Representing the creative future

Going Under: Everything you need to know about running a successful business

Fashion business insiders Zach Duane and Gautam Rajani share their words of wisdom on keeping a small business afloat, at the Sarabande Foundation

The disparity faced by many creatives as they launch their careers is trying to balance their creativity with business. Starting a small business is no easy feat on its own. It’s even more of a struggle when you’ve just left design school and suddenly you’re working four or five different jobs in addition to being a designer. Accountant, social media manager, copywriter, press manager, they’re all jobs that whilst being essential to the operation of a brand are often never taught or even given a basic introduction during a design or creative degree. Last Thursday evening, a room full of budding business owners and future CEOs eagerly gathered in Haggerston, at the Sarabande Foundation, to hear Brand and Business Development strategist and Former Vice President of International Business at Diane von Furstenburg, Gautam Rajani and Managing Partner of ABLT Group Zach Duane who’s a specialist in supporting early-stage consumer businesses, share their insider information on braving the storm that is running a business, and making it a manageable journey.

The duo discussed the difficulties in navigating the disparity of splitting your time between your design practice and managing the day-to-day intricacies of a brand, breaking down complex financial jargon, and the impracticalities of trying to manage everything on your own. Over the course of an hour, they covered a range of topics including Cash Flow, Talent & Staffing, The 4 P’s, and Logistics, with an emphasis on being realistic about what you can do with your available resources.

“When you pay a factory you have to pay a deposit, so collect a deposit from a stockist then use it to cover some of your other costs.” – Zach Duane

They started with Cash Flow, understanding your business outgoings, and staying on top of your finances. “The rule of thumb with cash flow is, if anyone owes you money, collect it,” stated Duane. “Most department stores really know that young designers and early-stage businesses need cash paid quickly. So, if you push for it, generally speaking, they will pay you […] push for a deposit, which is really important to have because, of course, when you pay a factory you have to pay a deposit, so collect a deposit from a stockist then use it to cover some of your other costs,” he continued, detailing the ins and outs of negotiating with stockists and ensuring you get paid when you should.

“You’ll find that a lot of factories and companies will pretend to come to your rescue. Be very careful,” Gautam warns. “They’ll tell you we’ll fund your production and you don’t have to pay until Selfridges or Harrods or Net-A-Porter pays you, you can save 100 grand and pay factories, and the money from future payments 60 or 90 days away can go towards the factoring company.” Sounds all well and good, doesn’t it? “Guess what! The 90 days becomes 120 days, the factoring company pushes that loan back onto you and then you end up paying a lot of interest, so be careful.”

“If you’ve got a digital shop where you’re selling directly to your customers online, and doing well there are new alternatives to factoring. PayPal, Shopify, Clearbank these guys are providing short-term, what’s called working capital loans. Because they have your data they’re seeing how you’re trading, they’re lending money against your future sales. They don’t lend very much but it all adds up,” Duane adds, detailing some of the new ways which have made running and funding an online shop much more straightforward.

“If you had to close your business today and you owed loads of money, your business is not in a great shape, if you’ve got loads of surplus at the end then your business is healthy.” – Zach Duane

“Profit loss is different from Cash Flow. It’s different accounting rules that allow certain things to be included in your profit loss.” Duane continues on the topic of controlling your expenses. “A Balance Sheet is a very different beast. It’s essentially looking at assets that you have: stock, cash in the bank, money that you’re owed, debt, patents that you own that you need to pay so it’s essentially the health check of your business. If you had to close your business today, you would sell your assets and pay off debts, but would you come out of it clean or would you come out owing loads of money? If you owe loads of money, your business is not in a great shape, if you’ve got loads of surplus at the end then your business is healthy,” he adds, identifying the importance of analysing your numbers as a way of forming your business plan.

“As designers, we all want to have collections that represent our vision of the brand, but how much of that is realistic to go into production? How much of that’s realistic for you to pay for? How much of that’s really needed?” – Gautam Rajani

“It can be a frustrating process but it’s very important,” adds Rajani, “make sure you do it because that’ll allow you to realistically forecast your business and not have any surprises, very often people who don’t have business plans or aren’t constantly monitoring this you come to the end of the year and you’re like: ‘Shit where’s it all gone? What have I done?’ It’s important to do it, and to keep redoing it.”

“As designers, we all want to have collections that represent our vision of the brand, but how much of that is realistic to go into production? How much of that’s realistic for you to pay for? How much of that’s really needed?” Rajani explains. “How can you make it palatable for your business so you can fund it, is an important question to ask as well. That’s when having someone like a merchandiser is useful, they can say which boxes you need to tick.”

“I would avoid personal guarantees when taking on debt at all costs because it’s one thing for your company to go bust it’s another thing for you to end up personally liable for any debt.” – Zach Duane

Secondly, the two speakers introduced the often tricky subject of Credit Terms. To explain it simply, Credit Terms is how long your factories and production sources will give you to pay up. “It’s really difficult today to get credit terms,” said Duane, the former CEO of Victoria Beckham Limited. “As a new business you’ve got no track record and factories won’t be able to get insurance against your account because you’re new. But I would say, it’s really worth trying as a CEO, going and getting to know the factory owners while you’re doing business transactions, because it’s easier to try and push them to give you better terms, whatever you can do to get those and good suppliers is going to make a real difference.”

Duane and Rajani then went on to discuss the often avoided topic of Debt and personal finance, something which is impossible to overlook when starting a business, “I would avoid personal guarantees when taking on debt at all costs because it’s one thing for your company to go bust it’s another thing for you to end up personally liable for any debt,” Duane explains. Personal Guarantees here mean that if your business becomes unable to repay anyone, the individual owner (AKA you) assumes personal responsibility for the balance – something which both speakers strongly advise against, for obvious reasons. “If you’re fitting out your office or studio look into a CapEx loan, it’s a term loan like a mortgage on a house and you can always try and push your bank to give you an overdraft facility.”

Working Capital is how many cash you have in hand in case of emergencies and in case of unknown expenses that come into your business.” Rajani continues explaining the meaning behind all the different economic jargon we hear being thrown around in meetings. “A lot of small fashion businesses tend not to have enough working capital to even make the expenses you know are coming up, like rent, salary, god forbid if you have a trademark issue or a legal case coming your way, you know any of those things and if you have no working capital you’re sort of in a pickle.” So that’s definitely a pretty important thing any budding brand founder needs to keep in mind.

But how can we generate enough working capital to ensure we are able to implement good business practices like paying employees on time, keeping up with your rent and orders, and not being constantly under the looming pressure of going bankrupt?

When running a small business there’s huge potential in identifying Alternative Revenues, which for designers often come in the form of collaborations with larger brands. “You’re coming together for mutual benefit,” Rajani says, identifying the power in merging your expertise with the resources of a larger and more global entity. “It’s something as simple as speaking to a larger brand or retailer and being quite honest about creating something for them that’s special and unique and then they’ll back you with finances to bring that capital to life, and of course you can get a fee when you’re doing a collaboration which allows you to bring in an extra channel of revenue as a designer.” The extra revenue from the big money brand deals is a huge opportunity for designers to put finances back into their own brands and business ventures.

The conversation moved to the topic of investment and shareholders; the difficulty of investors putting pressure on small brands to scale up too quickly which is often detrimental. “There are alternatives and a number of operating groups who operate differently, they have an office, finance department and their own HR and they do invest in brands – the group Tomorrow and New Guards Group in Italy.” Tomorrow LTD, mentioned by Duane, is one of the new guards of London-based firms who aim to platform and foster talent through investment and currently represent some of the industry’s hottest names including Coperni, Nensi Dojaka, and Bethany Williams. “They have the capacity to scale these brands cost-effectively but it is a form of investment, so you’re effectively giving up a stake in your company in return for some capital but also some support.”

“Everyone’s competing for the same customers, even if you’re short on finances you do need to be creative and think about how are you going to connect with the audience.” – Zach Duane

“Just a word of caution there,” Gautam Rajani interjects, bringing some of his knowledge gained from running his own fashion brand to the table. “There are big names that you know we all aspire to be on the same level as and a lot of them have given up majority stake in their business to the detriment of their investment so one thing I would do is read the fine print. Make sure you don’t lose control for temporary gain.”

“I think that the one area that I always find young businesses or even not so young businesses under-investing into is what we call promotion.” Zach Duane moves the conversation onto the topic of actually making your product desirable to potential customers. “You can spend on making lookbooks, producing content or imagery, but sometimes people aren’t doing anything beyond that, but it’s a competitive space. Everyone’s competing for the same customers, even if you’re short on finances you do need to be creative and think about how are you going to connect with the audience.”

“Just always ask yourself the question: for every pound you’re spending, how many people are seeing that one pound being spent?” – Gautam Rajani

“Historically, a marketing budget would be 80-90% on trade […] fashion shows for editors and buyers then the rest would go to drive that sell-through,” Duane continued. “Every successful business I’ve seen recently has a completely different approach, they’re doing a 60-40 or 40-60 split, so they’re holding more budget to make sure they’re doing something when the collection hits the shop floors, promoting products and telling a story to people who are actually going to buy the collection. I can tell that it makes a massive difference to the sell-through.”

“I see lots of amazing talent and designers who are terrible business people.” – Zach Duane

“Just always ask yourself the question: for every pound you’re spending, how many people are seeing that one pound being spent?” If it’s between a  window at Harrods or a fashion show, the window at Harrods would probably have hundreds of thousands of potential customers walk past it versus a beautiful presentation that a smaller number of people will come and take a look at. Always think that; with every pound you’re spending how many people are really looking at it?”

“Most designers that we know, have had someone who is really good at business and takes it on whilst still caring about the business as much as they do.” – Zach Duane and Guatam Rajani

But what becomes more and more apparent throughout this talk is that most fashion designers often aren’t taught to think about their brands with this strategy in mind. “I see lots of amazing talent and designers who are terrible business people,” Zach Duane says, prompting a self-deprecating flurry of laughter from some audience members. “It’s not because they should be good business people, that’s not their skillset that’s not what they’ve studied, I always say that make sure that for all the areas you’re strong in you have someone else to cover the areas that you’re weak in.” He continues, pushing the importance of building a strong team of employees, mentors, and business partners.”

Both Zach Duane and Gautam Rajani agree that sharing the load of building a business is one of the best moves you can make. “Most designers that we know, have had someone who is really good at business and takes it on whilst still caring about the business as much as they do.” It’s also something that big investors also keep an eye out for, Duane explains. “They much prefer businesses where there’s that yin and yang; someone who is going to push the creativity forward in a non-compromising way and there’s the voice which pushes sales, profits, and growth – and having those two individuals working together and finding a balance is much more attractive when you’re putting money into someone’s business.”

“Having those complementary skills that you need in a business, can alter your business model,” Rajani adds, identifying why so many brands often have multiple people working at high levels in roles. “We all grew up thinking we had to be in every branch of Nordstrom, of Saks, and every single door of Selfridges.” He continues, moving the conversation onto the topic of Wholesale vs Direct to Customer (D2C). “There were brands which did incredibly well from it, then we went back to thinking wholesale is bad and D2C is the way forward, have a robust online business which is not easy if you’re a new brand I will tell you that. And the difficulty is identifying what platform to work with but then how do you get the audience to actually go there? In order to find a ratio that works for you, there is no correct formula, it differs and it changes.”

“No one has the perfect business model, you have to be curious and find the one that works for you and experiment with it before you commit.” – Zach Duane

Zach Duane continues the discussion by talking about the importance of testing a product, bringing in his CEO knowledge. “In fashion, you’re committing yourself to a business model before you’ve had any feedback. I see loads of interesting business models developing like Palace and Supreme who started the whole drop content back in the day. No one has the perfect business model, you have to be curious and find the one that works for you and experiment with it before you commit, that’s my advice.”

“If you only have enough money to make one product and you know you can get it to the right person who will then get you the right audience, go along that route.” – Gautam Rajani

“Talk to your customers and act on feedback I think that’s also very important,” Gautam Rajani shares about Customer Feedback. “There will be times when you piss somebody off, don’t shy away from that situation use it as an opportunity to speak with them and fix the problem, they will be your most loyal customer in the future, that’s how you start building market share, you build a community around your brand.” He identifies the importance of interacting with your customers and implementing feedback. “If you only have enough money to make one product and you know you can get it to the right person who will then get you the right audience, go along that route. No harm.” Moving the discussion to promotion, especially in the form of Social Media and Working with Influencers, “digital exposure is so easy and will get you the cash you need.”

“Don’t be afraid to take time as long as you can afford to run the business efficiently, it shouldn’t necessarily have to happen immediately. As long as it takes, make sure the journey is one you can sustain.” – Zach Duane

“Think about Ganni,” Zach Duane says, naming the Danish brand, infamous for its green check dress that made them a world-famous global fashion label. “They gave it to shop girls and people who worked in cool bars in East London. And that’s how they started, and now that business is a multi-million-pound business. Don’t believe that you only have to be dressing the biggest celebrities. It has to be real.” But sometimes such monumental success takes time. “They were going for 20 years as a small brand in Scandinavia, then they found a recipe that worked. Don’t be afraid to take time as long as you can afford to run the business efficiently, it shouldn’t necessarily have to happen immediately. As long as it takes, make sure the journey is one you can sustain.”

 

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