A few months prior, I had written a piece regarding the issues that entrepreneurs can face while starting a new business. The article discussed two separate accounts of businesses that were just starting up, that never fully managed to reach their potential before collapsing. And while it is no surprise that startups fail—90% of them, in fact—it is a surprise when an already established business goes down. There are a variety of reasons that a business folds; poor management, low quality products and insufficient funding tend to be the most common. However, even when a business has been around for years, one thing can still shake the entire company to its core: mis-aligned investors.
This is why the story of fashion label Issa, while sad, is important.
In 2010, Kate Middleton, the current Duchess of Cambridge, started a fashion frenzy when she decided to wear a navy blue dress from then relatively unknown fashion line, Issa. The dress’ designer, Daniella Helayel, suddenly became an overnight sensation. Dozens of celebrities fell in love with Issa, and began wearing her multi-purpose designs in spades. Helayel was on top of the world.
Unfortunately, her once world-famous brand came tumbling down in a sudden and unexpected way. World-renowned department store Neiman Marcus ordered over 1,000 items from Helayel. Normally, this would be a tremendous success for any fashion designer; for Helayel and Issa, this was the beginning of the end. Issa did not have the funds to keep up with the sheer amount of demand for its products. And as the company was already in financial straits, things were getting worse.
But what ended the company was not demand, but rather Helayel’s decision to find a new investor. In need of money, Helayel went to Camilla Al-Fayed, a close friend, and sold her a 51 percent stake in the company. Soon after, a new CEO was brought on board who clashed with Helayel’s vision for the company. Daniella left Issa due to increased stress—so much so it is alleged that her hair fell out – and shortly after, the label went under.
While Camilla Al-Fayed does have a background in retail and fashion—her father, Mohamed Al-Fayed, was the owner of Harrod’s Department Store—she did not necessarily have the proper experience to run a label on her own. Al-Fayed’s access to large sums of money and deep connections may have seemed like a no-brainer, but her lack of experience managing a company may have led to the demise of the label and ultimately the end of a friendship; after Helayel’s departure, the two ladies lost contact and are no longer friends.
It is a truly unfortunate story, but one that should be studied. After working tirelessly for ten years to create a world famous brand, Issa went under because of a misaligned incentives and a lack of focus. Who knows, if Helayel had chosen an investor with more experience, instead of a friend, the company may still be around today. Business owners need to understand that all sources of funding are not equal. They need to evaluate the ‘strings’ that come attached with the different options and whether a funding source is simply capital or strategic capital or whether there are relationship concerns that may affect the direction of a business. A shared vision with one’s investor/business partner is just as important as the actual capital being invested.