The CEO of their very first retail customer, Bloomingdale's department store, predicted that his store alone would sell $1 million worth of Belly Basics apparel in the four months from Labor Day to Christmas 1994--and it did.
The prospect of such fast growth was intimidating. Gardner and Serota knew they couldn't do all the work themselves, so they contracted out some critical design tasks. They brought in a graphic-design agency to work on such projects as a packaging redesign, but working with the agency became a convoluted process that distracted the partners at a crucial time. "We ended up wasting a lot of time and money on a package we could have done ourselves," Gardner says. "After lots and lots of meetings, the agency said to us, 'Gosh, it looks like you're right on it.' And we're thinking, 'Thanks very much, I didn't need to spend thousands of dollars to find that out."
The partners also tried to use an outside designer for some of their garments. "The same thing happened," Serota recalls. "Now we won't outsource anything that has to do with anything creative."
The two had counted on outsourcing so they could make the most of their own talents, but that created more problems than it solved. Now they've learned that easy answers aren't easy in the end. There is no substitute for their own sensibilities, and they organize their time to ensure that their focus is on the higher functions of the company.
Still, the whole experience delivered something of a rude shock. "We stepped back and were surprised to find that we couldn't outsource everything," says Gardner. --S.G.
MYTH NUMBER 3: 'GO GLOBAL'
The Yanks are coming
THE CHAIRMAN: Joe Mansueto
THE COMPANY: Morningstar Inc., a Chicago-based financial-information and -research company
THE BUY-IN: "We figured we'd just put an ad in the London paper and start selling."
Five years ago, when Joe Mansueto opened a new office in London, he thought it would be a slam dunk. Everywhere, he read stories of companies that were conquering new foreign markets--growing beyond their wildest dreams by taking their formulas for success overseas. It certainly sounded like Morningstar was perfectly positioned to do the same. Many of the same trends in the United States that had catapulted his company onto the Inc. 500--increasing investment in mutual funds, the shifting of the retirement burden from government to corporations--were playing out around the world. What he didn't know then was how much time and money it would take to break into an overseas market.
To begin with, his product proved to be tough to transfer. "You can't just take mutual-fund ratings to another country and start selling them," he says. "We had to go over to England and create a new database from scratch based on the funds over there. That's a very expensive proposition."
What added to the expense was that he sent five staff members over to London to set up the office and then hired eight more over the next six months. "By the time you add in benefits, you end up doubling their salaries," he says. And office space in London cost a fortune. The expenses mounted up fast.
Then there were the regulatory issues. "We figured it wouldn't be a big deal," he says. "We'd just put an ad in the paper and start selling. We never dreamed that publishing investment information would be blocked by the process. That doesn't really exist in the United States."
Mansueto was confident that Morningstar's application to publish investment information would be approved quickly. Unfortunately, the British regulatory officials had other matters to tend to. "They were in the process of merging two agencies together, so the application just sat dormant," he says. "Meanwhile, we had a full staff burning up cash. We couldn't publish, we couldn't market, we couldn't make any movement forward."
After 18 months, Mansueto decided to cut his losses and close up shop. He had spent $1 million in the process. The lesson: breaking into foreign markets is a complicated business. There are whole new sets of rules to master. "It's not as though we were ignorant," he says. "But no matter how well you think you're prepared, you never know what can creep up behind you and stab you in the back."
Morningstar remained dormant on the international front until last year, when Mansueto decided to take the company into the Japanese market. This time he got some help. He established a joint venture with a Japanese company, which contributed capital and local expertise. Mansueto plans to do the same as he ventures back into the European market. In December he announced plans to begin operations in Sweden, with moves into other countries to follow. "Local partners will put up a lot of capital in exchange for the Morningstar know-how," he says. And Morningstar will use its street smarts to establish more realistic footholds in overseas markets. --C.C.
Brave new world of dreams
THE CEO: Ken Hawk
THE COMPANY: 1-800-Batteries, a supplier of rechargeable batteries based in Reno, Nev.
THE BUY-IN: "We knew there was an international opportunity."
Sometimes myths are dangerous not because they're wrong but because they're only partly true. Sure, there have been opportunities in newly opened foreign markets in recent years. No doubt, some companies should pursue those opportunities. Some maybe shouldn't. And some should do so only when the timing is right.
Just ask Ken Hawk, founder of 1-800-Batteries. He spent four months last year working to raise $6 million in equity investments. He was so sure his company should go global that at first he earmarked half the money to fund overseas expansion. "We knew there was an international opportunity," he says. "Foreign customers were constantly contacting us through the Internet."
