building an engineering team conservatively estimated at five to eight people over the next year. Rhodes and Perito will remain in the U.S., where product and sales operations will be based.

In effect, the company is launching as a bi-national operation right out of the gate.

This makes Indigo Fair the latest in a growing string of tech companies to take advantage of the strength of Waterloo Region engineering talent while doing business out of the San Francisco Bay Area. Google, Square, NetSuite and, more recently, Atomic are among California firms to locate substantial operations here, while many homegrown Waterloo Region firms, in turn, have offices in the Bay Area, including Thalmic Labs, Kik, TextNow, Vidyard and OpenText, among others.

While dispersed operations can present challenges, Cortes pointed to his successful experience with Square Cash to highlight the benefits of locating a specific engineering project at a distance from other corporate operations.

As long as the separate engineering office is led by someone senior enough to make decisions, “it works very well,” he said, because the engineering team can focus exclusively on its work and get things done quickly. “The productivity is much, much, much higher and everybody is focused on the same objective; they have the same goal of doing a better product.”

Cortes predicted Waterloo Region will see more of this kind of activity in the future, as awareness of the region’s high-quality talent pool and favourable quality of life, especially for families, continues to spread.

“When you’re in California, the environment is different; it’s a lot more intense at this moment. It is a lot more aggressive; they expect companies to move faster,” he said. “I would even say that they expect that the work-life balance is different than [in Waterloo]. They expect people to be working crazy hours. There’s a lot of intensity.

“With experience and time, people realize that when you’re building the right things, you don’t need to be working these crazy hours and hammering people to work to get things done fast. If you know what you’re doing and you do things properly, you move at a fast pace, even if you have a good work-life balance.”

Having spent plenty of time in the Bay Area during his Google and Square days, Cortes knows how elusive that balance can be for those living what he calls “the tech life” in California.

Despite higher salaries, tech workers with families“have to live pretty far away from the city” to afford a home, which, for many, means a grinding commute.

“I think I’ve done enough commuting in my life to [not want to] move back into a life like that, especially after living in a place like Kitchener-Waterloo,” Cortes said, “where I can take my kids to a soccer game and it takes me 10 minutes. And from there I can go to a swimming pool or somewhere else very fast.

“[In California], you can do one of those things in a day because it’s going to take you an hour and a half to get somewhere and another hour and a half to get somewhere else.”

At the same time, he said, Canadian tech workers and companies benefit greatly from spending at least some time in the Bay Area, the world’s predominant commercialization engine for innovation.

“If it’s a Canadian-only company, then people don’t get to experience the startup life or even the big corporation life in America and California,” Cortes said. “They don’t see what they’re matching against. It’s like playing a game; you play in single-player mode and you might think you’re the best in the world, but once you start competing against the top players in the world you see that you have a lot to learn. And you only learn by competing against these guys.”

While critics have suggested Canada has made it too easy for foreign tech companies to set up here and capitalize on Canadian talent at the expense of homegrown companies, “I don’t see it being bad at all,” Cortes said. “I think it’s a very good thing, and the more it happens, the more experience we’ll be able to bring back to Canada” for the benefit of Canadian tech companies and the economy.

“It’s not ever going to be the same,” he said of Canada in comparison to the U.S. “The lifestyles are very different between here and there.”

The current political upheaval south of the border will only work further in Canada’s favour, Cortes suggested.

“People are worried about what’s happening and they see Canada as a much safer place if you’re establishing your life,” he said. “I don’t know if that’s the best way of getting those people; it’s better if they move here because they want to and don’t have any external factors influencing them. But it’s going to happen and it’s going to be good.”