Prepared for:
Projacs Training & Development
Reinventing Creative and Leadership Skills
London – July 2006
Case Study – MVP.com
Mr. Brad Fregger
Failure Due to the Absence of Effective Leadership and Competent Management
This case study presents the development of a major eCommerce website, www.MVP.com. There were significant problems with this development from the very beginning with failure being the only possible outcome. The problems all related to senior management and their incompetence as both leaders and managers. In addition, the senior management had a high level of ignorance regarding project development, the technology being developed, and the technical risk involved.
How is it possible for a new company to go through 150 million plus dollars in one year, while destroying one of the most successful Internet retail sporting goods businesses in the world?
Let’s begin at the beginning.
In 1995, David Schofman, started an Internet eCommerce company, IGoGolf, out of his living room. He was in the business of selling golf equipment. Within three years, David and the team he assembled had taken this business from a few thousand dollars per year to millions. He did this by adhering to a few basic principles:
1) Hire the best people and pay them fairly, including giving them a share of the business.
2) Put experts on the sales/service lines so that customers will have confidence in the company, and also in their purchases.
3) Form alliances with other eCommerce companies and information providers to increase visibility, sales, and profitability.
4) Always keep promises, this means promises to customers, partners, vendors, and employees.
In 1998, David sold the company to CBS SportsLine but, as General Manager, he continued to have full operational responsibility. Under David’s leadership, IGoGolf became the most successful and the most profitable division of CBS SportsLine. In addition, it became the largest seller of golf equipment on the World Wide Web, and one of the most successful on-line retail sporting goods businesses in the world.
Then late in 1999, a meeting was held in New York with the people from SportsLine, Benchmark Capital, a California venture-capital firm, and John Elway. At the meeting it was decided to combine forces and create a major on-line sporting goods business. They would name the company MVP.com. John Elway got Michael Jordan and Wayne Gretzky involved, which provided a high level of credibility for the new company.
David got a call on the Sunday night following the initial meeting and, by that time, a term sheet had already been agreed upon. The terms of the agreement were, loosely, Benchmark Capital would own the majority of the company since they were putting up 150 million. SportsLine would sell all of its eCommerce assets to the new company for somewhere around 100 million dollars, 23 or 30 million of that was in cash, payable immediately, and the rest was in stock. That included the golf business, which was the majority of SportsLine’s eCommerce business, a tennis business, a kind of sports memorabilia business, and their foundation business, which was a general sporting goods business.
The SportsLine eCommerce business was going to be the core; in theory, this would give MVP.com operating businesses from day one. It assured that they would have people, product, and a customer database. Except for the CEO, John Costello, who they had hired away from AutoNation, most of the management team was coming from a company called Big Edge, which was made up of individuals from Anderson Consulting. Big Edge was also providing some ex-IT guys from Anderson who had previously built major systems for some of the biggest dot-comers. With the addition of the Big Edge team, MVP.com had the final pieces in place. They were bringing together the idea, the management, the business, and the technology to form what, in their opinion, would quickly become the most successful on-line sporting goods business in the world; the Amazon.com of sporting goods.
Everyone was elated about the deal. The team, as described, seemed to have everything needed to be successful. It definitely looked like a once-in-a-lifetime opportunity. For example, the amount of money they had, after they paid for Big Edge and SportsLine, was over 100 million dollars in operating cash, a tremendous amount of money that would enable all of the businesses to grow faster than anyone had previously thought possible. In addition, Elway, Jordan, and Gretzky were terrific help from an advertising and PR standpoint.
The deal was announced to the world within a month of the original meeting … it happened really fast with little, if any, due diligence. As a matter of fact, the golf division wasn’t even visited by any of MVP’s management, lawyers, or investors.
Right after the deal was announced, David flew up to Chicago, which is where they were based, to meet the executives and see the technology demo they had showed the investors and SportsLine. It was obviously a prototype, but it was extremely well done and David was duly impressed. The demonstration convinced David that they understood the processes necessary to run an effective eCommerce business.
The day before the press release came out, David gathered his team together and told them what was going on; they had a big party that night; everybody was excited. The next week he flew to Atlanta for the Super Bowl (January 2000), and also the official launch of the company.
Right after the Super Bowl, the entire MVP management team came down to Austin to meet with David and his team. This is when things began to go wrong.
MVP management was determined to make significant changes to the systems that IGoGolf was using. They didn’t like the technology platform in place and insisted their system would be much better. While David had been very impressed with the demo, both he and his team were still concerned that the switch-over be smooth, so their customers wouldn’t be inconvenienced. MVP’s management thought the concern was misplaced, stating they could easily replicate IGoGolf’s system. In addition, they wanted to change the fulfillment center, moving it from Austin to a centralized distribution center that would ship all merchandise sold from the same location. Again, there was concern; IGoGolf’s management didn’t want to lose control of the merchandise. They had worked too hard to develop a high level of customer trust, which meant filling orders correctly and efficiently. MVP’s management assured them everything would work perfectly; no need to worry, they knew what they were doing. All IGoGolf needed to have was the call-center; they would take care of the rest. MVP made it clear they didn’t have a choice.
As the integration process took place, it soon became evident that it wasn’t going to work. Everything was done so fast, with literally no advance planning. For example, one Friday they pulled up with a truck and took IGoGolf’s inventory away, cleared out their warehouse, and said, “Don’t worry, Monday morning it will all be working perfectly; we’re flipping the switches to the new web site; all fulfillment will come out of our new distribution center.”
That’s not what happened. In the new distribution center, it seemed everything was going wrong. They were sending the wrong product, sometimes they weren’t getting orders, or good orders were getting cancelled, or double-shipped. The inventory on the web site was supposed to be real-time inventory but it wasn’t, which meant they were selling stuff they didn’t have. Unfortunately it was a complete disaster for IGoGolf’s employees who were unable to provide customer satisfaction. The worst part was that as call-center agents, they didn’t have any information on order status. As far as credit cards were concerned, some weren’t getting charged, some were getting charged five times. The call-center people didn’t have the ability to go in and credit customers; they had to send emails to the administration office in Chicago.
After two months of frustration, trying to get them to listen to reason, David gave up and resigned. Regarding the resignation, he said, “It seemed to me, since I couldn’t support the changes, especially the way they were taking place, that it would be better for everyone if I left. This would have been around March or April of 2000 … effectively within 90 days of the deal being announced. They went forward with all of my employees, a few new people, and brought in a new guy to replace me.”
Because everything you do on the Internet has lightening-fast repercussions, the crash of MVP took almost no time at all. For example, they took IGoGolf’s business from about 2 million dollars a month when David left, to about $200,000 a month, within about six months; a 90% loss of business. The same was true for all of the other SportsLine businesses. The entire entity of MVP.com was bankrupt by the time the next Super Bowl came around. It should be noted that this happened during a time when eCommerce revenues in general were increasing at a rapid rate.
It turned out that MVP.com had never installed the system that the Big Edge people had demonstrated. After MVP went bankrupt, David’s new company, FrogTrader, bought their entire inventory. When they went to the MVP warehouse to pick up the merchandise, it turned out to be a basic shell warehouse. There was no conveyer belt, no scan gun, no racking, and only five computers. It was just a large warehouse with pallets of merchandise on the cement floor.
Probably one of the most ridiculous results of the inability of the different systems (customer service, merchandising, and financial) to work together was what happened when a discounted purchase was made and then returned. For some reason, the discounted purchase was sold at the reduced price (sometimes as high as 50% off) but when returned, the computer returned the full list price to the customer. It didn’t take long for some customers to figure this out and “make hay while the sun shined.” (In fact, the news was broadcast over the Internet.)
It might be interesting to know that many of IGoGolf’s employees are now with David in his new venture, CallawayGolfPreowned, an extremely successful golf retailer of Certified Pre-owned Callaway golf clubs … the company was recently purchased by Callaway and is now a wholly-owned division of that company..
As far as the management of MVP … they, too, went on to bigger and better things.
Questions
As a team, come to consensus on the following:
1) What went wrong?
2) Whose fault was it?
3) What would you have done?
Groundbreaking Press, Austin, TX – www.groundbreaking.com – © 2006, Brad Fregger