A few months ago, I wrote a blog that warned of the dangers that may arise if investors and business partners are not selected carefully. What starts out as a great personal friendship, if handled incorrectly, can spiral into a terrible business partnership. Such was the case for fashion designer Daniella Helayel and her label Issa. Well, it seems as though history is destined to repeat itself, although not in the exact same way.
According to a report from Business Insider, the founders behind a budding new clothing company have gotten into a dispute which has caused one founder to be completely erased from the company altogether. Erin Morrison Flynn and Katrina Lake co-founded Stitch Fix (then named Rack Habit) together. Initially, Flynn had been working for the company full-time without salary, while Lake was still in school. According to the company’s website blog, Flynn was responsible for the vast majority of the company’s “creative decisions that shape not only Rack Habit as a company, but also what’s inside the Rack Habit packages.” Flynn even owned a substantial portion of the company.
So what caused the relationship to go sour?
Well, to be honest, no in the general public one really knows. What is known is that Flynn accused Lake of trying to dilute her shares in the company in 2012; this was due to Flynn’s lawyers speaking with Lake about changes at Stitch Fix. After two years of legal battles, the case was settled out of court for an undisclosed sum of money. Since then, all mention of Flynn’s name has been removed from most of the company’s records (including the company’s “About Us” page) and Lake is now the company’s sole founder and CEO.
To make matters worse, Stitch Fix’s recent initial public offering saw it valued at $1.63 billion. With Lake’s 15% stake in the company, her shares are worth roughly $250 million.
While we are uncertain of how much Flynn settled for, it was very likely for far less. The time and effort that Flynn had put into the company that she helped found was, in essence, stripped away from her. Situations such as these happen far too often in business (remember Facebook?). As I do not know what transpired between the partners I can certainly not make any declarations of which party is in the right. My only purpose in highlighting the story is to reiterate the earlier point that business partners must be chosen with care.