Here is how entrepreneurs came together to fight a common enemy, but will they last?
COMPANY: GoCard Postcard Advertising
CONCEPT: Sells advertising on free postcards
GOAL: Attract clients nationwide, and fend off bigger competitor
STRATEGY: Expand quickly by linking up with owners in other regions
HIDDEN PITFALL: Entrepreneurs, brought together by a common enemy, begin to clash over more complex issues
Having a great time. Wish you weren't here. Such is the message postcard entrepreneur Alan Wolan probably wanted to scrawl to his newfound competitors back in mid-1995. Wolan had invested $15,000 to launch Five Fingers Inc. just a year earlier, and already the company was racking up revenues of $25,000 a month. But as he explored expanding beyond New York City, Wolan learned that entrepreneurs in other big cities had already entered the niche he thought of as blessedly undiscovered. Even worse, a larger competitor named Max Racks seemed poised to march through as many major metro areas as possible.
Clearly, Wolan, who cofounded the company with his wife, Natalia, wasn't the only one who saw potential in a simple concept: turning postcards into advertising vehicles. Walk into a trendy bar in almost any big city and you're likely to be greeted by a rack of free colorful postcards. (They have also popped up at restaurants, health clubs, and retail stores, including Tower Records.) What kinds of advertisers sign on? Cultural institutions use them to reach the in crowd on the cheap. And liquor companies pay to have them placed where their potential customers imbibe. "They have helped move our sales quite enormously," says Patrick Morley-Fletcher, a brand manager for Hennessy Cognac at Schieffelin & Somerset, the liquor importer. Bar owners, restaurateurs, and others are happy to carry the free cards, which help create the kind of goodwill that can turn into repeat business.
Five Fingers, Wolan was convinced, was well positioned to take advantage of the product's broad appeal in every way but one: money. But the more he studied his competitors, the more he found that they, too, came up short. In Los Angeles, Annett Sell, a German-born entrepreneur, had started Pik:nik Inc. and was lugging postcards around the city herself. In Chicago partners Portia Johnson and Kelly McCabe were launching On the House Inc., having gathered intelligence on Wolan by posing as potential advertisers. All the entrepreneurs shared a sharp sense of urgency as they watched Max's every move, estimating its war chest to be close to $1.5 million. "Max is the common enemy," says Wolan.
As such, it motivated them to join forces and start a network, later named GoCard. At a summit held in the summer of 1995, the three companies decided they would link up, enabling them to sell national distribution to big accounts such as the Gap, Tanqueray, and Hanes. "We realized it would be in everyone's best interest to work together," says McCabe. Since then, others have signed on; there are now seven companies in 14 cities. They buy supplies together and share knowledge but otherwise remain autonomous. It's a precarious balance. Some GoCard entrepreneurs have already squabbled over sharing credit for GoCard's success. And there are several competing visions regarding long-term strategy, with options ranging from licensing the concept to taking the entity public. "When you are dealing with entrepreneurs, who tend to have big egos, it is really hard to reach agreement," admits Craig Singer, founder of GoCard South Florida.
So far, the reward outweighs the inconvenience. Last year GoCard companies reported revenues of $6 million. Sylvie Anapol, president of Max Racks, says that its sales exceeded $3 million. There's little question that GoCard has won the attention of its key rival. In January, Max Racks snagged a domain name that automatically routes Internet customers to its Web site. The address? Www.gocard.com.
If you're thinking about forming a more perfect union with other small businesses in your area or in your industry, you may find it helpful to dip into The TeamNet Factor, by Jessica Lipnack and Jeffrey Stamps (John Wiley & Sons, 800-225-5945, 1993, $29.95). At times oppressively jargony--starting with the title--and thin on consistently vivid and relevant examples, the book is useful nonetheless. Chapter 6 provides a helpful primer for small companies, including the best reasons to form a network and advice on how to manage one. Chapter 8, "Quick Start: Getting Your TeamNet to Click," serves as a valuable reminder that networks, like companies, go through phases as they grow. Finally, the last four pages of chapter 11, "Five Good Ways to Fail," handily sum up the perils of such a strategy. There's a Chapter 11 joke in here somewhere.
GOCARD NEW YORK, Alan and Natalia Wolan, 73 Spring St., Suite 202, New York, NY 10012; 212-925-1069; firstname.lastname@example.org 28
MAX RACKS, Sylvie Anapol, 102 W. 75th St., Suite One, New York, NY 10023; 212-873-4200 28
SCHIEFFELIN & SOMERSET, Patrick Morley-Fletcher, 2 Park Ave., New York, NY 10016; 212-251-8200 28