The age of the growth race

You can’t change an industry without asking one fundamental question: where does the money come from?

When you start a company, there are two possible strategies:

1/ The startup strategy, in other words exponential growth with the ambition of conquering the world as fast as possible
2/ The SME strategy, which means building a company that grows slowly but surely

Neither vision is better than the other: the two models simply reflect two different mindsets.

But these days, it feels like nobody starting a company even asks themselves the question: they want to create a startup. Because the media talk about nothing else, because it sounds cooler at parties (well, at some parties) and because, potentially, it could make them very rich.

These startups usually go on to “raise funds”, in other words ask for money from investment funds (= organisations that place large sums of private money in order to earn the biggest possible return). To pay that money back, these funds have to recover what they invested in the startups – with as much return as possible – within 4 to 10 years. There are three ways to do that:

1/ By _selling the startup to another company.
2/ By selling the startup to another investment fund.
3/ By taking it _public on the stock market (rarer).

Under _{no circumstances} can the startup stay an independent company (except perhaps in the extremely rare case where it takes on debt to buy back its own independence). Once it has raised funds, it has to grow as fast as possible in order to be sold for as much as possible. That’s the growth race. Of course, some funds are more patient than others and stand by founders even through the hard times, but the long-term goal stays the same: sell as soon as possible, for the biggest possible gain.

For some types of company, this rapid growth is essential, especially when they need to reach “critical mass” very quickly: Airbnb, for instance, needs lots of listings for tourists and lots of tourists for flat owners.

The real problem is that today, far too many new companies see themselves as startups. They raise funds and then throw themselves into a growth race that brings them far more risk than reward.

Do things too fast and you do them less well

In a study of more than 3,000 startups, Stanford academics showed that the number one cause of failure was precisely premature growth.

Imagine you have just raised several million euros. If your company doesn’t grow fast enough, you’re trapped. You’ll spend on advertising instead of improving your product, hire a sales team instead of an engineering team, and so on.

Remember Groupon? One year after it was founded, the company was valued at 1 billion dollars. Today it’s a shadow of its former self. Why? Because instead of paying merchants properly, it blew everything on advertising and international expansion.

Fast growth undermines your chances of building lasting growth.

Like a tree that never had time to grow solid roots, growing too fast creates cracks that leave the company at the mercy of the first storm. For the investors, it’s no big deal: their money is spread across dozens of startups, so one that “works” is enough to make up for 15 that fail... For the people who lose their jobs when the company shuts its doors, it’s a bit more of a problem.

But this fragility is the least of it. The rapid growth of startups raises three other, far more worrying problems.

The collateral damage of rapid growth

Consumers foot the bill

There’s a very fashionable term in Silicon Valley: blitzscaling (“lightning growth”). It means growing as fast as possible to crush the competition – without necessarily building the best service or the best product.

Think of car/bike/scooter sharing, or on-demand delivery. Does Uber getting even bigger change anything for its customers? No. Waiting times are already so short that recruiting more drivers won’t noticeably reduce them. On the other hand, the bigger Uber gets, the better its chances of wiping out the competition... so the company pours ever more money into marketing and advertising.

Deliveroo and Uber Eats saw off Take Eat Easy and Foodora with wave after wave of ads on Facebook and in the metro. And once one of those two startups has a monopoly, it may well recoup its money through meal prices, courier pay and restaurant commissions.

In short: it’s cheap today, but tomorrow we’ll probably pay dearly for it.

Stress and pressure on the staff

With this growth race, the pace of work in a startup can become absurd. Special mention to Nikolay Storonsky, founder of the online bank Revolut, who asks his teams to work 12 to 13 hours a day and who declared: “I don’t understand how having a personal life can help you build a startup” (sic). It’s obviously not like that in every startup, but if the founders aren’t careful, the hours can quickly wreck their employees’ work-life balance.

A hefty bill for society

These startups, pumped full of investment-fund money, are upending our jobs and our habits at unprecedented speed. So fast that society has no time to adjust. Yes, Uber created hundreds of thousands of driving jobs in a few years… but it will destroy them even faster once it rolls out self-driving cars. How will governments protect people who find themselves unemployed overnight? (And that’s without mentioning how precarious all these new jobs are, whether it’s driving cars, delivering meals or recharging scooter batteries.) Startups are often born with the aim of making the world a better place, but the way they are funded can sometimes lead to the opposite.

And the planet picks up the pieces

Above all, these companies grow so fast that they have no time to measure their impact on the environment (assuming they care). They think in years, while environmental consequences are measured in decades or centuries. One example: by churning out millions of junk bikes that end up piled high in landfills, bike-sharing startups aren’t giving much thought to the world’s dwindling metal reserves.

Nature doesn’t run on an investment fund’s timescale.

However admirable the founders’ original values, the growth race makes them irrelevant.

Without ethical finance, there can be no ethical company.

Patagonia is often held up as the ultimate example of an ethical company: deeply committed to protecting the environment, and a business success with more than 2,000 employees today. But would the brand still exist if it had been forced to keep up breakneck growth, even at the expense of quality? Probably not. When it decided in 1991 to cap its annual growth at 5%, which investment fund would have accepted that decision?

Patagonia belongs to nobody but its founders. That is what guarantees its freedom to act (and lets it threaten to take Trump to court).

So where does Loom fit into all this?

Let’s be very clear:

We do not want to be a startup.

Because in the textile industry, the growth race is especially dangerous:

• It destroys the planet.
• It hurts people.
• It drags down the quality of clothes.
• It pushes people to overconsume.

Will Loom ever reach Patagonia’s level of commitment? We’re working flat out on it, but nothing is certain. What we do know is that if we raise funds the conventional way, we will never get there.

We want to be free to leave a product out of stock for months if we think our prototypes aren’t good enough.

We want to be free to close our site on Black Friday to call out the absurdity of these promotions.

We want to be free to switch to organic cotton and cut our margin if that’s the price to pay.

We want to be free to have a rant and show what goes on behind the scenes, without worrying about frightening off a potential buyer.

And yet, we want to grow

Even so, we are convinced that we need to grow if we want to really drive change.

First, to keep up with demand: right now, our products sell out barely a few weeks after going on sale. For some brands that might be a strategy; for us, it can only ever be temporary.

Second, getting bigger is our chance to turn the fashion industry the right way round. The bigger we are, the further our voice will carry, on the consumer side as much as on the manufacturing side. We dream of a day when clothes that last are the norm rather than the exception. We would like producing in Bangladesh to become unthinkable. We want environmental awareness to be at the heart of the textile industry, rather than boiling down to a CSR job created right after an environmental scandal.

In short, we have to grow. Grow at our own pace, without compromising on quality or ethics; grow knowing that our growth isn’t meant to be infinite, just enough to reach a sufficient size. And to grow, Loom needs money.

“But why do you need money if more and more people are buying from you?”
Excellent question, Dominique.

To have products in stock, we order them and pay whoever makes them before we can sell them. That gap – our “working capital requirement” – is _{why we need money}. The bigger we get, the bigger that requirement gets (up to a certain point).

Become a Loom shareholder

We would love to see our community own a share of our company. From the very beginning, you have helped create our clothes, improve them and spread the word about the brand. The logical next step¹ is to give you the chance to become Loom shareholders.

That’s why we are launching an equity crowdfunding campaign, which you (and anyone else) can take part in.

“But if I invest in your company, what do I get in return (apart from a clear conscience)?”
Honestly, Dominique, it’s one good question after another with you.

It’s very simple: we will pay you dividends. No, it isn’t a dirty word, and no, it isn’t just for fat men smoking cigars.

Once we make enough profit, we will pay part of it back to you². Little by little, year after year, you will get your initial investment back and (we hope) more. We won’t lie to you: we will do our best, but we might fail, or it might take a long time. So only invest what you are prepared to lose.

You can become a Loom shareholder from 100 euros. Too much for you? Then don’t invest. Answering our surveys, buying our clothes, telling us how to improve them, following us on social media – all of that already helps us enormously. You can also share this article on Facebook, on Twitter or on LinkedIn.

If you follow Loom, it’s because you too think the world of textiles has a problem. Being part of the solution means changing the way we dress. But also the way our companies work.

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Update, April 2019

We were told that small shareholders would be nothing but trouble. That crowdfunding was a bad idea. That we wouldn’t raise enough money. That big investors are awfully convenient, all things considered. For the reasons explained above, we asked you to invest in Loom anyway.

It took just 3 days to raise 700,000 euros. More than 600 people answered the call. The team at LITA.co can’t believe it. Our campaign was supposed to run until the end of April. In the end, it was wrapped up on 31 March, at midnight.

You have given us the freedom we needed to keep going. We will never have to enter an absurd growth race. Nobody will ask us to sell Loom for the highest possible price. And we won’t keep quiet about our convictions for fear of scaring off a potential investor. In short, we won. And we received so many messages of support that we understood something: small shareholders aren’t trouble, they’re an enormous strength.

Thanks to your support, Loom can carry on the fight. Thanks to those of you who invested. But also to those of you who buy our clothes, answer our surveys and tell us how to improve. Those of you who tell your friends about us, who read our newsletters, who share our articles. In short, thanks to every one of you who, in one way or another, is part of this project. Today, Loom is no longer just our brand. It’s yours too.

Julia Faure and Guillaume Declair, co-founders of Loom

Footnotes

¹ We have also activated three other sources of funding. 1/ Bank loans: we go through an ethical bank, la Nef, which focuses on projects with a social or environmental purpose (other banks run a mile when we tell them we sell online). 2/ So-called “evergreen” funds, which don’t have to give the money back to their own investors and therefore won’t force rapid growth on us. They are starting to appear, but – for now – they invest in companies much bigger than ours. 3/ “Business angels”: people who have often started a company themselves in the past and invest in other companies. Some have already agreed to invest in Loom.

² Each year, we will have three options for what to do with the profits: reinvest them in Loom, share them with employees through profit-sharing schemes, or pay them out to shareholders as dividends in proportion to the number of shares they hold.

Who are we to say this?

You’re reading La Mode à l’Envers, a blog run by the clothing brand Loom. The textile industry is in a sorry state, and the planet is footing the bill. So whatever we manage to understand about this industry, we try to explain here. Because making clothes that last is good, but revealing, sharing and inspiring is even more powerful.

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