From the Redbox Founder's Email Archives: Keeping Expenses Low

I recently switched laptops and discovered a bunch of old emails I had written to the entire Redbox employee base. A bit of context -- back when I was CEO of Redbox and we were growing nearly 300% a year for many years, I tried to write an email to all the employees each week to keep us all connected. Some of these were updates, some were strategic and some were just personal musings. Way back when, I had received good feedback on these emails and while I am not currently a CEO, I do help advise CEOs and I thought some of these old emails might be instructive or helpful -- enjoy!

From: Gregg Kaplan 

Sent: Monday, February 20, 2006 11:41 AM

To: Everyone

Subject: Weekly email...

Hello everyone,

You’ve heard me talk in the past on many occasions about keeping our expenses low – how it will help us be successful and gain the confidence of our investors. I wanted to relate a few stories that bring this point to life.

You’ve probably all noticed the fancy furniture in the lobby and kitchen. I thought everyone was aware of where that furniture came from, but last week someone asked me about it, and I realized that perhaps everyone wasn’t aware of the furniture’s origins. It’s a story worth telling.

About a year ago, McDonald’s built a McCafe in the lobby of their headquarters. It was meant to highlight this new concept called the McCafe which was like a Starbucks and was being tested around the country. Several months later, new McDonald’s management determined not to support the McCafe anymore and ripped out all this fancy furniture and fixturing, putting them in a warehouse somewhere.

Along comes Greg Waring [Greg was VP-Marketing at the time], who was tasked with making our lobby look a little nicer, but on a small budget. Somehow he hears about this McCafe furniture and negotiates a deal to get $70,000 worth of furniture in exchange for a very small donation to Ronald McDonald House. In one deal, we upgrade the look of our own lobby on a tight budget and help a worthwhile cause at the same time.

Why am I telling you a story about furniture? First, I didn’t want you to think that we spent a lot of money on lobby furniture – we didn’t. Second, I want you to know that the leadership team is following our own advice on keeping expenses low and being creative about solving problems on small budgets. Finally, I think it is funny that there are coffee beans on the furniture, but most people wouldn’t notice it unless you pointed it out – take a look the next time you pass by.

The second story also relates to our lobby -- take a look at the floor right in front of the Redbox kiosk in the elevator bank. You’ll see that there is a big fancy “A” on the carpet, although if I didn’t point it out, most people would just think it was a strange design. The “A” stands for Apropos Technology, which was the previous tenant in our space. Up until this morning I didn’t know much about them, except that they seemed to have spent a lot of money on the space that we now occupy – between the tiered training room, the cool media room off a large conference room and all the furniture and wiring, they didn’t spare much expense in equipping this space (which we happily took off their hands for about 50% of the lease price they were paying).

I decided to see how Apropos is doing today and went to their website. It turns out that they still have some space on the 28th floor of our building, but there are more interesting details: I didn’t realize it but they were a public company. The chart below shows their stock price when they went public (at about $40 sometime in 2000). The stock then went as high as about $70 and then plummeted to about $2 by 2001 and then never recovered. I also checked their annual report. In the year 2001, they had about $22 million in revenue, but they also had about $34 million of overhead expenses. (For comparison’s sake, we will probably have between $35 and $40 million of revenue this year and will have between $7.7 and $9.5 million in overhead). By the way, I also learned that Apropos was bought by another technology company late last year for $50 million, a fraction of what their value was at one time.

Now you should know that the original decision not to replace the big “A” in the carpet was purely to save money. When we moved in, Greg (still in his role of making the lobby look more presentable) said that we could probably replace the elevator bank carpet for about $10,000 and get rid of the ugly “A”. We decided that $10K could be better spent than replacing perfectly good carpeting, but now that I know the full Apropos story, I think I’ve changed my opinion slightly. The “A” will stay on the carpeting in the elevator bank – not just because it’s silly for us to spend $10K to replace it, but also because going forward, every time you or I walk past it, we’ll be reminded of Apropos and how they spent $34 million in overhead in one year. Between the coffee-bean furniture and the “A” on the carpeting, we couldn’t ask for better symbols in our lobby of the need to keep expenses low.

Thanks.

Gregg