90 days in, new Beachmint COO Greg Steiner talks culture, communication, and the L-word (layoffs)

By Michael Carney , written on October 27, 2012

From The News Desk

Defining culture in the beginning stages of a startup is difficult. But coming in late to help build someone else’s startup is downright brutal. Late-arriving senior executives step into an organization with a pre-baked culture and a team recruited by, and loyal to, the founders. They face all this without the same identity-defining reward structure as that of founding entrepreneurs.

Make no bones about it, Los Angeles subscription ecommerce behemoth Beachmint is still very much a startup, despite the fact that it has raised some $73 million and generates tens of millions of dollars in revenue per year. The celebrity-promoted company has grown fast and received an inordinate amount of hype in its first three years.

And yet over the last six months, Beachmint has seemed a little shaky. Throughout the summer, there has been turnover in key senior executive roles, and several small-scale layoffs within the rank and file. Along the way, the company ballooned from four brands to six, with a few questionable celebrity partnership decisions thrown in for good measure. Many people within the company, and within the LA startup community at large, have raised questions about its strength.

All of this has made the job of newly-hired COO Greg Steiner difficult. Steiner, who previously spent more than a decade as COO of eHarmony, joined the Beachmint team at the end of July and is just wrapping up a self-imposed “90 day observation period” before taking any definitive action.

I spoke with him at length about what he’s seen, hoping to get a clearer idea whether all the rumblings are signs of predictable growing pains, or a more deeply-rooted issues.

Before getting into his detailed assessment of the shoe and apparel subscription business, let’s get one thing clear: Steiner joined Beachmint, because he’s extremely bullish on where it’s going. Any thoughts of him being “adult supervision,” or on a “turnaround mission” (both my phrases) are misguided. The executive has friends at Accel, one of Beachmint’s lead investors, and went into the new role fully-informed. He’s well aware that Beachmint has room to improve, as does any rapidly growing startup, and is confident that he brings strong experience and perspective to make it a reality. He’ll certainly have his hands full.

Beachmint is currently at 125 employees, down from the high 130’s just a month ago, and its all-time high of nearly 150 earlier in the year. Steiner describes the September layoff of a dozen or so people as “entirely about putting the right butts in the right seats,” and not at all about cost cutting. “We have great people, but unfortunately we had too many people in some departments and not enough in others,” he says.

Steiner and the rest of the C-suite have no plans for massive executive turnover. Anyone closely following the “LA Shoe Wars,” as I’ve affectionately dubbed the battle between Beachmint, ShoeDazzle, and JustFab, saw the fallout from failed Shoedazzle CEO Bill Strauss’ wholesale management shakeout and accompanying business model pivot. Beachmint is steering clear of any comparable morale-destroying maneuvers.

One key operational area that Steiner is looking to bolster, however, is merchandizing. The idea is to deliver better product to the consumer, at better cost for the company. “Beachmint has been a great technology company, but not enough of a merchandising-focused company,” the COO tells me.

It’s interesting to hear that this is the area Steiner found most lacking at Beachmint. The company is generally well-regarded for the quality of its product, which is typically considered higher-end than its nearest competitors ShoeDazzle and JustFab – both of which are also LA-based.

Where Beachmint seemed to fall short was in its customer acquisition and retention economics, a.k.a. marketing. The company trails its rivals in terms of both member count and gross revenue, with each of its two neighbors approaching or exceeding 10 million members and bringing in $60 to $100 million in revenue annually. ShoeDazzle appears to have fallen from its one-time highs recently, but JustFab continues to climb.

Word on the street says BeachMint takes in closer to $40 million in revenue annually plus or minus a rumor factor, while its exact subscriber count is harder to pin down, but certainly shy of double-digit millions. As a vertically integrated, direct-to-consumer, fashion ecommerce company, unit economics are everything. Shaving pennies off of the cost of customer acquisition, and squeezing a few extra dollars out of each member over their lifetime is what turns a flashy business into a massively profitable one.

Beachmint knows where these numbers need to end up, and they’re decidedly not there yet. Steiner and his team are hoping that better merchandise is a part of this answer. With all likelihood, the solution, if there is one, will be have as much to do with marketing as anything.

Perhaps the most widely questioned aspect of Beachmint’s business has been its decision to build six brands in parallel across each of its product verticals, rather than building a single unified brand. The theory most often put forth to explain the decision, which seems to hold water, is that the first batch of several hundred thousand subscribers in each category is “low hanging fruit” both fast and inexpensive to acquire. Once that pool is depleted, acquiring additional customers becomes more cost-prohibitive, and the company begins to move toward more greenfield opportunities.

Steiner didn’t explicitly confirm or deny this fact, but he did acknowledge that the company’s decision to grow horizontally rather than vertically left it with some cleaning up to do. Going forward he predicts increased emphasis on two of the six current brands: ShoeMint and StyleMint. There was no suggestion that the remaining brands would be deadpooled, but simply that resources would be allocated proportional to the relative success each brand is finding.

There’s been talk of Beachmint looking to raise a new round of capital, however much of the bearish sentiment I’ve heard around the company has come from investors. Steiner denies that there are any formal fundraising activities going on currently, but admits that startups are always raising money passively. More importantly, he tells me that the company still has the bulk of its $35 million raised in January and that margins are improving steadily, although the company is still operating at a loss.

With a clearer picture of the fiscal house of Beachmint, Steiner and I talked at length about the culture within the company and whether it’s a healthy one. (I’ve had my doubts about it in the past.) He admits that there have been tumultuous moments, both during his short time with the company and prior to his rival. A big part of the problem, he argues, is that while Beachmint grew rapidly in size, its internal communication methodologies didn’t keep pace.

The way a roomful of people talk over a couple pizzas and six packs is obviously not the same as how multiple departments communicate through memos and meetings. Beachmint is apparently long overdue for an overhaul of its organizational communication systems, and this has been job No. 1 for Steiner.

The effort may be starting to pay off, if the COO is to be believed, but I’m taking a wait-and-see attitude. As an example, Steiner describes the glowing feedback he’s received around a series of recent management meetings held ahead of the fourth quarter to discuss goals and objectives for the period.

It sounds simple, he says, but clueing people in to what to expect and why decisions are being made goes a long way toward making them happy and productive team members. Believe it or not, this had been sorely lacking at the company in the not too distant past.

It’s hard to measure corporate sentiment, but anecdotally, I can confirm that I’ve been receiving far fewer vitriol-laced emails from current and past company employees than was the case just a few weeks ago. Whether this continues and translates into performance-boosting results will become clear in the coming months.

Online brand building is no simple task. Many companies have grown to the size and scale of Beachmint and never found the right mix of levers to pull to turn the corner into profitability. Steiner joins Beachmint at a critical time for the company. If the company is to succeed, the things had better begin begin trending toward sustainability much sooner than later.