Finding Your M.O. | Part 2: The Need For Speed

A look from Matthew Williamson SS12 | Source: Moda Operandi

Finding Your M.O. is an on-going series penned by Áslaug Magnúsdóttir, co-founder and CEO of Moda Operandi, on her experience at the helm of a fashion-technology start-up. In Part 1, we looked at the path from big idea to launch. Today, we tackle the topic of growth.

NEW YORK, United States — 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.

Part 1: From Big Idea to Launch

Aslaug Magnusdottir is co-founder and CEO of Moda Operandi

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11 comments

  1. Thanks for sharing your story Aslaug. What I am curious about is, why does a business like yours need to raise so much? From what I understand, it’s a preorder business model where it is not capital intensive – the company does not have to produce or buy and keep inventory. So where does the 36 million go to – offline and online marketing, salaries and travel to meet designers?
    Does one need 36 million for this type of business? Hope you can provide more insight as it’s quite an eye opener for me and a great learning experience. Thank you!

  2. the writing is uninspired.

    anne from Barcelona, Catalonia, Spain
  3. I have to disagree on your generalizations on angels and VC’s (and this comment might be helpful for anyone else looking to raise money.) When we did the investor circuit, we were told there were three types of investors: FFF’s, angels, and VCs. FFF stood for Friends, Family and Fools, and that would be your rich uncle. The angels we met were extremely business savvy and were looking to invest their personal wealth (that they had most likely made from running their own business) into small businesses that had parallels to their own. All of the angels we met with had something to bring to the table (aside from money, they had that, too) and wanted to be involved in the business. We felt we were getting not only money, but a guardian angel and a business advisor. When it came to VCs, we pitched at a group conference (don’t know the official term for this) alongside tech companies, pharmaceuticals, and someone who built rockets. As a lingerie company, we felt totally out of place, and the investors had no idea how fashion worked. The other companies were looking for 1, 2, 5 million, we were looking for $500K. It felt wrong for us, and at that stage we knew it wasn’t the type of investment we wanted to grow a small business. I wouldn’t recommend VCs for a smaller company’s first round of funding. (On an interesting note, the VC’s we met were the ones that eventually invested in Agent Provocateur. So I guess they learned a bit more about lingerie, and realized that the best way to invest into a lingerie brand is not to constantly ask the female directors if they are “wearing the lingerie.”)

  4. I disagree with Anne, really enjoyed the article – insightful, straightforward and loved the metaphors.

    Claudia from Sydney, New South Wales, Australia
  5. Dear Aslaug,

    I’m thoroughly enjoying reading these articles. I hope there is more to come!
    I am at the stage where I have decided to “get big fast” – your experience and knowledge is incredibly valuable.

    Many thanks,
    Parm – London, UK

    Parm Manhas from United Kingdom
  6. I loved the article; we are at exactly that stage of the debate ourselves, talking to private investors whilst running a race we know we can win, building and improving as we go. It’s nice to know it’s a strategy that can work!

  7. Like the first commenter, I’m also curious why you need so much money? We are just beginning to look for investors and are debating how much money we need and how much we should raise. I’d love to see a post talking about exactly where the money should be allocated and how much should be saved for a rainy day. Thanks!

  8. I really enjoyed this article, as I am currently in the process of setting up my own business and my only dilemma at the moment is choosing a partner or go it solo. Choosing investors etc…Thanks

    Ashley Ching from Rugby, Warwickshire, United Kingdom
  9. I read this article again, with new insights. I take back my earlier comment! Thanks for telling us so openly (also in later parts of the series) about how to handle the different decision points that come with starting a fashion business.

    anne from Barcelona, Catalonia, Spain
  10. Insightful piece. Thanks for highlighting the difference between perfecting the business model/product before growing AND growing after perfecting the business model/product

    Rolake A. from Cornwall, ON, Canada