Walker Edison Lost $1.5 Million. But It Taught Them A Priceless Lesson.

• Author: Francom, Sarah Ryther
• Position: Lessons Learned

Brad Bonham was attending the China's largest import and export fair, Canton Fair, when he spotted a piece of furniture he had recently purchased in the United States. "I had just bought this TV stand at Best Buy for $250. Here it was going for $25.1 ordered a container on a whim and decided to try selling it to retailers."

Mr. Bonham's split-second decision would put him on a life-changing path that resulted in the start of Walker Edison, a wholesale furniture company that sells to online retailers. But while the company has experienced steady growth since its 2006 beginning, Bonham says it went through a rather expensive learning experience. He calls it his company's "failed experiment."

EXPANDING INTO NEW BUSINESSES ISN'T ALWAYS A GOOD IDEA

By 2010, Walker Edison had grown into a successful online wholesaler, with annual revenues reaching upwards of $10 million. But Mr. Bonham was anxious to try something new. His previous risk had paid-off--big time--why not take another one? After a thorough analysis of his supply chain, he realized it was the retailers who turned the most profit. "Typically, retailers make a 50 percent gross profit margin," he says. "We decided we wanted to try the retail end and make the additional profit."

In April of 2010, the company did just that. They opened five temporary retail stores across the Wasatch Front, stocked a large warehouse full of patio furniture product, and hired nearly 100 employees. Then, they opened to the public. "We thought we understood what it would take and we knew how to make products that people liked. Maybe it was greed. Maybe we were trying to exploit our advantage, but it made sense at the time. We were ready to do this, or we thought we were."

But by the end of the first month, Mr. Bonham knew he had his work cut out for him. For one, the company made a mistake early on: it didn't market to consumers. "We grossly underestimated what it takes to get people into your stores and [to] spend money. We thought, We'll put the stores up in high traffic areas and people will see it and they'll walk in.' There was some of that, but not enough to make us profitable," he says. "No one knew who we were." Then there's the fact that patio furniture is a seasonal product, and winter really dragged out that year. As a result, the company didn't start to see real sales numbers until June. "We knew we were under a time constraint to sell our inventory," Mr. Bonham says. "We realized...