What makes a brand successful? It depends on who you ask…and who is holding the purse strings.
Taylor Holiday (the founder of Common Thread Collective) recently interviewed Nate Poulin (aka @DigitallyNativ). They are two of the brightest minds in eCommerce, and the entire video is worth your time. I embedded it at the bottom of this post for your viewing pleasure.
But what inspired me to write was a big question that came up early in the interview: what makes a brand successful? Nate and Taylor have two very different perspectives on this.
From Taylor’s POV a brand is successful if it can provide financial freedom to the founder, either through an exit or through profit margins fat enough to take cash out of the business while continuing to grow. From Nate’s POV a brand is successful if it can command healthy margins over a sustained period of time. Taylor is envisioning the bootstrapping founder, while Nate is envisioning generational brands like Ralph Lauren.
The irony: these distinct perspectives illustrate the challenge in defining success in eCommerce (or in any business). Your opinion is only meaningful if you have skin in the game, aka a financial stake in the business being discussed. So both Taylor and Nate are right…and wrong. The only person (or people) who can answer the question are the brand’s debt and/or equity holders.
Why do I think this is noteworthy? As an employee, your work life will be better if the company’s objective aligns with your own priorities. The company’s objective determines how they respond to a given situation, which shapes the company’s culture and its expectations of its employees.
How Different Funding Models Define Success
To illustrate this point, here is a rundown of common funding models, their priorities, and how that shapes the nature of the job.
Venture Capital Funding
What It Is: A venture fund pools investors’ money and makes a number of investments in different startups. If the fund is successful at least one of the investments will yield a return of 5 to 10x what was invested, depending on the stage of growth at which the company invests. The fund only needs one or two big winners; they expect that the majority of their investments will fail or sell for less. This is the funding model with the biggest growth expectation.
What It Means For You: If you work for a VC-funded brand, rapid growth will be your primary focus. In the early stages this growth doesn’t even need to be profitable. This means you’ll always be shooting for ambitious targets, oftentimes with limited financial and internal resources. This can be incredibly rewarding (high autonomy), but also incredibly stressful (high pressure). It’s also questionable if the VC model even makes sense for consumer brands.
Private Equity Funding
What It Is: A PE fund pools investors’ money, adds debt to the mix (#leverup), and makes a number of investments in different companies. The fund managers typically come from a single area of expertise and operate under a single thesis. The focus could be industry specific (consumer goods, service businesses, etc.), or it could be case specific (mom & pop roll-ups, distressed companies).
If the fund is successful, all of the investments will yield between 2-5x within five to seven years. This is less risky than VC…if the fund’s thesis is valid and remains valid for the life of the fund. This has gotten trickier as the pace of change has accelerated.
What It Means For You: Working for PE-funded companies is a mixed bag. Make sure you fully understand the fund’s thesis and how it relates to your own skills and what you hope to get out of the role. If you want to do something that doesn’t align with the thesis, or the thesis proves to be invalid, watch out…you will not have a good time.
For example: if a PE fund specializes in implementing operating efficiencies, but a company they own needs to reignite growth, you are almost certainly doomed to fail. The pay, benefits and resources available to you will also be lower than in a VC-backed or publicly traded company.
Publicly Traded Company
What It Is: The company sells shares of ownership on the public market so that anyone can buy in. These are companies you can trade on the stock market. If we’re talking about consumer brands, these are household names.
Publicly traded companies often focus on their largest shareholders, especially if that ownership is highly consolidated. Due to the rise of institutional investing, a company’s largest shareholders are likely to be mutual funds like Vanguard and Fidelity. These funds are generally passive investors who don’t exert pressure on the company to pursue specific strategies.
What It Means For You: Publicly traded companies are usually obsessed with making the share price go up. As we’ve learned recently, share price has a casual relationship with the company actually making money. The board and the executive leadership has a thesis about what will make share price go up. Similar to PE, your career trajectory and level of fulfillment depends on your proximity to the thesis.
Public companies report their financial performance to the public on a quarterly basis, so you will often scramble to hit quarterly goals. If the company is doing well, the pay and benefits can be very, very good. But the threat of “reorganization” is constant, even in good times. This often creates a risk-averse, territorial atmosphere.
When Nate is talking about a successful company, this is the endpoint he has in mind. The public markets are the best place to maintain the kind of governance that enables a brand to last multiple decades. Individual founders may be exceptional managers, but they don’t last forever.
Privately Held Company
What It Is: The company is owned by one or several individuals, and has no outstanding investment from an institutional investor like a PE or VC firm. Simply put, the company answers only to its owners.
What It Means For You: This one really depends on the individual goals and personalities of the owners. Some owners want to sell or go public, others want to make a stable cash withdrawal each month with minimal effort. This is the type of business that Taylor had in mind when he spoke about success–a single founder building a business to create financial security.
Some owners don’t know exactly what they want, or change their mind frequently. This is one of the most frustrating situations to be in, because your career path and priorities will shift constantly. Ultimately your success will hinge on how well you gel with the owner(s), so try to speak with them before you accept.
The Big Picture
You may have noticed a common thread between all of these funding models: a company tends to pick a course and stick with it. Leadership helps set the course, and then enables the organization to pursue it relentlessly. But the course doesn’t change unless something goes really wrong. Here is a great post that explains this in more detail.
Many individuals are afraid to “get real” with themselves about what they want out of life. This makes is difficult to make satisfying career decisions. When the “dream job” still leaves you feeling empty, this is why. But many companies also do a poor job of articulating their thesis. They try to be everything to everyone in an attempt to attract the best talent, or mask a dysfunctional culture. This leads to a high turnover rate.
TL;DR: get real with yourself and communicate what you want out of life and/or your business. You will screen out what doesn’t align with your vision. It will feel scary to forgo options, but you’ll be happier in the long run.