The Business of Fashion
Agenda-setting intelligence, analysis and advice for the global fashion community.
Agenda-setting intelligence, analysis and advice for the global fashion community.
Back in the beginning of 2019, Hims, Inc’s Andrew Dudum was, like many founders of venture-backed startups, prioritising speedy growth over everything else — including profitability. After all, Hims, which launched in November 2017 offering stylish, modern products that addressed areas of men’s wellness that were hard to talk about — like hair loss and erectile dysfunction — was on fire. In 2018, its first full year in business, the company generated $27 million in sales. The next year, it launched Hers, a similar concept for women, and sales more than tripled, hitting $83 million.
“This was a time when smart people in Silicon Valley were talking about burning [cash] faster and faster,” Dudum said. But when he presented his revenue plan to his board of directors, Jules Maltz, a partner at late-stage venture capital firm Institutional Venture Partners, sat him down and advised him to rethink his strategy. “Jules has the unique ability to sit in a boardroom, digest what’s being talked about and say, ‘Here’s the one thing that matters.’”
In this case, Maltz advised Dudum to grow more slowly, bringing margins up from 20 percent to 50 percent.
Dudum listened, even though it wasn’t the generally accepted wisdom at the time. (It was just a few months later that the implosion of WeWork helped to begin to change the mindset.)
He believes that the change in strategy is a big reason why the company was able to go public through a special purpose acquisition company (SPAC) in January 2021, reporting a gross operating margin of 76 percent and near-profitability.
“Having people that you know are experts at certain elements and leaning on them has done me very well,” Dudum said. Other appointees to Hims’ board include Forerunner Ventures founder Kirsten Green —whom Dudum pursued as an investor, then a board member, for her understanding of consumer brands — and Dr. Toby Cosgrove, M.D., the former chief executive of the Cleveland Clinic and a pioneer in telemedicine. Most recently, he brought on David Wells, the former chief financial officer of Netflix, for his experience running a public company.
A board of directors can play a critical role in the trajectory of a new venture. Board members can help shape critical elements of a start-up’s strategy, offering insights and advice based on their own experiences. In the past, small fashion and beauty brands didn’t typically establish a formal board. But as young companies raise money from venture capitalists, private equity firms and even the public markets, boards are playing a bigger role.
Boards not only exist to give founders and executives advice. They play a key role in company governance, ensuring the founder’s strategy is being audited on behalf of shareholders on a quarterly basis. Often, big decisions — such as finalising an annual budget, launching a major new initiative or signing a long-term lease — can only be taken with board approval.
The right investors, outsider expertise
Alongside founders, boards are typically composed of investors who negotiate a seat at the table as a part of their investment terms. Choosing investors to serve on your board goes hand-in-hand with choosing investors in the first place. Dudum, a serial entrepreneur, said that one thing he advises new founders is to choose investors who are the right fit for the company, not the hottest venture or private equity fund around.
You could work with the best fund in the world and have a partner [as a board member] who is totally useless.
“When you’re raising money in the early days, so often you’re prioritising external validation, the name brand of the venture fund,” he said. “You could work with the best fund in the world and have a partner [as a board member] who is totally useless. Putting the right people around the table is the way to stack the deck in your favour.”
Independent directors can add significant value to a board, especially if they have complementary strategic experience. Many will also have experience making exits, meaning that they have either sold companies or floated them on the public market, so they can help advise founders when they are ready to sell the business or take it public.
(Independent board members do not have an existing stake in the business and are typically paid through a yearly salary, equity-based compensation or a combination of both. While directors at big companies can get paid $150,000 or $200,000 a year to sit on a board, most startups pay by offering a mix of a smaller salary and equity.)
“Most founders come from one specialised area. A retail exec may not know tech. A tech exec may not know retail,” said Sukhinder Singh Cassidy, founder and chairperson of TheBoardlist, an online search tool that helps chief executives find board members from underrepresented backgrounds. “There are all of these skills that you don’t don’t likely have. Can you rent the mind that isn’t coming to your startup anytime soon?”
Bringing on a board member with operational expertise — say, a veteran retailer if your roadmap includes physical stores — can be advantageous in scaling.
Eyewear maker Warby Parker, for instance, went from being online-only to operating more than 123 stores across the US, with more on the way. Early on, the executive team needed advice on how to properly execute on physical retail in an era when online sales were driving the conversation. “We wanted to build stores that offered seamless, omnichannel experiences that furthered the brand and maintained our healthy margins,” said co-chief executive Neil Blumenthal.
To help plot out that expansion, the company turned to veteran retail executive Millard “Mickey” Drexler, whose experience running Gap, Inc. and J.Crew — as well as several years spent on the board of Apple — was compelling to them. Before inviting Drexler to join, Blumenthal and co-chief executive Dave Gilboa met with him more than a dozen times, visiting stores and discussing strategy.
“We have always spent a lot of time with prospective board members, getting to know them and understanding how they would advise and contribute,” Gilboa said. “Diversity of experience and thought are critical to enabling important strategic discussions. Yet at the same time, directors need to have a strong rapport with one another and with management teams.”
The company’s current board is a mix of strategic advisors and investors. Along with the four co-founders — Blumenthal, Gilboa, Jeff Raider and Andy Hunt — and Drexler, other members include Teresa Briggs, a former managing partner at Deloitte with extensive experience in non-profits, Harvard Business School professor Youngme Moon, investor and philanthropist Lee Fixel and General Catalyst Partners managing director Joel Cutler. Briggs was tapped for expertise in corporate responsibility, while Moon’s focus is on innovation and younger consumers. Both Fixel and Cutler regularly invest in consumer brands.
Recruiting another, more-experienced founder to a board can also be beneficial, since they will have likely experienced many of the same roadblocks a start-up faces while building their own businesses. Stitch Fix chief executive Katrina Lake, for example, sits on the board of Glossier.
“I really admired Katrina as an entrepreneur and CEO who was two-to-three steps ahead,” said Glossier chief executive Emily Weiss. “Two-to-three steps means they can say, ‘When we were there, we specifically did this,’ which a much more scaled operator can’t speak to as directly.”
Weiss said Lake offers tangible, tactical advice, advising on everything from international expansion to customer acquisition costs to warehousing and logistics solutions.
But not every founder is comfortable appointing that first independent director. Some are concerned past experience may not help much, especially if the founder is aiming to disrupt a business in which would-be directors found success. Others don’t want to give up more equity, especially to someone who hasn’t invested their own money into the business.
This is a mistake, said Nick Brown, co-founder of Imaginary Ventures, which holds stakes in several fashion, beauty, lifestyle and food brands, including Mejuri, Skims and Universal Standard. “It’s disappointing,” he said. “The problem is that it becomes item number 32 on your to-do list, and it’s actually super important.”
A strong board doesn’t guarantee that a business will be successful, but it does indicate that the founder is open to constructive criticism and feedback.
Betsy McLaughlin, the former chief executive of Hot Topic and a member of six boards, including Everlane and Dolls Kill, said that one of her roles as an independent board member is to act as a bridge between founders and their investors, who sometimes have different priorities. (A founder may want to focus on carefully managing the brand, while an investor might be set on driving rapid growth.)
Oftentimes, it’s about having to navigate through different opinions. The board can come up with a cohesive point of view.
“Oftentimes, it’s about having to navigate through different opinions,” she said. “The board can come up with a cohesive point of view.”
The best boards, McLaughlin said, are formed when the chief executive and founder has been very purposeful about vetting the background of each board member. Not only in terms of expertise, but also in terms of life experience.
Building a board that is diverse in terms of both race and gender has never been more important, said Karen Harvey, an executive recruiter and founder of the Fashion Tech Forum. “If a founder is not a person of colour, then they don’t know what the experience is of underrepresented talent,” she said. “So while it’s extremely important to bring underrepresented talent into your team, it’s also important for your board.”
In 2020, the percentage of searches on the Boardlist for directors from underrepresented backgrounds increased by 55 percent from a year earlier.
“Among other things, a demographically diverse board is more likely to represent the composition of a company’s employees, customers, and suppliers and can therefore provide a board with a better understanding of the company’s key constituencies,” wrote Jared L. Landaw, an activist investor, in Harvard Business Review in June 2020. “A demographically diverse board may help a company identify and respond to market shifts and changes in consumer expectations more effectively than a homogenous board,” he added.
Even founders who are not quite ready to assemble a board of directors should be thinking about this, according to Olamide Olowe, co-founder of rising skin care brand Topicals. The line, which launched in the summer of 2020, hasn’t even raised a Series A round of funding. But in lieu of a formal board of directors, Olowe assembled a board of advisors with expertise in science, medicine and retail to help guide during this nascent stage of development. All four members of the advisory board are women, and two are women of colour.
“We just made sure that every single person had deep experience and was really connected,” she said. “Women in high places can open doors for you.”
Founders looking to strengthen their boards should also remember that, in the start-up world, terms for joining a board are flexible. Many founders invite prospective board members to join as “observers” for a set period of time before officially signing them on to ensure they’re a good fit. Sometimes, they’re not, either because their expertise doesn’t match up or because they have too many obligations and are unable to devote the time needed to be effective.
And while public companies typically seek out board members who will serve a number of years to ensure continuity, newer companies can sign on board members for one- or two-year terms. “Your company is going to look very different in two years,” Cassidy said.
So if someone doesn’t work out, it’s not forever.