Jon Nordmark, the co-founder of eBags, tells his story of risking it all to start an Ecommerce company, surviving the dot com crash and avoiding bankruptcy during 9/11. His company’s resilience and magical culture helped them launch new products when they needed it most.
Dan Daugherty: Welcome to The Big Exit podcast. Today I have Jon Nordmark who in 1998 founded ebags.com and in 2017 sold to Samsonite for $105 million. Jon, thank you for coming on the show.
Jon Nordmark: Thank you Dan.
Dan Daugherty: Well, it sounds like you did a whole three sixty. I think, prior to launching ebags, you actually worked at Samsonite, right?
Jon Nordmark: I did. I worked there ten years prior to starting ebags, and I worked in two areas. One, I started out and spent two years in sales which was great for me. I never thought I could sell anything but it was a super great experience and I had one of the best bosses in the world and then went and spent eight years in the marketing department, which is, at Samsonite at the time, was its primarily product development and it also includes the traditional advertising type work. We had labornet as our AD agency, but the focus is on product development, management of the product life cycle, and I had about, at the end, about a thousand products I was managing at any period in time.
Dan Daugherty: And did you see a, you know, did you see where the Internet was going? Did you see any problems that maybe Samsonite wasn’t solving at the time? What was the catalyst to start ebags?
Jon Nordmark: Yeah, you know, so the other really big thing at Samsonite is that they, you know, they’re a wholesaler, at the time they were a wholesaler. They did have, I don’t know, a hundred and fifty outlet stores, going all the way back to 1997, 1998, but you know most of what they sold was through the wholesale distribution channels and as a result, I think they had it was like twenty one different distribution channels. At the end, I had a responsibility for each one of those channels and products that were sold through those channels with the Samsonite brand and a channel would be anything from selling to the warehouse clubs, department stores, luggage specialty stores to more odd things like the military channels or premium, you know, like award type things. People at companies may decide to take a piece of luggage as an award, you know,
a gift for working at a place for ten years. Anyway, there were all these different distribution channels and back in 1997 I actually felt like Samsonite should launch online and, you know, kind of do what Amazon was doing at the time but sell their own products and use the web is kind of a liquidation opportunity. So, instead of selling products to another distribution channel, which is the, you know, where you sell all your discontinued and overstocked type merchandise to stores like TJ Maxx, Shot and Steans, Tuesday morning. Why not just liquidate online and the reason that would be good in the case for a company like Samsonite was that when you sell to someone like TJ Max and you’re Samsonite, you basically sell for less than what it costs you to build the product and then TJ Maxx turns around, puts it in the corner of their store, it doesn’t make it look very good, so it kind of harms the brand, and then they sell it at, you know, they double the price that they bought it at, make a keystone markup and you know it’s profitable for them. So the consumer ends up buying the product at what’s typically about a wholesale price point if you go to TJ Maxx. But if Samsonite just liquidated their products online for that same wholesale markup, or the wholesale price, they’d still make like a, you know, call it a keystone markup themselves and would make full margin. They could control the way it looked, and it would be good for the brand and good for the consumer and good, for, you know, it’s kind of good all around, except for TJ Maxx. But Samsonite had no real interest in that.
Dan Daugherty: Right, especially at the time.
Jon Nordmark: Yeah.
Dan Daugherty: Well, and if you think back to 1998, it was not cheap or easy to develop websites, specifically as it relates to ecommerce. What did you do?
Jon Nordmark: Yeah so anyway, I tried to get Samsonite to do that a couple of times and the first time, you know, I spoke with one of their presidents and he only lasted like another month to two months after I spoke to him, so I kind of realized he probably had other things in his mind. He didn’t really care about the long term future of the company, like you, know, Samsonite, because he probably knew at that point he may not be there very long. Anyway, a new CEO came, and I took him through like a big plan. I spent forty five minutes talking with him over dinner, him and me by ourselves, talking about the Internet and the web and where I thought it was going AND after forty five minutes he said to me Jon, I have email and I can guarantee one thing: nobody is ever going to buy a bag through an email, and that was kind of the end of my last attempt to get Samsonite to go online and I decided to just go and do it myself. And so anyway, to your point, Dan. It was very hard to build a website back then. Everything was built on basically static pages, a page at a time and what I wanted to figure out how to build was, we called it like a data dipping page morphing website, just with the dynamic pages that everybody has today. But at the time no one really knew how to do it. I went to a couple of ad agencies or people that specialized in digital at the time, and they both quoted me, there were two companies, they both quoted me about two million dollars to build the site that I wanted to build, and I was not even, it was way out of my league right? Like I couldn’t pay for that. And finally, I found some guys were building sites out of something called Cold Fusion. It was a development software back in that time period and I found
these kind of cowboy developers who could build it, and they gave me a quote of about five hundred thousand dollars and that started to feel in the ballpark of something that, you know, me and a couple of friends could figure out how to pay for. But then I went back to those agencies and told them, you know, we’re going to go with these cowboys and build it on Cold Fusion, and both of the larger firms said Oh, my gosh it’ll never scale, you’ll never make this happen, you’re going to lose your life savings, you know, you’re headed down the death march. And so what I did, I went up, I found a developer’s conference. Luckily, there was one, I live in Colorado, like you Dan, and I found that the national developer conference was up in Fort Collins like two weeks from when all this was occurring, and I ended up driving up there and I spent the whole day sitting in the hall asking people that went by me if they were developers and did they develop in Cold Fusion and what had they built. And I just interviewed, not interviewed, you know, but chatted with dozens of people trying to get a feel for if they felt like Cold Fusion would scale to the big time. And pretty much all of them were very confident in the product, and you know the development, the software and I decided to do it then. Just go with Cold Fusion and I had a couple of partners at this time in Samsonite, I mean in, excuse me, in ebags and they believed my stories after going up there and we decided to build in Cold Fusion and it worked. It took like eight months, but we got it live and that was the beginning of ebags.
Dan Daugherty: No kidding, I actually never knew that story, that’s a lot of money back then.
Jon Nordmark: Yeah, that was 1998 and the company that helped us get off the ground was a little company named Spire Media. It was actually just a couple of guys. I had to go sit in one of their houses. I mean it was so funny back then, it was just like yeah, it was a person here, a person there, no one… I remember the day I quit my work at Samsonite and I went to dinner with two friends and they asked me how my day was and I said well, it was a big day. I resigned. And they said Oh really? What are you going to do? And I said I’m going to build this website and I’m going to build an e-commerce company called ebags and they were like Oh my gosh, you know, you’re out of your mind. Why would you ever do that or I can’t even believe anyone would do that? You know it didn’t put a feeling of a lot of confidence into me, but that was kind of the story over the next year of people just everybody telling me to put my resume out, find a job, stuff like that.
Dan Daugherty: Were you scared?
Jon Nordmark: No, you know I was excited. I think I’ve been this way my whole life. I mean I nearly ran out of money personally because I spent, you know, my life savings on this I spent, well so I got sixty thousand dollars on my credit cards, another sixty thousand dollars on a second mortgage on my house and spent my 401k, all my life savings and got within about two months of not been able to pay for anything anymore. Like my house payment, everything. I couldn’t do it in two months. This is over a period of about a year, just running out of money, and I remember lying in bed one night kind of fearful. This was like in November 1998, and I was scared at this point that everything was going to collapse, but I remember lying in bed and I was single so, you know I just had me, and I thought, you know, in the very worst case, all that can happen is I lose this house. I’ve still got my dogs. I had dogs, two huskies and I’ve got my family, like my mom and dad and I’m sure they’ll let me come stay in their basement if things go under, you know. That’s worst case scenario and for some reason right then I just felt good, like calm. A peace came over me. But then as time went forward, it all worked out.
Dan Daugherty: The last episode that we did was with Lorrie Torrez, who also sold her company for over a hundred million, and we talked about it. I was actually at a conference with her, and I was one of the speakers and one of the things that I said was you have to be willing to give up everything in order to gain anything of significance.
Jon Nordmark: Yeah, you know you stop operating with… I think I was getting more and more fearful as we approached me completely running out of all my money. But I even remember at that time too saying you know, I’m healthy, I’m in good shape, and you know worst case, it’s not that bad, and I’ve got a chance to try this and you know. So it’s true, just kind of accepting that and back then too Dan, I mean you remember, we met, you and I met back in this period sort of and the thing that was hard then, the things that have changed are that the Internet didn’t really exist. So there was no LinkedIn, there was no Facebook. There was no way to get information like you can get today. Today, you can learn so much about how to finance your company, what kind of lawyers you should have. You can find lawyers, you can reach out to investors through the Internet. None of that existed back then. So, basically, when you were starting a business, you were going in blind and also there were no workspaces. You either worked at home or you had to put your house on the line to rent a building, which is what we did for ebags down the road, but it was just a completely different environment and I think the support system it’s just matured a lot. It’s gotten a lot better. You know, today, not that it’s easy ever but back then it was really really opaque and hard.
Dan Daugherty: Yeah, yeah, you’re right and to your point it’s still hard today, but that support group, I mean you have the founders institute, you have Techstars, you have so many.
Jon Nordmark: Yeah, angel investor networks and, you know, and the other thing is back then like so when we developed our website, we actually transitioned it to a guy named Mike Crosini, who I work with again today in my current company, and Mike, I mean he was a rock star technologist, you know he could write code, but he was a great leader, he’s still a great leader. But we got lucky to get him and then he was able to take the code that we got started with that other group, the cowboy developers and you know and turn it into a real company. But to do that we had to hire a lot of developers and we had to buy all the servers. You know, and there was no cloud, we couldn’t host it on AWS or Google Cloud. You had to buy the servers. Then you had to hire guys that could manage the servers and it was just very, very complex. You know you’re working outside of, for me, it was working outside of a comfort zone. But today it’s just that’s another great piece of infrastructure that’s available to us. You know the Amazon Cloud, the Google Cloud and other places, even like Rack Space. You know it’s just easy, it’s better. It’s a better environment for entrepreneurs.
Dan Daugherty: How much did you raise?
Jon Nordmark: Yeah we raised, gosh, our whole money raising situation was, it’s a whole other saga but we ended up raising thirty million dollars in two official rounds of funding, but you could really break that down, probably into four periods. The first period was when we tried to raise money and we went… Well, I learned at that point what an accredited investor is. I didn’t know that you couldn’t just go down the street and ask your neighbors for money, that there were actually laws around who you could get to invest in a startup. And unfortunately, the way I grew up, I didn’t really know anyone who was accredited. So that was a barrier, but we ended up getting a commitment from basically the owner, the former owner of Samsonite. He decided to fund us and committed ten million dollars of his own money, but then he drug out the, actually it wasn’t him. It was a guy who runs all his investments, but they drug out the time period that it took them to fund us to the point where we actually ran out of all our cash. You know this is when I was broke. This is when I had that period where I laid in bed wondering what was going to happen to me, and two weeks after we were completely ran out of ability to pay anybody and had actually talked to all the people we were paying at the time just to get a little bit of leeway on payment, he pulled the plug on the whole investment. And so we had nowhere to go for cash and we owed people at that point about two hundred thousand dollars and yeah, it was like a nightmare scenario. And so there were five of us co-founders at that point, myself and four other super valuable friends today, business partners, I mean just Frank Stayed, Andy Young, Elliot Cobb and Peter Cobb, just a great group of guys. We decided at that point that we would go and ask anyone we knew that was accredited if they would fund us and we basically became a call center. We stopped all other operations and then lo and behold Peter Cobb, one of my partners, he secured four hundred thousand dollars in funding from one of his ex-school mates and a good friend of his, and that became this basically water shed or waterfall event where that led to another, cascading a number of investors, and we ended up raising like six million dollars in angel funds over the next month, month and a half, maybe, and it was crazy. So we went from incredibly impoverished to money. Just actually just two people sent us checks. We didn’t even know who they were at that point, and so we did all that under a convertible debt and the reason we did that was we wanted to still raise some money from the professional venture community and that would set the pricing and we didn’t give a discount or anything like that on the debt. But it was six million dollars. Well then, we did end up, two of the investors that I got to come in, I had met at a conference. So back in November 1998 I was scheduled to go to one of the, it was the second retail event, e-commerce event, it was called shop.org. In the history of shop.org only a hundred people go, I mean no one was there at that point. It ended up growing up to one of these events that ten thousand people, or you know thousands of people that show up at, but at the time it was a hundred people, the one I went to. But anyway, in November after that investor pulled the plug, I actually decided I couldn’t go to that event, because I couldn’t afford a couple thousand dollar trip because I was on the verge of losing my house, and my partners told me I had to go, that it was my job as the CEO, I had to go. And I did, and at that event I met two investors, one was from Dane Raucha Wessels, Canadian, it became the Royal Bank of Canada and another one was from Mitsubishi in Japan and those are really great stories in themselves, but both of those companies decided to invest in in ebags and they both came in as convertible
debt holders, but it was Dane Raucha Wessels that led to introductions to Silicon Valley investors and actually led to, you know, benchmark capital, basically coming and leading the round at an eight million dollar round, they took over the majority of it. We actually had to give back part of the angel money. It became a real fiasco, but we closed an eight million dollar round with benchmark as a lead and about two hundred, I think it was about close to two hundred angel investors. It was kind of crazy.
Dan Daugherty: Were they all on the Cap table?
Jon Nordmark: They’re all on the Cap Table, yeah. They were all there and it was actually in some respects really good I think. We had some great angels, but that was another learning experience. Anyway, after that, though, we did raise a series B of I think it was twenty two million from TCD and a company named Amarendo. TCD is, you know, a phenomenal fund out of Silicon Valley. They tend to be more of a mezzanine type, you know, later stage fund. It’s crossover because they also invest in the public markets, but then Amerindo was another fund and that during the period that they had money in our company, their founder actually ended up in prison because of how they dealt with the money during the dot bomb period.
Dan Daugherty: Right, and speaking of the dot bomb, so obviously there was a lot of irrational exuberance during that time, and at least you closed on a round. So you had that. Fast forward to 9/11. What happened?
Jon Nordmark: 9/11, because we sold luggage, that was our focus, the crazy thing is on 8/11, so in August 2001, we turned a profit. It was the first profit. We actually ended up in an article in Time magazine I think, no, it was in Business Week, where they identified four companies, four dotcoms that had turned a profit for a quarter and we were named in that one as one of the four companies. Amazon was another one, Blue Nile, I believe, might have been another. I can’t remember, there were four. But anyway, 9/11 hit and it was like pulling the rug out from under us because just kind of like today, travel stopped. It didn’t stop for the period of time that it’s stopping now, but in this pandemic, but it stopped. Our sales basically went to zero for the next four days. Then they started to rise up, you know, into the twenty, thirty, forty percent of prior month sales and we realized all of a sudden, like within a week, that we were in serious trouble that this could cause us to go bankrupt again, like you know, that’s what we feared up to that point of August 2011. I mean 2001. So anyway, we ended up sitting down and saying you know what let’s move our focus from travel bags to daily use bags like handbags, business cases, gym bags, anything that’s not travel. And we really concentrated on getting that business going. That’s when you met us, I think Dan, right in that period, probably.
Dan Daugherty: That’s right. That was back around 2001, was that another point of “oh shit” moment?
Jon Nordmark: Yeah. Oh yeah, like you know, we had a few of those moments. When the dot bomb started, we actually tried to raise money, let’s say that was in the, you know, early summer
of 2000, somewhere in there. We tried to raise money and there was no money available, like no one wanted to fund anything on the Internet, and so we decided at that point we’re going to have to adjust our payroll and everything, and we went through kind of a big layoff, twenty five percent of our workforce. That was the biggest eye opener for me, probably, as an entrepreneur, how much you’re affecting other people’s lives, you know with the decisions you’re making. Because when you have to look someone in the eye and tell them they can’t work with you anymore, and you know they’ve got kids and family at home. It’s crushing, at least to me it’s hard to do. But anyway, that was one moment and then when nine eleven hit after he became profitable, the month after we became profitable, it was another moment of, you know, putting the fear into us, but we were an amazingly resilient group of people I think. To this day I admire, you know, all those employees, even the ones that were even laid off prior to the period, you know that we had that first bad moment, but coming through the nine eleven period too, the team was so resilient and so inventive and I think our culture, Benchmark Capital actually said they felt like we had a Pixie dust in our culture. I’ll, never forget that, and I believe that too, and it was because the team was so engaged. They were so allowed to invent. Back then you had to kind of reinvent the marketing it seemed like every six months, something big changed and our team did it and a lot of them were just these young kids. Yeah, like you were.
Dan Daugherty: Yeah and when you know, we had a lot of those types of challenges not only within that space, but obviously the real estate space and even being at Google. You now to ’03, ’04, even before IPO, we were growing nicely, but there was a lot of uncertainty on the horizon. Did you-
Jon Nordmark: You know I got to tell you one little funny story about Google. We were in a board meeting and TCV, if you talk to the associate from TCV, he would tell you the story because it was one of his favorite stories too. Anyway Benchmark Capital was there and their partner said in the meeting hey, I need to ask you guys, have you heard of this company named Google? And Chris Seahorn who was kind of in the middle of our marketing department back then, today he’s the president of ebags, basically. He’s a phenomenal marketer like A plus plus. He says, because he was in the board meeting and we used to be very transparent, like we bring everybody in like not everybody, but at certain times everyone would come to the board meetings to present their parts and anyway Benchmark asked marketing team have you heard of Google? And we’d already been working with you guys for it was like six months by then, like and he had met you at some, we would send people to these obscure conferences and stuff and he met Google when it was presented on a card table basically at a conference, and started testing Google right away like that’s what we were known for and we tested and we experimented and we tested and that was, you know, we did the first AB split test platform that I was ever aware of. I didn’t even know what it was, which was a whole other story too. I kind of invented by one of our software developers, but we tested everything to the nth degree and Google was one of those things we tested very, very early.
Dan Daugherty: Well, I remember working with you guys and Chris in general, and it was just, if you remember it was pre Ad words and you were paying past per thousand for search terms, and
your effective CPC was, do you remember what it was?
Jon Nordmark: I don’t well, no tell me and then I’ll answer you.
Dan Daugherty: I mean I think it was sub ten cents, effective CBC was sub ten cents for sure.
Jon Nordmark: Well, it was so unbelievable like when our cost per acquisition, you know customer acquired back in the very early days. I want to say coming out in 1999 yeah, in that Christmas period, we were paying something like ten dollars. Let’s see we would get no, we would get a dollar of revenue for every ten dollars we would spend to acquire a customer. So you do that math, like your company is going to die.
Dan Daugherty: Right.
Jon Nordmark: But anyway, within about it took about two years, but our team, and this is Chris this is a guy, a woman named Jen McAdams, Katherine Wardale, another one, you know, Kelly Mirtha, who went on to lead Stitchfix Marketing and worked as a high level marketing person at Netflix like a really Rock Star group of people. They got our customer acquisition cost down to, like you, just said, kind of ten, for every ten cents we spent, we would get a dollar in revenue. So it went from like ten dollars to ten cents, and I mean literally, it was, and it was phenomenal watching that happen, and it happened through this just relentless testing and Google was part of that. You know.
Dan Daugherty: Yeah, that’s right. I remember yeah, you guys did lots of AB testing. I’ll never forget the moment where I had to go to you and say we are going to sunset our CPM base and go a hundred percent to Ad words, which will be auction based upon competition.
Jon Nordmark: Yeah, how was that received? I don’t remember.
Dan Daugherty: Not very well. Great stories there. One final question before we go. Did you always, you know, of course, raising capital and working with venture capital, they eventually won an exit either via IPO, merger acquisition, whatever it might be. Did you always have a timeline of when that would occur?
Jon Nordmark: No, and so this is one of the big downfalls that I faced as a unknowing, you know, CEO unknowing co-founder of this company. We didn’t know, like I didn’t really understand the time tables that the venture capitalists have to work within and I never knew what their portfolios were doing at the time. It was just super, again super opaque. Part of this is my fault, though I think I just didn’t understand. Like what I wanted to do was just sell bags, and I didn’t really think about much else. I just wanted the company to be growing as fast as it could, profitably, and you know and sell bags, and I figured everything would work out overtime. We had a couple opportunities to sell the company and from very, very big super well known acquirers, and none of those options were, I guess, sexy enough for our big investors, the venture investors, even
though they would have made all the angels and myself and, you know, all our employees very well off. Like I mean you know, they would have created great exits I think for us. But the VC’s, the thing is, they need the big exit and by big I mean very, very, very, very big. You know, they’re looking for the billion dollar deals, not hundred million dollar deals, I mean literally a hundred million is nothing, it doesn’t matter. That’s my view based on my experience with this, you know, scenario. And so when we got anything that was, you know, in my view good, it just wasn’t good enough and so led to a whole other dynamic within ebags. I felt like toward the end of my ten years as CEO that it was all about the exit and not about the business at all anymore, and, you know, it just creates an environment that isn’t all that exciting to work in for myself. My current company Iterate, we don’t really have investors, and that’s I mean we do, we’ve got a number of angels, it’s like ten, plus we have one company that is in there, but our board has no outsiders, we’re growing like crazy, like right now we’ve got fifty four people and we’re growing. Seventy six, last year was seventy six percent year on year. Over the next few months we could double to quadruple the size of our company again. It’s going really really well. But the best thing is we have no time horizon for an exit. We don’t really care, like it’s we’re going to run a good business and whatever happens happens, but, you know, and we’ve got it set up too, so that our employees will do really well. But in the world of Ebags, where you’ve got, you know, major investors involved and a lot of angels, there is no real… I mean it’s exit or bust, you know, basically. I remember one conversation I had where we were growing twenty three percent in a pretty tough period of time, and I just got lambasted because it was just not fast enough. Yeah and we were profitable too. I mean we weren’t running out of money, we were making money and twenty three percent was just no good, and that was when we were close to a hundred million in revenue. So you know if you take on venture money, it is, I mean it’s, not anyone’s, it’s just what it is, you know they owe returns to their investors and part of getting that return is getting an exit out of each company they invest in and that’s just the way it is and that’s why I always encourage entrepreneurs to kind of do what you’ve done over your period Dan, and that is control, you know, if you can do it without money, go for it, like it’s the best and to me they’re the best entrepreneurs, you know.
Dan Daugherty: I’m so glad with Iterate its more control, just building a great company, what happens happens, if there’s a good opportunity for you and the founders and all the employees, even better, but if not, they’re just, you know, building a great company for the long haul. Jon you are amazing. Thank you so much for sharing your story and I actually hope to have you on again and we can talk more about the various stories that we have within Google and everywhere else.
Jon Nordmark: I would love to do that. I could talk forever about these things.
Dan Daugherty: Thanks Jon, I appreciate it.
Jon Nordmark: Take care, bye bye.