The path from small start-up to fully fledged fashion empire can be a treacherous one, but there are ways to avoid the pitfalls that come with scaling up.
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Fashion retail is increasingly competitive, and has had its fair share of high-profile casualties in recent months. But for every fledgling brand that has gone bust, there are those that have successfully scaled up. The right people, proper funding and strong brand values are the key factors in moving from small start-up to booming business.
Cornish fashion business Seasalt and Kent-based kidswear retailer Childrensalon, for example, both started as single, independently-run shops and now have multi-million-pound turnovers. They have made the leap to become larger businesses with clear organisational structures, loyal customers and, perhaps most importantly, proof that they can sustain profitable growth.
However, there are several factors that present a challenge for smaller fashion businesses seeking to scale up, says Emma Jones, founder of start-up support network Enterprise Nation and co-chair of the government’s recently formed Small Business, Scale ups and Entrepreneurs Council.
“One is how to find the right talent, manage their recruitment and then motivate them,” she explains. “Another is finance, which involves looking at how much funding is required to scale and whether any extra is required. Production is also a key question, and then there’s how you grow as a leader to manage the financial pressure and requirements of an ever-expanding team. There’s a lot to think about.”
Investment is perhaps one of the most important early – and ongoing – considerations. Finding the right external investors takes a lot of time and effort, and some advise against jumping into the process too quickly, and risk becoming distracted or giving up control.
Womenswear etailer Sosandar launched in September 2016 with £2m in start-up capital from private investors. A year later it raised £5.3m through an IPO on the London Stock Exchange’s junior market Aim. In October, it raised a further £3m through a placing arranged by Shore Capital. This week, it revealed revenue growth of 219% for the three months to 31 December.
“One of the hard things is raising money at the same time as doing everything else,” says Julie Lavington, who co-founded Sosandar with her friend, Ali Hall. “We raised capital before we started the business, and it took a long time and a lot of presentations. We had to have a five-year business plan and we were questioned on every detail.”
Start-up funding is only half the battle. Unless a business is profitable immediately – and most are not – it will have to raise enough money to ensure it can continue to trade through unpredictable trading conditions.
Entrepreneurs must also find the right source of investment and there are a range of options, from crowdfunding to angel investment and venture capital.
“It’s hard to turn down money, but it’s important to work with people who share the same vision,” adds Hall.
Lifestyle brand and retailer Seasalt has come a long way since the late Don Chadwick bought a shop called General Clothing in Penzance in 1981, which sold workwear and army surplus to local fishermen and sailors. His sons, Neil, David and Leigh, worked in the shop, and in 2001 they launched the Seasalt clothing brand.
Today, Seasalt has 59 stores and more than 400 wholesale stockists, including John Lewis & Partners. For the financial year ending 27 January 2018, turnover was up 23% to £51m.
It completed its first round of external investment in September 2018, when it secured a combined £16m from Santander and investment company BGF. Before that, members of the Chadwick family used their own money, including personal loans, to finance the business.
“We didn’t pay ourselves for a long time,” says Neil Chadwick.
Although he admits this was “tough”, he sounds a note of caution about seeking external finance in return for equity: “Latterly we’ve taken investment, but we held out for a long time. I’d be reluctant to sell parts of the business too early on.”
Patrick Dudley-Williams is the founder of men’s clothing, swimwear and accessories brand Reef Knots and chairman of UKFT Rise, a network for fashion entrepreneurs. He makes a similar point to Chadwick: “I think there is huge pressure on small businesses to raise money and a belief that you can’t build a business without huge investment. As a 100% owner of a business with no debt, I don’t subscribe to that opinion at all.”
He advises brands to factor in enough of a profit margin to fund their growth: “Cashflow is the key to keeping small businesses in the fashion space alive. When your business is growing fast your collection sizes could be doubling or tripling in volume every year. If you’re a business that is not making the required margin on your product, it doesn’t take long for the maths to look pretty tricky.”
The right people
Wherever a young business finds investment, the money raised should underpin a focused recruitment strategy.
“Hiring the right team and then keeping the team on track and motivated is one of the largest jobs of the founder,” says Enterprise Nation’s Jones. “If this is not your strength, find someone who is capable in this area as soon as you can.”
Essential roles will differ depending on the business model, but Jones recommends hiring key people to cover sales and business development, operations, and finance. Depending on the nature of the business, a tech skillset might also be required.
Sosandar’s swelling team now comprises 25 permanent employees and five freelances, says Lavington: “Early on, we brought in someone who knew how to source fantastic product and a good ecommerce person who knew how to build and manage the website – those were our key areas. A year later we added things like finance and support functions.”
“We never employ anyone until we really need them,” adds Hall. “And we look for people who don’t mind rolling up their sleeves and doing the doing. Start-ups move so fast – they need to embrace change and be excited by the business.”
Chadwick agrees: “I would always prioritise attitude and initiative over CV skills when you are very small. You’re going to need people that can multi-task, get things off your desk and think on their feet, and are not afraid to get their hands dirty. I still fill in on the shop floors and in the stockrooms when we are busy, and I expect other staff to do the same.”
He also argues that a fashion business needs “a left and right brain that function together – creativity meets operational excellence”. Today, Seasalt is one of the biggest employers in Cornwall and its UK workforce totals 1,000.
Chadwick says the organisational structure has become more formal as the company has ballooned: “We used to bring these organisational charts out and our names were in all of the boxes. Over time we’ve replaced ourselves.”
As the workforce grows, the founder’s influence can be diluted – this makes it important to establish strong values and a clear culture from the outset.
Independent childrenswear retailer Childrensalon has grown at a phenomenal pace in recent years. Originally founded as a shop in Tunbridge Wells in 1952, in the year to 31 December 2017 it made £76m in sales, most of which came through its website. Its culture centres around the simple statement: “People before profit.”
“One of our biggest challenges with this has been keeping our company culture alive and well,” says Denise Hamilton, people team director at Childrensalon. “Sybil Harriman, the founder of Childrensalon, had the vision to dress children beautifully, with a very caring, personal service, treating every customer like a friend. This ethos remains today, and there isn’t anything we won’t do for our customers.”
The Childrensalon team speaks 32 languages, allowing the retailer to better serve its international customer base. It also provides garment measurements and personal shopping tips to make the experience easier, and, when possible, hand delivers orders if there has been a delay.
Similarly, Chadwick has worked hard to retain the company’s values, which include creating high-quality product, speaking to people as you would want to be spoken to, and being inclusive.
“Despite the investment we’ve had, and the fact we’ve grown into a much bigger business, we’re shopkeepers through and through. We’re acutely aware of our customer.
“We communicate our values through our team, but there are also the intangible things, such as the board always being available and visible. As we’ve grown, I’ve found that it’s become one of my main roles, to meet and talk to people in our shops and around the business.”
He adds: ”I think our culture is stronger now than it ever was. People have to buy into what you are building and it is your job as a leader to make sure that filters through everyone.”
Entrepreneurs must have confidence in their own abilities and vision, but this can be accompanied by periods of enormous self-doubt.
Jones says it is important to seek advice: “As you embark on the scale-up journey, questions and concerns will come in to your head each day and, especially if you’re a sole founder, it’s really important to have someone with whom you can share these questions and concerns. That could be a mentor, non-executive director, or expert adviser.
“The more you surround yourself with advice and support, the more you will be able to navigate the road to scale.”
For small businesses considering whether to scale up, the most important thing is to be prepared. With the right investment, team and culture, it is possible to avoid the pitfalls.
The next size up: how to scale your fashion business