When a star consumer company runs out of fuel

Overly optimistic entrepreneurs, VCs betting on endgame, bump into a mutant environment.

Wen 丨 Zhu Kailin Zeng Shiya Qiu Hao

Editor丨Qian Yang

Black Friday

Even at its most critical moment, when the company owes more than $100 million, Hu Ting, the founder of Hutou, remains optimistic and calm — at least it seems. She told employees that she had met with suppliers, and she said that she was still hopeful that three property owners had reached out to ask if they needed help. She's trying to avoid the liquidation of her four-year-old company.

On April 4, Hu Ting told LatePost, "There will be several stages of efforts to strive for the retention of the project; Decide whether the project lives or dies, and there may be more than half a year. She specifically mentioned, "Last year, Hutou's annual revenue was close to 400 million yuan. ”

"We are a good project, and the lack of blood is my decision-making problem, environmental judgment and fluke mentality. Good projects meet unqualified CEOs. Hu Ting said.

That Friday a few days ago had been black for Hu Ting. In Hutou's nearly empty office in Shanghai, she sits in an office chair and speaks softly to the dozens of employees who surround her. Except for a few choked pauses, most of the time she tried to keep smiling and persuade the employees who came to beg for pay, "Give me a little more time."

She did her best to show hope, and the wording was tactful and appropriate, interpreting the public opinion caused by the rumors of bankruptcy as "a wave of attention" and "black fire is also fire". Opening Weibo, she saw that a user commented below, "Don't hang up their family, I want to eat their tiger roll." She relayed the comments to employees who had lost confidence, saying, "If a miracle survives, it may spread widely." ”

Trust is gone. On Monday, March 27, Li Shuxin (pseudonym), a channel employee of Hutou Bureau, decided not to go to work anymore. The next day was the day the company promised to pay the salary, but once again the money did not arrive. A WeChat group of more than 90 salaried employees decided on collective labor arbitration on this day. On Thursday night, Jason, director of information products, posted a video in Xiaohongshu, saying that "the tiger head bureau collapsed, and the founder was suspected of running away."

The next day, Hu Ting appeared to face her employees.

Founded in 2019, Hutou is one of the most high-profile star companies in the last wave of consumer investment that has faded. With only three stores open, Sequoia Capital confirmed the investment. It has risen rapidly with trendy designs and Chinese pastries adapted to the tastes of the younger generation. Its success is like a demonstration, accelerating the birth and growth of a number of Chinese baking startups.

Four years later, at the beginning of the year, Hutou Bureau became the first new consumer company on the verge of bankruptcy after the pandemic. Its current situation reflects the accumulation of risks caused by the last wave of hot money influx into the consumer industry: founders who have not gone through cycles, expansion strategies that scale more than profits. When consumer demand weakened after the pandemic, VC institutions that did not see the possibility of return were no longer willing to pay "fuel".

At the moment, Hu Ting is at an impasse, and the remaining 20-odd shops of Hutou Bureau are still burning rent, but there is almost nothing to sell, and suppliers refuse to provide Hutou Bureau with eggs, milk and butter. In early March, Hutou Bureau barely paid them 50,000 yuan, but still owed 280,000 yuan, a raw material supplier said. Most of the employees' salaries are difficult to pay, and the Shanghai headquarters owes about 10 million yuan.

On this day, the supplier who was owed money came to Hutou Bureau's Shanghai office to try to recover some losses. They took the charging pad, the Coke in the refrigerator, and finally simply removed the refrigerator. Earlier, the company sent iPads from closed stores to employees to offset their wages, and some even took the printer paper. An advertising vendor at the scene was emotional, holding a hammer, passing a beautifully designed OKR board on the office wall and saying, "That's what I did, and I haven't paid since last June." ”

Hu Ting wore a gray cashmere blouse, his long curly hair fell over his shoulders, and his face was calm but tired. Employees holding cameras surround her.

"I'm still trying." She said. She explained why she hadn't come forward for a while, "always communicating outside." She roughly estimated that the assets that the company could liquidate were not enough to repay the arrears, and only if the business continued and there was income, it would be able to repay.

Employees didn't leave sooner because of hope of getting their unpaid wages, and because Hu Ting had promised at a plenary meeting at the end of February that her shifts would return to normal in March, that she would pay her previous arrears, and most importantly, that she had negotiated a new fund that would turn around for about two months.

"The project came back from the edge of the cliff." At the time she said. The employees responded with warm applause.

None of those promises have been fulfilled. On March 31, she admitted that she was overly optimistic, feeling that bank payments and financing were "a sure thing."

In the past few days, employees who have been owed wages for four months have discovered that many executives have been leaving since mid-March, and they are angry that they learned of the situation at the latest. Hu Ting responded and explained at the scene, saying that several executives were "considerate of the company's voluntary departure" but were still working for the company. "If you pay 100,000 less wages, the company will have 100,000 more ability to pay."

Hu Ting asked the employees present to give her another two or three weeks, "I don't know if everyone wants it?" ”

"Unwilling." One female voice responded, while the rest remained silent. Jason, director of information products, reconfirmed the status quo to Hu Ting. Hu Ting repeatedly said that she would not disappear.

At about 5 p.m., Hu Ting came out of the office, draped in a long black down jacket, with a bag in both hands and a tired face. Hutou also defaulted on the rent owed to the owner of the office, who demanded that they must move out today. Hu Ting and his remaining fewer than 10 employees moved to an office at a nearby R&D center. On this day, she met seven or eight waves of people with demands, and she had to meet the next batch.

When she left Green Valley Center, an employee hoping to get back his unpaid wages said, "I don't deny that Hu Ting has worked hard. But in the end, we just look at the results. ”

Bad cycle

With the acumen of a serial entrepreneur, Hu Ting felt the crisis early, but she did not make up her mind and did not lay off employees and cut stores earlier.

In 2021, there was a communication meeting within Hutou Bureau, and the content was a signal of changes in the general environment. She and the core management team see that large enterprises are laying off employees, the net inflow of Shanghai's urban population is decreasing, and the scale growth rate of the catering industry is declining. In July of this year, Hutou Bureau had just received a round of financing, and the financing press release issued by the capital institution at that time said that it was 50 million US dollars, but Hu Ting said that the actual amount received was 30 million US dollars. The influx of capital makes expansion targets tempting. At that time, there were only 9 stores, and the number of stores expanded to 27 within half a year.

Hu Ting recalled in an interview with "LatePost" in May last year that in 2021, she predicted that the revenue in 2022 would be disturbed by the environment, and she subtracted the estimated revenue of each store by one month when she made the budget. "But I didn't consider at the time that the revenue reduction would be concentrated at one point in time, which would bring huge cash flow problems."

In the spring of 2022, Shanghai implemented control measures due to the epidemic. Without this unimaginable event, the revenue of Hutou Bureau's national stores and e-commerce could have reached about 60 million yuan a month. At the end of 2022, the remaining 40-odd stores of Hutou Bureau were not open for an average of 113 days and had no revenue.

During that time, Sequoia Capital, the main investor of Hutou Bureau, communicated with Hu Ting many times, hoping that the company would remain "static" and not open new stores, and the number of employees at the headquarters had been cut to more than 30 - "Be extremely pessimistic and live like this all year round." ”

Hu Ting did not accept this suggestion. "They wanted me to be more pessimistic. But I still want to ask for development. ”

A former employee of Hutou's engineering department estimated that a Hutou store cost about 8,000 yuan per square meter, plus equipment, more than 10,000 yuan. A core executive revealed that the cost of the store was once aimed at 9,600 yuan per square meter, including equipment, water and electricity renovation. Considering that many stores of Hutou Bureau are close to 100 square meters, different decoration designs are pursued in different cities, and stores opened in shopping malls can only enter the decoration at night, labor costs double, and the cost of Hutou Bureau's stores exceeds the industry average. If you add rent, the initial investment of some Hutou Bureau stores can reach more than 1 million. For reference, the cost of a directly operated standard store of Heytea is generally 700,000-1 million yuan, and the cost of a concept store is as high as 1.5 million yuan. In Beijing, Hutou Bureau had a store with an initial investment of more than 2 million yuan.

While 41 stores in Shanghai closed in April and May last year, Hutou Bureau entered three new cities (Chengdu, Chongqing and Hangzhou) and opened 13 new stores. Each Hutou Bureau is equipped with an average of 14-16 store employees, and the newly opened store will be equipped with 24 employees, and the salary of the store manager is also 1,000 yuan to 2,000 yuan higher than the market average.

Jason says his information department peaked at more than 30 people, and the base salary was the same as their previous jobs at major Internet companies — so many techies wouldn't have been necessary if they had stayed at their current size. He remembered interviewing the blueprint described by his supervisor as a chain of bakery brands in hundreds of stores across the country.

An executive believes that after the company's A round of recruitment, a very costly headquarters functional structure has been built, of which the information center has the highest labor cost. Hu Ting's internal statement at that time was to "exercise future capabilities", "give middle managers learning costs", and pursue Internet digital chain enterprises. It is understood that throughout 2022, counting the five insurances and one housing fund, the tiger head bureau issued a salary of about 100 million.

In June, Shanghai ended controls, and employees began to feel the company's sharp downturn. Since April, Hutou Bureau has adjusted the pace of expansion, cut salaries and laid off employees. But the pace is slow and cannot keep up with the pace of business contraction.

In 2022, the functional team of Hutou Bureau's Shanghai headquarters peaked at 300 people, and by the middle of the year, it had cut half of its staff. At the same time, starting in July, the human resources department announced the implementation of the OKR system, using a softer way to eliminate the last place, and the result was that the salary of employees was reduced to varying degrees. An employee in the information department who joined the company for one year took a salary cut of 2,000 yuan.

Today, Liu Kang (pseudonym) and several middle managers of the company believe that "the layoffs were not strong enough." It should be cut to only 20~30 people left. He remembers that in the later stage, because the volume of store business contracted sharply, most people sat in the office playing with their mobile phones, chatting and doing nothing.

In August, Hutou Bureau once achieved the highest monthly income of 48 million yuan in the year. But by September, there was a back-and-forth in urban regulation. Unease began to pervade the Tiger Head Bureau. One day in October, the company handed out a piece of paper for everyone at the Shanghai headquarters to sign, which said that the payday would be changed from the 15th of the following month to the 28th of the following month.

By the fourth quarter, the real existential crises began to emerge. In November, the three cities where Hutou Bureau stores were located were statically managed, the store's revenue plummeted, the cash flow was insufficient to pay suppliers, and Hutou Bureau's stores began to experience raw material supply cuts. The bad cycle begins.

During that time, Hu Ting rarely appeared at the company, but was outside looking for new financing. An executive told the team at a department meeting that Hu Ting went to a city in southern China to find some investors to drink in order to find money.

Capital markets have changed faces. It took 3 months for her to talk about the first support fund last year, about 10 million yuan; After more than 3 months, the second conversation came down. This money is far from enough to pay the supplier. A raw material supplier in Shanghai said, "A R&D employee of Hutou Bureau also advanced 170,000 yuan himself. It was verified that the money was not fully advanced by employees, and some of it was loaned by the company to purchase raw materials.

More than a dozen Hutou Bureau stores that have been renovated have been forced to close directly before they open. In November, in the absence of clarity, Hu Ting decided to withdraw from the Chengdu, Chongqing and Beijing markets — all new cities that entered the year.

This was followed by a peak of infection. Due to the sharp decline in revenue due to the impact of the epidemic, Hutou Bureau was prematurely recovered by banks at the end of December. A supplier filed a property preservation case, and 3 fund accounts of Hutou Bureau were frozen. Hu Ting approached them, signed a personal guarantee letter of 9 million yuan, and asked the suppliers to ship and keep the store running.

At the end of February, another group of suppliers filed a lawsuit and the accounts were frozen again.

At the end of March, negative news began to spread. Some suppliers who have already communicated well repent.

The confidence of investors, employees and partners has been damaged to varying degrees. On Black Friday, the day Mr. Hu confronted employees, that confidence fell to its lowest point.

Admit mistakes and crave turnarounds

At the end of 2022, Hu Ting began to ask friends around him to borrow money. In order to approve a credit loan from the bank, she, as the legal representative of the company, needs to have sufficient deposits in the bank card.

She sent her friend a bank card balance that showed millions of dollars, but needed to scrape together millions to leverage new funds. "Put it on the account for a few days, and I will pay you back on January 3rd." She said to a friend.

When communicating with employees who were asking for salaries, she revealed that she personally raised 18.5 million yuan, lent it to the company, and signed a guarantee agreement of more than 50 million yuan for the company's creditors in the name of individuals and families.

"With her personality, she should have borrowed it from all her friends who have a good relationship." A friend of Hu Ting said, "She is a person who does everything she can. I admire her. Starting a business is hard. ”

In the catering industry for more than ten years, Hu Ting has successively opened milk tea shops and xiaolongbao shops. She always wanted to do a bigger business. In 2014, she left 21Cake, a cake delivery brand, and moved to Suzhou to join the Western bakery chain Lisong Zhipin. In the mid-autumn of that year, she noticed that Luxi River Peach Pastry had opened its first brand store in Nanjing, and she focused on Chinese pastries. She found that Western baking uses more than 1,700 kinds of ingredients every day, while Chinese baking only has more than 300.

"I was thinking about this kind of data model, open next to the original Western-style baking, and do it accurately." She said.

Hu Ting is an insightful product manager. She discovered the casual baking consumption habits of the younger generation, and changed the size of Western-style mochi potatoes to bite by bite, making the initial explosive product. As a startup, it has a good name, "Tiger Head Bureau Standard Chartered Cake Shop", a witty slogan, "Use more snacks in everything".

Li Hao, who served as a financial consultant for Hutou Bureau financing in 2021, once said that they visited a large number of baking brands in different tier-level cities, and they were deeply impressed by Hutou's store management, design, products, and brand details.

At that time, Hu Ting's perception of the baking industry was that "innovators win". She once said: "What everyone will do must not be the winner or loser, some breaking things are." ”

Hutou Bureau's first store in Changsha was only 53 square meters, and its revenue reached 300,000 yuan in the second month of operation, and by Christmas the following year, the highest monthly income had reached 1.2 million yuan.

Less than a year after the opening of the Hutou Bureau in Changsha, a brand called Momo Dim Sum Bureau appeared in Changsha, also selling small mochi. The founder of Momo Dim Sum Bureau has no previous experience in the baking industry, and has successively created a hat brand and a tea brand. From 2020 to 2021, investment institutions rushed to participate in the investment of Momo and Hutou.

In 2021, a baking entrepreneur told LatePost that he could see three or four new pastry startup PPTs every week.

With the money, both brands began to expand. Relying on the founder's resources in Changsha for many years, Momo fiercely grabbed high-quality shop spots. "At that time, Hutou Bureau could not enter many good areas, including Changsha Wuyi Business District." One investor said. Hutou Bureau soon moved to Xincheng and went to Guangzhou to build another Internet celebrity store full of traffic.

Looking back now, the investor analyzed, "In the early direct operation model, at the beginning, it was paved in multiple cities, and it was easy to cut off cash flow." Of course, everyone was going this route at that time. ”

After more than a year of running wildly, Li Shuxin remembers that in October 2022, the director of her department proposed to launch a review to find ways to improve efficiency. After the review, she modified the strength of the store's coupons on a certain platform, "In the past, we gave too much profit, until the review, we found that the gross profit was too low, but it was too late." ”

Enthusiastic consumer demand masks hidden dangers. "Before the pandemic, our revenue in almost every city and store far exceeded that of our peers." Jason, a former employee of Hutou's information department, recalls the expansion of Hutou, "The company had a very ambitious goal to expand in major cities across the country. The top management knew how difficult it would be to open a new city from scratch, but we made the decision. ”

Even during the epidemic in Shanghai, one Hutou Bureau store still had a monthly revenue of 800,000 yuan. "All the data is better than originally predicted." Hu Ting talked about the energy that the team burst out during the epidemic. Such performance made her misestimate the degree of weak consumer demand after the epidemic.

An investor who previously invested in consumption believes that Hutou Bureau still did not stop expanding stores under the epidemic last year, which may also be related to the poor financing at that time, and the rush to prove strength with investors. However, Hu Ting denied this speculation to LatePost, saying that she was "reluctant to lay off employees and cut shops."

In an interview with "LatePost" in May last year, Hu Ting had a reflection on his previous expansion that was not restrained enough: "Capital can give birth to scale, as a lever for speed, but it will also pry people's hi points, in terms of scale and rhythm control, (I) are not particularly calm." ”

But she remains optimistic about the market ahead, and she thinks consumption will rebound. "(The epidemic) has less impact on snacks and drinks, and eating and drinking more affected."

Entrepreneurs are a group of people who are naturally optimistic and this optimism makes them inclined to take risks, and many times, people benefit from their risk-taking spirit. There's nothing inherently wrong with using capital as a lever to speed up, but when the environment starts to change and entrepreneurs fail to recognize red flags in time, the risks can be fatal.

At a department meeting last year, the head of finance encouraged employees: "Accompany the company to gamble, and if you win the bet, you will be paid." ”

When consumer investment is hot, a round of money is injected into this new batch of consumer startups every year - fuel and a sword hanging over the heads of entrepreneurs. When a catering company has less than 10 stores, the financing valuation is close to 2 billion yuan. It is not that the investor believes that a 50-square-meter small shop is worth 200 million yuan, but that the bidding code is opened in advance according to the ideal "endgame" of hundreds and thousands of store chains.

Risks are created by both parties. Without such valuations, investors often fail to grab the hottest projects. To get such a valuation, entrepreneurs must also build infrastructure that is not needed for the current scale in advance according to the "endgame", and compress the preparation of traditional brands for 5-10 years into one or two years. Store opening accelerates exponentially and risks multiply and there is no room for surprises.

Over the past three years, Hu Ting is not the only entrepreneur to make a similar choice, and Hutou Bureau is not the most dangerous company.

One consumer-watching investor said: "Many founders I know sold their houses and cars last year. It is also difficult to say what caused the industry downturn and fatal decisions. ”

Today, Hu Ting still holds out hope for the franchise model. She recently flew to Wuhan several times. The stores there have all been transferred to franchisees and are operating on their own. She hopes that Wuhan can make a single month profit as soon as possible, and perhaps, so that third parties in other regions can have confidence and consider taking over the tiger head bureau. That optimism is now one of the forces that sustains her.

Hu Ting gave many people the impression that he was "gentle on the outside and powerful on the inside". An employee of Hutou described her as an "assertive, attitude leader", euphemistically expressing her tough decision-making style.

In the past few days, an investor in Tiger Head Bureau has lost several pounds of weight. In his organization, the project is not large, and it is difficult to secure new funds to support the already heavily indebted company.

Hu Ting's Feishu signature reads, "Profit is greater than scale, capital efficiency is greater than profit, and operation is greater than management." She also posted it on the now-empty office wall. She tried, but in her fourth year of entrepreneurship, she ran out of fuel.