It’s strange what we hold on to when it’s all over. For Cheryl Calverley, the former CEO of Eve Sleep, it’s the grey sloth that appeared in the mattress company’s TV ads.
She needs to send the mascot – the final business asset – to Eve Sleep’s new owner, Bensons for Beds, but she can’t quite bring herself to do so. “I should have posted it earlier this week, but it’s still sitting there in the post bag on the corner of my floor.” Her reluctance is understandable given the circumstances of her exit.
After becoming CEO of Eve Sleep in May 2020, Calverley and her team pulled off an impressive turnaround at the online retailer, which had been losing millions of pounds each year (£25m in 2018). Despite the shock of the pandemic, by January 2022, Eve Sleep was close to breaking even for the first time.
But by November of the same year, the share price had fallen by 90%, orders had dried up and, after unsuccessful sale talks, the business entered administration in October. The brand was later rescued by Bensons for Beds.
Calverley released a statement at the time saying “the scale of Eve was simply insufficient to withstand the economic tsunami that has gathered momentum over the past six months”.
It’s a tale that is all too common; Joules, Made.com, Missguided, M&Co and Paperchase all entered administration in the last six months. More UK companies went bust in 2022 than at any point since the financial crash, according to the latest figures by the government’s Insolvency Service. The recession is predicted to push yet more businesses into the red.
What follows is the story of what happened to Eve Sleep, what it feels like to be in charge of a failing business and how leaders can handle the personal toll.
Calverley first joined the business in 2018 as chief marketing officer, after a respected career forged at Unilever, Birds Eye and the AA. Even back then, Eve Sleep was unusual. The mattress company was four years old, but had experienced “accelerated ageing” – it jumped from a start-up to IPO in less than four years. Calverley’s appointment was part of a move to get the business through the difficult teenage years.
“Interestingly, it was a turnaround gig. It didn’t look like it, but the business was heavily loss-making. The remit was to make Eve Sleep a sustainable, profitable business, while maintaining some top-line growth. That’s right up my street,” says Calverley, a self-confessed adrenaline junkie.
The management team set about fundamentally restructuring the business. A key challenge was to unlock the value in the direct-to-consumer business model. “Revenue and profitability of customer data is reliant on being able to sell more things to those customers, more efficiently, as you go forward. People probably wouldn’t even remember where they bought their mattress three years later, so you might as well be a wholesale business,” she says.
To mitigate this, the team pivoted the business into a broader “sleep wellness” ecommerce retailer, and launched a range of new products, including bed linens, duvets, bed frames, weighted blankets and a CBD oil line.
By the start of 2020, the journey to profitability was well underway. The losses had dramatically reduced from £25m in 2018 to £12m the year after, and it was on track for a £3.5m loss in 2020.
Pandemic impact and Calverley steps up
The first test came in the form of the Covid-19 pandemic. Pre-pandemic, the business would sell about 100 mattresses a day in the UK. In the first week after Covid hit, it sold just 10. Internally, the management team was concerned. “We were all worrying whether this was going to immediately kill our business overnight, because everyone was sitting tight with their cash,” says Calverley.
A couple of months later, when she stepped up to be CEO, the business was still running projections about what would happen if the business was half, or even a quarter, of its current size. She was also dealing with a business that had gone fully remote and the impact of that on a team now working from ironing boards and bedrooms. But despite it being “very stretching culturally”, the business was able to get back on its growth trajectory.
January: The high
By January 2022, Eve Sleep was in great shape. “We came into the year feeling like we’d completed the rebuild strategy. Everything we’d sought to put in place was there. We were ready for growth,” she says.
The business had external targets of 10% growth and only losing £1.5m. The internal targets were 32% growth and to break even for the first time.
“If we’d hit either of those external targets, I’m sure we would have been on the front page of the business press. If we’d hit our internal targets, my goodness me, it would have been Champagne breakfasts all round. Those goals were what we as a team had fought for, built, sweated over, cried and laughed for years to get to,” she says.
By the end of January, Eve Sleep’s orders were up 28%. “We were bang on target at the bottom line and ahead at the top line. The executive team and I looked at each other and said, ‘We’ve done it.’”
The team brought in a growth partner and were about to start building a sleep wellness app, which she believed would pivot the business to access a different funding pool.
“It was all happening,” she says. Until February when, “quite frankly, the market just disappeared from under our feet”.
February: The shock
In February, Russia invaded Ukraine. By the end of the month, orders were 15% down. By the end of March, orders had dropped by another 30%. So it went on.
“I didn’t scramble the jets until April. I often ask myself, should I have done that sooner? But if I’d have sat in front of my board in early March and said, ‘I've had two weeks of data that tells me we're no longer 28% up, I think I should restructure the business and make redundancies’, my board would have said, ‘You're nuts. That's really knee jerk. I think you need to wait.’”
Like many other management teams, the circumstances were unfamiliar. The business had just survived an unprecedented pandemic and was facing market conditions that the team had never witnessed.
It wasn’t just Eve Sleep feeling the pain. Searches for mattresses had dropped by about 60%. “People just weren’t searching for them and there’s very little you can do – 80% of our business was still going through mattresses at this point,” she says. It showed no signs of improving over the next few weeks.
April: “Scramble the jets”
In April, she began a process to strip out all unnecessary costs, cutting overheads and cultural benefits, making a first round of redundancies and cancelling projects. “We exited every single contract we could exit, but we’d taken decisions in January on the basis of a successful business,” she says.
For example, in early February, the business had signed up to a year’s sponsorship of Late Nights on Channel 4. “That’s a year’s TV advertising bought, which was great value at the time because TV advertising was inflating. It was a good decision to make in stable market conditions with stable demand, but now we didn’t have that,” she says.
Calverley had also signed a two-year lease on the office the previous August, which they couldn’t exit. “We hadn’t been behaving like a start-up and only signing three-month contracts. This was an ongoing business and we had signed two- to three-year agreements,” she says.
The next step was to talk to potential investors. Calverley was already in conversations with interested parties because she had planned to take the business private by the end of 2022 – she felt Eve’s smaller size was a barrier to raise funds and get on the agendas of the various investment houses. “Eve’s a little bit small for the AIM market to be useful, but there’s about half-a-million pounds of cost to bear just by being a PLC. So we were bearing high costs without being able to get the benefit of accessing funding,” she says.
The plan had been to go private on the back of a great year. But the team realised they needed to kick off a formal sale process for an urgent injection of funds.
June: Price discounts and weekly cashflows
The overall market was still down. Eve Sleep had undergone dramatic restructuring, particularly reducing its cash burn. But decisions like redundancies take time to have financial impact. There was some improvement in the orders, but they were still depressed.
The business was offering heavy discounts on its products to find a sweet spot to drive pricing. It was also dealing with underlying product cost inflation. At the same time, marketing costs were going through the roof.
“One of the challenges was that a lot of direct-to-consumer businesses like Cinch, Deliveroo and Kazoo raised money in the pandemic, and all that money was flooding into the media market over Q1 and Q2,” she says.
“It was a perfect storm of the cost of doing business going up, the cost of making products going up, but demand dropping. There had also been wage inflation. That’s why I described it as a tsunami of market conditions,” Calverley says.
The business had to make another round of redundancies – about 30% of its staff left, dropping from 65 people to 45. “Redundancies are awful. We always celebrated people leaving Eve to move on to great new things, but it’s very hard to do that with redundancies. It knocks the stuffing out of both the people leaving and the people who remain. Everyone is very emotional,” she says.
It was around this stage that the business moved to weekly cashflows, which showed a clear end date when the money would run out. This date was constantly shifting as new information came in. “The hardest thing is the team kept asking when we would run out of cash. I’d have to say if you look at it today, we’re out of cash on this date, but tomorrow, that date will have been extended by three weeks because of the actions we’re taking. It’s a moving feast.”
September: The administrators arrive
In September, Calverley called in administration advisors to ensure any financial decisions made were legally sound. At this point, she was balancing three different needs – those of the shareholders, the creditors and the staff.
“Normally, as the CEO of a listed company, your priority – your fiduciary duty – is to create shareholder value, so you protect shareholders above all else. When you come to a point where there's a risk the business will not be solvent, your duty switches to protect creditors, but you must protect all creditors equally. So you cannot say, I'll pay my staff, but I won't pay a supplier unless you have a good reason,” she says.
If there's a view that you have not protected creditors equally, then the creditors could sue you. Shareholders can also take class actions to sue for mismanagement. “There is a lot to balance,” she says.
Exactly when to enter administration is also a difficult call. The key question driving the decision is whether the business is still solvent. Can it pay its debts? Is there cashflow? In Eve Sleep’s case, every week there was another £500,000 coming into the business, which helped it continue. But everyone is carefully watching the company’s debts and at what point they become untenable.
“There were definitely moments when I thought we could trade through this. In September, we’d managed to pull the cash burn in so far that all we lost was £150,000 that month. You’re so close to breaking even at that point, but we only had £500,000 in the bank,” she says.
October: The end game
By October, the staff had spent six months in a “very emotionally stretching” place. “I don't think I've ever had to straddle such a wide emotional range from minute to minute,” Calverley says.
Since April, Calverley and her chief financial officer had spoken to more than 200 potential investors. She had three indicative offers. “There were a lot of meetings. A lot of presentations. It’s like doing a constant viva [academic interview] on your business. It's exhausting.”
It’s also emotionally draining, she says, because you’ll have great meetings and then nothing materialises. All the while, the business is still trying to serve customers, but with an ever dwindling team. Positive energy is low, the business was pulling out of some projects, cancelling others. There is a cash runway that is running out.
“Staff are looking you in the eye and asking have I got a job in October? I’m having to say, I genuinely don't know, but I promise we're paying you next week. So there was such an emotional stretch of going from those conversations to jazz hands with the investors.”
She adds: “The loyalty people gave us was incredible. The people who stayed to the end got nothing, no redundancy payment, but they looked me in the eye and said they were staying because it was the right thing to do. That was the hardest thing.”
And then it was over. Eve Sleep entered administration on 17 October 2022. It was later bought by Bensons for Beds.
Although 21 jobs were lost, because the leadership team had been open about the challenges throughout, only five or six people didn’t have jobs lined up, including Calverley, her CFO and COO, who’d had to focus on the business.
Calverley’s frustration is that “all we needed was a couple of million”. “Bensons for Beds’ management team have got the deal of the century on this business and I think they know that. For £600,000, less than the price of a very small house in London, they bought a brilliant brand with 30% brand awareness that was doing £30m in revenue,” she says.
When the business became insolvent, Calverley “hit the wall fairly hard”.
“All the stress and emotion I'd been carrying for eight months came out. I hid under the covers and put my phone in a drawer for a week or so. The outpouring of support and care was remarkable, but at the time I couldn't read any messages because they just upset me more,” she says.
The pressure of the decline had a heavy impact. During the eight months of decline, she says: “I didn’t sleep a lot. I didn’t eat a lot. I lost about half a stone – I highly recommend the ‘going bust’ diet. I had to stop drinking because I couldn’t have more than a couple of glasses of wine before getting very emotional,” she says.
She is clear that being resilient and not personalising the failure is critical: “You have to do everything you can to give yourself emotional resilience. I remember I sat through an entire board meeting in tears. I carried on because it needed to be run, but I was very aware that I had tears streaming down my face.
“You have to accept that you are carrying a lot of emotion and let those emotions sort of be, but be resilient through them.”
She’s currently reflecting a lot about her future. She’s looking at how she can bring her experience to help others through advisory work with scaling businesses, and is training as an executive coach. She’s also exploring a start-up in a social enterprise space with a friend.
She’s also benefiting from having more time: “I'm picking my kids up and dropping them off at school for the first time in their lives. I made my eight-year-old a birthday cake for the first time ever.”
The experience hasn’t put Calverley off taking on another CEO role, but she doesn’t “have the legs” to go immediately for another. She’s also reassessing what impact she wants to have in the world: “I’m reflecting on where we are as a culture. We are overblown in our consumerism. This very painful reshaping we’re going through at the moment is needed. The economy and culture will grow out of it in a very different way. Social enterprise and community will become more important.”
“If someone came to me tomorrow and said, I've got a super high-growth business, with massive margins and huge VC funding and it really needs a chief executive to smash it, I think I’d probably say I'm not sure that's what I want to do. I want to be the CEO of a business that is much more holistic in its impact,” she adds.
The leadership lesson
Wherever she ends up, her story shows that even when everything is going wrong and a business' survival is under threat, people still have a choice over how they respond.
“The most important thing is that you go through administration or go bankrupt in the same way as you've done everything else as a leader,” she says. "If you renege on your values, you'll be in a much worse place emotionally. You’ve got those values for a reason, so hold on to them," she says.
She adds: “My biggest leadership lesson is that you can’t control the weather, so don’t blame yourself for that, but you can make sure you wear the right coat.”
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