HOW I DID IT

 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.

 

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.