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36

Buying High, Selling Low

David Lloyd had a great idea for a company. Then the problems started.
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David Lloyd is not discouraged. Even now -- four years and $3 million in expenses later -- Lloyd is convinced he'll be running a $100-million company soon. But his problem is getting started. Lloyd, now 40, has encountered virtually every problem that can plague a new enterprise. His company, American Discount Stamps Inc., in Houston, is proof that a brilliant idea is no guarantee of instant success. And Lloyd's idea is brilliant, if a bit unorthodox. He wants to buy first-class stamps from the post office for 22? and sell them for 17?.

Plenty of companies buy high and sell now, but it isn't on purpose. For Lloyd, however, that strategy was a key part of the business plan, and it isn't as strange as it sounds. Lloyd will buy stamps for 22? and surround them with small ads. Projected revenues from the ads should offset the discount, cover overhead, and produce a tiny profit on each stamp.

When he multiplies that fraction times the 20 million stamps he thinks he can sell each month, Lloyd sees a garage full of Porsches. That's why the former Coca-Cola Co. consultant has been working on the idea since 1982, and still talks confidently about foreign markets before he has sold a single stamps here. But those four years have been filled with problems.

Until he heard an interesting piece of news on the Coca-Cola grapevine, Lloyd had never thought much about stamps. Rumor had it that Coke and McDonald's Corp. had offered to print postage stamps for free, in exchange for placing an ad on each one. The government said no -- stamps are considered currency and only the government may mint money -- but Lloyd was intrigued. He began wondering, "How could we give advertisers what they wanted, make the government happy, and build a demand?" The answer: sell the stamps at a discount, and the world would beat a path to his door.

Selling a 22? stamps for 17? would create demand, but where would shoppers buy them? When Lloyd went to such mass-marketers as department and convenience stores, their first question was, "Who is going to advertise? Prove to us you are for real, then we'll talk about shelf space." So Lloyd trudged off to see advertisers. Their first question?Where will you sell the stamps?

Lloyd figured he could get around this Catch-22. Perhaps advertising agencies could convince their clients to give him money for a test. He came to Madison Avenue expecting that excited account executives would dash off mock-ups. But Lloyd had never worked in advertising, and didn't understand the business.

To his surprise, the agencies wanted to know how the two-inch-by-three-inch ads would look. So it was back to Houston to do sample ads. The prototypes persuaded 7-11 Convenience Food Stores to sell the stamps on an experimental basis. Armed with that commitment, Lloyd went back to potential advertisers. But instead of handing over money, businesses like Campbell Soup Co. began asking hard questions, and Lloyd didn't always have the answers.

For example, advertisers had told Lloyd they wanted proof the ads would boost sales. So lloyd designed test markets, using a few retailers in each. But by limiting distribution, Campbell asked, aren't you risking an antitrust violation? Lloyd's attorneys are looking at the plan again.

The bills keep piling up as Lloyd waits. And waits. And even legal OKs won't end his waiting, because Lloyd hadn't anticipated yet another problem. "We had no idea how far ahead ad people budget," he says. A company that likes Lloyd's idea may not write a check for a year. But things could be worse. Lloyd would have gone through considerably more than $3 million if he hadn't worked at holding down his operating costs. The company still consists of just five full-time employees.

Will he succeed? Abe Borenstein thinks so. George Mahrlig isn't so sure.

Borenstein is the Merrill Lynch vice-president who has gotten senior management to consider the idea. Borenstein believes a small Merrill Lynch ad on the outside of a pitch for the company's cash-management accounts could get more people to open the envelope. "Ninety percent of the people who get our stuff put it in the circular file," says Borenstein. "This is an eye-catcher. It won't make the sale, but it will open up an opportunity for people to consider what we have to say."

Well, maybe, says Mahrlig, Campbell's director of media services, who has experimented with everything from advertising on shopping carts (a winner) to ads on parking meters (disappointing). "We get ideas from all over creation," he says. "It is amazing the number that don't take off."

Assuming the business takes off, Lloyd faces a rather sobering competitive situation: it appears that nothing about his idea is proprietary. If that's true, what does the future hold? A price war in postage stamps?

It may never get to that. There's another problem: the stamps themselves may not be legal. That's right, four years and $3 million, and Lloyd doesn't know if he can sell the stamps. The U.S. Postal Service, which had initially given its blessing, has recently unearthed a nineteenth-century law that could be interpreted as forbidding Lloyd's idea. Lawyers are looking into that one, too.

Lloyd, as always, remains optimistic.

Last updated: Nov 1, 1986




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