Deep-Pocketed Wine Site Lot18 Cuts 11 Employees, Scales Back After Heady Expansion

"One of the perils of having a lot of money is it's easy to launch a lot of things," said founder and president Philip James.

Mr. James. (Photo: Lot18)

New York-based Lot18 may have gotten ahead of itself there for a bit. The members-only flash sales site for wine, which raised a total of $44.5 million from investors, is down to 70 employees after a reorganization that was finalized internally today. The company is cutting 11 employees and eliminating the food and travel verticals that were launched in June and October, respectively.

While customers buying wine were also often interested in cheese and chocolate, Lot18 realized that the verticals didn’t overlap much on the back end, and “just the distraction involved in building five things at once,” was taxing for the company, founder and president Philip James told Betabeat.

“A startup has limited resources. We almost raised $50 million, but reinventing a multi-billion dollar industry and hopefully having an impact on the industry for the next 50 or 100 years takes a lot of focus,” he said. “The business lines that we are shutting down in themselves are probably really good businesses. But as a startup, it’s better to do one thing well, be a laser, do one thing better than anybody else.”

He added, “One of the perils of having a lot of money is, it’s easy to launch a lot of things.”

Lot18 launched in November 2010 with the goal of providing members with highly-coveted wines at daily deal prices. The company scaled fast in the 18 months since it launched, poaching employees from competitor Gilt Groupe, moving into an idyllic office in Midtown (think “wine Fridays”) and expanding into full-price oenophilic and epicurean offerings. “Lot18 is arguably one of the most powerful branding platforms,” Eater wrote in August in a post that positioned Lot18 as the only serious wine sales competitor to Gilt. In December, Lot18 acquired Paris-based Vinobest and launched in Europe. At its largest, the company had more than 90 employees worldwide.

Lot18 gradually realized it may have swigged more than it could swallow. The company announced a 15 percent staff reduction in January and recently exhorted unhappy employees to quit. Today’s cuts were distributed across the company and included a vice president of strategy, but no one at the executive level, we’re told.

The market for wine is worth $40 billion in the U.S. and $150 billion worldwide, Mr. James said, which means Lot18 has plenty of room to grow without jumping into tangent categories. “The aim is just so that we can focus on our core offering, what we set out to do originally,” he said. “The business was started to change the wine industry… we want to go back to doing just that.”

Lot18 will continue to offer wine accessories like glassware, but its focus will be on curating and shipping wine. The company will “run the calendar” on its non-wine offerings, Mr. James said. He expects the secondary businesses will be phased out entirely in about a month.

Lot18 is about to hit a million registered members and now sources wines from 500 different wineries. The company did “several tens of millions of dollars of transactions” last year, Mr. James said, and subscriptions for the first quarter of 2012 are outperforming the same quarter last year.

By refocusing on just wine, Lot18 can become more efficient and make its product better for its core customers, Mr. James said. “We’re learning things about our main category,” Mr. James said. “We have to build a lot of stuff that’s custom to this vertical.”

By coincidence, Mr. James and his cofounder Kevin Fortuna received accolades today for a previous venture: music site Popdust, which just raised $4.5 million. Mr. James is no longer involved with Popdust, but Mr. Fortuna sits on the boards of both companies.

Deep-Pocketed Wine Site Lot18 Cuts 11 Employees, Scales Back After Heady Expansion