Finlatics Investment Banking Programme: Project 2

Sustainable Fashion Company

Part-A
Out of the five stages of development of a company, I believe this company is in the 2 nd stage or the
First Phase of Commercialization. This is because the founders have identified a great idea that
captures a large market segment and received tremendous responses from the limited sales in high-
end markets. The main challenge before them is not fine-tuning the idea but scaling the brand and
product to different geographic and financial markets.

The main challenge in the first phase of commercialisation is creating a business plan. Our founders
will need to focus on making strategies for capturing the market from already established players,
both in the online and offline segments. Additionally, as their target audience is women’s wear, they
can use the new trends of online shopping and entice customers who are usually gen Z or
millennials, as these groups are also most likely to be concerned more about their carbon footprint
and the environmental impact of their purchases, other than being the most frequent buyers. The
startup would need more guidance on effectively selling its brand and messaging to its audience to
come up with a great product market fit.

The basic idea of a company that uses sustainable, eco-friendly, and recycled material for making
clothes that not only match their competitors’ designs and outlast them by a couple of years but also
help in reducing pollution and decreasing the amount of wastage in the industry, is something that
most people in today’s hypersensitised world will relate to and be willing to pay a little extra for.

Strengths Weaknesses
 Environment friendly  More expensive than competitors
 Attractive to Youth  New player in a market with big
 Higher average lifespan than most fast established players
fashion  Exploring a niche which is hard to scale
 Reducing/Recycling waste in the overall
industry
Opportunities Threats
 Ability to bring down heavy wastage in  Subject to availability of natural raw
the fashion industry material
 Spread awareness about eco-friendly  Be subject to price undercutting by
products other players in the market
 Force competitors to reduce material  Stay restricted to high-end markets
wastage and be more eco friendly
Part – B: Challenges faced by the company

 Cost: Fighting in a market that is flooded with fast fashion at low prices,
the first major challenge that the company will face is that of justifying the cost of their
products to consumers; since most people are more concerned about prices than everything
else, especially in a market like India, the company will have to make sure to keep prices at
the lowest and even offer initial sales or promotions to introduce their product to
customers. This initial investment into customer acquisition will help them increase
customer profitability by increasing their lifetime value.

 Product Marketing: Another major problem that the company will face is making the market
aware of their product and in what terms it is better than their competitors, i.e. durability,
environmentally friendly, sustainable, promotes less wastage etc. All of these benefits will
need to be ingrained into the minds of potential customers for them even to consider
switching from their favourite brands to a new one.

 Brand awareness: Another challenge that goes hand in hand with product marketing is that
of brand awareness; where deeply entrenched chains like H&M and Zara are far ahead in
this respect, the company will need a solid advertisement campaign to get its feet off the
ground and let the consumer know about a new player in the field. Once the app reaches a
critical mass of users, word of mouth and references will also help them grow further,
especially if the benefits of its products are visible to customers.

 Scalability: Scalability is the most challenging problem the company will face. For them to
move out of the high-end niche market and gradually expand their reach into lower-end
markets will also help them exponentially broaden their reach and customer base. One of
the ways in which they can grow into the lower-end market is where they introduce an
exchange scheme where their products will be sold to customers for a discount if the
customer turns in an item of fast fashion which can then be utilised to make new products
with longer lifetimes like is done from the waste of fashion boutiques. Not only will this
bring about a culture of non-wastage of clothes, but it will also hand a substantial public
relations victory to the company, which would now help significantly in pollution and
wastage reduction.

Recently, many sustainable fashion startups have come up in India, including Doodlage, B-Label, and
InSom. The founder of B-Label, Alisha Sachdev, an environmental sciences graduate whose family
owns a textile business, made the best of both worlds by launching her brand, which focuses on
clothing made from hemp, which saves water, acts as a carbon sink and is organic, thereby reducing
its impact on the climate. The founders of our company would be well advised to study the business
models of such companies and learn from their successes and failures.
 Part – C

Convertible notes act as a good tool for both the investor and the company because they put down
some specific milestones, which, if reached by the company, lets it dilute only a tiny percentage of
its shares to the investor; however, if the company is unable to reach the said milestones, then they
will have to dilute a higher percentage of shares to the investor. This acts as a checking and safety
mechanism for the investor as well. Considering that this company has a couple of critical issues to
overcome, as an investor, I would set down some strict terms for the same:

Initial Investment: INR 50,00,000

Time Period of Convertible Note: 2 Years

There are a couple of parameters on which I would measure the success of this company; these are
the average number of customers per month, items of apparel sold and the expansion into the low-
cost sector.

Milestones Avg No. of Customers per Year Items of Expansion into low- Conversion Rate
Apparel Sold cost sector
1 5,000 10,000 Yes 5%
2 5,000 7,500 No 7%
3 3,000 5,000 No 10%
4 1,500 3,000 No 15%
5 <1000 <2,000 No 20%

The most basic milestone for the company to clear is acquiring 1,000 customers per year and a sale
of at least 2,000 pieces of apparel at the end of 2 years. This would mean the company has done the
bare minimum regarding product visibility and brand awareness to command these figures.

Next, the three milestones display a gradual increase in the number of customers and items of
apparel sold each year, with the conversion rate decreasing for an increase in sales.

Lastly, the final milestone for the company is acquiring 5,000 customers per year and selling 10,000
apparel items while also beginning its expansion into the low-cost sector.

Part - D
The primary source of revenue for a sustainable fashion company is from sales of apparel. The
primary way to attract customers to their products is through attractive ad- campaigns, deals and
discounts, and customer loyalty programmes.
The Customer acquisition cost refers to the total marketing expenses divided by the number of new
customers onboarded to their product in a given time period.

Assuming that there is already a lot of traction for the product in the high-end markets, we can say,
with a swift marketing campaign, the company would be able to attract new customers in no time.

If the initial marketing campaign costs INR 25,00,000 and the minimum number of customers
onboarded in a year is 1,000. Additionally, the company will need to hold sales and provide
discounts to retain its customer base. Hence, we can also add another INR 600 per year.

That makes the initial CAC around INR 3100.

The Customer Lifetime Value of CLV is the total value one customer creates over a period for the
company. It is measured by three different metrics: the Avg. value of the customer’s purchase times
the frequency of purchase divided by the time period.

Assuming that the average purchase of a consumer is around INR 900, and there are on average 2
purchases per year, we get:

900 ×2
CLV =
1

Therefore, the Customer Lifetime Value for the first year is INR 1800.

Analysing the CLV and CAC YoY, we see that:

Serial Frequency of Number Total CAC Total CLV Net Profit

Number Purchase of Years
1 2 1 3100 1800 -1300
2 2 2 3700 3600 -100
3 2 3 4300 5400 +1100
4 2 4 4900 7200 +2300
5 2 5 5400 9000 +4600

Accordingly, the company will need to keep a customer loyal for at least three years to get a
profit while maintaining the average purchase amount and frequency constant.