Ruthless Focus on Business Basics
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If you remember Pets.com at all, you probably remember the sock puppet.
The company was founded in late 1998 to sell pet food and supplies on the web. It was bought almost immediately by the venture capital firm Hummer Winblad. The sock puppet was featured in the ads they rolled out for the holiday season in 1999.
Everybody remembered the ads. Everybody loved the sock puppet. It was actually "interviewed" by People magazine and appeared on ABC’s Good Morning America.
The company spent big money for a 2000 Super Bowl ad. The sock puppet starred in the ad, and the company introduced its slogan "because pets can't drive" as the reason why consumers should shop on their web site.
According to USA Today, the sock puppet ad had the highest recall among all Super Bowl ads that year. And it worked. More people began to shop on the web site.
Normally, that would be a good thing. Unfortunately for Pets.com, they were selling products like dog food for a third of what it cost to obtain them. On top of that, the company offered free shipping. Shipping dog food is like shipping rocks. It's expensive.
It was as if Pets.com was living out the old joke: "I lose money on every sale, but I make it up in volume." But you don't. Losing money on every sale only means you go out of business faster when you increase sales.
But that was Dot-Com Mania time and no one seemed to care. Pets.com went public on February 10, 2000, shortly after the Super Bowl. The initial public offering (IPO) sold out at a premium in just one day.
In addition to losing money on every sale and paying for all that fine advertising, Pets.com also funded lavish salaries and benefits. It took just 268 days from the IPO for Pets.com to close its doors forever. That may be a record.
Compare Pets.com with AAON. AAON has grown steadily and consistently for the last 20 years. Its core strategy is differentiating itself from other industrial air conditioning companies, by producing reasonably priced "semi-customized" units that undersell custom units and out-perform off-the-shelf ones.
That strategy is what drove the steady growth. But conservative financial management and paying ruthless attention to the business basics allowed the growth to happen without loading up on debt.
Today, AAON is debt-free and cash-rich. That means it can seize opportunities if it chooses. And, it's on Fortune Magazine's 2009 "Best Stocks to Retire On" list.
One of the things that the Ruthless Focus research verified for us is that it's not enough to have a great strategy. You also need great execution. And great execution includes executing the business basics.
Check out my latest book, Ruthless Focus, at Amazon.
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Categories: Ruthless Focus, Strategy, Leadership, books
Tags: Ruthless Focus Strategy Books Leadership
Great story. It's been 10 years, totally forgot about the Pets.com situation. I always come back to my background in professional sports because athletes get to the top by practicing the fundamentals.
As they call them in football, "the blocking and tackling." In baseball it's "throwing strikes, hitting the cutoff man and efficient base running."
What are the business fundamentals that get companies in trouble and how did AAON focus on them to ensure their growth and success. Could be a good model for those humble enough to make a comparison.
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Thanks, Skip. What I'm going to say is not unique to AAON. I've seen it in many places.
It starts with paying attention to the basic accounting equation: P = R – E. That means monitoring operations and the P & L to make sure that you're doing things to make R go up or E go down. It means catching issues early and resolving them quickly.
That's one set of behaviors that helps you maintain a strong balance sheet, one with a limited amount of debt and strong cash reserves. That balance sheet gives you the resources to weather downturns and seize opportunities.
There's also an important thing that's not so obvious: avoiding temptation. There are constant "opportunities" to load up on debt or spend cash. Ruthless focus on a simple core strategy helps you avoid that temptation.
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Wow- I'd never heard the Pets.com story before. 268 days? What the heck was their business plan? Thanks for a reminder of just how fundamental business fundamentals are.
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All I can say is that those were crazy times. That was the time when you heard the phrase "this time it's different" a lot. I actually had an investment banker tell me that "old-fashioned profit and loss simply aren't relevant anymore."
You would have thought that the venture capital firm or investors would have looked at the model and run for the hills, but no. I can't explain it. I can only describe it.
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