Sophia Amoruso, Nasty Gal founder: I was out of my league

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1:26We need healing. We need trust. These companies don't really, they don't care what governments do. This is a war. The first thing that we want is a war to end. For this episode, I speak to Sofia Amoruso, founder of online fashion retailer Nasty Gal. Sofia built the business without startup capital or experience of running a company, turning an eBay store into a company worth$350 million. It became one of online fashion's most recognisable brands, but after accepting large sums of outside investment, she was under pressure to turn the company into a billion-dollar business. The growth that investors expected did not materialise, with Nasty Gal's workplace culture facing criticism too.

2:12By 2016, the company filed for bankruptcy. Sophia handled the chief executive's role to someone else, having reached a point where she no longer knew how to lead it. You know, I had hired a CEO for the last two years. And, you know, the company was at a place where revenue had plateaued. I wasn't a turnaround CEO. I wasn't someone who could look at a spreadsheet 50 tabs wide and, you know, tell my CFO what to do. I was definitely out of my league. And I didn't like that job. A lot of different things happened before we ended up filing for bankruptcy. And ultimately, that's a decision where it's like, all right, we can't pay our vendors.

2:53It would be irresponsible to continue operating this business. We need to call it. Welcome to the interview from the BBC World Service with Sofia Amoruso. I was a very angsty child and just kind of came out a certain way. I wasn't a fan of authority and questioned a lot. And I felt like I didn't quite belong. We also moved a lot. So that doesn't help. But I wanted to fit in, didn't realize that that would one day be a superpower in a lot of ways. And you know, as I became a teenager was really not a fan of capitalism. I went to anarchist book fairs, I didn't want to live within the system. And I know what this is.

3:40I know I'm being trained to sit at a desk and have a life that I don't necessarily want. And so I homeschooled for the second half of high school, moved out when I was 17, you know, experienced the world, moved around a little bit and was very much not interested in working for other people. But I wasn't necessarily motivated to start a company, but it was through the struggle of trying to evade work that I found myself building something that was actually really fun. And because it generated cash and paid for my rent was work, but it didn't feel like work for a very long time. Sophia, who taught you about money?

4:22Was it your parents or did it come from somewhere else? My understanding of money for at least half of the time that I built Nasty Gal was that you buy things for less money than you sell them for and you don't spend all the money. I didn't have any startup capital. I didn't invest my own money. I was flipping clothes. And so that was just necessity. That was the world that I lived in. I wouldn't have known who to ask for money, how to ask for money. Like I didn't need it. I built a really profitable business. At the beginning when you were learning to sell online, I believe you went through a period where you were doing a bit of shoplifting.

4:58Yeah. When I was 17, I was like, what are these big box corporate stores and, you know, are they really going to feel it if I steal a loaf of bread or a soccer ball or tampons or whatever I felt like I needed that day. And so I did that. And there was a short time where I was an Amazon reseller. So I guess I was early to two of the first online marketplaces and I would go find New York Times bestselling books and I'd just walk in and I'd pile up a stack of the ones that were just on the front table and I just turn around and walk out. And I'm not really proud of that, especially as an author. You know, when you're 17, you don't really understand how the world works and what the implications of what you're doing can be.

5:40And, you know, I was just trying to live free in some way. And I think a lot of people understand that maybe that's just a bad idea and they don't do it. But for me, there was also just kind of something fun about it. Just like, how can I live outside of what looks like a really boring future if I go get a job, you know, five days a week and do the same thing for the rest of my life. It just seemed like hell to me. And my last job was working in the lobby of an art school in San Francisco. That was where I got the idea for starting an eBay store. Well, tell me about starting that eBay store. What were you selling at the time?

6:20It was vintage. It was the same day one as it was a year and a half in before I started curating clothes from other designers and going to trade shows and built a multi-brand retailer. But, you know, I wore pretty much exclusively vintage. I knew where to find it. And I saw the kind of auction prices that became my peers, what they were selling vintage for. And I knew where to find it much cheaper and was creative. I was like, okay, so I know how to take a picture. I know how to find a model. I have okay taste, but I can also just watch what's selling for other people and what's happening with trends and ghost source things that current designers are referencing and making, putting on runways and selling for thousands of dollars.

7:06And I was able to find the kind of things that they were inspired by, by digging through dead people's clothing. Oh, wow. I'd love to know what those first couple of weeks were like, I mean, was it just you taking the photos, uploading them, packaging them and wherever you were and just sending them off and then the money would roll in essentially? Yeah, that was it. I shot it. I edited the photos. I priced them. I wrote description. I wrote a title. I weighed them. I measured them. I listed them. And then I just waited. If I made it look amazing and put it on a really stylish girl with an attitude who looked like she was going somewhere cool, but was pretty, but not so pretty that she couldn't be your friend and didn't look like an alien high fashion model.

7:52And, you know, I didn't really intend that day one, but that was what I did. I was like, I want to build the thing that would resonate with me. I want to build the thing that's cool. I want to use the magazine references and all the other things that I could draw from and imbue into the brand to make something that I thought was cool, that other people thought it was cool too. What age were you then, Sophia, when you set it up? And was it a side hustle at the time? Or did you have a full-time job that you were doing it? And what point did you say, actually, this is what I'm doing now. I'm making a lot of money from this.

8:23Yeah, so I was 22. Kind of been noodling with eBay. Hadn't really listed things. But I think I was like living with my boyfriend at the time. I didn't really need much money. And it wasn't a big risk. You know, it's the kind of beauty of starting something or trying things when you're really young. that it wasn't like, wow, this is my next big move. It was like, cool, I'll give this a shot. And it very quickly started to take off. Tell me about the takeoff then. So when did you expand to actually having a building, hiring employees? So the first year and a half was just me doing everything. I was all auction-based and it was all on eBay.

9:01I remember Anne Hathaway was buying stuff. And I was just like, wow, okay, people love this, but I'm posting my things on a website where these people take a cut. And I'm also putting at the bottom of every page, there's suggested items to other sellers. Why am I giving all this brand equity away to this marketplace that has given me so much and given me a framework to start my business? But is this really where I want to continue it? And left eBay, you know, I launched the website and everything sold out within 24 hours. And then I found myself buried in packages and with nothing on my website and realized, oh, wow, this is not a 10-day auction thing where I list things and then I have a week to prepare for the next round of auctions.

9:43This is going to be always on. And so that was when I hired my first employee. Give us an idea of the scale of things with numbers. Like how much were you making then at that point? Yeah, year one was like 75k and I didn't want things. I was just busy kind of having fun seeing how far I could take it. So I didn't spend any of the money. And then year two was 250K. Year three was 1.1. And then it was year four was six and a half. And then I think I've always thought it went to 12, but I found a recent board pitch deck from Nasty Gal. And I think it went from six and a half. Anyway, I have to go look it up.

10:17But it basically 30 million after like five years or something. Wow. And that was all you at that point. That was just me. That was no investors. By then I had hired my first COO. And so by then I had a warehouse. Then I moved the company to L.A. I think there was 12 full-time employees and 11 of them moved to L.A. with me. And then we moved the warehouse to L.A. We eventually we had 40 ,000 square feet. It all happened very fast and I left many leases in my wake. Well, you had to. You're just growing so fast. What could you do? And you also had investors knocking down your door too. You didn't go out and seek them originally, I believe.

10:58No, I had lived in San Francisco. I didn't understand what the whole technology thing, what was going on, what venture capitalists were. I didn't have debt. And yeah, investors started knocking. You know, usually it's like, oh, my wife shops there. And then they are like, maybe I should pay attention to this. And they showed up and they were like, what is this freak show? Reinvesting companies that don't make money and don't grow as fast. They valued the company like a technology company. And it was a fashion e-commerce business, but it was very early fashion e-com. There was, you know, Net-a-Porter and Zappos and a few other companies at the time.

11:37And they said, all right. And they just kind of waved their finger in the air and said, your company is worth$350 million. And here it was$50 million, kiddo. And that was when things really changed. Changed for the good or for the bad? Both. I mean, for a long time for the good, it was the most fun. You know, I scaled the company to over 100 million in revenue, hired best talent, worked with like the best creative directors, had beautiful offices. But it was champagne clink after champagne clink, milestone after milestone, launch after over, you know, after launch. And I remember a time where people would come up to me or I'd run into people and they'd be like, congratulations.

12:20And I have to ask which thing they were congratulating me. Because we opened a store? Is it because I had a big press hit in whatever, the Financial Times? I don't know. It was a whirlwind and it was the most fun.

12:36You're listening to the interview from the BBC World Service with me, Liana Byrne.

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13:22That sucks. But honestly, it's even worse when you buy business software. You end up with fragmented, disconnected systems that cost a fortune and don't talk to each other. Odoo completely changes that. Odoo comes fully complete, with all your business apps perfectly integrated and working together seamlessly. It's everything your business needs in one place, saving you time, headaches and serious money. Stop paying for missing pieces. Go to odoo.com. That's O-D-O-O dot com to learn more. I spoke to Sophia over Zoom. She was very warm, very easy to talk to and determined to give the conversation her full attention, occasionally stopping to ask for quiet in the room around her.

14:07What struck me most was how unguarded she was. She has an unconventional way of looking at business and success and a very clear sense of who she is. She's reflective about the things she got wrong, but she doesn't seem cowed by the criticism she has faced. After such a public rise, fall and reinvention, I came away with the impression of someone who has absorbed that criticism, learned from it and moved forward without allowing it to define her. Okay, let's return to my conversation with Sofia Amoruso. At some point, do those things bounce off you when you're just doing so well. You're like, yeah, of course I'm doing well.

14:47And you almost take it for granted. No, I think it was all really, really exciting. I also think that the accolades and a lot of things that can come with success and, you know, putting yourself in the public eye, I mean, they just kind of like sought me out, but can be distracting. So it was super fun, but it was also not really essential. And I think it turned out that all the press, Even a New York Times bestselling book, I thought it would sell clothes. It promoted me. You know, I got the logo of my fashion company on the cover of a book that went into every bookstore in airport in the United States.

15:24I thought that was a marketing coup that I was like, that is someone's paying to put my logo everywhere. I'm a genius. But I don't think it sold clothes. And it created this whole other girl boss thing, which, you know, took a life of its own. Yeah, sure. But at the same time, nobody can take those accolades away from you. And you did do it, you know. So it is something to be definitely to be proud of. But I suppose you did mention the bad as well. So when do you think that things went bad? Things went bad when they valued the company at$350 million over 10 times revenue. Like we were like Uber or something.

16:02You know, we had an inventory. We had just fashion businesses aren't set up to scale in the same way. And it was there was no Shopify. It was like we had a huge technology team just to sell clothes on the Internet. And we hired a lot of people. We, you know, hired into growth that we anticipated. But the expectation was that we grow from 30 to 130 million in the next year. And that took a couple years, which is still kind of insane that that even happened two years later. But I didn't realize I was signing up for the expectation that within a few years it would be a billion dollar business or a billion dollar valuation.

16:43and even when the company was large and I then went to fundraise, e-com fashion was no longer as hot as it was when they had invested that money and so then it became conversations with private equity who were like, okay, cool, we invest in businesses that we value at two times revenue and that was a discount to what my investors had paid. It meant that they on paper would have lost money had, I brought in even a really super awesome strategic retail investor that could have taken the company to the next level with us. That wasn't their idea of success because in venture capital, it's your job to make it look on paper to the people who gave you money that what you've invested in is worth more, even if you haven't sold the company.

17:31It's just on paper. Is this thing worth more? Can we show our investors that somebody deemed it worth more? And based on that, can we go raise another fund? And that's like a very dangerous thing that a lot of founders don't realize they're signing up for and that the interests of their investors may not be aligned with the interests of the company or the founder. Yeah, it was out of step with essentially your goals. And also you did get at one point an offer to sell the business, didn't you? Yeah. I got an offer for over$400 million when I owned 80 % of it. And my investor advised me to just ask for more.

18:09It's a story that's like, oh my God, I lost. I could have made$100 million. But at the same time, this is a company that had never acquired another grand. It was family owned. the chance of it actually going through was really slim. And then had the company sold, the chance of maybe I had an earn out, you know, maybe my hundreds of millions was locked up in performance. It wasn't a done deal. No, it was an offer. It was a real piece of paper. It wasn't like heartbreaking that it didn't, you know, it's like I know that it's very unlikely that a lot of deals just get done at all. It was difficult as well with the expanding staff because amongst a lot of things that were written and said, there was a lot about workplace culture at the time and treatment of staff as a founder.

18:59How does that sit with you now and how do you reflect back on all of that? You know, I never worked in an office before I had my name on the lease of one. I had never been led. I had been managed. And the kinds of things I'd respond to were like, you need to stand up straight at the desk when you check students in at the art school or arrange a shoe differently or alphabetize the records or this goes in that section or hey, you clocked in late, whatever. So I, as cute as it is that I started a company really young, it would have been much better had I at least experienced what it would be like to work in the environment that I was creating.

19:40And I hired, you know, C-suite executives, paid them hundreds of thousands of dollars a year, incredibly talented people. And they said, OK, we're going to go do this. And then I realized over time that, oh, my God, I have to tell them to keep doing it. I keep having to check in with them. And like, wait, they're not like collaborating. I thought that these grownups whose careers had been longer than my entire existence on this planet would show up, bring their expertise, diagnose what needed to be done for this rapidly scaling company and, you know, do what needed to be done. And it's just not that simple.

20:16And I didn't understand company culture. You know, and that really starts at the top. And it's not something you write on the wall. It's something that starts at the top and you drive through the leadership team all the way through the organization. I think it's really hard to retrofit culture into an existing organization. It's something that is much easier to start with and make very explicit and actually live up to and hold people accountable to than think about it once your company is several years in. And that was where I found myself. I did my best. I think, honestly, you lay people off, you lay up the PR team, and they're going to go to the news and go.

20:52And this isn't what you're supposed to say, but this was my experience. Nasty Gal was the best place to work and the coolest thing. And they get, like, free drinks at a bar. They said they worked at Nasty Gal. People would, like, freak out like they were celebrities. That was the environment that we worked in. And that was, like, Nasty Gal was that cool. And when you're separated from that environment, it can be like a blow to your ego. It was emotional for our customers if something showed up late or we shipped them the wrong thing. It was like, oh my God, nasty gal, you're not my friend anymore.

21:22And so there was that element. But also, I was the girl boss who was the millennial female poster child of entrepreneurship and had inspired a lot of people. and the expectation of me as a leader was I think much higher than some dude who was building like an auto parts company and so if I wasn't perfect or you know somebody had a not great experience it was an example of like the girl boss being like not a girl boss and not a friend to women as if I was like a traitor to my gender because someone didn't have a perfect experience so So there was a lot of things at play. But, you know, Nasty Gal was the best time of a lot of people's careers.

22:06And a lot of people who left Nasty Gal voluntarily or involuntarily have gone on to do amazing things. And maybe it's out of spite. Maybe it's because they learned great things. Maybe it's because they made great connections. But they were all very talented. And ultimately, I'm really proud of that. Yeah, I can tell you still have a lot of love for that time. So what was it like when Nasty Gal had to file for bankruptcy? How was it for you personally? You know, I had hired a CEO for the last two years. And, you know, the company was at a place where revenue had plateaued. I wasn't a turnaround CEO.

22:42I wasn't someone who could look at a spreadsheet 50 tabs wide and, you know, tell my CFO what to do. I was definitely out of my league. And I didn't like that job. A lot of different things happened before we ended up filing for bankruptcy. And ultimately, that's a decision where it's like, all right, we can't pay our vendors. It would be irresponsible to continue operating this business. We need to call it. And there was an opportunity for us to reorganize and start over and find new financing. A lot of companies go bankrupt and start over. But I had put in 10 years and I was like, I was burnt.

23:17And, you know, when you raise$50 million and you're the figurehead of a company and it's so tied to your identity, it's really hard to quit and you kind of can't be fired. And I was at a place where I was just like, I'm not going to start this thing again. Like I put in 10 years. It probably could have been a softer landing, but I wasn't willing to do what it would take for me to stick around an indefinite period longer. Yeah. So it was sold for 20 million. If you could talk to yourself back when you just started your whole journey, is there anything that you would do differently? Is there any advice that you give your previous self?

24:00You know, I've always struggled with this question and it's an uninspiring answer, but everything that I did the way I did it, I needed to to learn what I have and be able to apply that to the future. And had I come in any different way, what I have to offer would not be as unique as it is. And I wouldn't think the way that I do. And I had to learn everything that I did the way I did and start the way I started because there is no other way. and I think a lot of people think they need to have certain qualifications to do something. And while I wish I had more experience before I started my company on accident, you don't have to be pedigreed.

24:42You don't have to be an expert to become an expert or to create something that people love. And you can figure it out along the way.

24:54Thank you for listening to the interview. You'll find more in-depth conversations on The Interview wherever you get your BBC podcasts, including conversations with Google's CEO Sundar Pichai, as well as interviews from former Australian Prime Minister Julia Gillard and many others. Until next time, bye for now.