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Case Study: Why the Founder of a Start-Up Chose to Give Up Control

January 9, 2013 by Leave a Comment

Jacqui Rosshandler, founder of Eatwhatever: Should she take the money?Tina Fineberg for The New York TimesJacqui Rosshandler, founder of Eatwhatever: “I certainly didn’t get railroaded.”

Case Study

What would you do with this business?

Last week, we published a case study about a start-up founded by a young Australian expatriate who faced a difficult choice — just how difficult was revealed by the scores of conflicting reader comments that poured in to this blog. The choice belonged to Jacqui Rosshandler, who was about to run out of money: she could mothball her breath freshener business, Eatwhatever, and find a job, or she could accept the financial lifeline offered by Arthur Shorin, longtime owner of the Topps Company, who had sold his company and was nurturing start-ups.

It was Mr. Shorin’s terms that made the choice difficult. He wanted 75 percent of Ms. Rosshandler’s company, Jacquii L.L.C. In return, he offered a $250,000 infusion of capital; a job with his New York company, Artuitive; and the opportunity to earn back 15 percent of the business if certain financial goals were met — which would bring her to 40 percent ownership of a company that had been all hers.

In a recent interview, condensed and edited below, Ms. Rosshandler explained why she said yes to Mr. Shorin’s offer last February — and also responded to some of those reader comments.

Our readers seemed to be split on what you should do. Was it an agonizing decision for you?

It wasn’t agonizing. It was more about negotiating the terms of the deal that took quite a while. It wasn’t simply that he offered me a deal and I just said yes. There was a lot of back and forth. It took maybe six weeks to negotiate the terms. But I was very sure that I wanted him involved.

Why?

I immediately realized Arthur was very smart. I figured he knew the candy business. He grew up in those factories knowing every part of the business. But I think most important, when I met other people he worked with — his accountant, buyers — I discovered that they’d been working with him for 40 years. People who have a bad reputation in business generally don’t have the same people around them for many, many years. Plus, it was amazing how many of them said to me, “You are so lucky to work with Arthur. He’s going to make this product huge for you.”

What did you gain in those negotiations — to answer those who worried that you got railroaded?

I certainly didn’t get railroaded. I feel like a lot of people looked at this from a very strict venture capital standpoint, that I gave up control for $250,000. That’s not the case at all. I wanted to make sure that I would have a say in decision-making. I made some gains. Arthur made some gains in the negotiations. I’m a lawyer by trade and a bit skeptical of people — and I was suspicious to a point to begin with. But there was something about him that I just trusted. I think it had a lot to do with his personality. I went with my gut. I felt this was a guy I could trust. Now, I would trust him with anything.

Two of the commentators we quoted and many readers who advised you to turn down the offer had tough words for Mr. Shorin. What’s been his reaction?

He was more concerned with my reputation and the product’s reputation than his own. I think he feels that anybody who knows him knows that he would never take advantage of anybody. I understand it could look like that, without understanding the relationship we have. We’re really a partnership. It doesn’t feel at all like I’ve been belittled and I have to run his company according to how he wants it done. I basically get the final say on everything. We work together. We talk every single day. We go to some major meetings together, some I go to alone. But I’m basically running the company the same way that I did, but with the bonus of having this person who’s been involved in this industry for years.

What early input and advice did he offer?

Originally, you had to take two of the gel caps. At his suggestion, we reformulated them to make the gel caps stronger so you only need one gel cap and one mint. Great advice. We toned down the sexual innuendo when we did a complete repackaging. Sales before I met Arthur were low because the packaging was not great, the messaging wasn’t as clear. We fixed that. And he made sure we trademarked “2 Steps to Kissable Breath.”

Mr. Shorin pledged to invest at least $250,000 — and more, if justified, to help jump-start the business. How much did he invest in 2012?

He’s actually invested more money, around a half million dollars, so far.

Where did the money go?

Production of product and marketing. We do a lot of social media and sampling. We really want to build our reputation in New York, because it is so accessible for us and it is such a trend-setting city. We made a 30-second TV ad that ran locally for three weeks last November when Eatwhatever hit the shelves in 250 Duane Reade stores in New York City.

When I spoke with Mr. Shorin, he expected 2012 sales to reach $500,000. Did the business actually grow more than tenfold last year?

Yes, it has. He has made such a difference. That’s why when people say, Oh you can borrow money from family or friends, or get it from crowdsourcing, it’s just not the same. The doors that he has opened by being someone in the business his entire life — family money can’t buy that.

What doors did he open?

Duane Reade was very excited about the product, very happy to bring it on. The actual sale took about five minutes. But it took a year for me to get in to see them, and the only reason they saw me was I got to the right broker, who Arthur introduced me to.

What’s in store for 2013?

The margins and rate of sale on the breath freshener are fabulous. It’s certainly our focus, but we’d like to extend the brand name into other products. We’re looking at a few other products, all with the same sort of distribution model — all healthy, good-for-you products. What we’d like to do is sell confidence. And a whole lot of different products can fit into that category. I would like to see a second product release midway through this year.

Article source: http://boss.blogs.nytimes.com/2013/01/09/why-the-founder-of-a-start-up-chose-to-give-up-control/?partner=rss&emc=rss

Filed Under: Small Business Tagged With: , ,

You’re the Boss Blog: A High-End Brand Tries a Different Sales Channel

October 6, 2012 by Leave a Comment
Case Study

What would you do with this business?

Eve PearlChester Higgins Jr./The New York Times Eve Pearl

Last week, we published a case study about Eve Pearl, an Emmy-winning TV makeup artist who founded a cosmetics company by the same name. In June 2011, with online sales and traffic at her three-year-old Manhattan boutique slower than desired, Ms. Pearl, 46, listened hard when ShopNBC, the nation’s third-largest 24-hour home shopping network, invited her to appear live with some of her high-end products.

She weighed the pluses: her experience in front of the cameras on several “Today” show product demos and a potential audience of tens of millions. And she considered the negatives, among them: a possible worsening of cash flow because of the shopping network’s payment terms and the fear of tarnishing her top-drawer brand in the hurly burly of home shopping TV.

Last October, Ms. Pearl stepped in front of the ShopNBC cameras, first at midnight, then again at 2 a.m. and 7 a.m. She returned to the networks’ Minnesota studios the following month and has reappeared every month or so, as recently as last weekend. The exposure has had direct and indirect benefits. Ms. Pearl estimates home shopping sales will reach seven figures this year — and represent about a third of her total revenue. And rather than losing any luster because of this added sales venue, she feels her brand is sparkling even more. “Traffic both in the store and on our Web site spikes every time I’m on air — about 30 percent,” she said.

Did you feel that you might be gambling the future of your company with those live appearances?

No, I felt very confident appearing on air with my products. Makeup is a very visual, emotional product and you can see the results happening right in front of your eyes. It’s not like you have to wait a few weeks or months to see the results. Doing live makeovers on the “Today” show and at trade shows, my experience has been, people see it and that’s how they fall in love with it.

One of your concerns about selling your goods this way was a possible cash-flow problem. Did this happen?

Yes, we did face cash-flow problems. We went to Citibank and took out a small-business loan, because it took about six months to start seeing our first significant payments coming in.

And you’re now cash-flow positive?

Yes.

How many ShopNBC appearances have you made?

I’ve been on a couple dozen times. Sometimes we’re on for as long as an hour, sometimes we’re on three times for 15 to 20 minutes each time.

What would be your advice for someone thinking of selling products on a home shopping network?

It’s important to realize this can’t be your only sales route, because if it doesn’t sell here, you have to have another channel of distribution. Your stuff might not move — so what are you going to do with it when it all gets sent back to you, on your dime? That’s why people are so afraid of it. It can make incredible successes, but it also can cause the B-word: bankruptcy.

I also think it’s wise to start by testing the waters with only a couple of hero items. Our hero items are our high-definition dual foundation and our salmon concealer. Not only do they continue to sell for us, but they’re available on auto delivery. Customers receive the product every two months and they’re automatically charged. We’re up to four items now on auto delivery.

That’s the holy grail, right?

Exactly. That’s the goal, really. To have things go on auto delivery where you don’t even have to appear. As buyers develop more trust and loyalty to your brand, they’re apt to try more new products and more of the unique things like lipsticks and mascaras.

Do you have auto delivery on your own Web site?

We do not, right now, offer auto delivery. We are working on that.

Several readers echoed the Prtty Peaushun creator Bethany Karlyn’s suggestion for a makeover of your current Web site. Do you agree?

I absolutely agree. My Web site does need a makeover. It’s not clean and user-friendly, and the experience is not as smooth as I would like it to be. It’s like a candy store, which is not what we’re about. I’ve wanted to do auto delivery for a year. It’s frustrating. I’d love to find someone who can help me make the Web site that I have in my head.

Are there any indications that you tarnished your brand or cannibalized your Web business?

No, I really think we’ve kept our high-end brand image. It’s not like we’re selling millions of pieces. When I appear on air, one of my Emmy awards is sitting there. I challenge any high-end brand to provide a better-quality product with better education and better service. In fact, actually, every time we appear on ShopNBC, our Web sales increase — even though they’re offering our products at lower pricing.

What percentage of your 2012 sales do you expect will come from ShopNBC?

Right now, the purchase orders that have gone out represent about one-half of our business. The money that comes back is about one-third of our revenue. I’m happy with that, because it’s also allowed us to test out that market, and that will enable us to take this sales model into other countries, like QVC Canada or QVC UK. We hope to get into Canada before the end of the year.

A version of this article appeared in print on 10/04/2012, on page B8 of the NewYork edition with the headline: High-End Brand Tries ShopNBC.

Article source: http://boss.blogs.nytimes.com/2012/10/03/a-high-end-brand-tries-a-different-sales-channel/?partner=rss&emc=rss

Filed Under: Small Business Tagged With: , ,

You’re the Boss: Was Big D Wise to Pursue Small Customers?

May 3, 2011 by Leave a Comment

At first, Darren Robbins routinely turned away small screen printing orders.Peter Wynn Thompson for The New York Times At first, Darren Robbins routinely turned away small screen printing orders.
Case Study

Last week, we published a case study that explored whether Big D Custom Screen Printing could become profitable by specializing in small T-shirt orders. After a year in business, the company had sales of $325,000 on which it suffered a nominal loss. Big D’s co-founder, Darren Robbins, and his partner disagreed as to the best way to turn things around. His partner wanted to focus on large corporate accounts. Mr. Robbins believed Big D could thrive by targeting customers with small orders — as small as one T-shirt. The partners split (amicably) over the issue.

The April 2008 decision to take smaller orders, Mr. Robbins said, paid off almost immediately: “My phone started ringing off the hook.” In 2009, Big D’s sales were $675,000, he said, and they hit $900,000 the following year. He also said the company, which has 12 employees in Austin, Tex., is now profitable. And about a year ago, it opened two-employee branches in Los Angeles, Chicago, and southwest Michigan. More recently, Big D expanded to Las Vegas as well. Meanwhile, Mr. Robbins said the economy forced many of his competitors to go out of business — and to sell their equipment at a loss on Craigslist.

Reader comments were generally supportive of Big D’s strategy. However, a few expressed doubts about the company’s chances for success. In a brief interview, Mr. Robbins responded to the concerns.

Q. John Olson, chief executive of Graystone Industries, a pond and fountain supply business, said Big D’s niche focus would result in inefficiencies. Does that concern you?

A. I don’t know that we ever set out to run the most efficient shop in town. But we have managed to stay busy, profitable, and grow at a comfortable pace.

Q. A commenter speculated that your decision to post your prices on Big D’s Web site could spark a price war that would eliminate your competitive edge? Has that been an issue?

A. No, though my partner worried about that. At worst, some of our competitors sent us nasty e-mails about our methods. Some of them later went out of business — and sold us their equipment.

Q. Another reader suggested you needed to better understand your material and labor costs and noted that getting the colors right on a one-shirt order could result in enormous waste.

A. Figuring our labor and material costs is quite simple, and something I do regularly to make sure our profit margin and future projections stay on-target. Based on that, I was confident we could maintain our large clients while working proactively to procure a greater number of small-to-medium ones. Additionally, with a seasoned staff and well-maintained equipment, our spoilage is minimal. Besides, we don’t begin printing on client stock until we achieve 100 percent print quality on low-cost test sheets.

Q. Reader Joe Kelly wondered whether your smaller customers give you repeat business, or eventually increase the size of their orders? Do you track that?

A. Yes. Small-order customers account for roughly 60 percent of our return business. Just as important — if not more — their positive word-of-mouth accounts for 75 percent of our new customers, including some of our largest.

Article source: http://feeds.nytimes.com/click.phdo?i=643d3ad796ccc8707d1fd2b38d7846c8

Filed Under: Small Business Tagged With: , ,

Case Study: A Decision to Hire a Sales Agent for Big Money

March 31, 2011 by Leave a Comment

THE CHALLENGE To determine whether to hire a highly paid senior sales representative to expand the sale of Prometheus’s software to different industries.

THE BACKGROUND A scientist by training, Dr. Rozenblit understands the needs of researchers. They require a system that is powerful enough to handle millions of data points but that can be adapted as their studies change. Given the tight budgets of most academic institutions, the system cannot be expensive.

Prometheus developed original technology to enable scientists to connect their databases to the Web, allowing multiple users in various locations to access, manipulate and share large quantities of structured data simultaneously. Its software, called HTSQL, was embraced by scientists and technologists and has been Prometheus’s primary product.

Dr. Rozenblit said he believed HTSQL was a game-changing innovation that could also be used to manage data outside of the scientific community — most likely in the financial services and health care industries. Neither he nor his management team, however, knew how to market the software to other industries. “We knew the save in terms of time and money was dramatic, but it wasn’t a product yet,” Dr. Rozenblit said. “It’s not a product until you define a set of customers whose needs you meet and who want to pay you.”

To assess the value of its software, Prometheus had to engage potential clients to determine what problems HTSQL might solve for them. The management team debated who was best equipped to initiate those conversations.

THE OPTIONS Though Dr. Rozenblit and his staff were busy serving existing clients, he considered pursuing corporate accounts himself. After all, no one knew the product and its possibilities better. They also thought about reallocating several employees to approach organizations with large data management needs.

As a slightly more ambitious option, they considered hiring a junior sales representative to try to gauge the potential demand for HTSQL and to pursue new business. An employee at this level would be paid about $60,000 base salary, plus commission.

Finally, Dr. Rozenblit considered hiring a more expensive and experienced sales representative to cultivate relationships and help shape the way HTSQL would be deployed by future clients. A senior representative would command $150,000 to $200,000 in base salary, plus commission.

THE DECISION Dr. Rozenblit chose the last option. In November 2009, he hired Peter Harker, a senior salesman with nearly 20 years of experience selling technology, to lead the product introduction.

Dr. Rozenblit acknowledged that his decision was risky, in part because it forced him to cede some control over the trajectory of his business. Dr. Rozenblit said he wanted to stay connected to the process while removing himself from the daily demands of sales. He decided to include Mr. Harker in all executive team meetings so they could work together to determine how to approach new markets. “How do you let go of your baby?” he asked. “It would have been really hard for me five or seven years ago, but I’m a more experienced manager now.”

Dr. Rozenblit tried to assess his own limitations. Because his team could not define exactly how corporate clients would use HTSQL, he believed that Prometheus needed an experienced representative who had credibility with executive decision-makers and who could prompt a discussion about how HTSQL might help their businesses. “We were effective at selling ourselves to scientists,” he said, “but we had no contacts in the markets we thought were most promising. We needed someone who knew about enterprise software sales.”

Dr. Rozenblit said he believed Mr. Harker had the right blend of product and sales knowledge, and enough credibility to command attention from senior executives. He had a history of joining early-stage companies and helping identify new markets for cutting-edge technology. He had also been an entrepreneur himself, so he understood the scrappy culture and fiscal constraints of fledgling companies.

Article source: http://feeds.nytimes.com/click.phdo?i=db4f90a3053f9c6b839ecab4df7aede3

Filed Under: Small Business Tagged With: , ,