A Tale Of Two Start-Ups

The importance of selling during the start-up stage of business was exemplified some years ago by a profile of two entrepreneurs in Success Magazine.

One, a New York realtor, wanted to broker surplus office space through the Internet. He spent a year and most of $10,000 he had saved to build an impressive website. He told the magazine that he believed his site would be so good that it would make him “the next Jeff Bezos.”

His marketing plan was to lure customers to his website by offering free ads for a year and then renewing them at $59.95 annually. When the website was done, he was happy – until he activated it and discovered that nobody was rushing in to take advantage of his free offer.

He spent the little money he had left on a few desperate marketing schemes, but to no avail. He had exhausted all his resources building a professional-looking site with lots of bells and whistles, but he had never tested his basic sales assumption – that he could attract lots of free postings and then convert them into paid advertisers.

Meanwhile, another entrepreneur, a car repairman, had a very different business idea. He thought he could sell neon lights that attached to a car’s undercarriage. He called his venture Street Glow Inc.

When he started making this toy in 1990, he had only $1,000 to invest in it. He spent about $350 installing two crude prototypes onto his own car and the car of a friend. And then he spent all of his spare time and his remaining $650 selling.

He didn’t lease office space; he worked from his home. And he spent most of his time traveling to custom auto shops and automobile-themed events, trying to make sales. At first, people were curious but most were hesitant to buy. After talking to them, he made adjustments to his product, his pricing, and the way he presented it.

He worked fast. He took enough deposits to build the systems ordered, delivered them, and then reinvested the profits in selling more systems.

For months he earned nothing, because he was reinvesting his cash flow into sales. But at about the one-year mark, he was able to start pocketing profits. At that point, he began fixing up a shop, buying some new tools, and ordering inventory.

By devoting his attention to selling first and taking care of the other, secondary business concerns later, he ensured that his fledgling enterprise would not suffer the normal (and normally lethal) cash shortages most first-year businesses encounter.

By 2002 (the last year financial data was available for this privately held company), Street Glow Inc. had garnered $23 million in revenues and had shown a consistent profit, year after year.

Reference

Michael Masterson, author of “Ready, Fire, Aim: Zero to $100 Million in No Time Flat”