47BloombergBusinessweek November 23, 2020
Chewywasdetermined tooutdo
Amazoninservingcustomers.Whena
customerphoned,a representativesaid
hellowithinsixseconds.Emailswere
answeredwithinanhour.Messed-up
orderswerereplacedwithoutques-
tionorcost.Customersreceivedgreet-
ingcardsontheirpets’birthdayand
flowerswhentheirpetspassedaway.
Thosewhoemailedpetpictureswere
sentfreehand-paintedportraits.“It
wasallfromthebeginningaboutwow-
ingcustomers,”Cohensays.“Wecan
surprisethecustomerwitha portrait,
andallofa suddenthey’rea customer
forlife.”
Byearly2012,Chewywasposting
monthlysalesintherangeof$1million,
whichwouldgrowinundertwoyears
tomorethan$10million.Still,inves-
torsremaineddubious.Cohenwent
door-to-doorinSilicon Valleywith-
outraisinga pennyofventurecapital.
Then,inSeptember2013,LarryCheng,
co-founder of Volition Capitaland
ownerofa labradoodlenamedCoco,
agreedtoinvest$15million.“Chewy
wasthegreatuntoldstory,”Chengsays.
“Backinthatday,peopleweretalking
aboutCasperandWarbyParker,and
weallknewChewywasdoingwaybet-
terthanallthosecompanies.”
Chewy’s pathto success was all
aboutscale:gettingbigasfastaspos-
sible.“Ifweweregoingtobeableto
surviveAmazon,weneededtobuild
a largerpetbusinessthantheydid,”
Cohensays.Chewyspentheavilyon
AdWordsand,later,ontelevisionand
directmailtoattractcustomers.Some
companieswillpaysuppliersupfront
in exchange for a price discount;
Chewy,followingAmazon’slead,chose
insteadtopayfullpricea fewweeks
later—gaining,ineffect,a short-term,
interest-free loan it could plow into
customer acquisition. As long as new
customers kept shopping—and even,
in many cases, subscribed to regular,
periodic purchases of food and other
staples—the model worked.
Chewy’s existing customers gen-
erated a profit. But that income was
funneled directly into attracting new
customers, which consistently led to
financiallosses.Theapproachwasa
facsimile of Amazon’s vaunted “fly-
wheel” model for growing. By 2016,
Chewy was averaging $2.5 million a day
in sales, for an annual take of $900 mil-
lion. Never mind that it lost $107 mil-
lion that year. At any point, Cohen says,
he could have turned off the marketing
spigot, and Chewy would have become
profitable. But it would be a smaller
business today.
Early in 2017, Cohen became a father
for the first time, and his own father
suffered a major heart attack. The
latter event “really shook me to my
core,” he says. Around the same time,
he received an email from Raymond
Svider, chairman of BC Partners, a pri-
vate equity firm in London. Two years
earlier, BC had bought PetSmart, which
had 1,400 stores in the U.S. PetSmart
executives had noticed Chewy eating
into their market share, and Svider,
who owns Siberian cats named Pearl
andCashmere,wasnowinterestedin
buyingthestartup.Cohentoldhimhe
wasplottinganIPO,buthe’dconsider
an all-cash bid if it came fast. That
April, BC and PetSmart agreed to buy
Chewy in what was then the biggest
e-commerce deal ever. Cohen and his
co-founders each pocketed hundreds
of millions of dollars.
As part of the deal, Chewy’s exec-
utives and some senior employees
got golden handcuffs: “profits interest
units,” a type of equity that was set to
vest over five years. If a recipient left
Chewy before the end of May 2019, BC
could buy back his or her securities at
a fraction of their value.
Late one evening in March 2018,
Cohen sent an email announcing his
immediate resignation. The news
came as a surprise, though a few of
his colleagues were aware that Cohen
was frustrated with the new owner’s
questioning of some of his decisions,
according to former executives.
Cohen later wrote in Harvard
Business Review, “I felt I had done all
I had set out to do ... and I didn’t want a
boss.” He did want to spend more time
with his new son and with his father,
who died last December. Singh, DATA: AMERICAN PET PRODUCTS ASSOCIATION, AMERICAN HOUSING SURVEY 2017U.S. households with at least one pet, bytypeofpetDogs
Cats
Freshwater fish
Birds
Small animals
Reptiles11.5
5.7
5.4
4.563.4m
42.7ShareofU.S.households,byageofheadofhousehold
◼Withpets ◼Withchildrenunder 18Under 2525-2930-3435-4445-5455-6465-74
75 and over60%40200Majorpetsupplycategories, average annual owner
spendingforalldogsorcats owned
◼Dogs ◼ CatsFoodMedications
(excluding tick/flea
control, heartworm)
Medicated flea/
tick control
products
Books, pamphlets,
and videos on
care/training
Heartworm
medicationn /an /aGrooming
suppliesVitamins and
supplementsCages and cratesChewsCarriersTreats$25949