Today’s Seattle Times has an interesting profile on the Seattle-based company Zulily. Zulily was only an idea five years ago when the site was launched and now they are a public company with over $1 billion in sales and over 4,000 employees! I have a fair number of entrepreneurs as clients and I know that many of them dream of success like this. However, the article is a cautionary tale about managing such a fast growing business. Zoology is having trouble delivering products on time because their rapid expansion outpaced their ability to build their infrastructure (a problem that the company is making a priority).
I was also interested in the discussion about expectations. Now that the company is public, they have a large constituency of investors who scrutinize their decisions and expect continued, rapid growth. I’ll write a more detailed article about stock prices in a future post but, for now, stock prices represent investor expectations not usually the current value of a public company. So, stock prices are much more affected by expectations for the future than they are by current or past results. A company does not have to be a public company to suffer from this expectations game. Even if a company has a small, private investor base, once it experiences some success, the investors (in their minds or even in their spreadsheets) start to adjust their estimates for the future. Success can be fickle, though, and if the success trend line is not maintained, an otherwise successful business can be considered a failure or a disappointment by investors. This phenomenon leads to a lower stock price in a public company and, sometimes, to conflict among the owners of a private company.
There are many examples of companies that fail in the process of succeeding. Zulily does not appear to be heading toward failure but they are struggling with the challenges of success which can be a valuable lesson for businesses of all sizes. For more information about our business law services, please check out our Business Law page or our Business Law Blog.