Don't Miss the Lesson Hidden in Collapse of One Kings Lane

Slowing growth? Raise more money.

That seemed to be the plan at One Kings Lane, an online home furnishing retailer and former unicorn. But following a growing list of former unicorns into oblivion, Bed Bath and Beyond purchased the flash sale provider of such essential items as a $221 doll house tent and assorted shell speciments for a mere $235, for an "undisclosed amount."

According to the Wall Street Journal, the firm had raised $220 million in equity funding and was valued at over $1 billion as recently as 2014. But the sale price was so low, it was deemed immaterial to retailing giant Bed Bath and Beyond's bottom line.

In a classic assessment of a "why the hell not, nothing else is working" acquisition, an analyst quoted by the Journal said:

"We question the rationale in acquiring another promotion-based business that appears to be under top- and bottom-line pressure since these are issues that have plagued BBBY itself for several years."

In other words, why would you, a company with shrinking revenues and falling profits, buy another company that's also losing a bunch of money and can't seem to figure out how to make more of it.

It's easy to play Monday Morning Quarterback with what in hindsight seem like silly, useless companies destined to fail. And even though after five minutes on the site I literally felt like a worse person than before I had ever even heard of One Kings Lane, there is a larger point in this story.

Back in 2007 when mortgage companies started going under, I remember hearing (and saying), "sure, but [fill in the blank terrible subprime originator] was going down anyway. It was only a matter of time." Then, when we ran out of shoddy operators to go bust, real companies started going belly up. 

I recall a specific conversation with an also skeptical friend in the business where I said, "yeah, but it's not like it's going to get so bad that Countrywide is going down." That was late 2007. By early 2008, Countrywide had collapsed and been acquired by Bank of America.

The lesson is clear: bad companies may go out of business before good ones, but that doesn't mean good ones can't collapse too. The longer the downturn lasts, the deeper the correction, and the more likely "good" companies are going to get caught up in the mess.