What Do You Want To Do When You Grow Up?

By Frank Demmler

“What the hell has this to do with fund raising,” you may be asking yourself.  The answer may surprise you, “Everything!”

Why did you start your business? What do you want your business to be doing in two, five and ten years? How do you define success? When you look back in five or ten years, will you be proud of what you’ve achieved?

The answers to these questions, and others like them, are critical in your quest for capital.  The kind of business you want to create and the role you play in it are essential to determining the desirable sources of capital for you and your business.

What Kind of Business do you want to create?

Many first-time entrepreneurs come up with a business idea and mistakenly believe that there’s only one way to create a business around it. This simply is not true.

The nature of the business is largely dependent upon the business you want to create. If you don’t probe and challenge yourself to create different business concepts that can be derived from your core idea, then you may miss the path that would give you the most satisfaction or that may have been the most successful financially. By going down the “obvious” path, you may be dooming yourself to failure, or building a business that is neither satisfying nor rewarding.

How many pizza shops do you know? How many are, or have the potential to be, a regional, or national, chain? What’s the difference? Why have Jim Fox of Fox’s Pizza Den or Varol Ablak of Vocelli Pizza (fka Pizza Outlet) created chains when most pizza shops are single units run by the owner?

Part of the answer is they had “been there, done that” and believed that they had concepts that could be the foundations of chains.  Part of the answer is that they believed they could do it. Part of the answer is that they believed that they would be able to get others to believe in their visions, be it potential management team members, investors, or franchisees.

The following may not be entirely accurate, so I apologize in advance. 

California Closets is a successful chain of closet efficiency systems founded in 1978.  The inventor of the initial closet system was a junior at one of the branches of the University of California (I think it was Santa Barbara).  He was a jock and he needed a way to store all his sports stuff (shoes, balls, equipment). In his dorm room he had a closet, a chest of drawers, a desk and a bed. With a spark of inspiration the closet efficiency system was born! It spread among his friends who wanted it for their closets and soon he had to train others how to do it as he took the orders and managed the operations.  Someone said, “Let’s franchise this!” and the rest is history.  In the late 1980s, California Closets was one of the fastest growing franchises in the country.

BUT, to the best of my knowledge, the closet organization and efficiency system was invented in 1976 in Pittsburgh! Ed Margolis is a professional architect who specializes in bringing local housing stock that had been built in the early 1900s into the modern era; plumbing, electrical, windows, HVAC, etc.  One of the challenges that was common among these houses was that they mostly had nine-foot ceilings and the closets were your standard one shelf with a hanging bar under it, with all sorts of unused space.  Ed would design innovative ways to use that space.  Soon, by word of mouth, people learned about the wonderful things Ed was doing for closets and people began calling him for just that. Well, his primary focus was working on complete houses, but this presented an opportunity to start a side business to satisfy the demand for the closet systems.  He launched Closet Tier in 1974 and it has been a fixture in Squirrel Hill ever since.

The point I’m making here is that essentially the same idea has two dramatically different outcomes, and BOTH WERE SUCCESSFUL WITH RESPECT TO THE GOALS OF THE ENTREPRENEURS WHO FOUNDED THEM.

In the Information Technology (IT) arena, it may not be obvious whether you should create a product around your proprietary technology, or use it to deliver a value-added service. Either may be viable, but what resources will be necessary to launch each? Which path is preferable to you? Are they mutually exclusive, or might you start as a service company and evolve into a product company once you know what value your customers are really getting from your offering?

That raises another issue of which you must be aware if you’re a first-time entrepreneur. You won’t really know what business you’re in until your customers tell you. Quite often the business you start and the business that emerges may look very different from one another.

One of the most dramatic examples of this occurred with serial entrepreneur, Don Beaver.  Don and his partner, Ben Stapelfeld, had started industrial contract cleaning and maintenance company in the late 1970s.  The company was struggling and one of its biggest headaches was cleaning factory floors where oil had leaked from the machines. They tried all sorts of combinations of absorbent material and something to hold it.  Finally the combination of ground up corn cobs inside a pair of pantyhose worked!  This gave them a significant cost savings and their service firm began to win more contracts and make some money.

One of the plants that they serviced was a supplier to the Ford Motor Company.  One day the Ford inspector for vendor compliance was inspecting this particular plant and he noticed the strange things wrapped around the bottoms of many of the machines. The plant manager told the inspector what they were, and he expressed interest in buying some.  The plant manager explained that it was his contract maintenance service provider who put the items there, and he gave the inspector Don’s work number.

The inspector called and the conversation, according to legend (and/or my faulty memory) went something like this.

Inspector: “Hello, I’m from Ford Motor Company and I would like to buy four gross of your absorbent socks.”

Don: “Well, sir, we are a service company and that diaper for leaky machines that you’re referring to is one of the tools we use to provide superior service to our customers.  We would be more that happy to bid on your service contracts.”

Inspector: “You don’t understand.  I’m from the Ford Motor Company.  I have a unionized work force that does our maintenance and cleaning.  I do not want your service.  I want to buy four gross of your ‘diapers.’”

Don: “Yes, sir! And where should we ship them?”

In that nanosecond in 1985, New Pig Corporation was born.  The last time I heard, and that was over 10 years ago, New Pig had revenues of over $65 million!

Advice to entrepreneurs.

1.     Make sure you know why you are starting your business.

2.     Make sure you consider the different ways that your idea could be commercialized and make a fully informed and considered selection of the path you decide to pursue.

3.     Listen to your customers.  They will tell you what business you are in.  You may be surprised.

4.     Build a network of mentors, advisors, professionals, and entrepreneurs who have “been there and done that.”

Frank Demmler (fd0n@andrew.cmu.edu) is Adjunct Teaching Professor of Entrepreneurship at the Donald H. Jones Center for Entrepreneurship at Carnegie Mellon University(Frank's website - newly launched and largely under construction)