The Importance of Money Management

Crate & Barrel: A Case Study

Decades before IKEA became ubiquitous, Scandinavian and European furniture was near impossible to find in the United States. What could be found was often horrendously expensive, putting it out of reach of the average consumer. Crate & Barrel is a furniture store that began its life importing European furniture. In the podcast How I Built This with Guy Raz, the founders detail the struggles they went through in building their company.

The founders took a trip to the Caribbean where they found European furnishings for incredibly cheap prices. The vendor said that he could afford to sell so low because he bought directly from factories. The founders decided to start a business to take advantage of the market that they had stumbled upon.

The biggest flaw of Crate & Barrel’s early days lies in their lack of financial planning. Crate & Barrel courted financial ruin multiple times because the founders were unable to plan their finances. Financial planning is essential for any successful startup and business. While this company succeded, it was in spite of their poor financial planning.

Raising Money

Their first order of business was to raise money so they could build a storefront and buy from the factories. Because venture capital and startups did not exist back then, nobody was willing to invest. Eventually, one of their parents invested money from their own savings. They combined this money with their own savings to fund the store. They had to buy an abandoned factory and jury-rig much of their decorations and internal design because they had fewer funds than expected. Project management would have advised letting lots of people invest smaller amounts of money instead of asking for one person to donate a large amount.

Profit Projections

After the store was open and operational, they calculated what they would need to make to have enough to live on. Their first month happened to coincide with a major holiday, and they thought they were well on track. What went wrong is that profit projections are much more complicated than multiplying the profits gained in one month. Project management could have helped them manage their expectations and account for specific variables, like holidays and the weather. This overconfidence meant that they were soon on track to lose their savings and their investment.

Proper Pricing

Another issue arose because the invoices from the factories they were buying from were incomplete or unsent. The founders ended up selling a lot of their furniture and decorations at cost, which caused a lot of worry and pain that could have been avoided if they had used project management. Eventually, they spread word-of-mouth marketing, and their store began generating enough income to live on.