If your business gets off to a great start, it's easy to think you have the magic touch. Why not try this, that, and the other thing? Here's why
When my partner, Harvey Nelson, and I started Main Street Muffins, in 1987, we felt we could do no wrong. We raised $75,000 from investors and another $100,000 in government-subsidized loans and grants. We renovated a condemned building in downtown Akron, and 3,000 people came through our doors on the first day our retail bakery opened. At 27 I felt euphoric about my lifelong dream's coming true. Local newspapers were clamoring to tell our story, and we were only too happy to tell it. It was exhilarating. Until we nearly went bankrupt.
During our first year we attracted a loyal following, and we expanded our line so that Main Street Muffins evolved into a popular breakfast and lunch spot. Then in 1988, out of the blue, we received a call from a local restaurateur. He wondered whether we could sell him our muffin batter so that he could bake muffins in his restaurant rather than buy muffins from us.
"Now, wait just a minute," was our first reaction. We were taking in about $6,000 to $8,000 a month at the time, and we saw the request more as a threat than an opportunity. How would this affect our retail outlet? Did this guy have ulterior motives? After much discussion and debate, we agreed to sell him our batter, but we made him jump through hoops. We acted pretty arrogantly and didn't make it easy for him. One, he had to pick up the batter at our store at closing time, 5 p.m. Two, he had to bring his own buckets. Three, he had to pay COD. Miraculously, he showed up -- with his bucket and his check. He came back day after day. Finally, after about three weeks we realized that we might be onto something.
We jumped into the frozen-muffin-batter business with both feet, having no idea where it might lead. We purchased buckets and additional equipment, developed systems, and began acquiring more business. We felt we could do no wrong. It was such an exciting time. I couldn't wait to get up and go to work in the morning. We were fulfilling the American dream!
Our confidence was so high we thought we could tackle any project and succeed. So we decided to open another store. The bank even lent us $100,000 to buy a frozen-yogurt store that we would convert to a bakery -- further confirming our nave belief in how savvy and ingenious we were. Over the next several months our "defrost, scoop out, and bake" frozen-muffin-batter business began to take off and was bringing in about 30% of total revenues.
But inside the business, things didn't look so rosy. It was a difficult time, to say the least. Our exciting opportunities were turning into problems. And those problems were stretching our resources. Employee morale was low. Bakers were calling in sick at 3 a.m. One just up and quit one afternoon without any notice. Our heads were spinning. We lost 4 employees out of a total of 16 during nine months from hell. Cash flow was so bad we were using four Visa cards to get from one period to the next. Production mistakes increased. Freezers broke down. We were so hungry for new business we did not make customer complaints a priority. Our gross margins slipped from above 50% to below 40%.
The strain was both mentally and physically draining and definitely a test of our partnership. I was depressed every morning when I woke up and had to face going to work. By mid-1989 both our retail stores and our batter business began a nosedive toward bankruptcy.
We were forced to face reality. Harvey and I knew that instead of doing two things subpar (in other words, losing our shirts), we needed to do one thing exceptionally well. We reasoned that to be successful (actually, to stay alive) we had to be focused. We had to devote our energies to that part of the business that had the best chance for success and used our talents most efficiently. We believed that both the retail and the wholesale sides of the company needed full-time attention to make them profitable.
After a lot of wrenching discussions, we developed our plan. We decided to sell our marginally unprofitable retail stores, but with licensing agreements. The company would act as a licenser to the buyers, providing quality checks and the use of the name Main Street Muffins, and requiring that the licensees purchase the company's muffin, cookie, and brownie batters. That would provide the company with a sales base yet eliminate the day-to-day problems of running the retail outlets. In 1990 and 1991, we sold both our stores -- but at significant losses. In fact, we gave away the original store.
That painful yet necessary purging enabled us -- and our remaining employees -- to devote our attention, energy, and time to the frozen-batter business. Even though we knew we had a rough road ahead of us, we all felt tremendously relieved. The excitement that accompanies a new business returned, and our quest to fulfill the American dream was back on track.
We wrote a mission statement that would remind us that our main goal was to "profitably improve an organization that overwhelms the food industry with its devotion to high-quality products and services." Gradually, we crawled out of debt. We spent more time on cash flow and money management. Within three months we became profitable, and we have been so ever since.
Occasionally, my partner or I or one of our employees brings up an interesting idea for the company to explore. While many of those ideas may be viable, we view them against our focus criteria: Is the idea consistent with our mission statement? Will it dilute our current efforts? How will it affect our operations?
Today we have less than 2% of the U.S. muffin-batter market. We think we have the potential to get 8% to 10% or even more of the market. Why would we want to dilute that effort by going off on a tangent? If our sales slow down (since 1990 our sales have increased an average of 100% a year), then we may have to explore other opportunities. But for now we plan on being focused on being focused.* * *
Steven L. Marks is cofounder of Main Street Muffins, a $6-million manufacturer of bakery products in Akron. Marks and his partner, twice on the Inc . 500 list, were named 1994 Small-Business Persons of the Year for the Cleveland district by the Small Business Administration.