Tag Archives: Inspiring

The Need For Speed

Written by Áslaug Magnúsdóttir, co-founder and CEO of Moda Operandi for The Business of Fashion.

When founding a company, one of the most important decisions you will make is how and when your company grows. Growing a young company is not an involuntary, linear process, like how a baby grows. Growth tends to happen in sizeable, step-up increments, like a set of stairs, based upon deliberate decisions you and your team make. The key is to balance careful planning with speed of execution.

The implications of this tricky balance are multiple and very real. Do you “get it right first,” subordinate growth to perfecting your product or service, or do you “get big fast” and shun polishing the decks while it’s full speed ahead?

As you will hear me say often, there is no right solution to this kind of puzzle. But as co-founder of Moda Operandi (M’O), I mulled this balance carefully and decided I needed to “get big fast.” I saw an opportunity for M’O to be first to market with our unique “pre-order luxury goods” concept and I knew that meant aligning myself with key people and companies to help me do it quickly and cleverly. In short, I felt the need for speed was a critical competitive advantage that outweighed hoarding equity and control. This decision had significant implications for how I thought about taking on a partner, where to raise financing, and how much. And since, 16 months later, M’O remains the only store in the business with our dedicated pre-order model, this decision has turned out to be one of the most important I’ve made for the company to date.

TO PARTNER, OR NOT TO PARTNER

One of the first decisions to make when you come up with a business idea is whether to do it alone or with a partner. You have probably heard that entering into a partnership around a company is like entering into a marriage, and it is true. Partnerships, like marriages, are exciting because the whole is greater than the individual parts and together amazing offspring can be born. But also, like marriages, partnerships require work and compromises and they have real costs. Decision-making and control is shared; equity and wealth potential is diluted. So just like getting hitched on a whim in Vegas is not necessarily a great long term idea, you shouldn’t pick a partner unless you think you need to. And if you do need to, make sure that person is kick ass.

I knew Lauren Santo Domingo, my co-founder, would be the perfect partner. Why?

    • Lauren got it immediately (Warning: if you have to explain the concept twice, it’s probably not a good fit.)
    • She added to it immediately (i.e. “We should do this as well, we should call them as well,” etc. Her complementary experience was apparent from the get-go.)
    • She threw herself into it immediately (“When do we start?” No dilly-dallying, this was a partner who wanted in yesterday, already.)

After our first chat about it, I knew there was nobody else I wanted as a co-founder of the company. But we can’t all be this lucky. And taking on a bad co-founder can kill your business before it is born. So here are a few things you need to think about when making the decision about partnering-up or going solo:

    • Is there a sizeable hole in what you bring to the table (skills, relationships, experience, etc)? If yes, would that void be better filled via a partner, or a contractor, consultant or temporary hire? In short, do you need a partner?
    • Do you generally prefer to work in teams or alone? Put bluntly: can you have a partner? (What does your significant other think? Always a good reality check.)
    • Is the scope / complexity of your business idea robust / complicated enough that you need a partner during those crucial initial months? In other words, does the company need a partner?
    • Is the size of your business big enough to support an additional partner? Can all mouths be fed? Can your company support a partner?

Divorce is a mess, not least because it will really slow you down. So only pick a partner if you need to. And if you need to, pick someone who will help you get there faster and smarter. The last thing you need is the old ball and chain.

INVESTOR EXPECTATIONS

Investors are your friends. They give you money, you build cool things, consumers spend money, everyone is happy. However, there are different kinds of investors and each has pros and cons. Specific to speed to market, here are a few things to consider:

    • Angel investors are typically more flexible and hands-off, but often lack industry expertise. They are your rich uncle who ponies up cash and wishes you the best, but doesn’t really want or know how to help you do your thing. This is not always the case — some angels are brilliant and available — but this is what you should anticipate.
    • Venture capital investors (VCs) typically have deeper pockets, can provide good advice and resources, but require a lot of control and hand-holding. They’re professional money makers, so understandably, they want to know what the hell you’re doing. This can be a good thing but it also takes up valuable time. Again, there are exceptions, but this is a general rule.

The key point: if you believe you need to get your company to market now, make sure you match your expectations with those of your potential investors. You may not have the luxury of options. But you don’t want to take on an investor who wants you to get it right first, when you’re focused on getting big fast.

HOW MUCH MONEY IS ‘ENOUGH MONEY’?

Another common question I am often asked is, how much money should I raise and how quickly should I raise it? Fundraising is painful and time consuming. Some founders prefer to raise just enough to get something to market now. On the other hand, some founders prefer to go the extra mile and aim for a bigger raise so they won’t have to suffer through the process all over again in just a short while. There are pros and cons to each approach.

At M’O, we went the extra mile. While we were fortunate enough to have some seed money to get our proof of concept going, we parallel-tracked the fund raising process in full swing until we secured our first round of venture capital. Grabbing market share was critical. We had to build the car while driving it down the highway.

This may not always be the right decision. A young company might be better served in its early days focusing its attention on perfecting the product rather than on fundraising. And depending on the economic environment and the appetite of the investment community, raising more early on might mean giving up more equity to investors than if you wait. But you probably will need more money than you think. And it is always good to stash away cash today for a rainy day tomorrow, like a sudden downturn in the market or the unexpected arrival of a formidable competitor.

During our latest fund raising, I had a meeting with a Chinese businessman, one of the most successful retail tycoons in the world. He said, “You guys are hot. Everyone is talking about M’O. Raise as much money as you can now.”

The point? If capturing market share is of the essence, raise as much money as you can now. Having too much money is a good problem, even if it means dilution, giving up control and sharing the throne. But get to market. Raising all the money in the world means nothing if you aren’t open for business.

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Money Tower of Needs

We’ve all heard of Maslow and his tower of needs. Something I penned down today after a conversation with a business owner was my interpretation of the financial needs of a business and it’s owners & stakeholders.

It’s not perfect, but thought it was worth sharing all the same.

Enjoy. EF

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Built to Sell

Here at EF we’re not really about flogging others peoples products, but this one time we felt like this one needs to be out there. Over the weekend we came across a unique business book titled “Built to Sell.”

The book written by John Warrillow is ranked one of the top 10 business books ever written by Inc.com. It explores why a business should be built forever but also always ready for sale, and profiles the story of an advertising agency transforming itself into a sellable business.

This writer personally found it a paradigm shifting read and one that would resonate with almost any boutique or young designer toiling away at building their our  cog in the fashion business machine.

To really understand the implications, reasoning, and steps of making your business sellable you need to read the full story (you can read the book cover to cover in a single day), but below are the core tips of the story.

Follow these to make sure your blood, sweat, tears, passion, and excitement for your design and entrepreneurial zeal are one-day duly rewarded.

 

TIP 1) Don’t generalise, speciliase. If you focus on doing one thing well and hire specialists in that area, the quality of your work will improve and you will stand out among your competitors.

TIP 2) Relying too heavily on one client is risky and will turn off potential buyers. Make sure that no one client makes up more than 15% of your revenue.

TIP 3) Owing a process makes it easier to pitch and puts you in control. Be clear about what you’re selling, and potential customers will be more likely to buy your product.

TIP 4) Don’t become synonymous with your company. IF buyers aren’t confident that your business can run without you in charge, they won’t make their best offer.

TIP 5) Avoid the cash suck. Once you’ve specialised your service, charge up front or use progress billing to create a positive cash flow cycle.

TIP 6) Don’t be afraid to say no to projects. Prove that you’re serious about specialisation by turning down work that falls outside your area of expertise. The more people you say no to, the more referrals you’ll get to people who need your product or service.

TIP 7) Take some time to figure out how many pipeline prospects will likely lead to sales. This number will become essential when you go to sell because it allows the buyer to estimate the size of the market opportunity.

TIP 8) Two sales reps are always better than one. Usually naturally competitive types, sales reps will try to outdo each other. And having two on staff will prove to a buyer that you have a scalable sales model, not just one good sales rep.

TIP 9) Hire people who are good at selling products, not services. These people will be better able to figure out how your product can meet a client’s needs rather than agreeing to customise your offering to fit what the client wants.

TIP 10) Ignore your P&L in the year you make the switch to a standardised offering even if it means you and your employees will have to forgo a bonus that year. As long as your cash-flow remains consistent and strong, you’ll be back in the black in no time.

TIP 11) You’ll need at least two years of financial statements reflecting your use of the standardised offering model before you sell your company.

TIP 12) Build a management team and offer then a long-term incentive plan that rewards their personal performance and loyalty

TIP 13) Find an adviser for whom you will be neither their largest nor their smallest client. Make sure they know your industry.

TIP 14) Avoid an adviser who offers to broker a discussion with a single client. you want to ensure there is competition for your business and avoid being used as a pawn for your adviser to curry favour with his or her best client.

TIP 15) think big. Write a 3-year business plan that paints a picture of what is possible for your business. Remember, the company that acquires you will have more resources for you to accelerate your growth.

TIP 16) If you want to be a sellable, product orientated business, you need to use the language of one. change words like ‘clients’ to ‘cusotmers’ and ‘firm’ to ‘business’. Rid your website and customer-facing communications of any references that reveal you used to be a generic service business.

TIP 17) Don’t issue stock options to retain key employees after an acquisition. Instead use a simple stay bonus that offers the members of your management team a cash reward if you sell your company. Pay the reward in tow or more instalments only to those who stay so that you ensure your key staff stays on through the transition.

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How Great Leaders & Companies Inspire Action

How do great leaders inspire action? How do companies inspire marketplaces to investigate and purchase their products, fashion or otherwise? The answers to these questions I discovered within a 18 minutes TEDx talk I found this morning by Simon Sinek.

The points within the this talk are simple, yet immensely profound for the world of fashion. People don’t need fashion. People only need clothing, and that depends where they are located in the world. People purchase the ‘why?’…

Check out Simon’s talk below. It may inspire you to re-think your communication of your ‘why?’.

http://video.ted.com/assets/player/swf/EmbedPlayer.swf

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Steve Jobs – Standford University Address

At its purest level the world of fashion is created by people following what they love and making products that allow for the expression of self. I came across Steve Jobs’ Stanford University commencement speech today and could not help but set the dots connect between what he is expressing and the work of the finest design minds.

For anyone looking to start their own creative pursuit faith in the dots joining together and following where you heart takes you is of critical importance. Enjoy and be inspired.

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