Orville and Heidi Thompson, owners of the home and personal fragrance company Scentsy, have climbed from entrepreneurs swamped in debt to owning a company with virtually no debt on its balance sheet. Orville and Heidi Thompson were raised in entrepreneurial families and were very entrepreneurial themselves from a young age. They met and married while in college and have raised five children together. Their path to business success was bumpy and filled with twists and turns. Today, Heidi is the president and Orville is the CEO of Scentsy, Inc., a $456 million (as of 2016) personal fragrance, kitchen, bath, and home dcor company.

From the time he was 24 years old, Orville was working for Event Sales Corporation, a family business that sold specialty products through commercial vendors at events like state fairs, home shows, boat shows, and the like. The company booked the show booths, secured the products, and contracted with pitch people to demonstrate and sell the numerous products that Event Sales represented. The business model was that either Event Sales had to prepay for merchandise or vendors extended credit to be paid back after the events. By the time Orville was 35 years old, he was deeply in debt through credit card purchases of merchandise for the business. Business lines of credit were easy to secure, with a few vendors permitting up to $100,000 in credit to the company. Then, after September 11, 2001 (the Christmas buying season in this field), when they had expected to earn $300,000, they lost $300,000 instead.

While the company was thriving, the Thompsons invested about $300,000 in a specialty backpack concept. This novel business was struggling, and the owners approached angel investors to secure funding. The angel investors ridiculed and argued with them, leading to personal embarrassment and lost opportunity. This experience remained etched in the Thompsons' memories. Orville also began to wholesale car wax that he manufactured and sold. He created the business vertical first and then the horizontal. The car wax business continues to operate separately from Scentsy.

Cash flow management was critical to the survival of the Event Sales Corporation and the financial survival of Orville and Heidi's growing family. The had to manage the debt and maintain their credit score. They had to know about every penny, and they became experts in understanding how money and banks work. By early 2004, the Thompsons had a negative $700,000 net worth, with $400,000 in real estate and $1.1 million in loans. Event Sales was a "cash machine" with $35,000 in positive cash flow monthly, but the accumulated debt was too high. Heidi and Orville had to decide whether to file for bankruptcy or to stop the hemorrhaging. They worked with banks to term out the lines of credit, so that rather than paying interest only and being expected to pay off the lines of credit annually, they were paying down principal and interest over a longer time. The payments increased, but the debt declined rapidly, as there was enough cash flow to cover the debt. Reading Eliyahu Goldratt's The Goal: A Process of Ongoing Improvement fundamentally changed Orville's outlook on cash flow. Getting the timing such that expenditures were as close to revenues as possible became a new goal.

The Salt Lake Home Show in March 2004 was a pivotal point in the Thompsons lives. Event Sales had 12 booths at the show, and one of them was directly across from a busy booth for Scentsy, flameless warmers using scented wax bars. Orville was intrigued by the level of interest and met Kara Egan and Colette Gunnell, sisters-in-law who were producing the scented wax in an unfinished basement. When they found Scentsy, the Thompsons envisioned it as a vertical organization where they could control products, manufacturing, and distribution at all levels. Kara and Colette were not that far along in their thinking about the business potential at the time. Orville began coaching them on supply chain and other essential subjects. The founders approached Orville and Heidi with an offer to sell the company in May. By September, the Thompsons had paid off their $20,000 debt to the Scentsy founders and included them as independent representatives with royalty payments as well.

Scentsy was founded with a bootstrapping mentality and it grew debt free from the initial purchase. The Thompsons could not get credit from financial institutions, family, or friends. Orville described this phase as being "economic lepers." They learned to sacrifice until there was sufficient cash flow. They continued to work in the Event Sales business even after acquiring Scentsy. They worked about 80 hours per week each and had unpaid labor from friends and family who wanted them to succeed. At first, they worked from a 40-foot metal shipping container on their sheep farm in Meridian, Idaho. Heidi insisted that they not take any money out of Scentsy until current cash flow projections were always projecting as positive. They would not move from the shipping container unless they could cash flow the $2,000 per month for another facility.

As they built their business model, Heidi researched direct selling and party plans as a go-to- market strategy. She saw that it had greater potential than specialty retail and required no debt to launch. They could not have bootstrapped Scentsy otherwise. They learned that direct selling companies have the distinct opportunity to scale on a weekly basis, creating and delivering product after customers pay for it. Orville attended a Direct Selling Association annual meeting and was convinced that working through independent representatives selling to end consumers through in-home parties, work events, and the like was the correct channel for them.

Scentsy had $145,000 in sales in 2004, and the Thompsons took no salaries. The company was barely profitable. From the outside, it looked like Orville and Heidi were doing well, but they lived a relatively spartan lifestyle for about four years. They still had the cars from when Event Sales was prospering. Heidi shopped for bargains. The kids wore handed-down clothes, and meals were simple and inexpensive. November 2007 was the first time that Heidi and Orville paid themselves. During that year, they took out the first loan of $5 million for convenience when they had $10 million in inventory. Their balance sheet reflected a total of $60,000 of paid-in-capital, which was received from a payment for a right-of-way on the property. Orville described the cash flow management process as one of "discipline." Heidi and Orville were willing to sacrifice personally because they believed in Scentsy's potential; they were "broken of all pride" and were afraid of not being honorable. They discovered that "If you pay yourself last, you pay yourself best." This was an epiphany for them.

In subsequent years, Scentsy revenues grew rapidly, reaching $535 million in 2011. Then, Glade and other companies introduced competitive retail products, and revenues decline for two and one-half years beginning in summer 2012. The company added two brands to provide more options for their consultants (sales representatives). Ultimately, they decided that these brands did not fit the culture and values of the company ... simplicity, authenticity, generosity. Since then, revenues have grown, and the balance sheet is strong. As of 2017, Scentsy had about 120,000 consultants operating in the United States and its territories, Canada, Mexico, Germany, Austria, France, Spain, the United Kingdom, Australia, and New Zealand, with over 1,000 employees and a 73-acre campus.

opinion question

9-21. What was most interesting in this case? Why? 9-21. What was most interesting in this case? Why