Reference no: EM132050729

We are mulling investing seed money in a start-up called Private Stylist. See any holes in the business model? A client responds to an ad (Facebook, text, etc.) for "free fashion consult app." Through the app, client posts a selfie of the outfit he/she is wearing and answers 3-4 simple questions about style goals. Private Stylist matches the client to a "professional fashion consultant". The consultant, within 10 minutes, sends client advice as to how the outfit can be improved upon - typically, with a different accessory, color scheme, cut, fabric, pattern, etc. Along with this advice comes links to "select" vendors that carry the items, often on sale. If the client follows through and makes a purchase using the link, the select vendor issues a pre-arranged 20% commission "rebate" to Private Stylist. The client otherwise only pays $1 for the Private Stylist app. Private Stylist monetizes user data of clients for targeted marketers". The consultant is paid either by the hour (on a 40 hour per week schedule) or on a per-consult basis with no fixed schedule. In addition to the straight rate, the consultant can earn bonuses based on referral yield rates. To be hired, the "consultant" takes a battery of tests to determine if he/she has the requisite "taste" and discernment skills. There is a 350 "page" downloadable field manual that the client must master, that provides Private Stylist's guidelines for the "improvements" Private Stylist favors, which the consultant is asked to refer to and follow before giving the advice. Of course, all interactions are monitored, and analyzed for yield, productivity and other metrics. 

Profitability for this business model requires that "consultants" agree to work as independent contractors, not as employees. The consultant provides advice that is discretionary without any Private Stylist filtering or pre-approval. This "hand-off" approach is used because it would be prohibitive for Style Proof to incur the extra administrative expense of employee payroll compliance, including federal and state tax filings (consultants work from home and are spread over all 50 states). Private Stylist claims its business would nevertheless still be feasible were consultants classified as employees, so long as they are deemed overtime exempt. The business model presumes consultants will work between 55-70 hours per week to rationalize their cost, and paying overtime would be prohibitive - but the company does not indicate which exemption would apply. 

Should we consider participating or pass on this opportunity?