Building a DTC Brand through COVID: WK 4
Week 4: Self-Financing Your Company through COVID
“Building a DTC Brand During COVID” is a series written by Farah Azmi to serve as a discussion for starting a company amid a pandemic. The stories are meant to share personal experiences and is not in any way meant to promote a “correct” methodology. We hope readers find this informative and amusing and we welcome informed advice and active discussion.
When you’re an entrepreneur, you hear the stories of raising millions of dollars even before product creation. For example, Elizabeth Holmes of Theranos raised $400M on product that didn’t even exist or work. While her story is not the best example to follow, it’s made me wonder, how hard can finding money be? Well the reality is, for me, raising money is hard because:
Investors aren’t too hot on DTC apparel companies anymore with steep customer acquisition costs
Venture capital money implies I’m aiming to be a billion-dollar company – but considering Bonobos only sold for $300M, a billion dollar valuation is a long-shot.
There is an unconscious bias towards female entrepreneurs in a heavily male venture capital world. (2% of venture capital money went to female founded companies; see here.)
Lastly and obviously, COVID.
While I can easily deep dive on each of these points and spend hours discussing each, to keep it simple, I’ve decided to fund myself for the time being. This week, I’m discussing funding yourself on zero income (100% savings) and the tough decisions that go with it.
Before I begin, I want to acknowledge my incredible amount of privilege for me to have the luxury to self-fund my company. Considering the average savings account for single individuals under 35 is ~$2,800 (CNBC), I consider myself very lucky to have some money from my finance days in the back-burner. That being said (without giving the exact amount), I definitely don’t have enough to start a nation-wide launch as proven by my exorbitant loans that are currently funding my MBA. As for family money, my dad is a professor at a small-town college so I have no golden parachute. And lastly, if I compare myself to other friends who came from finance and how much they saved, I spent most of mine on undergrad student loans, frivolous items and vacations. In any case, I’m working with a very tight budget to prove my concept in hopes that I don’t clear out my rainy-day fund. Therefore, each decision that I make will be make-or-break.
Product Financial Decisions
Last week I talked about building my Minimal Viable Product (MVP) and making decisions to make my sample jackets. As you can imagine, picking the most financially sound decision dictates a lot of those choices. For one, fabric. Fabric is the crux of apparel. A little-known fact – at least to those who don’t work in fashion – fabric has minimum order requirements. I naively hoped that with made-to-measure I would be able to buy fabric as needed, but the reality is that I still must be willing to purchase the fabric upfront. Ideally, I’d only purchase enough to make 50 jackets (about 150 yards of fabric), but most distributors require me to purchase a minimum of at least 3,000 yards of ONE color. On top of that, my ideal fabric costs more than $10 per yard – so you can do the math of how much 3,000 yards would cost.
As I realize how much I would potentially need to spend on fabric, I just see my bank account draining. Do I really want to spend that much on fabric for product that I don’t even know will sell? Even if fabric cost me $3,000 would I be willing to do that?
Another option I saw was buying fabric at the New York Garment district at the world famous Mood store. Down-side here is they wouldn’t have enough yardage of one fabric to make more than maybe 5 jackets – in which case, would I be selling products with various fabrics. I can only imagine the consumer confusion of one person getting one fabric and another getting a completely different one. How was I supposed to sell clothes when everyone could get a surprise fabric selection? I felt like I was in a no-win situation here.
Fabric is only one aspect of the product costs; there is manufacturing location, fit models and more – but when you’re funding your own company, you also have personal financial decisions to consider.
Personal Financial Decisions
In the non-COVID world, my partner and I frequently ate out and traveled quite a bit. On top of that, in full transparency, I probably spent an above average amount of money on clothes, shoes, purses, and other ways for self-care. In a COVID world, a lot of those expenses are eliminated. I can’t get manicures. I can’t travel. I don’t need as many new clothes to just sit at home. Naturally, I’ve been able to redirect some of that money to my company. However, how about the things that I can still do like eat out occasionally or go on a road trip to go hiking? While these expenses seem trivial, it’s hard to decide if I should spend $20 today when I could use it on my company tomorrow. Do I spend on myself for those little moments of happiness? Or do I redirect all of it into my company?
To help with these financial decisions, I ran across this framework from a Harvard workshop which is a version of what Jeff Bezos uses for decisions at Amazon. I found it very helpful when I think about my own financial decisions.
For example, as I decide where to get my fabrics, I think about the highly consequential and highly irreversible decision of buying 3000 yards of fabric – a Type 1 decision. No matter how much I spin it, buying 3000 yards of fabric (in one color) doesn’t seem to be a logical decision at all. What if I don’t even sell one piece? I have no choice but to go back to the drawing board of figuring out how to make fabric work.
For my personal purchases vs. my company purchases, I’ve realized that giving to my company makes me just as happy as giving something to myself - sometimes even more happy since it’s contributing to bringing my vision to life. However, in this COVID world, I’ve learned to be a little more forgiving to myself. We’re all a bit disappointed at how 2020 played out. My advice: if a bottle of wine, takeout, or a new shirt can give you some happiness – do it. Take care of yourself as much as you take care of your company.
In any case, whether on a large or small budget, self-funded or investor funded, analyzing the right financial decision is incredibly difficult. You’re constantly wishing you had more money, but no amount of money will guarantee that you can deliver the perfect vision. At some point, you’ll need to make effective decisions for your company. My suggestion is to think about the consequences and your ability to reverse your actions such as the matrix above shows. Then when it comes to your personal expenses, it’s OK to weigh your own happiness into your financial decisions as well. At the end of the day, your startup is going to be your life. Make decisions that will make your company, your wallet, and yourself happy.
What financial advice do you have?
IXORA Apparel is an early stage start-up fashion brand founded by a Harvard Business School student. Our mission is to support women in their lives through the way she dresses while providing resources to support her in the workplace. We aim to provide made-to-measure trend-driven apparel for women, where everything is made-for-her and not made-to-stock.