ZAPPOS
SUCCESS STORIES OF VISIONARIES
DELIVERING HAPPINESS
‘HOW
I DID IT’
Noel Moitra
8/20/2010
Warren Buffet is the classical case of the buzzard. With his
beagle eyes, he picks out a company in distress, buys it out at bargain prices,
splits it up into segments and sells off the segments at a healthy profit. Or,
infusing capital into the bought out company, he restructures it into a profit
making enterprise and then sells it as a complete entity. But there are others
with greater human relations perspectives as part of their persona. Read on…
How
I Did It
Case 1: Bob
Moore’s Bob's Red Mill Natural Foods
Bob's
Red Mill Natural Foods, based in Milwaukie, Oregon, was started 32 years ago as
the realization of a dream of a middle-aged retiree. By 2009, Bob Moore had
built a company with sales of $70 million a year in whole-grain flours and cereals,
with annual growth rates of 20 to 30 percent. In February this year, Moore
celebrated his 81st birthday by instituting an employee stock ownership plan,
or ESOP, and ceding ownership of Bob's Red Mill to its 200-plus workers.
Moore's decision was a product of years of planning -- and of a lifelong
commitment to ethical conduct.
Bob
grew up in Los Angeles in the 1930s, when it was a wonderful place to be a
child. He got out of the Army in 1950 and went to work for U.S. Electrical
Motors -- they're still in business. He had a bright future with them; plus, he
was married with three little boys. But he'd always dreamed about going into
business for himself.
To put a few extras on the family's
table, Bob'd been working weekends at a Shell station. A sign went up on one
corner saying a new Mobil station would be opening. he called, and pretty soon
we had a deal. He sold the house and put the $4,500 down on the gas station.
Bob quit his job and went into business.
In those days, he didn't just take
care of cars; he took care of people. He would wipe windows, check the tires
and underneath the hood. He cleared 4 and a half cents a gallon, 5 cents for
high test. His bookkeeper would laugh at him. But Bob wore a freshly washed
uniform every day, and the sun was always shining.
Then the smog started to get bad.
Charlee, Bob’s wife, and he felt that getting out of L.A. would be good for the
boys' health. He drove around the state looking at gas stations for sale and
ended up buying one in Mammoth Lakes, California, in September 1959.
Bob had a pocketful of cash from
selling the house and station in Los Angeles. They bought a big mobile home and
took trips with the boys. He bought a lot of things they didn't need. Mammoth
Lakes was a ski town. But Thanksgiving and Christmas went by with no snow. Then
they got 14 feet of snow in January! The roads were impassable. The snow was
still deep in July, and that kept away the summer tourists. One year after
leaving Los Angeles, Bob was broke.
Charlee and Bob saw an ad for a five-acre
dairy farm for rent outside of Sacramento. He got a job at a Firestone tire
store. It was about this time that Charlee got into baking bread. They started
going to Elliott's Natural Foods in Sacramento to buy whole-grain flour. It's
still in business today−it's one of their customers. Whole grains opened up a
whole new life for us.
One of Bob’s customers was an
executive for Penney's. He told Bob to come to work for his company. Bob drove
up to Redding and got a job at the Penney's auto center, and soon moved the
family there. One day in the public library, he came across a book titled John
Goffe's Mill, by George Woodbury.
It was about an archaeologist who had
inherited an old gristmill in New Hampshire and fixed it up and turned it into
a livelihood. That book inspired Bob. George Woodbury took that mill from a
disaster to where everything worked. He had no experience with machinery or
business. Bob knew a lot about both. If this guy could do it, so could he.
He put in 10 years at Penney's.
Charlee and Bob saved enough to retire and decided to move up to Portland so
Bob could attend seminary. Bob’s ambition was to learn to read the Bible in its
original Greek and Hebrew. Shortly after we moved to Portland, Charlee and Bob
decided to take a walk and happened across this abandoned old mill. Its paint
was fading, but you could still make out the red color. Bob realized that this
was the mill. It was a providential moment.
Over the next 10 years, they built
Bob's Red Mill into a successful small company, supplying natural food stores
in the Northwest. They were known for their quality and attention to detail;
Bob had traveled all over the U.S. to find the highest-grade old stones to use
in the mill. They were doing about $3 million a year in sales. And then, on the
night of June 15, 1988, a deranged woman set fire to the mill and burned it to
the ground. Bob was 59 years old and faced with the prospect of starting again
from scratch. Fortunately, they were able to recover the two old-world
millstones.
In 1990, they stepped out of their
small-business category at the annual natural foods trade show in Anaheim.
Their booth got flooded with visitors. Bob's Red Mill was the only company that
had gone for the production of deep-down, fundamental whole grains.
When you're in business, there are
two doors you can walk through. You can walk through the door where you treat
the customer like your guest, operating by the rule that the customer is always
right. Or you can be cutthroat. The first door is the door of kindness. That's
the one Bob decided to walk through.
Bob fielded a lot of offers from
corporations wanting to buy us, but he never considered that option. If you
visit the mill, you'll notice a strong family feeling. A lot of employees have
been with them a long time, some as long as 30 years. One of their electricians
put four kids through college while working for Bob's Red Mill. Bob is not
planning on retiring, but the day will come when he’s not around anymore. He’s
done a lot of thinking about that day.
Bob just can't envision the company
in any better hands than those of the workers and management they have now.
That's where the ESOP idea comes from. In an ESOP, Bob’s selling them Bob's Red
Mill, but at the same time, as individuals, they don't have to pay for it. The
idea might not work for a company with a different philosophy toward its
customers and the people who have built the business, but Bob thinks it will
work for him.
Case 2: Jerry Murrell, Five Guys
Burgers and Fries
Sell
a really good, juicy burger on a fresh bun. Make perfect French fries. Don't
cut corners. That's been the business plan since Jerry Murrell and his sons
opened their first burger joint in 1986. When they began selling franchises in
2002, the family had just five stores in northern Virginia. Today, there are
570 stores across the U.S. and Canada, with 2009 sales of $483 million.
Overseeing the opening of about four new restaurants a week, the Murrells are
proof that flipping burgers doesn't have to be a dead-end job.
There was this little hamburger place
where Jerry grew up in northern Michigan. Almost everyone in town, except the
uppity uppities, ate the burgers, even though the owner had a cat, which he'd
pet while cooking. People called them fur burgers, but they still ate them
because they were good.
Jerry studied economics at the
University of Michigan. He had no money and needed a place to stay, so he ran a
fraternity house's kitchen. He got the cook a raise and let her do the
ordering.
They started making money, because
she knew what she was doing.
Jerry’s parents died in his last year
in college. Jerry married, had three kids, divorced, then remarried. He moved
to northern Virginia and was selling stocks and bonds. His two eldest sons,
Matt and Jim, said they did not want to go to college. He supported them 100
percent.
Instead, Jerry used their college
tuition to open a burger joint. Ocean City had 50 places selling boardwalk
fries, but only one place always has a 150-foot line -- Thrashers. They serve
nothing but fries, but they cook them right -- high-quality potato, peanut oil.
That impressed Jerry. He thought a good hamburger-and-fry place could make it,
so he started with a takeout shop in Arlington, Virginia.
Our lawyer said, "You need a
name." Jerry had four sons -- Matt, Jim, Chad are from his first marriage,
and Ben from his second to Janie, who ran their books from Day One. So Jerry
said, "How about Five Guys?" Then they had Tyler, the youngest son,
so Jerry 's out! Matt and Jim travel the country visiting stores, Chad oversees
training, Ben selects the franchisees, and Tyler runs the bakery.
Three days before they opened, Jerry
was still working as a trader in stocks and bonds and was in a hotel for a
meeting in Pittsburgh. He found a book in the nightstand, next to the Bible, about JW Marriott -- he had an A&W
stand that he converted and built into the Hot Shoppes chain. He said, “Anyone
can make money in the food business as long as you have a good product, reasonable
price, and a clean place.” That made sense to Jerry.
Jerry figures their best salesman is
the customer. Treat that person right, he'll walk out the door and sell for
you. From the beginning, Jerry wanted people to know that they put all their
money into the food. That's why the décor is so simple -- red and white tiles.
They don't spend our money on décor. Or on guys in chicken suits. But they go
overboard on food.
Most of their potatoes come from
Idaho -- about 8 percent of the Idaho baking potato crop. They try to get
potatoes grown north of the 42nd parallel, which is a pain in the neck.
Potatoes are like oak trees -- the slower they grow, the more solid they are.
They like northern potatoes, because they grow in the daytime when it is warm,
but then they stop at night when it cools down. It would be a lot easier and
cheaper if they got a California or Florida potato.
Most fast-food restaurants serve
dehydrated frozen fries -- that's because if there's any water in the potato,
it splashes when it hits the oil. Jerry actually soaks the fries in water. When
they pre-fry them, the water boils, forcing steam out of the fry, and a seal is
formed so that when they get fried a second time, they don't absorb any oil --
and they're not greasy.
The magic to Jerry’s hamburgers is
quality control. They toast buns on a grill -- a bun toaster is faster,
cheaper, and toasts more evenly, but it doesn't give you that caramelized
taste. Their beef is 80 percent lean, never frozen, and the plants are so
clean, you could eat off the floor. The burgers are made to order -- you can
choose from 17 toppings. That's why they can't do drive-throughs -- it takes
too long. They had a sign: "If you're in a hurry, there are a lot of
really good hamburger places within a short distance from here." People
thought Jerry was nuts. But the customers appreciated it.
Jerry has never solicited reviews.
That's a policy. Yet they have hundreds of them. If they put one frozen thing
in our restaurant, they'd be done. That's why Jerry won't do milk shakes. For
years, people have been asking for them! But they'd have to do real ice cream
and real milk.
When Jerry opened, the Pentagon
called and said, "We want 15 hamburgers; what time can you deliver?"
Jerry said, "What time can you pick them up? We don't deliver." There
was an admiral running the place. So he called Jerry up personally and said,
"Mr. Murrell, everyone delivers food to the Pentagon." Matt and Jerry
got a 22-foot-long banner that said in big bold letters ABSOLUTELY NO DELIVERY
and hung it in front of the store. And then business from the Pentagon picked
up.
When Jerry first started, people
asked for coffee. He thought, Why not? This was their first lesson in humility.
They served coffee, but the problem was that the young kids working for them
didn't know anything about coffee. It was terrible! So they stopped serving
coffee. Jerry tried a chicken sandwich once, but that did not work, either.
Jerry does have hot dogs on the menu, and that works. But other than that, all
you are going to get from Five Guys is hamburgers and fries.
Food prices fluctuate. Jerry does not
base our price on anything but margins. He raises prices to reflect whatever
food costs are. So if the mayonnaise guy triples his price, Jerry pays triple
for the mayonnaise! And then he'll increase the price of his product. About
five years ago, hurricanes killed the tomato crop in Florida, and prices went
from $17 to $50 a case. So a few of his franchisees called and said,
"We're not using tomatoes. The prices are too high." Jerry suggested
using one slice instead of two. His kids were furious: "It should be two!
Always!" They were right -- it's too easy to start slipping down that
slope. They stuck with two slices, and so did our franchisees.
Jerry’s kids wanted to franchise from
the start, because they couldn't get the money to expand on our own. Opening a
store costs $300,000 to $400,000. Banks won't help. They thought Jerry was
crazy going up against Burger King, McDonald's.
Jerry was dead set against
franchising. He didn't think he'd be able to control the quality. At that
point, they had five stores in the northern Virginia region.
When they started to sell franchises
in 2002, Virginia went in three days. Jerry accepts only financially sound
franchisees who can weather the storms without the help of banks.
Jerry makes 6 percent of sales on the
franchises. All franchises work the same way: People say they want to sell your
product. So you give them a Franchise Development Agreement that explains all
the ways we can beat them down. They can get out of the deal a million ways,
but they are stuck.
Still, they have never had a
franchisee go legal. That's because they have an independent franchise
committee that meets once a quarter. People said, "Don't do it! They'll
form a union!" But Jerry thought, If someone comes in with a wacky idea,
instead of the Murrells putting it down, the other franchisees would say,
"That's a dumb idea."
Franchisees are opening four new
stores a week. But Jerry always wanted to run more than the franchisees, so he
can say, "Look, we are doing it." Jerry owns 90 stores -- Chicago,
San Diego, Phoenix, a bunch in North Carolina and Virginia. They don't do any
less than five stores per franchisee. They have one in California that just
signed up for 400 stores.
Before they agree to work with a
franchisee, they sit down and talk about marketing plans. A lot of companies
put 3 percent of their revenue toward marketing or advertising -- Jerry
collects 1.5 percent from all franchisees and gives bonuses to the crews that
score the highest on weekly audits.
They have two third-party audits in
each store every week. One is called a secret shopper -- folks pretend they're
customers and rate the crews on bathroom cleanliness, courtesy, and food
preparation. Then they have safety audits -- they identify themselves and check
all the kitchen equipment. The crews make about $8 or $9 an hour. If they get a
good score, they will split another $1,000 among them, usually five or six
people per crew. A press release goes out to every store announcing the winners.
Right now, it's the top 200 stores. Last year, they paid out between $7 million
and $8 million; this year, it will be $11 million or $12 million.
Jerry tries to make the kids feel
ownership in the company. Boys hate to smile. It's not macho. And it's definitely
not macho to clean a bathroom. But if the auditor walks in and the bathroom
isn't clean, that crew just lost money. Next thing he knows, the guy who was
supposed to clean the bathroom has toilet paper all over his car and a potato
in his tailpipe.
To grow this fast, Jerry had to come
up with some big bucks -- he got a $30 million loan from GE and used that to
move into a 20,000-square-foot office space in Lorton, Virginia. That's where
80 of their 200 corporate employees work.
They've had many of the same vendors
since 1986. And they're not the cheapest by a long shot. Jerry sticks with what
he likes. One day, the purchasing guy said he wanted to switch to a frozen
burger product. But they all picked the fresh one in a blind test and stuck
with that. Jerry taste-tested 16 different types of mayonnaise to find the
right one.
Jerry makes the same bun they started
with. He hired the old guy who used to bake bread for the first store, and one
of his partners. They work in the Virginia bakery. They have 10 bakeries
scattered around the nation. Bread is baked daily, picked up by 3 p.m., and put
on truck or plane so every store gets fresh bread every morning, even if they
are 400 miles away from the nearest bakery.
When Jerry got pulled to Florida, he
didn't want to go! Too far. He didn't want to go to Canada -- they're there
now. Two princes came from the Middle East. They want Jerry to go over there.
They have another group that says, "Anywhere you want to go, we'll fund
it." Jerry’s also had a few companies that want to come in and buy him.
They say they would let him run it, but Jerry doesn't think they would. Why
would they put up with fresh bread and taste-testing 16 different mayonnaises?
FIVE Reasons Why Five Guys is a Big
Success
Sell a really good, juicy burger on a
fresh bun. Make perfect French fries. Don’t cut corners.
That’s been the business plan since
Jerry Murrell and his sons opened Five Guys Burgers and Fries in 1986. Today,
there are 570 stores across the U.S. and Canada, with 2009 sales of $483
million. Murrell shares with us five things that helped him expand one lone
burger joint into a national franchise.
1. "Treat
that person right, he’ll walk out the door and sell for you," Murrell
says. "From the beginning, I wanted people to know that we put all our
money into the food. That’s why the décor is so simple – red and white tiles.
We don’t spend our money on décor. Or on guys in chicken suits. But we’ll go
overboard on food."
2. Murrell
says its important to make employee feel a sense of ownership—and
accountability. "Boys hate to smile. It’s not macho. And it’s definitely
not macho to clean a bathroom," he says of some employees. To motivate
them, Five Guys employs secret shoppers called auditors, and ties pay to
performance. "If the auditor walks in and the bathroom isn’t clean, that
crew just lost money," Murrell says. "Next thing he knows, the guy
who was supposed to clean the bathroom has toilet paper all over his car and a
potato in his pipe."
3. "When
we first started, people asked for coffee," Murrell says. "We
thought, Why not? This was our first lesson in humility. We served coffee, but
the problem was that the young kids working for us don’t know anything about
coffee. It was terrible! We tried a chicken sandwich once, but that did not
work, either. We do have hot dogs on our menu, and that works. But other than
that, all you are going to get from Five Guys is hamburgers and fries."
4. "The
magic to our hamburgers is quality control," Murrell says. "We toast
our buns on a grill – a bun toaster is faster, cheaper, and toasts more evenly,
but it doesn’t give you that caramelized taste. Our beef is 80 percent lean,
never frozen, and our plants are so clean, you could eat off the floor. The
burgers are made to order. That’s why we can’t do drive-thru’s – it takes too
long. We had a sign: “If you’re in a hurry, there are a lot of really good
hamburger places within a short distance from here.” People thought I was nuts.
But the customers appreciated it."
5. "A
lot of companies put 3 per cent of their revenue toward marketing or
advertising,"
Murrell notes. In contrast, Five Guys
will collect "1.5 per cent from all our franchisees and give bonuses to
the crews that score the highest on our weekly third-party audits. The crews
make about $8 or $9 an hour. If they get a good score, they will split another
$1,000 among them, usually five or six people per crew. Last year, we paid out
between $7 million and $8 million; this year, it will be $11 million or $12
million."
How to Build a Beautiful Company
Employ open-book management and leadership by consensus. Bill Witherspoon
In the early 1970s, Bill Witherspoon
lived for months in a school bus parked in the Oregon desert. A hundred miles
from the nearest town, he spent day after day painting the sky and the clouds.
He later sold his work for tidy sums. Witherspoon would spend the rest of his
life alternating between painting and launching companies. His first company
experimented with new methods of agricultural management. In 1982, he
co-founded Westbridge Research Group, a developer of ecologically friendly
agricultural products that boasted Jonas Salk as a board member. In 1990 came a
brush with notoriety when Witherspoon carved the Hindu symbol for the forces of
nature into a dry lakebed in the desert. The design spanned a square
quarter-mile. Aerial photos from a National Guard reconnaissance plane sparked
a panic over aliens.
During one of his peckish artistic
periods, Witherspoon offered to tear out the ceiling in an orthodontist's
office and replace it with a skyscape made from painted tiles in exchange for
braces for his children. That act of creative barter provided the idea for The
Sky Factory, a $3.9 million, 34-employee company in Fairfield, Iowa. The
business makes backlit images of sea and sky that are installed on ceilings and
walls. Its products are popular in hotels, spas, restaurants, and hospitals.
When Witherspoon, 60, launched The
Sky Factory in 2002, he wondered, was it possible to create a company as
beautiful as a work of art? A beautiful company, in Witherspoon's mind, starts
with the elimination of hierarchies that impede and repress the expression of
people's natural curiosity and creativity. The Sky Factory's organizational
structure is as flat as its creator's beloved desert. There are no employees,
just owners, and everyone cares deeply about doing what is best for the group.
Both painting and company building
start with a blank canvas. In a painting you create beauty with the addition of
each brush stroke. In a company you create it with the addition of each
talented, engaged person and with each thoughtful act. I thought about how
satisfying it would be to build a beautiful company, and how much better for
the people who work there.
I am an optimist and an idealist. In
shaping The Sky Factory, I started with the assumption that people are
naturally curious and creative. I wanted to craft an environment in which they
would act like entrepreneurs, not like robots. My first decision was to give
people the opportunity to purchase discounted ownership, and 100 percent of
employees have participated. The responsibility for revenue and profit belongs
to everyone. From that foundation, I derived five principles.
1. Share information
As a company of owners, everyone who
works here is naturally motivated to participate in important decisions. To do
so, people have to know everything. All information about The Sky Factory is
right out on the table -- with the exception of HR issues and salaries. And not
to reveal compensation was the decision of the group.
On Fridays, we have a two-hour
meeting. For the first 30 minutes, we go over all the metrics. In addition to
the critical numbers, people will raise questions about how many problems we've
had that week or how many architects our marketers visited. We track all of
that and maintain a historical record of the data that anyone can see at any
time. Everyone is trained in financial literacy so he or she can make the best
use of the information.
Secrets corrupt cultures. Secrets
cause backstabbing and power plays. They signify disrespect. Secrets can't
survive in an environment of total openness. It cuts off their air.
2. Give everyone equal footing
Leadership should arise innately from
the drive to do well for the company, exercise creativity, and serve others. It
should not be vested in titles and cascading organizational charts. There is no
hierarchy at The Sky Factory -- no managers or supervisors. Leaders are those
who, in a given situation, lead. We use facilitators for the sake of
coordination, and those roles rotate every week. Every week, a different person
runs our general meeting -- we go alphabetically. People who see a job do the job,
because they don't feel constrained by their perceived place in the company.
I believe great ideas come from
everyone, and a flat organization ensures that all ideas are heard and given
equal consideration. By the end of last year, we had accumulated a substantial
amount of cash, and we discussed how to make the best use of it. We decided to
pay off the mortgage on our new factory -- the idea of our newest and youngest
employee, who is primarily responsible for data entry and international
shipping.
Where there is no authority, there is
no fear, and people rise to what is required of them.
3. Make decisions as a group
Most people believe the quest for
consensus inevitably ends in frustration. That's true in an organization in
which upper management, middle management, and the workers have different
agendas and access to information. In a company in which there are no levels
and everybody knows everything, most people are already on the same page. When
an issue arises, someone presents the new information and gives people a few
moments to digest it. That's followed by some back and forth, and we usually
come to agreement in record time. No decisions are made behind closed doors.
Everyone is part of the process. Everyone's intelligence is brought to bear.
And by definition, at the end, everybody buys in.
When we don't achieve consensus, we
don't go forward. We let it die. Maybe it will come up later, when
circumstances are different or we have new information. At a meeting in
November, I brought up the notion of establishing a Sky Factory in Europe. The
others did not like that. I argued my case for 15 minutes and then said,
"Clearly we don't have consensus, so we'll forget about it." And we
have. One codicil: This works only if the person objecting offers an
alternative solution or reasoned point of view. You are always welcome to say
no. But you cannot just say no.
4. Serve each other
I
think of our factory as a community, and service is the core of community.
There are two kinds of service. One is: I do this for you, and I expect a
return. For example, I provide good customer service, and I expect loyalty. The
other kind of service is selfless. I do something for you without thought of a
return. I help you spontaneously and without thinking about it. That second
kind of service is powerful. When someone has a moment of free time, how
wonderful if she automatically thinks, Now, what can I do to help someone else?
At the start of our Friday meetings, the leader for that week tells an
appreciative story about someone at the company and presents the person with
$25. Often, the story involves an unselfish, unsolicited offer of help.
This leads to one of my more
idealistic notions: that everyone in the company should not only know
everything, but everyone should also be able to do everything. At most
companies, people take courses because new skills make them more valuable, so
they can get ahead. At this company, we value people learning new skills so
they can help others. So if someone gets sick or goes on vacation or falls
behind, no problem. Another person can step in. For example, our accounting guy
is great on the lamination machine, which is a very expensive, sensitive piece
of equipment. The idea is that the more I can do, the more people I can help.
5. Share the rewards
We reward based on performance -- of
the individual, of the group, and of the business. Every month, we distribute
50 percent of net profit to everyone, providing there have been no late
shipments since the last bonus, cash does not drop below six months' operating
expenses, and we have experienced positive cash flow for the previous 12 weeks.
The formula for the bonuses is salary divided by total salaries. Needless to
say, those criteria were arrived at by consensus.
The Sky Factory is an experiment and
an admittedly imperfect one. In the quest for collaboration and lacking lines
of authority, we can sometimes be inefficient. It takes time to hear and
consider so many ideas. Not everyone is equally comfortable with the lack of
constraints and the emphasis on stretching outside one's accustomed terrain. I
want this business to actualize every need that people have, and that is not
possible.
Most Monday, Wednesday, and Friday
mornings, we turn off the phones and do an hour of training on subjects as
diverse as photography, ecology, and business grammar. Recently, we devoted a
number of weeks to a course I prepared in partnership with an art historian
called "What Is Fine Art: Building a Beautiful Company." We all
viewed hundreds of images and discussed how every brush stroke, every chisel
mark, every pixel is linked to every other -- nothing stands in isolation. Then
we talked about how at our company the rotation of leadership and familiarity
with one another's jobs give everyone a deeper understanding of the product,
the ability to see it as more than the sum of its parts.
That appreciation of what we are
doing is what keeps great people here, and great people will ensure that The
Sky Factory endures. After all, that's what great art does. Endures.
So, are you motivated enough to start
a business? If so, here are some tips.
10 Things to Do Before You Launch
Your Start-Up
Is your great idea good enough? Can
it grow in this slow economy? Can it become profitable, and return on any
investments it requires? Well, there's no way to know until you try, right?
Hardly. There are some ways to prepare yourself, test your idea, and improve it
before you actually found a company around it. Consider the best examples and
guides of tips for the very early steps of building a start-up.
1. Scope out your industry
Or, if you're just starting to think
about entrepreneurship in general, find the best industry to fit your style and
talents. For example, this year's burgeoning industries include interactive
technology (from mobile app design to tech-savvy translation), wellness
(healthy beverages), and little luxuries, such as baked goods. When you start
honing in on a specialty area, seek out counselors and talk to industry
veterans. You can go to SCORE, the SBA, the Women's Economic Development
Agency, or scores more. The Internet, your local library, the U.S. Census
Bureau, business schools, industry associations, can be invaluable sources of
information and contacts. For instance, you might approach business schools in
your area to see if one of their marketing classes will take on your business
as a test project. You could potentially get some valuable market research
results at no cost.
2. Size-up the competition
Study your competition by visiting
stores or locations where their products are offered. Say you want to open a
new restaurant. For starters, create a list of restaurants in the area. Look at
the menus, pricing, and additional features (e.g., valet parking or late night
bar). Then check out the diners those restaurants appeal to. Are they young
college students, neighborhood employees, or families? Then, become a customer
of the competition. Go into stealth mode by visiting its website and putting
yourself on its e-mail list. Read articles written on them. Sign up for e-mail
alerts about search terms of your choice on Google News, which tracks hundreds
of news sources. After you study it, deconstruct it using Fagan Finder, a
bare-bones but very useful research site. Plug the address into the search box.
You will be able to quickly learn, for example, the other sites that link to
it, which can reveal alliances, networks, suppliers, and customers. Business
data aggregators such as Dun & Bradstreet and InfoUSA provide detailed
company information, including financials, although they are not cheap. Your
aim is to understand what your competition is doing so you can do it better.
3. Second-guess yourself
"The biggest mistake I see these
days is thinking that a business idea will automatically turn into a viable
business model," says Terri Lonier, president and founder of Working Solo,
a New Paltz, New York-based business strategy consultancy, and author of
Working Solo: The Real Guide to Freedom and Financial Success with Your Own
Business. Then again, what if the idea really is viable? "A lot of people
start with a kitchen table idea," says Marla Tabaka, a business coach who
writes The Successful Soloist blog for Inc.com. "It's a great idea you
come up with your cousin at dinner. But then the business booms, and your
growth gets out of control. You need a plan." Another important
consideration is your personal financial resources. Make sure you have a
considerable amount of capital set aside, especially because in a sole
proprietorship you assume personal liability for all activities of that
business. If you borrow money and can’t repay it, your personal assets are at
stake. Read more.
4. Think about funding
Can you bootstrap your company? Or
are you going to need a small business loan? Might an entrepreneur in the
family be able to invest, or should you look for venture capital or an angel
investor? Money is a big topic for entrepreneurs, and you'll want to know your
options early on. In order to get investors to open up their checkbooks, you’ll
need to convince them that your idea is worthy and also be willing to subject
yourself to increased scrutiny and give up a percentage of your company. That’s
why it’s a good idea to first ask yourself whether you really need a
professional investor at all, says David Henkel-Wallace, a serial entrepreneur
who has raised $60 million from VCs. "If you’re starting a web software or
mobile software company, you might be able to bootstrap it, which has the
advantage that you get to keep all the money you earn," says
Henkel-Wallace. "You could also look into borrowing from friends and
family – or even take out a second mortgage – for the same reason." If you
decide your business can only get to the next level with the aid of a
professional investor, then you need to figure out what a potential backer
looks for in a budding company, says Martin Babinec, who raised six rounds of
funding through the business process outsourcing firm he founded, TriNet, which
now boasts annual revenues in excess of $200 million. Start doing your research
now, and don't talk to investors until you have a strategy that involves
foreseeable future liquidity.
5. Refine your concept.
Adrienne Simpson initially intended
to run a traditional moving company out of her home in October 2002. The idea
came to her after relocating her mother from Georgia to Michigan. "I
thought I'd put everything in a box, put it on a truck and send her on her way.
Oh, no! Mom started walking me through her home, pointing at things saying,
'I'll take that, let's sell that, and I want to give that away,'" she
recalls. By the second year of operation, Simpson shifted gears to make her
Stone Mountain, Georgia-based company, Smooth Mooove, specialize in
transporting seniors—and their beloved pets—and providing such value-add
services as packaging, house cleaning, room reassembly, antique appraisals,
estate sales, and charity donations. Her crew does everything: put clothes in
the closets, hang drapes, make the bed, fill the refrigerator. But even still
business was stalling. "I knew how to run an existing company, but I
didn't know how to run a start-up," says Simpson, who worked 20 years for
Blue Cross/Blue Shield and 10 years with Cigna Healthcare. Seeking money and
marketing advice, Simpson went to the U.S. Small Business Administration (SBA)
office in Atlanta and was connected to SCORE (Service Corps of Retired
Executives) counselor Jeff Mesquita. "When you position your company you
have to think outside of the box in terms of what makes you different from the
competition," says Mesquita. "Adrienne described that what she does
is move seniors from A to Z, so, when they arrive to their new home it is like
walking into a hotel room." The only thing her clients have to bring is
the clothes on their back (and maybe their pet under their arm). That's when
Mesquita suggested the business name change to Smooth Mooove Senior Relocation
Services. That same night, Simpson went to a networking event. When people
asked 'what do you do?' and her response was 'I have a senior relocation
service.' Right away people said 'Oh, you move seniors." The business took
off from there. Read more.
6. Seek advise from friends, mentors
… or anyone, really.
A mentor can be a boon to an
entrepreneur in a broad range of scenarios, whether he or she provides pointers
on business strategy, helps you bolster your networking efforts, or act as
confidantes when your work-life balance gets out of whack. But the first thing
you need to know when seeking out a mentor is what you’re looking for from the
arrangement. What can your mentor do for you? Determining what type of resource
you need is a crucial first step in the mentor hunt. Lois Zachary, the president
of Leadership Development Services, a Phoenix, Arizona-based business coaching
firm, and author of The Mentee’s Guide: Making Mentoring Work for You,
recommends starting with a list. You may want someone who’s a good listener,
someone well connected, someone with expertise in, say, marketing, someone
accessible. Ideally you could find a mentor with all of these qualities, but
the reality is you may have to make some compromises. After you enumerate the
qualities you’re looking for in a mentor, divide that list into wants and
needs. Who's best as a mentor? Look within your family, friends, business
community, academic community, and even at your competitors – well, not your
direct competition, but you get the idea. Read more.
7. Pick a name.
Naming your business can be a
stressful process. You want to choose a name that will last and, if possible,
will embody both your values and your company’s distinguishing characteristics.
But screening long lists of names with a focus group composed of friends and family
can return mixed results. Alternatively, a naming firm will ask questions to
learn more about your culture and what's unique about you - things you'll want
to communicate to consumers. One thing that Phillip Davis, the founder of
Tungsten Branding, a Brevard, North Carolina-based naming firm, asks
entrepreneurs is "do you want to fit in or stand out?" It seems
straightforward. Who wouldn't want to stand out? But Davis explains that some
businesses are so concerned about gaining credibility in their field, often
those in financial services or consulting, that they will sacrifice an edgy or
attention-getting name. "However, in the majority of cases, clients want
to stand out and that's a better approach when looking at your long-term goals.
Even the companies that say 'I just want to get my foot in the door' will
usually begin wishing that they stood out more once they pass that first
hurdle."
8. Get a grasp on marketing
strategies.
You don't need to be a marketing
whiz, but if you’re trying to build an idea from the ground-up, you'll likely
need to build an accompanying marketing strategy from the ground up. In doing
so, you need to be clear on who your customers are, because you don’t have any
time to waste on marketing to those who aren’t. "That’s really the biggest
challenge, determining who exactly your customers are," Lonier says.
"Many times [business owners] think they understand who they are, but you
need to be willing to interview and test potential customers, particularly in
the early days of a company, in order to be able to build those
relationships." One way to make marketing easier is through joint-venture
marketing, Tabaka says. When she owned a coffeehouse in Naperville, Illinois,
she realized that her company and a major drugstore in the same shopping center
could work together and support each other’s marketing goals. Another important
and relatively easy way to get your name out into the market is building your
web presence through social media like Twitter and Facebook. Be sure you
familiarize yourself with and utilize Search Engine Optimization (SEO) to make
it easier for people to find your website. Read more.
9. Do a little test-run.
"The best way to test your idea
is if you're employed full-time and can sell your product or service in the
marketplace on weekends," says Sapp. If the business is already your day
job, then you have to move quickly to test, verify, and tweak your model,"
he adds. Try surveys, polls, and focus groups to gain insight into attitudes
about your business idea. Solicit feedback on the cheap by using online survey
tools available through such services as Zoomerang.com, Surveymonkey.com, and
Constantcontact.com. The goal is to get to know your customers intimately. What
turns them on? What causes them to tune out? Are they impulse buyers or do they
like to deliberate over their buying decisions? There are a lot of products
that people like but don't buy, says Sapp. The price might not be right, for
example. "Use social media to hone in on certain groups that can become
your focus group," says Susan Friedmann, a nichepreneur coach, in Lake
Placid, New York and author of Riches in Niches: How to Make it Big in a Small
Market. "Check out chat rooms, communities on social networks like Ning or
Facebook, industry groups within LinkedIn," she says. "What are
people discussing? Letters to the editor or articles in trade publications are
resources for finding out about challenges in that particular industry. What
are people writing about? What do people want to know about?" Knowing the
answers to these types of questions may help you refine your idea. Read more.
10. Start searching for future
talent.
This might sound premature, but don't
forget that your business is supposed to grow someday. Keep your eyes peeled
all the time for people who might fit into your organization – even if you
can't afford to pay them yet. No matter how small the internet has made the
world, experts still recommend in-person networking as the No. 1 way to recruit
talent. "I've done a lot of placing people into positions, and I have
never used a job board as a way to do that," says Rich Sloan, co-founder
of StartupNation. 'Personal [interaction] is so much more powerful and important
to me." So, if you meet someone interesting or knowledgable at a
networking event, or even if you get particularly impressive service somewhere,
be it a museum gift shop or helpline, ask that person a bit about themselves,
what kind of business they see themselves in in five years – and the best
people around will stick in your mind for when you need them.
Ten Things You Should Never
Micromanage
By their very nature, entrepreneurs
are doers. While other people may scheme or dream up ideas, entrepreneurs prefer
to take action. That’s how companies are born. The rub, however, is that the
drive to do things can often become a hindrance for an entrepreneur over time.
"As companies grow, many entrepreneurs have trouble moving from the doing
phase to the leading phase," says Stephen Harvill, founder of Creative
Ventures, a consulting company in Dallas, Texas. "It's understandable
since many times the small business person did just about everything to get the
business started. But, as the business grows, they don’t shift their mindset
from doing to leading." In other words, many entrepreneurs get stuck
micromanaging tasks that should be delegated to others inside or even outside
the company.
A case in point is Mike Faith, CEO of
Headsets.com, an online retailer based in San Francisco, who says that giving
up doing things can be like breaking a bad habit. "Many entrepreneurs have
an addiction to making sure things get done 'just right'" and there's no
reason to give that up, says Faith. "That's often how they became
successful, by having higher standards to get things right than others around
them, sometimes even obsessive standards. I'm one of those people."
The truth is, however, the more a CEO
micromanages his staff and subordinates, the less productive everyone becomes –
which can lead to a death spiral for a nascent enterprise. The answer, then, is
to hire the kinds of people you can trust to get the job done all on their own.
"Employees need to be given responsibility and continually challenged to
grow so that their jobs do not become routine and so that they personally feel
invested in their role and the organization as a whole," says Ryan
Peterson, founder and CEO of OCZ Technology in San Jose, California. "It
is important to start delegating tasks immediately and just as critical to make
sure that the right tasks are begin delegated."
Dozens of entrepreneurs and small
business experts were asked to list what they thought were the top 10 items
that, despite every temptation to do so, they should not micromanage. Here’s
how they responded, in no particular order:
1. Accounting
There's no doubt that understanding
the numbers behind your business is critical to the success of your business.
But you should still steer clear of tackling the day-to-day tasks in assembling
them. "Outsourcing payroll is cheap and easy, even large corporations do
it," says Cliff Holekamp, a professor at Washington University’s Olin
School of Business in St. Louis. "Don’t bother with this time consuming
task." A lot of entrepreneurs also spend time handling their own
bookkeeping and paying bills when they should be hiring a bookkeeper,
activating online bill pay options, or trusting an internal resource to handle
it for them, says Scott Gerber, managing partner of Gerber Enterprises, a brand
development company in New York City. "This is a time-sucking activity,
and while it’s important for the IRS to get the right information come tax
time, there are more than enough resources, either internal or external, that
can be trained or hired to handle such an activity," he says.
2. Human Resources
Every
CEO owes the success of the business to their people. But, digging into the
details of the health care package or employment law is better left to a
specialist. Just as importantly, CEOs should stay out of the hiring process
until they are truly needed. "Many times business owners want to focus on
building a team of people they feel they can trust and depend on," says
Adrienne Graham, who heads up two companies in Atlanta, Empower Me! Corporation
and Hues Consulting & Management. "But they often let their own
personalities, preferences and idiosyncrasies get in the way of making sound
hiring decisions." Similarly, CEOs should delegate tasks associated with
on-boarding and training new employees, says Joe Crisara, founder of
Contractorselling.com. "Assigning a mentor to a new employee is a double
win” he says. First it increases the esteem and value of the employee mentor.
Also, it allows the new employee to see how things are really done instead of they
way the boss thinks it is being done."
3. Social Media
There is a temptation among many
entrepreneurs like Samantha Salven-Bick, the founder of Los Angeles-based
Samantha Slaven Publicity, to micromanage every outward bound email or piece of
correspondence – including Facebook updates. "Trying to oversee every word
that leaves the office is time consuming, frustrating and perhaps a bit
control-freaky," she says, adding that she edits all email sent by her
junior staffers. That’s a mistake, says Ellen Thompson, CEO of 4 Walls, which
manages several online property websites out of Wynnewood, Pennsylvania,
especially when it comes to social media applications. "Most entrepreneurs
would be better off leaving social media management to younger employees that
'get it,'" says Thompson. "Social media is by its very nature very
informal and it requires a large volume of ongoing work. Micromanaging the
messages will make social media campaigns sound inauthentic. In our experience,
you can’t censure every post without seeing your social media campaign ground
to a halt."
4. Busy Work
When they start out, most
entrepreneurs pride themselves on their ability to do anything to save money –
including sweeping the floors and cleaning the bathroom when needed. But, as
the company grows, they need to hire an operations staff or office manager
capable of staying on top everything from ordering office supplies to answering
the phone and filing expense reports, says Dianna Durkin, an entrepreneur and
author of The Loyalty Advantage. Orit Pennington, CEO of TPGTEX Label Solutions
in Houston, says she not only delegates the answering of her cell phone, she
also asks a staff member to read and sort the company’s mail, bringing her only
the most critical pieces with the relevant information already highlighted.
5. IT Issues
Knowing everything about your
business may be a source of pride for entrepreneurs, but when it comes to
fixing a bug or downloading a virus patch, call for help. "When there's a
computer issue, I don't hesitate to pick up the phone and call my IT guru, who
has been working with computers for most of his adult life," says says
Laura Stack, a productivity consultant and author of SuperCompetent: The Six
Keys to Perform at Your Productive Best. "I’m sure you could probably
learn to troubleshoot errors, write HTML, create WordPress sites, and more, but
it's not worth your time and frustration to figure it out."
6. Customer Concerns
There’s no doubt that any business
owner needs to spend time doting on their key customers – to a point. But the
more a CEO steps in to handle a complaint from a dissatisfied customer, the
more they can disenfranchise their employees. "You cannot look over the
shoulder of your client relationship managers," says Gary Bahadur, CEO of
KRAA Security, which is based in Miami. "This assumes you have hired
someone who knows what they are doing. If so, then you cannot confuse the
client or the manager in how to deal with the client. This does lead to having
to put out an occasional fire. But the benefits of letting that manager really
get to know the client and build trust with them outweighs the risks."
7. Meetings
Meetings are another area where
entrepreneurs tend to get stuck looking at the trees instead of the forest.
Rather than attending strategic meetings, they are too often tempted to attend
tactical ones as well, says Steve Schmieder, CEO of s2, a marketing and
communications firm in Chicago. For instance, Barbara Roch who is an executive
coach and lecturer at Wharton, refers to an entrepreneur client of hers who
will not let his team hold a project meeting without him. Yet, he comes late,
wants to be caught up, and then dominates each agenda item. "The progress
on the project is slow at best and he can't see that his involvement is to blame,"
she says. "When I bring it up he says that the team doesn't fully
understand what he wants, how he wants them to go about it and that if he is
not there then they will get stuck." As a solution, she is trying to get
him to agree to receive a briefing by the project leader every week and only to
sit in on meetings once a month.
8. Creativity
Many entrepreneurs like to express
their creativity by participating in things like brainstorming sessions or
dabbling in graphic design. But by doing so, they may in fact be stifling the
creative output of their employees if they get too involved. "Once you
shoot for more creativity in your business, you must allow your team to deliver
this creative juice, their own ways, untouched, unpolished at first," says
Armelle Cloche, founder and CEO of iStayYoung.net in San Francisco. "The
best new ideas come from there. Then, it can be finalized as a team."
9. Purchase Decisions
Keeping tight controls on costs is
essential to the success of any business, especially these days. But
micromanaging every purchase decision can easily alienate your employees. The
alternative, then, is to figure out what dollar amount you’re comfortable with
and allow team members to make financial decisions on their own as long as they
stay within that bracket, says Tania Luna, co-founder of SurpriseIndustries.com
in New York City. "This means you don’t have to be involved in selecting
things like toilet paper, and your team members will feel good about their
independence and your trust in them."
10. Tracking Time
Entrepreneurs tend to be hard
workers, of course, which means they are often the first to arrive and the last
to leave the office. But, making it your priority to check in on each of your
employee's schedules is a mistake, says Steve Harper, a consultant based in
Austin who's the author of The Ripple Effect. "One of the easy traps a
business owner can get caught up in is tracking people's time – making sure
they are showing up on time, doing what they are supposed to, not taking
extra-long lunches, not leaving early etc.," says Harper. "There is
no need to install temperature gauges in the chairs to make sure the live
bodies are putting in their full eight hours. In fact, not micromanaging an
employee’s time and placing the trust in them to appropriately manage their own
time, workload and priorities often encourages the employee to have even more
ownership in their work life. My experience has shown me when you give people
the trust and the flexibility to get the job done they will usually end up
putting even more hours in than they ever would have thought to do if you were
micromanaging them."
The Story of Zappos
Zappos is owned by Amazon, but run by
its founder Tony Hsieh. Tony has led a very topsy-turvy life, at times a
multi-millionaire and at other times close to the bread line, living from day
to day. During his interesting life span, he has generated new managerial
concepts, challenged a few outmoded perspectives and, in general, kept himself
overly busy right from his schooldays attempts at making money.
As Tony says:
Our belief is that our Brand, our
Culture and our Pipeline are the only competitive advantages we will have in the
long run. Everything else can and will be copied.”
On graduation from high school, Tony
joined Harvard and began his career in making money by skipping classes in
toto, collecting notes from his friends, photocopying them and selling them as
a loosely-bound booklet to other classmates. He then ran a pizzeria, buying
McDonald’s hamburger patties and buns at $1.00 and selling them at $3.00, till
such time he could bake them himself.
On graduation, he and his friend
Sanjay took up offers at Oracle, where he found time hanging heavy on his
hands. In his words, “Something called the World Wide Web was starting to
become more and more popular. Sanjay was great at graphics, so maybe we could
start something on the side where we could create Websites for other companies.”
Tony and Sanjay’s marketing strategy
was simple: Approach a company, offer to build their Web site for free and then
sell themselves through that site. Tony and Sanjay both quit Oracle to work on
their maiden venture, Internet Marketing Solutions (IMS). In just one week,
they were bored with the slow progress and hit jackpot by setting up the
world’s first banner exchange site Internet Link Exchange (ILE). A third friend joined them, and soon enough a
buyer turned up with a $ one million offer, which they spurned. Their company
grew in no time, attracting Yahoo but they had the confidence to decline a $20
million buyout offer. Needing money, they sold 20% stake to venture
capitalists Sequoia Capital for $3 million. By now, they had caught the eye of
Microsoft, which bought them out for $265 million. Tony’s share was $32
million. He immediately raised $27 million in funding for his new venture
capital firm Venture Frogs from people he knew, with an old pal Alfred Lin
joining him to handle the finance.
An outsider brought in the idea of
moving into the $40 billion shoe market. Aiming at capturing just five % or
$two billion, Tony formed a company called Zappos, which sold shoes online,
without any inventory, but bought from a local store. Things looked good till
they got hit by the dot-com bust. Sequoia Capital refused to invest in Zappos.
Another stranger came to the rescue, by investing for four months at a time,
but had them move to San Francisco. The next two years were very hard going for
Zappos, with the company struggling to stay solvent. Tony then decided to go
for broke and sold all that he owned and put it into the company. Staying
focused on drop shipping, Zappos started to recover at break-neck speed. For
company reasons, he had to stop drop
shipping and again the company was staring down the barrel of a gun. But a bank
came to their rescue. This required them to relocate to Las Vegas.
In Las Vegas, Zappos got serious
about its mission: To live and deliver the WOW factor. Several initiatives were
undertaken by the Zappos team:
1. Deliver
WOW through service.
2. Embrace
and drive change.
3. Create
fun and a little weirdness.
4. Be
adventurous, creative and open-minded.
5. Pursue
growth and learning.
6. Build
open and honest relationships with communication.
7. Build
a positive team and family spirit.
8. Do
more with less.
9. Be
passionate and determined.
10. Be
humble
Again, this ploy worked. Zappos
generated $70 million in gross merchandise sales in 2003, surpassing even its
own projections.
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Ø Zappos Core Values Finalized: When new employees join the company, they are required to sign a document stating they have read the core values and understand that living up to them is part of their job expectations.
“Our
philosophy at Zappos is that we’re willing to make short-term sacrifices
(including lost revenue or profits) if we believe that the long-term benefits
are worth it. Protecting the company culture and sticking to core values is a
long-term benefit.” – Tony Hsieh
Ø Culture Book Launched And Expanded: Every year,
employees write a few words about what the Zappo culture means to them. These
excerpts are then compiled into the Zappos Culture Book without any censorship.
It documents how Zappos is evolving as a company over time.
o As everyone
writes about the Zappos culture, they think about the company’s values and what
they mean in everyday life. This is a great way to inject vibrancy into your
culture.
o This is a
great way to communicate to your suppliers, vendors, partners and customers
what you want to achieve. It makes you unique.
o A culture
book creates images and mental associations which bring your values to life and
personifies your brand.
Ø Ask Anything, a Monthly News-Letter Started: Zappo employees are
encouraged to send the senior management an e-mail which asks any question they
want. These anonymous questions are then compiled into one list and the answers
sent to the entire company.
Ø Company Starts to Invest in Own Employees: Most new hires
are entry-level employees. They are then enrolled in a three-year development
program where they are trained, certified and gradually given more
responsibilities. Zappos' in-house development team offers a broad array of
personal development courses to employees. At present, more than thirty courses
are available.
Ø Focus on Branding Through Customer Service: The things Zappos does to provide great customer service are impressive:
o Zappos
offers free shipping both ways – to make transactions easy and risk-free.
o Zappos has
a 365-day return policy for people who have trouble committing or making up
their minds.
o Zappos puts its call center number at the top of every page, because Zappos actually wants customers to call. The call center is staffed 24/7 as is the warehouse.
o Zappos is
creating a platform which will drive its future growth.
In short, Zappos works to create
customers for life whenever and wherever possible.
Further Developments
Zappos hit the $1 billion in gross
merchandise sales goal early 2009. Amazon CEO Jeff Bezos contacted Tony. Amazon
and both agreed on Amazon acquiring 100 % of Zappos and then put behind it the
resources Amazon had. Zappos would still operate as an independent entity and
would continue building the Zappos culture and business the way it wanted to
without any confusion at the board level. Amazon ended up paying just over $1.2
billion for Zappos.
When you
study the science of happiness, it becomes clear there are some interesting
parallels between what makes a business happy and what makes a person happy. In
essence, happiness can be represented in this way:
Zappos believe that people feel most
satisfied when in control over their lives, both individually and as a family.
If they feel that they are progressing in their careers, are connected with
others they like and are a part of a larger entity. Happiness is the direct result
of proper alignment of purpose, passion and pleasure.
Business organizations are somewhat different in that they are most satisfied when they believe they are progressively changing the world for the better, usually by delivering better products, superior customer experiences or greater value for money than anyone else.
The fuel which makes all of this possible is the business must be profitable so it can be sustainable. People work best when they have the wherewithal to locate their own happiness; this is equally valid for commercial enterprises. The hard part is in identifying means to deliver happiness; it’s a goal one must have behind running a business. The success of Zappos proves this point conclusively.
