Everyone wants to be part of a brand\’s come up story nowadays. In today\’s retail startup environment, entrepreneurs start off small and unknown with the hope of a rags-to-riches narrative with a devoted millennial following. And judging by the brands that next gen consumers have been flocking to – Warby Parker, Nasty Gal, SmileDirectClub, and Bonobos, among others – it would be easy to think that the future of retail may go the way of little guys with big ideas. Not all great romances last forever. It\’s starting to look like millennials\’ infatuation with startups may go the way of low-rise jeans and frosted tips.
Two Famous \”She-E.O.s\” Ousted for Poor Internal Practices
Two of the young \”She-EOs\” that famously led popular startups – and literary empires and spin-off shows based on those startups – have recently had very public lawsuits filed against them. Think Sophia Amoruso of the Nasty Gal/Girlboss empire, and Miki Agrawal founder/ousted CEO of Thinx. We\’re living in a call-out culture, thanks to the advent of online customer service and transparency enabled by the Tech Revolution. In this environment, some of the most famous female-led startup founders have fallen from grace for not maintaining the values that they had led fans to believe that their businesses were created to uphold.
Take Nasty Gal, for instance. The short-lived Girlboss enterprise was founded by Sophia Amoruso, the outspoken dumpster-diver turned CEO who started an empire by selling thrift store merchandise out of her apartment on eBay. However, it was soon discovered that Nasty Gal as a retailer didn\’t adhere to the girl-power values on which the brand was founded. Nasty Gal was revealed as a toxic place to work when it was sued for firing pregnant employees and Amoruso was ousted from her own company. Similarly, Miki Agarwal stepped down from her role as CEO of Thinx after being accused of creating a culture of harassment–leading to a lot of disenchanted young consumers who bought from these brands in hopes of voting with their dollar. Both Amoruso and Agarwal join the ranks of Travis Kalanick at Uber, Andrew Mason at Groupon, Rob Kalin at Etsy and Jack Dorsey at Twitter (although he bounced back).
Poor management was listed as a leading factor in the dysfunction of these startups, which were operating without the benefit of experienced leaders. These public oustings bring to light the fact that The Peter Principle – the concept that in a company hierarchy, individuals continue to rise until they reach a position for which they are completely unqualified – has never been more real. And when a business created by a little guy (or gal) with big ideas begins to scale without outsourcing some of the responsibility and power to others who are more qualified, the startup in question rarely turns out to be as good for the employees or the customers of the businesses as it is for the hot-shot founders/CEOs.
Acquisitions by Big Box-Stores Kill the Romance of Startup Culture
There are, of course, many startups that haven\’t internally imploded. This may be because most of the startups that scale are quickly sold to the big box stores that they were founded to disrupt. Since announcing its strategy of acquiring startups, Walmart has acquired Jet, ModCloth, Art.com, Eloqui and Bonobos, and many, many others. Not to be outdone, Target launched the Target Accelerator program, an application-based mentorship program that pairs startup founders with Target execs.
Loyal customers of startups like ModCloth and Bonobos tend to respond negatively when the brand they love is picked by a bigger business. Many of ModCloth\’s loyal customers were worried that the brand would dilute its body positive message or quirky inventory selection after Walmart acquired it and promised to shop elsewhere once the deal was finalized. Bonobos customers, on the other hand, simply resorted to trolling the brand on Facebook. But here\’s the caveat to those reports (and it\’s a biggie): Both ModCloth and Bonobos report increased sales numbers and bigger basket sizes since the acquisition.
\”Business has been awesome,\” Andy Dunn, founder and CEO of Bonobos, told Quartzy. \”We\’re seeing it in the numbers. The business is growing in double-digits every which way: overall, new customer growth, repeat customer growth.\”
The success of acquisitions like ModCloth and Bonobos could have a disillusioning effect on millennial consumers, who have always been champions of startup culture. However, we\’ve already seen what happens when small business owners who aren\’t qualified to scale a business try to remain at the helm when their companies begin to grow– which cuts through many of the romantic notions that millennial consumers tend to have about people just like them (i.e. the little guys, unqualified) making it big.
Isn\’t Every Startup Built with the Intention to Scale?
Look, millennials are nothing if not idealistic and they love being the first to discover a new brand with a great story. But once enough people in enough cities \”discover\” a brand, that brand becomes established… and then it\’s time for the company\’s founder to make some difficult decisions.
The way I see it, they can choose between four options:
- Selling small-batch or limited quantity items and significantly increasing prices to reduce demand.
- Leaving the market they\’ve created underserved because they don\’t have enough.
- Trying to grow their business themselves without the education or business acumen to create a positive working environment for their employees.
- Partner or sell to a big business with a similar vision in hopes of creating a quality experience for both customers and employees at scale.
Am I missing something here? The reality is that most startups simply aren\’t built with the intention of continuing to operate in Grandma\’s basement and almost every business is built with the intention to scale. While it may feel more ethical to millennials to buy a candle from a small-business founder/CEO who hand makes each product that built their own business from the ground up, it becomes not so ethical when that CEO is working their employees to the bone (or straight-up mistreating them) in order to make enough product to satisfy growing demand.
After all, one person can only fill a finite number of roles in their own enterprise. After a certain point, it may become necessary to outsource the bulk of the tasks of running a company to someone with a little bit more experience operating a business at scale (and a little less experience making candles).
So, What Comes Next? The Future of Startups
Startup culture was created in part because big business needed a reality check. The millennial generation was the first to truly understand that they vote with their dollar and can take partial credit for bringing on an era of brand transparency in retail where the little guy (or they, or She-EO) can win. But this doesn\’t mean that the little guys are always the good guys: The bigger a business is, the more people are on the lookout for signs that it\’s not living up to its values or mission statement and startups aren\’t exempt from the issues that plague their larger counterparts.
It could be that the downfall of startup culture is simply evidence that it\’s time to start thinking differently about small businesses that manage to scale. This starts with understanding the difficult decisions faced by any startup founder that becomes a success. Let\’s reimagine startup culture and the \”get it done\” values that these businesses reflect.
Perhaps the startup of the future will be more based in teamwork and assigning management positions to the right people, rather than small businesses continuing to be run by celebrity founders that are way out of their depth. Outsourcing can be seen as a sign of strength and good business values, rather than as a sign of incompetence. And big-box partnerships and acquisitions? One day they may be viewed as the way for a company that\’s beloved by many to expand its reach and influence in a retail world where next-gen customer demands for low costs, fast delivery, and customer service are continually becoming harder for the little guys to meet.