I started my business with my brother in 1980. We went from zero to $350 million in sales and, finally, turned a business that started with no cash and no customers into a $2 billion revenue company. How did we do it? A few simple and effective sales tricks. It's an approach any entrepreneur starting from nothing can adopt — and should.
Our business doesn't sound exciting — technology wholesale. I could say it was genius to pick a great high-growth market in 1980, but it wasn't planned. I was in engineering and wanted to design circuit boards. Computers were expensive, but I could get a discount if I bought two. So I bought two and sold one. At first we just knocked on doors and spoke to anyone who would listen. And I put the word out to my friends that we sold computers so they would refer prospects. Then someone else wanted one; then they needed a printer and some software.
All the investors we approached turned us down. We had no track record. We were young and looked even younger. This was before the days of successful kids starting companies. There was little angel or venture capital available in those days. It became sexy later.
Not having cash was a blessing. It forced us into our frugal ways. It forced us to do good business. I believe it is what helped us to succeed.
In 1980 computer stores were just starting to open, so we started to sell to them, and shortly after, we started to sell only to retailers, or dealers/value-added resellers (VARs), as we call them. Selling through computer stores also gave us scalability. If we sold to even 12 computer stores that all had five salespeople and convinced them our products were good, we then had 50 salespeople out selling our product.
This market gave us the opportunity to learn a lot about sales strategy.
When we finally sold our business, we had had 99 consecutive profitable quarters. Starting with no cash is a good excuse to be profitable.
Our sales grew over 25 years to $350 million. We then sold to Synnex, where I remained as CEO of Synnex Canada, growing combined company sales from $800 million to $2 billion over five years, using the same model of selling to retailers and VARs.
"When we finally sold our business, we had had 99 consecutive profitable quarters. Starting with no cash is a good excuse to be profitable."
Here are the best of the simple tricks we used to bootstrap our way to success:
1. Cash is king, and when you start with none, you need to focus on it.
In the early years, much of the focus was on the cash conversion cycle. How long could we wait to pay our suppliers, and how soon could we get our customers to pay. Part of this with customers was getting them to pay deposits up front and getting part paid on delivery, while at the same time getting suppliers to give us net 30-day or longer terms.
We could often negotiate paying suppliers down to 50 percent in 30 days, 25 percent in 60 days and 25 percent in 90 days. For many vendors the last 25 percent was their profit, so their risk was low to accept these terms. Essentially all I was doing was asking them to leave their profit on the table to allow me to collect from my clients to pay them. And I was up front about what I was doing.
Because of our cash shortage, we also had to select our clients well. We needed to learn to walk away from clients and suppliers that did not meet our cash-cycle needs (and it is tough for an entrepreneur to ever walk away from business). But we simply chose our customers by whether they could live by our payment terms.
This shortage of cash also forced a frugality in all overhead expenses. The offices were modest and painted by us. One way this frugality manifested was with a high work ethic, because we simply could not afford to hire more people. Like many entrepreneurs, it was not unusual to work 80 or more hours in a week.
2. A business with a services component will get you to profits more quickly.
We found that services were immediate profit. We would use the profit from services to fund some of the product sales, which tended to be slower cash conversion.
Services for us would be things like installation and training. Customers would pay us for those as the work was delivered, and we had no out-of-pocket costs other than payroll. There was an added complexity for us, since we were selling through retailers. We needed to get them to sell our services, so we would pay them a commission.
I often suggest to young entrepreneurs who want to develop a product that they should pick a business that has a low capital asset requirement and ideally one that has a service component that can be used to fund the growth. We had very little capital equipment except for some office furniture and computers.
3. If it worked once, don't forget it.
Many things about the world of technology and retail have changed since I first started in tech product sales in 1980. But I am still using the simple strategies that got my first business from zero to $2 billion in sales today.
I have become CEO of Danby Appliances, a $400-million-in-sales manufacturer and distributor of bar fridges, microwaves, wine coolers, air conditioners and other small appliances. We still sell our way to success.
There are parallels between the tech-distribution business and Danby Appliances. Danby sells through retailers and independent appliance resellers, similar to what we did in the 1980s. Most independent resellers are entrepreneurs who identify with my story. This commonality builds rapport.
The appliance business is highly competitive, so buyers want value. Running the business in a similar frugal way to our start-up helps make Danby more competitive. For example, our factories and warehouses are basic — no marble or mahogany is needed in our simple boardrooms. Simple things, like work ethic, customer service and politeness never go out of style.
Danby is well-financed, but the lessons learned from having to manage cash still apply. At Danby we can use cash as a competitive tool to help sales.
— By Jim Estill, CEO of Danby Appliances and a member of the CNBC-YPO Chief Executive Network
CNBC and YPO have formed an exclusive editorial partnership consisting of regional "Chief Executive Networks" in the Americas, EMEA and Asia-Pacific. These Chief Executive Networks are made up of a sample of YPO's global network of 24,000 top executives from 120 countries who are on the front lines of the economy and run companies that collectively generate $6 trillion in annual revenue.