Fail Fast or Win Big: The Start-Up Plan for Starting Now (2015)
Entrepreneurs Who Tried to Fail Fast and Won Big
There are a lot of reasons some start-ups try to fail fast and win big, while others simply fail. Sometimes it’s marketplace timing, simply being too soon or too late. Other times, the idea is right but the execution is so poor the start-up fails. Perhaps the idea was right but the product didn’t work or had quality issues. Some entrepreneurs never really design a business model that makes sense for the business. Others just can’t get their distribution strategy right. Finally, some entrepreneurs just can’t sell the product or service.
“Don’t worry about failure; you only have to be right once.”
—Drew Houston, co-founder of DropBox
Some entrepreneurs literally do everything mostly right but just don’t have the courage to be relentless in sales. Sales drive everything. However, there are several traits that successful entrepreneurs share.
First, they are passionate about the problems they are solving or the opportunities to change an industry. Second, they may have years of experience in the same or similar industry. That is, they have what is called domain knowledge or expertise, meaning they have a skill set and knowledge base that allows them to understand the product very well. Third, whether consciously or not, they see the trends in the marketplace that will affect millions of potential customers. And fourth, they are not afraid to fail. I have discussed fear of failure in Chapter Five, but I encapsulate it here: You have one life to live and your own fear is what’s holding you back—from what? Trying to build something in this world and have it not work is not failing; failing is not even trying.
For the start-ups that succeed and grow to be successful companies, most people do not know what actually happened early on in their development. They see a big brand or a successful company and they assume that all companies are either overnight successes or failures. Nothing could be further from the truth.
The very early days. That’s often when some start-ups get going and others go away. In order to give you some extra insight, I profile here seven companies and their start-up experiences to provide a varied backdrop in both type of products and founder diversity.
There are reasons these companies tried to fail fast but instead won big. A key point to remember, though, is that it’s not always about winning fast. Some of these companies took years to reach a critical point—perhaps they were just a little too early for an emerging marketplace. But it’s what they did during their “early years” that offer insights that will, I hope, help you in your early years.
KASHI, THE HEALTHY CEREAL
While most of you know Kashi as a major brand today that is owned by Kellogg’s, you may not know much about its beginnings. The company was started in 1984 by a husband and wife team, Philip and Gayle, in La Jolla, California. At that time, almost all cereals had too many preservatives and high amounts of sugar. There were almost no offerings for a nutrient-rich, healthful cereal that featured whole grains.
Kashi’s founders were inspired by the notion of eating healthfully and were influenced by an Asian guru who had introduced to them the idea of a macrobiotic diet, as well as natural foods, holistic healing, and sustainable ways of life. Indeed, the macrobiotic movement introduced and popularized organically grown whole foods and naturally processed foods. The founders set out to launch a company that would create and introduce healthy products to the marketplace. They experimented with several types of grains and eventually settled on a cereal with seven grains and sesame seeds. One minor note, though. Before a person could eat the cereal, he or she needed to cook it, which could take 25 minutes. The founders thought that this was a fair tradeoff for the opportunity to eat healthier food.
They visited local bankers in search of funding, but the bankers did not fully support the product or the business model. The bankers were skeptical that consumers would take the time to cook the cereal and they worried that the founders did not have realistic expectations for product distribution. The bankers also knew very little about the coming revolution in healthful eating. So, every meeting with local bankers resulted in the same answer: Sorry, we can’t loan you the money. This is the point at which most start-ups go away. How much money are you prepared to risk? Do you believe that you can pivot, duck, and run to find early adopters and influencers, and somehow make it to a larger market?
Then Philip and Gayle made the decision to risk their entire life savings of $25,000 and start the business. Next, they had to find a way to actually produce their cereal. They convinced a local manufacturer to give them 90 days of credit to produce the initial recipe, and then they negotiated a deal with a factoring company that agreed to buy their accounts receivable invoices for 92 cents on the dollar to help them resolve cash-flow problems.
The founders introduced their new cereal to the local marketplace. Remember, there was no Whole Foods at this point in time. Targeting friends and family, and independent health food stores, they found the initial response disappointing. People liked the product but complained about the lengthy cooking time. The founders were dismayed. They faced two choices: move forward and find a marketplace solution, or give up and lose the $25,000 they had invested.
This was another key point in time for Philip and Gayle. They knew people needed to eat healthier. They knew their product was healthy for people. They decided to move forward. The only problem now was customers. A key pivot here was to look beyond consumers for the moment and research who served healthful food. After a number of investigations, they started selling their whole-grain cereal mix to health spas. Based on some aggressive inquiry and personal relationships, they were one of the first companies to engage in product sampling at sporting events, where they distributed samples of their cereal (such as at the Olympic Games in Los Angeles). Slowly, a small but powerful following started to emerge. Athletes, trainers, diabetics, dieticians, vegetarians, and people suffering from heart problems began to form a core group around the Kashi brand. This core group, although small in number, slowly expanded and the Kashi cereal sales provided the founders with just enough revenue to keep the business afloat.
The overriding factor in the company’s development was the founders’ solid belief that people wanted and needed to eat healthful food. It just made such logical sense to them, and that viewpoint began to pay off. Unbeknownst to the founders, there was another entrepreneur in Texas who also recognized the growing trend in eating healthier. But he and the founders of Kashi faced a similar problem. The big food companies dominated the shelf space at large grocery stores. In the mid-’80s, even if you had great product, the dominant food companies and major retail grocery chains could essentially keep you out of that marketplace.
So, the entrepreneur in Texas came up with a better distribution strategy that would begin to support and drive a major shift in the emerging health, natural, and organic foods market. The entrepreneur would unite independent health-food stores into a national brand, and Whole Foods was born. As Whole Foods grew into a national brand and opened branches in California, Kashi had survived long enough to see a new distribution channel—one that aligned with their ideals. This new channel was funneling customers to their stores and that, in turn, gave Kashi a legitimate and direct distribution outlet that served health-conscious consumers. Sales began to climb, and that allowed Kashi to introduce several new products, including cold cereals. Sixteen years after the company was started, the founders sold their brand to Kellogg’s in 2000. That’s not exactly winning fast, but they did win big.
The Lessons Learned
• Believe in your product. Not foolishly, but with common sense. The founders believed that eating healthier food was good for people. Can’t argue with that belief.
• Find ways to get things done and leverage everything you can to conserve and extend your cash flow.
• Follow the trend. Even though they were a little early to the health-food trend, they found other early adopters who believed in their products.
• If traditional distribution channels won’t embrace your product, find other outlets or niche businesses that do. Look to alternate sources of distribution.
• Seek out other people or companies that have the same beliefs, and look for either leverage or distribution opportunities.
To better understand how Websense got its start, you have to examine the background of its founder. A perennial tinkerer with a technology background, Phil had crafted a career as a computer programmer. His years of technology expertise paid off in 1994, when a little thing called the Internet was just starting to get noticed. One of the first things he noticed was that, as people and companies erected websites on the Internet, they were going to need some technical support. He looked at the infrastructure of the Internet and determined something those customers would need: secure firewalls and network security products.
These products were being offered by current software companies, but also by a rapidly growing set of start-ups. So Phil created a company called NetPartners, and resold other people’s software products to this growing industry. Since he had no products of his own, he became a certified reseller and offered consulting expertise to companies still trying to grasp this new Internet technology. Business was steady but slow, as lots of other resellers rushed in to support this growing marketplace.
Over the next year, Phil observed companies rushing to put their websites on the Internet without really understanding the consequences of those actions. They not only needed tools and software to get on the Internet but also the management tools to maintain the sites. Specifically, as thousands of new companies built their websites, “surfing the Internet” became an employee-management issue. Market research would determine that as much as 30 to 40 percent of an employee’s time was spent on the Internet for personal reasons.
Being technically savvy, Phil saw this problem and determined the solution was simple: create a network-based filtering program that would basically outlaw certain websites, based on their URL. Thus, NetPartners created its first product, the Websense Internet Screening System. This new software would allow system administrators to block access to websites based on which categories they were willing to pay for in their software subscription. (This was probably one of the first uses of a Software as a Service, or SaaS, subscription business model.)
The company began to grow and established a good reputation with IT managers and systems administrators, who told their CIOs that this kind of product was a mandatory purchase if the company wanted to manage Internet access by its employees. Phil had bootstrapped NetPartners from nothing to about a $6 million business by 1998, but he needed more resources to drive the development and sales of the company’s Websense software product. So he gave up some equity and brought in about $6 million in venture capital. This allowed the company to refocus its resources on software development and away from being a reseller of other companies’ products.
In 1999, Phil changed the company name to Websense and continued to pour resources into the development of other Websense products. And in early 2000, the company underwent an initial public offering. Websense was now a full-fledged software company, no longer the reseller of other companies’ products.
The story of Websense sounds simple, but it’s not. Let’s look at the facts. The founder was not a savvy business person, he was a programmer. He had not acquired senior management expertise nor had he been involved in the creation of other companies. But he did have a deep understanding and curiosity of technology, especially software. Upon seeing the Internet, he probably just thought it was logical that people were going to need security products, and noticed that resellers of Internet technology were nascent and not really more knowledgeable than he was. So, with no other experience in business, he created a reseller company and bootstrapped that to $6 million in just four years. That’s pretty amazing.
The more important realization from our founder was the identification and software solution that became Websense. In other words, he went from being a reseller of products to a real software company. And that is no simple pivot or transition. So what was the sole reason he felt the company would be successful? His deep understanding of technology and watching employees and consumers. He studied the Internet infrastructure and found the weak links. In May 2013, Websense was acquired and taken private for $906 million. The real win was in just those first four years.
The Lessons Learned
• Develop a deep expertise about something you love or are passionate about. The founder’s technology expertise reallypaid off several times in this journey.
• Notice a trend but have no product? Create a first company to create a second company. The founder, by jumping in and becoming a software reseller with little investment, learned a lot about the marketplace and was able to grow a business. After just two years, he saw a big opportunity and created a company that became an industry leader.
• Know when to pivot. The founder in the early days was still just reselling products when he developed his own product. Within just 18 months, that product was driving most of the company’s revenue. He abandoned the reseller business and focused every resource on building Websense products. That focus exploded the Websense product line and revenue.
STONE BREWING—CRAFT BEER
The first time I met Greg he was speaking to students on the San Diego State University campus. An entrepreneurship student organization had invited him and I will never forget what he said about one minute into his talk: “People who drink beer deserve to drink real craft-brewed beer, not fizzy, pissy yellow beer from big companies that really don’t care.” I thought, Who is this guy?
The two founders of Stone Brewing, Greg and Steve, were from different backgrounds but they shared passions for two things: music and beer. One had owned a music studio and the other played in a band. They saw each other intermittently for a few years, then in 1994, at a beer-making course at a local university, they rekindled their mutual passion for craft beer. To get insight and experience, Steve headed off to work at a growing craft brewer in another state, but they regularly kept in touch and discussed crafting their own beer.
Two years later, they decided to actually work together and began to experiment brewing different beers. When they thought they had a good beer—what would become Stone Pale Ale—they looked around for investors. They raised enough money from friends and family to purchase a 30-barrel brewing system. So, as Steve continuously improved and crafted the recipe, it fell to Greg to sell the beer. Since they were just starting out, they would need to sell their beer in kegs to local bars and restaurants. So, Greg used a small hand-held keg that he could carry and offered samples to bar owners and managers. “Most of them wrinkled their noses and said, ‘No, thanks,’” recalled Greg.
Powerful and bitter, with a full hoppy taste, Stone Pale Ale was ahead of its time. It had arrived years before the hoppy, bitter India Pale Ales, or IPAs, would become popular. However, in the mid-1990s in the United States, the craft beer industry was growing rapidly with brands like Sierra Nevada, Boston Beer Company (Sam Adams), and New Belgium Brewing Company (Fat Tire and Blue Moon). At the same time that Stone Brewery got off the ground, I was in Portland, Oregon, leading the launch of Widmer Beer into bottles and into national distribution. So, even though I did not know anything about a little company named Stone Brewery that was getting started about 1,200 miles south, I was very aware of the exploding craft beer industry. In just two years, we quintupled the revenue of Widmer Beer with a successful launch into bottles and now onto grocery shelves.
So, if the industry segment was expanding, what was the challenge for Stone Brewery? Two things. First, to sell your beer at a local pub or restaurant via keg (draft), you had to unseat someone else’s draft beer from the tap. Second, when you’ve got a distinctive and bitter beer, you have to convince people that your beer is better than others. Greg was relentless in his pursuit of selling the beer, meeting with as many potential customers as possible. But with no money for marketing, it was just one person, one sale at a time. Through the rest of 1996 and on into 1997, there were losses every month. The founders needed another round of investment. Again, friends and family came through—but this might be the last time.
In 1997, Stone Brewery released its Arrogant Bastard Ale, and some people would say the name reflected the founders’ attitude. But when you build a brand, you either stand for something or you don’t, and these guys were telling the world: “We are crafting beer the way it is supposed to taste.” The local community responded to both their messaging and their craft beers, as they started turning a monthly profit for the first time in early 1998.
Now they had another problem. Sales were climbing, but they could not get a local beer distributor to carry their products. What was their solution? They bought a van and began distributing themselves—which, by the way, once you get enough volume, is way more profitable, as you’ve cut out the middleman. They poured every dollar back into the business and focused on making great craft beer. They had absolutely no money for any traditional marketing. In short, having no money for marketing meant they needed to be creative. They crafted a gargoyle logo and gave their beers memorable names. They talked at local events, especially about not drinking “yellow pissy beer.” They donated their beer to local charity events to get more exposure. And they painted their delivery van with the smirking gargoyle logo.
In those early days, these guys worked harder and longer hours than their competitors, and continued to make beers they felt were true craft beers. Today, Stone Brewery sells more than $100 million of its craft beers throughout the United States, with plans to go abroad.
The Lessons Learned
• When you meet someone who shares the same passions as you, stay in touch.
• If you don’t have enough expertise to create a company in an industry you are passionate about, then get that experience at an existing company in the industry, perhaps a future competitor.
• Selling is hard. Even though an industry is growing, there is limited shelf space. You just have to want it more than the next company.
• Creating great products may or may not be hard. Getting people to embrace them is another story. Be prepared to tell stories and convince people you have a better product that they actually will want.
• Building a brand when you have no marketing dollars means the brand is both you and your values. The founders, arrogant or not, believed so strongly in their product that they crafted a brand and an identity that showcased those beliefs. Great craft beer. In your face.
ecoATM—RECYLE YOUR PHONE
It was at a local networking event in San Diego that I met Michael, one of the founders of ecoATM. I knew nothing about the company. As we chatted, he talked about his wireless background and the fact that he had been in several start-ups, and they had just launched ecoATM. I asked, “What does your new start-up do?” I expected to hear about some cool new wireless company. Instead, he said, “It eats phones.”
In late 2008, three wireless industry executives—Michael, Mark, and Pieter—each experienced in either starting or growing technology companies, would gather every week at a local coffee shop to talk about opportunities for a new start-up. (Remember, we were in the early stages of what looked like a pretty bad recession.) One week, one of the executives mentioned a recent survey noting that out of 6,500 U.S. households surveyed, only 3 percent of consumers had ever recycled a phone handset. At the time, there were perhaps a billion mobile phones shipping to customers every year. They asked themselves, “Where were all the old phones going?” As they discussed this problem, they saw two opportunities and one key benefit: (opportunity 1) recycle old phones and (opportunity 2) resell the phones that are still valuable elsewhere in the world. The key benefit would be to position the company as environmentally friendly.
Once they agreed that this was an idea worth pursuing, they started researching both the industry and the consumer marketplace. At their weekly meetings, they would each share what they had learned since the previous meeting. One key research fact that turned up was that the average U.S. household had six old cellphones, lying about somewhere in the house. After they had enough research data, the founders were curious to know if target consumers would actually recycle those old cellphones. So they sent an online survey tool to about 1,000 people. The result was that consumers wanted three key benefits to recycling their phones, or nothing at all. They wanted a financial incentive, the process had to be convenient, and they had to be assured that their personal data would be destroyed. The founders agreed that they had to come up with a solution that met these three criteria.
At another weekly meeting, one of the executives mentioned he had watched people at a local grocery store using a Coinstar machine to redeem their loose change. Could they design a kiosk or reverse vending machine that would take in an old cellphone and dispense cash? They all agreed a kiosk would meet their criteria. So, they spent the next few months researching various types of technology and kiosk business models. Since they really knew nothing about building a kiosk, they pooled their resources and used a local engineering firm to build a prototype. Not a finished kiosk, just a crude prototype.
Next, they tried to accomplish two tasks simultaneously. They reached out to anyone with connections to retailers to see if they could test their prototype. They also decided that they needed a reality check with venture capitalists. Knowing it would take serious capital expenditures to build future kiosks, they scheduled meetings with venture capitalists in Silicon Valley. Expecting to be laughed at, they were surprised when the venture capitalists liked the size of the idea (read: size of the marketplace) and encouraged them to get marketplace validation and feedback.
Amazingly, the first retailer who agreed to place the prototype kiosk outside its facility was a furniture store in Omaha, Nebraska. After only a few weeks, the word of mouth grew and people were waiting up to 45 minutes in line to trade in their cellphones and receive some cash in exchange.
Emboldened by the success of the test, the founders entered a variety of start-up “pitchfest” competitions, winning several that garnered them more than $35,000 in cash. A key move they made, however, was to attend and enter their kiosk prototype in a kiosk trade show competition in New York City, where they met the Coinstar founding CEO, Jens. Not only did they win the “best new concept” category at the trade show but they also built a strategic relationship with Jens. Riding the wave of public relations, which included an appearance on ABC News, they approached local venture capitalists and received a first round of funding. Included in this investment round was the Coinstar founder Jens. This added some serious legitimacy to their fledgling company. The funding would allow them to build several more kiosks and to begin crafting sales relationships with key partners. After two more rounds of venture capital investment and three years of growing marketplace success, ecoATM was purchased by OuterWall (formerly Coinstar) for $350 million in 2013.
The Lessons Learned
• Shared technology industry and start-up experience were what linked the three founders. Meeting regularly and looking at problems with corresponding but slightly different perspectives allowed them to see what anyone should have seen. Who do you meet with regularly?
• They stumbled on a big idea and a bigger marketplace. Yet they tested both with potential venture capitalists and customers.
• Building a crude kiosk prototype quickly allowed them to test the technology and observe people using the kiosk.
• Once they saw an industry leader in Coinstar, they made sure the leadership in that company would see their kiosk by attending a prominent kiosk trade show event.
• They carefully crafted a relationship with Coinstar’s founder, who lent them instant credibility by investing in their start-up.
• By entering several “pitchfest” competitions, they drew both the local and national media’s attention—free public relations.
ProFLOWERS—FRESH FLOWERS DIRECT TO YOU
While he was still in college in 1994, Jared created his first company, an Internet access, web hosting, and application service provider. The Internet was in its early days in 1994-96, but some people sensed that this was a game-changing technology. (Others looked at “cute” websites and probably said,” Why do we need the Internet?”) People like Jeff Bezos saw an infrastructure technology that enabled greater sales. Even though this college student would not launch ProFlowers for another four years, Jared was embracing the Internet technology and seeing its opportunities very early on.
After he graduated from college, Jared moved back to his home in Boulder, Colorado, to help manage sales at his family’s greeting card and publishing business, Blue Mountain Arts. It was not long, though, before he suggested that the company build its brand by going online. Shortly thereafter, he launched the website BlueMountainArts.com, and started his marketing efforts in hopes of expanding the business. As he looked at what people bought online and in brick-and-mortar stores, especially for the holidays, he could not help but notice that people bought lots of flowers for all kinds of occasions. He started doing research into the flower market. How many flower arrangements were sold each year? Where did the flowers come from? Who were the middlemen who delivered the flowers to the independent florists? Why did flowers last only three or four days? The founder examined the industry giants who seemed to supply the world with flowers and studied their business models.
When he had gathered enough information, he made several key observations. The first was that the growers of flowers made very little money. Even though Colombia supplied about 75 percent of the world’s roses, growers in that South American country made the least percentage in the actual transaction. The second was just how many of the flowers sold in the United States were imported. The third observation was how long it took flowers to get to a customer from the time they were cut. Yet another observation was that 70 percent of all roses sold in the United States were sold on Valentine’s Day. This last bit of information would prove to be critical in the launch of what would ultimately become ProFlowers.
The young man was convinced that he was on to something. He had always looked for efficiencies, and saw several in this potential start-up. However, he needed to test-market the concept. He located a flower farm that would provide him with 500 bouquets of roses. On February 13, 1998, through a web-based promotion, he sold all the roses and had the San Francisco Floral Market ship them to arrive for Valentine’s Day. At only $29 a dozen, he undercut the current price of $50 by almost 50 percent. The concept test worked. He envisioned a whole new supply-chain infrastructure, and it would be very simple: customers order their flowers online and the growers ship the flowers on behalf of ProFlowers. There would be no middleman. The founder just needed some capital to build this new web brand and the supply chain.
Moving rapidly, Jared sold his interest in one of his earlier companies to raise the capital for this new flower venture. Then, just two months later, he launched the ProFlowers website. Initially, the marketing strategy was to promote the flowers to Blue Mountain Arts customers. (When he launched the BlueMountainArts.com website two years earlier, he hadn’t intended to sell greeting cards online. He wanted to build the brand to drive retail card sales. But a funny thing happened. Since he had no products to sell online, he created electronic greeting cards—free greeting cards online. Over the next two years, about 54 million people either sent or received a Blue Mountain Arts e-card. This was the online database that he then used to launch ProFlowers.com in April 1998.) Now, 54 million people received an invitation to send someone flowers. The company grew rapidly over the next several years, and in 2003 he changed the name to Provide Commerce. In 2006, Provide Commerce was sold to Liberty Media for $477 million.
The Lessons Learned
• When you see a new technology or marketplace emerging, start something during those early days. Anything. Then leverage what you’ve got later on, when you know what you really want to build.
• Look for efficiencies in big markets. This founder always focused on business models that were more efficient than what was currently operating in the marketplace.
• If you can acquire online customers or visitors by offering something that costs you little, you can leverage that resource to offer something that produces sales. Our founder used a 54 million visitor database to launch his next venture.
• If you are curious about a large marketplace, dive as deep as the research will allow you to go. Our founder studied the flower marketplace, from the growers all the way to the final customers. In that deep study, he saw opportunity and efficiency.
• Be bold. The founder’s test for Valentine’s Day sales in 1998 created buzz and generated news coverage. It also showed the industry, and potential customers, that someone could deal directly with the flower growers. I am sure no industry CEO paid attention to what they probably saw as a promotional event; that same mentality was shown by Borders about Amazon.com in its early days.
WAHOO’S—FISH TACOS AND MORE
How do you avoid doing what your parents don’t want you to do? Well, initially, you could try to do everything else. But sometimes you are a victim of your upbringing, you really are not passionate about what could be a great career (but boring to you), and you really want to enjoy life without actually having to have it feel like work. Well, the last part is tough. But what if you created something that you loved to do so it did not feel like work? It’s hard to accomplish, but that’s what the three founding brothers of Wahoo’s did.
They were born to Chinese parents who had immigrated from China to Japan and then to Brazil, where they opened a Chinese restaurant. The brothers worked in the restaurant every day. It was not far from their home—just up one flight of stairs. In 1975, the family moved to Orange County, California, and their parents opened another Chinese restaurant. As the brothers were growing up, they frequented the beaches and became avid surfers. Their parents, who were working long hours, told them that they were going to college and would become successful professionals. The parents said that the restaurant business was not for them, and they should study hard instead. So, the brothers went to college. They studied law, medicine, and engineering, respectively. During their summer breaks, they traveled down to Mexico to surf and enjoy the fish tacos. They had never had this kind of fish taco before: fresh grilled fish, not deep fried, with a side of rice and beans. They loved these trips and looked forward to them every year.
The oldest brother graduated first from college and began his career as a doctor. The youngest brother was not yet in college. The middle brother took a slightly different path; he enjoyed his extracurricular college life so much that he was in danger of not completing his degree. After careful consideration, he switched his major from engineering to finance and subsequently received his finance degree. He accepted a position in an aerospace company, and worked there for three years, hating almost every minute of it. His only joy came from surfing trips to Baja, where he continued enjoying those fish tacos.
One day, after a great day of surfing at a popular beach in Orange County, the brothers emerged from the water and considered where to eat. They wanted some healthy food, nothing fried, and typical fast food did not appeal to them. They all agreed it was too bad there was no great local spot where they could get good healthy food. Like those fish tacos they had in Mexico. They agreed that a combination of Mexican/Brazilian/Asian fusion food would be amazing. Within the next two weeks they agreed to create a restaurant that would be patterned after the kind of food they enjoyed in Brazil and Mexico. They also agreed to serve the food in as healthy a way as possible— nothing fried, and with a lot of fresh ingredients. All they needed was money.
As hard as this must have been, they actually approached their parents and told them of their idea. Imagine their parent’s reaction. The parents had toiled for years in their restaurant business so that they could send all three sons to college and their sons could live a more comfortable life as professionals. But amazingly, their parents agreed to give them the money to start their first restaurant. The brothers opened that first location in 1988, within minutes of the top action-sports companies in Orange County. They felt a kinship with the surfers and the surfing industry, and thought the restaurant, themed with a surf décor, would attract people like them—people who loved life, surfing, and good food.
While the youngest brother was still in college, the older two brothers opened the restaurant. Since they wanted to use the freshest ingredients, and they could not afford to have the fish and produce delivered, they went to the markets every morning for two years. They bought what they needed to operate the restaurant for that day and then prepared it. One brother focused on operations, the other on marketing. Their marketing efforts consisted of handing out stickers at surf contests and offering the winners free meals, efforts to drive traffic with a core surf and skateboard crowd.
Their efforts must have worked because the business started to grow. Based on the success of their first restaurant, they opened a second in Laguna Beach, California. And they made one of their best hires when they selected someone to manage the second restaurant. This manager, who would later become chief operating officer of Wahoo’s, had been working as a consultant to local restaurants so he brought operations expertise to the business that would allow them to rapidly expand even more. He also negotiated a major credit line from a respected financial institution, which gave the business credibility in the industry. Today, Wahoo’s has more than 65 locations in several states and continues to expand. The brothers are all active in the company (president, chief financial officer, and VP of marketing) and still surf.
The Lessons Learned
• Love what you do, do what you love. Because the brothers grew up in restaurants, they understood the business. If you are going to enter a competitive marketplace, know your business.
• Timing. In the late ‘80s, there was a strong movement in California to eat more healthfully. Wahoo’s was in sync with the surf and skater crowd, but also struck a chord with people who just wanted healthy food at a reasonable price.
• Recognize something unique and special in one part of the world and see if it would make sense to introduce it in another part of the world.
• Get ready to work. The most successful entrepreneurs have worked hard to get what they deserved.
VOLCOM—ACTION SPORTS LEADER
This action-sports brand was created by three founders who immersed themselves in a surfing and skateboarding culture at an early age. By the time they were in their early 20s, they were in the midst of the action-sports industry. In 1989, Richard worked in marketing for Quiksilver, which had gone public in 1986. Tucker worked in sales for Quiksilver, and Thom was a graphic designer who had created a marketing agency focused on youth brands.
All three met while surfing and witnessed other surfers who donned suits and ties or “business casual wear” at companies like Quiksilver and O’Neil. They watched shoe brands like Van’s grow and seemingly sell out. But all three realized that this surfing/skateboarding culture, while aspirational and lifestyle oriented, was becoming a large marketplace with quite a few brands that they admired.
A key event that started Volcom occurred on a skiing trip to Lake Tahoe. The marketing guy, Richard, at Quiksilver was specializing in creating films to showcase the surfing industry, and by the early spring of 1991, he was headed to Tahoe with the sales guy, Tucker, from Quiksilver (who had just been laid off but came along for the fun) to check out this new thing called snowboarding. They were going to create a short film highlighting this emerging action sport.
The two were somewhat taken aback by the snowboarding scene at Tahoe. Here was a raw and unapologetic scene of snowboarders who were full on “punkers,” with a rebellious and anti-establishment attitude. As skateboarders in the city streets, they had been harassed, viewed by residents and the police as nuisances. Now that they were on the mountain, the ski resorts were turning anti-snowboarding and actually banning the activity at some resorts. The expert snowboarders were tired of “the man” and all the rules; it was visceral and raw, and it felt like a revolution in the making. But with more than 50 inches of fresh powder that weekend, Richard and Tucker were snowed in for two days. And it was during these two days that a lot of ideas got thrown around for creating a new action-sports brand that would encapsulate the rebellion they were seeing and feeling. Volcom was being born.
Instead of going back to work, Richard called his boss and told him he was staying on the mountain for another week. Two weeks later, he quit Quiksilver. He asked his father for help, and with a $5,000 loan, the company was started. Richard and Tucker now sought out a third founder, Thom, the graphic designer who started crafting their brand, “youth against establishment.” After some trial and error and countless designs, Thom designed the Volcom “stone” that has become the brand’s iconic logo. Now the three founders divided their duties in this fledgling start-up, at that time being run out of the bedroom of the founders’ Richard would focus on product development and distribution, Tucker on sales, and Thom on branding and marketing.
The only problem was that they had no product. No cool designs that could represent the brand. But they liked the logo and the brand it represented. So they made up stickers and began to distribute them to friends, surf and skateboard enthusiasts, and even delivered them to local skateboard and surf shops. No product, just stickers. For almost a year. Amazingly, it created buzz in the community, and eventually they launched the start-up with a few initial t-shirt designs. They began selling their products out of their cars at surfing and skateboarding events. Running the company more like a cause than a business, after the first year they had sales of only $2,600. As they started to run out of funds, Richard’s father, the original investor, stepped in: “If you don’t get your act together, you are going to be out of business in about three months. I am not going to help you or bail you out. So, you better figure it out.”
It was a wake-up call. They went to work getting more orders from local stores. They attended trade shows and took orders for products they didn’t even have. They assembled one of the best snowboarding teams possible, including some professionals from Japan. Snowboarding was taking off in Japan, and this was a potential link to a Japanese distributor, who they arranged to meet at a trade show event. As a result, this Japanese distributor placed a $32,000 order. The only problem was that Volcom did not have the cash to produce the inventory needed to fill that order. The distributor agreed to make a deposit up front so that they could produce the product order.
The founders were amazed. Even though they were positioning Volcom as a new kind of brand across all action sports, it was the snowboarding market that would propel Volcom forward. They finished their second year with over $171,000 in sales. Volcom was on its way to becoming a valuable brand and, more important, a real company.
Over the next few years, the three founders dealt with growing problems. They applied the competitive discipline they had developed for surfing competition to business matters. They created a strategic plan and stuck to it. They resolved operational and production problems with determination. Instead of being just a surfing brand or a skateboarding brand or a snowboarding brand, Volcom was growing the brand that united all action-sports enthusiasts under the motto “youth against establishment.” As the industry grew, so did Volcom. In fact, it grew right through an initial public offering in 2005. In 2011, a European company bought Volcom for $607 million.
The Lessons Learned
• Being an expert and having industry knowledge matters, even if it’s skating, surfing, or snowboarding. What are you an expert in?
• When you see something that looks like an emerging trend or a revolution, see if it has legs and can be leveraged. Volcom leveraged “punk” snowboarders into the beginning of a solid brand.
• Anyone can create a brand. Few people can create a company. Both have to be aligned with customers who care. To create a company, you need sales.
• ABM—always be marketing. The fact that Volcom was distributing logo stickers for one year without product is kind of crazy, but it did create a buzz.
• Learn from your environment. All three founders watched and worked with companies like Van’s and Quiksilver as they grew from their cult-like beginnings to being big companies. So, while it might be challenging to create a new company, it was not “foreign” to its founders. They lived inside the industry and witnessed “normal” people creating companies with almost nothing but pure passion. What are you passionate about?