Mail: April 2002

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Then the January 2002 issue upped the ante with this sentence in " Inside the Smartest Little Company in America," your profile of the creators of the game Cranium: "Fortuitously, [CEO Richard] Tait had recently scaled Mount Kilimanjaro with a friend of the man who was then the CEO of Starbucks." That coincidence ultimately opened the door for Cranium's critical product-placement innovation. Instant distribution at 1,500 Starbucks stores is more than just fortuitous; it's the impossible dream for most entrepreneurs. That is not to take anything away from the founders of Cranium Inc. However, all the smarts and creativity and effort that they employ are overshadowed by their contacts.

As a whole, Inc does a good job of profiling bootstrappers as well as those with somewhat more robust networks. For some reason, though, I found these particular references unusually casual about one of the essential elements of the companies' success.

Malcolm McMichael
Partner
Thunder River Business Services
Basalt, Colo.

House of Correction
In our February feature " Selling 2002," Robert Miller should have been identified as coauthor of Strategic Selling. Also, Miller is in the business of customer research, not sales consulting.

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UPDATE

Daisy Chain

Will franchising fertilize growth for this floral superstore?

Someone once referred to KaBloom Ltd. as the "Starbucks of flowers," and the moniker has stuck -- the company actually refers to itself as such on its Web site. But being Starbucks-like carries several connotations. The positive: you're everywhere and growing quickly. The negative: you're running little shops out of business. To mitigate that negative image (and to jump-start growth), the company, based in Woburn, Mass., is turning to franchising. CEO David Hartstein hopes that the KaBloom franchise will be known as a big retailer with local roots. "It's very important that the people who run the stores will be part of the community," he says, noting that florists interact with people at emotional times, such as at weddings and funerals.

Hartstein's decision marks a significant change in the direction of the company. Back in 1999, Inc named KaBloom a " Hot Start-Up." At the time, Hartstein and his wealthy cofounder, Thomas Stemberg (founder of Staples Inc.), said their mission was to bring European-style flower shopping to the States. Eye-catching stores adorned with bright purple signs would stock a huge variety of flowers in gardenlike settings, encouraging passersby to spring for a nosegay every day. Hartstein predicted in 1999 that the company would gross $15 million in 2000 and expand to 150 stores by the end of 2003, at a cost of $250,000 per grand opening. Nearly three years and one recession later, KaBloom has failed to live up to that forecast. KaBloom has just 34 locations, and sales hit only $8 million in 2000, though they did reach $15 million last year.

"There's no question that you can expand faster through franchising because you're not using your own capital," says Steve Siegel, a top franchising guru recently hired by Hartstein. Siegel, who serves as chairman of the International Franchise Association and is co-owner of 30 Dunkin' Donuts outlets, says KaBloom will sell 10 to 20 franchises this year. The company will require a minimum investment of $150,000, and franchisees should anticipate $40,000 to $90,000 in additional expenses, Siegel adds. That's a pretty average sum for the wide world of franchising but about three to five times more than the typical cost of opening a nonfranchised flower shop. In return, KaBloom will share E-commerce revenues with its franchisees and, to control costs and quality, will supply them with flowers from a central location.

Since cofounding KaBloom, Stemberg has become less active in the company. The pen-and-pad mogul rebuffed interview requests, and his spokesperson said that he is only casually familiar with KaBloom's new direction. So much for celebrity-CEO savoir faire.

So will KaBloom thrive as a franchise? Service-oriented businesses often make for durable franchises, says Kellogg School of Management professor Manish Kacker, who has studied ownership structures in franchise companies. "If you're looking at a product with a very low service component, a physical product" -- like, say, office supplies -- "there's not that much value added that you can get from a franchisee as opposed to having a company-owned store," he says. In contrast, Kacker says, a florist is certainly "a high-service-component business." Finally, perhaps, everything's coming up roses for KaBloom. --Jill Hecht Maxwell

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