Authored by Áslaug Magnúsdóttir and can also be found here: http://is.gd/VotI1m
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?
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:
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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