How do you go from one store in 2006 to 44 (and 28 concessions) in six countries today? Clever experimentation to build a cool brand in the right niche, to execute a brilliant growth strategy, and a unique company culture are some of the key factors of El Ganso’s success story.
“You have to be stubborn and believe that things will turn out right, even if you haven’t succeeded after the tenth attempt” (Rafa Nadal). This message is framed and prominently displayed in Álvaro’s office, the co-founder of the fashion retail company El Ganso1. As with any successful entrepreneur, intelligent persistence is instilled in his and his brother’s daily work.
Álvaro and Clemente Cebrián’s achievements, the founders of El Ganso, one of Spain’s fastest-growing fashion brands, are astonishing. In only 7 years, in the midst of one of the worst economic crises ever, the firm has grown from scratch to €36M in turnover today. They opened the first store in 2006 with bold trousers, which they then sold at multi-brand stores. At the end of 2013, they had developed an internationally known brand, defined as the “spirit of El Ganso,” and successfully opened 44 stores and 28 concessions in 6 countries including the UK, France, Portugal, Chile, México and Spain.
This is a great story when compared to the well-known statistics about the survival of new ventures: 3 out of 4 start-ups fail2. Furthermore, 70% of those failures come from a too-early expansion (premature scaling)3. Understanding how to grow a firm is not obvious. Indeed, firm growth is a rich and difficult-to-grasp phenomenon. Entrepreneurs face multiple, often simultaneous, decision points in a relatively short period that signify either the firm’s turning point to achieve the next level, or the beginning of a decline that may kill the venture. We summarize these choices as the what, when and where to grow a company. Underlying the three decisions is always the how to rightly execute them. It looks like El Ganso has found the formula…
Three Important Growth Dilemmas
What? – The value proposition
This may seem an obvious question. Everything begins when clients start consistently buying your product. However, this does not mean that the firm is ready for a sound and rapid growth path. The first steps are to dynamically discover and test the firm’s business model which includes building a consistent value proposition for each client’s target, developing internal capabilities and a coherent set of activities, and designing a consistent economic model. This is the time for trial and error, the time for intense learning.
Álvaro and Clemente spotted a gap in the fashion market in Spain that nobody was filling: a style of clothing described as a “college hipster” style at affordable prices. They learnt about this segment in London back in their college years, where it was a very successful category but with very high prices. Endowed with entrepreneurial spirit and creative minds, they left stable and promising jobs, and, on September 8 2004 they launched a venture with the goal of creating a style of clothing that was high quality, affordable, and fashionable. They knew what they wanted but had no idea how they would go about getting there.
First, they started selling their unique designs to multi-brand stores: a low-risk financial strategy. That was the time to learn about the market taste, price points, and reliable suppliers. Sales were doing well, but it was not until, by chance, they hit an exceptional product – the sneakers that make them famous – that the brand started to build its personality.
Two years later, the “product” for rapidly growing the firm was ready: the concept store. In 2006, they opened their first store in Madrid. The first shop already embedded the main traits of the future El Ganso brand: personal, young, rooted in tradition, unique, and with a consistent offer. From the product portfolio and the interior design, to the personalized attention to employees, clients and suppliers, everything spoke the same language.
When? – Time to grow
However, it was not until 2009 that El Ganso really took off. Indeed, the next round of experimentation came with the choice of the store’s next location. Their plan was to build a reputable brand with a clear value proposition for a specific clients’ niche. Therefore, after the first success, they needed to further explore the existence of that target; El Ganso opened in a different city. In hindsight, this second opening was a failure: sales levels were very disappointing. Was the product not portable? Or did they choose the wrong location? In fact, it was not until the third and fourth store that the founders understood how to make it work.
The embryonic brand was becoming a reality. It was the right time to grow. Investments had been kept at a bare minimum. For instance, they had no advertising expenses, did not publicize new store openings, and had no sponsorships. Álvaro and Clemente thought the best way to market the business was by doing things right. Resources came from the entrepreneurial team and their close personal network. It was not until now that the founders wondered if it was the time to invite professional investors to support their next steps.
As El Ganso’s experience shows, it is important to differentiate product sales from a “growth platform” that may push sales exponentially. Until this concept was proved and the key success factors understood, the firm was not ready for following a fast growth path. The Cebrians successfully optimized the growth unit, which turned out to be essential for building a strong brand.
Where? – Your model selection
Now the firm was ready to grow by replicating units. The question became which model to follow: aconcentric or scattered model. In the first model, the firm grows gradually with a concentric circle approach. It focuses on closer markets first – like a circle that is increasing its size proportionally. Proximity reduces managerial complexity and allows for closer control and better contextual understanding.
The scattered model consists on choosing different locations with other selective criteria. In general, it requires higher investments, and managerial complexity increases exponentially. However, this model means that international brands grow faster, and leverages on the global landscape -for example, in terms of cost by easily accessing cheaper suppliers, or reducing the risk by diversifying the countries’ portfolio.
For El Ganso’s founding team, choosing the growth model was not easy: the created concept had worked well in three cities in Spain. This was real data. Having brought the main concept from the UK, they knew that the British market was probably also an easy target: they could strengthen the brand by selling cheaper to an already established segment. This was a hypothesis. Continuing with the local model looked safer. Yet, building a strong brand was critical for sustaining future success. Moreover, the spotted target segment looked thin. The risk of saturating the Spanish market without reaping the benefits of higher margins for a reasonable period of time was real.
On top of this, there was one more variable to consider; in the digital era, was it necessary to have physical stores? Was it not better to sell online, avoiding investments and reaping the benefits of scaling a cheaper growth platform?
To solve the dilemma, Alvaro and Clemente again successfully followed a hypothesis testing approach. Testing the waters first, before committing to a high level of investment, became the firm’s norm. Designing mini-tests helped verify assumptions and measure the impact of each decision before it was too late and/or costly to change it.
Moreover, they implemented a simple but effective tracking system to keep transforming assumptions into data as soon as they became available. Decisions were taken by following the data. El Ganso set up a control system that allowed the store’s employees to closely monitor their customer’s geographical origin, average expenditure, etc. This information –together with other internal data, for instance, the origin of the online sales platform – helped to inform the company’s physical geographical expansion.
Furthermore, they used it to explore new concepts beyond the model that they had relied upon since inception to fuel faster growth in the firm. The systematization of these processes avoided the common mistake of re-inventing the wheel every time. A well-designed process is never inflexible, allows for further learning, and reduces mistakes.
The Fundamental Asset
In addition to this successful expansion through a coherent, well-designed concept and expansion plan, was something else.
Clemente and Álvaro had their own ideas about how to manage their staff. At El Ganso there were no strict rules. The brothers wanted their employees to feel involved in the company. Internal promotion was a clear incentive. At the same time, they tried to ensure that all employees had a significant margin of freedom to make their own decisions on matters within their remit. New employees were hired not only on their merit but also on their commitment. Clemente and Álvaro knew the employees by name. They visited them regularly in the stores, organized Christmas dinners, and kept staff informed about what was happening in the company. In the words of one of the employees, “the ‘spirit of El Ganso’ is inherited. It gets passed down in cascades, but it’s not at all hierarchical.”
El Ganso had made a name for itself by offering a distinctive product linked to a sparkling lifestyle and developing a new concept; in the right place, establishing a presence on major shopping streets in six different countries around the world; at the right time, after testing their business model through a hypothesis-driven approach; and with an innovative company culture which was continuously reinventing itself while building a motivated workforce.
In other words, clever experimentation to create a cool brand in the right niche, to execute a brilliant growth strategy, and a unique company tissue are some of the key factors of El Ganso’s success story.
For further information on successful growth strategies and how to create a global brand, visit www.ieseinsight.com
About Author
Mª Julia Prats is Associate Professor at IESE Business School. She was nominated Kauffman Emerging Scholar for her dissertation work and has published in international journals. She holds a DBA (Harvard Business School, Harvard University), MBA (IESE Business School, University of Navarre), industrial engineering degree (Universitat Politécnica de Catalunya). She has been Visiting Professor in several school among them The Wharton Business School (USA), IPADE Business School (México), INALDE Business School (Colombia), Fh Nordakademie (Germany), and University of Asia and the Pacific (Philippines).
References
1.The article draws from IESE Business School Case “El Ganso Takes Flight” E-159-E, available at http://www.iesep.com/en.
2.“The Venture Capital Secret”, Deborah Gage (Wall Street Journal, Sep 20, 2012), available at: http://online.wsj.com/news/articles/SB10000872396390443720204578004980476429190
#1 Cause of Startup Death? Premature Scaling”, Nathan Fur (Forbes, Feb 9, 2011), available at: http://www.forbes.com/sites/nathanfurr/2011/09/02/1-cause-of-startup-death-premature-scaling/
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