CHAPTER 5
HOW ENTREPRENEURS REALLY MAKE MONEY— BIG MONEY!
Humorous writer Robert Benchley admitted that, after 15 years, he had concluded he had no real talent for writing.
“But then it was too late,” he said. “I can’t quit because I’m too famous.”
Paul Hawken, the extraordinarily insightful expert on the entrepreneurial experience, founder of the Smith & Hawken gardening products company, wrote in his book, Growing a Business, “The more exposure I gained to the ‘official’ world of business, the more I began to doubt that I was in business at all. I seemed to be doing something entirely different. I get that same feeling today when I read most of the standard literature.”
When I read that, I said, “Me too!” And I suspect that many readers of this book may feel that way anytime they read a business book put out by a big corporation executive-type or a college professor. In truth, there are a number of different business worlds, each barely touching the other, with very little overlap of their inhabitants’ experiences.
There is that world where the really big corporations and their employees live. There, leaders’ agendas are very complex and often, ironically, have profit subordinated to image, to pacifying Wall Street or investors or bankers, to directors’ other interests. In my consulting work I’ve mostly avoided visiting this world. On one such visit, I created a marketing program for a fraternal insurance company that featured a direct-mail campaign soliciting appointments for their agents which proved itself 500% more productive than anything else they were using or had previously used. Yet after testing it, the CEO informed me it could not be used. Why? Because it positioned the company’s financial products against banks and made sarcastic fun of bankers, and two members of the insurance company also sat on boards of and had significant ownership in banks. Their sensitivity took precedence over optimum results. I have five other very similar stories I won’t bore you with. They illustrate a belief I hold about corporations: the bigger they are, the dumber they are.
Then there is the world populated by small business owners. And a completely different world populated by entrepreneurs. The terms “business owner” and “entrepreneur” are commonly used as interchangeable synonyms, but they are different people. A business owner can become an entrepreneur. But they are different people. Here, I want to talk about how entrepreneurs make really big money, but first we need to get clear about what defines an entrepreneur in the first place.
The typical small business owner marries a specific, narrowly defined business, manages it, and, essentially, employs himself or herself as a general manager. When he starts a business, buys a business, or buys a franchise, he really buys himself a job, hopefully a very good job. He makes money by taking a salary, benefits, and perks. In the long term, he may make a significant sum that he can retire on when he sells his business. If he gets rich, it will probably be by stabilizing his first store, then opening a second, then a third, and eventually developing a chain. His first business may only give him $50,000.00 to $100,000.00 a year in income—the equivalent of a good job. Six such businesses, though, may give him $300,000.00 to $600,000.00 a year and allow him to become quietly, slowly rich.
There’s nothing wrong with this model. In fact, there’s a lot that’s right about it. There are a lot of millionaires made slowly by very “ordinary” small businesses. According to Thomas Stanley, professor of marketing from Georgia State University, a serious student of the affluent in America, and author of the bestseller The Millionaire Next Door, most millionaires make their money “the old-fashioned ways: hard work for 30 years, 6 days a week. ... in businesses that cater to the needs of ordinary people.” His and other research shows that a lot of owners of small businesses get rich slowly and steadily over 30, 40, or even 50 years. This serves to demonstrate that you certainly don’t need a revolutionary new mousetrap to get rich; there are still plenty of unexploited opportunities in already-established, proven fields of business, and you can build wealth in any number of these fields just by doing things a hair better than the average.
In The New Economy, this path is a bit more problematic than it was during the Reagan-Clinton-Bush boom, when consumer spending in every category was so rapidly expanding and the market was willing and able to support a huge number of duplicative, me-too businesses. A slight different or slight quality, service, or marketing advantage was sufficient for a satisfactory level of success. The New Economy’s demands favor the entrepreneur more than the business owner.
True entrepreneurs do things a little differently. Looking carefully at how they really make big money should open your eyes to new and different opportunities, too.
How to Tell If You Are an Entrepreneur (or Not)
Distinction #1: The true entrepreneur is not married to a specific business. If you ask the typical small-business owner what he or she does, you’ll get a narrow, easily understood answer: I own a restaurant. I’m a jeweler. I own a gift shop. The entrepreneur’s answer is never that simple. I imagine both my parents died still wondering exactly what I was going to be when I grew up. Business owners place themselves within narrowly defined, strict limits. Entrepreneurs think expansively.
This is particularly relevant to The New Economy, because change is more constant and faster than ever, so flexibility and agility in business is critical. I have long taught: if you’re trying to be in the same business five years from now that you’re in now, you’ll be out of business in three. I would now shorten that grace period.
Distinction #2: Entrepreneurs, first and foremost, make their money with innovative ideas. They are creators much more than they are managers. For this reason, they often start, develop, and sell a business only to move on and do it all over again. Some entrepreneurs who try to stay get forced out by their investors, who correctly recognize that being very successful at creating businesses does not necessarily mean that you are ideally suited to managing a maturing business.
Distinction #3: Usually, entrepreneurs are in many businesses, not one, even when it looks like one. This is the case with my long-time clients, Bill Guthy and Greg Renker. Guthy’s initial business was an audiocassette duplicating business for speakers and conventions. Then he got interested in using his production capability for proprietary products he could market, not just as a contract manufacturer for others, and that led to a licensing agreement with the Napoleon Hill Foundation for an audio product based on the book, Think and Grow Rich. Next, as Bill saw several of the people he was duplicating cassettes for doing well with television infomercials, he decided to produce a TV show to sell Think and Grow Rich tapes. Today, the Guthy-Renker Corporation is a $1.5-billion-a-year collection of unique vertical businesses all fueled in part by TV infomercials: as of this writing, Pro-Activ acne treatments products, Victoria Principal skin care, Susan Lucci skin care, and Comprehensive Nutrition—each with its own clientele receiving automatic shipments of product every 30 or 60 days. They still occasionally market nonconsumable products too; they brought Tony Robbins, the personal growth guru, to the market. There’s no simple answer to “what do you do?” for Bill and Greg. And, they are in eager search of their next great idea, their next new business within their business. The money made managing the business is mostly made for them by other, hired managers. They make their money with ideas.
On a couple of occasions, I was on programs as a speaker with Jim McCann, the CEO of 1-800-Flowers, which he built from a single brick-and-mortar small business into a giant business encompassing retail locations, a large e-commerce operation, a direct marketer using radio and direct mail, and owner of several candy and gift companies as well as the original flower business. It’s a long way from a corner flower shop. A business owner would have concentrated on opening a second store, then a third, not developing a multi-media direct marketing enterprise.
Distinction #4: Entrepreneurs develop equity differently. Small business owners are very traditional in their thinking about value. They think in terms of buildings, real estate, location, inventory, equipment, and income. Entrepreneurs realize that the most valuable asset is the customer. All other assets look solid but are actually quite fragile, because they are subject to severe interference by others and by external circumstances. Anything from a road torn up and under construction for months to entry of a new, tough competitor to the market to economic trauma can erase the value of all assets unless the customer list is in good order and the direct relationship with those customers is strong.
The Fortune-Building Secret of Total Customer Value
I am amazed at business owners who do not have mailing lists and e-mail lists of their customers. I am amazed at the businesses that never do anything when they lose customers. And I am amazed at the businesses that do nothing to maximize their total customer value—TCV.
The customer who is satisfied with you and trusts you is an enormous, enormously exploitable asset. Let’s say you have a neighborhood dry cleaning business. Most dry cleaners take whatever business comes their way, live on their repeat business, and never think much more about it. But let’s think about the entrepreneurial dry cleaner who understands TCV. Here are some of the things you’ll see that dry cleaner doing:
• Aggressively expanding usage of core services by repeat customers . With in-store displays, bag stuffers, handouts, coupons, and mailings, the entrepreneurial dry cleaner encourages customers to use leather and suede cleaning services, spot removal, fur storage, necktie cleaning, etc. By continually reminding these customers of all the different services offered, the total purchase average per customer, per year will increase. If the dry cleaner increases the total purchases of a customer by just $4.00 per month, or $48.00 per year, and keeps that customer for ten years, that’s a $480.00 swing in the plus direction. With just 500 customers, that’s $240,000.00, and if the dry cleaner does that to four outlets, that’s a creation of an extra $1 million!
• Diversifying into joint ventures or “hosting” other businesses with some logical relationship to his own. The dry cleaner rearranges the location’s layout to free up a corner for a shoe repair shop, and arranges with a local shoe repair shop owner for the repair person to be on premises two afternoons a week. The rest of the time, repair work is dropped off at the cleaners one day, back and ready for the customers the next. Of course, the shoe repair corner also stocks and sells quality lines of shoe polishes, brushes, laces, etc. The dry cleaner and two friends get in the carpet and drapery cleaning business and promote that business to the dry cleaning customers. Several times a year (e.g., Christmas, Father’s Day, etc.), the dry cleaner brings in displays of high-quality men’s neckties and offers them at very good prices, as “impulse buys” to customers.
• Exploiting the testimonial and referral potential of the customer list. Using a criss-cross street directory, the dry cleaner builds a list of all the people who live next door to or across the street from satisfied customers. Then, on a Saturday, using a small army of staff and neighborhood kids, they go out and personally call on these prospects, letting them know that their neighbors are customers, inviting them to try the services, and giving out coupons. Follow-up is accomplished by using a series of postcards sent through the mail. With such a targeted, personalized approach, a large number of new customers are added to the base with nominal expense.
This is a very different way of thinking about business.
While most business owners think that the purpose of getting a customer is to make a sale, my clients and I do the reverse; we make a sale to get a customer.
When I go out on a speaking engagement or to conduct a seminar, I’m viewed as a professional speaker, and I’m paid a substantial fee for my services ($18,800.00, as of this writing). But I’m a very entrepreneurial speaker. When I’m speaking, I’m also acquiring customers with great, long-term potential value. First of all, at every speech, I’ll offer and sell appropriate, relevant books and home-study courses. Second, those buyers will subsequently get our catalogues, one of our newsletters, and a series of offers by direct mail and e-mail to create additional purchases. Third, they’ll become Members of Glazer-Kennedy Insider’s Circle™, many at the Gold level, many ascending to the Diamond level—and about one in five become “lifers”; those acquired two decades ago are still with me. Fourth, they’ll be encouraged to attend other, future seminars. Fifth, some will become private clients for my consulting services, or my direct-response copywriting services.
The point is, I’m thinking of the customer as a very important asset with continuous, expandable lifetime value. There are customers who have given me income as recently as this month who were acquired when they first saw me speak 30 years ago. I actually have individual customers who have been worth a million dollars, total.
Another way to say this is that ordinary business owners think in terms of growing sales and businesses, while the entrepreneur thinks in terms of creating value, predominately by creating customer value.
The key to profits is rarely more customers—it’s better found through more valuable customers.
If we return to our mythical dry cleaner for a moment, because he is focused on developing maximum value in his customers, his business will be infinitely stronger, more stable, and more profitable than ordinary dry cleaners. This may enable him to expand by opening more locations or buying others’ existing stores, or lead to franchising, or to a second business consulting within the dry cleaning industry.
Networking, Strategic Alliances, and Joint Ventures
Today’s successful, innovative entrepreneur is very much in tune with the idea of cooperative marketing and with networking with other entrepreneurs for mutual benefit and profit. This concept is so important that we facilitate this in many ways for our Glazer-Kennedy Insider’s Circle™ Members including via local Chapters in over 150 cities.
Most business owners limit their thinking to their own business and their own resources. If they go beyond that, they think about OPM—Other People’s Money—in the form of credit or investment capital. Entrepreneurs often leverage OPR (Other People’s Resources) and OPC (Other People’s Customers) far more than OPM or just their own resources.
For example, I have a client who went from zero to over 200 franchises sold in his first 18 months—speed of growth just unimaginable in his or most categories of franchising, and probably unattainable through normal means regardless of the amount of capital that might be available to invest in the marketing. Through an alliance with another client of mine, he was able to market to that client’s following—several thousand doctors across the country ideally suited as prospective owners of the franchise. OPC. And he was able to reach out to them initially by speaking at that client’s conferences, appearing and being interviewed on that client’s tele-seminars, and utilizing the client’s e-mail list. OPR. The entire situation a win-win-win. My franchisor client got a fast start without significant out-of-pocket investment; my other client earned a very substantial income from his “toll booth position”—his control of and quality relationship with the doctors; and the doctors were brought an exclusive opportunity ahead of anyone else in their areas. This is a national situation, but the same strategy applies locally.
Ideally, you find opportunities to participate in groups of progressive entrepreneurs where you can explore potential alliances like this openly, and everybody is pre-disposed to engaging in them. But you can go in “over the transom” and approach another business owner or entrepreneur with this kind of idea and, while not easy, a connection is possible. I have one client who regularly identifies companies that should have customer lists well suited to his product and his complete marketing campaign, sends them his letter of introduction headlined “Free Money for Your Company”—and creates one good working relationship per ten companies approached.
The Language of Leverage
OPM: Other People’s Money
OPR: Other People’s Resources
OPC: Other People’s Customers
STRATEGIC ALLIANCE: A working relationship typically between two companies or entrepreneurs in which each brings something to the other and there is cooperation without monetary consideration. For example, a chiropractor might endorse a dentist and send information about the dentist to his patients; vice versa, the dentist might endorse the chiropractor and send information about the chiropractor to his patients.
JOINT VENTURE: A working relationship between companies or entrepreneurs, typically involving a particular moneymaking project, in which each may contribute different resources and share revenues or profits.
HOST/PARASITE RELATIONSHIPS: A relationship where a Host controls customers and/or media and a Parasite utilizes those resources.
HOST: The owner of a customer list, of retail locations, of a conference or trade show, etc.—in one way or another, the person providing access to established customers. Strategic Alliances and/or Joint Ventures and/or Host-Parasite Relationships provide extra income opportunities to Hosts, which can equate to increased customer value without increased overhead, infrastructure, or fulfillment responsibilities.
PARASITE: Not, I suppose, a flattering term, but I’ve been very happy to make a great deal of money as one many times. The Parasite has products, services, opportunities that can be promoted to a Host’s customers, with revenue or profits shared. These arrangements are most easily arranged when a) the Parasite has an entire marketing campaign prepared and proven elsewhere, and requires no work from the Host; b) the Parasite’s offer is in no way competing with the Host’s products and services; c) the Parasite has an excellent reputation, so the Host is free of anxiety about how his customers will be treated. A savvy Parasite makes the arrangement exceptionally attractive financially to the Host for reasons discussed in this chapter.
NETWORKING: The process of making your business, your resources, and your interest in cooperative relationships known to potential allies, through active membership in organizations, attending meetings and conferences, and participating in online communities.
The Remarkable Value of a Duplicatable Model
My former client and friend Len Shykind had a collection of a few dozen different business cards framed, hanging on his office wall. All the cards were his own from the various businesses he had struggled with prior to hitting his home run with Gold By The Inch. Len invented the idea of taking gold chain on spools to hightraffic locations like swap meets and making bracelets to size, on the spot, for customers, rather than displaying and selling presized bracelets. The public loved this concept. Whenever he set up his display, people flocked around—and bought jewelry.
Len was smart enough to realize he’d invented a business that just about anybody could do. He had a duplicatable model.
He quickly recruited tens of thousands of Gold By The Inch distributors throughout the United States, Canada, and elsewhere, some full time, most part time, setting up their portable businesses at swap meets, bazaars, in stores, and in kiosks. Together they sold tens of millions of dollars worth of Gold By The Inch every year. In fact, the market was so big and the need for more distributors so great, I produced a TV infomercial for Len to interest people in getting into this business. That program ran on national cable networks for eight years and made Len so wealthy that he was able to take a very early retirement.
Creating a direct sales opportunity like Len did is but one of many ways of leveraging a duplicatable model to a fortune. My client Michael Gravette has done exactly the same thing with personal and home safety products, but also added an online marketing component equipping distributors with their own catalog-style websites. His company, Safety
Technology.com, generates tens of millions of dollars in revenue predominately by supplying independent “mom ‘n pop” distributors.
Another fairly common although slightly more complex model appropriate for many businesses is franchising. I have worked closely with several clients in developing, launching, and growing national franchise organizations based on their own successful business. One type of franchise that lends itself to speed is conversion franchising—converting existing, independently owned businesses into franchisees. Century 21® did this in real estate, beginning a transformation of a previously fragmented industry absent any national brands. My client, HealthSource®, has done this with chiropractic practices. A regular franchise sold to anyone interested in being a small business owner is more common—you patronize some at least every week of your life, and they dominate the fast food industry, although they can be found in just about every product or service category. As you drive down the street and pass a Midas Muffler® shop, a 7-11® convenience store, an Ace Hardware® store; if you have your carpets cleaned by Stanley Steemer® or Dura-Clean®; if your house is protected from bugs by Terminix®—you’re a customer of a franchised business. The important thing to remember is that every one was first put together by somebody with one successful shop and good systems for marketing and selling, and operations that could be duplicated with consistency thousands of times. Sometimes, franchising occurs when an entrepreneur spots such a small business ideal for duplication and acquires the franchising rights or partners with its owners to market it. Milkshake salesman Ray Kroc created McDonalds© based on the McDonald brothers’ hamburger stand; they did not initiate franchising. Similarly, a group of entrepreneurs I advise bought a small, local chain of successful upscale men’s barber shops, converted them to an improved, dulicatable business model, re-branded them, and franchised as Kennedy’s All-American Barber Clubs™.
Incidentally, many franchise organizations have three types of franchise opportunities: individual unit or territory owner; multi-unit or multi-territory owner; and master or regional developer. The third may or may not actually operate a franchise himself, but acts as “lord and master” over all the franchises in a relatively large region, and provides support services, co-ordinates advertising, conducts training, and works with the franchise owners in his region in exchange for a share of the franchisor’s royalties of all their gross sales. Owning a master franchise is very much like being a franchisor, but with the actual franchise business model built for you, the national brand created for you, and a home office behind you. Master franchise owners frequently enjoy seven-figure yearly incomes and create substantial equity in their businesses for later sale. There are even professional master franchise owners who take on one promising new one after another, build it up in their region, sell their position, and do it all over again with the next one. In the Kennedy’s All-American Barber Clubs™ business we do have master franchise owners.
A third model is a “nonfranchise model,” still, typically, assigning area exclusivity to the person in the business, and having them using a furnished, turnkey marketing and/or management system and, in many cases, distributing proprietary products or delivering proprietary services. This is often done within a niche. Someone will develop a very successful means of marketing an optical store, for example, with original ads, direct-mail campaigns, TV commercials, a powerful website, etc., and then package all that up with ongoing coaching and support and sell it to one optical store owner per area, for an initial fee plus an annual or monthly fee. I have helped over 200 entrepreneurs develop this kind of business—most providing seven-figure yearly incomes. This is the approach used for a program I helped create called Dentistry For Diabetics®, which is provided to and used by only one dentist per geographic area.
Finally, there is wealth created through duplication via information marketing, and most entrepreneurs with successful strategies and methods proven in a particular category of business at least have this opportunity. As example, there’s the President of Glazer-Kennedy Insider’s Circle™, Bill Glazer. In what we like to call his former life, Bill owned and operated extraordinarily successful menswear stores which he made even stronger with discovery of my kind of direct marketing strategies—we met as a result of his attending an event where I spoke, buying one of my marketing resource kits, using it very profitably in his businesses, sending me examples, and inviting me to lunch the next time I was in Baltimore. At that lunch, I educated Bill about opportunities to profit from his successful ads, direct-mail campaigns, sales strategies, and other elements of his own duplicatable model, in a simple and streamlined way, as an information marketer to his industry. He then packaged up all the examples of everything he was using, wrote how-to manuals, and recorded audio learning programs to accompany the examples, and began marketing his first marketing kit for menswear retailers to his industry peers. This quickly established a thriving business, with multiple infoproducts and a newsletter. In only a few years, Bill expanded to other retail niches including ladies wear, sporting goods, jewelry, and home furnishings, peaking with over 5,000 retailers buying and using his advertising-marketing-sales system, subscribing to his newsletter, paying monthly membership fees, and purchasing other services. A multi-million dollar info-marketing business.
Curious About Your Opportunities in Information Marketing?
Check out the Information Marketing Association at
www.info-marketing.org and/or obtain a copy of
The Get Rich Guide to Information Marketing put together by the Association, and its Executive Director, Robert Skrob, published by Entrepreneur Press, available at all booksellers.
What I’ve just described, simplistically, of course, is a path I’ve personally guided hundreds and hundreds of entrepreneurs in different fields down—including successful carpet cleaners, restaurant owners, hair salon owners, chiropractors, dentists, real estate agents, and on and on. And, indirectly, thousands of business owners have used my approach to convert the successful methods used in their own business into information products, seminars, coaching, and services sold to others in their industries.
One way or another, the astute entrepreneur works at reducing the driving forces of his business to replicatable systems so his business can run profitably without him, and then often finds ways to leverage the work he’s done in perfecting those systems for himself into yet another business, selling the systems to others.
Mastering the Six Entrepreneurial Competencies
Figure 5.1 shown on the next page illustrates the Six Competencies the entrepreneur must master. One big difference between a small business owner and an entrepreneur is the emphasis given each of these competencies, and whether approached sequentially or simultaneously.
The business owner typically gives 70% of his attention to Competency #1, 20% to #2, 9% to #3, and 1% to #4. Ever so gradually, over time, if he gets smarter, and if he’s making money, the ratios shift. Late in the game, he tackles #5. He hardly ever thinks about #6. If he does, it’s in context of retirement. The business owner is often comfortable only with #1, having gotten into business in the first place to do the thing (not to market it). A more accurate visual depiction of the business owner’s relationship to these competencies would be #2 through #6 as small boxes inside one big box identified as “The Business” with #1 as its function.
For the entrepreneur, the Six Competencies illustration is an “overlay” for any business, moved from one business to another. He feels he can move his attention fluidly from one box to another as warranted.
While the business owner may work to implement these competencies inside a particular business, the entrepreneur works to master these competencies,
period. (See
Figure 5.2.)
Live Outside the Lines
If given a shoe store, the small-business owner will manage and promote that shoe store well. But ten years from now, it will still be a shoe store. Give that same shoe store to a true entrepreneur and, ten years from now you probably won’t recognize it!
Maybe, as a child, you were urged to “color inside the lines.” This was not great training for entrepreneurial success. As you can see, most entrepreneurs make most of their money “outside the lines.”
