I recently had an enjoyable networking lunch with a fairly recent graduate of the Goizueta Business School. He was telling me about his job, working on a new business being launched by AT&T. We compared the benefits and challenges of traditional start-ups with corporate start-ups. He longed for the flexibility associated with a true start-up. Although I am envious of certain aspects of that situation, I said nothing to disabuse him of that notion. I prefer life on a tight rope, without a safety net.
It is vastly easier to “pivot” when you are on your own. As long as you don’t lose your balance.
I told my new friend the story of Group Office Buys (GOB) and our origins as One Stop Dorm Shop (OSDS). Why did we change from a consumer-oriented business that sold rising college freshmen everything they needed for college to a B2B purveyor of commodity products? Why did we do this after spending two years of work, after building a complete e-commerce platform that facilitated collaboration and “project shopping” and after signing up 24 vendors? How could we throw it all away?
Here is what had become apparent to us: Our business model was flawed. By one measure the college dorm market was $5 billion. This is a “sexy” market, but not that huge. Every year we had to find our customers. To be a “one stop shop” we had to use 24 vendors, with 24 separate shipping charges and drop ship fees. There went our margins. Moreover, the college dorm market is fashion-oriented; we had to compete against the likes of Pottery Barn Teen and Target. And to top it off, we had to source extra long sheets for typical dorm beds!
Compare that to the office products business. It’s a $310 billion market. Our single vendor stocks 40,000 products (basically the same products as Staples, but twice as many of them!), so we pay only one shipping charge. Every business needs office products and they need to order them every month. So one day the three partners decided that GOB offered a better chance for success than OSDS. We have no bosses or corporate bureaucracy. We don’t even have a Board of Directors.
But there are trade-offs. It was pretty easy getting our web site up, but a lot harder to build the infrastructure that a corporate start-up takes for granted. It took quite some time, and a lot of networking, to find the right sales and marketing people. We needed collateral sales materials. We needed processes. We needed CRM. We needed customer service. We needed HR policies and procedures, starting with something as simple as a way of conducting background checks. The list goes on and on. In the M&A world some people minimize the importance of “goodwill,” but we realized that these intangibles are the difference between being a real company and staying a start-up. And the more of this infrastructure we build, the more committed we are to being an office products company and the less likely we are to “pivot.”
I am reminded of one of the best professional experiences I had. In the 1990s, the management of BellSouth (remember them?) faced the oncoming PCS (Personal Communications Service) revolution in mobility. They were concerned about competing through a cellular business with a culture that was way too similar to the stodgy old landline business. So they built BellSouth Mobility DCS (Digital Communications Service, BellSouth’s spin on PCS) from the ground up. They picked some “renegades” and put them in Buckhead, away from the corporate offices in midtown. Everything was different from the mother ship, but DCS did have all of the resources of a Fortune 50 company. It seemed to work, and it was a helluva lot of fun being outside counsel in many of their endeavors. But all good things come to an end, and as time went on DCS disappeared into Mobility, before Mobility disappeared into Cingular and ultimately BellSouth disappeared into AT&T.
Occasionally there’s a middle way between the somewhat-stifling corporate cocoon and the trapeze act without a safety net. I am intrigued by Sales Loft, a recent TAG Top 10 winner that emerged from Pardot, which is in turn a fast-growing Atlanta technology company. [http://salesloft.com/TAG-Top-10-innovative-companies]
Actually, it is something of a dream of mine, to be a part of at least one strong tech company that in turn can spawn others. But first, we will have to build the first one.