Boo Hoo - A Dot-Com Story From Concept to Catastrophe

“We had support and funding from all the Nordic governments, and were given an office in the Finnish consulate on Madison Avenue. They regarded our festival as just the sort of initiative they had been looking for to promote Scandinavia abroad. We took on a couple of staff and somehow our plans, which had started out quite modest, just grew and grew. Soon, we also had sponsorship from some of Scandinavia’s biggest companies — Ericsson, Saab, Ikea, Carlsberg, Absolut Vodka. We were never afraid or too embarrassed to ask for money. In New York we sent out flyers to all the literary associations and put up posters in universities, libraries, theatres. We called up writers, who introduced us to other writers, and soon we found that we had infiltrated New York’s literary set. We became the talk of the town, the crazy Swedes that everyone wanted to hang out with. Even Esquire wrote a piece on us. ‘All this wasn’t particularly difficult to pull together,’ I was quoted as saying. “Everyone was so friendly. Americans have so many friends — friends, very good friends, best friends.’ The tone of the article was one of amused astonishment that a poetry festival should have taken New York:by storm.”

“‘Technology is important. If you don’t know about it, you'll be a second-class citizen.’ In 1996, there were more people in Sweden”

“A catalyst for our thinking was an offer from Mikael Karlsson, the founder of a software company called Axis Communications, to buy a stake in LeanderMalmsten. But our ideas needed more money than”

“an extremely clever Swedish aristocrat named Dag Tigerschidld who ran a venture capital firm — although this was not a term that”

“Tigerschidld liked to use. ‘I’m an industrialist,’ he explained. ‘I help build companies.’”

“Our parent company would be based in Holland because of that country’s attractive tax environment. An Irish company would hold boo’s intellectual property rights, while a string of companies in France, Germany, Sweden, the US and Britain would hold our assets in each of those countries. Patrik loved this sort of work, but Kajsa”

“holder, the billionaire Bernard Arnault, was passionate about the internet. On his frequent trips to the US, he had seen at first hand the impact this new medium was having on traditional retailers. Like us, he knew it was only a matter of time before the e-tailing craze hit Europe. For almost a year now he had been making small, but lucrative investments in US dot.coms like eBay and Webvan. Helping him scout for deals was Jean-Bernard Tellio, a suave, fast- talking, former curator of the famed Centre Pompidou in Paris. We”

“Benetton’s headquarters weren’t actually in Venice, but a forty- minute drive to the north in the tiny town of Ponzano. It was here that Luciano Benetton had grown up in the tough, post-war years with barely enough money for food. It was also here, in 1955, that he had sold his accordion and bought the family’s first knitting machine. Almost half a century later, the Benetton family controlled a multibillion-dollar fashion and industrial empire. These were people, I felt sure, who would understand what we were trying to do.”

“After a short drive through beautiful, strikingly flat countryside, our car drew up outside a pair of gates. Looking around, all we could see were isolated farms, but we had reached the nerve centre of the Benetton empire. The centrepiece was the Villa Minelli, a gleaming white sixteenth-century mansion that had been built as a holiday home for a wealthy Venetian silk merchant. When the Benettons had bought the villa in 1969, it was on the verge of collapse. The roof had caved in and chickens wandered through its damp hallways. Now, set in lush gardens and covered with bright frescos, it was a stunning sight.”

“Tellio gave a little Gallic shrug. “You have to understand that I don’t make the decisions.’ Each month, he explained, he simply presented a list of possible investments to his billionaire boss. ‘Arnault is very hands on. It’s his call.’”

“office. He looked tired. “OK. This is the deal. He wants a discount for being the lead investor.’ This seemed fair enough. LVMH was a prestigious name whose support would guarantee our reputation in the market. Tellio wanted a 10 per cent stake for $3.8 million, instead of the $5 million we were asking. More importantly, he wanted a 25 per cent discount for investing in the next funding round. This meant that if boo’s pre-money valuation was $100 million, LVMH could buy shares at a level of $75 million. Tellio had us. He knew that Benetton wasn’t ready to sign yet. And he knew we were running out of time.”

“from Benetton’s internal advertising agency, United Colors Communications, flew in to meet with us at J.P. Morgan. There had”

“I could picture the scene. Bernard Arnault, busy running his empire, is handed a list with internet deals that have yet to be closed. At the top is boo. “Why isn’t this done yet?’”

“‘Lawyers,’ replies Tellio. ‘Fine. Drop it.’”

“Also in the room was Myron Ullman, Amault’s second in com- mand, and another close associate, the Iranian-born Chahram Becharat.”

“The first person Edward led us to was Jay Herratti, a consultant in the firm’s retail and consumer division in New York. The slightly-”

“built Israeli had a laid-back, breezy attitude to life. Ultra smart, with a warm sense of humour, it was hard not to like him. He was fiercely ambitious but disarmed people with his easy manner. ‘My aim isn’t to be the top guy,’ he told me once, “but second in command, close to the people with all the glamour and publicity, but without the stress.’”

“George Horowitz, CEQ of Active Apparel, the company that owned the Everlast brand, practically hugged me. Charlotte and I had met him during our fruitful trip to meet suppliers at Christmas. At that time, Active Apparel had just unveiled its own e-commerce site — a move that had sent its shares soaring more than 1000 per cent in two days. As far as Horowitz was concerned, the internet was”

“first reactions soon arrived. At around 10 a.m., I gota call from Jean- Bernard Tellio of LVMH. He was in New York and wanted to meet for lunch. _ Kajsa and I found him in the downstairs restaurant at Barneys. ‘Did you see the article?’ I asked. He nodded cautiously. “Yes. There’s a bit of a problem.’ “What kind of problem?’ ‘Our PR people don’t like the headline,’ he said. He paused for a moment before continuing. “What I should probably have made clear to you is that LVMH isn’t technically an investor in boo.’ I grinned, assuming this was a joke. But his expression didn’t change. ‘The investment in boo was made with Bernard Arnault’s personal money, he went on. ‘It was his private company — Markas Holdings.’ ; This was news to us. We thought we had been dealing with LVMH from the start. Even Tellio’s business card had LVMH written on it. ‘It’s not that we don’t like the article,’ Tellio went on. ‘It’s great. But just try to play down the LVMH bit next time.’”

“So I told them about my grandmother. When I was small, I spent a lot of time with her, as my parents were both professional people who worked very hard. One day she asked me, “Can you play the violin?’ As I was only five at the time and didn’t even know what a violin looked like, it seemed a very silly question and I answered no. ‘How do you know?’ she then said. “You’ve never tried.’ It was her gentle way of instilling within me the Malmsten attitude. As an only child, I was probably slightly spoilt, but we were a very close family and I was encouraged to feel that I could achieve anything.”

“No queues, no waiting for luggage, no flight times to worry about — you just took off whenever you were ready to go. We could never have met so many investors in different cities in such a short space of time without it. It might have seemed a luxury, but in reality it was a powerful money-raising machine. I was tempted to get one for boo. :”

“breakfast and discussed the strategy for the next three days. Unlike our first funding round, there would be no opportunity for detailed due diligence. Investors would be asked to state how much they * wanted to invest purely on the basis of our business plan and the impressive names that were already backing us. The underlying assumption — important to encourage — was that this round would be oversubscribed, and that investors would receive their reduced allocations according to the size of their bids. The incentive, therefore, was to bid high.”

“As a final sweetener, the Saudi Arabian investors soon made an offer as well. By the time the round closed, we had raised a total of $12 million. We expected this to carry us through to the next funding round, in three months’ time.”

“Like Jay, Luke had a clear philosophy about what he wanted from boo. “There are three things this company can offer me,’ he said to me over a drink one night. ‘Power, fame and money. You have all three. That’s OK because you’re the boss. I only want power and money.’ -”

“There were calls from journalists, TV stations, job-hunters and headhunters, as well as companies locking to sell us their services. In the confusion, as newspapers raced to write matching stories, inevitably the story got a bit garbled. One of the wire services, took the FT’s $125 million estimate of boo’s valuation and substituted a pound sign for the dollar sign. It then translated £125 million back into dollars. Suddenly, we were worth $200 million. Not bad for a day’s work, I thought.”

“The avalanche of media attention had been wonderful, yet it was a great distraction when our thoughts were turning with increasing urgency to the launch of the website. The person who found the situation most difficult was Patrik: he had to watch quietly from the sidelines as the world féted Leander and Malmsten. Yet he was a founder too who had played his full part in making boo what it was. Remaining discreetly in the shadows was not something that came naturally to Patrik, and it soon became clear that he was not going to tolerate it for much longer. I could hardly blame him. It was a bit like running a movie studio and being told you couldn’t go to celebrity parties.”

“magazine. “With zippy five-day deliveries, 3D/360-degree product- viewing, styling advice from Miss Boo the virtual sales assistant/ model, plus boo.magazine due to be launched online later in the year, we think we’ve seen the future of fashion.’”

“The temperature was rising in dot.com land. In the US, the media was awash with stories about record-breaking internet IPOs. In only the first six months of the year, internet companies had raised a total of $5.5 billion. Some of the bigger names to hit the market in recent weeks had included eToys, the online -toys retailer, and TheStreet.com, an electronic business news site. Both had seen their shares soar by more than 200 per cent on their opening day of trading. Even some of the companies we were working with,”

“It was a good time to start planning what would be our biggest funding round to date. The delays to our launch, coupled with our incredible growth rate, meant we needed another $20 million to get us through the next two months. For the first time, we weren’t worried about whether we’d get the money. Ever since the media had pounced on our story a month earlier, Chris Bataillard of J.P. Morgan had been inundated with calls from potential investors. “This is going to be very straightforward,’ he told us. One of the first things we had to decide was a new valuation for the company. As always, this was a bit of a guessing game. Since we were still a.company without sales or profits, it came down to one question — what were people prepared to pay? Because of the buzz around us and the internet in general, we decided to double our pre- money valuation to $150 million and see what happened.”

“For Goldman, buying stakes in companies like boo wasn’t just a great money-making opportunity; it was a way of infiltrating Europe’s internet scene before things really took off. The extent of”

“_ Some people later questioned the logic of having a call centre located in London, where rents were so high. But this was where the best people were — and it would have badly dented the credibility of an online urban fashion and streetwear retailer to have its telephones answered -by call centre assistants in some remote location in - Scotland. -”

“was part of the ‘boo crew’. In London, we had around _thirty call centre staff already on board. With no customers yet, they spent all of their time in training sessions. We had produced a whole book that outlined the philosophy of the company and all its inner workings and they had to learn this almost off by heart. They had to”

“Kajsa was enthusiastic. She had wanted us to think about cosmetics before Elkington’s consultants had even begun their research. ‘They’re a lot like clothes,’ she pointed out. “The good stuff is really hard to find in some countries.’ I thought it was a great idea, too. The synergy with what we were already doing was perfect. ‘Can you get your people to focus their research on this?’ I asked Elkington. ‘Sure,’ he said. “Whatever you want.’ We all knew it could still be months before there were any results from Project Champagne — as we called BCG’s new research mission — but couldn’t help daydreaming a little as we walked back to the office. ‘If it’s a separate business, we’ll have to give it a different name, right?’ Kajsa said. ‘I guess so,’ I said. “Any ideas?’ She smirked. ‘How about bootiful?’”

“The day before our departure, 4 August, Luke Alvarez and Edward Griffith had met with Viant to hear its verdict on our technology platform. They came up to my desk afterwards. “We need to talk about this somewhere quiet,’ said Edward, his anxious expression hinting at what was to come. So the three.of us went out to the boo coffee shop just a couple of minutes’ walk from the office. ‘OK,’ I said, once we had sat down. “What did they say?’ While Edward concentrated with unusual intensity on stirring the sugar into his coffee, Luke looked at me with a gallows smile. ‘Well, basically, they think we’re fucked,’ he said. ‘Those were the exact words: “You’re fucked.” “What’s that supposed to mean?’ I asked, staring at Luke across the table. ‘They don’t think we can launch.’ ‘At all’ I was becoming sceptical. Luke was prone to exaggeration when he wanted to make a point. “What they said,’ Edward interjected, ‘is that we probably can’t launch for quite a while.’ ‘Nine months,’ Luke added. ‘They risus the whole way we’ve gone about building the platform is flawed. They think we should go”

“‘OK,’ said Luke. “But if we’re to turn this round, you need to let me have more authority.’ The plan that Luke went on to lay in front of me was ambitious, even by his standards. He wanted to project-manage the entire launch process. This meant mapping every single thing that needed to be done. Not just in technology, either — in all parts of the business, from marketing to logistics. ‘We need to see how all the pieces fit together,’ he said. ‘It’s the only way we can seta realistic launch date.’”

“I was starting to wonder how we had ever believed we were only weeks away from launch. It was a mass delusion. We either hadn’t seen, or had simply closed our eyes to, all the warning signs. So who was to blame? Was it the technology companies for making promises they couldn’t deliver? Partly. Of course it would be easy to blame Steve Bennett, but when it finally came down to it, I realized with a sinking feeling, I had to take responsibility. As the CEO, my neck was on the line, anyway. I was the one that everyone would blame if the company didn’t launch. But I knew that they'd be right too. Instead of focusing singlemindedly on just getting the website up and running, I had tried to implement an immensely complex and ambitious vision in its entirety. Our online magazine, the rollout of overseas offices, the development of new product lines to sell on our site — these were all things that could have waited until the site was in operation. But I had wanted to build utopia instantly. It had taken eleven Apollo missions to land on the moon; I had wanted to do it all in one.”

“The KPMG accountant was still filling in as our chief financial officer while we continued to look for a permanent replacement. She may not have been the typical boo person, but she had turned out to be exactly what we needed. Since joining in mid-June, she had restructured our finance department from top to bottom. She’d got rid of all the financial contractors and doubled the number of full- time staff to twenty-five. We now had a new financial controller, Stefan Pregelj — who was so dedicated that I would find him working in the office every Saturday and Sunday — as ‘well as a treasurer and teams for the payroll and accounts payable. After lots of heavy training sessions, everyone had finally started using the IFS accounting system. The result was that our financial accounts were more accurate and more up to date than they’d ever been.”

“back. This would give us some more cash to play with. But it was only a stopgap. We were now burning an average of $10 million a month.”

“Patrik was silent. I knew what he was thinking. Before Viant had brought us back down to earth, he and I had talked about possibly doubling our valuation in the next round. It wasn’t easy to let that go. Bataillard sensed our hesitation. “You haven’t achieved anything since the last round,’ he said. “Actually, the story is a lot worse. You should be grateful the valuation isn’t falling.’”

“Last to enter was the ever-active Jean-Bernard Tellio from Arnault. I was a little surprised Tellio had even managed to turn up. For months now, he had been buying up stakes in internet companies all over Europe and the US. It can’t have been easy to juggle all these commitments. After agreeing to invest $1.6 million in our last funding round, funds had accidentally been sent to us twice. Tellio had seemed unruffled when we told him. ‘Oh, really,’ he said, laughing. “You'd better send one of them back.’”