Fernish | Reflections on Chapter 1

Fernish is entering a new chapter. The business we have spent the last 5 years building has merged with another private furniture brand, with more details emerging soon.

I have been living and breathing Fernish since Lucas Dickey and I launched the business out of a garage in 2018, and Kristin Toth joined as my business partner in 2019. While this next phase is certainly an exciting one, the recent transition into it has not been without challenges.?

As Fernish makes this transition, I wanted to share some personal reflections from my own journey in building this business. If you’ve been on this journey with me, you will absolutely be familiar with some of the points I make below, though I doubt you will know them all!? If you have been supporting or observing Fernish from afar, I hope that some of what I share below will be valuable for you as well.?

(1) It’s all about the people.

The saying, “life’s too short to work with people you don’t love to work with,” was absolutely our North Star at Fernish. The most motivating and valuable part of my journey was the people I had the privilege of working with and building alongside.?

And great people attract great people. Our people-first focus created a flywheel of culture that supported employee retention and successful recruiting. And I would go so far as to say that flywheel was an exceptional one. What we accomplished in terms of people and culture at Fernish was far from perfect, but we were intentional about it from day 1, and the value and experience that it created was amazing.?

The double-edged sword of this intentionality is the pain that came from being forced to make difficult personnel decisions as part of our recent (or any) merger process, which I speak more to below.

(2) Making our investors part of “Team Fernish” earned trust and generated dividends.

Fernish was fairly successful in raising capital; we raised over $40 million of equity from a group of top-tier institutions and individual investors. Our two largest shareholders were Khosla Ventures and RET Ventures . Both firms were highly collaborative and supportive and I would absolutely partner with either on my next business endeavor, and would recommend them for yours as well.

My approach to Board and investor relations was to drive engagement through regularly scheduled updates and strategic individual check-ins. We delivered bad news along with good news and regularly leaned on investors for strategic insight and support. This combination enabled both sides to build a good deal of trust - especially on the Board level - and ensured that our cap table was aligned with management throughout Fernish’s 5-year journey.

None of this is to say that I did everything right in the realm of investor relations. I certainly received tough feedback through tense conversations at the Board level as well as with individual investors to whom I went for advice. But the wider management team got stronger, tougher, and smarter each time feedback was received and our assumptions were challenged. We viewed investors as extensions of our team, and because of that, they ended up regularly looking for new ways to add value to our business.?

(3) We focused on our customers ahead of our competition.

The results of 亚马逊 's ethos of “wake up scared of your customer, not your competition'' speak for themselves. And this was one of the many Amazon principles we worked hard to infuse into our team’s customer-first mindset.?

Fernish had multiple well-funded start-up competitors out of the gates - as well as multiple legacy (highly antiquated) furniture rental brands. We worked hard to separate ourselves from this pack, and we tried not to look at these businesses more than we ever had to. By far the most valuable insight that drove growth and success at Fernish came from our management jumping in a truck to join a customer delivery, taking live customer interviews, writing and reviewing customer surveys - doing whatever it took to get an honest answer around what drove people to use Fernish. And all of this was much more valuable than anything we observed from our competitive set.

One anecdote that I found valuable early on - and helped solidify this approach for us - came from Fernish investor Scott Cook (founder @ Intuit ; former Board Director @ Amazon). Scott used personal experience and customer development to define and launch Intuit’s first product, Quicken. At the time, there were over 40 already established products (!) doing broadly the same thing, but he determined each of those were wrongly focused on feature breadth rather than what customers wanted, which was simplicity. If Scott would have assumed that the established competition had it right - we might all still be filling out checkbooks today - or worse yet, we might all still be forced to buy, move, sell, store, and trash our furniture.

(4) Debt is risky to take and its availability is highly susceptible to market conditions.

Working in start-ups for almost a decade, I’ve accepted that a lot more is outside of my control than I would like. The data that I am using is, at best, imperfect and asymmetric. Adding the highly volatile capital markets of the last year into the equation makes a semblance of control that much harder.

Our rapid growth trajectory at Fernish - 17x growth over a 2-year period, earning us the designation of Inc. Magazine’s 250th fastest-growing private US company of 2022 - was supported to a large degree by debt capital used to finance inventory (i.e. furniture) purchases. Maintaining that level of growth required us to leverage into more debt capital, which made cash flows highly susceptible to interest rate risk and overall debt availability. Unfortunately for us, interest rate spikes and debt market contractions have been acute realities over the past year.

These dynamics drove Fernish into a difficult trade-off around business growth and margin/cash flow profile. We even had to make trade-offs around our growth profile and the size of the team we were able to afford. Ultimately, as the bearish debt market and high interest rate environment dragged on, we needed a new and different solution to fund inventory costs if we were going to achieve the continued growth profile we knew we could. The best option here ended up being a merger, a path that has enabled Fernish to immediately achieve profitability through greater scale - with the profitability point being almost a requirement to access scalable debt in today’s environment.

(5) Balancing optimism with the risky realities of a start-up is one of the harder parts of leading one.

Like many founders, I am a fundamental optimist. However, this trait is not fundamental to most other employees (at Fernish or elsewhere). The tricky result of this was finding a balance in transparently delivering internal communications with certainty, even as the future was so uncertain.

I had the strong opinion that for Fernish to thrive our team needed to remain laser focused on execution. I could not afford them to be distracted by financing updates or our company’s dependency on capital markets. This disconnect made long-term operational planning difficult. So many of the goals we set were tied to a multi-year outlook, even as we sometimes had only 1-year (or less) of runway in the bank. We were indeed successful in getting some critical assumptions right around our growth and unit economics, which continued to unlock capital for our business, but it was not clear to me that Fernish would be able to fully close that gap as a stand-alone business.

I could have absolutely done a better job communicating these dynamics to the team internally, but even in hindsight that perfect balance is hard to find.

(6) Coaching is key.?

The greatest executives of all-time - from Jack Welch to Steve Jobs - had coaches throughout their CEO tenures. And while I am certainly not breathing the same air as those two, I have been incredibly fortunate while at Fernish to have had the regular counsel of a seasoned operator and executive coach in Thomas Frank . Tom was invaluable in helping me see around corners that I did not know existed - namely when it came to elements of people, culture and audience-specific communication.

(7) M&A was our quickest path for scale, profitability, and creating durable enterprise value.

There are clear “scale breakpoints” for Fernish’s business across network effects, supply chains, market density, and capital markets. And over time, these started to combine nicely to compress our costs and increase our margins. However, getting from one breakpoint to the next was continually made more difficult by market competition.

Our recent merger has led us to combine efforts, which are already leading to lower infrastructure costs, faster market penetration, larger partnership opportunities, and more consumer awareness. We believe that the confluence of all of this “goodness” will create long-term and durable enterprise value, which has always been our goal.?

Conversely, what has made this merger decision and process so challenging is the people component. Integration costs are real, and personnel redundancies have led to impossibly hard people decisions with various degrees of thrash. And with today’s uncertain market environment demanding profitability for companies, an already complicated equation becomes that much harder to get right.?

But like all decisions I have had to make at Fernish, I am guided by the North Stars of our customers and our people (and I want to thank Kristin Toth for continually bringing me back to those day-in and day-out). That lens yields a decision-making matrix that has guided all that we’ve done and accomplished at Fernish. And while there has been nothing easy about any chapter, it has certainly been rewarding and absolutely worth all the energy, time, and love put in.

Thank you all and I look forward to the next chapter of this journey.

Michael