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CEO's Notebook

CEOs give advice on: fueling growth through purchase-order financing; boosting sales through affinity marketing; and using cash incentives to collect customer contacts.
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Answering customer-service phones all day can get boring. To keep employees on their toes, National Tele-Communications, a reseller of telecom services in Cedar Grove, N.J., began making daily "phantom" calls to its operators. The "dummy callers" (read: managers) pose as ignorant--and irate--customers. The reps who keep their cool are eligible for a $25 daily prize and entry into a monthly drawing. The prize? Two tickets and a limo ride to the Broadway production of Phantom of the Opera. --Ilan Mochari

Want to hire good salespeople? During the interview, ask the job candidate to try to sell you your own product--or something like it. Steve Oehlerking, founder and president of Tampa-based Apartment Hunters, a $2-million rental-locator service, asks potential sales hires to "pitch" him their current homes. "If they can't tell me all about a place where they've lived for a while," Oehlerking reasons, "how will they be able to talk to customers about places where they don't live?" --Marc Ballon


Don't meet a banker's standards for credit?

Here's one way to find cash to fuel your growth

By Jill Andresky Fraser

It's the classic entrepreneurial plight. You're desperate for capital to fund production or expansion. But you're still too young, too small, or too financially precarious to meet a banker's high credit standards.

So where do you get the cash--and get your company ready to qualify for bank credit? Bob Carroll, the chief financial officer of Ex Officio, a Seattle-based importer of travel wear for men and women, has a simple recommendation: purchase-order financing. Think of it as an earlier phase of factoring your company's receivables. With purchase-order financing, companies can obtain letters of credit to help finance production costs--as soon as a customer places an order.

"We were in a real bind," Carroll says of his system's origin. Founded in 1986, Ex Officio relied on family-and-friends financing for years. But the company just got too big, broadening its customer base to about a thousand stores across the country: "By 1994 we realized we couldn't keep relying on personal sources of funds. But we didn't have many other options."

By networking with other companies in the industry, Carroll got leads on purchase-order financiers. "And so began a lucrative business relationship," he says. In the past four years, he explains, banks have issued 50 letters of credit to the company for amounts ranging from $50,000 to $500,000. Typically, the letters of credit expire after three or four months, but they have enabled Ex Officio to meet the security demands of its Asian manufacturers while bridging the financial gap between getting a sales order and receiving a payment.

The strategy has helped Ex Officio stay on a fast-growth course, with sales last year of $12 million and 1998 sales projected at $16 million. But it's an expensive financing option. Carroll warns that interest charges typically run from 1.75% to 2% per month, more than credit-card borrowings. That's why purchase-order financing should be a purely interim strategy. "We're always looking for ways to ratchet down our financing costs by diversifying into other nonbank lenders," says Carroll. "As we've grown, that has become more of an option for us."


Hot Tips

In the wake of the Monica Lewinsky scandal, the National Retail Federation (NRF), which is based in Washington, D.C., and is the largest U.S. trade group for retailers, wants to publicize new voluntary privacy guidelines. Special prosecutor Kenneth Starr, you may recall, subpoenaed the sales records of three D.C. bookstores from which Lewinsky allegedly bought books, including Nicholson Baker's steamy tome Vox: A Novel, for her White House pal. The bookstores were ultimately spared having to decide whether or not to turn over the records when Lewinsky herself supplied Starr with the information. But the query raised red flags for retailers. Would the bookstores have set a precedent for violating the privacy of their customers if they had revealed the purchases? The NRF now counsels retailers to avoid sticky situations by informing shoppers up front about the kinds of data a store collects and how they might be used. --Mike Hofman

Looking to reduce employee stress--and encourage honesty? At Text 100, an $18-million international public relations agency, employees get two "duvet days" in addition to vacation and sick time. What does that mean? If employees don't feel like getting out of bed, they simply call in, take a "duvet day"--and then sink back under the covers, no questions asked. --Stephanie Gruner


Maximizing your marketing

How to target groups likely to be receptive to your message

The average age of Spice Girls fans is maybe 12, but Debbie Newman is counting on them to help boost her business into the big leagues. Newman, vice-president of marketing for New York City-based N2K Inc., is using affinity marketing to reach Spice Girls fans--and others. N2K's Music Boulevard Network sells CDs, videos, T-shirts, and other merchandise on the Web at musicblvd.com.

Through an "affiliate" program, N2K, a public company with $11 million in revenues last year, lets more than 11,000 small music Web sites link to musicblvd.com. "The experience of the affiliate is generally, 'Hi, I'm a Spice Girls fan and I have a Spice Girls fan page and I'd like to sell Spice Girls records on that page," says Newman. For that fan, N2K would set up a Web link so that anyone who visits that Spice Girls fan page can, with one click of the mouse, go to musicblvd.com and buy Spice Girls records.

Affinity marketing began largely with credit-card companies, but recently a variety of industries have noticed the revenue potential and are investigating the concept. Nowhere is the trend more prevalent than on the Internet, where companies believe that savvy affinity marketing will steer more consumers toward E-commerce. A Web site devoted to affinity programs-- refer-it.com--lists more than 300 businesses that are testing this model.

Newman and her colleagues believe that having thousands of small affinity-marketing relationships is as effective as partnering with a few huge entities. "We have several big, strategic business-development deals," says Newman, referring to N2K's partnerships with the likes of Netscape and Excite. "But in aggregate, these little fan sites in the affiliate program are the number two source of referral in terms of revenue."

When someone goes to musicblvd.com from an affiliate's site, 7% to 15% of each dollar they spend is returned to an account for the site's producer. That money is either paid by check or used as credit toward buying merchandise at musicblvd.com.

Musicblvd.com's affiliates help N2K reach balkanized music fans that the company might not find otherwise. Among the registered affiliates: a medieval song club, a pack of Celtic music buffs, and several contemporary Christian music sites. Newman says these clients are ideal for E-commerce because they're less likely to find their favorite music at the local store.

Of course, not every plan succeeds as well as Newman's. Engle Saez had a harder time making an affinity scheme pay off for him. A veteran Timberland executive, Saez founded the AtlanticRancher Co. in 1996, in Marblehead, Mass. The $5.5-million company published a catalog of clothes for outdoorsy, boater types. To form relationships with conservation groups, AtlanticRancher published catalogs endorsed by organizations like the Federation of Fly Fishermen and Quail Unlimited. The catalogs, directed specifically to a group's membership, featured a letter from the group's president and its logo.

Here's the rub: while fly fishermen and others were attracted to AtlanticRancher's merchandise, Saez soon learned that they were much less likely to buy from a catalog. "We needed to concentrate on proven mail-order buyers," says Saez. "I thought I could speak directly to people who had an affinity for my concept. But we didn't get the response we were looking for."

Saez hopes further research into affinity groups' buying habits will help him develop a better program. "I haven't cooled on the idea yet," he says. --M.H.


Paying cash for contacts

Abolishing salaries to jump-start sales may seem extreme, but Billy Ross credits just such a move with helping to turn around Super 1, his $14-million recreational-vehicle (RV) dealership near Atlanta. When his salespeople were turning in subpar performances--closing a sale for only one out of every 200 customers who walked on the lot--Ross replaced their $250 weekly salary with a compensation plan that he hoped would promote more proactive selling. Salespeople now earn $10 cash for each customer whose information they capture (including, for example, name, address, and phone number), and $25 when a customer submits a written offer for an RV. Ross caps the total incentive package at $300 per week, but he also pays salespeople a hefty 20% commission on any RVs sold. All customer info goes into a database for follow-up calls and mailings.

Ross says most customers don't mind divulging their vital statistics, but if someone is reluctant, he encourages his salespeople to tell them about the $10 incentive. "Customers don't mind as much when they know they're helping the salesperson earn a weekly paycheck," he says. In the week after the initial contact, salespeople follow up with amiable "just-checking-to-see-if-you're-still-looking" calls, which Ross says are responsible for more than half the dealership's RV sales. And, he adds, the incentives have helped increase his closing percentage from .5% to 10% in one year. But most important, the incentives work. It's rare that someone doesn't nail the $300 cap, and sales-staff turnover has been zero since October 1997. --Shane McLaughlin


The Quotable Entrepreneur

'An IPO is like the Bahamas. You think it would be great to go there, so you plan the trip. But then you get there, and after a couple of days you realize, "Man, this kind of stinks."' --Tom Scott, Nantucket Nectars, a beverage manufacturer based in Cambridge, Mass.


My Biggest Mistake

Victor Kiam
Chairman, Ronson plc

Any entrepreneur worth his salt who says he hasn't had a failure--isn't worth his salt.

For me, the biggest mistake was about 40 years ago, when I had a chance to buy the North American rights to manufacture and distribute what looked to me like an exciting new product from Europe--something we know now as Velcro.

At the time I had just been promoted to marketing director of girdles and bras at Playtex. I wasn't exactly in the higher echelon of the corporate office, so I negotiated a 180-day exclusive option period for Playtex to consider the opportunity. I was so excited about what I saw as the possibilities that my wife and I kept awake at night, talking about the various ways the product could be used.

Months into our option period, all of the key Playtex marketing and market-research executives involved in making the decision gathered to discuss the patented product and its potential. The first question out of my boss's mouth was, "Are we in the consumer-products business or the manufacturing business?" It became a philosophical discussion about what the company was. Two weeks later the decision was made, reluctantly, to pass.

In the final two weeks left of the option period, I tried fruitlessly to put my own deal together to buy the rights--with Playtex's blessing. But time ran out before I was able to pull together the financial backing I'd need. Ultimately, the guy who had brought me the concept licensed the product to a small textile mill in New Hampshire. Of course, it didn't remain small.

I learned a few important lessons from this experience. The first is, if you have faith in your own judgment, don't rely on anybody else's. Go ahead and do all the research, but don't get carried away by the opinions of people who are probably peripheral. I also learned that you should never look back. Do the best you can: you won't always hit a home run, but don't ever second-guess yourself. It's not productive. And, finally, being part of a company that was intent on focusing on its core mission and not participating in this opportunity helped me decide that I was going to be an entrepreneur.

Victor Kiam is the chairman of Remington Products Co. LLC and Ronson plc, and holds the chairmanship of various other companies.

Last updated: Nov 1, 1998




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