Andrew Laffoon’s Thoughts

Seth Godin gave a great talk at Google about permission marketing and launching something remarkable.

By my friend Dave McClure:

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The new Mixbook is coming soon. Wait until you see what we have in store in the next couple months…

Growing up, my mom’s favorite store to shop at in the mall was the Bombay Company.  Whenever we had a chance to visit the mall, we would always stop by this mysterious store to for her to look at the beautiful furniture.  We never had much money, so purchases were rare.  But I have many distinct memories of walking in, looking at the wooden butler at the entrance, getting too rowdy and my mom telling me to be quiet and careful, and generally being impressed by this popular store.

Well, sorry mom, but the Bombay Company is gone.  Economists and politicians are saying that we are in a recession, and the recent wave of bankruptcies in the retail sector (NY Times), especially in furniture, is a strong indicator.

Bombay, a chain with 360 stores, was considered a success in the furniture world, after its sales surged from $393 million in 1999 to $596 million in 2003. 

Then the chain decided to move most of its stores out of enclosed malls into open-air shopping centers. It started a children’s furniture business, called BombayKids [Given that I never liked the store as a kid, this does not seem that smart...]. And it started carrying bigger items, like beds and upholstered couches, with higher prices than its regular furniture [which were already very high!].

Consumers balked at the changes, hurting Bombay’s sales and profits at the same time that its expenses for the ambitious new strategies began to grow. The timing was unenviable: By early 2007, the housing market began to falter, so purchases of furniture slowed to a trickle [ouch!]

The company was running out of money, but banks refused to lend more. “They did not want to take the chance that we might not repay the loans,” Elaine D. Crowley, the chief financial officer, said in an interview. [Probably a wise move, on their part]

In September 2007, Bombay filed for bankruptcy protection. The highest bid for the company came from liquidation firms, who quickly dismembered the 33-year-old chain. Bombay, which once employed 3,608, now has 20 employees left. “It is very difficult and sad,” Ms. Crowley said.

Ok.  Hold on.  In six months, this 33-year old company with over $500 MM in annual revenue went from 360 stores and 3,608 employees to essentially nothing!?  Wow.  Thirty-three years of sales, stores, and employees.  3,600 paychecks.  360 stores.  All gone in less than 2% of the time it took to get there.  A couple wrong moves, combined with some unfortunate market turns, and it is all gone!  

Personally, I see three strong principals that are illustrated in this story:

1. Watch Diligently.  In business, it is critical to be vigilant and to watch market trends like a hawk while planning wise strategy to build for the future.  Market trends and customer demand can quickly change, and you must be willing to change your entire business to adapt.
2. Save for the Tough Times.  If at all possible, store up some cash for the tough times when the debt and credit markets are not flowing freely to your industry.  The same applies to startups: raise enough to take you through the rough economic times, and keep your burn rate low to draw out your cash longer!
3. Success is not Forever.  Over 300 stores and 3,000 employees did not stop the Bombay Company from going under in less than six months. 

Headline today in the NY Times:

Zimbabwe Plight is ‘Normal’, South African [President] Says (link)

South African President Thabo Mbeki says:

“I wouldn’t describe that as a crisis,” Mr. Mbeki told reporters in Harare, Zimbabwe’s capital, after meeting with Mr. Mugabe, Reuters reported. “It’s a normal electoral process in Zimbabwe.”

To the western world, this is far from normal.

Zimbabwe’s people are already suffering from hyperinflation of more than 100,000 percent, and prices of basic goods have climbed higher still. Essential items like bread and soap have all but disappeared from many shops, according to news reports.

And Zimbabwean’s dearest friend, Mr. Robert Mugabe, is being a good sport about it:

Opposition party leaders say that as the standoff wears on the violence against their supporters has risen as the government has cracked down on dissent, with hundreds of party members being arrested amid widespread intimidation.

In other words, 100,000% annual inflation, suppression of the opposition party, delaying the election results by two weeks (and it looks like more) is normal.  Sounds like a lot of fun to me!

Gordon Brown, Prime Minister of the UK, says:

“I cannot understand why it is taking so long to announce the result of the presidential elections. I am appalled by the signs that the regime is once again resorting to intimidation and violence,” Mr Brown said.

“We will be vigilant. The international community will remain careful to do nothing to undermine efforts to secure an outcome that reflects the democratic will of the people of Zimbabwe.

“But the international community’s patience with the regime is wearing thin.”

Lucky for us, Mr. Mugabe has gained a spirit of humility in his old age:

“If Brown is the world, sure, he will lose patience. I know Brown as a little tiny dot on this planet,” the 84-year-old Zimbabwean leader said.

Even with all this, the South African President dismisses the elections as normal!  What am I missing?  Are things just different in Africa?  It seems that Mugabe is always able to get ahead and gain credibility by insulting Western leaders and denouncing the western influence.  And kicking out the last white farmers, again, seems to be gaining him a couple votes.

Is it just me, or does this place seem completely backwards?  What was once the breadbasket of Africa is now more of a basket-case than anything else.  What will it take to change this nation?  Leave thoughts in the comments, if you have them.

“Leverage is having something the other guy wants.  Or better yet needs.  Or best of all, simply cannot do without.”

- Donald Trump

Source: Bargaining for Advantage

As usual, Marc has excellent advice for young entrepreneurs like myself.  This post covers six tendencies that are common to all people, but that can be especially impactful on the early life of a startup.  You should read the whole thing - it’s worth it!  http://blog.pmarca.com/2008/03/the-psychology.html

The tendencies are drawn from a book by Charlie Munger called “Poor Charlie’s Almanac“.   Mr. Munger is Warren Buffet’s long-time partner and Vice Chairman at Berkshire Hathaway, and the book is a collection of his thoughts and essays in the style of Benjamin Franklin’s “Poor Richard’s Almanac.”  I am planning to order a copy myself.

I started reading a great new blog.  The guys who write it even post funny images with their blog entries.  Very nice!

See the top 3 hacks of 2007: http://venturehacks.com/articles/2007-hacks 

Words to live by when raising money:

Jump on your desk, kick your laptop across the room and declare a start to your fund-raising; set up 10 investor meetings for the same week; you will probably end up meeting only 4-6 of them due to scheduling conflicts; tell them “We plan to sign a term sheet in 6 weeks, if we don’t have an offer by then, we’re going back to using sweat equity to build the company“; signal your valuation by saying “We want to raise $X from n investors with no more than Y% dilution, including the option pool,” (Y = 15%-25% per investor plus a 10%-20% option pool dilution). In a tight process with VCs, there are three meetings; one with the original partner you were introduced to; next, you meet the original partner with a few other partners; finally, you go to a partner’s meeting; there may also be an intermediate meeting where some of the partners come to your office to refactor your code and eat your food; if some investors are being slow while others are moving along, tell the slow ones, “By the way, we are on second meetings with three funds.” If things go well, you should receive 2-3 term sheets; reject the ones that explode the next day: “We told other investors that they have until the end of the week to send us term sheets, we can’t break our promise.” Negotiate the offers over the next 2-3 days and get your favorite investor to the terms you want. During closing, keep your other prospective investors warm in case the deal blows up; but don’t break any binding no-shop or non-disclosure agreements in the process.

Thanks Naval and Paul.

“We make a living by what we get, but we make a living by what we give.”

-Winston Churchill