Pando

Amoruso's NastyGal move might show she knows herself as well as she knows her "girl"

By Sarah Lacy and Michael Carney , written on January 12, 2015

From The News Desk

We all know there’s no such thing as the overnight success in the startup world -- much as Hollywood and glossy magazines would like to pretend there is.

But there are startup slogs and then there are startup slogs. If building a tiny software idea into a $1 billion company is a marathon, building a tiny ecommerce idea into a $1 billion ecommerce company is an Ironman, in the snow.

Re/Code -- rapidly positioning itself as a go-to blog for management moves -- reported today that NastyGal’s savant CEO and “GirlBossSophia Amoruso is passing the baton to her recently hired number No. 2 Sheree Waterson, who until today was the company’s President. Sophia will remain the company's Executive Chairman.

It’s easy to see this as a setback for Amoruso who has been described as a marketing genius and a rapid learner, building NastyGal from an eBay store into a top up and coming ecommerce name with nary a dime from the venture capital ecosystem. (A story Amoruso told in her PandoMonthly interview two years ago.)

After all, the LA ecosystem has been buzzing with rumors about NastyGal’s challenges for the better part of two years. Questions about internal culture and ineffective hiring precipitated claims of slowdowns in both top-line growth and profitability. According to ReCode, NastyGal is still profitable, but the company is hardly on the rocketship trajectory that had VCs fighting over its maiden funding round in late 2012, according to many in the industry.

It was always an unknown whether Amoruso’s mind-meld lock on the “NastyGal girl” -- what she loves, what she hates, who she is, and most importantly how she wants to spend her money -- could scale to include a broader ideal of a more inclusive NastyGal aesthetic, and hence a bigger company. Can the edgy girl who would wear fishnet stockings and a leather jumpsuit grow with the brand, the same way the Facebook audience seemed to grow up along with Mark Zuckerberg?

No doubt, some in the ecommerce world are sneering today about how building a big company was harder than the Girl Boss may have thought. She pissed off a lot of well-funded, well-heeled (and mostly male) CEOs by making act one look a little too easy.

But another view is that this is one more example of what Amoruso does so well. She knows herself and that includes her limitations. She has tremendous instincts and isn’t afraid to act on them. As she explained to Re/Code, she wanted to focus on the customer, not the employee. That’s undoubtedly her strength and scaling an ecommerce company operationally is unquestionably her weakness. So while we might debate whether Waterson's new role is more akin to that of a COO, that's just semantics. What's important is that NastyGal will have the operational leadership that all companies at it size and stage so desperately need while (hopefully) retaining the vision and soul that Amoruso has always provided to the brand.

That said, the move also highlights just how hard ecommerce is, as almost all of the high fliers of the ecommerce 2.0 movement continue to have humbling moments.

Bonobos had to divest its ecommerce tech division and re-focus on becoming a great brand that just so happens to use ecommerce as one of many channels to regain its mojo. ShoeDazzle had to combine forces with the direct marketing powerhouse JustFab to stay in the race. Beachmint is now a media company with an ecommerce division, thanks to a merger with Lucky. One Kings Lane, too, has recently lost former-CEO Doug Mack to Fanatics and later top merchandizer Amanda Stanford, while cutting 20 percent of its staff last summer. Then there’s Gilt, the decade-plus old daily deals pioneer that has left observers wondering, what the hell’s going on there and will they ever go public?

The biggest flameout of all was Fab -- which raised some $336 million and was at one point burning “a Series A a month,” as an investor put it to me. Its brand and assets may soon be sold for a paltry $15 million, while CEO Jason Goldberg has since moved to Germany to build his next venture, online furniture seller Hem, with some of the remaining Fab cash. Meantime co-founder Bradford Shellhammer is trying to bring his unique aesthetic to the world again via Bezar. He pointedly told Pando last week that he will be avoiding the “go big or go home” mentality that ultimately destroyed Fab. It’s a rare “do over” that we are personally interested to watch.

Of the rest of the crop Birchbox and Warby Parker seem to have avoided public stumbles, but Birchbox -- at least -- has done so by growing slowly and methodically, only recently raising a mega-round. The other thing these two share is the maniacal focus on brand – something Amoruso has emphasized, perhaps to a fault.

At a recent PandoMonthly LA ecommerce investor Jeremy Liew brought up Zulily and Wayfair as examples that companies in this crop were making it out and doing so at big valuations – $2.7 billion and $1.8 billion, respectively. True. But, that’s only two examples, and they’re certainly not the deca-unicorns we’ve seen from the social media or mobile sectors.

It seems even as mobile has opened up new times and places we like to shop online, it’s mostly benefiting uncommon new categories of “ecommerce” like ride-sharing, booking last minute hotels, or ordering sandwiches ahead -- not traditional buying goods online that someone ships you kind of ecommerce.

All those trends we talked about a few years ago that were orthogonal to Amazon’s “buy it all here and buy it cheap” ethos? Trends like subscription commerce, content and commerce, flash sales, and celebrity? It’s too easy to say it was all bullshit because there are some companies like Zulily ($2.7B market cap), JustFab ($1 billion valuation), Honest ($1 billion valuation and rumors that it’s talking to bankers), and -- struggles aside -- Bonobos who all seem to be doing well.

But if each of the above success stories indicates anything, it’s that there’s clearly no silver bullets to building an ecommerce giant. There is no secret. No gimmick. And it’s possibly ecommerce is only sector more unforgiving than content if you want to raise a lot of venture cash and promise a venture style return within a decade’s time.

Rather than this CEO shuffle being a sign that NastyGal is falling into the Beachmint camp, it could be a sign it’s maturing along the lines of Bonobos. Sure the company has some shoring up to do to resume its prior heights, but acknowledging as much and making the necessary changes while still large profitable, rather than waiting until things had fallen apart, is a good sign. There's something inherent about so many entrepreneurs that suggests they're unwilling to admit failure or to acknowledge when they're in over their head – evidently it's part of the same irrationality that leads someone to think they can change the world. Amoruso has proven today that she is willing to see the big picture and do what's right for her company, her employees, her customers, and herself, even if it means an outward hit to her ego.

Amoruso may know the NastyGal woman more than anyone else, and in a gut-driven way that defies explanation, but the company was far too reliant on her to scale -- and signs of those growing pains were everywhere. The board was just Amoruso and Index’s Danny Rimer, and Index was the only VC in the company. Such skeleton teams may work for viral hits like WhatsApp or Instagram, but it doesn’t when you are talking about designing, sewing and shipping physical goods all over the world at the scale needed to fetch a $1 billion valuation.

When Amoruso decided to take on venture capital two years ago and to transform her runaway success of an eBay business into a real company, she already made this decision that the company wasn’t her fiefdom, it was going to be something bigger. Reportedly, it was the plan when she hired Waterson as President last Winter. It just took a while to manifest into job titles. If NastyGal is going to make it out of this mess of once highflying ecommerce 2.0 dreams, this may be the moment when everyone looks back and sees that it was made possible.