Delivering the Kids

Two young guys spotted a business opportunity anyone could have seen -- and in five years turned it into a profitable $4-million company with only eight people on the payroll. This is how they did it

"I thought maybe it was too simple to work,"

Steve Shulman says. He's talking about his initial idea for a business. In 1989 his teenage cousin had shown him a schoolbook cover with a local ad on it, and Shulman figured he and his buddy Michael Yanoff could do the same thing -- only bigger. "We started thinking about putting something really cool on the cover. I mean, Bo Jackson or a local pizza parlor -- which one do you think kids would go for?" The partners were 25 years old. They were hoping to earn enough money to buy car phones.

Cover Concepts, the company Shulman and Yanoff started, posted $4 million in sales last year, after doubling sales year after year. Though it lost money in the first two years, the company, based in Braintree, Mass., has been turning after-tax profits of up to 20%. It sold 40 million book covers last year to such weighty clients as Gillette, Kellogg, McDonald's, Lego, and Nike. Cover Concepts is debt-free, having paid off a start-up loan of $50,000, and has cash in the bank. It operates with only eight full-time employees.

Shulman and Yanoff found a ready-made market for their book jackets. Cover Concepts estimates that 85% of U.S. public schools require students to protect their books with some kind of cover. The military used to give away recruiting covers, but spending cutbacks ended that practice. Some school-supply companies sell covers. And sometimes local advertisers will print a run of covers to give away to neighborhood schools. Shulman and Yanoff took a new approach: Cover the books with hip little billboards that kids would want to look at. Give them to the schools for free, and provide national advertisers with a cost-effective way to reach the 6-to-18-year-old market.

The appeal to the schools is that they don't have to do a thing. Cover Concepts does some telemarketing itself and also retains an independent telemarketing firm to call school principals and gauge their interest in receiving free covers. Those who want them receive a "shipping authorization" postcard to sign and return, which assures them that there won't be any controversial covers and that if the school is dissatisfied, the covers will be picked up.

"We knew that there was only one way to do this," Shulman says. "Get a network of schools." The company's database has grown from 55 Boston-area schools in 1989 to 31,000 schools (out of a total of 85,000) and more than 21 million kids nationwide, consuming an 800-megabyte computer system and forcing a quick hardware upgrade. The telemarketers and Cover Concepts gather the database's extensive demographic information from the grammar, junior high, and high schools themselves, as well as the Census Bureau, private database companies, and other sources.

The telemarketing firm updates the database yearly. "That database is our big coveted thing; it's what we're known for," says Yanoff. With it the company can sort out demographic information like zip code, student age, race, and family median income.

Although Cover Concepts must keep the schools happy, it's the advertisers -- mostly large national companies or their ad agencies -- that are the paying clients. Shulman, Yanoff, and a three-person in-house sales team call on clients, selling the cover program by plugging the cost-effectiveness of the database. That's how they persuade advertisers to siphon up to $122,000 away from television and onto a book cover. That sell can still be pretty tough, says Shulman. "One woman at Revlon was the classic profile. She bought 50% scheduled TV, 25% mainstream magazines, 25% newspapers. She said, 'Steven, I've been in the business a lot longer than you, and this idea will never work." Cover Concepts pursued Kellogg for five years before landing an order -- not an unusually long sell time for its book-cover advertisements.

It's the database that usually makes the sale. Cover Concepts can mix and match target demographics for the advertisers. McDonald's, for example, may want to distribute a million covers to fourth-, fifth-, and sixth-graders near McDonald's franchises. No problem. The database can crunch those numbers in about five minutes, coming up with exactly one million students across the country that fit the profile. Cover Concepts ensures advertisers that it won't distribute covers from direct competitors to those particular schools. "We also control clutter," says Shulman. "We don't want more than four covers per school. We'd rather expand our network."

Expanding the network is what Cover Concepts' telemarketing firm does when the numbers come up short for an advertiser's demographic search. Expanding for the McDonald's cover would consist of phoning schools in a zip code near a McDonald's and adding to the database those whose principals signed and returned an authorization card. Cover Concepts invests the time and money in expanding its network only when a client's project subsidizes it.

The company is not in the design business. The advertisers send camera-ready copy to Cover Concepts for final approval (it has nixed things like a martini glass in one Maxell ad), and the ads usually carry some kind of "stay in school" message. For Nike's first cover, Bo Jackson wore a graduation gown, standing over a caption that read, "Bo Knows School." The partners were impressed. "Dressing Bo up just for us? We couldn't believe it," Yanoff says with a laugh. Early in its next big ad campaign, Nike ordered covers that read, "Just Do It." Shulman called Nike up to say, "Just do what? This is stupid!" Trust us, Nike said. It will be big.

As Chris Whittle learned when he launched Channel One, in 1990, advertising on school premises can cause an uproar from parents and educators. That hasn't been a problem for Cover Concepts. "Advertisers don't want any controversy," Shulman says. "Look at this Nike cover. You barely see their logo." Basically, Shulman and Yanoff argue, advertisers police themselves so strenuously that few school officials and parents object to the covers. The partners say that fewer than 1% of covers shipped are recalled because of complaints. "It gets expensive to recall, so we try to have a good up-front sign-up system," Yanoff explains. "The first screen is the telemarketing call. The second is the sign-up card and information. By that time, the schools that are still interested pretty much want the program."

Cover Concepts forwards the camera-ready art to the Quad Graphics plant in Sussex, Wis., which prints the covers and ships them to the appropriate schools. The partners themselves cut the deals with paper mills to ensure decent prices on what is their biggest line-item expense.

Prospective advertisers find the simplicity of the idea appealing but inevitably ask for proof that the program works. In their second year, the partners ordered some independent studies, sinking about $10,000 into the project. They hoped the results wouldn't sink them. They still run those studies at least once a year, turning up some very convincing numbers -- 75% of the kids in the first study used the covers, and 94% remembered seeing them. When high school students were asked to write down names of recent advertisers, 50% to 60% remembered specific front-page and full-cover ads.

Clients also love the in-school focus groups. Cover Concepts has scheduled eight over the years, hiring a focus-group specialist to walk the kids through a critique of the book covers while the clients listen in. During 20-minute breaks between classes, students offer advice to clients and agency reps, telling Lego to put less type on its covers, for example. It can be a little nerve-racking, Yanoff admits. "We never know what those kids are going to say." But it must work. Shulman says that all the clients who've done focus groups have reordered.

"Lots of agencies set their price per thousand units," says Shulman. "And our price on that basis is more expensive than other alternative media." What Cover Concepts promotes instead is its price per "impression," or number of times a student sees the cover during its five-month run. The company's studies show that students remember the products for up to a year. Clients seem convinced -- of the 64 companies and agencies that have ever ordered covers, 58 have ordered again.

Competitors are eyeing the industry, but Cover Concepts' database has seniority. "It would take an awful lot of time and money for someone to catch up to our network now," Yanoff says. The fact is, the real competition isn't from start-up schoolbook-cover companies but from other kid-market media. " Nickelodeon magazine, Crayola magazine, MTV -- any ad vehicle that reaches kids aged 6 to 18 is the competition," Shulman says.

"Each time I think we're getting close to peaking with the covers, a new client comes on board," Yanoff says. "When we started selling this idea, it wasn't the smoothest presentation in the world, but it was an easy concept." It still is.

And yes, the partners did get those car phones. Yanoff still has the first one he bought, but Shulman has upgraded to a voice-activated phone. He just says "office," and it does the dialing.