But floor ads did catch on with packaged-goods manufacturers, in part because of favorable test results, says Joseph Martino, a vice president of Roper ASW Inc., a market research company based in New York City, who has studied in-store marketing for 23 years. "Now," he says, "floor advertising has become an important part of the mix of the whole scheme of in-store marketing" that can jack up a product's sales by as much as 25%.
By the summer of 1997, George and Potok believed they had proven the viability of floor advertising as a business concept. To develop Floorgraphics to its full potential, they concluded, they would have to build a business on a national scale. Neither was taking any salary, and the $200,000 in seed money that they had scraped together from family and friends was long gone. The next step, they decided, was recruiting a seasoned start-up executive, someone who would have credibility with professional investors.
They needed, in other words, someone like George's brother Richard. He has a stellar resumé, including an undergraduate degree from Princeton, law and business degrees from Stanford, and a three-year stint as a management consultant at Bain & Co. No place had seen a greater burst of high-tech entrepreneurship during the 1980s and 1990s than Silicon Valley, and Richard had been in the thick of it. For 15 years he had worked for high-tech companies there as a start-up strategist and marketing executive.
George asked his brother to join him at Floorgraphics, first as the company's emissary to financial backers and later as its CEO. It took Richard half a year to round up $5 million in private equity capital (he raised a like amount a year later, in 1999). One investor was Atlas Holdings, a holding company based in Greenwich, Conn. Atlas's managing partner, Andrew M. Bursky, says he admired not only the Rebhs' "intellectual firepower" but also found that they were "extremely competent with the execution of their business plan. They sweat the details."
Floorgraphics' strategy was to garner the rights to the floor-ad "real estate" of many of the nation's top grocery chains. If the company could do that, Rebh believed, it would attract no end to advertisers who would pay for its "billboards on the floor," as the company's slogan has it.
But the billboard division of the 3M Co., the Minnesota-based giant that Potok had approached as a partner in the venture in 1995, had entered the business on its own. There was no patent to bar 3M from taking this step. (Potok maintains that 3M acted on his idea. "They like to deny it, but that's what happened," he says. A 3M spokesman says the company has no comment.) Potok had not applied for a patent, relying on a lawyer's advice that the floor-ad concept was ineligible for one.
So Floorgraphics had to butt heads against 3M, which guaranteed large floor-ad payments to the chains. "They outbid us every time," Potok says. By and by, 3M's network of retailers would encompass A&P, American Stores, Winn-Dixie, and several Kroger divisions, while Floorgraphics had to scramble for lesser retail partners. Some automotive stores were willing to sign on, and George cobbled them into a mini-network. And he was able to assemble regional blocs of small grocery chains--the Price Chopper stores in the Albany-Schenectady market of upper New York State, for example.
Stymied by 3M from a quick ramp-up, Floorgraphics looked for a retail partner that could provide national reach. The answer was a mass merchandiser, Kmart, which then had 2,150 stores nationwide. Under a two-year contract signed in 1998, Floorgraphics secured the floor-ad franchise for all Kmart stores.
Rebh cut the Kmart deal on the strength of optimistic predictions from manufacturers' agents, who indicated that they would buy at least eight to 10 floor ads for each Kmart store. The stakes were high. Unless Floorgraphics could sell a certain number of ads, its investors had the right to seize control of the company. But when Floorgraphics' representatives called on the agents for floor ads, the results were disastrous. "They produced zero," Rebh recalls.
Rebh asked his five employees at the time to hustle ad sales, with his brother swooping in to close the deal. "Within 30 days we had 25 ads on the floor at the Kmart stores," Rebh recounts.
Then there came a stroke of good luck: 3M sold its billboard division, making its floor-ad business an unwanted orphan within the company. Floorgraphics jumped, buying 3M's operation for just under $2 million and achieving an instant network of 3,800 top grocery stores as venues.
Floorgraphics now had the floor-ad niche to itself, a niche that was living up to the Rebhs' greatest expectations. Its sales grew 3,410% between 1997 and 2001, to $59 million.
