Executive Summary
The high profile dot.com failure of boo.com is a valuable case study for all entrepreneurs to learn about its downfall. The boo.com story oozed glamour, from the trendy looks of its founders to the identity of its impressive list of backers and investors. The Swedish internet entrepreneurs’ plan to storm the global market with top-notch designer sportswear involved substantial investments for its ambitious strategy to become the global leader in selling trendy sportswear on-line. The company struggled from the start and launched six months late. As the dot.com passion faded, costs mounted and competitors loomed as it delayed. Revenues came too late, Boo ran out of money at a time when markets in Europe were crashing, investors pulled the plug and liquidation was inevitable.
1 Background Information
Boo.com was a European company founded in 1998 and operating out of a London head office, which was founded by three Swedish entrepreneurs, Ernst Malmsten, Kajsa Leander and Patrik Hedelin. Malmsten and Leander had previous business experience in publishing where they created a specialist publisher and had also created an online bookstore, bokus.com, which in 1997 became the world’s third largest book e-retailer behind Amazon and Barnes & Noble. They became millionaires when they sold the company in 1998. At boo.com, they were joined by Patrik Hedelin who was also the financial director at bokus, and at the time they were perceived as experienced European Internet entrepreneurs by the investors who backed them in their new venture.
2 BOO.COM
2.1 Company Vision
In their proposal to investors, the company stated that the vision for Boo.com was for it to become the world’s first online global sports retail site. It would be a European brand, but with a global appeal, with an ambition to be the sports and fashion retail version of Amazon. They targeted young, well-off and fashion conscious 18 to 24 years old who were likely internet-savvy and keen to own the latest premium sports and urban street wear. Boo marked itself as fashion retailer, stocking quality products with branded and niche suppliers, with a promise to delivery free within five days. They listed brands such as Polo Ralph Lauren, Tommy Hilfiger, Nike, Fila, Lacoste and Adidas.
2.2 The Boo.com Brand Name
According to Malmsten (2001), the boo brand name originated from film star ‘Bo Derek’, best known for her role in the movie ‘10’. The domain name ‘bo.com’ was unavailable, but adding an ‘o’, they managed to procure the domain ‘boo.com’ for $2,500 from a domain name dealer. According to its marketing director, they were “looking for a name that was easy to spell across all the different countries and easy to remember, something that didn't have a particular meaning”.
Page 1 of 4 3 SWOT ANALYSIS
Before we look at the reasons for Boo’s failure, we did an analysis of its strength, weakness, opportunities and the threats.. The analysis will provide key insights to what had gone wrong forcing the company to collapse.
Strength Weakness Big resources and funding Liability of newness, lack of Media savvy experience in the industry, lack of Huge marketing campaigns management skills Innovativeness : State of the art High overheads technology, Miss Boo Lack of financial controls Good networking skills Too ambitious, expand too fast Did not understand customers Clumsy User Interface Opportunities Threats Breaking into 18 countries E-Commerce relatively new simultaneously Low adoption of technology by users Worldwide branding Key internet buying driver –lower First to come up with virtual fitting prices Economies of scale opportunities Conflict with retailer interest Exploits its logistics platform to sell High expectations from stakeholders other products and customers to deliver
4 REASONS FOR FAILURE
4.1 Poor Management
Insufficient good management dogged the company from the start. Despite experience in setting up a successful books web site in Sweden, Boo’s management lacked basic retailing skills to make sound business decisions. Due to lack of direction and executive decision, they made ambitious plans without risk management. They underestimated the industry expertise they needed as there was no lead investor to give the company the direction it needed.
4.2 Aggressive Growth Plan
Boo was undone by its sheer scale of its ambition. The founders had aspiring plans of launching simultaneously in multiple European countries within a short time span. Their ambitious plan was founded on the assumption of the ready availability of venture capital money to see the company through the first few years of trading until sales caught up with operating expenses. Nearing its end, investors did not see eye- to eye with the founders and refuse to inject further funds amidst the jittery start and dismal sales figures.
4.3 Lack of Financial Controls Page 2 of 4 One of the major factors for Boo’s downfall was its lack of financial management. Its losses were unusually high for an internet start-up. It spent about $135 million, burning an average of $1 million a week. The funds were going towards its unsustainable technologically innovative platform and paying for its pool of 400 employees based in 18 countries. Dogged with technical glitches, its delayed launch caused the company to carry these costs with no revenues to offset them. Excessive employment benefits in prelaunch period and luxurious spending added to the bills. Due to lack of experience, they invested huge sums in consultancy which failed to deliver.
4.4 Poor Marketing
Boo had aimed to start business in May 1999. Their extensive high impact publicity campaigns cranked into motion, prompting a number of write-ups and magazine articles. Timing of these advertisements was inappropriate as it raised public awareness too early resulting in an enormous hype that raised expectations prematurely. They were experimenting with the limelight by teasing the consumers with its much publicised delays in launching their website.
In the initially launch of its products, Boo offered no discount in order to protect brands. It charged premium prices instead of offering discounts which consumers expected when buying on-line. It hoped to entice customers by offering free shipping and free returns, attributes that were insufficient to overcome is high prices.
4.4 Technology
The technology that was supposed to power Boo.com did not work, despite enormous investments. Developing the ambitious website with dazzling interactive features, complex global distribution and multiple currencies proved challenging and almost impossible. The site was delayed for six months before it finally launched on the 3 Nov 1999. Boo’s cutting-edge technology meant to make electronic shopping easier was hobbled by glitches and content problems that left many visitors unimpressed, frustrated and disappointed. The disastrous user experience made one wonder if the website was rigorously tested or launch hastily. It was widely criticised as poorly designed for its target audience who were not ready for the technology. Without a high speed connection, user with slow computers found surfing the site extremely slow and frustrating because the interactive features and flashy graphic took too long to load.
4.5 Poor Customer Management
Although market research was done in several countries, Boo.com let out that the analysis was flawed, tainted by instructions for how the model would be used and how the report should be written. Failure to do a proper market research ended up with flawed decision-making. Boo.com did not account for an important internet buying driver which was low pricing. It failed to maximise customer value by offering discounts and loyalty programme. Their disastrous website gave customers a poor experience and made it hard and inconvenient for the users to keep going back.
Page 3 of 4 5 LESSONS TO DRAW
Lots of money ≠ equal success. Start small, expand in an appropriate manner Good Marketing – importance of branding Experience needed in the industry in order to understand customers, suppliers Importance of good financial controls Understand your customers Proper Use of Technology No matter how good your backend systems are, the users will only remember your front end. Fail there and you will fail
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