Burn the Business Plan

by Carl J Schramm

  Ambron’s roommate, Peter Kistler, was approaching graduation from Syracuse University and applying for jobs. Unfortunately, Kistler shared a name with a sex offender who was serving time in prison. Every Google search highlighted the “Bad Peter,” leaving “Good Peter” to struggle with what seemed to be an insurmountable problem. Kistler was at serious risk that all potential employers, most of whom did only cursory preliminary Internet searches on candidates, would continue to confuse him with his incarcerated doppelgänger and summarily dismiss his application. It had already happened several times.

  As Ambron worked with Kistler to clear up his identity problem, they discovered that many other people suffered similarly serious predicaments. They also found that there were companies prepared to help, for a steep price. A doctor being badmouthed on the Internet by a disgruntled patient seemed ready to pay handsomely to restore his reputation, and able to pay one company’s minimum fee of $25,000 to start the cleanup (with no guarantees of success). Few undergraduates could pony up that kind of money.

  Ambron, Kistler, and another SU classmate, Evan McGowan-Watson, reasoned that many college students faced various types of reputation problems that could cost them dearly at the starting gate of their working lives. Perhaps an online profile included pictures of beach party antics? Obscene postings by a rebuffed romantic interest? A misdemeanor citation for standing on a sidewalk with a beer bottle, or a bunch of ignored parking tickets? Most students could never afford to hire one of the established companies to clean up a digital identity.

  Ambron was a journalism major, anticipating a career that would begin in a PR firm handling social media for corporate clients. Along the way, he’d studied search-engine logic at Syracuse University’s Information School. He knew that it was possible to reshape an individual’s reputation by optimizing the number of good stories. The technique involved increasing the frequency of positive Internet references: being named to the Dean’s List, winning a marathon, beginning an internship at a nonprofit, or serving as a tutor in a community outreach program, came through loud and clear. Numerous positive references could eventually outrun negative references and Good Peter could overwhelm Bad Peter.

  As they worked on solving Kistler’s problem, the trio began to see the need for a new company that could provide affordable reputation management. Their entrepreneurial moment came when they saw a unique way to fuse existing software technologies into an actual product that could solve the problem. The differentiating aspect of their solution was that it provided a roadmap to computer savvy students to manage their Internet identities, rather than going to an account manager to perform an expensive one-time repair, which was the business model of the existing reputation management companies. Their student-customers could continuously help to improve and enhance their online profiles.

  Ambron and his partners began to develop software that would become their optimization platform, using a subscription model. By eliminating costly personnel who worked on each customer’s individual problems, a new company, BrandYourself, structured a business model to provide a product that an undergraduate could afford.

  Instead of using expensive television advertising to acquire customers one by one, as did their established competitors, BrandYourself developed a unique approach to attracting clients. The company’s founders went directly to universities to sell master-account subscriptions, proposing that the universities provide the company’s services free of charge to students preparing to enter the job market. Their first success came at home, when the president of Syracuse University subscribed for every member of the senior class. Shortly thereafter, Johns Hopkins and the University of Rochester signed up, and BrandYourself was off to the races. It wasn’t hard for universities to see BrandYourself services not only as effective assistance to their students, but also as a relatively inexpensive gesture of goodwill and support for graduating seniors (and their tuition-paying parents) who would be seeking employment at the end of their college years—who would soon be asked to join the alumni association and support the university’s annual fund.

  With contract revenue under his belt, Ambron and his partners continued to improve the company’s website, making it more friendly for a broader range of customers who likely would be less computer competent than their undergraduate base. BrandYourself decided next to target large corporate accounts, companies that often were dealing with a barrage of nasty customer comments. Over time, universities have been replaced by large companies as the majority of BrandYourself customers, including personal service companies, like money managers, who want to ensure that their employees maintain clean online identities that will encourage customer confidence.

  Like many other entrepreneurs who enter a market already occupied by a “first mover,” Ambron studied what he saw as his competitors’ mistakes. The market leader had raised more than $70 million in venture funding to acquire customers one by one, and their business plan relied on expensive broadcast advertising. Conversely, BrandYourself initially raised less than $1 million from friends and family. Ambron’s competitors’ higher prices, which reflected their labor-intensive customer management model, resulted in high customer turnover. By selling to large institutions—first universities and then employers—at a substantially lower per-user cost, BrandYourself now retains customers about three times longer than its competitors. The company’s data show that many individuals who were BrandYourself customers under a previous employer’s umbrella contract continue as individual customers even after they change jobs.

  BrandYourself’s differentiating value proposition is summed up by Ambron: “It’s much cheaper to teach a customer how to prevent a bad reputation from developing in the first place—an offensive approach—than it is to play defense and undo damage after it occurs. Most of our customers have nothing to repair; they use BrandYourself to enhance their online reputations.”

  In 2016, BrandYourself was invited to appear on Shark Tank. After Ambron described the company in the allotted three minutes, the investor panelists seemed excited. Unlike the polite but fruitless reception that most presenters receive, each one of the show’s four panelists expressed an interest in investing. Ambron was asked if he would take $2 million for a twenty-five percent share of BrandYourself, meaning that the panelists were judging the total worth of the company to be $8 million, which was much higher than the show’s average proposal. Ambron politely countered with $2 million for thirteen percent. All four panelists told him that he was naively overvaluing the company and that no new company could be worth more than $15 million. One judge pushed back hard, saying that $2 million was a generous offer for a quarter of the company and implying that Ambron was making a mistake by being too greedy. Ambron stood his ground. Exasperated, the judge finally asked why he wouldn’t take the offer. Ambron’s reply was that it would be unfair to his earlier investors, and explained that he had just accepted $3 million from investors who valued BrandYourself at $15 million.

  There’s Got to Be a Better Way

  Like the rainy night inspiration for Uber, unexpected events and moments of frustration have prompted many innovators to seize upon problems that they thought would be worth solving for themselves and others. When you hand over your credit card in exchange for a pricey YETI cooler, you know that you’re paying for unsurpassed performance, durability, and reliability, but you may experience a little twinge as you sign the receipt: “Why didn’t I think of this?”

  Roy and Ryan Seiders did. The brothers are passionate outdoorsmen who loved to fish in the shallow waters of the Texas Gulf using a skiff. Like most other anglers, they stood atop a cooler to make a long cast. Since the cooler was first introduced in 1954, it has been an essential piece of equipment for fishermen, both keeping beer and soda cold and preserving the day’s catch. The first models were made of galvanized steel, but manufacturers shifted to plastic construction in the mid-1960s to meet most customers’ preferences for lighter weight and lower cost. But, in 2005, when one
more plastic cooler lid collapsed under Ryan, the exasperated brothers decided that someone should make a stronger alternative.

  YETI is now the Maserati of coolers. It has engendered stratospheric levels of loyalty among customers, who sometimes are described as cultists. In a market dominated by $30 Igloos, YETI coolers start at about $100 for the smallest models and amp up to the $1400-plus for the gigantic 402-quart Tundra that is advertised as “bear resistant.” The brand is defined by its ability to extend cooling capacity to previously unknown durations, even in sweltering climates, and its rugged strength.

  The Seiders revolutionized a market that had not seen a major product advance in fifty years. Since 2010, YETI has grown more than 300 percent each year, and is always racing to keep up with demand. The brothers’ aggravation with an inadequate product led to a “There’s got to be a better way” moment, and they then set out to become cooler experts. YETI’s success tells us that they’ve done that.

  The Seider brothers weren’t cooler technology experts, but they were expert cooler users who decided to solve a problem. At the other end of the inspiration curve, many other entrepreneurs who become frustrated with an existing product, process, or service, or a slow or nonexistent pace of change, come to that moment from within an industry or market in which they have had long and deep experience, and which may be the very industry that is producing the source of their frustration.

  Leo Goodwin took his first job with the United Services Automobile Association insurance company, now universally known as USAA, in San Diego. USAA had been created in 1922 to sell auto insurance to active duty military personnel, who had difficulty purchasing insurance from other carriers because they were not permanent residents of the states in which they were stationed.

  As Goodwin turned fifty, he recognized that he wouldn’t be promoted further in a company that was headed by retired military officers, so he decided to start his own company, based on the knowledge and experience that he had gained. A seasoned underwriter, Goodwin concluded that government employees were better insurance risks than members of the military, and that he could reduce the cost of car insurance for public workers by selling directly, without agents. In 1936, when the country was still in the throes of the Depression, Goodwin moved to Washington and founded the Government Employees Insurance Company. What we now know as GEICO grew quickly. The company went public in 1948. It now has more than fourteen million customers, both within and without government service, and offers a wide range of insurance products.8

  Another story of deep industry experience begetting a new business comes in the person of Wally Blume, who spent his first lifetime managing dairy products for Kroger, the national grocery chain. After retiring Blume leveraged his knowledge into Denali Flavors, the home of Moose Tracks ice cream, but he didn’t stop there. His Kroger experience had taught him the critical importance of scale—he did not want just to become another artisanal ice cream brand—and, in 2006, Denali Ingredients was created to manufacture a broad range of ice-cream flavoring products for ice-cream makers all over the country.

  Morris Chang’s story makes the case for the manner in which extensive tech industry experience, coupled with a predisposition to see where a breakthrough startup might fill an undetected market need, can be a route to innovation. Chang’s first job was working at Texas Instruments with Jack Kilby, the Nobel Prize–winning physicist who had invented the integrated circuit. The company made the first pocket calculators, one of the first consumer applications of small-scale computing capacity. The device relied on a circuit board, an array of transistors soldered together on a tiny piece of plastic, etched, and coated with sophisticated materials that controlled the flow of tiny electrical charges. To make chips, Texas Instruments had to build a dedicated fabrication facility that cost hundreds of millions of dollars.

  Kilby’s innovation had kicked off a new profession of electrical designers that created an enormous demand for customized circuit boards. The technology that had enabled TI’s remarkable success now presented a problem. TI could expand and become the world’s largest supplier of chips, but the cost of meeting this demand was overwhelming and the company couldn’t keep up with the demand for customized chips.

  Chang saw that the company’s limitations were related to its not being able to retool production facilities fast enough. He returned home and started Taiwan Semiconductor Manufacturing Company. There, he devised a way to quickly reengineer the process of making chips, allowing him to supply the burgeoning global demand. His silicon foundry helped fuel a tidal wave of innovation. Suddenly, consumer products were becoming “smart.” Televisions and washing machines were programmable; mechanical control systems in cars were replaced by computers that improved mileage and greatly reduced the cost of repairs; and airplane-control systems were revamped, ushering in the age of the “glass cockpit” and safer flying. Thanks in part to Chang, every home with children suddenly had a box stuffed with circuitry connected to its televisions. The era of gaming, replete with joysticks, had begun.

  Birthing a Birthing Business

  Like the founders of BrandYourself, Amy Upchurch had never worked in a company. Her personal experiences, her drive to help others in like circumstances, and her tenacity, made her into an entrepreneur.

  When Upchurch was pregnant with her first child, she suffered debilitating bouts of morning sickness, so serious that she was hospitalized on and off throughout. The same severe problems plagued her second and third pregnancies. As the wife of a Marine officer, she had lived in different places for each pregnancy, and nearly a dozen doctors had attempted to help her with various drugs and diet regimens. Nothing had worked. When Upchurch became pregnant with her fourth child, she vowed that this time would be different; she would figure out how to avoid the pain and constant nausea with which she’d lived three times before. With three young children and an often-absent husband, she simply couldn’t be sick all the time.

  Upchurch had learned that morning sickness most often is caused by a stomach bacteria, Helicobacter pylori, that can be killed with antibiotics. H. pylori resides in about half the human population, and is now known to be the principal cause of stomach ulcers. In some women, their normal colony of H. pylori explodes with the hormonal changes of pregnancy, resulting in severe nausea. In about half of these women, antibiotics solve the problem. In the other half, including Upchurch, the antibiotic therapy had no effect.

  As she began to research the medical aspects of morning sickness, and to read thousands of blog entries by pregnant women who shared her condition, Upchurch began to think that a multimodal approach, using diet supplements, might be the answer. It was certainly worth a try. After a lot of study and self-experimentation, her combination of probiotics, herbal teas, and cocolaurin, a natural alkaloid extract of coconut that had been shown to inhibit H. pylori, worked. Her uncomplicated fourth pregnancy produced a beautiful baby boy.

  Upchurch wanted to help other women by sharing what she’d learned. At first, she considered starting a blog about her experience. She finally decided that others would take the findings of her research, and her recommendations as to what had worked for her, much more seriously—that she could be of more real help to others—if she provided products that expectant mothers could purchase and use. Within a few months of delivering her son, Upchurch was thinking like an entrepreneur. In the summer of 2014, she incorporated Pink Stork to be a one-stop source for products to help with morning sickness.

  Before going to market, Upchurch tested and evaluated a wide range of more refined solutions than she had initially had the time to do for herself. She settled on a topical magnesium spray to control nausea, a probiotic to improve the functioning of the immune system and to provide the extra nutrients needed in pregnancy, then the cocolaurin tablets to keep the H. pylori at bay. She located a nutraceutical manufacturer to compound her products. Upchurch then worked on a branding strategy that included testing multiple images for the company, and for each pro
duct. Finally, she decided that she had to sell directly through the Internet.

  Twelve months after Upchurch had the idea for Pink Stork, she was ready to launch. She went live with a website but no advertising budget, relying on nothing but tweets and likes on social media. Sales were slow at first but the trajectory was positive; twelve months later, sales were doubling each month, and Pink Stork was making money. Upchurch moved her business out of her kitchen and hired part-time helpers to fill orders. At fifteen months, Pink Stork sales revenues permitted her to pay back her investor; meaning herself, as she and her husband had raided their savings to start the company. In the parlance of investors, Pink Stork was cash-flow positive; revenues were exceeding expenses. Now, Upchurch has her products in large national retailers including Walmart and Target.

  Upchurch’s story is one of circumstance. She had the miserable personal experiences of difficult pregnancies; as she learned from her research, her problems were not unique. She had a predisposition to help others with her newfound information. After all, she’d had a multitude of caring health professionals striving to assist, but to no avail. What about that sick-as-a-dog pregnant woman who thought that there was no hope? The need for Pink Stork’s products came upon Upchurch without calculus or notice; if anything, she was a reluctant entrepreneur. Upchurch had a busy and wonderful life underway as a military wife and mother of four. She had majored in journalism, not biology. To start a business required her to master not only product content but also supply chain management, website design, and Internet sales. Lucky for Upchurch that she didn’t stop to write a business plan.

  Innovating with Knowledge Acquired Along the Way

  A pair of entrepreneurs whom I met several years ago now operate a company that has moved well beyond the startup stage. Their story is as unlikely as any of you can imagine; it personifies the combination of circumstance combined with just enough background knowledge, and some significant daring. Sheex, the performance-bedding manufacturer now found in many major retail outlets, offers bed sheets and sleepwear that “phase adjust” to wick moisture away from a sleeper’s skin and accommodate changing body temperatures throughout the night, both retaining heat when the sleeper’s body temp drops, and releasing it when the body warms. All this, and it’s soft to the touch, which was a threshold requirement in the founders’ development process.