When Aslaug Magnusdottir started going to the top runway fashion shows in Milan, Paris and New York, she often thought about the wasted opportunity that designers — traditional leaders as well as the up-and-coming — were missing. “Because not many women could come to these shows, they were completely shut out of buying the fashion there,” said Magnusdottir.

Right around that time, Magnusdottir fell in love with a dress she saw at a show. “I was there and I was able to purchase it,” she said. Other women — those who could not attend the show — would never see the design and, unless it was bought by a department store, would never have the opportunity to buy it. “So why were we letting middlemen get in the way?” she asked. “It didn’t make sense.”

Magnusdottir, speaking during Penn Fashion Week last month, talked about her experiences starting up the luxury online etailer Moda Operandi. On Monday, May 20, the Daily Beast reported that she has left her job as co-founder and CEO of the company she started in 2010 with former Vogue contributing editor Laura Santo Domingo. The Daily Beast cites a source describing Magnusdottir’s departure as the result of a “rift” between Magnusdottir and Santo Domingo.

An $80,000 Dress

Before starting Modi Operandi, Magnusdottir worked for the Gilt Groupe, a leader in online sales, primarily in discounting. Magnusdottir, however, was more interested in using the Internet to sell high-end fashion to customers who wanted to buy unique pieces directly from designers.

And so the idea for Moda Operandi was born, although Magnusdottir and Santo Domingo initially encountered skepticism from potential investors. These investors had seen, particularly through Gilt, that discounting of high-fashion would work online, but they doubted that women accustomed to discounts would go for the expensive one-off — or small batch — pieces.

“‘Why would people want to pay full price any more?’ they said to us,” recalled Magnusdottir. “They asked why customers would want to wait for weeks or maybe months for a pre-order. Wasn’t the Internet about immediate gratification? And why would designers want to sell out of a runway show?”

According to Magnusdottir, when looking for financing for any business, prospective entrepreneurs have to find the right person — the one who will understand the idea and be willing to support it. In her case, she found venture capitalists who trusted her experience and knew, as few investors do, the fashion business.

Magnusdottir gives Gilt big kudos for getting people to shop for fashion online. “For them and their competitors, though, it was all about discounts, all about that kind of value.” Moda would have to work differently. There would be no discounts because the pieces would be, essentially, custom-made. In addition, customers would have to accept the fact that they might end up waiting months for their items to be made. In other words, they could not count on them being “contemporary.”

The move to online buying was a crucial factor, and Gilt’s success proved that it could work in fashion. Moda Operandi could show the customers what was coming off the runways, and customers who could never attend the shows could see the designs up close. Magnusdottir and Santo Domingo were able to convince enough designers to sign on, and by mid-2011, just months after first presenting the idea to investors, the company was selling its products. It now has 300 brands or designers on its list.

Magnusdottir said she was not surprised that women would spend substantial sums to get the pieces they wanted. The average item from Moda Operandi has sold for $900; the average transaction, which can be multiple items, is $1,500. The highest price paid for a dress has been $80,000. The company also sells shoes and accessories.

“We were able to leverage the buzz around the various fashion weeks into a commercial opportunity for the designers and for the customers,” she said. Before, if a designer did not get a big order from a retailer, that was it. Moda Operandi has changed that business model. Customers must pay 50% up front, but they are willing to do so to have something special, according to Magnusdottir.

“For the first time, women are getting a chance [to buy from] the runway collection,” she added. Prior to the founding of Moda Operandi, “even if a local store bought the dress you love, your size might be sold out. Our customers are now the first to receive items, sometimes exclusively. Actually, younger customers love the idea that they pay 50% up front and pay the rest only when the items are ready to ship. They call it ‘a fancy layaway.'”

A Way Out of Iceland

Magnusdottir grew up in Iceland and earned an undergraduate law degree there before going to Harvard Business School and Duke University School of Law. The most important influences on her, she said, were her mother and famed retail executive Marvin Traub. “My mom definitely inspired me from the beginning. There are only 300,000 people in Iceland, and sometimes I felt there would be no way out of there. Every day, she would say, ‘You can do anything.’ That was always an inspiration.”

She eventually settled in London — with an American husband who wanted to return home. Magnusdottir came back to the U.S. without a job, but through a connection, met with Traub, who had been the CEO of Bloomingdale’s for 22 years and was then in his 80s and had begun to do some consulting. “I started working with him immediately,” Magnusdottir said. “My first meeting was with Harvey Weinstein to buy Halston. I met everyone running fashion companies. [Traub] was advising clients in the Middle East, Russia, Greece, Canada. There is no question I was extremely lucky.”

She has used some of those international contacts — about 20% of Moda Operandi’s customers are in the Middle East — but noted that international business can be difficult, even through the Internet. People in the Middle East, she said, are used to the trunk show concept and are used to speaking in English. In China and Brazil, however, language can be a factor, and duty fees are high. Some countries are still not used to credit cards, she added, and in any case, payments are often split between banks or credit systems. Finally, because of the nature of the business — centered on few but expensive items — warehousing is difficult due to intermittent delivery and the need for greater security.

“You have to learn to adapt and I am sure we will, but we are still just growing,” she said.

Hiring a CTO

The one imperative when starting a new entrepreneurial business is to have on board everyone who shares your vision, or is at least amenable to helping you with it, said Magnusdottir. For Moda Operandi, she and Santo Domingo had complementary skills — Santo Domingo with a head for fashion and design, and Magnusdottir as a business expert. Neither was particularly adept at technology, however, so their first investors insisted that one of the duo’s initial hires be a chief technology officer.

Next, Magnusdottir said, it is important to start hiring people who will be flexible. “Startups have a unique challenge. You can’t offer clear career paths because there are so few people to move up and around, which causes some anxiety. Not all people are meant to be in a startup. Often we have found that people need to move around from one role to another — not always doing what they were first hired to do — depending on [what is going on] at the time. Maybe someone is not comfortable with that. You must be comfortable with things changing quickly and be able to adjust to new processes.”

On the other hand, she added, she has learned as a boss that these same challenged employees need some, as the cliché goes, “tender loving care.” “You need to constantly talk to employees and make sure they know they can express their concerns,” she said. “I have found that people need a lot more praise than you expect. Never underestimate how far a ‘thank you’ or a ‘you did a great job’ goes.

“But also try to have some fun. At Moda, it may not be much, but we have a Ping Pong table and do Friday afternoon drinks. We also do ballet two times a week. Everyone works hard, so being friends and hanging out is really important.”

Though Moda Operandi worked hard at nailing down its concept and getting its first customers, the next phase is to find out how to expand that base while also keeping current patrons. “We are pretty sure our base is a woman who is high-income and loves fashion, who wants statement pieces,” Magnusdottir said. 

Originally, the company did not have a big marketing budget, so it looked for inexpensive ways to get the word out about their business. With Santo Domingo’s journalistic connections, they were able to get magazines and bloggers to write articles about the company.

Then Moda Operandi decided to take a chance on a strategy. “We made the site private and hard to join,” said Magnusdottir. “We made people fill out a full page application. Lauren would read them and turn people down. What that did for us was create a lot of desire and get the press excited. People wanted to be accepted as members. We allowed early members to invite friends, and that made them feel special — to be one of the few people to be able to have other folks join.”

One of the most important things to know about being an entrepreneur, said Magnusdottir, “is that there are a lot of things, no matter how great your experience, that you will not know — and that you will have to depend on other people, and circumstances, to [teach you]. Don’t ever be afraid to reinvent yourself. Constantly look at the environment and [try to] be continually groundbreaking.” Finally, she said, “ask always if there is something else you can” do to improve the business.