The basics of business building

Luxury boutiques in Miami

Text: Douglas Hand // Photo: Mr. Interior / Shutterstock.com

The ongoing retail transformations have made the business environment for fashion brands unquestionably more complex. Fast fashion retailers, flash sales, consumer-to-consumer sales, e-commerce subscription services with product personalisation and other bespoke retail experiences are leading the business of fashion into new territories. While this translates to heady times for consumers and retailers alike, this volatile environment is also offering great opportunities to fashion startups—provided they take into account a few basic principles.

The importance of planning ahead

In an ideal world, designers would only need to bring their creative talent to the table and their business would be ready to take off. Unfortunately for them, that is not feasible in today's business environment. Creatives need to wear a lot of hats and make tough decisions, especially in an early stage of their company. For a brand to survive, it's essential for the founders to keep their feet on the ground and plan ahead as early as possible.

One of the most important aspects of establishing a venture is setting a realistic budget for all areas required to run the business, ensuring as little friction as possible between departments in the long term. A very common mistake among creatives is not allocating an important portion of their budget to administrative elements and focussing a disproportionate amount of funds to design, marketing and PR. While these areas are inarguably important (and probably more appealing due to their nature), every company needs to secure and maintain a budget for legal, accounting, insurance, and HR, among others—even if they are less stimulating to deal with.

Designers should set realistic budgets for all parts of their business and not just the ones that seem more appealing to them.

Brand name selection (trademark registration and maintenance) is another area where, quite surprisingly, I often see missteps. I’ve had prospective clients come to our firm with two years of operations and growing sales—viable brands—and admit that they do not have a registered trademark or even a pending application for one. Considering that the vast majority of branded fashion companies consist of nothing more than designers and marketers (as they outsource production to factories and typically outsource most sales to wholesale accounts), the main asset from a company value perspective, is the trademark. If it’s not properly registered, then the business is really building on sand. If the goal for a company is to become global, the viability of the brand name as a trademark should be evaluated on a worldwide basis. Unfortunately, that is not often the case. On the other hand, if the goal is to sell the brand at some point, then using an eponymous brand name should be avoided or the implications of using it should be considered before doing so. Again, this is often not done.

Employment decisions are also a category where I see errors made. It may be a matter of not knowing what talent fits into specific roles, or certain new hires' inability to work well within a start-up, but there can be a lot of employee turn-over (which raises the spectre of potential legal issues). Other legal issues creatives may not be attuned to when making early hires include: the distinction between “exempt” versus “non-exempt” employees (which relates to overtime calculations); the distinction between independent contractors and employees (which relates to proper tax withholding, workmen's compensation payments and work-for-hire provisions) and unpaid internship programs and misuse of interns under current labour laws.

Understanding your needs is essential

For some designers, their innate facility with the creative process may preclude an aptitude (or any willingness) to focus on certain more linear, rational or even mundane business issues. In many ways, it is the classic left-brain/right-brain dichotomy: left-brained service providers (lawyers, investment bankers and accountants) trying to communicate with right-brained designers.

For lawyers who specialise in fashion, communicating effectively with a designer means having already established a solid understanding of the creative mind. They can approach their business issues with easy to understand solutions and articulate alternative approaches explaining in detail the real life consequences.

For a brand to survive, it's essential to keep its feet on the ground and plan ahead as early as possible.

For brands working with lawyers who do not have an expertise in their industry, the founders need to be very focused on precisely what issue(s) they want resolved. Legal fees can escalate quickly if a lawyer is essentially learning about an industry problem and charging the client for that education. Getting a fee estimate is always wise and if it seems high, shopping the matter around to other reputable firms is highly advisable.

The path to growth

Once designers break-through with consumers and enjoy relatively stable sales, typically the next challenge is obtaining growth capital to expand, both geographically and with additional product categories. At this stage, the choice of an investor and a realistic evaluation of their investment criteria are very important for the future.

Most investors, outside of friends and family, are looking for a return on investment and will have a very specific timeline in mind. In cases where the creative founder is looking to build a bespoke legacy brand that outlives its founder, many types of investors (venture capital firms and private equity firms namely) may not be a good fit.

Selecting the right investor can make or break a brand.

Another example is when a creative founder is looking to focus on their own brand and is not willing to design for another company. This means that certain strategic investors (for instance, LVMH which often uses designers among its luxury brands to design for other portfolio companies it owns) may be less ideal partners.

Designers of successful brands recognise the fashion business is complex—much more so than other industries. Adhering to good business principals is fundamental, however, for the reasons explained above, it is not always obvious to many designers. The companies that prosper are those that seek out and retain service professionals who understand the industry and can effectively bridge the designer's vision into a concrete business reality.

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