designer-owner in berlin: business challenges

Designer-‐Owners in Berlin: Business Challenges

Dissertation

University of the Arts, London College of Fashion

MA Design Management for the Fashion Industries

Student: Marita Jablonski

Student Id.: JAB11349695

Supervisor: Alex McIntosh

Due Date: 30th November 2012

Designer-‐Owners in Berlin: Business Challenges ii

Statement of Originality

I, Marita Jablonski, declare that no portion of material in this dissertation has previously been submitted for a degree or other academic qualification of this or any other educational institution, and that to the best of my knowledge it contains no material previously published or written by another person except where due acknowledgement is made.

Marita Jablonski

Designer-‐Owners in Berlin: Business Challenges iii

Acknowledgements

Throughout my research I have enjoyed great support from many people.

First of all, I am grateful to the busy people who gave up their time to be interviewed by me: Fiona Bennett, Maria Thomas, Esther Perbandt, Livia Ximénez-Carrillo, Ettina Berrios Negrón, Derya Issever and Cimen Bachri, Sabine Hülsebus, Magdalena Schaffrin, Tanja Mühlhans, Judith Tolley, Carl Tillessen and Arne Aberle. Thank you for your time, patience and candour, without which this study would not have been possible.

Second, I must thank my supervisor, Alex McIntosh, from the Centre for Sustainable Fashion for assisting me in the early stages of this thesis.

Next, I would like to thank my family for their financial and moral support: my father, Michael, and my aunt, Kerstin, whose financial support made it possible for me to undertake the course; and my mother, Konstanze, for believing in me and for her love.

I would also like to thank my loyal friends in Berlin for their encouragement, for their inspiration and for cheering me up sometimes. Many thanks also to Tom Lee for help with the transcripts and to Jose Bergua for creative input. Special thanks to my fellow students and friends in London, Mikha Mekler and Mariana Ardila Rueda, for enlightening discussions and for being a great peer group. Finally, I would like to thank Mr P.G. Tippler for general encouragement and for correcting the occasional speling mistake, but not all of them.

Designer-‐Owners in Berlin: Business Challenges iv

Abstract

This dissertation is about micro enterprises or ‘designer-owners’ in the fashion industry in contemporary Berlin and, more specifically, about the difficulties and challenges which these entrepreneurs must overcome in order to prosper. These firms account for 60% of businesses in the fashion industry in Berlin. They grew in number by nearly 30% between 2000 and 2008. They provide employment to nearly 20,000 people in a city which suffers from the highest unemployment rate in the country. These businesses also define the city’s cultural profile and constitute a significant part of the creative industry sector.

The aim of the research was to investigate the challenges that these designer owners must overcome in order to prosper. The objectives were: to identify the most pressing problems encountered; to formulate strategies for them to overcome them; and to make recommendations to local government and other stake holders to support them. Research into small businesses in general and where possible in the contemporary European fashion industry was reviewed to identify the key challenges. This research focussed on: finance; management; human resources; manufacturing; and sales, marketing and PR. A small selection of designer–owners in Berlin was interviewed to better understand the very specific problems of these businesses. Finally, a set of strategies for designer-owners to pursue to overcome these problems was devised and a number of recommendations for local government and other stakeholders were formulated.

Designer-‐Owners in Berlin: Business Challenges v

Contents

1 Introduction ..................................................................................................................... 1

1.1 Context 1

1.2 Rationale 4

1.3 Scope 4

1.4 Outline 5

2 Methodology .................................................................................................................... 6

2.1 Aim, Objectives and Purpose 6

2.2 Method 6

2.3 Philosophy and Approach 9

2.4 Research Strategy 10

2.5 Reliability and Validity 11

3 Literature Review: Small Fashion Businesses in Theory ......................................... 12

3.1 Finance 13

3.2 Management 14

3.3 Time Management and Human Resources 16

3.4 Production 17

3.5 Sales & Marketing 18

4 Data Analysis: Designer-Owners in Berlin ................................................................. 20

5 Conclusion: Strategies and Recommendations ......................................................... 22

5.1 Strategies for Designer-‐Owners 22

5.2 Recommendations for Local Government and Other Stakeholders 24

6 References ..................................................................................................................... 27

Designer-‐Owners in Berlin: Business Challenges 1

1 Introduction

This dissertation is about the business practices of micro enterprises in the fashion design industry in contemporary Berlin, more specifically about the difficulties and challenges which these entrepreneurs must overcome in order to prosper. Scholarly literature about small and medium sized enterprises (SMEs) in general as well as in the fashion industry was reviewed in order to identify the fundamental business issues. This research was used to draw up questionnaires and a small number of these entrepreneurs and other experts were interviewed. The answers were collated and analysed with the aim of more fully understanding the challenges for these entrepreneurs. This made it possible to formulate strategies for these entrepreneurs to pursue in order to overcome their difficulties and to make recommendations to local government and other stakeholders to support this sector of the fashion industry and thus to promote economic wellbeing in the city.

1.1 Context

“Poor, but sexy,” was a phrase coined in 2003 by the mayor of Berlin, Klaus Wowereit, to describe the city´s unusual status as an impecunious but nonetheless attractive metropolis (Focus Online 2006). The city struggles with very high levels of debt (Senatsverwaltung für Finanzen 2012). According to the finance department, its current debt burden amounts to roughly €63 billion (Alberti 2012). The city has the highest unemployment rate in the country, as the table below illustrates, with over 13,3% of the workforce unemployed in 2011 (IHK 2012, p.25).

The city is nevertheless especially attractive to creative people and to creative businesses. A few years ago, local government estimated that Berlin has the highest density of freelance artists of any city in Germany (SWAF & SWFK 2005, p.24). The Berlin Chamber of Commerce estimates that the IT, media and creative sector accounts for 29,300 businesses employing 122,000 people (IHK 2012a, p. 50). A European Union funded initiative to investigate and support creative industries across the continent found that in Berlin there are

Introduction


more than 24,000 companies employing 170,000 people in the sector. In contrast, it found just 3,500 companies employing just 28,000 people in the same sector in Birmingham (Creative Metropoles 2009).

This translates into economic activity. In 2007 the sector accounted for 16% of total metropolitan GDP (IHK 2012b). It is therefore an extremely important element in the local economy. The sector is significant not just as a provider of employment and as a source of tax revenue. In recent years researchers have argued that, as well as driving economic growth, the creative sector contributes to social and cultural development (Kunzmann 1995). It is a vehicle of cultural identity and plays an important role in fostering cultural diversity (Florida 2002; Byrnes 1999). The social and political reasons for nurturing the creative sector and hence the fashion industry in Berlin may be just as cogent as the economic ones.

Recognising the significance of the creative sector, local government committed itself in 1997 to Projekt Zukunft (meaning ‘Project Future’), an initiative to modernize old structures in science and society and to promote economic activity in the city associated with the IT, media and creative industries (Projekt Zukunft 2012, p.5). The goal is to develop the city as an internationally recognized, competitive and attractive location for these industries by interlinking them with scientific, political and management structures. (Projekt Zukunft 2012, p. 9). Projekt Zukunft led to the Kulturwirtschaftsinitiative (meaning ‘cultural business initiative’), devised in 2004 with the aim of supporting start-ups, developing new clusters and networks within the creative industries (Projekt Zukunft 2012, p.38).

There is no commonly accepted and precise definition of the creative sector. A variety of terms are used including ‘cultural industries,’ ‘creative industries’ ‘copyright industries’ and ‘content industries’ (Creative Metropoles 2009). The creative sector in Berlin embraces design, publishing, music and the performing arts as well as the fashion industry. Over the last few years, the fashion industry has proved itself to be of particular significance. Berlin not only has the largest number of fashion shops and boutiques of any city in Germany, but the fashion industry has grown faster in size there than elsewhere in the country (Investitionsbank Berlin 2011). The two graphs below illustrate this. The first shows that Berlin has the largest number of fashion companies and more people employed in the industry than any other city in Germany although the industry’s economic value in GDP is substantially less than that of its nearest rival, Munich.

Introduction


The second graph shows that between 2000 and to 2008 the number of fashion companies in Berlin grew by 29.4% whereas in Germany as a whole it declined by 24.5%.

Although they are bundled together for statistical and other reasons, each of the creative industries is different, operating in quite different commercial environments and facing quite different challenges and opportunities. Local government, therefore, offers different kinds of support according to the needs of each industry in order to maximize its effectiveness. For the fashion industry a number of projects have been devised with the aim of promoting the city as a fashion design metropolis. Local government seeks to attract investment from outside. The brochure ‘Fashion in Berlin: The Place to Be’ is intended to do encourage outsiders to invest in new businesses in the city (Berlin Partner 2008). Of special note are the loans and loan guarantees that local government offers to attract investment. But there a many other forms of support including subsidies educational programs, co-financing of fashion shows during the fashion week and the development of information portals. Another initiative was to promote the city as a leading fashion industry trade fair location. To this end local government provided the start-up capital to finance what became the Mercedes Benz Fashion Week in 2008.

The Berlin fashion sector industry is dominated by micro-enterprises, by small fashion studios, which are usually owned by one or two designers, who either retail their collections themselves or wholesale them. The term ‘designer-owner’ has been coined and is used throughout this study to denote these enterprises. In a report published in 2011, Investitionsbank Berlin found that 2,188 ‘ateliers’ accounted for 60% of all the businesses in the fashion industry in Berlin (Investitionsbank Berlin 2011, p.3).

Local government also endeavours to support these smaller, ‘home-grown’ businesses. The local government representative holds regular ‘roundtable’ discussions with designer-owners to exchange information. A scheme to nurture talent called “Start Your Fashion Business” has been run for several years now. It is a competition which rewards winners with financial support and vouchers for business coaching schemes.

Introduction


However, these local government initiatives seem to have had relatively little effect. Berlin is not a fashion metropolis comparable to Paris or Milan or London or New York, but perhaps this will take many years. However, despite a decade nurturing and supporting the fashion industry, the city has not produced any labels of international repute. In fact, it is hard to name a fashion design business in Berlin that has grown to any considerable size. Unfortunately it has not been possible to find any statistics about survival rates among small fashion design businesses and especially about how many grow into medium sized companies employing ten or more people. Even successful small fashion businesses seem to remain relatively small. However, the research to confirm or refute this observation would probably involve tracking the economic performance of large number of businesses over a period of many years, a task which would far exceed the time limits of this dissertation.

1.2 Rationale

The rationale underlying this research is that designer-owners in Berlin are economically important. As a group, they constitute a large fraction of the city’s creative sector. Moreover, a small number of these businesses can be expected to grow in time quite substantially in size, that is, in profitability, turnover and number of employees. Theoretically, at least, a few of them ought eventually to become significant economically, employing large numbers and generating substantial tax revenues. However, even if the majority of these businesses grew only a little, each taking on, say, a single new employee, the effect on the city’s economy would be significant, the equivalent of a large factory opening and hiring 2,000 workers.

In fact, a designer-owner in Berlin as elsewhere in Europe is more likely to fail than to thrive. Tran (2008) asserts that many Danish fashion companies fail due to lack of capital and inadequate management. The failure rate in the sector is very high: “80% of start-ups cannot survive the first five years” (Tran 2008, p. 71). Some researchers suggest that around two out of every three new businesses fail within the first four years (Cooper, Dunkelberg, and Woo 1988, Kirchhoff 1994). According to the final report from the European commission in 2011 “50% of enterprises do not survive the first five years of their life and of all business closures, bankruptcies account in average for 15%.” (European Commission 2011, p.3). If Danish fashion start-ups are not unusually prone to failure, not then the failure rate among small fashion firms may be higher than that of start-ups in other industries.

The survival and growth of small businesses in the creative industries has been of increasing academic interest because, as a group, these businesses drive innovation, wealth creation and employment and thus have a considerable impact on both local and national economic competitiveness (Florida 2002, Porter 1990). The very specific challenges and difficulties which designer-owners in Berlin face are not, therefore, insignificant or only of interest to experts in the field. In fact, exploring these issues ought to be of special interest to local government, because understanding them should enable it to target its support much more exactly, to refine the measures it takes and to make its investment in this creative industry much more efficient.

1.3 Scope

This research is focussed on designer-owners. In addition to a number of them, several other experts were also interviewed in order to elicit their views about these micro

Introduction


enterprises. These were people working in different areas of the industry as well as the local government representative responsible for the fashion industry. As the research proceeded, it became clear that business incubation was especially relevant to the problems of designer-owners in Berlin. The concept of business incubation is relatively well understood in the U.S.A. and U.K. and fashion business incubators have existed in the U.K. for a few years. This is apparently not the case in Germany. Consequently, a representative of a London fashion business incubator was interviewed to assess whether the same concept might be successfully developed in Berlin.

1.4 Outline

In the next chapter the methodological framework is explained and the methods and techniques used to conduct the research are described and justified. The second chapter is a review of research into SMEs in general and, where possible, micro enterprises in the contemporary European fashion industry. The purpose of the review is to identify the principle difficulties or challenges which such businesses are reputed to face in order to identify the issues to enquire about in the interviews. The third chapter analyses the data collected in the interviews and discusses the results. It gives insights into the decision-making process of designer-owners and the problems which they experience that prevent their businesses from growing. It also provides insights into how government support is perceived by them. The conclusion seeks to transform the findings of the previous chapter into, first, a set of strategies which designer-owners in Berlin should pursue in order to become more successful and, second, recommendations to the government and other stakeholders about how best to support this sector of the fashion industry.


2 Methodology

This chapter describes the methodological basis for this research, addressing a number of theoretical concerns. It starts by explaining the aim, objectives, and purpose. Next the method is described, including details about how the data was collected. In the third section the method followed is justified, with reference to the underlying philosophy and approach adopted. The last section is a discussion of the validity and reliability of the results.

2.1 Aim, Objectives and Purpose

The overall aim of this research was to investigate the key challenges that small fashion businesses in Berlin must overcome in order to grow. The objectives were:

1. To identify the most pressing problems encountered by these businesses.

2. To formulate strategies for such businesses to overcome these problems and achieve sustainable growth.

3. To make recommendations to local government to enable it to target its support for these businesses more effectively.

The purpose of the research was to examine business practice in a selection of small but growing fashion businesses, to identify typical problems and common solutions, typical decisions and patterns of behaviour in order to identify successful solutions, good decision making and strategies which lead to sustainable growth.

Saunders, Lewis and Thornhill (2009) define three different categories of research: the exploratory, the descriptive and the explanatory. In this research the purpose was to explore the nature of the problems facing fashion entrepreneurs and to describe the commercial situations in which they find themselves. The intention was to identify the typical problems faced by them and gain insights into how they overcome them. The study is also descriptive in as much as the objective is to answer the question how such firms can develop sustainable growth strategies, by describing how a selection currently manage business growth and how government support should respond to their needs.

2.2 Method

The method used to conduct the research involved five stages. The first was to review scholarly literature about the problems encountered by SMEs in general and, where possible, about small fashion businesses in contemporary Europe in order to identify the main issues and thus formulate the questions to pose the people to be interviewed. The second stage was to define a set of selection criteria to choose a sample of designer-owners to interview. The third stage was to conduct the interviews. In order to widen the perspective, a small number of other stakeholders in the Berlin fashion industry were also interviewed. The fourth stage was to analyse the data collected, to check it against the findings recorded in the scholarly literature and to see whether it yields any new insights. The fifth and last stage was to use this analysis to formulate strategies which owner-designers in Berlin should pursue to grow their businesses and to make recommendations to local government and other stakeholders.

Methodology


Stage One: From Literature Review to Questionnaires

There is, as one might expect, not very much research devoted to small and micro enterprises in the European fashion industry. There is even less about the business problems of designer-owners of fashion businesses in Berlin. In contrast, the literature about SMEs in general, in the form of scholarly articles and books and reports and case studies is quite large. It includes more or less theoretical studies whose findings are presented as generally applicable. The main issues to be addressed in relation to designer-owners in Berlin would seem to be comparable to those in some other European cities and indeed not completely dissimilar from those experienced by other small businesses. In consequence, a mixture of existing research about SMEs in the European fashion industry together with theoretical studies was reviewed to identify the principal issues and to formulate a small number of open ended questions to pose in the interviews in order to elicit information about how designer-owners and other stakeholders address these issues. Five themes emerged from this review. They are: finance; management; human resources; manufacturing; sales, marketing and PR. In addition government support, because it impacts these businesses, was also considered. A small number of open ended questions were formulated intended to find out what problems the designer-owner being interviewed believed she faced and what measures she was taking to resolve them. It should be made clear that these questions were prefaced by a brief section to establish the background of the business and the role of the person being interviewed.

Stage Two: Sample Selection

To answer the research questions it was necessary to establish personal contact with designer-owners (i.e. designers who own small or micro fashion businesses) and others involved in the Berlin fashion industry. The selection process used was ‘handpicked’ sampling, that is, subjects were selected precisely because they seemed to meet particular criteria based on the research question and objectives (O’Leary, 2004).

The businesses are micro or small enterprises according to the definition of the European Commission (European Commission 2003). They lie at the so called ‘high-end’ sector of the market. Furthermore, the businesses are relatively mature, having successfully passed what many researchers recognise as the “start-up” stage (Fiorito and Greenwood 1986, Byres and Dorf 2004, Churchill and Lewis 1983). Their owners were expected to possess more knowledge and experience than the owners of younger businesses. More exact criteria were devised in order to distinguish these more established fashion businesses from younger ones. Only businesses that had been trading for more than two years and that are in the wholesale business were considered. Another important criterion was “promise”: only fashion businesses that were considered “promising” in terms of media coverage were examined. In addition, it was desirable that they were businesses which had participated in one or more of the Projekt Zukunft programs. This would have meant that their potential had been endorsed by local government. The following were additional selection criteria:

- the business had to be more than three and less then twelve years old;

- the business had to have exhibited at fashion fairs for more than two years

(i.e., covering four seasons);

- the business had to be based (i.e. founded and headquartered) in Berlin;

Methodology


- the business had to be designer-owned (i.e. either owned by a designer or, if

a partnership, at least one of the owners had to be a designer).

Sixteen fashion businesses which met these criteria were identified.

In addition to the designer-owners, four other stakeholders, industry experts of different sorts, were also chosen for interview. They were: a management consultant; the founder of a fashion fair; a sales and PR agent; and the local government representative responsible for the fashion industry.

Stage Three: The Interview Process

An introductory email was send to the sixteen selected fashion brands and four experts, explaining the purpose of the study and requesting their participation. In total, nine designer-owners and all four of the other stakeholders responded and confirmed appointments. Of these, however, only seven designer-owners were finally interviewed. One forgot the appointment and another was obliged to cancel the meeting at the last minute.

The following is a list of the people finally interviewed:

• Fiona Bennett, designer and owner of Kiss by Fiona Bennett

• Carl Tillessen, designer and co-owner of Firma

• Maria Thomas, designer and owner of Butterfly Soulfire.

• Esther Perbandt, designer and owner of Esther Perbandt

• Livia Ximénez-Carrillo, designer and co-owner of Mongrels in Common

• Derya Issever and Cimen Bachri, designers and co-owners of Issever Bachri

• Ettina Berrios Negrón, designer and owner of Thone Negrón

• Sabine Hülsebus, management consultant and project manager at NeMoNa (a networking organisation for Berlin designers and garment makers)

• Magdalena Schaffrin, founder of the Green Showroom

• Arne Aberle, a sales agent and marketing consultant, owner of Arne Eberle Press & Sales

• Tanja Mühlhans, coordinator of the Creative Industries Initiative for the Berlin Senate Department of Economics, Technology and Women´s Issues

• Judith Tolley, Manager of the Centre for Fashion Enterprise incubator

The interviews were conducted between the 11th September and 8th November 2012. Written notes of interviewees’ answers to questions were taken during the interviews. In addition, most of the interviews were recorded.

Following the interviews, the data collected was summarised in English in transcripts (included as appendices). The effort that would have been required to first make German word-for-word transcripts and then to translate them into English was unfeasible considering the time constraints of the whole research project. Many of the interviews lasted more than sixty minutes.

Methodology


All the people interviewed consented to publication. On a very small number of occasions, the person being interviewed asked that a specific piece of information remain undisclosed or unattributable, Such requests have been respected.

Stage Four: Data Analysis

The next stage involved analysing the data collected in the interviews. Saunders, Lewis and Thornhill (2009) notes that although there is no standardised procedure for analysing qualitative data, it is possible to ‘process’ it by summarising or categorising meanings or by structuring meanings using a narrative. In ‘processing’ the data here, the responses to interview questions were compared to see whether common features or patterns existed and to assess to what extent they agreed with the findings recorded by other researchers and management theorists. In addition, the strange or unexpected was not disregarded or ignored, but on the contrary examined to see whether it yielded new insights.

Stage Five: Strategies and Recommendations.

The findings of the data analysis served as the basis for the last two of the objectives of the research project: devising simple strategies for designer-owners to pursue in order to grow their businesses; and making recommendations to local government to enable it to target support for these businesses more effectively.

2.3 Philosophy and Approach

This method is qualitative rather than quantitative, inductive rather than deductive, interpretative rather than objective. There are numerous reasons for this. The end of the research was essentially practical; making recommendations for entrepreneurs and local government representatives and others. The research was conducted in the here and now of contemporary Berlin rather than somewhere chronologically and geographically remote. It sought to inductively understand the subjects’ ideas and opinions rather than to make deductions from facts and figures (Saunders, Lewis and Thornhill 2009). No hypothesis was tested and no generally applicable theory emerged from the data. The research was also severely constrained by time (and money). A small number of in-depth interviews seemed more likely to yield valuable insights than generalizations drawn from a larger sample. Last, but not least, this method exploits this researcher’s own strengths and experience.

There are a number of other advantages to a qualitative rather than a quantitative research. Although quantitative research provides (apparently) objective measures and permits analysis of large amounts of data, it may be criticized for being superficial. The complexity of human behaviour is likely to remain obscure using such methods (Wring and Crimp 2000). Moreover, the small businesses in question simply do not keep reliable data of the kind that would be needed to make a quantitative research method possible. For these reasons qualitative research seemed more appropriate.

Saunders, Lewis and Thornhill (2009) observe that there are four main research philosophies used in management research: positivism, realism, interpretivism and pragmatism. This research subscribes to an interpretivist research philosophy, as it is believed to be the most appropriate one to gain insights into the complex social world of business and management, in this case of small fashion businesses in Berlin. Moreover, it was important to understand subjects’ decision-making processes in a context specific

Methodology


setting (Collins 2010). The subjectivity of those being studied and of the researcher becomes central in the research process. The knowledge produced during the study represents a unique interaction of the researcher and the research subject. This might limit generalisation of the research outcome (Hannes and Lockwood 2012). However, it seems preferable to forgo this in order to more fully understand the circumstances of the subjects, the entrepreneurs under examination.

The goal of qualitative-based research is to seek an understanding of how the participants perceive their world. This can be achieved through a variety of methods (e.g. observation, interviews). There were a number of advantages to conducting face-to-face interviews as a method of collecting the primary source data. Of special note is the trusting atmosphere created, which made it possible for the person being interviewed to share sensitive information, including personal experiences and views. The interviews are also a good way to understand the subjects’ decision making processes.

Where it is necessary for you to understand the reasons for the decision that your research participants have taken, or to understand the reasons for their attitudes and opinions, you are likely to need to conduct a qualitative interview. (Saunders, Lewis and Thornhill 2009, p. 324)

However, the information from the sample may not be representative of the larger population and may not be generalized. Using semi-structured interviews makes possible the collection of new, perhaps unexpected information. It also offers the opportunity to explore different topics. In an exploratory study unstructured and semi-structured interviews are seen as very helpful to seek new insights into a topic (Saunders, Lewis and Thornhill 2009).

Some researchers suggest using different data collection techniques as a strategy, such as by combining qualitative with quantitative data. This study used a little quantitative data from secondary sources in the introduction and literature review. Different interview questions were posed in interviews with stakeholders who were not designer-owners.

Saunders, Lewis and Thornhill (2009) describe three different types of interview. They differ in the way they are performed and in the implication of the data they generate. Structured interviews use a “standardised” set of questions devised to collect predetermined data, whereas unstructured interviews have no expected answers and are used to explore an issue in more depth. However, the flexibility of unstructured or open-ended interviews results in a lack of comparability of one interview with another. Moreover, their analysis is more difficult and more time-consuming (Silverman 2006). In these semi-structured interviews the researcher strove to collect data that could be compared. The questions actually posed might vary a little from interview to interview as, for example, when the person being interviewed volunteered the answer to one question as part of the answer to another. Equally an ‘unscripted’ follow up question might be posed to clarify and answer or probe a little deeper.

2.4 Research Strategy

Researchers agree that it is important to have a clear research strategy. Whatever the strategy is, it should guide and enable the researcher to answer a particular research question (Saunders et al. 2009, Collins 2010, Remenyi et al. 2003). The choice of the research strategy should meet the objectives of the research and be based on the extent of

Methodology


existing knowledge, the time available and whether there is a focus on contemporary events and the philosophical approach of the researcher (Saunders, Lewis and Thornhill 2009).

A case study approach is regarded as appropriate if the study is conducted within a real life context and the goal is to increase the understanding of a particular contemporary phenomenon. The case study approach is often used to make practical improvements (Collins 2010). It involves measuring what is present and how it got there and it aims to explore and understand problems. However it is argued that findings from one case study can be applied to similar ones. This project used case study to investigate particular contemporary phenomena within its real time context and within a limited period of time. It focused on how small firms make design management decisions and aimed to find out what small firms need to achieve sustainable growth. Although this strategy is not expected to lead to a generally applicable theory, it makes possible the detection of underlying patterns.

Giddens and Sutton (2010) point out that concentrating on one method ensures more competently designed and conducted research. However, the research must be appropriate to the research area.

2.5 Reliability and Validity

Qualitative research using non-standardized methods, such as semi-structured interviews, tends to reflect reality at the time when the data is collected. This implies that the results might not be repeatable, since attitudes and opinions may change. The emphasis in qualitative research lies in words rather than in facts and figures. Therefore the value of the information obtained depends on the people interviewed, on their knowledge and understanding, truthfulness, candour or willingness to share sensitive information. Qualitative research offers deep insights in personal opinions, but can create a bias resulting from the nature of individuals. However, if the findings prove to be consistent with those of other researchers in the field, the results may be deemed no less reliable than theirs.

The results of the research are probably only valid for designer-owners and local government in Berlin. The results of the data analysis are not inconsistent with the findings of other researchers investigating small fashion businesses in other European cities in the last decade. At some point in the future another researcher might, moreover, use the results either in some more general study of SMEs in Europe or simply to assess whether the problems facing designer-owners in Berlin have changed. However, the strategies which micro enterprises should follow and the recommendations to local government are only valid in contemporary Berlin.


3 Literature Review: Small Fashion Businesses in Theory

Research suggests that small fashion businesses suffer from the following: lack of capital and lack of financial skills; lack of management expertise, especially with regard to managing business growth and planning; human resource shortages; an inability to exploit their nimbleness in manufacturing; and expensive sales and marketing activities. Some problems encountered by small fashion businesses are doubtless encountered by small businesses in many other industries. How many entrepreneurs don’t lament their lack of capital? However, some problems may be either typical or especially acute in small fashion businesses. These problems seem to lie in the areas of manufacturing, branding, sales and marketing and PR. For example, small fashion businesses might be expected to need to spend much more on marketing activities than, say, small plumbing companies. It is a point noted by Tran: “All industries need marketing and branding in one form or another, but fashion is the one which has overbearing reliance on it” (Tran 2008, p. 28). This chapter is focussed on trying to define the very specific difficulties experienced by small fashion businesses in order to formulate questions to pose to designer-owners in Berlin.

In reviewing the factors that determine small firm failure, different approaches are used. Churchill and Lewis (1983) and Scott and Bruce (1987), identify characteristics and problems related to companies’ stages of development as measured by size and maturity. They argue that each stage has its own specific challenges and organisational requirements, such as the need to delegate and changes in the managerial role as the businesses grows. They stress the fact that the founder-manager and his or her managerial style plays an important role in determining the success or failure of the firm. Burke (2008) also associates problems faced by the company with distinct phases or stages in its development. She identifies requirements regarding management style and leadership. Churchill and Lewis define five stages for small businesses: existence; survival; success; take-off; and resource maturity. Burke defines six stages for small fashion businesses: concept; start-up; survival; growth; maturity; and decline. She specifies the challenges for fashion businesses in emphasising certain challenges, such as product development, cash flow and gaining a solid customer base. Tran analyses Danish fashion companies. She maps these businesses in strategic groups according to their design content (quality ranking with price reference) and size (refers to employees and revenue measures). She defines them as “Start-ups,” “Talents,” “Heroes” and “Commercials,” each possessing its own characteristics and facing its own challenges. Further she identifies two growth paths in the Danish fashion industry: either maintaining the original design identity in order to grow into a luxury fashion house; or lowering the target in order to compete in the commercial market (Tran 2008). She asserts that both paths require the ‘right’ investor and the development of a strong organisational capability. Karra (2008) groups problems faced by fashion entrepreneurs according to relationships with others (e.g. with investors, manufacturers, intermediaries). This differentiates her from other researchers. She looks beyond the firm to identify problems in its relationships with other entities. Other researchers (e.g. Storey 1994) simply list problems or factors influencing business growth. Gill (1985) stresses that business growth is determined by the skillset and motivation of the entrepreneur. Boyle and Desai (1991) identified 24 factors contributing to failure among SMEs categorised as internal (i.e. under management control) and external (i.e. not under management control). They too assert that

Literature Review: Small Fashion Businesses in Theory


“the type of problems faced by engineer, promoter and craftsperson are likely to be quite different” (Boyle and Desai 1991, p.36). They vary also according to the expertise and interest the entrepreneur possesses.

When addressing the problems of small businesses, academic research tends to focus on a number of similar areas. These include: finance, management, human resources, manufacturing, sales and marketing and public relations. In this chapter, therefore, research findings will be reported according to the same categories.

3.1 Finance

There seem to be three major problems encountered by small fashion businesses related to finance: insufficient capital; difficulty accessing finance; and ignorance of financial matters.

Insufficient capital is a major constraint on the successful development of a small fashion business. Fashion entrepreneurs are often forced to launch their business using their own capital and or that of family and friends (Tran 2008, Karra 2008). This is often insufficient for the needs of the business. A fashion company may seem to require very little start-up capital, but this may be an illusion.

In fashion, however, entrepreneurs need much more money for marketing activities including advertising, fairs, and fashion shows. Money for collection sample making has to be paid in advance before products are sold.” (Tran 2008, p.82-83)

If there is only limited capital available, the fashion entrepreneur needs to prioritise expenditure. This can be advantageous, making young, upstart businesses more competitive than their older and larger rivals. However, at some point lack of capital has a destructive effect, undermining the business through, for example, the lack of or weak marketing material, insufficient research into suppliers or poor quality goods. Furthermore, if the business survives the first years and wants to undertake the transition from (mere) “existence stage” to “survival stage”, it needs to finance it.

Theoretically, fashion entrepreneurs can obtain capital from four main sources: personal savings, including contributions from relatives and friends; debt financing through normally a bank; interest-free loans or grants from non-profit organisations or the government; and equity funding provided by venture capital funds and business angels (Meadows 2009, Burke 2008, Tran 2008). Personal savings are the most common source of capital and it is rarely substantial enough to help businesses make important transitions between business stages. Banks provide loans by assessing the risk. This tends to penalise small fashion businesses which seem especially risky. Storey points out that “smaller firms find it difficult to obtain small sums of equity capital and feel penalised by an inability to obtain, or to obtain only at high rates of interest, loan capital.” (Storey 1994, p.204). Small businesses are riskier than larger firms and so banks are reluctant to lend money to them. Small fashion businesses must seem riskier still. They are unlikely to have much to offer as collateral. Goodwill or an innovative design are intangible assets and fashion designs are hard to protect as intellectual property. The nature of fashion design also makes it hard to obtain capital from strategic investors. Small fashion businesses are perceived as high-risk ventures and the return on investment as slight and slow. This makes fashion less attractive to investors in comparison to other investment opportunities. (Karra 2008, Tran 2008)



Moreover, potential investors are relatively ignorant of the fashion business. Equally, fashion entrepreneurs scarcely understand investors and are, in any case, afraid of losing control of their businesses. In consequence, fashion entrepreneurs and investors simply fail to find each other (Tran 2008). For all these reasons, therefore, small fashion businesses are likely to be undercapitalized.

Another constraint on growth is fashion entrepreneurs’ lack of financial skills. Small companies often fail to control operational costs or even to analyse financial statements other than at best cash forecasts, all of which can have fatal consequences for the business (Churchill and Lewis 1983, Hisrich 2008). According to Churchill and Lewis, in their five stage business development model, the main challenges of the first and second stages are, first, obtaining and keeping customers and, second, balancing revenue against expenditure in order to break even. To do this it is crucial, of course, to keep accurate records. Without them it is impossible to make good decisions about how best to manage the limited capital available. Most Danish fashion entrepreneurs receive little or no financial training as part of their professional training and lack knowledge and skills in these matters (Tran 2008). Many consider keeping track of their business’s finances as an administrative burden, rather than an essential part of their job. The lack of interest in and understanding of finance can lead to poor decision making. Furthermore, without keeping and analysing appropriate financial data, fashion entrepreneurs cannot distinguish between profitable and unprofitable goods. For many this is a considerable challenge. According to one researcher “some designers simply add from 30 to 40 per cent to the final product cost to include overheads, also known as direct costs, before adding their profit margin” (Meadows 2009, p.163). It may be that fashion entrepreneurs’ lack of financial skills is more acute than others.

3.2 Management

Small fashion businesses tend to lack management skills in general, but especially with regard to managing business growth and strategic planning.

In a business consisting of a handful of people, the personality of the owner(s) may well determine the quality of the management function. In a small fashion business typically the owner is a designer, a creative rather than a business person. Tran identifies an asymmetric mind-set between managers and creative people. She argues that this arises from a lack of knowledge about fashion on the manager’s side and the lack of a business mind-set on the fashion entrepreneur’s part. Another researcher argues that creative people are not usually primarily commercially driven, but are motivated rather “to seek the opportunities to exercise their creativity” (Florida, 2004, p. 28). The motivation to start a fashion business may often lie not in the desire for profit, therefore, but rather in the urge to express creativity, to satisfy the desires of others or to obtain recognition for good design and good quality. In a small business, in consequence, if the owner is more creative than managerial, then the business as a whole may suffer from poor management. In a larger business, a creative owner may be able to hire managers to make up for such deficiencies. Karra, in her research into UK fashion, also notes a “lack of entrepreneurship or fundamental business awareness in a significant number of fashion businesses at an early stage”. (Karra 2008) However, it is important to observe that a creative entrepreneur’s lack of traditional management skills may not necessarily be a disadvantage. The same researcher discovered that designer fashion businesses often exhibit an “intuitive approach to their structure and management practices,



resulting in some highly individual and non-conformist ways of doing business” (Karra 2008, p. 24). Likewise Negarandeh, examining Danish fashion entrepreneurs, comments that decisions and plans are not made according to the precepts of traditional business administration, but in line with the entrepreneur’s experience, intuition, creativity and insight (Negarandeh 2008). A flexible decision-making process, resulting in enhanced responsiveness combined with continuous short-cycle innovation might be more appropriate in the complex and fast changing fashion industry.

A particular management challenge facing fashion entrepreneurs is to grow their business. A number of researchers have noticed that, as a company grows, it passes through a number of different development stages, each with its own distinctive characteristics, involving changes to the organisation and to management practices (Churchill and Lewis 1983, Scott and Bruce 1987, Burke 2008, Hisrich 2008). Making the transition between stages is itself a challenging management task. It is characterised by a crisis which needs to be overcome to move the company to the next stage. In most cases it requires an organisational change and success is determined by several factors closely associated with the entrepreneur’s personality. His or her education, experience, managerial skills, motivation, leadership style, strategic planning and time management skills are important factors determining business success or failure (Gill 1985, Hisrich 2008, Storey 1994). A fashion designer may simply lack the skillset that these researchers regard as key to grow the business. In particular, he or she may be reluctant to grow the business precisely because it involves surrendering control. Churchill and Lewis observe that in the early stages “the owner does everything and directly supervises subordinates, who have average competence.” (Churchill and Lewis 1983, p.3) The owner is involved in all affairs. As companies become larger and more complex, the need for delegation grows and employees have to accept certain responsibilities previously reserved for the owner. This occurs when pressure on the owner´s time increases and becomes more valuable. The owner becomes more involved in administering the business and supervising operations; controlling finance and managing personnel. To successfully manage the transition from small and owner-operated company to a larger organisation, the owner has to hire staff, build a team and delegate control (Boyle and Desai 1991). When an owner starts a company he or she has complete control over all or almost all aspects of the business. He or she may identify with the firm. Such entrepreneurs may struggle to give up power over the business. This is seen as a risk. Storey (1994) asserts the owner’s reluctance or inability to diversify control over the business is a constraint on the growth of SMEs. This may be even harder for fashion designers, who are personally and emotionally connected to their designs and hence to their brand. For them it may be especially challenging to successfully make the transition from a micro-enterprise to a small company, employing ten or more people.

Another management challenge for people running small businesses including fashion entrepreneurs is planning. Churchill and Bruce emphasize that “strategic planning and budgeting to achieve coordination and operating control” becomes essential in the “growth stage.” Cash flow planning and budgeting are especially important if the business is to pass from the “existence stage” to the “survival stage”. “For the former, cash-flow planning is paramount, for the latter, strategic planning and budgeting to achieve coordination and operating control are most important” (Churchill and Bruce 1983, p. 2) Hisrich and Peters (2008) argue that a business plan must be compiled in order to exploit the business



opportunity, regardless of the stage in which the business finds itself. Likewise Vallone asserts: ”By not having clear and concise goals and a plan to achieve these goals, business owners will find themselves spinning out of control until their lack of direction leads them to failure“ (Vallone 2008, p.34). Gehlhar (2005) also argues that fashion entrepreneurs need a business plan at the outset in order to understand the market opportunity, to determine which resources are needed and, of course, to prove the legitimacy of the business to potential suppliers, contractors, and investors. Notwithstanding this, Gill (1985) noted that many SMEs had difficulties “planning ahead and re-forming and revising their strategy in the face of overwhelming short-term day to day problems”( p.192). The problem of lack of time may be especially acute in small, undercapitalized fashion businesses.

3.3 Time Management and Human Resources

In a business consisting of only a handful of people, personal time management is human resource management and there are signs that small fashion entrepreneurs are not especially good at managing either their own or co-workers’ time. In addition small fashion businesses also experience problems finding, hiring and retaining skilled employees probably because they are undercapitalized.

One of the biggest challenges facing any small business is shortage of time (Hisrich and Peters 2008). Small fashion businesses are no exception as researchers have noted (Karra 2008, Tran 2008). Indeed it may be that the fashion industry is especially susceptible to shortage of time because trends change quickly and product lifecycles are short compared to some other goods and services. However, there are signs that poor time management among small fashion entrepreneurs is consistent with more general management shortcomings and particularly with their reluctance or inability to devise and execute plans. English retailers are very critical of small fashion entrepreneurs’ ability to deliver on time (Karra 2008). Likewise Danish fashion designers are considered to possess poor time management in coordinating fabric suppliers, trim suppliers and manufacturers (Tran 2008). Managing complicated supply chains can be hard but, as one researcher points out, it is essential to maximise profit margins (Meadows 2009). One of the reasons why these entrepreneurs do not devote adequate time to planning is because they are part of the workforce and as such too busy with other tasks, such as design, production and marketing.

As the amount of work increases, small businesses need help in order keep up. Small fashion businesses in the UK tend to take on unpaid interns and or temporary freelancers because they cannot afford permanent full- or even part-time employees (Karra 2008). They try to cover staff gaps with interns which have only limited knowledge and work generally for free in exchange for experience (Gehlhar 2005). In consequence the entrepreneur continues to do most of the critical tasks, unable to handover responsibility to temporary workers. The lack of permanent employees prevents the establishment of a durable organisational structure and also fails to release the entrepreneur from the pressure to do mundane tasks in order to enable him or her to devote adequate time to planning and management. Moreover, hiring interns may distract the fashion entrepreneur from addressing the need to build a strong team of permanent employees. Even when the business has the financial resources and expectations to hire permanent employees, wages are often necessarily low, which makes it hard to attract qualified staff. Hisrich and Peters (2008) emphasize that business growth is fuelled by employees and, that if human resources are ‘spread too thinly,’



the effect is to constrain business growth. The necessity to carefully manage human resources increases with the number of employees. However, small fashion entrepreneurs are unlikely to possess formal human resource management skills enabling them to build and manage a team and delegate work. During this period of time the business is vulnerable because in a company employing only, a handful of employees, a human resources problem affecting two employees is one which affects half the workforce.

3.4 Production

Small fashion entrepreneurs lose out to larger competitors because they are unable to exploit economies of scale. This is not particularly surprising. However, research has also found that they are unable to use niche marketing and speed to market to undermine larger competitors. In this respect, they may be different from other small businesses.

Production costs are often especially high for small fashion businesses. They are unable to achieve the same economies of scale as their larger competitors. Moreover manufacturers are reluctant to accept small orders. For a manufacturer small quantities are not very profitable or potentially even unprofitable (Meadows 2009, Karra 2008). As a consequence, manufacturers either set the minimum order quantity too high for the small fashion designer or raise the price unacceptably high or impose a surcharge for low volumes. For small fashion entrepreneurs this leads inevitably to increased unit cost. Churchill and Lewis (1983) argue that in the first stage the young enterprise is mainly busy with stabilizing production and product quality in order to stay competitive, whereas in later stages the focus shifts to financial and customer-relationship issues, that is, to finding ways to minimize costs and optimize quality. In her study of the UK fashion designer business, Karra looked at “key relationship challenges” and found out that 90% of the designers interviewed claimed that their biggest challenge was dealing with manufacturers. The difficulties included surcharges for low volumes, shortage of time entailed by short product development cycles and manufacturers’ output quality. This would tend to suggest that small fashion businesses encounter problems that Churchill and Lewis believe other businesses address later, when they are larger. Meadows adds that suppliers are also reluctant to grant exclusivity on a small order and this can be essential to a small fashion business: without it a competitor can offer the same product and maybe at a cheaper price. In the fashion industry this can become a major issue as, for example, when a certain printed fabric distinguishes one brand from a competitor. Karra asserts that the relationship between designers and manufacturers is difficult due to “a mismatch in expectations, lack of understanding of each other’s business operations, workflow and financial restrictions.” Karra 2008, p.16.) Manufacturers claim that small fashion entrepreneurs have inflated expectations of the end product, are unaware of how the manufacturing process actually works, disorganised and unprofessional and ignorant about how a garment is made.

Other small businesses would not seek to compete with larger rivals in the same way. One might expect them to exploit their proximity to their customers to undermine the competition. Quick response capabilities help fashion companies to capture market opportunities by offering trend-orientated clothes. Tran notes, “Adding eye-catching current trends is a way to attract new and more customers and re-fresh the brand loyalty” (Tran 2008, p.106). Small fashion businesses, however, may be unable to do this, because they lack the financial and human resources. In these circumstances on-time delivery for a small fashion entrepreneur



is especially difficult. Yet the penalties may be especially harsh. Late delivery can easily overwhelm a small fashion business’s financial resources, for retailers can claim surcharges or even simply cancel the order (Malem 2008). Nor can a small fashion business take advantage of its own flexibility, if it is ultimately dependent on another’s manufacturing capacity. If demand suddenly grows, limited manufacturing capacity may prevent a small fashion enterprise from being able to exploit the unexpected opportunity. In the second place, off-shoring by large fashion businesses over the last quarter century may have destroyed onshore manufacturing capacity, making it impossible for small fashion entrepreneurs in Europe to get their clothes to market before their larger rivals. It is a point made by Karra who notes that some designers claim that they have had to move production abroad because the “UK is seen to lack specialist skills” (Karra 2008, p. 16). Likewise Malem finds that “SME fashion businesses often find the barriers of entry to quality manufacturing and fabric mills too high.” (Malem 2008, p. 409)

3.5 Sales & Marketing

The cost of sales and marketing activities seem to be comparatively high for small fashion businesses, that is in comparison both to other micro enterprises and to larger rivals in the fashion industry.

To compete with larger rivals, small fashion businesses need to define their brand identity and communicate it. But they tend to lack the means to do so. As Karra notes, designers often struggle to build a clear design message around their ideas. “Designers often think only of making beautiful products, but intermediaries argue that a consistent and relevant story is the first step in building the brand and securing consumer receptiveness” (Karra 2008, p. 22). Tran notes that, although commercially driven brands are more successful, Danish designers are often reluctant to compromise their designs in this way (Tran 2008). Even the ones that are commercially driven and recognise the importance of branding may not have the means to invest in branding activities. Malem emphasises that PR is important not only for large fashion businesses, but also for small ones “to remain competitive in the present marketplace” (Malem 2008, p. 410). But Karra notes that in the UK, “PR companies warn that a designer should concentrate on their product and getting stockists before they take on PR” (Karra 2008, p. 27). Fashion companies who seek to promote their brand without having devoted adequate effort and financial resources to product development are in danger of disappointing customers with poor quality. Furthermore, PR is a long-term investment and designers with tight budgets are recommended to spend it on sales rather than on PR (Meadows 2009). Some brands keep PR activities in house to minimize the expense, but lacking expertise and contacts, they are unlikely to obtain press coverage.

Small fashion businesses need to market their products, but, as with branding, tend to lack the means to do so. Participating in fashion shows and exhibiting at trade fairs is important for building relationships with buyers and intermediaries. A small fashion business’s budget for marketing activities is likely to be extremely limited. But it is also expensive, especially in in foreign countries. Apart from the stand at the exhibition, brands have to pay for interior fitting and promotional material. Karra comments that for small fashion businesses exhibiting at a trade fair is “an exceptional marketing spend that comes straight off their bottom line” (Karra 2008, p. 26). Moreover, closing a deal and securing a stockist at such fairs is hard



because “key buyers may not buy from an emerging designer for fear of non-delivery or poor manufacturing quality” (Karra 2008, p. 6).

Most small fashion businesses choose to wholesale their collections to boutiques and stores rather than to attempt to retail their goods themselves in a shop. This keeps overheads down and ensures that capital is not tied up in stock. In additionally, the range of actual and potential customers is probably wider than if the business tried to sell only through their own retail outlet, even one that was online. The disadvantage however, is that the business loses out on the full retail value of the goods. Some small fashion brands use a sales agent, which diminishes the profit margin, or try to sell their collections directly to retailers themselves. This doesn´t give them the exposure, which they would get at fashion fairs. Moreover, some retailers “impose harsh contractual obligations including extended payment terms” (Karra 2008, p. 40). Non-established brands, which have little or no negotiating power, can find themselves obliged to accept even less attractive deals. Small fashion companies in both the UK and Denmark are forced to compete in international markets, because their domestic markets prove too small to sustain them (Karra 2008 and Tran 2008). However, building international sales is inherently risky. Consumer behaviour may be quite different in another country. Unforeseen government regulations (e.g., customs duties, tax rules) may impact fashion exports.

***

The very specific difficulties which small fashion businesses seem to experience are: lack of capital; poor management; chronic human resource shortages; an inability to compete with larger competitors in nimbleness and speed to market; and the need to lay out comparatively large sums in sales and marketing activities of dubious value. It is perhaps not surprising that 80% of small Danish fashion businesses fail. In the next chapter, the experience of designer-owners in Berlin is analysed both to confirm these findings and to better understand their root causes.


4 Data Analysis: Designer-‐Owners in Berlin

The challenges which designer-owners in Berlin face are not dissimilar to those faced by small fashion businesses elsewhere in contemporary Europe. Many of these designer-owners are probably undercapitalized, and they also experience acute cash-flow problems, not eased by the owner’s lack of basic accountancy skills. Some lack management: their owners lack skills and are unable to devise and execute a plan to grow the business. They also fail to find, hire and retain skilled employees, which exacerbates the lack of management because it obliges the owner to focus on other more mundane tasks. Many of these designer-owners take advantage of low cost manufacturing capacity nearby in Eastern Europe, but are unable to translate this into significantly lower costs and speed to market to successfully compete with large rivals. Many of them invest money on sales and marketing activities which are not aligned with a strategic plan and which bring negligible returns and this in spite of the owners’ vague awareness of the fact.

Three different generations of youthful designer-owners exist in Berlin. They differ according to the economic and political environment at start up. The oldest generation is made up of businesses founded before 2000, veritable pathfinders, with no local role-models and which enjoyed little or no government support. Fiona Bennett and Firma belong to this age-group. The second generation is made up of designer-owners founded between 2000 and 2008. These include Mongrels in Common, Esther Perbandt and Butterflysoulfire. The designer-owners of these brands had an experimental and even improvised approach to management initially, but have now adopted a more professional attitude. The third generation, the youngest, is made up of businesses founded after 2008 and includes Issever Bahri and Thone Negrón. These designer-owners have numerous role-models and enjoy considerable support from local government and others.

Economic and political changes determine the environment in which these start-ups begin trading. “Bread and Butter,” an important trade show, returned to Berlin in 2009, having left in 2005. On its return, this show significantly raised awareness of the indigenous fashion industry in the local domestic market. The annual competition, “Start Your Fashion Business”, sponsored and run by local government, was inaugurated in 2010. The Kreativ Coaching Center (KCC), a business coaching centre which specialises in offering subsidized consultancy to start-ups in the creative industries, including fashion, was founded in 2008 by Investitionsbank Berlin and local government. Other supporting concepts subsidized by local government which evolved during this period were the Mercedes Benz Fashion Week Berlin (MBFWB), the showroom mile in the Fashion Week and subsidized fashion show slots at the MBFWB. Age is no guide to success, size or profitability. The youngest generation has benefitted from these initiatives. Older businesses are not necessarily more highly developed as businesses than the younger ones. Older entrepreneurs’ skills are not necessary more developed than those of their younger competitors, but the length of time a business has traded may be an indicator of expertise.

Among the designer-owners interviewed, the entrepreneur’s personality and personal skillset are critical factors in determining business success. The designer-owners interviewed are the founders of their brands and they take all the important business decisions. The businesses are fully owned by the founders, with the exception of Mongrels in Common,

Conclusion: Strategies and Recommendations


which became a limited liability company after it accepted an external investor in February 2012. Another of the companies interviewed, One label stated, that it is partly owned by a bank because of a loan. In all cases, however, the entrepreneur’s personality and skillset effectively determines performance in different business functions. Outstanding creativity cannot compensate for a lack of marketing expertise. In this respect such small companies are rather different from large ones, which might be run by an executive who notices, say, poor performance in the marketing function and simply hires experts to make good the shortcoming. This is, of course, not possible in a small fashion business. The vast majority of the designer-owners interviewed possess a qualification in fashion-design and the owners are still the designers of their own collections. Only a few of had obtained relevant work experience in the fashion industry before starting their businesses. Only one of them possesses a formal qualification with a substantial financial or business management element: Carl Tillessen of Firma.



5 Conclusion: Strategies and Recommendations

In order to address the issues analysed in the previous chapter six strategies for designer owners and recommendations for local government and other stakeholders have been formulated.

5.1 Strategies for Designer-‐Owners

The challenges which a given designer-owner faces will be unique and the strategies which she or he should pursue to overcome them will necessarily be quite specific. Designer-owner might start by reflecting on the business, identifying the most constant and pressing difficulties, prioritising them and setting aside time to address the underlying issues, which are likely to have been described in the previous chapter.

Keep Simple Financial Records

Designer-owners should keep simple financial records in order to manage cash-flow and, if necessary, to obtain credit. Keeping financial records is not merely a legal requirement and as such a tedious annual task, but ought to be a useful way of assessing how well the business is running at periodic intervals. By removing the uncertainty of not knowing this, keeping such records ought to relieve the designer-owner of considerable stress. It should also enable her to foresee cash-flow problems and to take action to avoid them, such as applying for bridging-loans or negotiating with buyers and suppliers and manufacturers. Adequate financial records will be needed when seeking credit. It will also improve strategic decision making (i.e., range planning, costing, pricing). Last, but by no means least, having accurate financial records are almost certainly a prerequisite when negotiating with banks or external investor if the business needs more capital in order to grow. Such financial records need not be extensive and detailed and therefore tedious or difficult to keep up to date. They could take the form of an Excel spread-sheet, updated once a month in an hour or two. Designer-owners could network with others in the industry to share ideas and even devise templates with straightforward guidelines about how to fill it in, keep it up-to-date and understand it. They might also seek help from the accountants who file their tax returns.

Plan to Grow

Designer-owners should also devise and subsequently revise a business plan. They may plan to grow or they may plan to keep the business much the same size, but in any case they should make a plan. Putting the thought into writing such a document is itself a valuable exercise as some of the designer-owners, who had been obliged to do so in the past, noted. Consulting such a document later, when considering a major business decision, such as taking on a permanent employee, or substantial expenditure attending a trade show, will help inform the decision and prevent costly mistakes. Sharing the business plan with partners and other employees ensures that other people share the same aims. Lastly, if the plan turns out to have been based on inaccurate estimates, then it needs to be revised, not discarded: even a bad plan is better than no plan. As with the simple financial records, it need not be a long and detailed document. It could be a two or three page ‘road map’ describing the business’s strategic direction over a six or twelve month period with some approximate estimates and targets. It could take the form of a Word document and, as with



the book-keeping spread sheet, designer-owners could network with others in the industry to share ideas.

Manage human resources (including yourself)

Designer-owners should manage their own time, devoting adequate time to managing their businesses. A designer-owner who cannot or will not find the time to manage her business is in effect a worker in a business without a management team. Management takes priority over other perhaps more appealing and creative or less challenging and mundane tasks. Another way to address the issue might be to hire someone with management skills to fill the gap, which in a small business would be a part-time job. The designer-owner should also delegate tasks and responsibilities to co-workers. If the business is a partnership, the owners should agree separate responsibilities to prevent duplicate effort on the same task. In a business of three or four people such apparently negligible inefficiency is in fact a considerable waste of effort. Lastly, designer-owners who cope with, say, a part-time seamstress and a couple of interns should review their human resource needs and then try to fill them, perhaps building a small durable team of skilled workers of the sort in place in the older businesses. Fiona Bennett’s employment of apprentices rather than interns is also noteworthy in this regard. Having assembled such a team, the designer owner should strive to keep it.

Be your own sales-force and do your own marketing

Designer-owners should try to integrate their marketing activities and make them appropriate to their financial resources. They should also measure the results and act accordingly. If they lack expertise to integrate their marketing activities, they should consider participating in a workshop or coaching to acquire such knowledge. This will help them invest their money more effectively. However, they may well follow the example of Fiona Bennett and Firma and avoid expensive marketing activities, by using cheap alternatives such as collaboration, celebrity endorsement or social media to obtain press coverage and raise awareness. Industry experts such as Arne Eberle and Magdalena Schaffrin recommend careful consideration before contracting a PR agency. The return on the investment will depend on the business's maturity and financial capability. Likewise these designer-owners should be their own sales-force in order, as Judith Tolley of the Centre for Fashion Enterprise in London explained, to develop close relationships with buyers, to obtain direct feedback and to ‘cut out the middleman.’ Lastly, they should make the most of weak demand by setting up an online shop and if possible their own store.

Network

Designer-owners in Berlin should network to share ideas. Their greatest competitors are not other designer-owners, but large retailers. Sharing ideas, therefore, is not necessarily giving up competitive advantage. It is a way of uniting against the common competitor. The network could even develop into some sort of trade guild, strengthening their negotiating power with manufacturers and suppliers and enabling them to influence government policy. In any case, for support they should look to themselves and to other stakeholders as well as to local government.



5.2 Recommendations for Local Government and Other Stakeholders

There is a difficulty to distinguish between recommendations for local government and those which could be made to other stakeholders. Some undertakings can only be carried out by an organisation with the power and financial resources which local government possesses. Others, in contrast could be carried out by local government or by some more or less autonomous body at arms’ length from it or even by a completely independent body. What follows are a series of recommendations made with little regard for the body which might ultimately accept responsibility for the undertaking.

Coherent Long-Term Strategy

Local government should develop a coherent and long-term strategy to support the Berlin fashion industry. A number of mostly small bodies, non-profit organisations and consulting agencies, work for the benefit of Berlin fashion businesses. The support which they provide tends to be piecemeal, lacking an overarching strategy for growth. Problems lie in the lack of an overview, in the ‘blurry’ profile of member organisations and in the reliance on funding schemes. However, designer-owners which have passed through this stage also need support, especially in the form of training. The strategy needs to take a long term view and guide designer-owners towards sustainable business growth. It is particularly hard for organisations subsidized by local or national government or by the EU. Changes in government policy or political direction can have a considerable impact. Subsidies exist –quite correctly- for limited time periods, but the support strategy should look beyond this horizon, to make it possible for organisations to plan further into the future.

Finance

Local government should encourage banks to extend credit to micro enterprises in the fashion industry. Such credit might take the form of bridging loans or pre-financing schemes. Crucially, local government may be able to help banks manage the risk by providing criteria to judge whether a designer-owner possesses adequate business management skills.

Promoting Berlin Fashion

Berlin fashion design ought to be promoted at a national level much more intensively than at present. Designer-owners suffer from weak domestic demand, which could be reversed through more intensive promotion. At present local government promotes Berlin fashion designers through Berlin Fashion Week, showroom-days, and subsidized fashion shows in foreign countries and press releases. The local government brochure promoting the city as a fashion metropolis looks more like a glossy tourist guide than a document by and about design. The visual contrast between “Fashion in Berlin” and, say, the British Fashion Council’s annual report is telling.

Networks and other non-governmental, non-profit organizations

Networks and other non-profit organisations should define themselves more clearly. Designer-owners often don´t understand what is on offer and to whom. They should make transparent on their websites what they have already done for the industry in the form of reports or research. Many such support networks struggle to remain focussed on issues relevant to the fashion industry or even to remain in existence. Many exist for relatively short periods of time, presumably because they have a weak or questionable proposition or simply



because they run out of money, which in some cases comes from government or EU funds. To overcome this problem these networks and organisations make themselves less dependent on government subsidies. For example, they could charge fees to members for whom they have generated value. The fee could be determined by members’ turnover.

Retailers, Fashion Fairs and Designer Competitions

The retail industry should seek out opportunities to collaborate with or sponsor small local fashion businesses. In the long term it is to their advantage to give new talent exposure in order to differentiate Berlin from other European cities. Retailers could invite selected Berlin designer-owners to ‘dress’ shop windows and to develop exclusive product lines. The retailers would benefit from innovative show window displays and from the association with new talents and the designers could showcase their work more widely.

The organisers of Berlin’s fashion fairs should fix the number and kind of fairs to hold. The number has been increasing and may continue to do so, although, there is some uncertainty about their future direction (Gallagher 2012). Too many fashion fairs with unclear aims and format are likely to confuse buyers, ultimately leading them to stay away. Fashion fairs benefit from strong profiles and established reputations to attract key buyers. Increasing the number of fairs is unlikely to increase the number of buyers or even to promote the Berlin fashion industry more generally, and so will not help designer-owners.

Peek & Cloppenburg’s “Designer for Tomorrow” and Projekt Zukunft’s “Start your Fashion Business” competition lack national and international reputation. Without this and without the participation of judges or sponsors with equally high profiles, success in such competitions has little durable impact on a designer’s career, and hence on the development of the business. The organisers should seek ways to raise the profile of these competitions internationally. Other competitions for established, talented but still struggling designer-owners are also needed. Furthermore competitions and the benefits they offer winning designers need to be targeted according to the needs of the business, which will be determined by its maturity. Eligibility criteria should make clear which businesses are expected to participate and the prize should match such businesses' needs. Giving a start-up business prize money might not have any durable impact if the business lacks the expertise to put the money to good use.

Designer-Owner Business Information Website

A designer-owner fashion business information website should be set up. It would be a repository of simple information packs to help designer-owners run their businesses. These information packs might include templates for a business plan and for book-keeping spread-sheet together with guidelines on filling them in and keeping them up-to-date. Other information packs might also include short documents on business topics such as marketing and PR, intellectual property, dealing with manufacturers and negotiating with buyers. The essential feature would be that the information packs are ‘pitched’ at designer-owners by focussing on problems that they will have encountered, by writing in language and referring to concepts that they understand, by presenting the information in visually appealing ways, and, perhaps most important of all, by being brief. Designer-owners have shown that they are reluctant to devote much time to management. The website might also include links to other useful sites such as vocational training sites, business support networks, web-shop and design management sites. The Centre for Fashion Enterprise website is in many respects a worthy model. Perhaps the most appropriate non-government organisation to



design, build, host and maintain such a website might be an educational institution. In addition to business information, the website might also include a recruitment platform to enable designer-owners to advertise permanent positions, apprenticeships and internships and work placements. A fashion school or a university may be the most appropriate organisation to design, build, host and maintain such a website.

Education

Tertiary education institutions which produce fashion graduates, such as universities and technical high schools, should identify and close skills gaps which, perhaps paradoxically, their educational programs create. It was abundantly clear from the interviews that hardly any of the designer-owners had received any relevant business management training as part of their education. It has proved impossible to obtain any statistics to support the contention, but it seems likely that very large numbers of fashion graduates start a business sooner or later after completing their degrees. The matter should be researched and educational institutions encouraged to include business modules in the fashion designer curriculum. Another possibility might be to persuade an educational institution to research and teach courses on the fashion business as business, perhaps providing those without design skills or qualifications with a route into the local fashion industry.

An Incubator

Local government perhaps in conjunction with an educational institution should consider setting up an incubator to ensure that designer-owners successfully make the transition from promising new talent to established business. An incubator is a collection of small fashion enterprises which receive continuous business support in the form of coaching and consultancy and which learn from each other because they share the same building. Business support includes, for example, strategic business planning, PR and sales, finance. It is focussed on areas which designer-owners struggle with. Most businesses are tenants which remain in the incubator for several years. In consequence, the programme provides long-term mentoring. Incubatees are forced to adopt good business practices and are expected to become models for others when they leave they leave the incubator. The costs involved in setting up and running an incubator are such that only local government, perhaps in conjunction with an educational institution, could consider making such an investment. The return on such an investment is long term, but it is not confined to the businesses which have been incubated. Research indicates it is a low cost way to nurture micro fashion enterprises so that they survive the critical transition from survivor to sustainable growth. It also helps foster a sense of entrepreneurialism and strategic planning and growth over time (Cockpit Arts 2011, Dee et al. 2011).

***

If the designer-owners who are struggling to remain in business pursue some of the strategies proposed above there is a good chance that they will grow in profitability, in turnover and in the number of people that they employ. If local government and other stakeholders accept some of the recommendations put forward above there is an equally good chance that the city’s fashion industry will grow as a whole and with it tax revenues and employment. To paraphrase the mayor, Berlin might yet become rich and sexy.


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