From the Reporters
 | Inc. magazine
Sep 26, 2011

How Lack of Capital Can Drive Innovation

 

“You shouldn’t wait for change—you should pioneer it,” said Paul Block, CEO of Merisant, the company that makes the sugar substitute Equal, and his remark pretty well summed up the theme of last Thursday’s conference session, “Growth and Innovation: Leveraging the Momentum.” A standing-room-only audience attended the panel discussion, in which Block was joined by serial entrepreneur Howard Tullman, CEO of Tribeca Flashpoint Digital Media Arts Academy, and Lisa Price, CEO of Carol’s Daughter, a cosmetics company she launched 18 years ago while working as an assistant writer on “The Cosby Show.”

Perhaps the best illustration of Block’s precept came from Price. Four years ago, she said, she and her management team had detected early signs of a major change in the tastes and preferences of their customer base, principally African-American women. The company responded by developing a range of new products, including its first celebrity fragrance, My Life by Mary J. Blige. The problem was that Price didn’t have enough capital to launch the product in the traditional manner, through department stores, which was how every other cosmetics company did it. What she did have was a following on the Home Shopping Network. She decided to launch it there. It was a huge risk. If the gambit failed, the product might never recover. “I remember thinking about it a couple of weeks before, and asking myself, ‘Am I crazy?,” she said. But she went ahead—and wound up selling 60,000 units in a couple of hours.

Asked what had given her the confidence to believe she could succeed, Price said, “I didn’t have a choice. I didn’t have any money.”

It was, someone pointed out, a perfect example of the way that lack of capital can drive innovation, as well as its corollary: Having too much capital is often more dangerous to entrepreneurial businesses than having too little.


Bo Burlingham: Burlingham joined Inc. in 1983. An editor at large, he is the author of Small Giants. Burlingham is also the co-author with Norm Brodsky of The Knack; and the co-author with Jack Stack of The Great Game of Business. @boburlingham