Don’t Try This In Your Own HomePosted: November 11, 2014
We have been meditating in these posts (here, here and here) on some of the problems that arise when two or more people start and run a new venture. Many of the issues that arise are common to all businesses, but when it comes to fashion—especially fashion good enough and fresh enough to build a brand from scratch—the question of talent moves to the forefront. Whatever else the business might do, if it is going to succeed, someone involved with it right from the start is going to have to be either very talented or very lucky. (You will soon know if it was just the latter because, as things move along, talent tends to repeat itself and luck does not.) In its simplest form, whether in design, execution or just in knowing how to buy, talent is what you see when inspiration finds a means of expression.
Luckily, like a roast lamb with a robust Bordeaux and a fish salad with a chilled Riesling Spätlese from lovely parts of the Pfalz (just beyond where I own a turnip field with a unique terroir), talent in fashion pairs well with talent in business. It is a paradox of American life that, in a country obsessed with prospering in business, managers are not considered “talent.” But that is exactly what they are. If being able to run a business were not a question of talent, and if it did not require a truly deft intelligence and plenty of self-confidence, artists, philosophers and humanities professors would be running the Fortune 500.
Whether starting up or expanding is the question, however, no one is of greater importance, at least at that moment, than the person known in show business as “the money.” Seed capital can come from the venturers’ pockets (if deep enough), friends and family, crowd funding, banks and others, but as dramatized for effect on television in programs such as Shark Tank, money comes at a price—often one that appears disproportionate to the commitment made. You may well bristle at the thought of surrendering a healthy portion of the equity in your business to someone whose contribution is little more than writing a check, but that person knows all too well that without him or her, your dream enterprise will remain just that. (And think about it for a minute: do you really want that person providing guidance for your fall/winter collection? Maybe it is better if your investor is the strong, silent type.)
So sometimes, when it comes to handing out equity, you have to give until it hurts. On the other hand, mathematics tells us that equity interests can never total more than one hundred percent, so if you shell out ownership percentages in exchange for cash, advice, goods or services, keep in mind that your control ends when more than half the equity belongs to other people.
Whatever you do, always understand this: all divisions of that magic one hundred percent must be carefully documented. You have heard the expression “Don’t try this at home.” That applies double for anything commercial or financial, such as equity participation that has a legal effect. In our experience, few things have been more painful to read than important documents with binding legal effect that were written by non-lawyers who deceived themselves into thinking that they could save the money and do it themselves.
Life is too short to prove to yourself why you decided not to practice law: when legal issues come into play—as they will from day one—it is always best, for the calm and confidence of all, to bring your lawyer into the process. If you are a designer, think of it this way: would you let your lawyer design your wardrobe for you? Turn that around, and now you know why he or she does not want to see you writing your own contracts.
Credit: Alan Behr