Plan B seems more likely. It involves launching a series of joint ventures with operating partners in each of the cities targeted. The two are negotiating with at least a half dozen potential partners who would each invest $50,000 to $100,000 to own and operate expansion stores. Causey originally envisioned a web of subsidiary corporations, operated by partners who would put in the same amount for a 50% stake. But no investors would assume the costs of an expensive build-out and a pricey lease for only half the net profit of a store. "If they were going to put that much money in, they wanted to own the store," Causey discovered. "Maybe it's all happening too fast. I would have liked to wait three years. We'd have a track record based on good, solid experience. We could look at franchising then."
So what's the rush? "There are some hungry malls out there," says Dan Jennings. Expansion hinges as much on finding cheap leases as it does on raising the capital. Now is the time to negotiate advantageous leases with mall operators such as Melvin Simon & Associates Inc., owner of the Irving Mall and more than 70 others in 39 states.
Competition also is driving the decision to expand quickly. In this business, the cost of entry is so low that almost anyone could knock off the idea. And competition is already hot on the trail. The New Product Store, a similar venture founded in the summer of 1989 in Toronto, Canada, plans to expand into the United States this year. And the potential partners who have paraded into the Irving store might just as easily end up being competitors. "Some come in for one reason," Causey says. "To get an idea and run with it."
Although the start-up cost of a slickly designed store -- such as the one Causey plans to build once he has the capital in hand -- might deter some copycats, Causey realizes there's no time to lose.
* * *
By the end of that day in March, rain has nearly filled the tubs in Clark and Causey's back room. Hunks of ceiling lie in wet heaps on the floor. But for the moment, the two partners are more concerned with propping up their enterprise. Managing a runaway, scattershot idea is their biggest challenge. Can they keep up with it? There are so many channels, so many products, so little time. The market is big and their shop is small.
If their idea does take off, will competition be far behind? They may have the first-mover's advantage, at least in the United States, but they also have no cash. The Irving store's revenues aren't likely to finance the growth they imagine. And if luck deals them a truly hot product, a bona fide hit, will their inventor-suppliers be equipped to deliver? "We'll have to manage the supply problems by not promoting products that inventors can't produce," Causey contends.
Yet finding the right products is the more immediate problem. Too many products like the Texas-shaped spice rack could sink them, even if their costs are covered. And though NPS carries insurance, one untested, unsafe product could spark a liability suit they might never survive.
If Clark and Causey hire the merchandising talent they lack, if they get a slicker look and better locations for their stores, they stand a chance of retailing in volume. If they don't, their other channels -- wholesale and direct -- might keep them afloat. But in the interim, they risk tying themselves to expensive leases for retail space that will produce precious little revenue. The odds are poor they'll win prime space at the same basement price they pay for their temporary site in Irving. And mall space on the East Coast or in California could cost them close to 10 times as much as they are paying now.
Right now, there's no money for any of that. There is simply the idea -- a big idea with problems to match, and perhaps a life of its own. So why worry that the roof is caving in? Despite his troubles, Zane Causey says he has good reason to be optimistic. What is it? "The next phone call."
* * *
EXECUTIVE SUMMARY
THE COMPANY
New Product Showcase, Irving, Tex.
Concept: A chain of stores that gives independent inventors access to markets by selling new products through retail, wholesale, and direct channels
Projections: Revenues of $937,113 the first year, reaching $9.3 million in the third. Operating profits will climb from $422,437 to $5.6 million in year three
Hurdles: Finding marketable inventions and reliable suppliers. Raising the capital to expand. Juggling a variety of marketing concepts including retailing, wholesaling, brokering, and selling through a catalog. Staying ahead of competitors sure to take advantage of low barriers to entry
THE FOUNDERS
Zane Causey
Age: 53
Family: Single, one child
Personal funds invested: $0
Equity held: 51%
Salary: $0
Other companies started: Metroplex Carpets, Fort Worth; Singles Adventure, Hurst, Tex.
Last job held: President, Ideas Plus, Dallas, Tex.
Robert Clark
Age: 59
Family: Married, four children
Personal funds invested: $30,000
Equity held: 49%
Salary: $0
Other companies started: Clark Claims Service, Arlington, Tex.
Last job held: Owner of an independent insurance-claims agency
FINANCIALS
New Product Showcase Projected Operating Statement
($ in thousands) Year 1 Year 2 Year 3
NUMBER OF STORES 3 6 20
REVENUES
New-store receipts $70 $150 $700
Shelf fees 90 180 600
Domestic retail sales 294 706 2,802
Domestic wholesale sales 117 234 780
International sales 131 338 1,125
Video production 120 720 2,400
Video sales 90 216 720
