Behind ShoeDazzle's Revolving CEO Door: Strauss' "Brilliant" Move that Wasn't

By Sarah Lacy , written on September 25, 2012

From The News Desk

In the wake of the tersely reported news that ShoeDazzle CEO Bill Strauss is out, and founder Brian Lee is suddenly back in, there's a several hundred million dollar question hanging in the air: Are most of their customers like me, or am I the outlier?

And there's the even bigger question: If ShoeDazzle is in trouble, what does it mean for Silicon Beach?

A few months ago Michael Carney did a piece highlighting growing concerns about whether the big tent-pole Los Angeles companies -- the ones that were finally changing skeptics mind about the ecosystem -- were starting to struggle. Betterworks, lead by Silicon Beach poster-boy Paige Craig, had just fallen apart. There'd been plenty of rumors about the health at BeachMint, and ShoeDazzle seemed to be wavering with a dramatic and little explained shift in strategy and some high-profile executive departures.

BeachMint's Diego Berdakin has long denied that there are any issues at his company, and ShoeDazzle, too, had an explanation. Its new CEO Strauss, then lauded by Lee and people close to the company, had simply seen something "brilliant" that no one else had seen.

To wit: There were a large number of women who were opening the weekly emails from ShoeDazzle but not buying any shoes. Why? Because they didn't want to sign up for memberships, whether they could opt out of paying on any given month or not. We were told that the business was growing its paid subscribers just fine, but that ShoeDazzle was closing itself off to thousands of women who'd love to be customers, if only the business wasn't contingent on subscriptions. People close to the company described this insight as nothing short of a revelation and characterized the executive changes being made as Strauss bringing in people more aligned with his vision.

Oh, how a few months can change things.

Now Strauss is out and the serial entrepreneur Lee, who'd already moved on to The Honest Company, has the unenviable task of running two businesses at once. There are exactly three people in the history of tech who haven't bungled that severely. The first is Steve Jobs, who was far more focused on Apple than Pixar. The second is Elon Musk, who runs SpaceX and Tesla, and has said several times it is "way past the fun part." The third is Jack Dorsey...sort of. But notably, he's not CEO of Twitter. He's simply the product visionary and CEO of Square.

These aren't exactly comforting precedents. I wouldn't want to be held to the standard of his Jobsy-ness or the real life Tony Stark in order to succeed. And whether Dorsey can really pull off both of his jobs at Square and Twitter remains to be seen.

Knowing how disruptive a change in CEO can be, and how savvy ShoeDazzle's board is, let's assume something serious went down with Strauss. My hunch is his bold strategy failed. Put another way: Was Strauss' great insight a leading indicator of a big flaw with the subscription commerce model, or was it just plain wrong?

And here's where we get into the question of whether ShoeDazzle's customers are like me, or whether I am some weird outlier. I started using ShoeDazzle when I first covered the company to see what it was like. I've never been one of those super-shoe obsessed women, but I was surprised at how much I liked being a subscriber. I didn't notice the $39 coming out of my account every month, and when I had a rough day or felt like treating myself to something new, I'd suddenly remember I had months of credit at ShoeDazzle. It felt like a free shopping spree. When four boxes of shoes came, and my husband gave me that Fred Flintstone "Willllmaaaaaa!" look, I'd shrug and say "We already paid for them."

I was happy with the way things were. But since my subscription was suddenly cut off? I haven't bought a single pair of shoes. It may sound silly, but to buy shoes from ShoeDazzle now would feel like I'm spending $39 on each pair of shoes, rather than spending a free credit.

When I explained this concern to the ShoeDazzle folks last June, I was told I was the extreme outlier, that other customers simply aren't like me. But it was hard to believe then -- and especially now -- that I was alone. After all, the great thing about subscription businesses is that you don't need very many users to build something significant. ShoeDazzle has lost hundreds of dollars of my money since this shift. If I was right that this would be a more widespread problem, those numbers could add up quickly.

What's more, it seemed completely unnecessary not to at least allow people who were enjoying the subscriptions to keep them. I've never met anyone running a subscription business who would advise you to cut off recurring payments that people aren't complaining about.

Rather, most people say: If someone hasn't come back to your site but they are still paying you leave them the fuck alone and don't do anything to remind them they're paying you money every month. 

There's a precedent in many industries of the virtues of locking someone into a subscription. That's pretty much how gym memberships work. Likewise, I don't think I've opened a New Yorker in two years, but I keep paying for them, thinking I will. And the dial-up business is pretty much one of the only profitable things at AOL, because they never explained people didn't need to pay them to get the Web. At least with ShoeDazzle's subscription the money isn't wasted, you just collect credits. Effectively, I was saying: Please! Keep taking my money every month forever! And Strauss was saying, "No thanks, I'm going to stop auto-charging you and focus on these people who might want to give us money once or twice."

I said then, and I'll say it now: There's just no way that made business sense.

Yesterday, I reached out to ShoeDazzle's investors and Lee for comment on whether the strategy was changing with the change in CEO and have heard nothing back. (And that's a first when it comes to this company, by the way.) I did hear through the grapevine they didn't call me about the story yesterday, because they wanted it to blow over with scant details or analysis. (Sorry, guys. But you should know better.)

I'd be stunned if there weren't some changes in strategy now that Lee is back. And, I'd be stunned if the executive team that Strauss brought in stay around. The two are different leaders, with different styles. If Lee's team wasn't a fit for Strauss, what are the odds Strauss' team is a fit for Lee? Spoiler: Close to zero.

The takeaway -- which is important for any serial entrepreneurs reading this -- is that sometimes you can't be the guy who starts it and walks away, when you have a new idea. Or to put it in Ben Horowitz's words: "Being a founder CEO is the one job you can't quit.... unless you're a punk."

With LegalZoom, Lee was successfully able to pass the football and focus on ShoeDazzle. But clearly, it was too early when it came to leaving ShoeDazzle to focus on Honest.

For one thing, LegalZoom and Honest are very different companies from ShoeDazzle. ShoeDazzle is not only locked in a grudge-match with near identical JustFab, but half of Los Angeles has a stuff-in-a-box company vying for $39 or so a month of your wallet. It needs scrappy execution from the guy who created this category. It's not an ideal situation, given he has another CEO job. But now that he's back, I expect rapid moves to right the ship.

When Jessica Alba first approached him about co-founding Honest, Lee initially told her no, because he was too busy with ShoeDazzle. As much as I love my monthly shipment of eco-diapers, it appears he should have stuck with his first instinct. Whether people like me will ever give him $40 a month again remains to be seen.

[Illustration by Hallie Bateman]