The Avon Formula or How to Blow a Great Company

Avon—again? We began last week’s post by playfully picturing Sheri McCoy dwelling on her destiny and Avon’s decline. You might ask why we’re still talking about that sinking ship.

Well, we can’t afford not to. You see, Avon is a prominent direct seller and as such it helps set the tone for the industry. And there’s a lot to learn from the Avon story as a cautionary tale, if we hope to achieve Avon’s level of growth while avoiding its pitfalls.

Today I’m going to lay out a simple recipe for failure as provided by Avon under McCoy. Avon no longer has control over its future, and sadly, that’s how the company will likely be remembered after Sheri steps down on March 31st of this year.

Here’s how you steer your successful company into a wall.

1. Take a great idea. Make it into a thriving company.

It’s 1886 and you’re selling books door-to-door. It’s a way to make ends meet, but nothing more than that. One thing you notice is that people are always complementing you on how nice you smell. You can’t believe it—after all, you were mixing perfumes yourself at home, just for fun. You take the notion to ditch the books and start selling your own custom fragrance—and business explodes.

After that nothing can stop your steam engine as you refine your branding, add direct selling to the mix, and grow your “company for women” into a multi-billion-dollar giant.

2. Go public.

Almost a century later, in 1978, your successors take the company public. Now you answer to a bunch of shareholders whose main priority is the returns they want to see.

And you give them returns. Boy, do you give them returns. Bit by bit, start to neglect everything but those returns.

Market-summary-AVON-Products

3. Hire a “veteran” from J&J.

It takes 30-something years, from the time you go public, for your company to drift to a point where radical change is imperative for survival. And thanks to that slow drift there’s no way to explain why you’re in this position. You just are.

And you think that radical change can only be born inside a new CEO’s head. So you go out there and, as one would expect, start looking for someone from the beauty industry. And there you have her: Sheri McCoy, the ex-Johnson & Johnson Vice Chairman, whose auspicious career there spanned three decades.

That’s practically a lifetime of experience. She’s a veteran businesswoman, a true leader. She even had the nerve to decline Coty’s $10 billion buyout offer right after she started with Avon.
After all, who the hell do they think they are at Coty? Making fragrances for brands all over the world? So what, who cares? Not Avon, poised to turn the page and become the biggest success in the beauty industry.

4. Mess up comp and other stuff.

Here’s where things start going sideways, irrevocably sideways.

Avon employees asked about McCoy’s contribution will only remember two main episodes:

A) How she messed up everyone’s commissions and ranks and then rushed in to save the
day, but for many underpaid and proactive Avon ladies the last bell had already rung.
Sheri-McCoy-how-to-blow-a-great-company

B) How she created loads of negative ROI and her main approach was expense
cuts instead of profit generation—never a good idea.

5. Bet on your own country and lose.

And then, despite everyone’s suggestions to get out of the withering American market and pivot to Mexico and Brazil, Sheri decides to put all her eggs in the homeland basket and prove the naysayers wrong.

Well, that didn’t quite work the way she thought it would.

items-sold

6. Consequently, be late for the Latino train

By the time Avon was ready to board the Latin American train, all seats were taken and one had to pay triple the price for standing-room only.

To be fair, this long-overdue move southward will eventually save what’s left today of Avon as a Company and will allow it to exit, if all goes as planned this year, with Coty (oops—more on that later).

7. Fail to digitize your community.

Meanwhile, you should totally forget that the internet exists and that retail competitors like Sephora are utilizing its power in full capacity, turning their consumers into loyal online fans.

Wait until 2014 to release an uninspired—and uninspiring—e-commerce website. Remain in the dark about what a central role technology plays in your market ranking in this new century. Neglect the notion that after making sure the product is excellent, giving consumers tools for communication, interconnectivity, and seamless shopping is the most important part of a modern direct-selling CEO’s job.

Apparently, Sheri McCoy isn’t that CEO.

8. Compromise your brand’s integrity by selling everything but the kitchen
sink.

Your next step towards ruining your company might come as a surprise even if you’re already well into your corporate nosedive: you should start selling a bunch of stuff that neither empowers your brand identity nor has anything to do with it, really.

Just to deepen confusion, start selling men’s products while maintaining the motto, “the company for women.”
we-also-sell-men-s

9. Sell yourself short to someone who couldn’t care less about you.

Eventually, activists among your prime shareholders will cry “Enough!” and push the board to accept the obvious fate: finding a buyer for Avon and letting McCoy go.

Coty’s offer is still on the table—in this business fairytale, if not in life, there are second chances. The price has changed, though. No one knows how by how much, but sharks have no mercy for a bleeding whale, and when it comes to terms, beggars can’t be choosers.

There will be no hall of fame ceremony honoring the deal, when it’s sealed. And sealed will be, along with the once-great cosmetic empire’s fate. Avon will become Coty’s South American hub for fragrance distribution, and in a few short years it will most likely…

10. Cease to exist.

Seth Gribben

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