4 ms·

I think it's an oversimplification to say that Mr. Sherman "did not understand margin". The concept is so fundamental that you can explain it to first-graders a

I think it's an oversimplification to say that Mr. Sherman "did not understand margin". The concept is so fundamental that you can explain it to first-graders as soon as they're introduced to a number line. Sure, he understood it. Did he respect it as the prime directive? It seems not. But, plenty of companies would take the same approach and write down the losses to the cost of customer acquisition--pure marketing--with the idea being to recoup later. That drive, BTW, is a side effect of high-pressure SV culture. Rather than build more methodically with an emphasis on creating rabidly loyal fans who are willing to pay a higher price for service, customer experience, etc, the goal was to grow revenue and customer base as quickly as possible by any means. In this case, it meant deep discounting. So, instead of a simple misunderstanding of margin, the problem here seems to be more that this pressure caused him to embark on a strategy ill-suited to his product. Once he'd trained his customers to expect discounts so deep that he couldn't possibly profit, there was no turning back. It seems, instead, that the Zappos model would have been more suited to his offering. But the relentless pressure for growth combined with the belief that he had access to more capital seems most responsible for his approach. I think it's possible that many rational people would have been lulled into making the same mistake, even with a clear understanding of margin. To say that he didn't understand that you have to sell a product for more than it costs to profit is nearly insulting.

apalmer 14y ago
No. You are stating your opinion based on disregarding the facts at hand because they don't align with your worldview, this is exactly how an intelligent person can end up not understanding something basic. The individual who actually went over the financials in detail, and who actually knew Sherman, and who actually spoke to Sherman about the financial situation at the time is putting his reputation on the statement that Sherman did not understand margin. He might be right, or he may be wrong, but he has a lot more backing to his opinion than you do.
- unclebucknasty 14y ago
  Yes, I am stating my opinion, as are you. Odd that you charge me with speaking out of turn while yourself presuming to understand my "worldview" and the thought process that led me to my conclusions. You're in my head now? >He has a lot more backing to his opinion than you do. And, I know my own "worldview" better than you do. Or would you like to explain my worldview to me? As well, I know better than you how I arrived at my own conclusion. It's simple common sense. What adult doesn't understand that a company profits by earning more than it spends? I could be right or I could be wrong, but I will go with the rational conclusion.
  - unclebucknasty 14y ago
    Oh, I see what you're griping about with regard to my "worldview". Yes, I do believe that SV is a pressure cooker. I'm not sure if that one opinion represents a "worldview" and I'm not sure who actually disagrees with the observation, but you're certainly free to do so. Still, that was literally just a side note (as I mentioned). It has no bearing on the ridiculousness of the suggestion that Mr. Sherman literally couldn't add, subtract, or multiply.
- ScottWhigham 14y ago
  Well said. And don't forget that, for many people, there's a difference between understanding a basic concept (margins) and understanding its effect on you/your baby/your life. We humans do this as a matter of routine (smoking, alcohol, obesity, etc).
  - unclebucknasty 14y ago
    >there's a difference between understanding a basic concept (margins) and understanding its effect on you/your baby/your life. That's absolutely true, but that's more of an abstract observation of human behavior. On the other hand, the author is stating that Mr. Sherman literally did not understand the basic math of margins (ex: that the more products they sold below cost, the more money they lost). In my opinion, that's a completely ridiculous notion. Such statements are insulting and fit with the tone of the article, which essentially attacks Mr. Sherman as incompetent and a virtual imbecile. The author appears to have some other motive to be so bluntly disrespectful to someone who has passed. C.Y.A.? Personality conflicts? Something else? Who knows? But, since Mr. Sherman is not here to defend his actions or rationale, it seems a shame to allow these ridiculous memes about him to thrive. I'm sure there is valid criticism that one can heap on Mr. Sherman's days at the helm of Ecomom and the decisions he made (including the one to discount products and give up his margin). If one wants to critique that, then it's fair game. But, to sit around and suggest that the man literally couldn't understand basic addition and subtraction is ridiculous. It is no credit to the author to insult the man when he's no longer here to defend himself.
    - plorkyeran 14y ago
      It is certainly quite possible that "Phil, just bring me a forecast that shows how much we need to sell to break even" is a gross misrepresentation of what he actually said, but if it is at all true then Sherman did in fact literally not understand the concept of margins.
      - unclebucknasty 14y ago
        Maybe. If. If he said exactly that. And, if he meant exactly that. And, If there's no other context. And if... But, Phil seems to be unsynched with himself. On one hand he accuses Mr. Sherman of literally not understanding margins. On the other hand he clearly implies that Mr. Sherman deliberately avoided talk of margins/profits in a company meeting because he was a "master marketer" who "led a management meeting that focused on an awesome feel good marketing plan." So, by that, he is clearly indicating that he thought Mr. Sherman understood margins well. So well that he was deft enough to avoid speaking of them; instead using his "master marketer" skills to somehow mislead management and divert their attention away from margins. Completely contradicts the notion that he didn't know what margins were. And why on earth is Phil speculating about one side of phone conversations that he overheard? That's not his place (as a controller), and it's amateurish at best. There are some "interesting" statements being thrown around in the article. They seem to be gossipy, reckless and, at best, inconsistent.
fyi80 14y ago
Funny story: In 5th grade, on career day, the proprietor of an Army-Navy Surplus store explained margin to me: I buy a shirt for $7, sell it for $10, and get $3 dollars profit and $7 to buy another shirt. I was genuinely confused about the $10-3=$7 he was claiming he could use to buy more shirts, when it was already used to pay wholesale for the first shirt. But maybe that was confusion about Return on Invested Capital, not confusion about margin.
- unclebucknasty 14y ago
  Or maybe the guy went out of business the next week and is still trying to figure out what happened.
- apalmer 14y ago
  I see your point, I guess its all in how you do your accounting. One way of looking at it is the initial $7 dollars is already sunk costs, and quite literally he probably was using the $7 dollars from Shirt A's sale to purchase Shirt B. I mean he didn't really literally take the $7 dollars from the sale of Shirt A to buy Shirt A so I can see why he thought that way. Does it make sense to run a business with that mindset i don't know...
photorized 14y ago
I saw what looks like his AngelList profile: https://angel.co/jodysherman https://angel.co/jodysherman Accredited investor, previous exits, etc - I am, too, skeptical of that margin statement. But then again - I didn't know the guy. I've met plenty of savvy business people who don't understand depreciation/amortization, for example.
- phyalow 14y ago
  I think you need to reevaluate your last sentence. Somebody who doesn't understand basic asset accounting is clearly not "Business Savvy"...
  - unclebucknasty 14y ago
    Arguable. In any event I think most people would agree that margin/profit is a much more fundamental business principle than is asset accounting.
6d0debc071 14y ago
Of course a first grader can understand margins. They're not personally involved with the idea and they're probably not seriously depressed. It doesn't seem unreasonable to me that he didn't understand margins. It's difficult to communicate how... decayed... your thinking can become under protracted stress that has gone beyond your ability to cope with. You have a very limited budget of energy you can expend on doing anything in the day, and thinking, especially about things that are unpleasant to think about - like the reason you've lost - is incredibly costly. Basically all you want to do a lot of the time is lie in a dark room and sleep forever. You know how, when you've been going at a program for a while, you can start to find it impossible to hold all the bits you know in your head? It's sort of like that, the number of things you can bring yourself to hold in your head at once nosedives, especially where they're unpleasant. It's not implausible to me that he was mostly operating on cached habit and his thinking resources weren't large enough to stick the concepts together in any more. The poor guy went and offed himself subsequently, after all, he clearly wasn't reasoning with a healthy mind. Whether he did or didn't understand it I don't know, but I can see how he might not have been in a position where he could.

apalmer 14y ago

No. You are stating your opinion based on disregarding the facts at hand because they don't align with your worldview, this is exactly how an intelligent person can end up not understanding something basic. The individual who actually went over the financials in detail, and who actually knew Sherman, and who actually spoke to Sherman about the financial situation at the time is putting his reputation on the statement that Sherman did not understand margin. He might be right, or he may be wrong, but he has a lot more backing to his opinion than you do.

unclebucknasty 14y ago
Yes, I am stating my opinion, as are you. Odd that you charge me with speaking out of turn while yourself presuming to understand my "worldview" and the thought process that led me to my conclusions. You're in my head now? >He has a lot more backing to his opinion than you do. And, I know my own "worldview" better than you do. Or would you like to explain my worldview to me? As well, I know better than you how I arrived at my own conclusion. It's simple common sense. What adult doesn't understand that a company profits by earning more than it spends? I could be right or I could be wrong, but I will go with the rational conclusion.
- unclebucknasty 14y ago
  Oh, I see what you're griping about with regard to my "worldview". Yes, I do believe that SV is a pressure cooker. I'm not sure if that one opinion represents a "worldview" and I'm not sure who actually disagrees with the observation, but you're certainly free to do so. Still, that was literally just a side note (as I mentioned). It has no bearing on the ridiculousness of the suggestion that Mr. Sherman literally couldn't add, subtract, or multiply.
ScottWhigham 14y ago
Well said. And don't forget that, for many people, there's a difference between understanding a basic concept (margins) and understanding its effect on you/your baby/your life. We humans do this as a matter of routine (smoking, alcohol, obesity, etc).
- unclebucknasty 14y ago
  >there's a difference between understanding a basic concept (margins) and understanding its effect on you/your baby/your life. That's absolutely true, but that's more of an abstract observation of human behavior. On the other hand, the author is stating that Mr. Sherman literally did not understand the basic math of margins (ex: that the more products they sold below cost, the more money they lost). In my opinion, that's a completely ridiculous notion. Such statements are insulting and fit with the tone of the article, which essentially attacks Mr. Sherman as incompetent and a virtual imbecile. The author appears to have some other motive to be so bluntly disrespectful to someone who has passed. C.Y.A.? Personality conflicts? Something else? Who knows? But, since Mr. Sherman is not here to defend his actions or rationale, it seems a shame to allow these ridiculous memes about him to thrive. I'm sure there is valid criticism that one can heap on Mr. Sherman's days at the helm of Ecomom and the decisions he made (including the one to discount products and give up his margin). If one wants to critique that, then it's fair game. But, to sit around and suggest that the man literally couldn't understand basic addition and subtraction is ridiculous. It is no credit to the author to insult the man when he's no longer here to defend himself.
  - plorkyeran 14y ago
    It is certainly quite possible that "Phil, just bring me a forecast that shows how much we need to sell to break even" is a gross misrepresentation of what he actually said, but if it is at all true then Sherman did in fact literally not understand the concept of margins.
    - unclebucknasty 14y ago
      Maybe. If. If he said exactly that. And, if he meant exactly that. And, If there's no other context. And if... But, Phil seems to be unsynched with himself. On one hand he accuses Mr. Sherman of literally not understanding margins. On the other hand he clearly implies that Mr. Sherman deliberately avoided talk of margins/profits in a company meeting because he was a "master marketer" who "led a management meeting that focused on an awesome feel good marketing plan." So, by that, he is clearly indicating that he thought Mr. Sherman understood margins well. So well that he was deft enough to avoid speaking of them; instead using his "master marketer" skills to somehow mislead management and divert their attention away from margins. Completely contradicts the notion that he didn't know what margins were. And why on earth is Phil speculating about one side of phone conversations that he overheard? That's not his place (as a controller), and it's amateurish at best. There are some "interesting" statements being thrown around in the article. They seem to be gossipy, reckless and, at best, inconsistent.

fyi80 14y ago

Funny story: In 5th grade, on career day, the proprietor of an Army-Navy Surplus store explained margin to me: I buy a shirt for $7, sell it for $10, and get $3 dollars profit and $7 to buy another shirt. I was genuinely confused about the $10-3=$7 he was claiming he could use to buy more shirts, when it was already used to pay wholesale for the first shirt. But maybe that was confusion about Return on Invested Capital, not confusion about margin.

unclebucknasty 14y ago
Or maybe the guy went out of business the next week and is still trying to figure out what happened.
apalmer 14y ago
I see your point, I guess its all in how you do your accounting. One way of looking at it is the initial $7 dollars is already sunk costs, and quite literally he probably was using the $7 dollars from Shirt A's sale to purchase Shirt B. I mean he didn't really literally take the $7 dollars from the sale of Shirt A to buy Shirt A so I can see why he thought that way. Does it make sense to run a business with that mindset i don't know...

photorized 14y ago

I saw what looks like his AngelList profile: https://angel.co/jodysherman https://angel.co/jodysherman Accredited investor, previous exits, etc - I am, too, skeptical of that margin statement. But then again - I didn't know the guy. I've met plenty of savvy business people who don't understand depreciation/amortization, for example.

phyalow 14y ago
I think you need to reevaluate your last sentence. Somebody who doesn't understand basic asset accounting is clearly not "Business Savvy"...
- unclebucknasty 14y ago
  Arguable. In any event I think most people would agree that margin/profit is a much more fundamental business principle than is asset accounting.

6d0debc071 14y ago

Of course a first grader can understand margins. They're not personally involved with the idea and they're probably not seriously depressed. It doesn't seem unreasonable to me that he didn't understand margins. It's difficult to communicate how... decayed... your thinking can become under protracted stress that has gone beyond your ability to cope with. You have a very limited budget of energy you can expend on doing anything in the day, and thinking, especially about things that are unpleasant to think about - like the reason you've lost - is incredibly costly. Basically all you want to do a lot of the time is lie in a dark room and sleep forever. You know how, when you've been going at a program for a while, you can start to find it impossible to hold all the bits you know in your head? It's sort of like that, the number of things you can bring yourself to hold in your head at once nosedives, especially where they're unpleasant. It's not implausible to me that he was mostly operating on cached habit and his thinking resources weren't large enough to stick the concepts together in any more. The poor guy went and offed himself subsequently, after all, he clearly wasn't reasoning with a healthy mind. Whether he did or didn't understand it I don't know, but I can see how he might not have been in a position where he could.