What Founders Can Learn From Phia’s Mistakes

Last month, Bloomberg published a report revealing that Phia, the startup co-founded by Phoebe Gates and Sophia Kianni, was taking credit for sales it did not generate via a practice known as “cookie stuffing” which results in inflated commissions paid to affiliate partners like Phia.

On July 8, a Phia spokesperson told Bloomberg the issue stemmed from a software bug the company had only become aware of “within the last 24 hours” and that their “team worked overnight to identify, mitigate, and has since resolved the issue.”

If only it were that simple. This week, Bloomberg published another, more damning report, backed up by screenshots of internal communications, showing that Gates and Kianni had not only known about the cookie stuffing practice for at least seven months, they had been pushing for it, too. The report cited an internal estimate that cookie stuffing accounted for about 51 percent of the merchandise value Phia claimed credit for selling in June, potentially impacting companies including Nike, Gap and Nordstrom.

Phia launched just over a year ago, but already, it’s become one of fashion’s most high-profile tech startups: The company announced in May that it raised $35.5 million from a long list of celebrities, including Khloe Kardashian and Sydney Sweeney, as well as blue-chip venture firms such as Kleiner Perkins and Khosla Ventures. That, plus the fact that Gates is the daughter of Microsoft founder Bill Gates, has meant that there’s outsized interest in Phia’s worsening crisis, including a sense of schadenfreude from observers in the industry.

But the company’s current problems have also been exacerbated by a series of decisions its founders have made along the way, from its business model to its crisis response.

So what can founders learn from Phia’s mistakes?

1. Have a focused, clear and distinct value proposition

Building a true, value-add business is hard enough, but in the realm of online shopping, where consumer habits are extremely hard to disrupt, it’s even more difficult. Asking shoppers to add one more step to their e-commerce routines requires a simple product that’s also easy to understand. Many shopping apps failed before Phia, such as Spring, which more than a decade ago touted itself as the “Instagram for shopping.”

At its crux, Phia is an app that allows shoppers to compare prices, including, crucially, resale options. But since its April 2025 launch, that emphasis on resale got lost, and without it, its price comparison tool lacked differentiation compared to competitors including Modesens, Lyst and Google Shopping. Phia also bills itself as a “personal shopping assistant,” encouraging users to browse and discover brands on its interface — an entirely different function from price comparison. This makes Phia’s primary proposition difficult to grasp not only for consumers, but for journalists covering the company. For that reason, most startups at the same stage as Phia opt to defer earned media until they’ve refined their market fit.

Phia’s muddled proposition likely contributed to its challenges in generating sales — the catalyst for its “cookie stuffing” malpractice. If the app was not gaining steam, it means the model simply wasn’t working. It’s an existential problem no shady workaround could remedy.

2. Understand — really understand — your market

Even with a clear proposition, it’s imperative to fully comprehend the challenges and dynamics of your particular niche in the market.

Phia’s primary revenue stream is affiliate marketing, where a platform, creator or publisher makes a commission when a shopper makes a purchase after clicking one of their links. For individual influencers who have built trust with their audiences, it can be very lucrative. But to support an entire business off of affiliate revenue is more challenging. The primary players it’s worked for, like ShopMy and LTK, provide the software for influencers to create affiliate links, so they benefit from creators’ ability to drive sales. And even those platforms don’t operate on affiliate revenue alone; they facilitate brand partnerships for talent, too.

Affiliate marketing is also a very crowded space, leaving Phia competing for the same dollars against numerous rivals: Beyond creators, there are also traditional publishers owned by the likes of Condé Nast and Hearst, both of which have leaned heavily into commerce content; pre-existing Phia competitors like Honey; as well as a cohort of new startups like Emcee Studios and OneOff.

3. Be prepared to live up to the hype you’ve built

Media coverage can be invaluable for a young company in terms of building the credibility needed to attract clients and investors, but every profile, quote and claim creates a public record against which it will be judged.

Phia had an unusually high profile for a shopping app — beyond coverage across outlets like CNBC, Forbes (both have made the publication’s notorious 30 Under 30 list) and yes, The Business of Fashion, Kianni and Gates also cohost a podcast, “The Burnouts,” which premiered under the umbrella of “Call Her Daddy” host Alex Cooper’s Unwell network. While that earned the company a lot of buzz — and likely helped beef up its investor list — it also raised expectations and created more pressure on the company to perform. Now, that buzz has ultimately made its downfall all the more visible.

4. Own up to your mistakes

Any business reporter will tell you they approach every pitch with a healthy dose of scepticism. We expect numbers to be padded and growth to be overstated, and can see through the bluster of a founder selling a dream without much grounding in reality. In the US, it’s legal to lie to the press under the First Amendment. But that doesn’t mean claims won’t be verified — and called out if they prove to be misleading.

What makes Phia’s misdeeds so egregious isn’t just that the company falsified its sales. Phia lied about it afterward, claiming it was not aware of the feature until Bloomberg had pointed it out. If Phia had just owned up to its mistake, the consequence would’ve been one cycle of bad headlines rather than a month-long public relations crisis, effectively shattering the founders’ credibility, likely for years to come.

5. Respect your partners and your customers

Common decency is a fundamental rule of business: doing right by your customers and your clients. Phia’s affiliate fraud was not a victimless offense; its behaviour violated the terms of its partners and would have harmed the merchants they rely on by making them pay for clicks that Phia didn’t actually generate.

Cookie stuffing (and lying about it) weren’t Phia’s only misdeeds. Last year, a report in Fortune found that the site was collecting an alarming amount of data on customers, transmitting snapshots of every website a user visits back to Phia including information pertaining to online banking and private emails.

6. If you’re going to cheat, don’t Slack about it

If your lawyer hasn’t told you already: Anything that could be remotely incriminating should not be put in writing.

The ultimate smoking gun against Phia was the Slack messages its founders sent to their software developers encouraging them to insert the cookie stuffing bug and optimise its impact — messages that Bloomberg was able to review and reproduce in its reporting.

Elsewhere in the pantheon of publicised scandals, there is no shortage of the “receipts” that irrefutably implicate the guilty party, including careless texts, emails and decade-old tweets. For anyone looking to step into the spotlight, these points of communication are all potential liabilities.

7. A famous last name doesn’t just come with privilege…

This might seem like it goes without saying, but in an industry full of well-connected founders, a last name offers as much baggage as it does access. Nepo babies oftentimes have more to prove, not less. Phia was always going to be judged not only for the merits of its service but also against the privilege that enabled it to break through in the first place.