Posted: February 5th, 2019

CASE: Alison Barnard

Alison Barnard—Three-Page Paper (p. 70)Review the case and consider Alison’s background and answer the following.Does Alison have enough experience to start a boutique jeans business?How important is it to have experience in an industry before you start a business in that same industry?Write a page paper – Describe the market; how will Alison differentiate the business from the other premium jean stores in the area?Is this business going to be so dependent on Alison that she will never be able to grow the store?Is it destined to remain a one-location boutique?Will a one-location boutique be enough to keep Alison satisfied?How much will she be taking out of this business?Is it a satisfactory career for an MBA?What will be needed if this business is to grow beyond the 600-square-foot shop on Hanover Street?What resources did Alison need to start the business, where and from who did she get them, and what did she spend them on? Did she acquire the resources wisely?Please compare and contrast how Kalin Penchev started Malincho with how Alison started In*Jean*ius. .vitalsource.com/books/9781118518052/id/B2-15″>http://devry.vitalsource.com/books/9781118518052/id/B2-15CASE: Alison BarnardHaving spent her Saturday morning redesigning window displays, folding inventory, and following up with a supplier who seemed disinclined to take back an entire shipment she felt was unacceptable, Alison Barnard, 27, was finally settled at her desk in the corner—fully intending to make some progress on her growing management task list. Chief among those neglected missions was getting up to speed on her software system for monitoring sales and inventory.In-jean-ius, her upscale “jeans and t-shirt” boutique in Boston’s North End, was attracting professional and wealthy women from Maine to Rhode Island. As one of many satisfied customers wrote, “Alison has an uncanny ability to match up the right person with the perfect pair of jeans. If you have ever gone ‘jean shopping’ you know that that is not an easy thing to do! Experience In-jean-ius for yourself. You won’t shop for jeans anywhere else again.”March 2006. Alison looked up from her work with a weary smile.Open just over six months, and actuals are tracking nearly twice my projections….As it had from the very beginning, running her hit venture continued to consume nearly every waking hour. The creative, high-energy founder was far less concerned with burning out than with having the day-to-day concerns usurp her ability to plan and manage for growth. And with only one full-time employee—not yet fully trained—Alison couldn’t expect much relief anytime soon.Her attention was suddenly drawn to an exchange between her salesperson and a well-dressed, middle-aged woman who was favoring a sleek pair of low rises. From where she sat, Alison could see that the woman was built for something a bit less daring. When the associate began fishing for the correct size in that style, Alison left her desk (and her task list) to steer the sale toward a more conservative brand that would ultimately prove to offer the best fit. Another satisfied customer….Alison Barnard: ShopperLike many rural-suburban American teens, young Alison Barnard had been an avid shopper. But there was something more. The daughter of a serial entrepreneur and an enterprising mother, she had developed an eye for opportunity and value-add that she ceaselessly trained on the business of creating a unique upscale shopping experience: trends, service, selection, presentation, decor. Despite her keen interest in retailing, she headed off for college with a more conservative career track in mind:I really thought I wanted to be in brand management, marketing, or retail consulting. I figured that someday I would have a store but thought it might be something I’d do when I retired, like you kind of hung out in your store.But I had all of these ideas. I like clothing, I like the shopping experience, and I like dealing with people. One idea was to have an all-black store because black apparel is such a staple for any woman’s wardrobe.In May of 2002, Alison received her undergraduate degree in business from the University of Richmond. Back in the Boston area, her first job was with a dot-com startup. She left there for an interesting opportunity with another high-potential venture. While the work environment there was most definitely not for her, that “mistake” would have a major impact on her career trajectory.7071CatalystsHired as part of the seminar development team at a medical device company in Cambridge, Massachusetts, Alison quickly discovered that her talents weren’t exactly appreciated:They were part of this old boy network that really looked down on females. They told me, for example, that I needed to cover on Thursdays for the receptionist when she went to lunch. Swell. I hated that place, and I immediately began interviewing for something better.At one point, I went on a job interview, and since my boss approved of higher education, I told her I had gone to Babson College to investigate their MBA program. When I checked into it in order to support my little lie, I found out that Babson had a one-year program that looked really interesting; you’re there, you’re focused and doing it, and then you’re out.Alison began the One-Year MBA at Babson in the spring of 2003. Since she was still brainstorming retail store concepts with anyone who would engage, her mom’s hairdresser suggested that as a next step she ought to get some floor time in the real world. That summer Alison started work as a part-timer at an upscale boutique near Boston. Although she still had no immediate plans to develop a new venture, her MBA studies melded well with her exposure to retailing:I quickly realized that my first concept about an all-black store was a bad idea. Women buy black, but they don’t shop for it. They’ll even go into a store and say they want anything but black—because they have too much black in their wardrobe. But then in the end, they’ll buy something black.At the time, I was really getting into jeans myself. At Babson, I wore jeans and a t-shirt every day. My first pair was Sevens, one of the early entrants into what I would call the premium denim revolution. Jeans are no longer just weekend wear; they are worn in the workplace and for going out. Premium denim has become a fashion staple, and women now have an average of about eight pairs of jeans in their wardrobe.So an all-jeans store became sort of my fun idea—something I thought would be just another idea that would be passed by. Still, my concept was interesting enough to attract a team in class to do the business plan. It wasn’t long before Alison was certain that she could run a shop of her own. She was still drawn to the $6.3 billion women’s denim market, a highly fragmented space with hundreds of manufacturers and inconsistent retail offerings, from boutiques, chain stores, and department stores. Still, she felt that she “would have to jump on it right away before anyone else did”—it was now or never:I had been keeping my idea secret from the store owners because I didn’t trust them at all. Sure, they liked me, but they also had money and resources. That summer, I was attending a fashion show with one of the owners. He said that he had always wanted to open a jeans and t-shirt store but that his business partner—a woman—wasn’t interested in the concept. At that point, I told him about my idea, and before you know it, we were talking about going into business together.7374He called a few times after the trip to talk it over. We never touched on details like money or ownership breakdown, but we did go to look at a spot in Wellesley [Massachusetts]. But then he just dropped it; never talked about it again. It was as if we had never had a conversation about it! That’s the sort of thing you get from a lot of people in this industry.But how was I going to do it alone? Where was I going to get the money?CommitmentsBased on her projections (see Exhibit 2.3), Alison expected her retail store would have first-year sales of just over $375,000. She had also calculated that startup costs, including build-out and inventory, would be in the range of $125,000. She was confident that she could attract investors, but first she wanted to secure a location that would be acceptable to what she was sure would be her toughest constituency:Fashion denim manufacturers are represented by showrooms in New York City and in LA [Los Angeles]. They are very committed to their brands—and very particular about whom they will sell to. To avoid saturation, they won’t sell to a store that is too close to another client, and they will even shut off an established shop that locates a new store too close to another buyer. Territory protection is a great asset for existing stores, but it makes it very hard to find locations that have the right customer traffic and are not in conflict with existing vendors.Alison’s boyfriend, Bryan, was active in the Boston real estate market. On weekends, Alison often accompanied him as he made the rounds to various properties he was managing. One icy morning in early 2005, Alison fell for a corner location in the North End: This place was a bit removed from the busiest section of Hanover Street, but the outside was SO nice; all dark wood, newly redone. I had Bryan call the number because as a real estate agent, I knew they would take him seriously. He set up a meeting with the landlord—a top neurosurgeon who owned the building as an investment. He had already denied seven previous proposals, but said he liked mine a lot.Soon, they were talking hard numbers:I learned a lot in negotiating with him because he had a huge ego—just like a lot of good surgeons do. I had to figure out how to make him feel he was still getting something out of it. He was also getting stuck on little details. For example, he wanted to control my window displays and be able to go to arbitration over it.And the space may have been beautiful on the outside, but the inside was unbelievably awful. It was scary. It needed new floors, new ceilings, new walls, and a new heating system.In late February, Alison signed a three-year lease that included a few months of free rent—she now had until September. All along, her father had felt strongly that she should have lined up the capital first:My dad was saying, “What are you thinking?” He totally disagreed with what I was doing, but I told him I’d find the money. He loaned me the deposit on the location, and he called up my uncle, who is an accountant. The three of us sat down and came up with an investment offering. This place was a bit removed from the busiest section of Hanover Street, but the outside was SO nice; all dark wood, newly redone. I had Bryan call the number because as a real estate agent, I knew they would take him seriously. He set up a meeting with the landlord—a top neurosurgeon who owned the building as an investment. He had already denied seven previous proposals, but said he liked mine a lot.Soon, they were talking hard numbers:I learned a lot in negotiating with him because he had a huge ego—just like a lot of good surgeons do. I had to figure out how to make him feel he was still getting something out of it. He was also getting stuck on little details. For example, he wanted to control my window displays and be able to go to arbitration over it.And the space may have been beautiful on the outside, but the inside was unbelievably awful. It was scary. It needed new floors, new ceilings, new walls, and a new heating system.In late February, Alison signed a three-year lease that included a few months of free rent—she now had until September. All along, her father had felt strongly that she should have lined up the capital first:My dad was saying, “What are you thinking?” He totally disagreed with what I was doing, but I told him I’d find the money. He loaned me the deposit on the location, and he called up my uncle, who is an accountant. The three of us sat down and came up with an investment offering. Finding the MoneyBefore she went the equity route, Alison wanted to investigate other avenues. The news was not good:My dad referred me to some people he knew at Boston Private Bank—very conservative. Talks went fine until they became insistent that, if they were going to do anything, they would have to have a guarantor for the loan—a co-signer. Well, I wasn’t going to do that; I wanted this to be my responsibility.I tried to get an SBA loan through a small bank on the North Shore, but I had no collateral, and I was paying off student loans. They said no way because, even though the SBA would be backing it, a bad loan would give them a worse rating through the SBA. I looked into grants, but the process was too long. I also tried to get startup funding through the Hatchery Program at Babson. They said no as well; that really surprised me.With the clock ticking on her lease, Alison went ahead with the investor plan she had crafted with her closest advisors:We were not going to give people the option of deciding how much money they could invest. Instead, we said this is the deal: There are six slots of $25,000 each, and your options are full equity, debt/equity, or full debt. 17677I sent an e-mail to all my contacts saying that this is where I am and that I was looking for investors. A lot of people responded to me; I was shocked.A former classmate at Babson (who had started a men’s skin-care line) e-mailed to say that he was very upset with me because he thought I was giving up way too much equity. But I didn’t look at it that way at all. It was a different business model; he was going to the masses, and I was very local. Her father was in for one share; all equity. He uncle let her choose, so she set him up as a debt/equity investor. She had a Babson woman (who had always liked her idea) in for all equity and a private investor in Denver for all debt. The final two shares were to be all equity:A guy I used to work with told me he wanted to do $50,000, but he wanted to do it for 15% equity instead of 12.5%. I quickly said no. I had deals in place with other people; those are the terms. He said that’s fine, he’d still like to do it.Armed with a bit of cash and some solid commitments, Alison charged forward to make her vision a bricks-and-mortar reality.Building Momentum (and Shelving)Having initially envisioned a space in the range of 1,800 square feet, Alison found the 600 square foot shell to be a significant creative challenge—so much so that she hired an expert:I needed to accommodate a starting inventory of around 600 pairs of jeans and a selection of tops (see Exhibit 2.4). My biggest concern was we had to have wide enough aisles to walk around.I thought I could do it myself, but against my better judgment, I hired an interior designer. I worked with him and came up with a compact shelving system that started almost at the floor and went up only as high as I could reach. I am 5?5???, and that is about the average. If someone was shorter, I could get it for them. I really wanted my store to feel very comfortable and warm—like you’re in a good friend’s closet. But the designer never quite got the need to maximize the space.She added with a smile that she had been able to attract effective talent to the task of building out her vision:Bryan built all of the shelving with his father, an engineer. I showed them my drawings, gave them the measurements, and they did it. He actually project managed the build-out, and we did a lot of the work together. I saved so much money because of him. We painted it ourselves, and did other little things here and there. The contractors knew him well, and since he gives them so much business, they were willing to cut us breaks here and there. I went around and found furniture pieces for practical use that would make it feel more homey, like an armoire, a big dining room table, and a couple of benches. The furniture is all white, so the store has a shabby-chic feeling to it.To monitor her sales and margins, Alison invested in a high-end software inventory system. The trouble was that the salesperson had yet to train her, and he wasn’t returning her calls. But that challenge would have to wait; it was time to buy. The denim reps that did sell to her demanded full payment up front. Using bank cards secured with her mother’s credit, Alison pulled together a $75,000 inventory of jeans, tops, and accessories like trendy shoes and jewelry. That’s when she was given a bit of a scare:A month before I opened, my last investor calls to say he’s going to knock his investment down because he didn’t want to be an aggressive shareholder. I panicked; I was in the final phases of my build-out, I had done all my buying, and here he was telling me I was going to be $25,000 short!Despite her angst, Alison decided to sit tight. Things were moving along nicely, and it wasn’t long before she realized that she’d be able to open her store without the additional capital.In-jean-iusA week before her opening in July 2005, Alison hired a friend of a friend as her first employee. Her mom was there to help out, along with her 17-year-old sister. The plan was to be open from around lunchtime to just past dinnertime, six days a week, and stay open a bit later on Sundays. Alison explained that it was soon evident that the location required a flexible approach:The North End is interesting because in the summer they have a variety of feasts and festivals. I was often staying open until nearlymidnight. I was working all the time—anything that would make a sale. I immediately surpassed my business plan estimates, and it kept building.As a new retailer in town, she attracted a few of the usual suspects who thought they might be able to take advantage of the young proprietor. They thought wrong:The area is safe, but like any city neighborhood, it has its share of drug addicts. The first week I was open, two junkies came in. The guy was distracting me while the girl was stealing. I knew what was going on, but I didn’t see her take anything. The general idea is that unless you see them do it, you can’t do anything.When they left, a girl walks in and says, “Excuse me, those two just walked out with a pair of jeans.” Well, I am not a very tough person—I grew up in the suburbs—and I don’t know what I was thinking or what came over me, but I ran after them. I took the jeans out of the guy’s hand and the bag off of her shoulder. I told her that I knew she had jewelry of mine, and I found it in there. I walked away from them to call the police. They ran away and my neighbors got in their car to go find them. They took my younger sister with them because she knew what they looked like.They found them and brought them back to the store so I could positively ID them. They were arrested and taken away. From then on, everyone in the North End thought hey, she’s tough—and the druggies, who all talk, stayed away.Soon after that, Alison was in hot pursuit again:I chased another girl down the street, and when I wouldn’t let her get in her car, she tried to punch me. Bryan tells me all the time I have to stop doing that; someday I could get hurt. Of course, I tell my employees not to do anything like that; just call the police. But I take it so personally; that’s mine, you’re stealing from me! How can you do that? Don’t you know I’m a new business?Over the next few months, Alison’s total loss to theft was a single pair of shoes and a pair of earrings. The other good news was that sales continued to track far ahead of her estimates. In the first six months, the store had generated a net income of $20,307 on sales of $294,061. Alison explained that, although word of mouth was an important factor in her early success, attracting the imagination of the local press had been key:I’m not the only one who has had this idea, and other trendy jeans stores have definitely gotten their share of press, but people are really taking to my message: “You’re going to get help, and we’re going to work with you to find jeans that fit. We have jeans for everybody.” Nobody else is saying that this is all about fit, and that’s the message that I relay in every piece of PR that I send out. And they keep coming to talk to me.While the young entrepreneur was thrilled with how things were going, she was ready to start spending less time on the sales floor and more time with strategic and management challenges. Easier said than done.Fold or Finance?Since the local press always seemed to focus on her skills and her story, Alison wondered how that might impact her ability to replicate her concept:How do you grow when the store is about you? People come here because they like dealing with me. How do I duplicate myself? That’s not to say that someone can’t do what I’m doing and do it well, but employees are never going to treat people exactly the way you do. I have a lot of learning to do in terms of managing my employees, delegating, and sharing my knowledge.One of her many priorities was to develop a training manual that, in addition to describing the particular fit characteristics of various brands, would clearly articulate her vision for customer service. She thought of contacting the Ritz-Carlton in Boston—to her mind a master of customer service—to see if they might let her review their training materials. Until she did have some documentation in place though, she’d have to communicate her philosophy on the fly:I sort of torture my employees when they’re hired. They have to come in and spend a few hours trying on everything in the store—like a restaurant that requires their servers to try everything on the menu so they can talk about it.I am also pretty strict about keeping the store neat and organized. I think that is so important in a small space like this. Whenever I come into the store, I can immediately see items that are unfolded or out of placeMy office is a desk in the corner, so I’m right there to offer help or teach them the little tricks I’ve learned. I also try to stay at my desk and let them take care of whoever comes in, but I can’t just keep quiet if they are not saying the right thing. I always have to get my two cents in. Now that she had a full-time employee nearly up to speed and a sharp former classmate from Babson working on weekends as a fun job, Alison had begun to carve out some time each week to recharge:I have had to give up spending much time with Bryan, and that has been a huge problem. My taking Sundays has become so important because we get to spend time together. Despite the fact8081that he is also an entrepreneur, he has had a really big struggle with the idea that he is number two to this business. That’s been hard and it’s something we’re working on.Her other challenging relationship was with the numbers:Nailing down the actuals is a big issue for me, and I am in the process of doing that. I’m not bad with fnancials, but they are a bit intimidating; I am really just much more into customer service and marketing. There are so many other things that I could be doing to bring in sales, so I’d rather do those things first.It’s true; I would rather have my store neat and folded than work on my fnancials. That is always my first priority. If the store looks good, then I can do other things. The problem is that I am constantly rearranging the store, and that is my way of being creative: putting different things together, doing the windows over every week.My uncle does my accounting, and I am paying close enough attention to know I’m doing much better than my projections, but I need to focus on it more. And I need to find a training course for that inventory software so I can run those reports and coordinate things the right way.Down by OneIt had been one of the best-selling days to date. Alison closed her shop at 8:30 that night and returned to her desk with the absurd idea that she might have some energy left for paperwork. It wasn’t just that she was tired; she now had a brand-new challenge on her plate: that day her one full-time employee had given her two-week notice.Preparation Questions1.Is this business scalable? Discuss the limitations and challenges.2.What tasks and goals should Alison be focusing on at this stage of her venture?3.Discuss the signing of a lease prior to having the money. What was the risk?4.Discuss her fund-raising and valuation. If you were an equity investor, what return expectations would you have?5.If women are coming to Alison’s store from all over, how important is location? Discuss the implications for growth.