Burn the Business Plan

by Carl J Schramm

  When Kauffman returned home to Kansas City, he brought his luck and dogged determination, and his poker winnings, with him. He took a job as a “detail man,” a pharmaceuticals salesman who visited doctors to persuade them of the benefits of a company’s products. It was clear from the outset that Kauffman had a flair for selling; in his first year, his commission income exceeded the company president’s salary. The CEO’s response was to cut Kauffman’s territory. The following year, with fewer doctors to visit, Kauffman again outearned the president. This time, the CEO cheated him by changing the commission formula. Kauffman quit on the spot and vowed never to work for anyone else again. He was perfectly primed for an entrepreneurial moment. All that was missing was a good idea.

  Kauffman returned to visit many of the doctors whom he’d met in Kansas and Missouri to ask what kinds of compounds they needed for their patients but weren’t able to obtain. The postwar baby boom was in full swing, and many doctors expressed concern that they were seeing too many low-birth-weight babies, a problem that they thought might be prevented if pregnant women had more calcium in their diets. Happily, Kauffman realized that creating calcium tablets would not require years of research in a pharmaceutical laboratory; all he had to do was figure out how to make them.

  Working in his basement at night, Kauffman scraped out the insides of oyster shells that had been discarded by Kansas City restaurants, harvesting their calcium. He reduced the scrapings to a fine powder and pressed it into pills. By day, Kauffman was his own detail man, crisscrossing the region to showcase his calcium pills to doctors, who then recommended them to their pregnant patients. Because he wanted it to appear that his product was made by an established company and not by his one-man basement operation, Kauffman’s business cards announced that he was a representative of Marion Laboratories. Marion was his mother’s name.

  With his calcium tablets, Kauffman had invented a new kind of pharmaceutical company, one that was focused primarily on customer need and sales and not on developing products in research laboratories. When he decided to leverage the distribution system that he had built for his signature over-the-counter calcium drug, OsCal, to sell prescription pharmaceuticals, Kauffman again abjured the traditional route; instead of building expensive lab facilities, he licensed new formulas from university researchers and foreign pharmaceutical companies.

  Kauffman’s real genius was his ability to inspire a sales force. He created innovative incentive systems, famously awarding light blue convertibles—Chevrolets at first, then Cadillacs when the company became more profitable—to his standout salesmen. Kauffman truly believed, and made his employees truly believe, that they were doing doctors and pharmacists an important service by providing the products that would help their patients return to good health.

  Kauffman was always looking for new ideas to improve sales. One was to use brightly colored labels for all of Marion Labs’ products instead of the industry standard white label. Pharmacists reported that the distinctive labels made it easier to find the company’s products on their shelves when filling generic prescriptions, which helped Marion Labs outpace its competitors.

  Kauffman also was famous for being a good boss, perhaps because he had experienced the frustration of bad bosses who denigrated commitment and talent. He often announced that any smart boss should hire people who were even smarter, and should value their contributions. Marion Labs paid well and provided generous benefits, including a profit-sharing plan and stock options. When the company went public, hundreds of his employees became millionaires.

  There’s a Better Way to Do This

  Shortly after I became president of the Kauffman Foundation, Fortune magazine published a cover story titled “Overcoming Dyslexia,” which described how many revolutionary companies had been started by people who described themselves as dyslexic.1 The cover featured photos of John Chambers of Cisco, Charles Schwab, who invented the discount brokerage concept, and Ted Turner, who founded CNN and supercharged the nascent cable TV industry. Richard Branson also was pictured. The story told how Branson considered starting his own business because he was so awful in school. He was quoted as saying, “Look, if I’d been good at math, I probably never would have started an airline.” The many entrepreneurs who may be dyslexic include those who started their companies in their late twenties and early thirties, much earlier than most other startup founders. These entrepreneurs seem particularly eager to create companies that approach problem solving in a new way and in which they could make new, and often unconventional, business decisions.

  Prompted by the anecdotal evidence of the Forbes article, Kauffman Foundation researchers began to examine the relationship between what we broadly know as dyslexia and entrepreneurship. As we examined the stories of some of America’s most famous entrepreneurs, including Alexander Graham Bell, Henry Ford, Thomas Edison, Frank Woolworth, and IBM founder Thomas Watson, we found telltale indications that all of these giants were what we now might call dyslexic, although, of course, at the time, the range of attributes of dyslexia weren’t well defined or understood and didn’t have a name.

  Paul Orfalea, the founder of Kinko’s, once described to me the profound problems that he had always had with reading. He came up with the idea of his copying business when he was in school because he had to borrow so many notes from fellow students. Ross Perot, the creator of Electronic Data Systems, who also was featured in the Fortune article, was famous for his “one page or less” rule. He hated reading and believed that any idea could be outlined in one page. When I once worked with him on a project, I noticed that providing him a cursory one-page memo would lead to hours of valuable discussion in which Perot would absorb, test, and challenge every idea. A longer document would have gone unread.

  To learn whether there was any basis for the observation that dyslexics are disproportionately represented in the ranks of successful entrepreneurs, the Kauffman Foundation commissioned research from several respected scholars. We convened a conference in Phoenix in 2009 to discuss the findings, inviting experts in related fields as well as several successful entrepreneurs who had self-identified as dyslexic.

  At that conference, Steve Walker, founder of New England Wood Pellet, related how his experience as a student in a suburban Boston public school had been an endless nightmare. Every day, he said, teachers conveyed how dumb he was. No matter how hard he tried, he couldn’t master reading. He never passed a math test. Other students made fun of him for being stupid, a common experience for dyslexic children. The only thing Walker liked about school was shop class, and he fondly remembers his shop teacher as “the only person, and that included my parents, who ‘got’ me.” The shop teacher would often leave the electricity on in the shop area—a violation of school policy—so Walker could use the machinery long into the night. “My shop teacher constantly encouraged me. He said that I could do things that no other student could do.”

  After squeaking into college and struggling for a year, Walker returned home. One day, he heard that his school had decided to close its wood-and-machine shops and sell the equipment. Walker and his former shop teacher took on the task of selling the machines at an auction. Walker asked his teacher’s advice as to which machines he should buy with two thousand dollars, all the money he had. The shop teacher replied with a basic rule of business: “Value is what someone is prepared to pay.” As it turned out, no one else even submitted a bid, and Walker was able to buy all of the machines.

  Walker set up shop in his basement. The very next week, he was in a hardware store and noticed a display of stoves that burned wood pellets. He wasn’t interested in buying a stove, but the adjacent stack of pellet fuel bags, labeled “Made in Montana,” caught his eye. Why, he wondered, should people surrounded by the dense forests of the Northeast have to buy wood pellets that had been shipped across the country?

  Walker began experimenting in his shop and soon designed and built a machine that compressed sawdust into pellets. His cheaper and better lo
cal product was greeted with enthusiasm, and he soon had to build a much bigger machine to keep up with demand. At the time of the Kauffman conference, nineteen years after Walker founded New England Wood Pellet, it was the largest manufacturer of clean, renewable biomass fuel in the Northeast. Among his many achievements, Walker is most proud that his products have displaced millions of barrels of nonrenewable heating oil every year.

  According to the results of the Kauffman study, Walker’s experience was anything but anomalous. The researchers concluded that about thirty-five percent of all entrepreneurs are dyslexic, substantially higher than the ten percent in the population at large. Journey into Dyslexia, an HBO special inspired by the Kauffman conference, explored the reason why dyslexics tend to create more businesses.2 In 2014, at the first conference of what has become the Dyslexic Entrepreneurs Network, entrepreneurs from around the country came together to compare their histories.3 Confirming the narrative of the HBO documentary, they shared the belief that they had started their companies to avoid the constraints and rules that they had hated when working for others.

  A Johns Hopkins study sheds further light on why a disproportionate share of companies are created by dyslexics. Using a control group study, the researchers compared the careers of men who, as boys, had shown no learning problems, with a group that had experienced serious reading difficulties. Men in the control group had attended a private suburban school, while those in the second group had gone to a school that specialized in teaching boys with learning issues. By the age of forty, the number of boys from the first school who had entered established professions—becoming doctors, lawyers, teachers—was twice that of the boys from the second school. That’s not much of a surprise. But, what was startling was that the poor-reader graduates of the second school were three times more likely than their control group counterparts to have started a business.4 The study concluded that dyslexics, finding it difficult to master the large bodies of settled knowledge and the unremitting testing regimens required to enter established professions, had instead started businesses to create environments in which they could succeed—places where they made the rules. The study also speculated that dyslexic entrepreneurs may be successful because they see innovation opportunities in an intuitive big-picture way. This sense of seeing the world differently is often mentioned by dyslexic adults who have succeeded in environments of their own making; one such entrepreneur—only half-jokingly—refers to this as the “gift of dyslexia.”

  Change or Die; My Family’s Business Is My Startup

  Who would think that a third-generation family-business owner would become an entrepreneur? Heirs sometimes find their inner entrepreneur when they assume the mantle, even if they are reluctant recipients of that responsibility. They may feel burdened by the raft of ancestral expectations that has descended upon them, including a resistance to change the way that things have always been done. What happens when the new-generation manager recognizes that the business has lost its innovative culture and that he must either rescue the enterprise or plan its funeral? A legacy manager may see new opportunities to leverage existing assets, develop innovative products, and may have the inclination to pursue aggressive growth, that is, to treat his legacy like a startup and create a new trajectory.

  During the toughest times of the Depression, Carrie Hawkins opened a rural roadside farm stand in upstate New York to help support her family. In 1934, she and her family moved the operation to a busier highway location near their farm. Little did she know that Green Hills Farms—the name of that first little stand—would be the birthplace of a revolution in grocery retailing that would influence grocery stores around the world. In 2001, Inc. magazine called Green Hills the “Best Little Store in America.”

  In the 1990s, Carrie’s grandson, Gary Hawkins, feared the opening of major chain grocery stores nearby. Anticipating the fierce competition that a giant supermarket would bring, he began to gather detailed data on his customers at checkout. A self-taught programmer, Hawkins then built analytic software that revealed some unexpected information: About thirty percent of his customers accounted for eighty percent of his profit. Mass coupon mailings and ads in the local newspapers seemed an inefficient way of bonding with this critical segment, which, if lost to the competition, would put him out of business.

  Hawkins decided to focus on his best customers, setting out not just to know them by name but to learn about their lives and their families. In time, he knew what they bought, how they responded to sales, and what days of the week they shopped. He was determined to pamper them; at Christmas, he presented beautiful Christmas trees to the top spenders, and once a year he invited them to a black-tie dinner in the store. During a prolonged power failure, he issued special coupons to help customers restock the lost food in their freezers and refrigerators.

  Green Hills’ customer retention rates and sales per square foot became legend in the industry. In 2011, Grocery Headquarters, the industry’s leading publication, voted Hawkins its retail executive of the year, a remarkable achievement for a one-store owner. Customer loyalty programs are now such a part of our lives that it is hard to imagine that the model was developed so recently, and in a little store outside Syracuse.

  Hawkins’ innovation saved the family business. Actually, it changed the store’s future, and Hawkins’ future as well. After he received the grocery industry award, stores all over the world began to ask Hawkins for advice. The demand was so strong that he decided to create a new company to manage customer data and loyalty programs. Now Hawkins is the CEO of the advisory company that he founded in 2010, the Center for Advanced Retailing and Technology (CART). CART now advises retailers worldwide, including Unilever and Procter & Gamble.

  Don’t Start a Business So That You Can Be Called an Entrepreneur (and Get Rich Quick)

  In the past thirty years, it has become increasingly fashionable to be known by others as an entrepreneur. This reflects a changed environment in how business innovators are viewed in contemporary culture, one that reflects the changing nature of technology itself. The entrepreneurs of the turn of the nineteenth century, often called “captains of industry,” magnates, and tycoons, leveraged the emerging technologies of the industrial revolution to build giant companies in industries like steel, oil, and railroading. Many, including Andrew Carnegie, Henry Frick, Hollis Collins, Jay Gould, and, of course, John D. Rockefeller, were labeled robber barons and, despite their wealth, philanthropy, and high social standing, were widely despised.

  By contrast, today’s wealthy and socially prominent entrepreneurs generally are admired by the public and are the frequent subjects of laudatory media narratives. No one sees them as the near criminals that their counterparts of one hundred years ago were made out to be. Why is that?

  Colleges and universities have both participated in and championed this positive perception by characterizing “entrepreneur” as a vocation—like physician, computer programmer, chemist, or accountant. Institutions do this, in part, by offering what looks like a regular course of study or path to becoming a successful entrepreneur. Unfortunately, this is an empty promise: There is no evidence that a student can learn how to start a business in much the same manner that he can train to be an architect or a zoologist.

  The students on this academic and career track may be thought of as wannapreneurs. They hope to become another Zuckerberg, even though most know little more about him than that he started Facebook and became very rich. While achieving financial success certainly is a part of every entrepreneur’s motivation, in part because it symbolizes the belief that society values what you have to offer, we know that entrepreneurs who start companies with the primary goal of making money have a much higher failure rate. In pursuit of quick money, wannapreneurs discount the long-run economic return of building a lasting company.

  At a conference several years ago, I met a student; let’s call him Jared. He was determined to become an entrepreneur. A few years later, Jared contacted me to report
that he indeed had become an Internet mattress sales entrepreneur, and asked for my thoughts. It was odd, I recall thinking, but I’d been asked for advice on the subject of mattresses several other times in the previous year. A little research revealed that an increasing proportion of mattress sales were occurring in e-commerce, a far cry from the remembered days of trying out mattresses—firm? extra firm? medium?—and being a little creeped out by thoughts of the hygiene standards of previous shoppers. What had caused this surge of interest in mattresses entrepreneurship? Did the population’s pursuit of a good night’s sleep hold boundless potential? Had I not noticed that mattress stores were dropping like flies?

  When Jared called, I asked how he had come to his interest in mattresses and how he was dealing with what looked to be a lot of competition, given the approximately 9,000 mattress stores in the United States alone. Comparatively, there are only about 12,000 Starbucks stores. As buying a cup of coffee is an everyday ritual for many, abundant locations make sense, but mattresses often are a once in a decade purchase. Jared’s answer about his idea’s inception was interesting. He told me that he had attended a meeting organized by the White House to encourage recent college graduates to start businesses. At that meeting, a Small Business Administration official had read a list of hot new industries that the attendees should consider. Mattresses were on the list.

  Jared thought that this sounded like a promising idea. He did some additional research and decided that, while others in the business were targeting newlyweds, new homeowners, and couples who had kids, he would aim for the dorm market. He was building a marketing business aimed at college students, outsourcing production and drop-shipping to customers.