Swinging for the fences

“You want to do what?!?”

It was 2011, “start up” was not yet an established name in the main press nor public opinion as a viable career path in Germany…in Berlin, it began to pick up and Zalando was about to launch a very public TV spot that would shake up a lot of people. When I joined one of my high school friends on his start-up then, I was among the best in my class in University, had done all the summer University programs and internships at inhouse consulting practices of big corporates…I had seemingly a very succesful corporate career ahead and in the eyes of a many, tossed them away for joing an “SME” (small, medium enterprise) founded and run by a twenty-something law student. I was greeted with pitty, confusion and polite congratulations.

When the other side of the conversation had the stomach to ask for what the SME’s business was about, even the most hard core supporter was floored and couldn’t hide non-verbal pieces of advice in their face to loose the idea and get back on with “normal life”:

MyParfuem – custom fragrances, online

“Hang on….what!?!? You want to let customers mix their own perfume via a website? How is this gonna smell? Who would ever have enough courage to do that? You cannot beat the quality of Chanel!”

In short, it is fair to summarize the majority of reactions with a version of a Bill Gates-ian answer (“That’s the stupidest thing, I have ever heard”) and a foreshadowing “This will never work!”

The company had existed a year or so before, when I joined in late August, 2011. The company was not doing well. Two founders left. Operations was a one-man-show. Customer service did not exist and our financials had not been done really well since … forever it felt. To make it short, we hustled through the latter half of 2011, grew the company +100% to the prior year and hit jackpot with a bit of TV adverstisement during the holiday season. We came home earning a solid ~10% EBIT for that year (as much as we could make of our books back then), if I remember correctly. We were profitable. And we were thrilled, but to be fair, 100% growth came from a tiny baseline that afforded a set of student founders and a few employees a meager living. It showed enough promise for us to take this seriously. 100% was nice, but we were part of the, back then tiny, bubble in Berlin, that set outlandish goals, arrogant enough to think they may have what it takes to play “with the big boys”…to be fair, our characters just didnt allow us to try anything else. We wanted to be a multi-million dollar company or nothing – back then Unicorn and billions were completely unchartered territory. We aimed for something “huge”…we aimed for +700% the next year.

The doubters soar again

And again, we were hit with all the advice in the world to not throw away our “luck” in order try something even bigger with something so stupid. We should be thankful we even convinced enough people to buy our products up to the level where we were. It was a bit difficult for me to ignore it and have enough courage to move on to be honest. There were always parts of me, that believed them. They were the smaller part. So, we moved on.

Now, as the business cycle in perfume is heavily tilted toward Christmas season, we had about 9 months to do the preparation for doing 700%. The preparation list looked somewhat like this:

  • first win an investor to
    • rebuild the website on a server architecture that wouldn’t crash when TV hit
    • revamp the brand for a bit upmarket appeal (we came from very pink, bright appeal and aimed for more black / white Vogue-ish)
    • hire approx. 50-70 people + temporary operations people for the peak season
    • find, rent and re-build the operations site (some +1,000 square meter production site incl. office space all agreeing with all the safety regulations the German legislation has for you, when you deal with very flammable Ethanol)
    • design, buy and stock the raw materials for +700% mostly on supplier credits

This may sound “normal” to someone familiar with start-ups, but it was nothing “normal” to us. It was one crazy roller coaster ride.

2012 Christmas “rocket launch”

We managed to do most of it and just got situated on time in our new huge offices. Even some of our dear colleagues were doubtful of the size of the organisation we built: “Are we not overdoing it? Why is all this so large?”…needless to say, the general opinion of our doubters was a bit more harsh than that.

And then came our TV start for the Christmas season. It was like magic! Our servers – well Amazon’s – held their ground. Orders pilled up. Our operations was delivering in less than 48 hours. Our revenue hit crazy numbers – we exceeded an annual cumulated revenue of 1 million EUR before main season and were floored by the number with more than 6 zeroes.

But – as much as I wanted it to be a different ending – it was only 30-40% of our business case. The very business case, we built the organization around. The very business case, which next year was supposed to grow again at 2-3x. This wasn’t a small hiccup in operational execution. We seemingly hit a dead end in market demand. Our anticipation of the depth was not correct. Our doubters were correct. We were wrong. They were right.

Justified, but inaccurate

It was pretty tough back then to be a “failure”. The general opinion of start-ups felt to be – as indicated earlier – more or less a money burning bunch of youngsters with ambitions exceeding their abilities coupled with day-dreaming investor greed…a bubble. So the criticism obviously was not polite. Within the small bubble of Berlin, we were greeted with respect and comfort. Some of the media (most notably Brand Eins stood out) turned us into an example case, of what is wrong with Germany: “Why is failing greeted with so much satisfaction?” and so on. This felt nice. But even our bubble members and the parts of media that tilted more toward us had one thing in common with our doubters. They all had the underlying

“Well, it was kind of clear this was coming, right?”

And that is, what has been tipping me off. Until today.

A systematic look at it

I look at it differently and deconstructed it for myself into the following dimensions:

The first one is before the fact is known and there are opinions. Positive (“I believe it”) and negative (“I dont believe it”).

And then there is the second dimension which is afterwards and a fact. It is either positive (“You were right”) or negative (“You were wrong”).

Together, they make up a 2×2 matrix. The four quadrants are

  1. Public opinion is positive / believes you
    • and you wrong
    • or you are right
  2. Public opinion is negative / does not believe you
    • and you are wrong
    • or you are right

At MyParfum (no, not a typo: We later bought the domain, ditching the “e”), we were playing fair and square in the land of negative public opinion.

This part of the matrix is a binary one. Either public opinion is negative and the fact is negative, you will earn, as we did, the “I told you so!”-criticism…or at least some more comfortable version of it such as “At least they tried something!”

The other part contains, what we were betting on, proving everyone wrong. This is what Peter Thiel referred to as “something that is true that almost nobody agrees with you upon”. This is the quadrant of the Elon Musk’s of the world.

The difference between the two is very stark: glory or ridicule.

Swinging for the fences

Back then, I had no idea who either of them were. But we were playing their game. I, by no means, intend to say that us three back then were something of the caliber, but we played their game.

We gambled. We gambled hugely. We bet the house on a truth, nobody seemed to agree with us. We did not crazily think “This is a no brainer!” Yes, there was doubt, but we had hope and had supportive data. We weighed our options and came out with a decision to take the year-over-year +100% growth not as the limit to our success, but as the indicator, that there is more. We were deliberate with saying “We want more in life!” We also were never shy to hide our intentions. Neither from our doubters nor employees, the media…we always insisted that we play a big game, that we were swinging for the fences.

And we were very consistent in our execution, once we decided that we’d go and try it big time. We had clarity. We had focus. And that way, we had everything executed to handle the theoretical growth. We burned our bridges.

But: What has tripped me up?

The summary of the criticism of “You guys were fools!” hurt emotionally. Of course. I don’t want to be a fool. And we were not. The criticism was inaccurate. We were not fools. We gambled. We gambled in the big arena of negative public opinion. We did so deliberately and we lost. There is a difference between the fool and the gambler – calculated gambler, that is.

It may sound trivial and defensive, but the problem is, that the “You fools”-criticism discourages swinging for the fences. The binary difference between “I told you so” and being an Elon-Musk is a problem. It encourages playing it safe in the area of positive public opinion.

Playing it safe in the positive public opinion

Don’t get me wrong. A lot of important stuff is happening there, too. But the game changer moment, the radical change is not.

Success in the quadrant of negative public opinion is determined by three factors:

  1. quality of your bet
  2. execution of that bet
  3. the thick skin to withstand doubters

Playing in this part of the matrix requires you to think in big bets, calculated risk taking and the ability and desire to envision something the public opinion has no ability to digest until they witness proof. The degree to which you master these determines the chances of success of the endeavour. The degree of executional mastery then determines how much of that chance you can harvest. But without the thick skin, the guts, the bravety to face-off with doubters is the on-off switch to the whole endeavour. If you do not have it your visionary, calculated betting and executional mastery will be irrelevant.

(Read here how to know when to quit)

No critical thinking allowed?

When you play in the arena of negative public opinion, where very few people believe in your statement, odds are, you will loose a lot. May it be, because it is a self-fulfilling prophecy that prevents you from getting the means (financial, talent, technology etc.) to execute. May it be, that you are “just” too early and later on, someone else does it. Or, hey let’s face it, that public opinion is right. Odds are, you will loose a lot.

Did MyParfum deserve a lot of the “This will never work!”? Of course we did deserve it. And of course was our bet a very big one to make. I do not advocate for hailing lunatic ideas without critical review because we otherwise hurt hallucinating business founders’ feelings. Absolutely not. Critical discourse is great. I enjoy it. But it has to be done in the light of someone swinging for the fences. The arguments pro and con of the bet are much more important and the discourse ensuing much more rewarding.

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