The Million Dollar Mistakewith Fred Perotta
A conversation with Fred Perrotta, co-founder and CEO of Tortuga Backpacks, about something he calls his “million dollar mistake.” For more details, read his blog post about it: https://www.fredperrotta.com/i-fucked-up/
The Full Transcript:
Wailin: [00:00:00] Hello and welcome to this special bonus episode of Rework. Last week, we featured an interview with Fred Perrata, the co-founder and CEO of Tortuga Backpacks. When I talked with him, he told me a pretty neat story we couldn’t quite fit into the full episode. It’s about something he calls his million dollar mistake.
[00:00:19] We pick up the story with the launch of version two of Tortuga’s travel backpack.
[00:00:24] So, you made version two and did you consider that a much truer version of your vision and what you had in your head?
Fred: [00:00:33] Yes. Still not perfect, because, you know, we were—want to be perfectionists, but we’re not designers by trade so it’s a little bit out of our hands and we’re kind of learning as we did it. But it was definitely a massive improvement over V1. That was when we felt like we were really kind of staking the future on, and that product would dictate whether or not we had an actual business.
Wailin: [00:00:58] Version number two sold quite well, and that kind of gets us to the story that you wrote about on your blog, The Million Dollar Mistake, because you were preparing version three but you had made certain assumptions about how well version two would sell before you got to three, right?
Fred: [00:01:15] Yeah, so, when we launched version two ,that would have been the second half of 2013. That one started selling much better, even just right off the bat. It seemed like, okay, we’re definitely onto something at this point. So, we went through rounds of basically ordering as big of an order as we could, which was typically pretty small, and then that would sell out. Then, we’d place the next order and kind of repeat and keep placing larger orders that way because we didn’t have the money to just say, okay, our next order’s going to be ten times the size or something. So, we kind of went through this boom and bust cycle where we’d get stuff in stock and it’s sell out in a few days and then we’d have to use that money to pay for the next order.
[00:01:59] We went through that cycle for a while until we could scale up and actually keep bags in stock between orders. Then, we decided to start expanding the business. The idea, as we kind of headed into this time was, we placed a big order of that V2 bag, with the intention of, okay, these will last us between six months and a year. They’ll sell, we’ll ship them out and then we’ll really focus on V3. We placed this kind of big order and took that risk and it didn’t quite work out as planned.
[00:02:31] We were getting ready to roll out V3, which was totally new product, new look for the website, new look for the brand. A revised logo. A lot was changing and yet we still had a lot of V2 inventory left and we knew that trying to sell both side-by-side was just going to be confusing to people and that the older products, they looked very different, so we felt that that would kind of hold back the brand that we were trying to evolve into with this next version. The inventory that we had left was worth almost a million at retail.
Wailin: [00:03:06] When you did the, even if it was just a back of the envelope type calculation about the value of that inventory you had unsold. What did that feel like?
Fred: [00:03:16] Not good. I kind of pushed off doing the actual math. You know, like, you see the numbers of the units and stuff, but at first you think, oh, well, it’s just a bad week, or this random month is down a little bit or something, and then that trend continues so, at some point we started talking to our accounts to say, okay, if this is the case, then, what are our options here? And that’s when I had to face up to it and do the actual math to see, what is this actual number? And our general numbers were still pretty good in terms of month-to-month profits and losses. It’s just that we had a ton of inventory that we’re sitting on. We just would have foregone this massive amount of money and taking a huge hit on it, which is obviously not good from a business perspective and it’s certainly an ego hit that you’ve screwed up to that degree.
[00:04:18] We didn’t want to delay the V3 launch just to keep selling through these V2s, so we kind of had to make a decision there, and so, we ended up having a rare sale, a retirement sale to give the gold watch and send it home. And what we ended up doing, just to not lose that money or whatever is moving all of the older product inventory onto Amazon and selling it there at a bit of a discount, but a lot of people shopping on Amazon are kind of looking for a discount or for a cheaper product anyway, so that ended up kind of being a good fit there.
Wailin: [00:04:52] And, you know, what’s interesting about this incident is that you wrote up a big memo and explained to everyone what happened. You didn’t just keep it to yourself or just share it with your co-founder. Can you talk about why you decided to share it?
Fred: [00:05:05] I wanted to keep the team really focused on the V3 launch and stuff going forward so that they weren’t hung up on this discontinued product and what we were going to do about that. I wanted them to be able to focus and look forward and I figured I would deal with the V2 stuff and this extra inventory. We thought we may see some drag on sales of the new stuff because there was also this older product, so I wanted to send a memo to everyone to make sure they understood what we were doing and why. And, took that as an opportunity to call out me making a mistake because that’s… the inventory management stuff was certainly on me and to really set a tone with everyone that it’s okay to make mistakes. We want to take smart risks, we don’t want to be scared of mistakes and do everything really conservative. We want to take risks and take big shots at stuff, but we want to it intelligently. So, I wanted to send that as an example of, okay, here’s—this is a very large mistake that I did, and I’m willing to own up to it and put a number to it and most people on the team will never be in the position to make a mistake of that same size and same dollar amount, so I wanted to be clear that if I can admit this, put it in writing, put a dollar sign to it, then you can do the same. When you screw up, that’s fine. If we try something and it doesn’t work out, that’s okay, but let’s do a post mortem on that and look at it and see what happened and why and make sure that we’re better next time and don’t just keep repeating the same mistakes.
Wailin: [00:06:41] Yeah, and then you took it a step further because you decided to publish that memo, or at least a slightly edited version of it on your blog, right? What was the impetus for sharing it with the whole world?
Fred: [00:06:53] I’m very inspired by a lot of the other very transparent companies, like Basecamp and Buffer, who were kind of willing to put everything out there, and I feel like should also do the same, or kind of pay it forward to the next generation of people and companies behind us. And, a lot of times, I think, my blogging and some of the company’s blogging, it’s also kind of a signal to outside people, whether they be people we might try to recruit or people would apply for a job or partners or something like that. Kind of a way to connect with people outside the company and, in a very bold way, share who we are.
Wailin: [00:07:33] Fred’s million dollar mistake didn’t actually cost the company a million dollars. They were able to sell the version 2 bags via Amazon at a discount and then use version 3 to launch a whole new category of gear aimed at serious travelers. You can find Fred’s blog post about his million dollar mistake at his website, fredperrotta.com, and a link to it in the description and show notes for this episode.