One of the great stories of Silicon Valley
is how Josh Hannah and Jack Herrick bought eHow’s assets at a
distressed price after the company went out of business, turned it
around with a very low cost model and sold it to Demand Media two years
later for a big profit. As Wikipedia notes:
eHow.com was founded in March 1999. The company raised close to $30 million… ,
hired 200 professional writers, and … employed a 25-person engineering
team. By 2001, eHow had created thousands of articles. The professional
writing, combined with a TV and radio advertising campaign, briefly
made eHow one of the Internet’s top 10 news and information sites. Despite the popularity, eHow was not profitable and was forced to declare bankrupcy when funding ran out.In 2001, IdeaExchange.com bought eHow out of bankruptcy with the
hope of charging eHow’s readers to access how-to instructions. eHow
remained unprofitable and in early 2004, IdeaExchange sold eHow to Jack
Herrick and Josh Hannah.
Says Josh:
“When I told people what I was doing, they thought I was
crazy. Conventional wisdom said content was dead, and there was no way
to make money on it. We had a different view. In my experience, the
foundation of a great business depends on having a different idea from
conventional wisdom and pursuing it in spite of a skeptical market.”
says Josh.Josh and his partner restructured eHow by outsourcing content
creation to the community and employing then-new advertising and search
engine optimization techniques. In six weeks, they had earned enough
from advertising to pay off the cost of the purchase. They increased
revenue and traffic 30-fold before selling the company to Demand Media
in 2006 for a 400X return.
The NY Times has an interesting article in this Sunday’s magazine which notes that much the same may be happening with Linen’s and Things:
In this instance, control of the Linens ’n Things brand,
meaning its trademarks and the like, and its Web site, were acquired
for a reported $1 million by a joint venture between Gordon Brothers
Brands and Hilco Consumer Capital, divisions of firms with long
histories in the bankruptcy business. This entity helped run the Linens
’n Things liquidation, spending four or five months immersed in its
unwinding operations in the process. “We learned a lot about the brand
and the consumer,” Carlyle Coutinho, vice president of Hilco Consumer
Capital, says. “We knew we’d have a very strong e-mail list and a very
strong customer base that was very loyal.”Time will tell how loyal
shoppers turn out to be to what the Gordon Brothers-Hilco crew
concocted: a Web-only version of Linens ’n Things. But a database of
five million e-mail addresses isn’t a bad thing for a “new” business to
have at its disposal, and certainly not something an online retailer
starting from scratch would be likely to have. Nor would a start-up
have a nationally recognized name the day it opened…The proposition of this distinctly Great Recession model is snapping
up a valuable asset on the cheap and using the low-labor tools of Web
commerce — outsourcing, electronic ordering, etc. — to simulate a
version of the original business.The new version of lnt.com
that celebrated its “grand reopening” a few months ago may not strike
the typical shopper as anything radical. The interesting stuff is in
what’s behind the site, or maybe even what isn’t. For instance, the
actual operation of lnt.com has been jobbed out to a third party: a San
Diego firm called TorreyCommerce that bills itself as “a leading
provider of outsourced e-commerce to the home-furnishings industry.”…Linens ’n Things itself now has few direct employees, or even a
full-time chief executive. And while the comeback announcement included
a mention of plans to “reinvigorate” the brand, the marketing efforts
so far revolve around Internet search ads and promotions sent to the
e-mail list.
As companies both big and small go out of business during this great
recession, I wonder which of them may yet be reborn by smart, thrifty,
scrappy entrepreneurs who know how to keep costs low and, more
importantly, variable. Anyone leveraging someone else’s invested
capital out of a bankruptcy like this – please email me!
(For more from Jeremy, visit his blog)
(Image source: 2.bp.blogspot)
