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Chapter 2  Marketplace analysis for e‑commerce

Mini Case Study 2.3

Ecomom was a small start‑up Internet retail company selling earth friendly mum and maternity products 

including food, toys, apparel, and other baby related items. With headquarters in Las Vegas and San 

Francisco and a  third‑  party fulfilment in Los Angeles, any volume could be shipped within 24 hours. Founded 

in 2007, by 2011 it had turnover of just over $1 million, but a further round of investment of $12 million was 

required further growth, but at what cost?

Business Insider (2013) describes the story of the eventual failure of the company in 2013. With hindsight 

it’s difficult to understand investment in the company, but perhaps this was buoyed by the success story of 

Tony Hsieh building Las  Vegas‑  based Zappos into an online shoe and retail business that Amazon acquired 

for $1.2 billion. Of course, investors require growth and Ecomum did achieve revenues of nearly $4 million 

in 2013. But investors also require a return on their investment and, as you’ll read, the way growth was 

achieved was far from profitable.

Philip Prentiss, who joined the company in 2011 as financial controller, was the first dedicated finance 

person. As with many  start‑  ups, payroll, tax and accounts are outsourced to  third‑  party bookkeepers. Many 

company failures are not written up because employees don’t want to share the story of failure. But in a 

candid summary of his time at the failed company, Prentiss (2013) describes the reasons, starting with the 

lack of financial prudence. Describing Ecomom CEO Jody Sherman, he says:

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.

In this open letter describing the failure of the company Prentiss shows how the financial presenta‑

tion format hid a contribution margin of −48% which he identified when he joined the company. In other 

words, for every additional $60 average order shipped the variable cost was $89 and the company lost $29. 

This situation was caused by heavy discounting, with common use of 50% discounts on daily deal sites 

like Groupon. To make matters worse, although discounts were meant to be one time only, the company 

couldn’t limit them by customer, so every discounted order had a 50% reduction regardless of whether they 

were from a new company or an existing company. The company sales manager was paid based on sales 

achieved before discounting. At the same time, there were no premium lines or  own‑  label items where mar‑

gin could have been better. In addition, this is a fiercely competitive growing sector with established retail 

brands such as Whole Foods or general retailers such as Amazon selling similar goods.

By  mid‑  Autumn 2012, a $860K loss for the previous quarter was the result of the discounting strategy. 

Prentiss notes that no substantive changes were made to the business strategy and, starting from $4.8 mil‑

lion capital raised in August for the five months through 31 December, the company lost $1.1 million after 

variable cost, spent $1.7 million more on overhead and locked up another $1.2 million in inventory, leaving 

less than $1 million in the bank.

Sadly, the company closed early in 2013 and shortly afterwards, the CEO, Jody Sherman, took his own life.

In the unsentimental way of business, Ecomom’s domain and customer list were purchased by a com‑

petitor and the website was planned for reopening later in 2013 with this more than unfortunate legacy.

But the lasting legacy of the company and its founder may be how it has highlighted the pressure of run‑

ning a start‑up. Business Insider quotes Dave McClure, an investor in Ecomom and the entrepreneur behind 

investment firm 500 Startups, who says:

Oh Jesus, [founding a company] can suck. I can remember facing extremely ‘dark days’ as an entrepre‑

neur. I went through layoffs, co‑founder battles, and wife battles, and not for much gain. It was a hell of a 

lot of work for not a hell of a lot of return. Then there are days when you sit in a corner and cry. You can’t 

really do anything else. You don’t have a social life. You don’t really want to interact with family and friends 

because there’s just not much context for them. Your world revolves around your startup and it’s all about 

trying to survive and not look like an idiot in front of employees.

Ecomum fails to control its revenue model

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Part 1  Introduction

there were also failings in implementation, with technology infrastructure resulting in ser‑

vices that were simply too slow and the consequent poor experience leading to sales conver‑

sion rates and returning customer rates that were too low for a sustainable business.

Remember, though, that many companies that identified a niche and carefully controlled 

their growth did survive, so we finish the chapter on a more positive note with this case study 

of Firebox.com.

Mini Case Study 2.4

Firebox.com (Figure 2.13) opened its virtual doors in 1998 as hotbox.co.uk, an Internet retailer which was 

founded by university flatmates Michael Smith and Tom Boardman. Initially operating out of Cardiff, the 

company saw rapid initial growth due to the success of the founders’ invention, the Shot Glass Chess Set. 

In the summer of 1999 the company moved to London and re‑launched as Firebox.com.

eSuperbrands (2005) described Firebox products as ‘unique, unusual and quirky products from around 

the world’. Examples include unusual gadgets and gifts, such as retro gaming lamps, DIY food and drink 

kits, and, of course, VW Campervan tents. With many traditional retailers and other niche players operating 

in this sector now, Firebox positions itself as being one of the first outlets for innovative products. Firebox 

makes use of the collaborative nature of the web with C2C interactions where Firebox.com customers 

describe their experiences with products by submitting reviews. Customers are also encouraged to send in 

photos and videos of them in action via social media channels.

Initially a ‘pureplay’  Internet‑  only business, Firebox is now a multichannel retailer, providing a  mail‑  order 

service via its catalogue and corporate products (including sales promotion and staff incentives for Yahoo!,

Oracle, Five, Siemens and Santander plus wholesale and trade suppliers). The trade suppliers then distribute 

products to other online and offline e‑retailers.

Firebox.com survives the  dot‑  com boom and bust

Figure 2.13

Firebox

Source: www.firebox.com, Copyright Firebox.

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