When Kate Wood was retuning from her summer season buying trip in India for her business “The Dancing Feather". I met her en-route in Bangkok. Having agreed to be interviewed by me, there was no better time than as we travelled together to Melbourne together .
I was especially interested to hear how she is able to stay tuned in to the fundamentals of her business. She has many common sense ideas on what many see as complex issues, especially on buying and dealing with multiple suppliers in Asia.
My interest in Kate was not just paternal. The youthful enterprising approach she and her peers take is always refreshing and interesting to hear about. On this occasion i was also keen especially keen to hear about her approach in her business to financial management.
As one who has made her name in her own right, my Kate wanted to cut right to the chase and dispense with any preliminary questions, such as why and how she began.
So here is the text of our conversation that began with.
To kick this off, Kate can you tell me what is so special for you about fashion business?
Well when I think about it, the fashion business is no different to any other business I guess; You have to understand the product, the customers and your ability to match them to meet their needs and make a reasonable return on you investment.
Actually in any business where customers come to you, first needs a well sourced product that is in demand. With this needs an ability to package it with service value and then position competitively.
One thing I believe that may be special about fashion is an industry of risk at all levels as it deals at the high end of the retail consumer intangibles. So you need to understand what is changing and how to constantly re-think and re-model it. Only then you can you have at least some assurance that you can be on track to get a return on your investment. “
Ok, so what about the selling approach in the fashion business? How can you do that effectively and complete with the big guys?
Well in this business there is a saying, "The day you buy is the day you sell" So basically it all starts at that point. And if you get it wrong there is nothing you can do about it.
But once you have a good product landed you must also have a good place to consolidate and sell from. It is all then matter of scale. Customers build up habit and loyalty and want a familiar place to do that with easy access. Be it the internet or a physical location it is all the same. It can be anywhere as long as it is well located and consistently on view and promoted.
In the end people buy on two bases, being need or impulse and fashion is more the latter. So being a niche player with personally imported quality product that is different from the way the mass market works. Then as I said it is just matter of being in the right place at the right time.
Is it that simple or does it need anything else?
Of course. It is a business so you need all the pieces to work. One of the most critical pieces, not only in selling but in the whole business supply chain, is good people who empathize with the business philosophy and its culture to deliver the product and service well, They are the ones who make customers experience such that keeps them coming back.” That also takes some leadership, which can be very hard especially when it is your money at risk.
What about advice to a newbie, especially on financial planning?
she smiled as she responded with. "I made all the classic mistakes but somehow have managed to survived so far. But I do know now that to set up in business needs conservative thinking when it comes to money.
One ting is for sure, you always overestimate income and underestimate costs.
What about help. Do you ask your friends or get professional help?
Well I thought I was unique of course because I could do it all it alone and just get some friends to help when I needed it. But I learned that lesson the hard way. You of all people as a consultant know that is a huge mistake.
For a starter ideas have no place to go an test them and be held accountable.
Someone told me once that if you are working hard it is probably because you are not delegating. Being a hero and not delegating naturally limits you doing the more valuable work that cannot be done by others.
I also needed to find a mentor for my business ideas. And despite a coming from a business family, I needed some independent way to get a financial advice without paying an arm and a leg for it.
As for friends, well as they say there are no friends in business. But I don’t believe that My truth is I make my customers my friends by never letting them down Everyone else is basically a supplier, partner or an employee. You’d be surprised how many partners and employee are also my customers so i do get a lot of help from my friends.
As for personal friends a good rule is to keep that that way and don’t be tempted to help them out or get them to help you on any substantial basis. Like borrowing or lending them money it is a sure ay to lose them. For Family of course the rules are quite different again.
Now that you have some experience how would you advise someone on funding a start-up. Knowing what you know now would you borrow or just start small and go incrementally or do something else like finding a partner?
Ok, that a bit of a tough one. But to start with unless you have a kindred spirit and good timing together partners are just not there for a start up so most times you have to get out there and just do it yourself and learn before you can get a following.
And the only funding you are likely to get is cashing in some perfectly good investment or by getting a loan from your family if they are wiling. That will get you started with upfront establishment costs and fund working capital items such as stock, advertising, premises staff costs and so on.
The bank for sure will not lend to any old startup or of they do not without seeing a business plan that shows how the loan can be repaid . I found also found this includes projections on ability to grow and refinance internally things like increased more stock from profits and surplus.”
What about setting a vision. How do you that?
"Well when you start it all seems so simple. Just start and magically it will all happen. The notion it is easy to just go buy something and then with people will just buy would mean I would be very rich with a great life. Well Isn’t that so far from the truth? In reality you must have least some idea of what you want it all to look like even in two or three years out. And how it will works on a day to day basis to at least get your money back, Then grand plans to acquire Louis Vitton can then take their place as can the holidays in the south of France"
On money, where is a good source, the Bank a partner or where else?
"Well to start withy forget the venture capital person who underwrites niche startups with potential to grow rapidly. Unless you dream there are such fairy godmothers and I don’t, they are not likely to invest in fashion.
But for a newbie there are choices. One is to buy small business already established so you have some cash flow and a base to build on. There are people out there with life style businesses that have a good following. Getting one may bring immediate experience and goodwill to allow you to go to the next level.
Another approach and take a domino approach to building a brand in small steps until you have enough impetus to push into the next level. Even then you have someone support you like a partner with a regular job. But no matter who helps you with cash support, you must always account for it properly and do the ROI sums.
I was lucky my family helps by making me made me go though the rigor to justify to my self my financial plan was sound and I could meet my repayment obligations. Not passing muster on a that means you must always re-think. Don’t take a short cut and ignore this step as many do. And don’t let pride keep you going when even blind Freddie can see it does not stack up .“
You mentioned stock, and recurring costs How would fund this working capital?
Oh that is a real can of worms for sure, especially stock. Things like timing, packages getting lost, stealing, damages, obsolescence quality control returns all combine to destroy the margin. And picking the market right and making sure it is there on time can mean life and death for a season.
On the money side find I must must always have enough funds to carry me through until you get to the breakeven point. In retail with imports the norm, buying and selling has quite long lead times as you need to pay up front for season shipments that sell many months later. Very few traders will extend credit to a new business, so it is unlikely trade credit is an option. Once you get going it can change and then you have some leverage.
The problem is in any business growth is a drain on cash. Contrary to the pipe dream theory. One rule I have is the money I need for working capital must be generated by the business. In other words aside form the initial investment, to grow I use only the cash from profit to buy more stock
Also don’t try to pay the initial investment back in one season unless you are very lucky with windfalls on high margin stuff. It does not make sense as you cannot generate the same cash twice to both pay back a loan then fund the second season without borrowing part least of it again.
If it is possible that piece should be funded from you own equity so it does not have to go back.
The other rule is dump any stock that is not moving and quick. That is where you cash is and if tied up it will kill you quicker than a speeding bullet
What do you do if opportunities come your way for a quick buck?
I found very quickly that before you start getting any money back from sales it is a one way flow. You must be very stoic and monitor the plan well to maintain your confidence. So above all don’t panic or an buy something silly that is not in your plan. And buying something outside that guideline will leave you poor for sure.
Did Murphy’s law. ever apply to you and if so how did you stop him from doing damage?
Woe, I am not sure about Murphy but in India yes it is the norm for things to go wrong with great regularity, especially when you are not watching. It is so easy just to count the cash and think you are doing well. But as with any business with time lag, be rest assured the devil lurks in the detail. Calling the ostrich to help is bad. A head in the sand style of financial management may feel like a good approach, but believe me it rarely leaves you in good shape”.
Ok that’s great. You have the stuff and a process to sell it so what about measurement.
“That for sure is one thing I did not understand well that I need need a good transactions system to satisfy tax and regulatory needs and a good reporting system to measure results, Then you can could control things like sales and gross profit, expenses and cash and see how they ate doing against their plan.
Kate, as someone who lives by intuition I guess you have learned by seeing what is missing? Even for a YGEN some fatherly advice must have stuck.
Fatherly advice or not as you well know the XY generation do not listen and we are selfish. Which means we learn by stealth and watching and doing what others do. That is often not so good and we have to learn the hard way but you learn not to make the same mistakes twice and when you find something that works and is proven you stick to it. In my case being a complete individual who goes where angels fear to go, some dumb luck and some naive politeness has seen me through so far .
Ok so back to practical stuff . What about taking money out of your business, What is your criteria. Do to just take some when you need it, or is there a discipline to it?
There is one rule of thumb I have that one of my friends told me. He said you can only spend the profit and then not all of it. Otherwise you have nothing to buy more stock and grow.
So what I do is draw a reasonable regular salary that I must justify in my plan for the business and I never break that rule even when we have a load of cash.”
One thing your mention constantly, was a plan, what is that and is it formal? If so how do you do it ?
Well at first I did all my planning in a book at high level. You know ideas with a few sums. But even in the first season when I bought up a lot as I found re planning and modeling the outcomes at category level was vital. I found the category level is the best way keeps it going under control so I moved it into a more detail spreadsheet to track the sales and line items. It actually make my life eerier too. But when I realized I needed to copy and model my buying it was not enough to manage things that change. I have now moved it all into a database system with more analytical reporting tools. I find now I can model understand and control product and margins so much better.and my buying is much more focused on what works
I can also do much more clever stuff like work out who is buying what for a range of over the categories with nearly 3000 items that we sell through several channels including markets and wholesale.
As I have also begun to move into accessories and joint ventures on things like jewelry. So a good process for category planning and monitoring is vital to see impacts on things like bundling and so on .It also helps me a great deal on confidence as I see the numbers come in.
What about the cost of your systems and how do you afford them?
Well I having such advisory skill in the family meant I was lucky to save me the agony of learning what I needed. But I have to that the cost of the software and a computer to run it is nothing compared to the investment I had to make to get my business properly organized so it can work.
And frankly not even with all your help and advice it did not help me with what I had to myself. And that was to go through the pain and rigor to understand and properly define the processes and controls for my own business.
One ting I know for sure is without it I would not talking to you this way now.
So what about Lifestyle. I remember when you started out you said you wanted a lifestyle business Many people also have the notion that being in business is a way to get independence. What is your positions on that now?
Yes mine tooas you quite rightly state and I wanted independence to design. Then I realized the thrill and challenge of growing the business itself. Once on I was on the sharp end, even though success does not come easily, the alternative choice was obvious not for me.
I now see that an owner’s perspective must be, lifestyle must be seen not as the purpose but a benefit. And that only comes from the results of business success, So to that end I am still committed. That is my get out of jail recipe so I can have my cake and eat it too.
Ok that’s great but doesn’t doing design conflict with doing the business
Yes for sure and I need to be careful on the mix. Working in the business is not the same as working on the business and I also know being in business is for one reason only and that is to take care of customers to make money. To think any other way means we should go and work for someone else.
But let’s face it, working for customers directly is still one of the best jobs on the planet. So I combine them both by making quality and good design the base of my products. Be-it mine or someone else’s I figure why not do my customers a favor and run my business well so i can be there for them in long term too.
I had that discussion with Kate’s some time ago and her advice continues to resonate with me as I also consider her ideas for customers of our advisory business. As one who likes to quickly deal with the fundamentals of vision and mission and the various venture execution models I can use this well to cut to the chase. Her experience gives me great confidence do do that.
Kate despite getting started during the recession and being new at your business it is doing just fine. It would seem your labels are doing well and The Dancing feather distribution outlet is doing fine too.
My final question to Kate was
With your success now, given all that you have learned and have been through to get there , is there anything you would have done differently if could start over again?
"That is an easy one. I would never have started"
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