If you follow this blog, then you should know that Strategy should be simple. Recently, we discussed how Pinboard uses the strategy of simplicity to take over its much larger competitor (you can read about it here).
This time, we are looking at the other side of the coin, when a company that previously pursued simplicity switched to the complexity and put itself in a precarious position of its own making.
The company is Made.com, a British online furniture retailer, that went bust after forgoing the strategy of simplicity.
Photo from Unsplash.com
Made.com's woes
In November 2022, BBC reported that Made.com was running out of cash, had stopped taking orders, and was forced to went towards administration.
So bad the situation was that the retailer couldn't even offer refunds for the not-yet-delivered orders. This means customers whose furniture has not yet been delivered will lose their money.
On 1st November 2022, trading in its shares was suspended. The company would likely have to be wound up and delisted from the stock exchange. Sadly, this means its investors lost nearly $900m within less than a year.
It is a dramatic change in fortunes for the brand, which boomed in the pandemic (due to the lockdown, people went online to buy furniture) and was valued at nearly $900m in 2021. How could a company's fortune change so drastically in mere 12 months?
Answer: Unnecessary complexity.
Simplicity Leads to Fast Growth
Made.com was set up in 2010 to offer affordable yet "high-end" furniture online and once said it wanted to be the "new Ikea." (ps. I like this 'new Ikea' phrase. It is an excellent example of a strategy well-summarized and well-communicated)
The retailer, which sources directly from designers and manufacturers to keep costs low, gained a loyal base of mostly younger customers and grew fast between 2011-2021.
Especially during the pandemic, as people bought more furniture online during the lockdown.
Sales at Made.com hit £315m in 2020, then grew by 63% in the first three months of 2021 to £110m. The firm was then listed on the London Stock Exchange and raised $900m from the stock market.
Complexity Leads to Precarious Position
As Made.com's fast growth attracted more and more investors' money, professional executives started coming in to replace the initial co-founders. For example, in 2015, co-founder Chloe Macintosh stepped down as creative director; in 2017, co-founder Ning Li stepped down as CEO, even as the company reached £100m in sales.
The easy money from investors and the influx of professional executives made Made.com forgets its initial way. Made.com started to grow its staff to 700 people, stock a massive inventory, invest significantly in advertising, open physical retail stores, and change its operations to be like typical retailers.
But pursuing complexity in a time of market volatility is a wrong move. As the UK is entering the cost of living crisis, households cut back on big-ticket purchases.
Made.com had "got caught with massive inventory at just the wrong time," co-founder Brent Hoberman told BBC.
Brent, who no longer runs the retailer but owns shares, said its business model had previously been about "minimal stock and wastage" but had since "morphed into being more similar to other retailers."
Ning Li, another of Made's co-founders, said he believed the brand had "lost sight" of its focus in recent years, forgetting "the mantra was simplicity."
He said, "My co-founders and I started a fledgling business on a shoestring in Notting Hill (London), with a simple idea of making high-end design accessible to everyone."
"I feel both powerless, having stepped down as chief executive in 2017, but also immensely frustrated."
At least, there are two lessons we can learn from this case.
First, as we can see, a business cannot be successful by copying best practices. In Made.com, the investors are hoping to protect their investments by hiring professionals from other retailers, so that they can bring best practices from other retail businesses. But as I mentioned in The GOSPEL of Strategy, businesses cannot win by copying best practices. At best, it makes you on par with others. More important is doing things differently (read about doing things differently here).
Second, simple is powerful. People tend to adopt complexities because they look down on simplicity. They forget that doing simple is actually more difficult than doing complex. In kickboxing, the Masters will do simple punches while the novices do fancy triple jump turnaround kicks. Simple does the job, while complex adds unnecessary distractions.
Continue to explore the secret of Winning Strategy here.