12. From riches to rags; how not to ‘fix’ your business: Nasty Gal case study

At the end of 2016, online fashion retail darling, Nasty Gal, went under. Ten years previously, Nasty Girl was just another store on eBay. Founder, Sophie Amoruso, grew the online retailer by 500% each year on average and opened doors across the US. At its height, Nasty Gal was valued at around $200 million. Ms Amoruso was living the small business owner’s dream. What happened, to lead Nasty Gal to file for bankruptcy; sold for less than 10% of its worth? Nasty Girl was its own worst enemy Easy. Nasty Gal was too successful, too quickly. Nasty Gal was uniquely positioned to take advantage of the aspirations of millennial women. Sophie’s rags to riches story (so to speak), the scent of female empowerment, the edginess of the company’s voice, and the rising star of digital commerce meant that Nasty Girl had all the levers to build an irresistible brand. And build it did. But such enormous growth comes at a cost, and that cost is the toll growth takes on the organisational structure. The systems and processes that support a small-time eBay retailer are somewhat different to those needed to support a multi-store business moving around $15 million worth of inventory each year. Two years prior to Nasty Girl’s fall, the cracks started to show in the form of; several lawsuits from former employees that ostensibly targeted a workplace hostile to women; several lay-offs over the course of the final two years; and most tellingly, a change of Chief Executive. All of a sudden, the extremely positive press Nasty Girl was attracting had soured. Such things aren’t just symptomatic of poor performance, they are symptomatic of a toxic culture, and a toxic culture doesn’t happen overnight. I would suggest that Nasty Girl was well on its way to ruin by the time we could smell the fire. Certainly, by the time Nasty Girl started to explore its options, it was a case of too little, too late. One simple solution could have solved the problem What could have rescued the company from its disappointing fate? The easy answer is to build for growth. Put in place the right systems early, and you’ll never run the risk of outgrowing your shoes. But for most businesses, this isn’t possible. With all the things the average business owner needs to keep in mind, from sales, to right-sizing, to finding finance, there’s not a

At the end of 2016, online fashion retail darling, Nasty Gal, went under. Ten years previously, Nasty Girl was just another store on eBay. Founder, Sophie Amoruso, grew the online retailer by 500% each year on average and opened doors across the US. At its height, Nasty Gal was valued at around $200 million. Ms Amoruso was living the small business owner’s dream. What happened, to lead Nasty Gal to file for bankruptcy; sold for less than 10% of its worth?

Nasty Girl was its own worst enemy

Easy. Nasty Gal was too successful, too quickly. Nasty Gal was uniquely positioned to take advantage of the aspirations of millennial women. Sophie’s rags to riches story (so to speak), the scent of female empowerment, the edginess of the company’s voice, and the rising star of digital commerce meant that Nasty Girl had all the levers to build an irresistible brand. And build it did. But such enormous growth comes at a cost, and that cost is the toll growth takes on the organisational structure. The systems and processes that support a small-time eBay retailer are somewhat different to those needed to support a multi-store business moving around $15 million worth of inventory each year.

Two years prior to Nasty Girl’s fall, the cracks started to show in the form of; several lawsuits from former employees that ostensibly targeted a workplace hostile to women; several lay-offs over the course of the final two years; and most tellingly, a change of Chief Executive. All of a sudden, the extremely positive press Nasty Girl was attracting had soured. Such things aren’t just symptomatic of poor performance, they are symptomatic of a toxic culture, and a toxic culture doesn’t happen overnight. I would suggest that Nasty Girl was well on its way to ruin by the time we could smell the fire. Certainly, by the time Nasty Girl started to explore its options, it was a case of too little, too late.

One simple solution could have solved the problem

What could have rescued the company from its disappointing fate? The easy answer is to build for growth. Put in place the right systems early, and you’ll never run the risk of outgrowing your shoes. But for most businesses, this isn’t possible. With all the things the average business owner needs to keep in mind, from sales, to right-sizing, to finding finance, there’s not a lot of opportunity to explore aspirational systems. So what’s the alternative?

Restructure, restructure, restructure. I’m not talking about on-boarding new staff, or switching to enterprise software. I’m talking about significant changes to the way a business operates. Reorganising the internal structure of a business should be done regularly to better match its needs and achieve balance. There will always be tensions that cause stress for a business both internally (e.g. stakeholder expectations) and externally (e.g. obligations to creditors). These will forever need to be redressed by the savvy business owner. My advice? Have someone look over your business early, and often, so you don’t go down the road Nasty Girl did, and watch your hard work crumble to dust overnight.

Looking for somewhere to start? Check out our top four tips for a successful business restructure. It’s important you get a sense of what you’re trying to achieve before handing over to a so called ‘expert’. You should always be in control of your business. Then, go out and find someone you can trust to advise you. If you think My Business Path might be that someone, give us a call today for a no obligation chat about where you are with your business.

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