I recently went one-on-one with Gordon Lownds, co-founder of Sleep Country Canada and author of Cracking Up.
Adam: Thanks again for taking the time to share your advice. First things first, though, I am sure readers would love to learn more about you. How did you get here? What experiences, failures, setbacks, or challenges have been most instrumental to your growth?
Gordon: Thank you for this interview. By the age of seventeen, I was managing three games of chance on the carnival midway at Toronto’s Canadian National Exhibition. I was self-employed, receiving 10% of the take, and paying for my staff and the prizes I handed out. It was an eye-opening education in business, in understanding human nature, and in how to motivate customers.
Since that time, a combination of serendipity and being fearlessly opportunistic propelled me through a rapid progression of roles in retail, where I started out as a seasonal worker in a warehouse and ended up running a retail division of Hudson’s Bay Co., all by the time I was in my late 20s. However, it became apparent that I couldn’t (or wouldn’t) conform to the bureaucratic confines of a large corporation. So, I resigned and became a management consultant, working primarily on projects for Hudson’s Bay. In one fell swoop, I doubled my annual earnings. I later joined a large IT-oriented consulting firm to head up its Strategic Management Practice, where I led projects advising companies who marketed to the end consumer – mostly retail and financial services businesses. Subsequently, I became a partner at a boutique consulting firm specializing in competitive strategy initiatives for major blue-chip organizations.
Adam: In your experience, what are the keys to enjoying career success in the financial services industry?
Gordon: Up to this point, the keys to my success were: a) the willingness to take risks with my career choices and business decisions; b) being candid and brutally honest with clients and associates; c) an innate ability to comprehend what customers wanted and needed by being able to put myself in their shoes; and d) operating with integrity – always delivering on what I promised.
Adam: What is your approach to and best advice on building, leading, and managing teams?
Gordon: Later in my consulting career, I was tasked with identifying and analysing acquisition targets for a client company’s leveraged buyout (LBO) initiatives. Once I realized they were profiting from my insights and abilities, while my upside was limited to billing for my time, I decided that I could be in the LBO on my own … I was simply lacking the financial resources that would be necessary. So, in 1988, I formed Kenrick Capital, a boutique investment banking firm, in partnership with Steve Gunn, an ex-McKinsey consultant. Our goal was to originate leveraged buyout opportunities and then to partner with external pools of capital. Our first deal was a $100 million transaction with financing provided by Wesray Capital – a leader in the LBO field in New York – and CIBC Wood Gundy Capital in Toronto.
In 1990, we completed a buyout of the Simmons Mattress Co., the Canadian division of the U.S. parent company. We were active on the Simmons board and soon became frustrated at their heavy reliance on department store distribution channels, which accounted for over 50% of mattress sales, but whose growth was stagnant. They were complacent and did a poor job of marketing mattresses. The other retail channels consisted primarily of mom-and-pop dealers who had a sleazy reputation, akin to that of used car dealers.
So, with our now substantial industry knowledge, Steve and I developed a business plan to create a Canada-wide specialty retail chain focused on selling mattresses. Utilizing our combined experience in retail operations, marketing, and finance, we developed a competitive strategy and financial model for what was to become Sleep Country Canada. To test the viability of our ideas, we presented our business plan to the ten top specialty mattress retailers in the USA to solicit their comments and suggestions. The last company we visited on this US tour was Sleep Country USA – a regional chain of 15 stores – and it quickly became apparent that our business plan and strategies were very similar to what they had built in the Pacific Northwest.
So, with a high degree of confidence that our concept was sound, we sold our stake in Simmons Mattress to our other investors, who in turn helped finance the startup of Sleep Country Canada. And to mitigate the inherent risks of a startup, we gave Sleep Country USA a token carried interest in our new venture in return for their ongoing advice. To reduce the risks of failure, a critical part of any startup is finding an analogous business model against which to benchmark one’s ideas.
Our fundamental concept for Sleep Country arose from identifying a gap in the marketplace for a national retailer who would focus specifically on the category, and could offer the broadest assortment and superior customer service elements, provide expert advice to shoppers to select the best mattress for them, and that would dominate the advertising space for the category.
Sleep Country Canada opened its first five stores in the fall of 1994, in Vancouver, B.C. The company was capitalized with $1 Million, was soon cash flow positive and became financially self-sufficient (it never had a bank loan) while aggressively opening stores across the country. Thirty years later, it was sold for $1.7 billion to Fairfax Financial Holdings.
Sleep Country succeeded due to a suite of sustainable competitive advantages – it was perceived to be the low-price provider, it offered superior and differentiated products and services, it was laser-focused on a niche market, and it overwhelmed the competition with its electronic media presence. The foundation principle of our competitive strategies was to ask ourselves, “what would the customer value?” rather than the traditional idea of “customer needs”.
Adam: What do you believe are the defining qualities of an effective leader?
Gordon: The answers to this more profound question/analysis are where one can often discover meaningful sources of differentiation and competitive advantages. To discover a fuller set of values and to push one’s thinking, one can create a pyramid of values. Starting with the core or basic product/service, we then added the expected, and then the anticipated, and finally the ideal product/service offering. Core product: the basic mattress and box spring, its warranty, and its value proposition (price & quality).
Expected product: free delivery, all the recognized brand names, and the broadest selection of mattresses to choose from (i.e. a power assortment offering 50 products versus the 8 to 10 that others would sell). Anticipated product: a price guarantee (we’ll match any competitor’s price), next-day delivery, and we’ll set up the new bed and remove the old mattress, all for free, Ideal product: no/low pressure sales tactics; a comfort guarantee (try out the mattress and if you don’t like it then return or replace it at no cost); unique products with exclusive and valued design features; friendly delivery guys who wear booties so we don’t track dirt into your house; and a charitable/social responsibility commitment (e.g. we’ll donate used beds to charities, coats for kids event, etc.)
Delivering on this fuller range of explicit needs and implied values are what dramatically set Sleep Country apart from its competitors.
In addition, we dominated the category with massive spending on radio and television advertising, and this was a key driver of our growth. Our ads featured our President, Christine Magee, who quickly became a well-known, likeable, and trusted brand ambassador. And the incremental funding to support the advertising investment arose from our ability to generate higher average ticket sales on our mattresses and superior gross margin percentages than the industry norms.
Also, our sales staff were exceptionally well-trained to become “sleep experts” whose low-key approach relied on technical knowledge rather than high-pressure sales tactics. And, our unique compensation structure, wherein we paid commissions on the gross-margin dollars – rather than sales dollars – while allowing staff to negotiate whatever selling price was necessary to close a sale, meant that our staff became the top earners in the furniture industry, so we could attract the best. Within three years, we accounted for roughly 40% of total bedding sales in each of our markets.
Adam: How can leaders and aspiring leaders take their leadership skills to the next level?
Gordon: Assuming one has a strategy with powerful competitive advantages and a robust financial structure, then taking a business to its next level depends entirely on operational execution (i.e. doing everything right, all the time). And that requires recruiting the right people, ensuring they’re effectively trained, empowering them, measuring their performance with meaningful metrics (i.e. feedback loops), and rewarding them for their performance. It also depends on effective top-down communication of goals and objectives, company-wide feedback on progress, and providing the right resources for all staff to succeed. Also, prompt course corrections when tactics don’t go as planned are essential, including when certain staff don’t fit in. To effectively rectify problems, management must be willing to take responsibility for mistakes, and that, in turn, requires them to be humble and honest.
Adam: What are your best tips applicable to entrepreneurs, executives, and civic leaders?
Gordon: To be a good leader, one needs to be able to clearly communicate the company’s goals and objectives to staff and to demonstrate an unwavering commitment to its strategy. This includes “showing no fear”. An effective executive also exhibits a high degree of emotional intelligence, the core attributes of which are self-awareness (a requirement for humility), self-regulation, a high level of motivation to perform/improve, empathy, and social skills. These characteristics also translate to having a willingness to listen, to learn on the fl,y and to demonstrate empathy, both for your customers and your staff.
When building a team, it is vital to populate the group with managers who are on the upward slope of their learning curves – so that they’re eager to learn and grow – and who demonstrate complementary social styles. In successful companies, senior management teams almost always include one who is a “driver” (extremely goal-oriented) paired with partners or an executive team that are “analytically oriented” and/or “expressive” (typically a salesman personality). This is a well-balanced triumvirate, and, in my case, I was a driver/driver while my business partner was an expressive/analytic.
To operate effectively, a broad swath of operational intelligence is needed, in its most all-inclusive form, and it must be accurate, timely, and relevant. The best way to accomplish this is by designing “feedback loops”. These consist of a variety of mechanisms that provide comprehensive feedback on all critical metrics to monitor what is truly going on across the organization and in the marketplace.
- Leaders set the tone and establish the culture of a business. Startups face many risks and uncertainties, and with hundreds of decisions to make at the outset, you cannot hesitate. Be brutally decisive and never pause to “admire a problem.”
- Understand your suppliers’ businesses and priorities and strive to find ways to partner with them.
- Manage your business for cash flow. Focus on those dimensions that drive the sources and uses of funds. Particularly in startups, positive cash flow is all that matters for survival.
- Be greedy about market share. Build strategies that can deliver a meaningful share of the market.
Adam: What is the single best piece of advice you have ever received?
Gordon: The single best advice I’ve ever received is to always remain curious and open to learning, for you never know when or from where the next great idea will cross your path.
Adam: Is there anything else you would like to share?
Gordon: One final word on building competitive strategies – the best way to link a company’s goals with meaningful strategies and to establish the right priorities is through a rigorous assessment of a business’s Critical Success Factors (CSFs). These are the five to seven factors, things, or set of conditions that must go right for the business to succeed in achieving its goals. All CSFs are critically important thus there is no rank order … unless all are in place, the organization will not meet its goals. Hence, the question one needs to ask is: “What things need to go right in order for the business to succeed?” Once these factors are established, then build a set of strategies and tactics targeting each of those specific CSFs to ensure success.
A final word of caution to high-achievers and entrepreneurs – in our often-madcap race to the finish line, many of us develop unhealthy mindsets – workaholism, a sense of invincibility leading to extreme risk-taking, arrogance, narcissism, and bipolar disorders are common pitfalls. And these tendencies are often precursors to alcoholism and addiction. So, one should endeavor to maintain a healthy balance in one’s life coupled with a high degree of self-awareness.
