With the transformation, media heavies USA Today and FNN signed on as sponsors, offering updates on the top contenders and lots of publicity. Contestants registered with the company directly. DeMello's focus was making sure operations ran smoothly and sponsors were satisfied. Sure, WSG had to add prize money to its expense line, but the number of customers soared and revenues reached $7.2 million.
Same product -- simulated stock market -- but different business altogether. One consequence is that DeMello has come to see his database of customers as not just a list but a pipeline for more products and services, a distribution network. "It costs me $20 to get a college student to pay me $50," he says. "A 40% acquisition cost -- pretty expensive. Could I get $60?" Already he's added a 900 number for contestants who want more details on their performance. He's also plotting completely different businesses -- such as fantasy sports challenges -- to feed into the network.
The marketplace pushed start-up after start-up to rethink strategy. MicroFridge Inc., with 11 employees, discovered that using wholesale distributors to move its combination microwave-refrigerator-freezer wasn't working as well as direct sales by "contract" salespeople might, so management chucked the original plan and began again. Rusmar Inc., which sells neutralizing chemical foam for landfills, didn't want to pursue hazardous-waste handlers since they wouldn't be annually renewing, but gave in when those handlers came calling. The National, the all-sports daily paper, scaled back its original vision of local coverage in each market.
Failure to act with that kind of flexibility would sometimes lead to a company's demise. Before it closed last year, Sanctuary Recording Inc. wasn't selling as much studio time as it needed to. Robin Halpin, who helped start the business with her husband, Tom Silverman, says they considered offering recording classes at night to fill the space. But with three other growing music companies, Silverman didn't have the incentive to work at developing Sanctuary Recording. "We didn't spend any time on the studio," concedes Halpin.
Says Buddy Systems' Manning: "To spend too much time overanalyzing the original plan is probably not productive. What comes out of this is that certain companies adapted well and certain companies didn't. The ones that did made adjustments -- in investors, strategy, organization, product -- from the simple to the complex. That adaptation spelled survival and success -- or at least the chance for success."
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Nobody Likes Your Product as Much as You Do Amazing to us, always, were the number of people who seemed to go into business with the barest information about the likelihood of making a living off their ideas -- people who just assumed there'd be a market once they got off the ground. The most successful entrepreneurs worked hard to assess the need for their offerings; others acted on blind faith, and for them the start-up process has been particularly rocky.
Frank Mitchell, for instance, has spent the past six years committed to a gut feeling. SportsBand Network, a provider of radio play-by-play for spectators at sports tournaments, had a yearlong stint, complete with employees, copiers, and paychecks. But when the company failed to nail down a big corporate sponsor for 1990 -- an anchor sponsor that would be the pivotal source of revenues -- it folded.
Mitchell contends that back in 1987, he had no choice but to barrel forward on instinct; he couldn't calculate the interest of potential corporate sponsors until he'd spent big bucks to produce the product. "Nobody would really take this seriously," Mitchell says. "You had to knock them over the head with it, let them see it and hear it firsthand. I would have loved to have researched and quantified this and sold it on market studies, but no one was willing to make the assumption it could be done."
That may be the case, but the result is that Mitchell, his former partner (Theis Rice), and several dozen investors sank $2.5 million into SportsBand before finding that, for 1990, no sponsor would bite. Still, Mitchell continues to pursue the idea on his own. He now works from his home and says he's talking with a broadcasting company, a radio manufacturer, and a possible sponsor about reviving the concept. If the partners are happy with the tests, maybe they'll sign on for 1992. Maybe.
It was a similar story in Albany, N.Y., where Todd W. LeRoy and Michael L. Atkinson started their Video's 1st chain of drive-through video stores in 1987. Dazzled by their idea, they boasted they would sell 5,000 franchises by the middle of 1990, and that each unit would rent 116 movies a day.
They figured wrong on both counts. By the middle of 1990 Video's 1st New Releases Inc., the parent company, had shut down. So, too, had the 10 Video's 1st kiosks that had dotted the country.
The founders had made grossly inaccurate projections because they hadn't investigated what was involved in setting up franchisees and because they failed to quantify how much customers really wanted the drive-through service; they started selling franchises before their corporate-owned units were even two months old. Franchisee Rick Taylor, who owned three Video's 1st kiosks, says he's learned something about due diligence: "I had an M.B.A., but this experience was my doctorate. If I did it again, I'd spend more time analyzing the market and the product, and I'd talk to competitors rather than rely on the information provided by the franchisor. I was so enamored of the concept that I jumped, then looked."
How did the successful companies approach the market differently? Some, such as R.W. Frookies Inc., a cookie company, or Appliance Control Technology Inc. (ACT), a manufacturer of electronic controls for appliances, made sure their products were unique but not so different that customers didn't know what to make of them. Others, such as VideOvation, a purveyor of video yearbooks, took a year or more to test their programs and customer response, making sure they weren't misjudging demand or their ability to execute the concept.
