We benefit from a startup culture where it’s okay to fail, but that doesn’t mean we should avoid examining the mistakes that lead to the loss of capital, jobs, and the opportunity cost when increasingly limited venture capital dollars go to the wrong companies.
Ecomom controller Philip Prentiss wrote a post-mortem of the company’s financial and managerial situation, chronicling how things fell apart in the months leading up to shutting down. His analysis ultimately points to Ecomom CEO Jody Sherman’s lack of business acumen:
“He was not a numbers guy. I would bring the financial statements to Jody who would glance at them so cursorily and wave me away with “no one can understand this without extensive analysis.” Critically, he did not understand margin. At the end of December when things were getting truly desperate, he said to me “Phil, just bring me a forecast that shows how much we need to sell to break even.” He did not understand, after three years of negative margin, that increased sales resulted in increased losses.” – Prentiss
Accountability Starts with Transparency
It really is remarkable just how easy it is to digitally disassociate yourself from having held an important role at a failed company. The senior management team of Ecomom, who go unnamed in Prentiss’ post mortem, should be held accountable for the company failing as well. It is too convenient to hide behind the tragic ending of Jody’s life, or to simply remove any relationship with the company from your LinkedIn profile as several employees have done.
Ecomom’s VP of Marketing Leslie Langford ran a marketing program with aggressive discounting that played a substantial role in driving the company into the ground.
“You donâ€™t need the companyâ€™s financials to get a glimpse of what was going on. If you Google â€œEcomomâ€ and â€œcouponâ€ you find 73,000 results. Many were run through daily deals sites. This one on PlumDistrict is one of the more egregious. It offers $100 of product for just $40, with free shipping, and when you consider the healthy 50 percent that most deal sites take, the economics are even worse. As one investor characterized it to me, itâ€™s like selling a dollar for $0.20 â€” venture capital dollars at that, which arenâ€™t limitless in todayâ€™s era and can come with a steep cost.” — Sarah Lacy, PandoDaily
Ecomom’s VP of Sales, who I believe is the same person as Alex Sayyah – VP of eCommerce, was paid on revenue before discounts – leading to a mis-aligned and expensive compensation package.
“the VP of Sales was compensated according to sales before discounts, not according to margin or profit. Our discount strategy resulted in enormous losses, but for the VP of sales the strategy optimized his bonus” – Prentiss
He appears to have removed all record of himself working at the company from his LinkedIn profile, although his past tweets indicate he worked there at some point and Zoominfo captured his old profile. I have reached out to him to confirm whether he is the VP of Sales who received this misguided compensation package:
Also critical to the team was Ecomom cofounder and “Chief Mom Officer” Emily Blakeny, who now lists herself simply as VP of Merchandising for the past 5 years.
Reality Distortion Field Gone Wrong
Investors don’t get the luxury of hoping the Internet will forget, as Ecomom has one of the most surprising Crunchbase pages I’ve ever seen with ~$10M in total raised from a huge slew of investors, many of them quite high profile angels, in a series of party rounds.
At first I thought it seemed unlikely that Ecomom’s CEO could trick these people into investing in broken company, however popular Los Angeles VC Mark Suster clearly felt Jody’s grasp on the numbers was strong:
“Ok. I have to admit something to you. With your persona I always expected to ask you tough financial questions about your business and expect you to say, â€œlet me check with my CFO.â€ You didnâ€™t. You always had the most precise mastery of your numbers. The way no CEO from Harvard does.“ – Mark Suster, Goodbye Jody (emphasis added)
This doesn’t add up with the controller’s account of Jody not being “a numbers guy”.
The startup ecosystem can’t afford to turn a blind eye to this blatant example of mis-management and lack of understanding of fundamental business concepts and math. Startups need to stop trying to re-invent good business practices, evidenced by the litany of self-helpish posts rising to the top of Hacker News, and focus on building real businesses that leverage the skills, knowledge and experience of skilled operators.
Investors who say their value-add is operational experience you are on warning – the expectation is that you break through the reality distortion field to help founders see around these corners. For hired senior management this should go without saying but I’ll say it anyway: operating the business in a way that will ensure its survival is your #1 priority. Sexy top line numbers might get you a pat on the head or line the pockets of the sales guy, but strategic long term thinking by professional managements wins every time (even when it fails).
Image credit: Tripletsisters on Flickr