For Entrepreneurs' Success, the Right Product is More Important Than an M.B.A.
You're an entrepreneur in the making, seeking the holy grail of working for yourself. Maybe you have an M.B.A., maybe not. No matter. What you need to focus on is what is going to drive your business. Or, more precisely, what product is going to drive it. And I don't mean just any product. I mean The Product — the goods or services around which you can build a profitable business, nicely support a family, and eventually sell for a fortune to a covetous buyer.
Until you find The Product, nothing else will end up mattering. Without it, any seed money you raise or savings you invest will soon go down the tubes, you'll have a pile of debt you probably won't be able to pay, and you'll need your old job back — if you can get it.
M.B.A. programs can't teach you how to find The Product (although they will teach you core skills to prepare you to work for a large, established company). Deciding on the right product or service is like choosing a lifetime spouse; it's a complicated, tricky art that few can master.
Ideally, if we are to follow theWarren BuffetSchool of Wisdom, The Product should be a commodity-like, relatively uncontested niche item or service that can produce sales, profits, and positive cash flow for a long time to come. Unlike marriage, you can test market it in the real world for a lot less risk than finding out if your marriage choice was right (and going through the cost and stress of a divorce if it isn't). You can even test market your product from your basement, garage, or attic. If it flops, which it probably will the first few tries, you will have data that can point you in a new direction.
Just make sure you do this on the smallest scale and cost possible, because what you're after in the early phase is data and feedback. You don't want to crank up marketing and advertising volume until you know for sure that its associated costs will deliver positive cash flow, not cash drain, to the bottom line.
Extra time researching, planning and test marketing at the front end, before you crack open your company's skinny checkbook, is the secret to survival. The more you do, the better the odds you'll avoid the pain and humiliation of financial defeat later. Then, once you find The Product that can enable your dreams and personal balance sheet, you're off to the races. But just how does one go about a search for The Product?
Well, it's no different than finding the perfect spouse. You hang in there, wend your way through the theater of life, and then one day, there she or he is, just when you least expected it.
Take, for example, the case of a 28-year-old, naïve dreamer without an M.B.A., back in 1979, who stumbled through an embarrassingly painful learning process before he found a product he could build a great little company around. He had scant business experience, no mentors, blundered through a pile of dumb mistakes, but somehow morphed into a successful entrepreneur and business manager a few short years later. How could this be?
He found The Product. He kept costs down and rooted around until he stumbled upon a product that suited his skill set and had strong customer appeal. Let's take a look at the sequence that took him from knucklehead to success.
First, by all rights, this dewy-eyed entrepreneur should have failed miserably. And in fact, he did just that. But he did it quickly, on a tiny scale in the early months, and gained valuable knowledge with each setback. Then, in month 27, he came across a hot product that made good sense for him. He had been kicking around long enough to realize this was his ah-hah! moment--he had found The Product. And that, as you shall see, made all the difference.
It all started in May, 1979, when he began moonlighting while commuting from Tarrytown, New York into his day job as a mid-level magazine editor in Manhattan. While riding the train he laboriously revised and re-published his grandmother's cookbook, which had been through 20 printings at the time of her death two years before. He quit his day job in October, 1979, drove to a printing plant in New Jersey, and proudly picked up 5,000 copies of the revised cookbook, which he stowed in his suburban New York basement. Simultaneously, he ran mail-order ads.
Of the 5,000 cookbooks in the initial press run, 4,821 were still in his basement, unsold, a few months later. Fortunately, his wife still had a 9-5 job; but an ominous stack of bills was growing.
Humbled, the young fellow produced an entire catalog of 200 similar books, which publishers were willing to let him inventory him on generous, and returnable, terms. But this catalog also failed. Quite miserably, in fact. So he widened the product scope from culinary and medicinal herbs to a country-store motif. This also failed. The would-be entrepreneur was taking a financial and psychological beating. People were beginning to talk: He left a perfectly good job and went out on his own, and look what happened. What a fool!
The hopeful entrepreneur and his wife sold their house for a nice profit, put the proceeds in a bank certificate of deposit, which they would later borrow against, moved back to the Midwest, and rented a tiny house in Madison, Wisconsin for $450 a month. They set up office space in the basement, in between the water softener and furnace. Mrs. Entrepreneur, 27, was eight months pregnant.
Just before closing the U-Haul truck doors in New York and moving to Wisconsin, an importer the entrepreneur met at a trade show called and convinced him to sell knitted silk winter clothing items in the upcoming country store catalog. Turns out the young entrepreneur had one page left to fill in the 32-page catalog. So he said yes, packed up his desk, and soon the U-Haul truck lumbered precariously down the driveway, and headed for Wisconsin.
Three months later, after he and his wife moved their office from their basement into a Skid-Row building on Madison's east side, they began filling orders from the new catalog while their new baby slept on the UPS packing table. Of the 60 or so products in the modest, two-color catalog, only five were break-even or better. But three of these were selling like gangbusters--the knitted silk items added at the last moment to fill an empty page.
In the subsequent January, 1982, catalog, results were similar. So the young couple tried selling the silk items in small space advertisements in the Wall Street Journal. Ka-Boom! Some of the ads returned seven times their cost. Over the summer they liquidated the obsolete, slow-moving products and began developing dozens of new knitted silk garments. They also began importing directly from China, where 95% of sericulture is centered, to control inventory flow and profit margins. Within 15 months their problems had changed from staying financially alive to finding enough reliable people to take phone orders and ship merchandise.
They changed the catalog name to WinterSilks--The Ultimate Winter Warmth, and moved to larger offices; then then moved again, bought the building, added on to it, and eventually made the INC. 500 list, while remaining very profitable. In year 11 the business was successfully sold.
All this within a few short years from a start-up klutz who couldn't sell cookbooks or balance a checkbook. The key to success was keeping costs down and hanging in there to find the right product. Like I said before, until you get that right, not much else will end up mattering.
I was the rookie entrepreneur in this story, and in Chapter 3 of my book, Chicken Lips, Wheeler-Dealer, and the Beady-Eyed M.B.A.: An Entrepreneur's Wild Adventures on the New Silk Road, I tell the tale of how we found and developed the product line that profitably drove my business and changed our family's lives. The sequence of events was, for me, a coming of age gauntlet that allowed me to acquire a core understanding of building a business. By staying flexible we never become fixated on a particular product line until we knew we had the right one--the one to which we wanted to be "married."
Starting from ground zero as a sweaty entrepreneur, always burdened with a fear of failure and financial oblivion, was humbling, to put it mildly. But I was able to learn the business from the ground up, which enabled knowing how to efficiently manage each department in later years as the company rapidly grew.
The start-up was painful, scary as hell, and the odds were slim. But, despite the difficulties of starting from scratch and searching for The Product, I wouldn't have it any other way. In fact, I think it was a unique advantage. How else can a person truly learn to birth, build and sustain a profitable business--and reap the rewards from doing so--unless he or she is sweating bullets at the time of delivery and, in the months that follow, learning every detail there is to know?
Frank Farwell is founder and past president of the WinterSilks catalog. His book, "Chicken Lips, Wheeler-Dealer, and the Beady-Eyed M.B.A.: An Entrepreneur's Wild Adventures on the New Silk Road," details his experiences as a start-up entrepreneur, and was nominated for the Financial Times/Goldman Sachs Best Business Book of the Year Award. Its Appendix lists the attributes of an ideal product; the book is available from Amazon, or www.frankfarwell.com.