Middle Market Deals and how to buy, sell and raise capital from $5 to $500 million

Devin,

I appreciated your blogging about this. It is a somewhat sensitive subject. From my experience any repeat CEO or Executive that is worth his salt has taken a few gut punches. The badge of honor is showing your healed scares to your colleages and then of course not allowing yourself to repeat the mistake ever again. I sincerely wish Shawn well.

It cracks me see "sincere wishes" to Shawn. Obvisouly there was poor management of cash flow and overall poor business management. They grew to big to fast and they are now paying the consequeneces of thier actions (which are screwing a lot of people)

Good luck

Tim (great name by the way!)

I am interested. Have you have ever run a business? My "sincere wishes" come from having run a business, having made mistakes, and having caused pain for other innocent people. I think it is tough to run a business without stumbling at some point. What you try to do is to minimize the pain, not make a fatal mistake, and try to learn and avoid doing that ever again.

Even more importantly, what specific steps Shawn should have done to avoid this fiasco?

Shawn, or the company, LoveSac should not have opened 15-20 stores last year. They should not have raised their retail prices like they did, which directly led to this season being below average. They should not have opened 2 stores in Omaha, NE (400,000 person market), or have had 2 stores in Lansing, MI (250,000 person market), or have opened any store at a mall like Eden Prarie, a $330 a square foot dog in Minnesota. They opened too many stores in bad locations in B and C malls, carrying a higher end product that appeals to people that shop at "A" level malls. They should not fly all of their retail people all over the country all of the time and waste so much money on travel. They should have market-tested the Sactionals prior to bringing them out. They should offer shirts or something other than just the sacs. That is a pretty good start to what they could have done differently. Give some more time, and I may think of a few more.

Having said all that, I think that the company will emerge stronger and I do wish them the best of luck in the future!

Jeffrey,

You appear to offer very insightful analysis. I hope you have the ability to influence someone within the company in their future steps. I really question the whole viability of having specialty retail stores. You then add on all the rental and management costs to the product. Could you have better margins by being the manufacturer and letting someone else be the retailer of the product?

I am a little late to the conversation. With the benefit of hindsight, i think there are some obvious things Lovesac could have done differently such as...

1) Focus more on business fundamentals than image;

2) Hire people with experience in mgmt, operations, and finance;

3) Hire people with varied backgrounds, rather than childhood friends. From my limited knowledge, it appears everyone in mgmt had very similar backgrounds. This is particularly dangerous when hard decisions need to be made and friendships can become an impediment to tough decisions.

4) Grow slowly and prudently by mastering your operations internally before trying to expand by franchising. From my perspective as a consumer, each store operated independently and w/o any cohesion.

5) Focus on store operations. I have been in about 5 different stores and in most cases the experience was a turnoff. Very loud music, unhelpful staff, teenagers just hanging out. That said, despite the above, i do have two sacs and my family really likes the product.

Those are just a few comments off the top of my head. Devin, kudos to you for acknowledging the elephant in the room. However, it is unfortunate you are unwilling or unable to talk further about this topic as i feel Lovesac would make a fascinating topic for discussion. In fact, the only reason i found your blog is b/c i searched for "lovesac".

Best, Bconnery

BConnery,

Great suggestions. I think one of the common problems of many hyper-growth startups is that the company quickly outgrows the skill sets of the founding team.

When you are a young struggling company, it is hard to find and attract great management, because of the risk and inability to pay them competitive salaries.

Once you go through that hyper-growth, as the owner and leader, many have a sense of loyalty to those who helped get them to that point. It is a very difficult and painful transition to move those friends (and maybe relatives) out of key positions and move skilled management in.

But I guess the lesson for entrepreneurs (and investors) is - face the pain now or face greater pain latter.