Follow the (failed) leader

We hear of companies going under all the time, especially now when everyone is riding the economic crisis bandwagon. Let’s shift back a few years when things seemed more rosy, business was good and the poor were given more money than they could handle (literally). Companies filing for bankruptcy or going through liquidation were less frequent and therefore came under more scrutiny as to why things went so horribly wrong.

If you were deciding on a new start up of the head of an existing one, what would you do if you witnessed a company go bust? Remember things are good, m0ney is being spent freely and discretionary spend was in abundance. Would you look at the company going bust and see it as a lesson to be learn’t, stay away? Or  would you see it as an opportunity to move into a misrepresented and misunderstood market where you can make it work? What is the market size, competition, pricing structure, marketing, target market and could you really make it work?

Take example Sumolounge, an over-sized bean bag chair company. I just read about their foray into the Australian market in Yaro Starak’s blog. Interesting product but I find it fascinating that a company would move into a market that had been so unforgiving during the previous attempt of LoveSac to take control of the over-sized bean bag market (I really struggle to say that seriously… ‘over-sized bean bag market’). What was wrong with LoveSac and why did it fail? Well first of all, winning “The Rebel Billionaire” doesn’t necessarily lead to success in your entrepreneurial endeavors, even if you do have the blessing of Sir Richard. Not sure if the concept of revenue and assets needing to be higher than debt was completely understood by LoveSac management but hey, it was fun!

Did Sumolounge do their research and genuinely think that the market is still demanding over-sized bean bag furniture, especially the conservative Australian market where the innovators and early adopters aren’t as abundant as they are in say North America and Europe. I’ll probably get some backlash about how much I underestimate the Australian population but I from my experiences the take-up rate compared to other nations is quite slow. We love our security down under and liken new alien products like adding pasta strips on Pizza, if a bunch of others around me are having some then I’ll give it a go.

So will Australia embrace another big bean furniture company or will the wait for the early adopters to take charge take too long, exhausting the company’s resources. The thing is there was not too much wrong with LoveSac’s product offering. The bean bags were super comfortable, they looks great and there was plenty of marketing to back it up. Quite often you would see celebrities sitting on these bags and TV shows being aired with the presenters lying on them, talking it up. The LoveSac retail outlets were equally as impressive as the furniture itself, very plush and more like a massive rumpus room than a store built to facilitate commerce.

I won’t get into detail but I personally worked closely with some of these stores and the turnover was alarming, no one was buying. What was wrong? First of all the asking price for these bags was phenomenal. Starting at about $400 already put off many potential buyers. Secondly, did LoveSac offer its customers too much in-store that the incentive to buy was never really there? People would go into a LoveSac store, jump (seriously, people would take off from the closest and highest ledge) on the beanbags, read a bit, speak to the assistant and leave with very little intention to purchase any of the bags, ever. The feeling that was promoted was more similar to what you might see in an amusement arcade. People come in, have a play and then leave. It’s the same scenario for LoveSac, however they were trying sell the machines. It just didn’t work.

I’d be very interested in finding out more about the strategy of Sumolounge and how they plan to tackle the market. I already see that the price is almost half of what LoveSac was asking. That’s a start.