What You Learn From Owning More Than One Company: Don't Fall in Love With the Product
"I'm not really passionate about this industry or that industry," says Red McCombs, the billionaire co-founder of Clear Channel Communications who has owned a slew of real estate, energy, auto, and sports concerns. What is he passionate about? "All of my businesses had to be cash-flow businesses," says McCombs, "from the very first week."
Pete Slosberg displays the same cool-headedness, even though both of his companies, Pete's Wicked Ale and Cocoa Pete's chocolate bars, make products that people tend to feel strongly about. "I never want my passion to get in the way of the business potential," says Slosberg. When he goes about vetting an idea, he looks for industries with huge, mass-market players (Budweiser, Hershey's) and a few increasingly popular premium brands (Samuel Adams, Scharffen Berger). Then he sets about drawing mass-market customers to his high-end offering. The particular product is less important, he says, than the growth potential.
Similarly, when Terri Alpert, the Connecticut entrepreneur, started her first company, she devised her business model before devising the business. In thinking about the company she wanted to build, she realized she wasn't comfortable with holding accounts receivable, so she decided she'd sell to consumers, receiving payment in advance of shipping. And because she had limited start-up capital and intended to work out of her home for a while, she figured that she would have to turn inventory quickly and minimize delivery costs. That meant that her suppliers needed to be nearby. She also wanted to sell a lightweight item.
When her husband struggled while shopping for a chef's knife, she had her moment of inspiration. Several cutlery suppliers happened to be located within the same UPS shipping zone as her house and, with more consumers outfitting their kitchens with chef-quality goods, Alpert hoped there would be strong demand. She launched Professional Cutlery Direct, a mail-order knife company, in 1993.
By 2001, the business had thrice made the Inc. 500 and was grossing $11 million a year. But Alpert had a problem. Kitchenware retailers with greater reach were introducing new products as aggressively as she was, and Alpert felt her business losing momentum. She had created demand for nice knives, but it was easy for bigger rivals to follow her into the business and gobble up market share. When Alpert set about starting her second business, she looked for products that were more difficult to source, so her business would have higher barriers to entry. This time, she settled on one-of-a-kind artisanal items, like French combs, Italian mirrors, and sea-glass necklaces, that her merchandisers found at trade shows and craft fairs, both here and in Europe. In its first year in business, the second company, Uno Alla Volta, brought in $4 million, even as revenue at the cutlery business slid to $9 million. As for Alpert, she's excited about her new products -- but far more so about her refined business model.
What You Learn by the Third Company: How to Leverage Your Resources Creatively
Most serial entrepreneurs are bootstrappers. They like to keep costs low until the viability of a new business is proven. Both times Slosberg started a company, for example, he held down expenses by using other manufacturers' extra factory capacity to produce the goods, while he focused on sales and marketing. Similarly, jugglers or parallel entrepreneurs often use the assets of one business to help launch the next. Terri Alpert used her knife company's warehouse, shipping supplies, and employees to get her artisanal crafts business going.
Vicki Perdue and her husband, Jay, managed to use the same machinery to serve two companies that manufacture goods for completely different industries. The Perdues, who were college sweethearts, became traveling musicians after graduation, playing pop songs at country clubs and nightclubs. Settling in Amarillo, Texas, they built a recording studio and sank $250,000 into debt. They took odd jobs building houses and teaching so that they could climb out of the hole, while continuing to work on the studio. Then Jay created innovative rockwool soundproofing for the recording studio, launching Perdue Acoustics, which has soundproofed auditoriums for NASA and Universal Studios. It had sales of $2.2 million in 2004.
Several years ago, Jay -- who has filed 29 patent disclosure documents, including one for a wind generator and another for an electric-powered car -- dreamed up a bike with pontoons to make it float. He figured out that he could use the machinery that made fiberglass soundproofing diffusers to make the pontoons, too. Later, the Perdues bought a plastic-molding machine to replace the fiberglass equipment and make material for both businesses. Last year, the couple started selling their floating bike, Pedal-Paddle, which retails at $995, to bicycle shops, boat dealers, camps, and marinas. Vicki handles the financials for both Perdue Acoustics and Pedal-Paddle, maintaining separate bank accounts for each venture. The Perdues have hired a full-time Pedal-Paddle manager-salesman, who works on salary plus commission, and they ask their acoustics salespeople to pitch Pedal-Paddle, too.
What You Learn by the Fourth or Fifth Company: It's Okay to Fail
Frank Giotto's tolerance for failure is impressive. Before he launched his three current, and successful, companies, the youthful Giotto ran at least five other businesses into the ground. One delivered pickles and olives to grocery stockrooms, another sold pizza to supermarket deli counters, and yet another designed a sludge pump for municipalities so they could clear muddy water from streets. "We never sold one pump," Giotto says. A foosball parlor also failed. Then there was the business that offered guided tours of scenic Utica, N.Y., first in a school bus and then in a horse-drawn wagon. "I was the driver," says Giotto. "We'd start at the brewery, do the art museum, and couldn't include the zoo because it was too far. It was terrible."
But Giotto didn't let the failures get him down. He took a job at a fiber-optics company, learned the industry, and eventually started his own fiber-optic cable business called Fiber Instrument Sales (FIS). He subsequently spun off a company that manufactures fiber-optic products, and another that sells force-guided relays used by Otis Elevator, among others.
Ron Berger, whose camera store business, his first company, went bankrupt, also got over that failure. Less than six months after the chain of 54 stores went under, Berger was out raising money for a chain of video-rental stores he named National Video. He decided to expand by selling franchises, but when he set out to prepare the franchising circular, he had to include page after page detailing his bankruptcy filing and litigation. In his pitch to prospective franchisees, he tried to spin his past failure as a positive. He knew it was a tough sell, however, so he initially set the franchise fee at just $10. "What mattered was, here was a guy who would never allow himself to get in that situation again," he says. By the time Berger sold the parent company for $3 million in 1988, it had almost 750 franchised locations.
