SAP CEO Bill McDermott is undoubtedly one of high tech's most successful CEOs, but he didn't get his career start in a big company. McDermott first business experience was as a small-scale entrepreneur.

A while back, my friend Gerhard Gschwandtner sat down with McDermott, who explained how he built a business in the face of huge competition, long before he joined SAP.  Here's a lightly edited transcript of McDermott's story, as told to Gerhard (with my comments at the end).

Bill McDermott's First Business

"I've always been a hustler. By the time I was 16, I was stocking shelves at one of the finest supermarkets in town, working as a busboy at a local Italian restaurant, doing odd jobs for the city, while still attending high school.  I guess you could say I was a pretty busy kid.

"One day, I saw a 'help wanted' sign in the window of a local delicatessen. The last thing I needed was another job, but I went inside and the owner hired me on the spot.

"I liked working in the deli because there was a lot of customer interaction, because we had anywhere between three and four hundred customers a day. I knew their names. I knew their children. I knew what they liked. I knew what kind of beer they drank and what cigarettes they smoked. I knew them, they knew me.

"Over time, I dropped my other jobs and began spending more and more time at the deli.  I took on more responsibility, started doing more management activities.

Then, one day, the owner sold the deli to a guy who knew nothing about the deli business. This new owner tried to resell the business for a profit but he couldn't come up with a buyer.  Finally, he jacked the price down so low that I made an offer of around $7,000. The only hitch is that I had to borrow the money from the seller, and if I didn't pay up the loan in a year, the seller would get the store back.

"So now I've got a deli, but I don't have any money to run it. All I've got is good relationships.  So I told the distributors who supplied the beer, milk, cigarettes, and so forth that, if they let me have the first delivery on consignment, I'll never switch to another distributor. I'd always be loyal and I'd always make sure they get paid. They believed me, and together we kept the shelves filled.

"But I had an even bigger problem. There was a 7/11 store just a block away, and they were offering lower prices, because they could make gigantic wholesale purchases.  I realized that the key to making my store successful was offering the customers what the 7/11 couldn't or wouldn't offer. I decided to focus on three market segments that otherwise weren't well served: senior citizens, blue collar workers and high school students.

"Most seniors don't want to leave their homes, so I set up a delivery service. The 7/11 doesn't deliver, so began to get the bulk of the seniors' business.

"I did something similar with the blue collar workers.  Over the years, I had gotten to know a lot of blue collar workers and had noticed most had a habit of getting paid on Friday night, being very generous with their money through Saturday, but ended up pretty much broke by Sunday morning. So I decided to give them credit during the week, which the 7/11 didn't.  I kept track of their purchases in a little white notebook. So they shopped at my place and--know what?--they always paid their bills.

"The high school kids were a particular challenge because the 7/11 was between my deli and the high school, so I had to get them to walk right past my competitor in order to get their business. However, the 7/11 was treating the kids like potential shoplifters, forcing them to line up in front of the door and only letting in four at a time.

"I did the exact opposite.  I treated them like adults and welcomed them into the store.  I built a game room on the side of the deli with video games like Asteroids and Pacman. So the kids came down with their quarters and played the games so much that we sometimes made more on the games than we did on the groceries.

"I did my best to make that place into something special.  The employees wore white tuxedo shirts with a black bow tie, and an immaculate apron.  And when the butcher cut meat, he had gloves on his hands and treated the food like it was both immaculate and precious.

"When the customer made an order, we didn't say: "Anything else?"  We said: "What else can I get for you?" There's a big difference in attitude between those two questions.  When women came into the store with children, we carried her groceries to her car and put them in her trunk.  And we made sure the children got in the car and that everybody was safe.

"As you can imagine, people liked that kind of service.  I made lots of money, enough to put myself through college and even to buy my family a beach house in the Carolinas.  However, I knew I didn't want to be in the deli business all my life.  But I didn't know exactly what I wanted to do, either.

"One day a salesman from Xerox started coming in regularly for a cup of coffee.  I liked the guy. We started talking and began bragging about how much he liked working for Xerox.  He convinced me that I wanted to work for a big company with a brand name, like Xerox or maybe IBM.

"So I joined Xerox as a sales professional in 1983 and, eventually became, at age 37, the youngest president and corporate officer ever appointed at Xerox.  I later left to join SAP and the rest, as they say, is history."

Lessons in Entrepreneurship

Here are my "take-aways" from McDermott's experience:

  • Believe in yourself, no matter what others think.  I have no doubt that some people thought McDermott, at 16, was too young to even think of running his own business.  He, however, believed in his ability to succeed, thus producing his success.
  • Great risks create great rewards.  McDermott was willing to risk $7,000 of his own hard-earned money into a venture that had all the signs of being on the edge of failure.  His risk paid off, giving him not just financial reward but experience that later proved valuable.
  • Good service usually trumps price.  I have no doubt that the 7/11 down the street had the financial clout to offer lower prices than McDermott's deli.  However, he differentiated his business by providing services that the 7/11 could not or would not provide.
  • Build your business niche by niche.  McDermott identified specific demographics that were NOT being well-served by the humungous competition and then changed his business model to appeal to those neglected niches.
  • Look different to be different.  By dressing his personnel in formal attire, McDermott signaled to every customer that his deli was special--and the farthest thing possible from a 7/11 clone or a typical independent deil.
  • Sales messages matter.  McDermott's observation that "What else can I get for you?" means something different from "Anything else?" is priceless.  The first phrase expresses a desire to help, while the second expresses barely-concealed annoyance.

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