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STREET SMARTS

Changing Course
 

Companies these days have to change constantly just to survive, but some changes are bigger than others. Sometimes you even transform your company from one type of business into another.

Norm Brodsky is a veteran entrepreneur.

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We all know that companies these days have to change constantly just to survive, but some changes are bigger than others. There are times when -- for whatever reason -- you feel compelled to revamp the entire way that you operate, perhaps even transforming your company from one type of business into another.

I reached such a crossroads in the late 1980s. My principal business at the time was a messenger service that I'd started eight years earlier. I thought the business had a reasonably bright future until fax machines began popping up in offices all across the country. Almost overnight the demand for our services plummeted as customers began faxing their documents rather than sending them by courier.

I got out of the messenger business as quickly as I could, building up our truck delivery service instead. Meanwhile, I began looking for another business to go into -- preferably one we could start as an adjunct to our delivery business. Eventually, I settled on records storage, which is today our main source of revenues and profits.

In my case, it was a crisis that precipitated the decision to change course, but other people do it because of the opportunities they see in phasing out of one business and moving into another. A guy I'll call Ari is a good example.

Ari has a store in the Midwest that his father founded in 1937 and built into a local toy emporium. By the time Ari joined the business, in 1978, it was already well established, and it continued to thrive for the next 15 years, despite stiff competition from Toys "R" Us, K·B Toys, and other national chains.

But Ari is a restless guy who is always looking for new opportunities. He tends to find them, moreover, in the course of wrestling with problems. Unhappy with the seasonal fluctuations of the toy business, for example, he began looking for other products he could sell during the times of the year when customers weren't coming in and buying a lot of toys. Before long, the store was doing a brisk trade in furniture and recreational equipment for kids.

A more difficult problem grew out of a habit Ari's father had acquired as a child: he liked to collect things. From the earliest days of the business, he'd had a hard time throwing anything away. Sometimes he was able to sell the stuff he collected, but a lot of it just accumulated in the warehouse above the store. There could be found all the unsold inventory from years gone by -- G.I. Joes, Barbies, Archie Bunker dolls, O.J. Simpson action figures, 1928 Mercedes-Benz model kits, Mr. T Colorforms activity sets, you name it.


Sometimes you change course because of a crisis, and sometimes you do it because the opportunities you see are too good to resist.


All those toys represented a huge investment and took up a lot of space, but Ari didn't know what to do with them. If he tried to sell them in the store, he'd have to price them way below their cost. An alternative might be to auction them off. Toy collecting was becoming extremely popular, and he had a whole warehouse full of rare vintage toys in pristine condition. But how could he reach the toy collectors? They were dispersed all over the world, and -- as far as he could tell -- there was no efficient means of selling to them.

Then along came the Internet.

Ari was one of the first people I knew to put up his own Web site, way back in 1995. His goal, he says, was just to get a decent price for stuff he had that he couldn't sell at a profit in the store. He began by offering vintage toys and gradually branched out from there, adding comic books and magazines, gas grills, computers for kids, birdbaths, lawn chairs, flags and flagpoles, scooters, and on and on.

In the process Ari did two things that were exceedingly rare during the Internet boom of the late 1990s. First, he operated at a profit from day one. Second, he educated himself at a very low cost.

And he got a pretty good education. He learned, for example, that it was important to have his own customer-service operation and to keep it separate from the store. The needs of his online customers were entirely different from those of the people who shopped on the premises. He decided it was better not to mingle the two sides of the business.

Through research and experimentation, Ari also learned what kind of advertising was effective and how to get favorable placement on search engines, and he promoted the Web site aggressively through the store. As he attracted more and more customers to his Web site, his Internet sales steadily rose. Before long, they represented a significant portion of his overall revenues.

He learned about the hazards of online selling as well. He found out the hard way what happens when your server in California goes down. (You're out of business -- better have a backup.) And how to protect yourself from customers who use stolen credit-card numbers. (Check with the cardholder and the bank when the delivery address looks suspicious.) And what a phony money order looks like. (No watermarks or microprinting on the back.)

Mainly, however, Ari learned that he liked doing business online. In fact, he preferred it to running a bricks-and-mortar store. The Internet, he found, gave him more control of his time and fewer headaches. He didn't have to worry about turning the lights on or off or his potential liability if a customer tripped and fell on his premises, and he could keep tabs on his business from almost anyplace in the world.

It began to dawn on him that if he did all his business online, he could do a lot more traveling for pleasure, both in the United States and abroad. He could take vacations. He could move to the country. He could come in at 10 a.m. instead of 8, and he could work for 7 hours instead of 12. He could contemplate doing all kinds of things that he'd previously ruled out because of his responsibilities at the store.

So now Ari is trying to figure out how he can complete the transition from traditional retailing to pure E-tailing. If he succeeds, he'll be the first guy I know who's done it. He's already transformed his store by beginning to phase out toys. Three years ago he stopped going to toy fairs. He says he was fed up with the toy business anyway. The big toy manufacturers and retailers -- aided and abetted by Wall Street, the product-liability bar, and the Consumer Product Safety Commission -- had taken all the fun out of toys. Even kids were less interested in them, preferring to play on computers instead.

Once Ari finishes selling off his toy inventory, the store will be strictly a furniture and recreational-equipment outlet -- which, it turns out, requires much less storage space than a toy store does. In the meantime, he has cleared out a large part of his warehouse, which he has begun to rent, providing him with a significant amount of additional income every month.

And in the future, who knows? If his online business continues to grow at its present rate, Ari may not need to have a bricks-and-mortar store at all. Between his rental income and his Internet earnings, he may have a cushion big enough to let him cut the cord and start living the kind of life he has only dreamed about until now.

Of course, by then, I too may have changed course. If online businesses are as good as Ari says, I just might want to switch from records storage to E-tailing. Then we can both run our businesses from a beach in the south of France.


Norm Brodsky is a veteran entrepreneur whose six businesses include an Inc 100 company and a three-time Inc 500 company. This column was coauthored by Bo Burlingham. Previous Street Smarts columns are available online at www.inc.com/incmagazine/columns/streetsmarts.html.


Please E-mail your comments to editors@inc.com.

Last updated: May 1, 2002

Street Smarts columnist and senior contributing editor NORM BRODSKY is a veteran entrepreneur who has founded and grown six businesses.
@NormBrodsky




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