Dustin Walsh

To found the RealKidz clothing line for plus-size girls, Merrill Guerra and her husband used $60,000 of their savings. Friends and family added another $70,000, and angel investors contributed $142,000 in the fall of 2008. This spring, Ann Arbor Spark invested a matching $142,000 through the Michigan Pre-Seed Capital Fund. View larger photo

Kids used to call her “Merrill the Barrel,” so you don’t need to tell Merrill Guerra what the pressures of body image can do to a kid’s self-esteem.

By the time her own daughter, Gabi, was in preschool, it seemed like everything in the clothing stores was made for someone else. Guerra knew all too well how it felt on the other side of the fitting room door. It was frustrating, embarrassing. It hurt.

So while working on an MBA at the University of Michigan, Guerra launched RealKidz Inc., an Ypsilanti-based direct-sales company that makes clothes for plus-size girls age 5-12. “The idea is we’re more than an apparel company,” Guerra said. “We promote self-esteem by providing age-appropriate clothing that’s fashionable and looks good on them. The goal is to help these girls develop into a more confident adolescence.”

The RealKidz idea evolved out of Guerra’s personal experience, similar stories from friends and the all-too familiar United States childhood obesity statistics: 17 percent of children age 6-11 are overweight or obese. She also learned that parents spend $3.2 billion a year on clothes for their plus-size daughters, and yet the market was just 16 percent served.

“RealKidz addresses a problem in the large and growing market of childhood obesity with product and lifestyle solutions like no other company I’ve seen,” said entrepreneur Todd Sullivan, a fellow UM MBA whose custom apparel company, Spirit Shop Inc., grew to a $1.3 million business by its third year.

Guerra met Sullivan through the UM’s MBA program. When she told him about the RealKidz idea, he encouraged her to use the business plan in the school’s New Venture Creation capstone course.

RealKidz earned Guerra, 38, the UM Samuel Zell and Robert H. Lurie Institute for Entrepreneurial Studies MBA Entrepreneur of the Year award in 2008. In May, Startup Nation L.L.C. named Guerra one of its Top 200 Leading Moms in Business. And although she’s not a member, the Greater Detroit Chapter of the National Association of Women Business Owners recently presented her with its 2009 Pioneering Spirit Award.

“Merrill identified a need, but not just (a need) for a new product, which makes her a smart businesswoman. She identified a need to change our culture and make all children of all shapes and sizes feel beautiful and loved,” said Lisa Diggs, founder of The Catalyst Co. L.L.C. and the NAWBO member who nominated Guerra for the award.

The recognition is nice, Guerra said, and the support and coaching she’s beginning to get from within the direct-sales community couldn’t come at a better time.

Guerra and her husband sank $60,000 of their savings into starting the company. Friends and family added another $70,000, and angel investors contributed $142,000 in the fall of 2008. This spring, Ann Arbor Spark invested a matching $142,000 through the Michigan Pre-Seed Capital Fund. Skip Simms, fund manager, said most of Spark’s $16 million in pre-seed capital has gone to companies (34 and counting) in the four technology sectors that are part of the 21st Century Jobs fund: technology, life sciences, advanced manufacturing and defense. Just $1.2 million was available to companies outside those four tech sectors.

Spark’s investment review board saw in Guerra a committed, intelligent entrepreneur with a clear understanding of the marketplace, Simms said. The board also saw a business with the potential to grow big and fast.

“Those are important factors,” Simms said. “We’re not investing in companies that don’t have high potential.”

RealKidz began selling clothes in May 2008 and did $4,432 in sales last year. Guerra feels the pressure to get cash flowing before it’s time to look for more funding, but certain aspects of the startup — particularly recruiting sales consultants in recession-weary Southeast Michigan — are taking longer than expected.

“The support I have now from people in the industry is great,” Guerra said. “If it weren’t for everyone telling me how important this is, I could be pretty depressed right now. The thing I understand is, we just haven’t figured out the right combination of factors to make that success happen. But I’m more positive now than I’ve ever been, and I’m totally excited about where we’re going.”

Guerra, who has a bachelor's degree in political science from Stanford University, moved to Michigan with her family in 2000 from Everett, Wash. While there, she was director of youth ministries at Cascade View Presbyterian Church. Two years after moving to Michigan, Guerra launched Creative Arranging, a professional organizing business, and founded the Southeast Michigan chapter of the National Association of Professional Organizers. She closed Creative Arranging when she decided to enroll in UM’s MBA program in 2004.

Direct sales method provides comfort

To produce her plus-size line for girls, Guerra hired designer Cynthia Tupper of Farmington Hills, then contracted with Michigan State Industries, which runs garment shops in six Michigan prisons. A 2007 change to state law opened certain industries — those that don’t compete with any in-state companies — to private clients. When security is factored in, prison labor costs about 30 percent less than other domestic manufacturing would.

RealKidz prices range from $10.50 to $32.50. Right now, Guerra is building a crew of sales consultants to hold trunk shows. Her goal was 25 consultants, but so far she has 12 who receive 25 percent of what they sell, plus bonuses based on volume for both personal and team sales. The direct-sales model, similar to that of Mary Kay cosmetics or Tupperware, creates a different kind of clothes shopping atmosphere.

Typically, a customer invites friends and family — moms, daughters, grandmas — to a party where a RealKidz style consultant will explain the company’s mission, provide racks of clothing and invite girls to try them on.

“I think a lot of girls are hesitant to try things on just because it’s (such an) embarrassing experience.” Guerra said. “I’ve been through it with my own daughter. You try on 20 things and nothing’s right. It’s horrible, and it’s insanely damaging to the self-esteem.”

If girls prefer to have a private fitting, that can be arranged, too. RealKidz sales consultant Kelly Ruby of Redford knows all too well the experience of bringing her daughter one ill-fitting piece of clothing after another in the dressing room. Ruby’s daughter, Katie, now 10, has short legs and doesn’t like things that fit tightly around her belly. When she needed pants, Ruby, an office administrator by day, would go to the teen section and scour the sale racks for capris.

It worked, at least seasonally, but Ruby was thrilled when she and Katie went to a RealKidz trunk show and Katie got to try on clothes that actually fit.

“I can’t tell you how many people come up to me at vendor shows and say, ‘Ohmigosh, thank you for doing this,’ ” Ruby said. “They’ll say, ‘I was a heavier child and I wish somebody would have done this when I was a kid.’ ”