CHAPTER 3
WHAT IT TAKES TO BE A SUCCESSFUL RELUCTANT ENTREPRENEUR
Louis Borders had proven that he could start a successful business. The bookstore he’d founded with his brother Tom in 1971 had become a national chain, Borders Books.
Then, in the late 1990s, Louis’s entrepreneurial juices started flowing once again. He decided to start another company. No longer actively running Borders Books, he had plenty of time. He also had loads of money. And he believed he had a great idea: an online home-delivery grocery service. He called it Webvan, and there was nothing “reluctant” about it.
With his connections, he was able to raise all the startup capital he needed as well as convince high-profile businesspeople to sit on his board. The only thing he didn’t have was experience in the supermarket industry. But that didn’t faze him. He was fearless.
The first thing he did was spend a billion dollars building warehouses. Next, he bought a fleet of delivery trucks. Then he installed dozens of high-end computers and server systems. And he hired several thousand people, including hundreds of senior executives to run the business. He lured them in with big salaries, tantalizing bonuses, and luxurious office spaces. He spared no expense. The chairs they sat in were Herman Miller Aerons, at almost a grand a pop.
It looked like he had done everything right. There were glowing reports in the financial press about his likely success. Investors were dying to buy stock in Webvan.
Then reality set in.
Consumers weren’t as quick to change their shopping habits as Louis thought they would be. The assumption behind the business—that people would choose convenience over time spent going to the grocery store—was wrong.
Louis built it, but they didn’t come. And since the profit margin in the grocery business is so slim, Webvan began losing big money immediately. Week after week, the losses piled up. When Louis finally called it quits, 2,000 people lost their jobs.
Louis Borders was an experienced businessman. In starting Webvan, he did everything first class. But he didn’t do the most important thing an entrepreneur must do before going forward with a new venture: He never tested his idea.
Had he tested his idea, he would have discovered that people like to shop for groceries. They enjoy going to the market. They like to walk through the aisles and browse. And they love to find things on sale that they frequently use.
Not to mention the fact that most people like to squeeze their own tomatoes before buying them.
Louis could have tested his idea by making a deal with a distributor and marketing groceries in a few sample locations. He would have found out quickly and inexpensively that his core concept was flawed. Had he done so, he would have saved himself and his investors a fortune. And he might have then used his extensive resources to test another idea, and another … until he found one that worked.
Marty Metro was another entrepreneur who jumped into a business feet first. His idea was to buy gently-used cardboard boxes from large companies and resell them at bargain prices. He was confident he would make millions.
He invested his life savings in the business. He bought truckloads of boxes and advertised them for sale. The response was enormous. Customers clamored for the boxes, and Marty was jubilant. Sales were great—but profits were non-existent. In fact, he was losing money. And he didn’t know why.
After three years, frustrated and $300,000 in debt, he gave up. His mistake, he now knew, had been to launch the business before he’d factored in the delivery costs.
He had been fearless but would be fearless no more. He had proven that his idea was marketable and he wanted to give it another try. But this time, he would do it as a reluctant entrepreneur.
First, Marty got a job so he could support himself. Then he studied successful business models that might work for him. He realized he needed to partner with a delivery company so he could control those costs. And after landing a deal with UPS, he market-tested his new business model in Los Angeles. He did everything on a shoestring budget until he saw positive results.
Today, Marty Metro is founder and CEO of UsedCardboardBoxes.com, a multimillion-dollar company.
Marty’s advice to new entrepreneurs couldn’t be clearer: “Don’t start a business until you are sure it makes money! Make sure that you have a great business plan before you waste your (or anyone else’s) time.”
“The cautious seldom err.”
—Confucius
The reluctant entrepreneur wants to build his own business and become wealthy one day, but he wants to do it cautiously. He knows that however good and exciting his business idea seems to be, its profit potential is unknown until it has been tested in the marketplace.
He is ambitious and hopeful but not foolish. He realizes that he has only a limited understanding of the market he is entering, and he does what he has to do to compensate for it.
As Louis Borders and Marty Metro learned, confidence and the willingness to take a huge risk are not the keys to entrepreneurial success. What you need is a healthy dose of anxiety, a good day job, and a step-by-step plan for getting your business off the ground. The anxiety will keep you from spending all your money before you’ve given your business idea a fighting chance. The day job will keep food on the table while you test your business model. And the step-by-step plan … well, this book will help you create that plan.
Not all businesses are created equal. Some require a great deal of capital investment. Most manufacturing businesses, for example, require millions of dollars just to get started. Others, such as developing a successful social web site or board game, require more than money and time. They require a certain amount of luck. It’s like becoming a pop singer or actor. You can have a great product (or skill) but your marketplace is simply too competitive.
So how do you decide on which business to get into?
There’s no better foundation than building on what you know. You might be drawn to the rush of something new and exciting, but your chances of success decrease with every step you take away from what you’re familiar with.
Say you have a successful neighborhood restaurant called The Steak House. Your basic business is selling a certain kind of eating experience to the community. Over a few drinks with friends, you come up with two new business ideas:
Both of these businesses have several elements that relate to what you are already doing. The Fish House is almost identical except for one difference—you will be selling fish, not steak. All other key aspects—how you attract new customers, how you create a profit margin, and how you control your costs to deliver a bottom line—remain the same.
Starting a wholesale steak-selling business is about selling steaks. And that’s what you do. But in this case, there are many differences. For one thing, the market is different. You are not selling to local diners but to regional businesses. This means the selling strategy is different. Which means the profit margin is different. And so on.
Opening The Fish House is an example of starting a new business that is only one step removed from what you know. Opening a wholesale steak business is three or four steps removed.
The first business has a good chance of succeeding. The only unknown: Will there be a big enough local market for fish? The second business has a poor chance of succeeding. There are simply too many things you don’t know about it … too many inside secrets that are blocked from your view.
It is possible to succeed by going two or three steps away from your core experience. But as a rule, you want to take one step at a time.
Starting from scratch, learning a new skill, and gaining experience takes time. The danger is that you’ll become overwhelmed and quit. The learning curve is just too steep. But if you choose something you already have experience in, you’ve already got one foot in the door.
There is absolutely no need to try to invent something new. In fact, that is a very bad idea. Entrepreneurship is not a case of “build it and they will come.” If nobody else is selling what you want to sell, there is almost certainly no market for it.
What you want to start with is a product that is already working for other marketers. One with a proven track record. And there are many to choose from.
You have to be impressed with the variety of businesses that are alive and thriving. Look over any list of the fastest-growing small companies and you’ll see things like tax services, professional cleaning products, insurance, adult day care, computer hardware, telecommunications, waste management, IT staffing, and more.
One retired guy I know manufactured those brushes that are inside glue jars. Another imported sunglasses from Asia. Another imported and sold oversized bronze statues from the Philippines. These are not real estate, oil, or software barons, but they are all very rich.
All over the country, thousands of obscure businesses are operating. They employ hundreds of thousands of people. They quietly make their owners millions of dollars.
That doesn’t mean every business has the potential to make a lot of money. There are plenty that have all the cards stacked against them.
How can you tell? Look around at the owners of businesses that are similar to the one you’re considering. If they have been working at it for seven years or more and are still driving used cars and living in small houses, it’s probably not going to work for you.
Forget trying to become the next Facebook or YouTube. They get all the glory when the media shines a light on entrepreneurs. But that kind of instant success is akin to buying a lottery ticket. Most likely, you’ll be working nights and weekends to get your startup business off the ground. That’s the hallmark of a reluctant entrepreneur … to stay within the safety net of a regular job. To have benefits and a steady paycheck until you know your idea is feasible and will make you some money.
Like I said, you’re always better off starting with something you know. A product you’re already familiar with. It must fill a need that already exists in the marketplace. But—and this is more important than you might think—it must also be something that interests you. You are going to be married to this idea. You are going to be sacrificing time and investing resources into it. If you are not keenly and seriously absorbed by the whole concept, you won’t last long. You won’t be able to maintain the momentum it takes to go through the process of developing and running a multimillion-dollar business.
Your business idea can come from anywhere. It can be the result of a disappointing experience with a product you bought. It can be a flash of inspiration when you realize how much more useful a service you’ve been using for years would be if it were modified ever so slightly.
It must, as I said, be based on something other people are already selling profitably. But you need to make it better in some way. You need to add enough value that it will prompt your prospective customer to pull out his wallet and pay you for it.
How can you do that?
Nick Swinmurn, the founder of Zappos, did it by taking a familiar product (name-brand shoes), adding convenient online shopping, and topping it off by overwhelming his customers with extraordinary service.
One example: Zappos has a 365-day return policy with free shipping both ways. They also upgrade customers to expedited shipping—without telling them they’re going to do it. Customers expect their shoes to be delivered in three to seven days. When the shoes show up on their doorstep the next day, they are more than impressed.
No surprise that 75 percent of Zappos’s sales are from repeat business and referrals. The result? Almost $1 billion annually.
Every business has two sides: product development and marketing. Many would-be entrepreneurs have good product ideas but they know nothing or next to nothing about marketing.
Learning how to sell your product is your single most important job as an entrepreneur. The sooner you can figure out how to acquire customers, the sooner you will be able to quit your day job and live the life you are dreaming about now.
Of all the forms of selling, the strongest by far is direct marketing—online, in the mail, and in magazines and newspapers.
You don’t have to sell face-to-face to be a great direct marketer. You can learn the skills at home in your spare time. You can learn them by taking correspondence courses. And you will get all the fundamentals by reading this book.
Marketing is such a big topic that I will be devoting a whole chapter to it. For now, recognize that the way you market your product is one of the core strategic choices that will be the foundation of your business.
Once you have developed your lead product, you must devote 80 percent of your time and attention to making your first profitable sales. By that I mean sales to your target audience. That will happen with the right offer. Friends and family do not count. Your mother or sister may rave about your product and think you are a genius, but the buying public determines your success. When you’re selling to them, you are really in business.
You must also understand the back end of your business. You must learn how to convert new customers into repeat buyers. You must learn how to turn a $50 purchaser into one who has a lifetime value of $100 or even $1,000. All of this will happen with the right offer (or offers).
This is not a static thing. Marketing offers change over time, even if the basic principles do not. I’ll be giving you examples of those basic principles.
This is where a lot of entrepreneurs drop the ball. They think they can write their own marketing copy. Copywriting, however, is a particular skill that involves not just writing but the art of persuasion.
Did you get a renewal letter today for any magazines you subscribe to, perhaps offering a discount or free gift? How about an offer from a bank for a new credit card? (You’re prequalified and eligible for super-low interest rates!) Maybe a local merchant is having a sale this weekend and invited you to come by.
All of those pieces were written by copywriters.
Hiring a copywriter is no small responsibility. Make the right choice and you get great copy that brings in sales by the bushel. Make the wrong choice and you end up pouring thousands of marketing dollars down the drain.
Eventually, you will want to have a really good copywriter on staff. Still, I strongly urge you to try your hand at it yourself. Later in this book, I’ll get you started.
Starting your business by making these six strategic choices will get you off on the right foot. From there, it is simply about learning the necessary skills and avoiding the most egregious pitfalls.
Some experts would have you believe that entrepreneurs are born, not made. I am not in that camp. I believe that if you have a well-thought-out marketable idea … and you’re knowledgeable about how to grow that idea into a moneymaking enterprise … your business will thrive.
As I’ve said before, you don’t have to be a risk taker. As a reluctant entrepreneur, your cautious nature will be one of your greatest strengths. It will help you avoid the most common mistakes. So embrace your cautiousness and believe in this approach. It has worked for dozens of people I’ve mentored and I’m sure it will work for you.
Marty Metro’s story at the beginning of this chapter is a prime example of what I’m talking about. Marty had a great idea. It was very marketable. But with his first try at turning it into a business, he went down in flames. With his second try, he did it as a reluctant entrepreneur. And then he was finally on his way to a multimillion-dollar success.