Just Managing: The Benefits of Stubbornness
All company builders must confront a handful of fundamental
questions: What business are you in? What is your mission? Will
you make or buy your product? Today, perhaps the most pressing questions
are: What is your business model? How the heck are you going to
make money - right now?
Ben Narasin thinks he has some of those questions figured out.
Narasin is CEO of Fashionmall.com (FASH), a fashion portal that
gobbled up headlines earlier this summer when it purchased the remains
of the now-defunct Boo.com - which burned through more than $200
million in venture funding in its attempt to build a pan-European
branded site - for less than $1 million.
I'll spare you another postmortem on Boo, whose excesses and mistakes
have been detailed at length. Instead, I'll look at Fashionmall,
whose long-term business model enabled it to acquire Boo's assets
and play the tortoise to the hare. Indeed, Fashionmall appears to
have far more staying power than the bright-burning company du jour.
I got to know Narasin seven years ago when I wrote an article
for Inc. Magazine titled "Face-Off."
In that piece, Narasin compared the business model of his clothing
company, Boston Prepatory, which outsourced everything from design
to manufacturing in order to focus on building a brand, with Old
Glory, a company with more of a soup-to-nuts model owned by his
old friend and rival Laurence Levy.
The core elements of those different business models are eerily
relevant to the Internet Economy. At the time, Narasin argued the
benefits of building a brand by keeping costs low, margins high,
and avoiding heavy costs. Levy, on the other hand, preached the
gospel of growth. He and his partner compensated for their low margins
through hustle and rapid expansion. Their cost structure, which
encompassed everything from design to manufacturing, forced them
to constantly scramble for capital as they grew.
Eventually Old Glory, which like Boston Prep was an Inc.
500 company, faded away. Narasin's company continued to be profitable
(and does today) and ultimately provided him with the seed capital
to launch Fashionmall six years ago.
Today, Fashionmall is an oxymoron: a modest, publicly held Internet
player. Describing his first six years running an Internet company,
Narasin quips, "We got a disproportionate amount of no attention."
His business model, Narasin says, is consistent with his vision
of high margins and healthy profitability. "We are not an e-commerce
player. We are selling pickaxes to gold miners. We sell traffic."
Fashionmall makes money by referring Web surfers to the sites of
the branded clothing companies it hosts.
Fashionmall, like many publicly held Internet companies, is fashionably
undervalued. After going public last spring at about $13 a share,
the company is trading in the $2 range. Narasin is at a loss to
explain this, considering that the $32 million in cash the company
has in the bank is more than twice its market cap of roughly $15
million. The low stock price prompted the company to announce a
buyback of as many as 1 million of its 7 million shares earlier
But Narasin is nonplussed by the low price, and he refuses to
take any extraordinary measures to bolster Fashionmall's market
cap. He says he's been through three market corrections already
and will not budge from his vision. He says that soon after the
company went public, analysts and investors scorned him for not
spending money fast enough. They questioned his business savvy because
he wasn't buying other companies or throwing big bucks at offline
advertising. Today, having just bought one of the brightest-cum
deadest-clothing stars, he feels his company's business model has
My point is not to argue that Boo's spectacular flameout is proof
that no company can make it as an e-retailer. That would make as
much sense as arguing that because The Blair Witch Project
was helped by its Internet site, all movies can become hits through
a hip online presence. Instead, I'm simply illustrating that no
single business model is generically correct for every business.
To be so general is as fallacious as saying that venture capital
is inherently evil, that short-term losses are crippling to all
startups and that everybody should throw all their money at wireless.
People should choose a business model that works for their particular
business. Narasin has endured by picking a sensible business model
and sticking with it. He chose one that translated to the Internet,
and he refused to switch gears according to prevailing market conditions.
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written for Inc., Fortune Small Business, Harvard Management Update, and other
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