Any business consistently doubling in size each year must be doing a few things right. My Business sat down with the director of one such company to pick their brains on how to deliver strong, sustainable growth.
Many young professionals, particularly those working in cities on Australia’s east coast, have heard of custom menswear retailer InStitchu.
The business was founded in 2011 by friends and former finance traders Robin McGowan and James Wakefield, when they struggled to find tailor-made suits that looked good but didn’t cost the world.
It now employs up to 100 staff, with stores in most Australian capital cities as well as in Auckland, New Zealand and New York City in the US.
A year ago, Mr McGowan (pictured) appeared on the My Business Podcast, and explained that InStitchu had grown by 116 per cent year-on-year in the previous financial year. It is a trend that the business has maintained consistently over the years.
And while he admits it gets more difficult each year to maintain that level of growth, Mr McGowan said InStitchu remains on track to continue doubling in size every 12 months.
“It definitely gets harder as you become more established, but we still think that we’re such an insignificant number in terms of the global and Australian suit market. A lot of people still don’t know about us,” he said.
Sipping a green juice he described as resembling “muddy pond water” in a bid to help fight off a cold, Mr McGowan revealed some home truths about what this rapidly expanding business is doing to keep its growth trajectory on a stable footing.
In a market like Australia, it is all too easy to quickly reach a point of saturation – particularly when operating within a niche market.
While Mr McGowan believes that his business still has lots of scope to develop and mature domestically, the allure of new markets and opportunities to counter seasonal and cyclical downturns here in Australia has proved irresistible.
However, he cautions any business looking to grow beyond Australia’s borders to be very careful and to seek out advice specific to that particular market.
“[It takes you] twice as long, costs you twice as much – maybe more,” Mr McGowan cautioned.
“In the US specifically, there’s state-based taxes and tariffs and hurdles. If we wanted to go and set up in California, it would be a whole different story again.
“Things crop up all the time – that’s why expert advice, both overseas and locally, is so important.”
Mr McGowan added that it will also likely be a false economy for a business to expand offshore for the wrong reasons:
“Make sure that you’re confident what you’re doing is the right decision: it’s not just for show or to say you have an overseas office. You [must be able to] back it up with sales or client numbers.”
Earlier in 2018, InStitchu was revealed as the buyer of competing suit maker George & King. It marked the first foray into the merger and acquisition space for InStitchu. While still in the early days, the test case for bigger and bolder acquisitions to follow looks promising.
“For any business owner, you’re always paying attention to what your competitors are doing. It was kind of opportunistic for us, but you can also look at it in a different way – if we don’t buy this competitor, maybe another competitor will buy it and use it against us. There are advantages to eliminating a competitor as well,” said Mr McGowan.
“But for us, it was about… the more we spoke to the George & Kind founders, we were both competing for the same market share, when really we could have just been working together to try and broaden our reach, and so we came to an agreement on an acquisition. I think they were looking for a bigger partner to support them as well and work with them.”
Of course, any merger brings the decision for the buyer of how best to integrate the new addition, if at all.
“Locally, there have been businesses that have tried to manage multi-brand strategies… I think eventually they found out it was easier to merge them under one brand,” Mr McGowan said.
“What we decided was that the George & King brand would remain, but that it would be a product line within InStitchu. So now, George & King, or G&K, is becoming our premium offering within InStitchu.
“[It was] already selling at a higher price point, and we were looking to allow customers to spend more with us if they wanted to.”
According to Mr McGowan, a lot of the natural synergies that can be delivered by bringing two businesses together can fall apart if they are kept as stand-alone silos.
“If you bring two brands in, then your marketing team has to double their workload on managing two different brands; all of a sudden, they have to send twice as many emails out, twice as many photo shoots and campaign shoots,” he explained.
“Their customers were already shopping with them, but we felt we could give them a better experience when it came to showrooms. So if this is what the business is doing already… we thought we could do so much better just by bringing those customers into our ecosystem, letting them use our website, letting them shop in our stores, letting them access our fabrics and products.”
Proactive, rather than reactive, recruitment
This is something of a controversial point in the business world – taking on new employees before the real need for them is there. But it is this approach, Mr McGowan suggested, that has enabled InStitchu to avoid the problems that have beset many other rapidly expanding retailers and businesses.
“We were trying to invest in our head office before that next growth phase came. We didn’t want to be at a point where we’ve suddenly doubled our store [numbers] and we’re like ‘shit, we’ve got to hire some people to help us look after these’; we wanted to try and bring those people on before that happened and try to foresee those issues happening,” he explained.
“As we saw that we were going to open another five stores last year, we were like ‘let’s bring on a retail manager who can help us manage that network of stores and let’s focus on how we bring in senior managers within each of those stores; let’s bring them in now rather than when the business is scrambling’, because I think that is when you can run into trouble.”
Mr McGowan suggested that by taking the alternate approach – going for growth at break-neck speed first and then attempting to fill the gaps down the track – could help to explain the difficulties and eventual collapses experienced by many other retailers, where overly fast expansion causes customer service and/or product quality to suffer.
“It will cost you a lot to invest today for growth that you are projecting will come, but you’ve just got to have the confidence that the numbers you are projecting are going to happen, and your plan to make those numbers happen,” he said.
Avoiding venture capital
Money makes the world go round, and virtually every business leader understands the conundrum of having their growth restricted by a lack of available funds.
From Mr McGowan’s perspective, venture capital may not be the right approach, because of the dilution of control over the business and its future direction that often comes with such funding.
“I think that [loss of control] happens as you start raising money and growing and giving away equity, that’s when the real control comes into play and issues can happen,” he said.
“We’ve never taken proper VC money, because we’ve heard of what it can lead to… I’ve heard stories of either raising too much, working with maybe venture capitalists who are a bit aggressive, they’ve got too many board members, things like that.”
Instead, InStitchu this year secured a $3 million capital raising from one of the largest suit manufacturers in the world, through a partnership that benefits both companies without surrendering strategic control.
“I’m still very much in charge of where the growth is coming from, both in Australia and overseas,” said Mr McGowan.
When pressed about the biggest mistake InStitchu’s young founders have made along the way, Mr McGowan is quick to recount his experience with trialling a licensing model.
“We tried the licensing model before (a bit different from franchising), in a market that we weren’t considering before,” he recalled of the brand’s first foray in the UK.
“We thought it would be a good way to enter the market without having to spend much money. It didn’t really work out – the group that took it on had some issues. (They didn’t want to stump up capital, we didn’t feel they were delivering on what was required).
“Eventually we just decided to take back control.”
Mr McGowan said that while it was a good learning experience, “I don’t think we’d ever do that again”.
“It was something we tried, but for us, it didn’t work. We want to own everything that we enter ourselves.”
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