The Big Exit
The Big Exit

Episode 4 · 2 years ago

The Story of eBags from Inception to a $105MM Exit

ABOUT THIS EPISODE

Jon Nordmark, the co-founder of eBags, tells his story of risking it all to start an Ecommerce company, surviving the dot com crash and avoiding bankruptcy during 9/11. His company's resilience and magical culture helped them launch new products when they needed it most.

No one, I remember the day I quit my work at Samsonite and I went to dinner with two friends and they asked me how my day was and I said, "Well, it was a big day, I resigned". And they said "Oh really? What are you going to do?" And I said I'm going to build this website and I'm going to build an e-commerce company? I nearly ran out of money personally 'cause. I I spent Um. You know my life savings on this in the very worst case. All that can happen. Is I lose this house. I've still got my dogs family, like my ma, my dad and I'm sure they'll let me come stay in their basement. If things go under and for some reason right, then I just felt good. Like calm a piece came over me, I I remember one conversation I had where we were going. Twenty three percent a pretty tough period of time, and I just got lambbaster because it was just not fast enough. Twenty three percent is just no good, and that was when we were close to a hundred million and revenue. I mean it's n, it's exoter bust. You know welcome to the big exit potcast today I have John Nordmark who in nineteen and ninety eight founded e bags com and in twenty seventeen sold to Samtonit for a hundred and five million John. Thank you for coming on a show. Thank you damn well, it sounds like you did a whole three sixty, I think, prior to launching e bags. You actually worked that Samsonite, right. I did. I worked there ten years prior to starting mebacks, and I worked as a in in two areas, one I started out and spent two years in sales and which was great for me. I never thought I could sell anything but T it. It was a super great experience with a a one of the best bosses in the world and then and then went and spent eight years in the marketing department, which is at Samsonight at the time, was its primarily product development and m. It also includes a little bit. Well, you know it includes the traditional advertising type work. We had labor as our AD agency, but but the focus is on product develope management of the product life cycl, and I had about at the end about a thousand products. I was managing at an period in ton and did you see a you know? Did you did you see where the Internet was going? U Did you see any problems that maybe samsonnight wasn't solving at the time? Is that what was the catalyst to start? Ebags yeah, you know, so the other really big thing at Samsnight is that they, you know, they're a wholesailor at the time they were a wholesaler, they did have. I don't know a hundred and fifty outlet stores, I'm going all the way, BA n Thousan, nine hundred and...

...ine se ven n nine huteed an inty eight, but you know the the most of what they sold was through the wholesale distribution channels and and as a result, I think they had. It was just. It was like twenty one, different distribution channels, um I at the end, I was I had a responsibility for each one of those channels. ND and products that were sold through those channels with the Sam Snipe brand and a channel would be anything from selling to the warehouse clubs, department stores, leggage, specially stores to to more odd things like the the military channels or premium. You know like award type things people would people like companies may decide to Ta, take a piece of luggages and award. You know a gift for working at a place for ten years to anyway, that all these dif different distribution channels and Um and back in nine hundred an ninety seven. I I actually felt like Sampsonnight, should launch online and- and you know, Kinda- do what Amazon was doing at the time but sell their own products and use the web is kind of a liquidation. U Opportunity So, instead of selling products to the H, another distribution channel, which is which is the Um, you know where you sell all your discontinued and overstocked type merchandise th to stores like tjmx Shotan steans Tuesday morning. Why not? Just liquidate online and the reason that would be good in the case of for for a company like samps night was that M. when, when you sell to someone like Tjmax and your Samside, you basically sell for less than what it costs you to build the product and then t jmax turns around. PUTS IT in the corner of the store. Doesn't make a look very good, so I kindof harms the brand, but and then they sell it at a you know they double the the price that they bought. It out make a keystone markup and you know it's profitable for them. So the consumer ends up buying the product t at what's typically about a wholesale pricepoint. If you go to TJ Max, but if Samsoniht just sold liquidated their products online for that same wholesale Marke, the wholesale price they'd still make like a you, know: Callit a Kisto markut themselves and and would make full margin I the they could control the way it looked, and it would be good for the brand and good for the consumer and good. For you know it's it's KINDOF good all around, except for for TJ Max, but but SAMSI had no real interest in that right, especially at the time yeah. Well, and if you think back N thousaninehutded and ninety eight, it was not cheap or easy to develope websites, specifically as related to ECOMERCE. What did you do yeah so so um? So anyway, I tried to get sanset to do that a couple of times and...

...the first time you know I spoke with one of ther presidents and and he didn't he was only he only lasted like another month to two months after I spoke to him, so I I kindo realized he probably had other things in his mind. He didn't really care about the long term future of the company, like you, know, sapnight 'cause. He probably knew at that point. He may not be there very long anyway, a new C O came, and I I took him through like a big plant. I spent forty five minutes talking with him over dinner him and me by ourselves talking about the Internet and the web and where I thought it was going after forty five minutes. He said to me John M, I can I can. I have email and I could guarantee one thing: nobody is ever going to buy a bag through an email, and that was kind of the end of my last attempt to to get SAMs onight to go online and I decided to just go and do it myself and, and so anyway, to your point, Damn Um what it was very hard to build a website back then there were everything was built on basically static pages, a page at a time and what I wanted to figure out how to build. Was We called it like a a dated, dipping page morphine website, just with the dynamic pages that every everybody has today and but at the time no one really knew how to do it. I I went to a couple ad agencies or people that specialized in digital at the time, and they both quoted me. There were two companies thet both quoted me about two million dollars to build the site that I wanted to build, and- and I was not even it was way out of my Wa right, like I couldn't pay for that M, and and finally, I found this tha, some guys were building sites out of something called cold fusion. It was a development software back back in that time period and- and I and I found these kind of cowboy developers Um who who could build it, and they gave me a quote of about five hundred thousand dollars and that started to feel in the Ballpark of something that you know me and a couple of friends could figure out how to pay for and but then I went back to those agencies and told them. You know we're gonna we're going to go with these cowboys and build it on confusion, and both of that both of the larger firm said. Oh, my gosh it'll never scale, you'll, never make this happen, you're going to lose your life savings. You know you're headed down Tho death march, and so what I did I went up. I found a developer's conference. Luckily, there was one I live in Colorado, like Udan and M. I found that the national developer conference was up in forth collins like two weeks from when all this was occurring, and I I ended up driving up there and I spent the whole day sitting in the hall asking people...

...that went by me if they were developers dud, they develop in called fusion and what have they built, and I just interviewed TAT enity. You know but chatted with dozens of people trying to get a feel for if they felt like cold fusion would scale to the the big time and allpretty much. All of them were very confident in the product, and you know the development, the software I I decided to do it then just go with cold fusion and I had a couple of partners at this time and in Samsni I mean excuse me in Ebacs and they they believed my stories after going up there and we decided to build in colfusion and it worked. It took like eight months, but we got it live and- and that was the beginning of ebags. No King, I actually never knew that story tha. I back then no Itin yeah, that was nineteen. Ninety eight and Um. The company that helped us get off the ground was a little company named spire media. It was actually just a couple of guys. I had to go sit in one of their houses. I mean it was so funny back. Then it was just like yeah. It was a person here, a person there, no one. I remember the day I quit my work at Sam siht and I I went to dinner with two friends and they asked me how my day it was- and I said well, it was a big day. I I resigned and they said. Oh really. What are you going to do and I said I'm going to build this website and I'm going to build any commerce company called ebags and they were like? Oh my gosh, I you know you're out of your mind. Why would you ever do that or I can't even believe anyone would do that? You know it didn't put a feeling of a lot of confidence into me, but that was kind of a story over the next year of people. Just everybody Toldi me to put my resme out by the job stuff like that, rewe scared. No, you know I was excited. I think I've been this way Um my whole life M. I mean I nearly ran out of money personally 'cause, I I spent Um. You know my life savings on this I spent Um. I I well I so I got sixty thousand dollars on my credit gards, another sixty thousand dollars and a second morgage in my house and spent my four on one k. all my life savings and got within about two months: ofv not been able to pay for anything anymore. Like my house payment everything I couldn't do it in two months. This is over a period of boute year, just running out of money, and I remember laying in bed one night um kind of fearful this is like in November nineteen. Ninety eight- and I was scared at this point that everything was going to collapse, but I remember laying in bed- and I was single so know- I just have me- and I thought you know in the very worst case. All that...

...can happen. Is I lose this house? I've still got my dogs, I have dogs, two huskies and I've got my family like my mom and dad and I'm sure they'll. Let me come stay in their basement. If things go under that's worse, Asnea and for some reason right then I just felt good. Like calm a piece came over me and uh, but then, as as time went forward, it all worked out th. The last episode that we did was with lower Torez, who also sold her company forover a hundred million, and we talked about it. I was actually out of conference with her, and I was I was one of the speakers and one of the things that I said was you have to be willing to give up everything in order to gain anything UF significance. Yeah, you know you stop operating with. I I think I was getting more and more fearful as we approached as it me completely running out of all my money and but I I even remember at that time too saying you know, I'm healthy, I'm ingreat good shape, and you know worst case. It's not that bad, a D and I've got a chance to try this and you know so. It's it's true, just kind of accepting th and back then too Dan I mean you remember y. We met you and I met back in this period. Sort of an and the thing that was hard. Then the things that have changed are that the Internet didn't really exist. So there was no linkd in there was no facebook. There was no. There was no way to get information like he can get today. Today, you can learn so much about how to finance your company. How to what kind of lawyers you should have. You can find lawyers you can you know you can reach out to investors through the Internet. You can none of that existed back then. So, basically, when you were starting a business, you were going in blind and also you o. There were no workspaces. You either worked at home or you had to put your house on the line to rent a building, which is what we did for ebags down the road, but it was just a completely different environment and I think the support system. I it's just matured, a lot. It's gotten a lot better. You know today not that it's easy ever but back, then it was really really opaque. Um and hard yeah yeah you're right an your point's still hard today, but that support group I mean you have the founders institute. You have yv, so pax are so many yeah angel and vester networks nd, you know, and the other thing is back then like so when we developed our website, we we actually transitioned it to Aguy named Mike Crosini, who I work with again today in my curen company and Mike I mean he was a Rockstar: U technologist, you know he could write code, but he could al. He was a great...

...leader, he still a Grat leader and and M, but we got lucky to get him and then he was able to take the code that we got started with that other group, the cowboy developers and you know and turn it into a real company. But to do that we had to hire a lot of developers and we had to buy all the servers. You know, and there was no cloud we couldn't host it on awest or Google cloud you had to buy the service. Then you had to hire guys that could manage the servers and it was just it was very, very complex. You know you're working outside of. For me it was working outside of a comfort zone, but today it's just that. That's another great piece of intrastructure that's available to us. It's! You know the Amazon cloud, the the Google cloud n other places, even like Rax bace. You know it's just easy it it's better! It's a better environment for entreneurs. How much did you raise yeah? We raised Um Gosh our whole money, raising situation as it's a whole nother sog of it. We ended up raising thirty million dollars in two official rounds of funding, but you could really break that down, probably into four uh four periods. The first period was when we we tried to raise money and we went t well. I learned at that point w an accredited investor is, I didn't know that you couldn't just go down the street and ask your neighbors to H for money, Bat, there were actually laws around who you could get to invest in a start up and and unfortunately, the way I grew up. I didn't really know anyone who was accredited, so that was a barrier, but we ended up getting a commitment from Um, basically e the owner, the former owner of SAMSA. He decided to fund us and committed ten million dollars of his own money, but but then he drug out the h. He actually wasn't him. It was a guy who runs all his investments, but they drug out the time period that it took them to fund us to the point where we actually ran out of all our cash. You know this is when I was broke. This is when I had that that period where I laid in bed wondering what was going to happen to me and Um and two weeks after we were completely ran out of ability to pay anybody and actually talked to all the people. We were paying at the time just to get a little bit o leeway on payment. He pulled the plug on the whole investment, and so we had nowhere to go for cash and we owed people at that point about two hundred thousand dollars and yeah it. It was like a nightmare scenario and us there were five of US cofounders at that point myself and for other AH supervaluable friends. Today, business partners, I mean just Franksdad, Andy Young Iliot, Cobin, Petercob, just great great groupe guys. We decided at...

...that point that we would go and look ask anyone. We knew that was accredited if they would fund us and we basically became a call, a call center. We stopped all other operations and Um and then Lo and behold petercob one of one of my partners. He he secured four hundred thousand dollars in funding from one of his good, but one of his ex school mates and a a good friend of his, and that became this. I basically water shed av or waterfall event where bout led t another cascading a number of investors, and we ended up raising like six million dollars in angel funds over the next month month and a half, maybe Um, and it was crazy. So we went from incredibly impoverised to uh to money. Just actually just two people sent us checkes. We didn't even know who they were at that point, and and so we did all that under a convertible debt and and Um. The reason we did that was. We wanted to still raise some money from the professional venture community and that would set the pricing and we didn't give a discount or anything like that on the debt. But but it was six million dollars. Well then, we did end up um two of the investors that I got to come in. I had met at a conference so back in November nineteen. Ninety eight I was scheduled to go to one of th. It was a second, the second retail o n e commerce. Evanti was called Shop Dodorg in the history of Shopoo Oregon. Only a hundred people go, I mean no one was there at that point. It ended up growing up to one of these events that ten thousand people- or you know thousands of people that chowup at, but at the time it was a hundred people, the one I went to, but anyway, in November after that investor pulled the plug, I actually decided. I couldn't go to that event, because I couldn't afford a couple thousand dollar trip. 'cause I was I would los. I was on the verge of losing my house, and my partners told me I had to go that it was my job as e Co. I had to go and I did and at that event I I met two investors H, one was from Dane ratial wessels, UM, Canadian. It became Royalbank, Canada and another one was from Mitsibesia and Japan and those are really great stories in themselves, but both of those companies decided to invest in in ebacks and they both came in D as convertible debt holders, but it was Dane Rauchawestls that that led to introductions to Silicon Valley, investors and and actually led to you, know, bencmark capital, basically coming and leading the round at...

...an eight million dollar round they took over the majority of it. We actually had to give back part of the angel money. It became a real fiasco, but we closed we closed an eight million dollar round, with benchmark as a weed an and about two hundred. I think it was about close to two hundred Angel imbastors, itwas kind of crazy Goe al on the CAP table they're all on the Cap Table Yeah theywere all there and it was, it- was actually in some respects really good. I think we had some great angels, but that was another learning experience anyway. After that, though, we did raise a series B of. I think it was twenty two million from TCD and a company named Amarendo tcds. You know a phenomenal fund out of Silicon Valley. They tend to be more of a meznine type. You know later stage find it's crossover because they also invest in the public markets, but then Amerindo was another fund and that during the period that they had money in our company, Theyre founder, actually ended up in prison because of how they dealt with the money during the the DOTBOM period right and speaking of Idobo. So obviously you there was 's a lot of ilrational exuberance during that time, shead at least you closed on around. So you had that fast for to nine eleven. What happened? Nine Eleven? That was because we sold luggage. That was our focus Um. The crazy thing is on eight eleven. So in August two thousand an one we turned a profit. It was the first profit we were one of we actually ended up in an article in Time magazine. I think it was in Business Week where they identified four companies. Four dotcoms that had turned to profit H for a quarter and we were named in that one um as one of the four companies h Amazon was another one Blue Nile, I believe, might have been another ll. I can't remember ther werefor Um, but anyway, nine eleven hit and it was like pulling the rug out from under us because just kindo like today travel stopped. It didn't stop for the period of time that hat stopped im now, but in this pandemic, but but it stopped m. Our sales basically went to zero for the next four days. Then they started to rise up. You know into the twenty thirty forty percent of prior month sales and we realized all of a sudden like within a week that we were in serious trouble that this could cause us to go bankrupt again, like you know, that's what we feared up to that point of August two thousand and Ndleven. I mean two P H, two thousand and one UM. So anyway, we we ended up saying sitting down and saying you know what let's move, our focus from travel bags to daily Ush bags like...

...like handbags, business cases, H, jimbags, anything, that's not travel and we really concentrate on getting that business going. That's when you met us, I think damn right ner period, probably and that's rherh- would that's right M it. I was back around two thousand, and one did was that another point of o Shit moment: Yeah. Oh yeah, like you know, we had a few of those moments. When the DOTBOMB started, we actually tried to raise money. L T, let's say that was in the you know, early summer of two thousand somewhere in there we tried to raise money and there was no money available like no one wanted to fund anything on the Internet, and so we decided at that point we're going to have to adjust our payroll and everything, and we went through a big kind of a big layoff, twenty five percent of her workforce. That was the biggest eye opener for me, probably as an onccomer, how much you're affecting other people's lives. You know with the decisions you're making 'cause when you have to loock someone in the eye and tell them they can't work with you anymore, and you know: They've got kids and family at home. It's it's croshing at least t me it s hard to do, and but anyway, that was one moment and then and then, when nine eleven hit after he became profitable the month after we became profitable. It was another moment of you know putting the fear into us, but we were. We were an amazingly resilient group of people. I think Um. I I just H to this day. I admire you know all those employees, even the ones that the ones that were even laid off prior to the period. You know that that we had that first bad moment um, but coming through the nine eleven period, two tha the team was so resilient and so inventive and I think our culture benchmark capital actually said m. They felt like we had a Pixi dust in our culture. I'll, never forget that, and I I believe that too, and it was because the team was so engaged. They were so m allowed to invent back. Then he had to kind of reinvent the marketing. It seemed like every three every every six months, something big changed and and our team did it and a lot of them were just these young kids yeah like like you were yeah and when you know we, we had a lot of those types of challenges not only within that space, but obviously the real estite space and even being at Google. You now to Oh three, oh four, even before ip O, we were growing nicely, but there was a lot of uncertainty on the horizon. Um Did you. You know. I got to tell you one little funny story about Google. We...

...were in a board meeting and UM TCV. If you talke to the associate from TCD, he would tell you the story 'cause. It was one of his favorite stories too Um um anyway benchwark capital as there and their partner said in the meeting Ey. I need to ask you guys: Have you heard of this company named Google and Chris Shorn, who who was kind of in the middle of our marketing department? Back then, he's today he's the president of ebags, basically he's 's. He was he's a phenomenal marketer like APLs plus, he says 'cause. He was in the board meeting and we used to be very transparent, like we bring everybody in like not everybody, but at certain times everyone oal come to the board Bein to present their parts and anyway benchmare's Ouse Asour marketing to IM. Have you heard a google and we'd already been working with you guys? INOIT was like six months by them like and he had met you at some. We would send people these obscure conferences and stuff and he met Google when it was presented on a card table basically at a conference and started testing Google right away like that's what we were knowing for and we tested and we experimented and we tested- and that was you know e. We did the first AB split test platform that I was ever aware of. I didn't even know what it was, which was a whole nother story too. I kind of invanted by one of our software developers, but we tested everything to the amp degree and and Google was one of those things we tested very very early. Well, I remember working with you guys and Chris in general, and it was just if you remember was pre Edwards and Thoy're haying past per thousand for search terms, and your effective CPC was. Do you remember what it was? I don't well Y, no tell me and th n I'll answer. I mean I think it. It was S, it was sup ten cents, affective, CB C was subtast, that's for sure. Well, it was so unbelievable like when, when our cost per acquisition, you know customer acquired back in the very early days. I want to say in coming in on Onine tdred and ninety nine yeah, I n that Christmas period we were paying somethn like ten dollars. Let's see we would get no, we would get a dollar for of revenue for every ten dollars. We would spend to acquire a customers, so you do that. Math, like your company, is going to die Ri, but anyway, within about it took about two years, but our team- and this is Chris- this is a guy- a woman named Gen McAdams, Katherine Wardale, another one. You know Kelly Mirtha, who went on to lead Stitchfix, Um Marketing and worked as IG level marketing person at Netlok like a...

Rually Rock Star Group of people. They they got our customer acquisition cost down to. I, like you, just said, kindoten for every ten cents we spent, we would get a dollar and revenue, so it went from like ten dollars to ten cents, and I mean literally, it was, and it was phenomenal watching that happen, and it happened through this. Just relentless testing and Google was part of that. You know yeah, that's right! I remember yeah, you guys did lots of baby testing M I'll. Never forget the moment. Why the go to you and say we are going to sunset, our CPM based and go an hundred percent to adwards, which will be oution based Bon competition. How was that received? I don't remember not not very well great stories there. One final question: Before we go: Did you always? You know, of course, raising capital and working with venture capital. They eventually won an exit either v a Ip o merger acquisition, whatever it might be, did you always have a timeline of when that would occur? No, and so this is one of the big downfalls that I faced as a as a unknowing. You know CEO unknowing, Co, founder of this company. We didn't know like. I didn't, really understand the time tables that the venture captalists have to work, withim and and Um, and I never knew what their portfolios were doing at the time it was just superagain super opakue. Part of this is my fault, though I think I didn't. I just didn't understand like what I wanted to do was just sell bags, and I didn't really think about much else. I just wanted the company to be growing as as fast as it could profitably, and you know and sell bags, and I figured everything- would work out overtime. We had a couple opportunities to sell the company and from very, very big superwell known acquires, and none of those options were. I guess sexy enough for R our big investors, the venture investors, even though they wouldhave made all the angels and myself- and you know all or employees very well off, like I mean you know, it would have been, they would be, would have created great exits. I think for us, but the PCS. The thing is, they need the big exit and by big I mean very, very, very, very big. You know, they're looking for the billion dollar deals, not hundred million dollar deals, I mean literally hundred millions, nothing, it doesn't matter. That's my ideal. I based on my experience with with this, you know,...

...scenario and Um, and so when we got anything that was you know it my view good it just wasn't good enough and and so led to a whole nother dynamic within ebacks. Like th, I felt like toward the my the end of my ten years as CEO that it was all about the exit and not about the business at all anymore N, and you know it just creates an environment that isn't all that exciting to work in for myself, my current company iterate uh. We don't really have investors, and that's I mean we do. We've got a number of angels, it's like ten plus we have one a company that is in there, but our board has no. Outsiders are H. we're growing like crazy, like right now we're we've got fifty four people and we're growing. Seventy six last year was seventy six percent. Here on your over the next few months. We could. We could well double to quadrouple the size of our company. Again, it's going really really well, but the best thing is: We have no time horizon for an exit. We don't really care like it's we're going to run a good business and whatever happens happens, but you know and we've got it set up too, so that our employees will do really well M, but in the world of Ebags, where you've got bi, you know major investors involved and a lot of angels. There is no real, I mean it's, it's exter bust. You know. Basically, I I remember one conversation I had where we were going twenty three percent in a pretty tough period of time, and I just got lamdbasted because it was just not fast enough, yeah and we're profitable too. I mean it's not we weren't running out of money, we're making money and twenty three percent was just no good, and that was when we were close to a hundred million an revenue so yeah. So you know it's it's. If you take on venture money, it is. I mean it's, not anyone, it's just what it is. You know they o returns to their investors and and part of getting that return is getting an exit out of each company. They invest in and that's just the way. It is and that's why I always imperadontinors to kind of do what you've done over your period Dan, and that is control. You know, if you can do it without money, go for it likeit's the best and to me they're, the best nt reneurs. You know just I'm so glad with with Itera Tis, more control, just building a great company. What happens happens if there's a good opportunity for you and the founders and all the employees even better, but if not they're, just a you know, building a great company for them for the long hole. John. You are amazing. Thank you so much for sharing your story and actually hope to have you on again. We can talk more about the the various stories that we have with Wedin, good, oal and everywhere else. I would love to do that. I I could talk forever about these things. DASON Take Care Bobye.

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