Fort Wayne, Indiana Barbara Baekgaard and Pat Miller sat at a small table covered with many swatches
of brightly colored fabrics being considered for the next product launch. The cottage industry business
they had founded several years earlier had taken on a life of its own. From humble beginnings in the
basement of Barb's home, they had proven both the feasibility and value of the market for attractive
ladies' handbags and luggage. But as sales grew, so did issues with production capacity and quality to
name a few. The two pondered the future. What financial resources and human resources would they
need to scale up to the next level? How would growth affect the friendly, fun culture they had worked
so hard to create?
Barbara Baekgaard was wrist deep in wallpaper glue one day in 1981 when the doorbell rang. Who
could it be? She had only recently moved into her new home in the Wildwood Park neighborhood of
Fort Wayne, Indiana. At the door were Patricia (Pat) Miller and her 5-year-old son, Jay. Pat had stopped
in to welcome Barb and her family to the neighborhood. As Pat recalls:
I was the welcoming committee of one, and Barb answered the door. If you know anything about Barb,
you'll know that she was redecorating—taking wall paper down and putting her own stamp on the
house. She asked me if I knew how to hang wallpaper, and I said, no, and she asked, ‘How would you like
to learn?’ That was the beginning of our first business, Up Your Wall, a wallpaper-hanging business.
We were good partners because she remembered every joke she's ever heard, and I was a good
audience. She also liked to hang wallpaper around windows and doors, the more complicated stuff,
while I enjoyed doing the straight walls.
The two women became fast friends and business partners, hanging wallpaper by day and raising their
families by night. Up Your Wall, however, would be superseded within a year by another, more
In March of 1982, the partners made a trip to Florida to celebrate the birthday of Barb's father. While
waiting for a connecting flight in Atlanta's Hartsfield-Jackson Airport, they noticed that many passengers
were carrying Land's End duffle bags and other utilitarian garment bags and luggage. Barb describes
While we were waiting for our plane, I looked around and realized that we weren't the only women with
unattractive luggage. In fact, I didn't see one woman in the entire airport carrying anything that would
be considered attractive. I knew that there was a look out there that was cute and trendy, but I didn't
own any of it, probably because it was too expensive and not functional.
In fact, both Laura Ashley, known for its floral printed fabrics, and Pierre Deux, maker of French countrystyle handbags and accessories, targeted the high-end of the market with attractive products. Pat recalls
that their Florida trip included a visit to a Pierre Deux retail store: “We loved that … it was part of our
inspiration. There was nothing like that in this country.” However, neither of these potential competitors
produced a duffle bag suitable for weekend or air travel. Barb and Pat discussed their luggage dilemma
on the trip back to Fort Wayne. “We liked the shapes of the bags we saw,” recalls Barb, “but not their
appearance.” The women wondered if they could make attractive but functional bags for everyday use
and travel at a price that would appeal to a broader audience.
This case was prepared by Professor Angelo Santinelli and case writer Richard Luecke as a basis for class
discussion rather than to illustrate either effective or ineffective handling of an administrative situation.
© Babson College 2010. All rights reserved.
The day after returning to Fort Wayne, Barb and Pat visited Joann Fabrics, a retail chain of fabric stores,
where they purchased material with various patterns, stripes, and colors. They mixed and matched
these in an effort to create a distinctive quilted cotton look of their own.
Once they had the designs they liked and cut out patterns, the team hired a woman who had done
clothing alteration for their other home-based venture, running clothing trunk shows.1 She was paid for
sewing the prototype bags Barb and Pat had designed. These initial prototypes included a duffle bag
suitable for weekend travel, a smaller bag they called the “sport,” and a purse. There was enough fabric
to make a dozen, which they hoped to sell at an upcoming trunk show. Says Pat:
We needed to do some market research and wanted to be certain that it was unbiased. We couldn't let
friends who came to the trunk show know that we had developed these products—they might buy them
simply because they were our friends. So, we had to come up with a brand name that didn't have either
my name or Barb's name in it. We decided to use Barb's mother's name, Vera Bradley. My mother's
name was Wilma Polito. That name didn't have a prayer of sticking as a brand, so we settled on Vera
The day of the trunk show was plagued by inclement weather, but attendance was high and the show
was a success. All twelve of the prototype bags sold, and customers were asking for more.
Because the trunk sale attendees were generally middle-aged and older women, the two entrepreneurs
looked for another segment in which to test the appeal of their products. Barbara had two daughters in
college at the time, one at Michigan State and the other at Marymount College in New York, so they
decided to extend their informal market research to college campuses. Barbara sent several bags to
each daughter and asked them to find out what their friends thought of them. The response from both
campuses was extremely enthusiastic.
With affirmation that their bags were potential winners, the ladies set out to purchase more material
and commission the sewing of more bags. Each borrowed $250 from her husband, and with cash in hand
they set off once again to Joann Fabrics.
Barbara Baekgaard had attended Marymount College in New York and Barat College in Lake Forest,
Illinois, where she studied sociology. Her father was in the gift candle business and he often took Barb to
gift shows and other industry events. Her mother, after whom the company is named, had several small
cottage businesses of her own. Barbara credits her mother for her work ethic, as well as her eye for
design. “What I knew about business at that time I learned from them,” she says. “Things like finance
were not even in the realm of my knowledge, but I was doing what I knew best—design.”
Barb's parents had bequeathed her other important traits: energy and unflappable optimism. “There are
people who think they can, and people who think they can't. I'm the think you can type,” she says. “I am
shocked when things don't go right for me. Just shocked.” Her fondest aphorisms reflect a deeply
ingrained optimism: “Often wrong, but never in doubt.” “Good is the enemy of great—never settle for
Like Barbara, Pat Miller had family members who influenced and shaped her attitudes toward business
and customers. As a young girl she often worked in her grandfather's grocery store. “I learned a lot
about business from working in that store—inventory control, bookkeeping, marketing, running the cash
register, and dealing with customers,” she says. “I was always in the store and did a little of everything.
And I knew that [in the future] I wanted to be connected with business.” She followed through on her
intentions, earning a BS in business education from Indiana University, and then teaching business to
high school students for six years.
The Early Years
With the success of their prototypes among trunk show attendees and college students, the founders
knew that they were onto something of value. But would their bags appeal to a broader audience in a
retail setting? The annual Chicago Gift Show, a major buyers-meet-sellers event, was coming up on the
calendar in September 1982. It seemed a good place to test their products.
Barbara had attended various gift shows with her father, on behalf of his candle business. The Chicago
Gift Show highlighted gift wares and home furnishings and was primarily attended by individuals who
either owned or sold to gift shops and notions stores. Because handbags and luggage were not generally
thought of as gifts, companies in that industry did not exhibit at the Chicago event, but favored other
venues and trade shows where women's apparel accessories were typically featured. The founders,
however, decided to try their luck in Chicago, thereby avoiding more competitive venues where
standing out from the crowd would be a struggle. Says Barb:
I remember calling to rent booth space. They told me that they didn't have our category of product at
the show and didn't know where to put us. When we showed up we found our space in the bowels of
McCormick Place, where the show is held. But we took it in stride and set up a wonderful display of our
products, with flowers and pretty fabrics.
During an evening reception for the event's hundreds of vendors, Barb chanced to meet Will Little, who
ran the show. The two got along very well, and Little asked to see her booth. After getting a look at how
nicely the two newcomers had decorated their exhibit, and its unfavorable location, Little took it upon
himself to have their booth moved to a more strategically placed space.
The show was a success for the two women, who sold over $10,000 in product. It was then that they
realized two things: They had something potentially big on their hands, and they needed to purchase
much more fabric and outsource the sewing in order to tap that potential. But where would they get the
Their question was soon answered—and from an unanticipated source. Shortly after the Chicago Gift
Show, Barb and her husband made a trip to nearby Michigan to visit one of his former work colleagues.
Still bubbling over from her Gift Show success, Barb explained her new business venture to their host,
who listened with interest. Later in the evening, the gentleman asked her to step into his home office,
where he presented her with a check for $2,500 dollars. “I almost fell over,” Barbara recalls. “He said, ‘I
love your enthusiasm. If you are successful, consider this a loan; if not, it's a gift.’”
A bank relationship soon followed. Back in Fort Wayne the two founders paid a visit to Franklin Bank,
where they hoped to obtain a $2,000, 90-day loan for fabric purchasing. They walked in with sample
products in hand and asked to see someone about a loan. The receptionist introduced them to a loan
officer who listened with their plans with what both later described as undisguised condescension. “And
where are you going to sell those bags?” he asked with a bemused chuckle. After a few more questions
about the business, the loan officer unenthusiastically described the bank's terms and produced the
proper documents, which Barb and Pat signed.
As they left the bank, Barb turned to Pat and asked what she thought about their experience with the
loan officer. Pat was blunt and brief: “He didn't get it at all.” With that, the two made an about face,
marched back into the bank, and demanded that they be assigned to another banker—someone who
understood and believed in their business. The bank introduced them to Robert Marshall, who would be
their banker and friend for many years to come. Marshall took a strong interest in the venture and
would often drop in on their workplace to see how things were progressing and to offer business advice.
When Marshall went to work for another bank, the Vera Bradley account followed him.
Neither partner had knowledge or experience in financing. Recognizing this weakness, they turned for
help to the local office of SCORE (Service Corps of Retired Executives)2 and requested someone with
financial expertise. SCORE introduced them to volunteer George Cook, a retired financial executive. His
skills nicely complement those of the two entrepreneurs.
One of Cook's first initiatives was to show Barb and Pat how to analyze their cost of goods to ensure that
they priced items in a way that would produce a healthy gross margin. He went on to study their
production, distribution, and associated sales and marketing costs to understand what it would take to
make a profit. Cook emphasized the importance of understanding costs and minimizing expenses in
order to make the most of the venture's limited capital. Under his guidance, the company established
sound bookkeeping and inventory procedures and produced monthly financial statements and inventory
reports in order to control the business.
In the years that followed, the business would need more capital in order to finance its growing sales.
That need would be met first by a cash infusion from the founders who mortgaged their homes to raise
capital, and by a bank line of credit.
Production at the company's “cottage industry” level involved cutting fabric into patterns, followed by
sewing the cut pieces into finished products—both labor-intensive activities. Recognizing that their core
skills were in design and sales, the partners decided to outsource sewing to people in the community
who did it well. Barb was a good sewer but, as she said, “I shouldn't be in the basement sewing. I should
be out selling.”
Working out of Barb's basement, the founders cut fabric, sometimes with the help of their children. All
the materials needed to produce a bag—including zippers, thread, labels, and instructions—were then
packaged into individual kits that freelance sewers would pick up and later return as finished goods for
inspection. Outsourcing of manufacturing continued as revenues grew. “Our future was sales and
design,” Barb asserted many years latter. “We wouldn't have been good at manufacturing.”
By 1986 the business had grown to the point that Vera Bradley needed more space. The next year it
constructed a building with more than enough space for its current requirements, leasing out what it
From the beginning, Vera Bradley bags had a distinctive look: vibrant colors, unusual patterns, and
clever designs. “I've always thought that design was the engine that pulled our train,” Pat likes to say.
She and Barb wanted their products to stand out and be identifiable as Vera Bradley, even when their
labels were not visible. With that in mind, every newly introduced product had a unique design or
pattern feature, yet maintained the Vera Bradley “look.” This distinctiveness reinforced the brand image
and kept current customers coming back for more. However, every change represented a risk of being
stuck with unsalable merchandise.
The founders' concern with the “look” of their products extended to the public's perceptions of Vera
Bradley, the company. In their view, it was important for the business to look professional and larger
than it actually was in those early days. They did not want customers or suppliers to think of Vera
Bradley as a basement operation. With that in mind, Barbara instructed her children not to answer the
phone during business hours. Meanwhile, Pat, with help from Barbara's daughter, Joanie, designed a
striking and professional-looking letterhead and business cards. Joanie also lent her artistic skills the first
company catalog (Exhibit 2.1). Product shipments used new boxes rather than reused boxes and packing
material. According to Barb:
We didn't want people to know that we were working out of the basement. You have to look as though
you are a strong, successful business. So everything sent out had to look as though we were in the most
beautiful corporate setting around, and doing well.
The 1982 Chicago Gift Show gave the company some exposure to the distribution channel. Developing
relationships and creating a network of repeat customers within that channel would require much more
work. As with other functions of the nascent enterprise, the two founders began with a do-it-yourself
approach. Whenever either of them was out and about they would look for local gift shops, walk in,
introduce themselves and the company, show samples, and ask for an order. They also recruited friends
and family as independent sales representatives: Barb's mother, sisters, college friends, friends of
friends—they turned to people whom they knew and liked and asked if they would represent the
company's products in their geographic areas. The first of these reps was Barb's college roommate, a
resident of upscale Arlington, Virginia. She enlisted in 1983.
Sales representatives were responsible for developing a customer base of primarily gift stores in their
geographic areas. Reps would take orders, but would not be paid commissions until sold items were
paid for. The reasoning behind this compensation strategy originated in Barb's earlier gift trade
experience. Many shop owners, she knew, were slow to pay. If reps were paid only after receivables
were collected, they would naturally avoid store owners of dubious creditworthiness. That strategy also
benefited cash flow at a time when cash was scarce.
From the first company catalog, circa 1985
Source: The Company with permission.
In a matter of months, Vera Bradley had many independent representatives taking orders from gift
shops in several states. Each rep had a direct or indirect relationship with one or both founders. And as
their numbers grew, so did revenue: from a mere $11,000 dollars in 1982 to $503,000 dollars in 1985, to
$4.8 million in 1990 (Exhibit 2.2). And the business community took notice. In 1985, Barb and Pat
received the national “Entrepreneur of the Year Award” from Ernst & Young, LLC (see Exhibit 2.3).
Fiscal Yr 1982 4 months Fiscal Yr 1985 12 months
Cost of Goods
Selling/Admin Expenses 2
Income before other Inc/(Exp)
Fiscal Yr 1990 12 months
State tax expense
Income before distribution
EXHIBIT 2.2 Early revenues and expenses ($000s)
Source: The Company with permission.
Barb and Pat's advice to entrepreneurs
Concentrate on what you do best.
Don't be satisfied with the status quo—innovate and practice continuous improvement.
Choose the right people to work with: vendors, bankers, and employees.
Networking is important; it's important when people like you and you like them.
Don't be afraid to take risks.
Take one day at a time.
Follow your passion and have fun!
Downs and Ups
In the beginning, Barbara and Pat did everything but the sewing themselves—even selling. They brought
in employees only as they needed them. The founders recognized from day one of their association how
their aptitudes and interests overlapped in some areas and complemented in others. They made the
most of this as they divided their labors in managing their growing enterprise. As COO Jill Nichols, who
joined the company as controller in 1989, observed their roles in those earlier years, “Barb focused on
design—the creative side—and sales, while Pat was more concerned with operations. Pat's more
oriented to processes, and Barb is more into the creative side.”
Like every enterprise, Vera Bradley experienced a number of setbacks and made its share of mistakes.
Barb and Pat's natural optimism, however, led them to work through these stumbles without
discouragement. In one case, Pat mistakenly placed an order for hundreds of 20-inch bag zippers when
their design called for a 12-inch item. Rather than fight with the supplier over an exchange—and
possibly lose credibility as a buyer—the two women decided to turn lemons into lemonade: The ...
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