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Oftentimes young designers have lots of buzz and big aspirations but also small businesses with a thicket of legal, financial and operating concerns that can be more daunting, or at least time consuming, than the front rows at their shows.
Attorney Douglas Hand, founding member of Hand, Baldachin & Amburgey, helps designers think about their businesses and dot the i’s and cross the t’s when it comes to raising money or fending off counterfeiters. He also helps guide young companies through the Council of Fashion Designers of America’s Fashion Incubator Program. He has worked with Phillip Lim, Rag & Bone, Steven Alan, Erin Fetherston, Richard Chai, Charlotte Ronson and others.
Hand, who also works in the sports and media areas, recently sat down with WWD and offered his take on fashion’s legal and financial landscape.
WWD: What should designers consider as they think about selling a stake in their business or getting a partner?
Douglas Hand: If it’s a strategic investor, that analysis is different than if it’s a financial investor. For a strategic investor, the fit is important — the fit of the aesthetic sensibility, the fit of the geographic imprint, where they are and where they have capabilities. The designer should think through, if this is truly strategic, where are the synergies, where are they filling in gaps in my business, where are they going to help my business grow? You want to make sure the strategic [partner] doesn’t have a slanted view of what the brand is, that it sort of fits a slot for them.
WWD: How do you ensure this?
D.H.: If you have to go to the contract that you’ve negotiated through blood, sweat and tears to get provisions that give your client design freedom, and that contract has to be pulled out and looked at to make sure that the partners are adhering to it, then there’s just a working problem.
On the pure financial side, a venture capital firm or a private equity firm, there the most important thing the designer has to think about is the exit strategy of the investor. What is their preferred exit, and what is the time frame for that? If they’re looking to exit in five to seven years, then they’re going to be looking to do things with the company over that five- to seven-year period that are going to increase the value to the market — and that may not be the best thing for the brand.
WWD: What are some of the common mistakes you see young designers make?
D.H.: Budgeting is extremely important. And by budgeting I mean appropriately budgeting for administrative expenses like legal and accounting — easy for me to say as the lawyer. But intellectual property is the core asset of these businesses; it is the very foundation on which you are building and accruing value. To not budget for appropriately protecting it, it’s like a jeweler who doesn’t buy a security system. You need to register your trademark, and you need to register it in every jurisdiction. Then separately, think of the company as having some enforcement division that should not only [be reacting] to some sort of piracy, but also proactively searching for such things.
WWD: In hockey, some players throw an elbow to ward off opponents. Is that part of the enforcement strategy?
D.H.: It is. It’s sort of like the kid who gets knocked over at the drinking fountain by the bully and doesn’t take a bottle and crack it over the bully’s head — he gets knocked over every time at the drinking fountain. Easy to say. It’s expensive, but my point is it should be budgeted for.
WWD: What’s your take on the Innovative Design Protection and Piracy Prevention Act?
D.H.: It’s aspirational, and I’m a supporter of [Fordham University law professor] Susan Scafidi and the CFDA and their efforts to get it passed. I think how it functions is really going to be determined in the court system. So passing it [would be] a good first step, and passing it, I think, should have some deterrent effect.