Bootstrapping Lessons: Master of Bootstrapping Administration (MBA)
Doris Christopher, founder and owner of The Pampered Chef, built a $200-million business from scratch -- and built a curriculum for the capital-poor along the way
Brush peddler Alfred Fuller discovered its appeal a century ago. Doris K. Christopher affirms it today: "Direct selling is a wonderful way to start a business." To bootstrappers, the attractions of in-home retailing are its scant capital requirements, its few fixed costs, and the rapid cash flow it generates. And its risklessness: "You can test it; if it tests no-go, you don't go," Christopher instructs.
Fifteen years ago Christopher tested and went. The proof is in the pudding. The cooking-utensil business she started on someone else's money will book some $200 million in 1995 sales.
At the time a 35-year-old housewife with two young children in school, Christopher borrowed $3,000 to "find something to do to get back into a career." She had been a home-economics teacher and remained an accomplished cook, and she intended to combine both skills by retailing kitchen tools. But, she recalls, "everything I heard from anybody who ran a store was, 'Agh, the overhead!" You had to find a location, then you had to pay for it, then you had to staff it. Then "you had to sit there and wait for customers to walk in."
The direct seller's response: why wait?
Especially since Christopher knew how to get a foot in the door. "As a woman in American society," she observes, "you can't avoid home parties." Christopher studied the modus operandi of home-party retailers and chose the high road, scorning "silly games" in favor of an instruction-oriented approach with "an inherently interesting message to deliver.
"My dream was for the business to be successful, but I had no idea what it would look like. If I'd foreseen the amount of time I give it today, I'd have thought, 'This isn't what I want.'" What she did want was an uncomplicated 20-hour week that would balance a little business with a lot of family. She named the endeavor the Pampered Chef (TPC), printed up cards and letterhead, took out licenses, and invested the remaining money in a dozen each of parers, cutters, shakers, dicers, whippers, scrapers, and other culinary-ers. Those she piled in the cellar of her suburban Chicago home. "I'm not a businessperson," she reminded herself. "If I don't sell a one, it won't be the end of my life."
The Pampered Chef's first "kitchen show" -- the term Christopher assigned to her demonstrations to distinguish them from the generic home party -- was in October 1980. The company's first "kitchen consultant" -- the title she bestowed on her field people to distinguish them from common vendors -- was none other than Doris Christopher herself. As TPC's sole proprietor, she functioned as buyer, warehouse worker, shipper, and bookkeeper.
Christopher's technique was to prove to a gathering how easy cooking dinner can be. Over a hot stove (someone else's, of course), she executed recipes that showcased her implements, then offered the gadgets at whatever prices seemed right. "I kept telling myself, if Williams-Sonoma can be profitable," she says, "I ought to be able to figure out how."
Today "The Kitchen Store That Comes to Your Door" occupies a modern 220,000-square-foot brick warehouse and office in an industrial park outside Chicago, employs more than 400 full-time workers, and fills orders for a sales force of 20,000 part-timers. Behind an everyday desk in an unassuming second-floor office -- cost-constraint remnants from her bootstrapping years -- chief executive Christopher remains TPC's master chef. And, never having financed growth beyond the company's $3,000 beginnings, she (together with her husband) owns every spoonful of the still-rising soufflÉ.* * *
In the midst of posting growth, Christopher acquired an M.B.A. -- not the master of business administration you pay $21,000 a year for at Harvard, but the master of bootstrapping administration you get free on Main Street. Here are some entries from Christopher's curriculum:* * *
1. Market Concept
101: "People I knew didn't like to cook, because it wasn't easy for them. Part of me said, 'Maybe I can never convert them.' But another part said, 'They're using knives that aren't sharp and forks with missing tines. If they had the right tools, it would be fun."
Advanced: "We've become good at examining a product," Christopher explains. "We go to a manufacturer and say, 'We'll take your product, but we want it to have a longer handle, or we want it cheaper, or we want it to do three things."
In Christopher's research-and-development pride and joy, an in-house kitchen plucked from Middle America, staffers devise recipes to support field sales. Christopher maintains that potential buyers link products used in hands-on demonstrations with "irresistible" smells and flavors.
At first, like other in-home direct sellers, Christopher awarded hostesses 10% of a show's total in merchandise. But she amended the standard with a plan that credits a hostess with points in several additional categories, such as the number of guests and the number of shows booked for the future.
Although telemarketing is a fruitful adjunct to direct selling, the strong-minded Christopher rejects it out of hand. That's because she abhors dinnertime disturbances herself. "Telemarketing is so important these days that it's terrible to admit that it's not something you'll ever see this company do."* * *
2. Corporate Image
101: From a half dozen names proposed in July 1980, Christopher selected the Pampered Chef. "A friend did some drawings, and we chose one for the logo. It was all very frugal, very basic."
Advanced: "I don't know that the name explains us that well," Christopher says. "People ask, 'What does it mean?' Often they think we're a catering company. But any conversation that's evoked based on the name is good."
Although the Pampered Chef logo appears on the items' packaging, products are usually delivered under the manufacturer's brand name with "some sort of something on it" from TPC -- a use-and-care brochure or a recipe leaflet. Christopher believes customers value information more than brand names.
101: To stock up, Christopher visited the showroom of every kitchen-product wholesaler at Chicago's Merchandise Mart. Some suspected she was trying to buy the stuff at a deep discount merely for home use, but all agreed to sell -- cash up front. Christopher bought a dozen each of about 70 products. To reassure the dubious, "I reordered quickly," she says.
"Everything that could be deemed profit went into growing the business -- buying that dozen of everything, then two dozen, then four, and finally a gross -- to keep the inventory in supply. It was simple: cash up front."
Advanced: "After six months of my paying the bills, suppliers would tell me, 'We'll give you four dozen of these -- 30 days." says Christopher.
A salesman for a supplier Christopher used in the early days once called on her at home. Several years later at a trade show, Christopher bumped into him. "When I sat at your kitchen table," the gentleman confessed, "I kept asking myself, 'Why am I wasting my time here?"
No matter, Christopher responded with sympathy. TPC had long since zoomed past his and other distributors' ability to stock enough to fill her orders.* * *
101: "I was a force of one when I started, so I literally could come back from a kitchen show, total what I had sold that night, look up my costs, and realize, 'Uh-oh, I miscalculated here, I need to change something.' A mistake wasn't millions of dollars, it was $75."
Advanced: Christopher has stuck with her basic pricing formula: take the amount you pay for an item and multiply it by two.* * *
5. Building a Sales Force
101: In May 1981 a friend begged Christopher to hire her as a part-timer in the field. "I only want to earn a little income," the friend pleaded. "I'll have to think about it," Christopher hedged. What she really had to think about was "whether there was enough revenue to pay someone else. I wasn't taking a salary, and I was reinvesting everything in inventory and packing materials and those kinds of things."
The friend "earned a little income" so well that Christopher took on 12 more associates by year's end. And that's when business complications set in. "Not only did I have to tally what I sold, but also what Kim and Linda and Cheryl sold," she says.
Worse, despite the business's increased volume, between what her compensation plan awarded to the seller and to the hostess, "there was no profit."
Advanced: Christopher required each new field person to pay $250 for a starter kit of products but offered to carry half the fee against future commissions. That approach was "a miserable failure": uncomfortable with overhanging debt, aspirants grew weary of owing and quit. Christopher tried other setups for part-timers and came up with one that made "a huge difference." For just $100, a new salesperson got a smaller kit. This time it was paid for up front in cash, no credit.
Unlike some in-home retailers, Christopher doesn't actively promote field sales as a business investment, although since salespeople put $100 down, in a microentrepreneurial sense it is. A field salesperson earns 20% of sales to start and gets 2% more when she passes $15,000. The field is about 99% female because, Christopher says, "it's grown through one person sharing it with another, and women tend to share it more with other women."* * *
101: "My total experience in direct selling was as the host of a Rubbermaid party."
Advanced: An ingredient of TPC's success, Christopher contends, is that "everyone has been trained by someone." That's accomplished by TPC's field managers, upper-echelon veterans who recruit and supervise underlings. The novices attend kitchen shows to study their mentors' techniques. Tapes and printed materials reinforce the experience.
In 1994 TPC introduced audiocassettes. Christopher's saleswomen drive kids around more than they than watch TV, she realized, so listening to tapes in transit is a more efficient learning mode. And, at a scant $6 each, tapes are cheap to produce.* * *
101: TPC emerged from the basement into conventional commerce in 1984. Its first building was a two-story office-cum-apartment. It didn't do the trick for long. "We were growing so rapidly," she recalls, "that we'd get into a building that seemed huge when we moved in, and two years later we were bursting at the seams." She annexed a companion structure and apportioned expansion between them, repeating that strategy three times. For three years TPC functioned with two separately housed sets of employees, one recognizing neither the faces nor the jobs of the other. "It was like this building versus the other," she says with regret.
Advanced: "You get detached as you get large," Christopher says. When the company's test kitchen -- the core of TPC -- was located in one building and half its employees were in another, "a lot of people didn't even know it was there." Her goal was to "gather people under one roof to feel we're one team that works together." In June 1994, at last, she moved everyone, warehouse workers and office staff, into a single edifice. "I guarantee that everyone who works here now knows where the test kitchen is.
"In the early days, when we had 15 employees, we'd put up banners and have pizza when we had a good year, and I was very open about our numbers. As we grow we struggle to keep that excitement and enthusiasm, tempered with what has to be less disclosure. We have competitors now and have to be more discreet."* * *
8. Inventory Control
101: When Christopher was solo, inventory control was rudimentary. "I'd look at the shelf and say, 'I started with 12 of those, and I still have 11. As soon as I'm finished with this dozen I'll dump it." Another advantage of lone proprietorship: she didn't have to worry about somebody else's sales inadvertently creating back orders. Her solution to an out-of-stock condition: "If I didn't have enough of something on the shelf, I just wouldn't show it that evening.
"In the first warehouse, which was my house, we didn't have much space, so products were arranged wherever they fit. Nothing was in order. The women who packed the orders would go out with a list and pick two of this and three of that -- as much as their arms could carry. They'd take the pile, put it on the counter, look through the list again, and continue to another corner."
Advanced: After four years in the cellar, Christopher bought a nearby building and restructured TPC's inventory system. To speed the warehousing process, she outfitted her pickers with shopping carts.
Not far behind a 30-day pace, inventory turnover is slowed somewhat by Christopher's insistence that every new product, even an obvious lemon, stay in the line at least a year. The rule stems from the requirement that salespeople purchase a sample of each item they show. "I don't want them to spend money and then have us tell them we made a bad decision," she explains.* * *
9. Cost Control
101: TPC's first furnishings were secondhand. "It's how we internally capitalized the business," Christopher says. "We never allowed ourselves to be extravagant."
Advanced: In 1985 Christopher invested in videos for sales training and new-product introductions. "At the time," she recalls, "I was looking at $15,000 to produce a half-hour videotape professionally. There was no way the company could afford that." So she turned to her field people for talent and shot the videos in-house. "The tapes weren't always pretty," she concedes, "but they got the message across." And she saved 80%. "While other companies were struggling to budget for one videotape," says Christopher, "we were able to do five." Workers don't buy the videotapes; rather, they're encouraged to borrow them. "A person who elects to come into this business does so on a very small investment," Christopher says. "If you spend $100 for a sales kit, you're not about to spend another $45 for a videotape."* * *
10. Letting Go
101: "When you have a business in your home, you tend to work all hours," Christopher says. "I'd work during the day and then do a kitchen show at night. I'd come home when everybody was asleep, so I'd go down to the basement and get back to my desk. When you hit 80 hours an alarm goes off, and you say, 'This is too much, there's no balance in life.'
"We waited too long to develop a top-level management team. We took too much on ourselves," admits Christopher, whose husband, a marketing executive, came over to TPC to serve as full-time executive vice-president from 1987 to 1992. "At the end of 1992 we said, 'This is too heavy, we can't continue -- the business is growing like crazy.' So we started bringing in key individuals."* * *
11. Systems Development
101: "We had an order form that had all the products, and we just lined them up in the warehouse according to that order."
Advanced: Last April TPC went on-line with a minicomputer-driven pick-and-pack system that makes warehouse rounds via overhead conveyors. The pickers from Christopher's shopping-cart days run it.
Before they reach $200 million in sales, many direct sellers establish regional distribution centers. Not Christopher. "There are reasons to, but my conservative nature says I don't want to be out of product in the Northeast when I have tons of it sitting in the Southwest. We pride ourselves on not having many out-of-stocks or back orders, and we accomplish that through centralized shipping." The disadvantage: "It takes longer."
Another remnant from Christopher's beginner's bootstrapping course: TPC's 20,000 kitchen consultants still mail in their orders; days later, clerks at headquarters open them by hand. Christopher says she's working to improve the process.
Gaudeamus igitur. n* * *