MBA’s vs Creatives: You’re Both Wrong

MBA’s and creatives - can’t live with ‘em, can’t live without ‘em.

A few weeks ago I saw this tweet surface repeatedly in my feed:

A lot of creative fashion types started piling on: CPG execs should stay out of fashion, data kills creativity, etc. etc.

I typed out several “hot takes” and deleted them, not wanting to “go viral” for the wrong reasons. I think this statement requires a more thoughtful response than a few 280 character heaters.

I’ve been on both sides of this debate. Christmas 2020 will mark a full decade since I resigned from my role as a fashion designer and left the creative side of the industry. I designed for a mass market denim brand, and then briefly worked on the launch of Jessica Simpson’s licensed sportswear collection. 

This was a super corporate, commercial environment where my team’s role was closer to product development than design. 

The target customer for our line was a midwestern mom, and we were young single women living in Brooklyn. The customer wanted to wear rhinestones on her booty, and we wanted to wear studded leather jackets. The customer wanted to spend Friday night at Chilli’s, and we knew that Tuesday was the new Friday.

All of this is to say: I have experienced the frustration of a creative who is forced to bend completely to commercial concerns.

On the flip side, I have also been the sole numbers person in the room full of creatives who refuse to consider data at all, even while their business is shrinking 10-20% per year. It is not fun to come in to work every day and bail water out of a sinking ship while the captain refuses to plug the leak. And then get dressed down because you’re not hauling water fast enough. 

I have been on both sides of the MBAs vs Creatives debate, and both sides are wrong.

And I feel grateful that I withheld my opinion until now, because this story on the rise and fall of Alex and Ani illustrates the full scope of the issue really well. I’ll use it to outline each side’s position and why it is wrong.

The Creative Argument:

  • Creative industries need new, disruptive, innovative ideas to thrive.

  • If every decision was numbers-based, we would have faster horses instead of cars.

  • Creatives need 100% control over what is produced and how it is presented in order for new ideas to have a fair chance at thriving.

  • Customers are coming to this brand because of my (the creative’s) singular vision. Therefore, I am a focus group of one. I am the customer.

In the Alex and Ani story, Carolyn Rafaelian played the role of creative visionary. She combined a knack for design, jewelry industry knowledge and a touch of woo to create a product that women loved: the now-ubiquitous expandable wire charm bracelet.

The business grew steadily after it launched in 2004, but didn’t become a phenomenon until after 2009, when Rafaelian brough on Giovanni Feroce as CEO. Feroce was the stereotypical operator: a former Army major with a laser-focus on process and efficiency who introduced a lot of military-adjacent SOPs to the brand.

At this point, Alex and Ani had the three elements required for a successful, scalable creative business:

  • An original product that drives irrational consumer love (the bangle)

  • A framework for iterating around that product to drive repeat purchases (Rafaelian’s talent at imbuing the product with spiritual meaning + a smart strategy around partnering with charitable organizations)

  • A talented operator to keep the wheels on the car and determine priorities as the business experiences accelerating growth (Feroce)

A few notes on this formula: a “creative visionary” is typically the catalyst for a brand, but a brand does not require a creative visionary to survive long term.

And the biggest potential pitfall for creative businesses is Creative Argument #4: “I am the brand”. Creatives spend time iterating through ideas - sometimes for years - before they land on a product that drives irrational love. They often see this hit product as proof of their multi-year “thesis of me”, and not a chance overlap between their vision and the zeitgeist. 

Truly talented creatives are able to identify why their product resonates with their customers, and then carry out the work of iteration that takes the brand beyond a one-hit wonder. Talented creatives are able to develop a brand that stands for something broader than “a collection of things I like”.  Rafaelian was able to do this through her connection to spirituality, and her recognition that jewelry purchases are less about the product and more about what it means to the wearer.

Unfortunately Rafaelian soon pushed Creative Argument #3 towards its logical conclusion: creative control should extend to control of management. “Business guy” Feroce was removed from the CEO role in 2014 despite impressive performance:

“Before agreeing to take the job, Feroce insisted on absolute authority over all operational decision-making, and for a time, Rafaelian had obliged him. Eventually, though, she sought more control.”

The decision led to near-complete turnover of Alex and Ani’s executive team, only some of which was voluntary. This became a turning point for the company - irrational love for the product and for the brand continued to drive growth, but poor strategic and operational decisions within the company did nothing to accelerate or capitalize on that growth. 

Everything looked ok from the outside, but when the product engine stalled out, shit would hit the fan.

This is a recurring theme in creative-driven businesses. The Creative Argument is valid because emotionally resonant brands rarely emerge from MBB consultants, MBA hackathons, or the internal incubators of Fortune 500 companies. But most creative people are simply not equipped to be managers, and not interested in trying. The vision is always more important than the people. And the details? Forget it.

The MBA Argument

  • Without solid fundamentals - smart operations and good unit economics - disruptive, innovative ideas are not sustainable.

  • If every decision is based on gut calls, every decision is extremely susceptible to cognitive bias and key (wo)man risk.

  • People with financial acumen and experience running companies need 100% control over the strategic course of the company, which includes what is produced and how it is presented.

  • There are a set of fundamental business strategies that I learned in my MBA program and implemented successfully at other companies. I am being hired to apply my winning approach, so that’s what I’m going to do.

Alex and Ani received investment from two Private Equity firms: JH Partners from 2012 - 2014, and Lion Capital from 2014 through today.

Private Equity has a reputation for indulging in the worst excesses of MBA tunnel vision when it comes to the management of creative businesses. The goal of a PE investor is to get into a company, exit within five years, and achieve a return of 20-25%+. So they seek out rapidly growing businesses that, theoretically, would benefit from cost cutting and operational discipline to make growth more profitable.

In the 2010’s this strategy seemed like a slam dunk: slap some business on that chaos in an industry (fashion, lifestyle, luxury, etc.) that had historically seen very little operational discipline.

But these firms often have an incomplete understanding of what drives growth in a creative-driven business. You can achieve growth by building more stores, expanding internationally, or spending more on digital marketing. But if consumers’ irrational love for the product fades away, these strategies will not meet expectations.

If you review the partner bios at most PE firms, you may find entrepreneurs with successful exits, but you’re unlikely to find any former fashion designers or creative directors. So a PE firm’s best bet is to “time the market” so to speak: get into a company while irrational love is still peaking and get out before the firm must begin to work on developing strategies to maintain it.

 JH Partners did this successfully, Lion Capital is still holding the bag.

After Feroce was pushed out of Alex and Ani, the company was run by a series of experienced C-level executives, almost none of whom came from the jewelry industry. Feroce’s immediate replacement was Harlan Kent, former CEO of Yankee Candle, and what my professor Glenn Okun would call a “poison water artist”. This is an executive who is brought in to a company for a short time to optimize the financials for an IPO, pitch it to investment banks, collect insane financial compensation and get out.

Kent’s strategy was MBA Argument #4: cut costs across the board, without stopping to consider which of those costs may have been driving the company’s rapid growth. This can work if the irrational love for the product is still on the upswing, and there is a strong operational foundation to accommodate the cost cutting. Neither of these were true for Alex and Ani, and the IPO did not happen.

A bunch of legal and financial chaos ensued (which you can read about in the article), and by 2018 Lion Capital had a majority stake in Alex and Ani and founder Rafaelian was out. 

A surface-level read of the situation is that the MBAs at Lion Capital sunk Alex and Ani - to the point of @PAMBOY ‘s tweet at the start of this newsletter, they failed because they were non-creatives trying to operate in a creative industry. 

But a more interesting take, and one that is closer to the truth, is that the “hero product” that made Alex and Ani’s fortune was starting to lose steam and there was no apparent replacement waiting in the wings. Per the owner of one of the small boutiques who carried the label:

“By that point [2018], she notes, interest in Alex and Ani had already begun to wane. ‘It’s kind of inevitable. People have 20 Alex and Ani bracelets, and they’re maybe ready to move on to the next thing.’”

Lion Capital’s sin was not bringing business principles into a creative industry. It was walking into a situation that was outside the scope of their core competencies.

MBAs vs Creatives

In the Alex and Ani story, and in many others, the MBA’s vs Creatives debate misses the point entirely. The key to maintaining growth momentum in a creative brand is maintaining consumers’ irrational love for the brand (or at least for the product it sells). 

Creatives seem best suited to do this. They produce the original coup de foudre that catalyzes the brand. But they are often unwilling to compromise “the vision” to keep things going, or lack the talent to do so.

MBA’s of the PE and VC variety have repeatedly proven that maintaining irrational consumer love is not in their wheelhouse. They are good at enforcing operational discipline, but lack the skills and the time required to reinvent a brand as the initial source of irrational love fades. 

MBAs typically undervalue the creative aspects of the business, so these companies are unable to hire the top 10% of talent required to sustain irrational consumer love over a long period of time.

MBA’s and creatives - can’t live with ‘em, can’t live without ‘em. Best learn to put your egos aside and work together. 

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