Gone Fishin'
Looking to catch a big one? Trolling the deep, corporate waters? All you need to put a whopper CEO, CFO or other acronym on your table is the right bait. By Brian O'Connell
hen Sandra Hand, vice president of Virtual Voice corporation at the time, took the phone call that would ultimately lead her to walk away from the voice-messaging company where she'd spent 10 years of her life, her first thought was, "I'm pretty happy here." But on the other end of the phone line was Dylan Marer, an entrepreneur's entrepreneur blessed with a gift of persuasion that makes Johnny Cochran look like a piker. The 32year-old Marer had already launched one successful company, the $4 million Los Angeles-based Innovative Meetings and Events, and needed Hand to roll out his latest venture, BodyLogix.com in August 1999. Marer wanted BodyLogix.com to crash the fledgling women's alternative health and exercise market with a bang, grabbing market share and creating a brand name in an industry that didn't have many. The key was getting people like Hand on board to steer the company out of port and guide it through the choppy seas of e-commerce. Good plan. But why would anyone with a modicum of sense leave a big, established company for a newer, smaller one with a risky future? "I don't buy the notion that we're a small company or a new company," says Marer, who expects BodyLogix.com to bring in $38 million this year, "but I understand some people do. I think you can attract top people to a newer or smaller business by doing two things: paying them well and appealing to their sense of adventure. And that's what we did with Sandra." For her part, Hand thought things were getting a little stale at her own job, and she was at a point in her life where she felt like taking on new challenges--not that she didn't want some guarantees first. "I'd be lying if I said money isn't a factor in going to work for a small company, especially a dot.com," she explains. "But we spend so much time at the office that you realize you want to be in a place you enjoy and where the work really challenges you." Lured by Marer's offer of a healthy chunk of equity in BodyLogix.com, and by the company's cutting-edge concept, Hand agreed to climb aboard as Marer's new executive
vice president. "When Dylan first approached me to come work for BodyLogix, I was intrigued by what the company would be doing and excited about the idea of slugging it out in the e-commerce market," she says. "As an executive, you want the money, you want the challenge and you want the opportunity to get involved with a company that has great long-term growth potential. When I looked at BodyLogix that way, it was actually a pretty easy decision to make." Hotshot execs moving from stronger and more established companies to smaller, more nascent ones may not be a new concept, but it's one that's attracting more attention these days. Eyebrows were raised all over Wall Street last year when Lou Dobbs, president of CNN Financial News, left his high-profile job and moved over to Space.com, a spacetravel and astronomy Web site with a much lower profile. Dobbs told reporters that space travel was his first love and he wanted to spend the rest of his working life up to his elbows in it. Neither Hand nor Dobbs is alone in taking on new risks. Today more and more corporate heavy hitters are foregoing the showroom-floor-sized corner office and reserved parking privileges for the relative uncertainty of 70-hour weeks at shoe-box-sized offices where they may have to fight for prime parking spots with the rest of the staffers. How are small businesses attracting such talent? Good financial packages--usually with a piece of the company included--big-time titles like CEO or COO, and a Braveheart-like call to arms that appeals to the Mel Gibson in most corporate big shots. "I recently hired one of the highest-ranking executives in my industry," says Scott H. Korn, the 37-year-old founder, chairman and CEO of York Paper, an $80 million Eddystone, Pennsylvania-based paper-products company. "It took a heck of a lot to get him--enough equity in the company where he's set for life--but what sold him on us was the idea that he'll have as much freedom and flexibility as he can handle. As long, that is, as he produces."
Give 'Em What No One Else Can
While there's no lack of good executives looking for better deals, prying them from their existing jobs is not easy. Some business owners find they have to give up more and more to lure talent away from the big guys. All the good executives are taken, it seems, and most are getting rich on stock options in the long-running bull market. One entrepreneur tells the story of wooing a big-time chief technology officer during a frenzied two-week period. Just when the business owner was set to reel her prize catch aboard, the executive's company announced it was going public, increasing the CTO's stock value by 75 percent overnight. Needless to say, the executive stayed right where he was.
In a sparkling economy, high-end recruiters say small companies have to be creative in landing the big fish. When pitching to potential management hires, it's a good idea to play the vanity card and let them know they're highly regarded in your industry. Then emphasize how likely it is they'll grow stale unless they take on greater risks. When you do talk money, frame it in the context of a long-term deal so you'll have their talents on hand for a while. "It's got to be a long-term relationship, and you have to let them know up front," says Korn, who signs his top executives to big multiyear deals. "I try to stretch it out to 10 or 20 years so I know we're both in it for the long haul." Don't be reluctant to embellish your company's freewheeling image. Smaller companies offer more flexibility and variety for new hires, who may feel stifled in their current jobs. "We try to match our company to what the executive does," explains 36-year-old John Mueller, owner of Idea Factory Inc., a $3 million bath-products company in Menomonee Falls, Wisconsin. "If we see a candidate who's tired of wearing a power suit, we let that person know we're a T-shirt-and-blue-jeans company. It sounds simplistic, but you should see the smiles on their faces." Other entrepreneurs, recognizing that time is as big a commodity as cash, tempt would-be managers with flextime schedules and amped-up vacation packages. "Good people are used to having leverage," says 31-year-old Kristin Knight, founder, president and principal of Creative Assets Inc., a $14 million creative-recruitment company in Seattle. "So they expect the stock options and the big raise. Where you can beat the competition is on the time issue. If it takes an extra two weeks of vacation time to get them in your shop, then do it." On-site perks don't hurt either, Knight adds. "We began having on-site masseuses to keep people happy."
Don't Let The Dot.Com Faze You
As Sandra Hand's story at BodyLogix.com attests, top executives' eyes widen at the thought of working for dot.com companies. That's partly because there's always the chance they might earn more money than a Saudi oil sheik when the company goes public and partly because of the thrilling idea of riding in the front car of the fastest roller coaster around. The combination of cash and cachet can't be undersold. After all, there's a little Las Vegas in everyone. "It's so easy to get caught up in the Web initial public offering craze," notes Ethan Winning, a Walnut Creek, California, expert on business growth trends and the author of the self-published book Labor Pains: Employer and Employee Rights and Obligations. "Everyone wants to work for the company that's going to become the next Yahoo!. That's fine if you're an owner of a small e-commerce business--trump that side of the mix all you want when you're recruiting.
"If you're running a non-technical company, you're not competing against the dot.com companies. Let them fight it out for themselves with the big signing bonuses and fat financial packages. You don't have to play that game." Even though the media plays up successful tech IPOs, most Internet stock IPOs never pan out. After all, more Internet start-ups fail than succeed. Non-Internet companies can compete with options like extended flextime and generous vacation packages. Signing bonuses can do more harm than good in small companies, says Winning. Information in small businesses flows like beer at a frat party, and resentments can grow if too much of a company's money is targeted toward one individual. "Adding signing bonuses to the package is bad business," Winning explains. "If you give bonuses out, then you're going to have some disgruntled employees stewing about who didn't receive such a bonus. I tell the business owners I talk to, `Decide how much you can afford to pay in salary and stock options, and then walk away if a candidate wants all that and a bonus, too.' " Another advantage an established small business has over start-up dot.coms is a track record. Management candidates can ask around and get a feel for your company. That's a big advantage when dealing with talented executives who don't like surprises. "One of the most important considerations for hiring top talent is your company's image," says Winning. "And more often than not, that image is conveyed by your current employees. If your employees speak highly of your company, and the management is involved with their employees' happiness and success, you have a better shot at landing a big recruit." Workplace culture manifests itself in many forms. At Incentive Systems, an $8 million enterprise incentive compensation management firm based in Burlington, Massachusetts, the company's founder and CEO, Elizabeth Cobb, has bagged her share of top managers. On one day alone, Cobb landed a new CFO and a sales-and-strategic-alliances director. Her company's chief architect and co-founder was a lead developer of Lotus 1-2-3 and her new CTO developed the PowerSite Web software package at Powersoft. "In such a short time, we've succeeded in building a formidable team," explains the 46-year-old Cobb, who rolled out her company in June 1997. Cobb, the first woman to run Honeywell's advanced engineering training program back in the 1970s, when female engineering directors were about as rare as Rush Limbaugh sightings at a hemp rally, credits her recruitment success to her company's motivationbased management techniques. "Recruiting top talent is at the heart of good business," she explains. "And getting good help is the same as getting new customers: You've got to motivate them." Cobb believes the carrot-and-stick approach is the best way to attract new managers. But don't just dangle the carrot in front of their noses, she adds--let them grab it, taste it and ask for more. But you're also trying to get job candidates to do the same things you want customers to do--buy into your company mission, Cobb says. "You've got to bend a lot to fit people's
lifestyles into your system, but if they buy into what you're doing, the rest comes naturally."
It's What's Inside That Counts
A mistake many business owners often make is to grab executives simply because they had a fancy title at their old jobs. Just because somebody has "CTO" on their coffee mug doesn't mean he or she's a Mensa candidate. "You have to do your homework and do it thoroughly," advises Stever Robbins, an executive coach at VentureCoach.com, an entrepreneurial coaching firm based in Cambridge, Massachusetts. "I've seen managers with big titles who were complete idiots. What happened was their high school buddy who made it big hired them and gave them a big title. But when you look a little closer, you find the owner didn't necessarily give them a great deal of responsibility." In a tight executive job market, perhaps that's the strongest lesson of all. You can toss money around, you can jack up vacation times and you can even hire a masseuse--but if you pick the first big title you see and don't do your homework, you're going to be spending more time with that masseuse than anyone else on your staff.
A Million For Your Thoughts
What makes those platinum-plated minds tick? By Geoff Williams
here was a moment on January 6, 1990, in Providence, Rhode Island, when David Posman apparently thought he had made the business deal of his life. That moment was after he took a bottle and smashed it over the head of an armored truck driver. Posman grabbed four bags from the truck and fled. Unfortunately for him, each bag weighed 30 pounds. He painfully staggered away, and the police soon found the exhausted thief hiding in a nearby parking garage. It was right about then that Posman discovered he had stolen 120 pounds of pennies. There's a long history of low-IQ criminals botching their get-rich-quick schemes; one just has to read the newspaper or the book America's Dumbest Criminals, or watch Jay Leno ridicule them on The Tonight Show. One robbery suspect who was apprehended a few years ago protested: "There's no way he could identify me; I had my hat down over my eyes." If only they knew. Becoming rich doesn't have to be so difficult. "It's almost
like you don't have to be a Wall Street whiz, or have a huge salary, to become a millionaire anymore. You just have to teach yourself how to
become one," observes Daryl T. Logullo of the Noble Financial Group in Boca
Raton, Florida. Logullo is also the host of two daily financial radio shows heard across the nation, The First Word on Investing and The Final World on Investing. He's right. In today's nearly Utopian economy, getting the money isn't the hard part anymore--it's figuring out what you should do with it after you've got it. 1-800-SOLDOUT's CEO Justin Fallon, 31, observes, once you've made your millions, life isn't always the way you'd dreamed it would be: "Sometimes people treat you differently. My mom just got remarried, and [at the reception], people were coming up to my girlfriend and saying, `Can you believe how much money he's worth?' " To this, Fallon retorts, "Who cares? People think it's a big deal. That's weird. I don't want people to think any differently of me." Then Fallon recites a quote he read on a tea box 10 years ago: "Judge a man not by what he gains from his toil, but from what
he becomes in spite of it."
On paper, Fallon is worth millions in equity. He founded his company, which locates hard-to-find and sold-out tickets for events, in 1987--but it exploded in 1999 with the debut of his Web site. Fallon didn't want to offer exact figures, but let's just say his financial worth is somewhere between $40 million and $60 million. And, like many millionaire entrepreneurs, he's currently trying to figure out what he's becoming--in spite of it.
The Millionare Blues
Everybody we interviewed for this story agrees with the obvious: The problems of the rich are--pun intended--a million times better than the problems of the poor. "It's like Cindy Crawford complaining about beauty. It's really hard to complain about having money," confides Jodi Shelton, 35, president of Shelton Communications Group, a Dallas-based high-tech communications firm that had sales of $3 million in 1999. Shelton herself has a personal worth of $8 million from stock investments and various other things. "It's been wonderful," Shelton says of her wealth, "and it's enabled me to do things for my family that I've never been able to." But Shelton, who was raised in a middle-class family, notes: "You're working very hard to bring in that money. You're working a ton of hours, investing a lot of your time. You're a prisoner of your money as well." How so? "You're on a fast treadmill. A million dollars sounds like a great deal of money, and, of course, it is. But," Shelton observes wryly, "most everybody, including
millionaires, devises a lifestyle that matches the amount of money they make. So you're [forcing yourself] to keep working really hard." She might have a point. On top of that, these days, a cool million doesn't get you nearly as far as it did a couple decades ago. Indeed, Fallon feels multimillionaire status is really where it's at: "I don't think a million is the bar anymore," he says.
The Requests Begin . . .
Not that we're ready to shed too many tears for the mere millionaire, but the truth is, the more money an entrepreneur brings in, the more people want a piece of it. "It can be demanding," says Logullo. "We see a lot of cases of successful CEOs who have $10 or $20 million net worth--they're always being asked for something, whether it's personal appearances at an event or charitable contributions." And it's not just the corporate world that comes running after millionaires; it's also friends and family. Darien Dash is billed by his publicist as "the first African American Internetmade millionaire." If so, he's also the first African American Internet-made millionaire to be hit up for loans by friends and family he probably never knew he had. Dash, 28, owns Digital Mafia Entertainment, a company with offices in New York City and Englewood Cliffs, New Jersey. And while Dash's company sounds like something out of The Firm, one of Digital Mafia Entertainment's missions is to make money in an honorable way: by marketing to minority communities, hoping to narrow the "digital divide" between the poor and the affluent, the have-Nets and the have-nots. So far, it's working. Dash oversees a staff of 35, and his firm, which he started in 1994, made over $1 million last year. Dash says he's invested wisely, and he's also half-owner of Roc-a-Blok Records, a hiphop label, which had a recent No. 1 Billboard R&B single with Sporty Thievz' "No Pigeons." The result? A net worth of $14 million. That news hasn't escaped those close to him. Even Dash, who seems like a decent enough guy, mutters a startled "damn" whenever a friend or family member asks for a sizable loan. "Over the years, it's gone from somebody needing a hundred dollars to a hundred thousand," gulps Dash. Caren Sinclair knows the feeling well. "There's been a change in my friends," says the 29-year-old entrepreneur, who is worth $3 million and counting, thanks to a business she runs with her mother Isabelle Tate. "They've always known that I've had these goals in my mind," grumbles Caren, "and now that it's actually happened, they've said that I've changed."
And then there are her extended relatives. "Family--they feel, `Okay, you have it, so we have it, too.' And in some instances, that's true, but you don't get something for nothing. And my family has just wanted to be given money. And it's like, `Now wait a minute . . . ' " Caren Sinclair is doing the last thing you'd think you could make millions doing: She gives swimming lessons to the rich. The very rich. Like Saudi Arabian princes and princesses. And movie stars. While Isabelle, 54, does the bookwork, Caren charges $2,000 for two weeks' worth of 30-minute one-on-one swimming lessons. That alone would be good money for many entrepreneurs, but Sinclair and Tate have made Pasadena, California-based Waterwaves Inc. into a tsunami to be reckoned with. They also employ lifeguards who work at military bases, hotels, homeowners' associations and private pool parties. Soon, Caren says, their swim company will be expanding into a pool-cleaning service and a pool-safety education center. Also in the works: a Waterwaves University to teach lifeguard training and, in the next three years, a plan to open 38 new swim centers, where children can receive one-on-one lessons from qualified instructors in six states. "I love the Y," says Caren, "but I'm going to take it to the next level."
It's Not All Bad
As entrepreneurs' bank accounts move to the next level, the positives obviously outweigh the negatives. Caren, a subscriber to Millionaire magazine (see "They're Everywhere" on page 95), says the biggest purchase she's made so far has been to take her mother on a long-desired vacation to Hawaii. Dash, like Caren, hasn't been a millionaire for very long--his biggest purchases, as of this writing, have been a BMW 540 for his wife and a Mercedes for himself. "I almost bought a $17,000 home stereo system, until my wife stopped me," says Dash, who adds that his wife "has been able to temper me." This seems to be a trend among younger entrepreneurs: Having struck it rich so quickly, they're either too busy earning their fortunes to spend them, or they're a little too nervous to do so. "We know it can go as fast as it came," muses Dash. "My dad had a couple of companies that went bankrupt," says Fallon, echoing the same sentiment, "and my grandmother lived through the Depression. I tend to look at money with a squinty eye." That said, Fallon admits he travels fairly frequently. "And I've started to get some of the toys--the BMW convertible, a house in the country, an apartment in the city. Life's pretty good." Indeed. Shelton recently treated herself and four friends to an Italian vacation. And three years ago, she gave her father a Thunderbird ("zero miles; my dad had never had a new
car") for Christmas--a sort of payback for when Shelton's father gave his one and only car to her so she could take it to college. And Shelton pays to send her niece and nephew to private school. "I want to make sure that my money is used for bettering other people's lives, not just my own. I'm interested in bettering my own, too, but if I can help the people I love, it's so rewarding."
The True View
Others fear that money will warp their perspectives on what's really important. Sinclair says one of her clients made a big impression on her. While most of the movie stars and wealthy CEOs she has worked for have had "three kids and five nannies," there was one actress who stayed to watch her son's swimming lessons, and then would take him to school. "She didn't even have a nanny on the staff," marvels Sinclair, who reveals that the actress was Valerie Bertinelli. "I'm going to be like that, too," says the often-working, still-single Sinclair. Shelton just became a mother herself, and her millionaire status gives her the freedom to be a stay-at-home mom. Since her baby's birth, she's been running her company by telecommuting, relying on her staff of 26 to see that the company continues to thrive. "I think [being able to delegate] is the mark of a good entrepreneur," Shelton says. It's this freedom that Shelton says is the best gift you can buy yourself when you become the next millionaire on the block. "The one thing I have truly found since I've been able to buy a lot of things is that [the finer things in life] do not bring you happiness," she says. "What I like more about the fact of having money is it buys you the freedom to travel and to choose things. It's the same thing with having a child; I did not have to make some of the decisions that other working mothers have to make, and I feel so fortunate." Fallon is still figuring out what the best thing about being a millionaire is--but he understands the worst. "I know a lot of people who, if they couldn't fly first-class and didn't have money, they would be unhappy," he says. "And I guess I don't ever want to be in a situation where I have to hold on to money that tightly. I don't want to be afraid of losing it." And then, like people do in the movies but almost never in real life, Fallon expresses his thoughtful philosophy by quoting a stanza from Rudyard Kipling's poem "If": * " `If you can make one heap of all your winnings * " `And risk it on one turn of pitch-and-toss, * " `And lose, and start again at your beginnings * `And never breathe a word about your loss . . . '
* "That's kind of the thing, you know?" muses Fallon. "I'm blessed to have this, but I want to live my life so that if somehow the money is taken away or lost, it's not really that big of a difference. I don't want money to become very important to my happiness because I think that's setting myself up for false expectations. Who knows? Anything can happen."
They're Everywhere
It's not your imagination. Millionaires are hot--and they're multiplying. When they aren't the focus of newspaper and magazine articles, they are the magazine. Consider Millionaire, a thriving luxury and lifestyle magazine. Last year, it went from being published four times to 10 times a year. (It's $7.95 an issue, but if you're a millionaire, who cares?) Meanwhile, ABC's sporadic television series, Who Wants to Be a Millionaire?, is a bona fide hit. "I think the reason . . . Millionaire has struck such a chord is that it taps into that idea that you can become instantly rich," says ABC's Kevin Brockman. "It's the American dream." These are no pipe dreams, though, in the pages of Millionaire magazine. According to Vanessa Berkling, editor-in-chief, while many readers are millionaire wannabes, she's received messages from callers thanking her for some of the ads they've run: "This is just the jet I was hoping to find," said one. Another was pleased to find an ad for a helicopter. "Buying a helicopter isn't one of my top priorities," admits Berkling, and as far as her non-millionaire status goes, she says, "I'm working on it." And she just might do it, if her take on the new millionaire is correct.
"I don't believe it takes money to make money," says Berkling. "I think if you want to make your dream a reality, you really need to take the world on, and don't let anything stand in your way. It's just the result of a lot of hard work."
Connect The Dots
Online or brick-and-mortar? Tough question. But if you have a clear picture of your business, you already know the answer. By Robert McGarvey
he smartest thing I've done in business is shutting down my store and going exclusively online. Now I have a really neat business. I love it," says Sherry Rand, 54, a Salisbury, Massachusetts, retailer whose online store sells one thing and one thing only: gear for
cheerleaders. You want pompons in any style and color? You want megaphones for leading cheers? Then you want to know about PomExpress ( http://www.pomexpress.com ), where Rand has conducted e-business in the two years since she shut the doors on her brick-and-mortar operation. "Online, I don't have to carry the great overhead of a store, and--from a quaint town in northern Massachusetts--I'm selling globally. We get lots of orders from Europe, where cheerleading is really picking up," says Rand, who adds that she herself was a cheerleader through grade school and college. In the years afterward, she sold cheerleader supplies as a manufacturer's rep until she opened her own store. Now that she's operating solely on the Web, she says, "This is a great niche, and, on the Internet, I can conduct business wherever I want to be." Another devoted dot.commer: Nancy Zebrick, 46, the onetime owner of a traditional travel agency in Cherry Hill, New Jersey, who launched a Web site in 1995 to complement her storefront. In early 1998, Zebrick decided the online operation had so many strengths going for it, she shut her brick-and-mortar store. "The profits aren't there in a B-and-M travel agency. Online is much more profitable," she says. "The gross profit margins [per sale] are lower online, but we make it up in volume because we can sell nationally, in fact internationally," says Zebrick. Once her focus became exclusively online, her Web business took off--so much so that in late 1998, Zebrick plunged deeper into the Internet by merging her agency with online travel superstore 1travel.com ( http://www.onetravel.com ), where she now owns a slice of the company and serves as director of leisure sales. "If you believe in the Internet--and I do-this is a great place to do business." Egghead.com Inc. would agree. An early leader in storefront software retailing--it staked out its turf back in 1984 and promptly won significant brand awareness--Egghead hit tough times in the mid-'90s as it faced both big-box retailers, such as Best Buy and CompUSA, who carried more titles and often discounted deeply, and a crush of new Web-based software retailers, from Beyond.com ( http://www.beyond.com ) to Buy.com ( http://www.buy.com ). Staring at dwindling sales and the mounting costs of running traditional retail stores, Egghead threw in the towel and closed its real-world shops in early 1998 to concentrate exclusively on online retailing at http://www.egghead.com where, says the company, it now has over one million customers.
Should You Go?
Sound good? Is it good enough to persuade you to dot.com? Shut down a brick-andmortar operation, go strictly cyber, and, whoosh, you've distanced yourself from monthly rent payments and dealing face-to-face with grumpy customers--and you've also positioned your business to sell globally. That's how it seems when you listen to the
stories of PomExpress, Zebrick's travel agency, Egghead.com and so many more. But can you count on it happening for you? "The decision to dot.com has to be made on a case-by-case basis. There's no one formula that will work for all businesses, all the time," warns Barbara Reilly, research director with GartnerGroup, an information technology consulting firm. What's more, adds Reilly, "there once was a lot of naiveté about how easy it is for a business to succeed on the Web. It isn't easy, but many businesses discover that the hard way." Sure, there are overnight successes on the Internet, but for every dot.com that thrives, there are more that flop, says Mark Layton, 40-year-old president and CEO of Plano, Texas-based PSSweb Inc., a leading distributor of computer supplies, and author and publisher of .coms or .bombs . . . strategies for profit in e-business, which analyzes the difficulties of mounting an effective e-commerce site. "Many dot.coms will become dot.bombs--they'll fail," says Layton. "Just putting up a Web site gets you nothing. You have to take steps to build that business. "Online or offline, you need a sustainable business model," adds Layton. "If you don't have that, you don't have a business." When the Web was less cluttered a few years ago, virtually any sitecould attract attention simply because there weren't as many sites competing for it. But the dot.com space has spawned innumerable stores, which has triggered an economic Darwinism where the weak simply die--or get no meaningful traffic. "No one will know you're on the Web unless you tell them and motivate them to visit," says Layton. "Succeeding online has become very difficult."
Best Of Both Worlds
Having second thoughts about burning the lease on your storefront and going strictly virtual? Know that there's another approach to the Internet, one that isn't all-or-nothing. Consider Wine Country Inc. ( http://www.winecountryonline.com ), for example, which is 25-year-old Adam Chilvers' Winter Park, Florida, wine store as well as its Internet counterpart. Built around the tasty proposition that all the wines it sells are $19 or under and rated 85 or higher by a prestige publication (such as Wine Spectator), both the brick-and-mortar (opened in November 1998) and the online store (launched a month later) are profitable, according to Chilvers.
"Doing business on the Web is a dream. The costs are very low," Chilvers says. But he has no intention of shutting down his walk-in store, for several reasons. For starters, an online operation still needs some real-world warehousing for merchandise, and a brickand-mortar provides that. But the second reason is the clincher: "On the site, we sell to many customers outside our area, but we also get many locals coming into our store with shopping lists they've printed out on the Web." For those customers, the Web site is a great convenience: They hunt for wines they want online, at midnight or 6 a.m., then they can get in and out of the real-world store in a matter of minutes. "I'm happy with how the store and the Web site are working together to build this business. It's a good combination for me," says Chilvers. Charlene Steinhauer, 36, goes further in endorsing the dual-channel retailing strategy. Stars Children's Wear, Inc., her Issaquah, Washington-based brick-and-mortar children's clothing and accessories store has been open for six years. "The business is very successful," she says, "and it's a steppingstone to what we're now doing online at ShopStars.com ( http://www.shopstars.com ). A big plus for us is that we have established vendor relations and we can get the merchandise we want to sell, but a lot of online-only storefronts can't because many vendors are suspicious of them. They've been burned in the past by dot.com companies, but they know us and know we understand this business." Maintaining a retail outlet has also helped Steinhauer keep up on industry trends. "By interacting with customers face to face, we've learned what they want in children's merchandise and how they want to buy it," says Steinhauer. Even so, why did Steinhauer decide to start an online store when her brick-and-mortar operations have been on a steep upward growth trajectory? Advantages unique to online retailing drew her to launch ShopStars in late 1999, she explains. For starters, there's the ability to reach a wide audience. But another critical factor, says Steinhauer, is that "being online for us is about customer service. Our customers are busy--every parent is-and at our site they can shop at their convenience, 24 hours a day. We're open whenever they want to buy clothes or books or toys for their kids." But, then, isn't this dual-channel strategy an unnecessary complication forcing entrepreneurs to focus on two distinctly different venues? The experts don't think so; in fact, many point to it as the way to proceed in the next century. "Don't close down a successful brick-and-mortar store to go online. Keep the storefront and add a Web site," advises Leslie Lundquist, author of Selling Online for Dummies (IDG Books). And the logic behind this position? "There are tremendous advantages to be had by leveraging Net sales with a B-and-M," says Barton Weitz, a marketing professor at the University of Florida in Gainesville. Case in point: "You can use the store to promote the Web site," says Weitz. That means printing your Web address on bags, sales slips and advertising fliers. That can be a big step in overcoming the obstacle facing every dot.com
today. "It's gotten very expensive to attract people to a site," says Weitz. "Stand-alone sites incur very high marketing expenses because they have to spend the money to get eyeballs." Your customers' desires are another strong reason to maintain both types of operations rather than diving solely into online. "Different consumers want different things," says William B. Gartner, a professor of entrepreneurship at the University of Southern California in Los Angeles. "Some customers want the kind of personal interaction that can only happen in a traditional retail setting. For others, it's simpler to log on to the Net. The smart, consumer-oriented business makes it easy to buy, no matter the customer's preferences." But there's a big, worrisome question that remains: Isn't all retailing heading to the Web anyway? Just last year, that was the buzz, but nowadays--with more dot.com's struggling and few breaking through to profitability--a kind of sobriety has taken hold, and experts are looking anew at the Web's potential as a marketplace. Explains Jackie Goforth, an ecommerce specialist with PricewaterhouseCoopers: "There are certain merchandise categories that will be slow to succeed online. Women's fashion, for instance. Shoppers will want to try the clothing on, to touch it. With other kinds of merchandise-commodities like consumer electronics--online retailing is the way to go." As margins get squeezed tighter with hard-charging dot.coms fighting for market share by offering lower prices, it will become increasingly tough to succeed in a brick-andmortar-only context. Merchants in endangered categories shouldn't panic, however, says Goforth. "We heard that catalogs would put traditional retailers out of business, and it didn't happen," he says. In fact, some catalog retailers eventually backed into opening brick-and-mortar stores. Now we hear that the Web will put B-and-Ms out of business, and that, too, probably won't happen." "A lot of businesses are on the Web, but a lot more are not, and they're doing fine," adds Jonathan Palmer, a business professor at the University of Maryland in College Park. "What's important is for the individual business to make the decision that best serves its customers. Let customers shop the way they want to, and they will."
Decision Time
Want an easy rule of thumb to assess how your business might fare online? Jonathan Palmer, a professor at the University of Maryland in College Park, suggests three factors that shine a green light on this decision: You sell a product line that can be delivered economically and conveniently. You have a desire to market to customers outside your own geographical location and a product that will appeal broadly.
There are significant economic advantages to going online, such as lower rent, labor, inventory and printing costs. Chew especially hard on points one and two, because if they are on your side, the profits implied in the third point will likely follow. A fourth factor might be whether you can economically draw customers to your site. Chasing a mass market--and going belly-to-belly against Amazon.com, drugstore.com, priceline.com and the like--means you'd better bring a seven- or eight-figure advertising and marketing budget to the table, because your competitors will. But the good news is that there is still plenty of room for thinly funded players who have targeted shrewd niches and developed solid business plans. The experts agree: Those are the dot.com companies that will be thriving tomorrow.
Hero Worship
Welcome to the Entrepreneurial Hall of Fame. You can't touch these exhibits. By Thaddeus Wawro
ew will argue that the 20th century was an era of unprecedented progress, growth and accomplishment. Where would we be today without the visionaries and dreamers, innovators and inventors, mavericks and rebels, trailblazers and pioneers? The world as we know it--and that which we will live in tomorrow--has been shaped in large part by men and women who knew how to use their talent, drive, ingenuity and desire to make dreams come true . . . and influence the course of history. The four entrepreneurs to follow represent not only archetypes of 20th-century achievement, but also very human examples who faced--and overcame--the same kinds of obstacles we all do in life and business.
Internet Evangelist
Marc Andreessen Co-founder of Netscape Communications Corp. Launched: 1994 "Right now, today, with a little luck and brains and timing, any kid with a computer can do what Netscape has done. There are no barriers to entry anymore. Any kid can spark a revolution." --Marc Andreessen
To some, Netscape Communications Corp. co-founder Marc Andreessen is a cyberspace folk hero whose programming savvy made the vast resources of the Internet's World Wide Web available to anyone with a computer and modem. To others, he's little more than a computer hacker who rode to the top on the accomplishments of others. But no matter how his supporters and detractors feel about him, Andreessen is indeed a visionary, whose dream of creating an easy-to-use Web browser clearly revolutionized information technology, sparked the Internet boom of the 1990s and laid the groundwork for one of the fastest-growing companies in U.S. history. Born in rural New Lisbon, Wisconsin, in 1971, Andreessen seemed destined for a career in computers. At age 8, Andreessen began teaching himself the BASIC programming language from a library book. By the time he'd reached the sixth grade, Andreessen had created a virtual calculator to do his math homework. By the seventh grade, he was writing his own games and playing them on the family computer. During his senior year at the University of Illinois, Urbana-Champagne, in 1992, Andreessen took a $6.85-per-hour programming job at the university's high-tech think tank, the National Center for Supercomputing Applications (NCSA). It was there he first gained access to the Internet, which at that time was a crude, text-based network accessible only through primitive interfaces. Andreessen immediately saw a potential market for an easy-to-use Internet browser, and in one sleepless weekend, he hacked out a crude prototype. He showed his prototype to his friend, gifted hacker Eric Bina, and in just six weeks, Andreessen, Bina and several other NCSA colleagues built it into a fully functioning browser called Mosaic. They made the program available free of charge over the Internet, and within a year, more than two million copies had been downloaded. After graduation, Andreessen was offered a job with the Silicon Valley firm Enterprise Integration Technologies. Just a few miles from where Andreessen worked, Jim Clark, founder of Silicon Graphics (SGI), had recently left SGI and was looking to start a new venture. Wasting no time at all, Clark fired off an e-mail to Andreessen. As soon as Andreessen explained the World Wide Web to Clark, the pair knew they should go into business, making browsers and servers for the Internet. Using $4 million of Clark's money, the duo founded Mosaic Communications Corp. in April 1994. (Six months later, they changed the name to Netscape, after the University of Illinois claimed it owned the rights to the name Mosaic.) Andreessen's first move was to recruit some of his former colleagues from NCSA, including Bina. By year-end, Andreessen's "dream team" had created a more powerful, more polished version of Mosaic, which they named Netscape Navigator. In a brilliant move to generate a user base, Navigator, like Mosaic, was launched free of charge on the Internet (the company eventually began charging for the program, offering free 90-day trials instead). The browser immediately ruled the Net, claiming nearly 75 percent of the browser market.
With the success of Navigator, the company grew from three to 200 employees. To keep the start-up from growing out of control, Clark and Andreessen hired former FedEx senior executive Jim Barksdale to serve as CEO. Netscape also expanded its product line to include high-end, high-priced software tools that companies could use to create and maintain their own Web sites, and they established virtual stores to conduct secure transactions over the Net. By 1995, with $16.6 million in sales but no profits, Netscape went public. Initially offered at $28 per share, Netscape's five million shares of stock immediately began trading at $71. When the stock market closed, Andreessen, then just 23, was worth $58 million. By December, the value of Andreessen's stock had risen to $174 million. Microsoft eventually usurped Netscape's dominance by bundling its own browser, Internet Explorer, with Microsoft Windows. As a result, Andreessen and Netscape drastically changed their strategy. Rather than focusing solely on the Internet, Netscape turned its attention to intranets, producing software to run within corporate networks. As Netscape lost its market dominance, Andreessen faded into the background, and Barksdale emerged as the new face and driving force of the company. Barksdale brokered a deal with AOL in 1998 to sell Netscape for $4.2 billion. Under the terms of the buyout, Andreessen was named chief technology officer of AOL, but his actual role and responsibility within the company remained vague. Wanting to play a more active role in the evolution of the Internet, Andreessen joined the board of directors of Accompany Inc.--the first Internet-based buying network to offer products and services in real time--in 1999. He eventually stepped down as AOL's CTO. The legacy of 29-year-old Marc Andreessen is firmly entrenched in the annals of online history. He set the standard for Internet browsers, providing an "on-ramp" to the Web for computer users and changing the way businesses access and use the Internet--paving the way for e-business and e-commerce.
Truth Be Told
It is a widely held belief that Marc Andreessen's Mosaic was the first Web browser. It was not. But what made it unique was that, unlike other browsers, Mosaic was easy to get up and running, and it was the first browser that could automatically display graphics along with text--leading to the cultural phenomenon that captured the attention of the masses and eventually created a multimillion-dollar consumer Internet industry.
A Stylish Obsession
Calvin Klein
Founder of Calvin Klein Inc. Launched: 1968 "Anything I wanted to do, I did. If there's something I want to do, nothing stops me." -Calvin Klein Calvin Klein's casual and chic style brought American fashion into its own and on a par with Paris. He managed to single-handedly create the designer-jeans craze of the 1970s and revolutionized fashion advertising in the 1980s. Now his name adorns everything from underwear to perfume. And his stylish designs and business acumen have built an empire. But unlike his clothes, Klein's rise to the top of the fashion world has been anything but uncomplicated. Born on November 19, 1942, Klein was largely influenced by his mother, who instilled in him a love of art and fashion. While other kids played stickball, Klein tagged along with his mom while she shopped at discount clothing stores in New York City. A loner who taught himself how to sketch and sew, Klein claims he always knew he wanted to be a fashion designer. After graduating from New York City's Fashion Institute of Technology in 1962, Klein married Jayne Centre and went to work as an apprentice in the garment district for $75 per week. He sketched designs from European runways for coat mogul Dan Millstein. The tactic of copying was typical for fashion at that time, because no original ideas were coming out of America. But Calvin wanted to change that. He had dreamed of starting his own fashion company, and nothing was going to stop him--not even the fact that he was nearly broke and still working at his father's grocery store to make some extra cash. In 1968, at the age of 26, with $2,000 of his own money and a $10,000 loan from his boyhood friend Barry Schwartz, Klein founded his own company, Calvin Klein Inc., with Schwartz as his partner. Their first order came literally by accident, when a coat-buyer from department store titan Bonwit Teller got off on the wrong floor and wandered into Klein's workroom. Impressed by his line of trench coats, the buyer placed an order for $50,000, telling the young designer, "Tomorrow you will have been discovered." And indeed, it was that order from Bonwit, along with a glowing editorial in Vogue, that put the Calvin Klein name on the map. In 1973, Klein designed a line of sportswear, creating what would become known as "The Calvin Klein Look" and giving birth to American leisurewear. The money was pouring in as his clean, muted, simple designs became hits with both the buying public and the fashion press, which gave him the prestigious Coty Award in 1973, 1974 and 1975. But success did not come without a price. In 1974, it cost him his marriage. After his divorce, Klein embarked on a self-described "wild period," spending his nights partying at Studio 54, where cocaine and casual sex were part of the scene. As his power and notoriety grew, Klein maintained a high public profile--until 1978, when his 11-year-
old daughter, Marci, was kidnapped. Although she was released unharmed, both Klein and his daughter were indelibly scarred. The once publicity-hungry Klein gave up partying and became a recluse. The year 1980 marked a big turning point for Klein's empire. A series of commercials featuring 15-year-old model Brooke Shields saying, "Nothing comes between me and my Calvins," made Klein's new line of tight jeans a nationwide phenomenon, selling 200,000 pairs the first week alone. The provocative commercials marked a revolution in clothing advertising, but prompted criticism from feminist leaders. The negative publicity only fueled sales. Klein once again courted controversy in 1982, when he put his name on the waistband of men's underwear and then started a campaign featuring near-naked men modeling the new designer skivvies. Many publishers rejected the sexy ads. But again, the controversy spilled over into Klein's favor, and stores couldn't keep the underwear in stock. In 1983, Klein and his partner bought Puritan Jeans, their jeans licensee, for $65.8 million. But lifestyles were changing, and the reality of AIDS had minimized the casual sexuality of '70s. As a by-product of this, the demand for tight-fitting, designer jeans waned. By 1984, the designer jeans business had dried up, leaving Klein deep in debt. When Klein married his second wife, model Kelly Rector, in 1986, he was once again experiencing a dark period in his personal life. He became addicted to vodka and Valium. When Klein's office announced that he had gone to the Caribbean on an extended vacation, the truth was revealed--Klein had been admitted to the Hazelden Clinic in Minnesota for alcohol and drug abuse. Klein came out of rehab facing bankruptcy, but was saved by pal David Geffen. Klein spawned numerous product lines, including a more affordable clothing line called CK, and licensed his name on sunglasses, watches, handbags and more. By the mid-1990s, his CK one perfume and CK jeans were selling well, his brand-new headquarters store had opened in New York City and his company experienced its healthiest financial state in years. Indeed, the man who popularized name-brand jeans, clean American lines and men's underwear for women is unquestionably a stylish survivor as he enters the 21st century as one of the world's top fashion designers.
In Vogue
At the same time as his advertisements for jeans and fragrances were being criticized, Calvin Klein's clothing was receiving critical acclaim for its clean, modern lines. Time magazine called him the "Frank Lloyd Wright of fashion" and named him one of the 25 most influential Americans in 1996.
The First Lady Of Software
Sandra Kurtzig Founder of ASK Computer Systems Inc. Launched: 1974 "I think luck is seizing opportunities. There are opportunities all around. There are millions of good ideas, but it's those people who seize the ideas and seize the opportunities that appear lucky." --Sandra Kurtzig In today's male-dominated software industry, women founders and CEOs are practically nonexistent. But while software titans like Bill Gates and Oracle's Larry Ellison have become the poster boys for Silicon Valley success, the first multimillion-dollar software entrepreneur was a woman. Starting with just $2,000, Sandra Kurtzig built a software empire that, at its peak, boasted around $450 million in annual sales. And it all started as a part-time job. In 1972, Sandra Kurtzig quit her job selling computer time shares for General Electric to devote more time to starting a family. An admitted workaholic, Kurtzig knew she couldn't give up working altogether, so in hopes of making a little extra money and "to keep her mind occupied," she launched what she thought would be a small, part-time contract software-programming business in her snug second bedroom. Her first client had asked her to create a program that could track inventory and provide manufacturing information. Realizing that other manufacturers might find such a program useful, she recruited several bright computer and engineering graduates and directed them to write standardized applications aimed at solving the problems of local manufacturers. Unable to persuade Silicon Valley venture capitalists to invest in her start-up, Kurtzig was forced to launch ASK on retained earnings alone. To gain access to the minicomputers her company needed, she persuaded executives at a nearby HewlettPackard plant to let her and her programmers use one of the company's series 3000 minicomputers after hours. "They let us in at 6 p.m., and we came with sleeping bags and stayed until 6 a.m.," she recalls. It wasn't long before Kurtzig's part-time job was taking up 20 hours a day. By 1978, ASK had its first salable products--a package of programs called Manman (short for "manufacturing management") that improved both inventory control and production management for companies. Kurtzig struck a deal with HP to sell its minicomputers pre-loaded with her programs-which meant ASK could market a complete product to computer-wary managers years before computers would become common tools of the industry. The system was a hit, and
sales quickly soared from $2.8 million in 1979 to $39 million in 1983. Meanwhile, Kurtzig took the company public in 1981. Between 1981 and 1983, following a small equity offering and a two-for-one split, earnings per share doubled, making Kurtzig worth $65 million. But even with her tremendous success, Kurtzig was tired of the fast-track life. "When you're the CEO, you live it seven days a week, 24 hours a day," she says. Wanting to devote more time to her children and realizing she couldn't do that and continue at ASK, Kurtzig resigned from most of her duties in 1985, keeping only the title of chairman. For a while, ASK continued to prosper. Over the next four years, profits increased. But sales flattened out after reaching $79 million. More ominous, the company was living off a software package whose last overhaul coincided with Kurtzig's relinquishing control. In 1989, when it became clear ASK was facing the first of what would likely be several quarters of flat sales, ASK's board of directors persuaded Kurtzig to rejoin as CEO, hoping she could turn the company around. It was an offer she just couldn't refuse. "When push comes to shove," she says, "well . . . ASK is my baby, and ASK is what I know." Upon her return, Kurtzig asked employees to rate the performance of the division's managers. The top-rated managers were rewarded with greater responsibilities; those that got low ratings received pink slips. She also stopped the practice of senior managers giving themselves hefty raises and bonuses. She repositioned ASK as a database provider and re-engineered the software to run on a variety of computers. By 1992, the Mountain View, California, business was back on top, boasting sales of $450 million, making it the largest public company ever founded and run by a woman. Kurtzig once again retired. Two years later, ASK was purchased by Computer Associates International Inc., a provider of software support and integration in Islandia, New York. Today, Sandra Kurtzig is chairman of the board of E-Benefits, a San Francisco insurance and human resources service provider she founded with her son Andrew in 1996. Kurtzig was instrumental in laying the groundwork of the modern business-to-business software industry. Her innovative approach of creating easy-to-use software for complex manufacturing tasks has been a model for virtually every successful software company in the industry today.
I Am Woman
One of the reasons Sandra Kurtzig succeeded in the male-dominated software industry was because she didn't accept the status quo. When she first started ASK, she refused to follow the rigid, hierarchical "male" approach to management and instead adopted a policy of being honest with employees, sharing information rather than withholding it, and keeping her office door almost always open.
The Candy Man
Milton Snavely Hershey Founder of The Hershey Foods Corp.(originally Hershey Chocolate Co.) Launched: 1894 "Give them quality. That's the best kind of advertising in the world." --Milton Snavely Hershey During the late 19th and early 20th centuries, when ruthless businesspeople were creating steel, oil and railroad empires on the backs of a hapless rural population forced into grim factory towns, Milton Snavely Hershey followed a different path to success. Unlike the cold-blooded "robber-barons" who offered their workers callous treatment and backbreaking labor for menial wages, Hershey offered his employees dignity and prosperity, inspiring loyalty in his workers and making himself rich. Even so, Hershey's path to sweet success was fraught with obstacles and set backs that would have crushed lesser men. But through perseverance, ingenuity and his ability to bounce back from failure, he built one of the great American fortunes from the ground up and brought joy to millions with a beneficent wonder that would immortalize his name-Hershey's Chocolate. Hershey began his candy-making career at age 15, when he was apprenticed to Lancaster, Pennsylvania, confectioner Joseph H. Royer. Hershey blossomed under Royer's tutelage, acquiring many of the skills and tools he would later use to build his own empire. In 1876, with $100 from his aunt, Hershey opened his first candy shop in Philadelphia. Although Hershey worked day and night making caramels and taffies, the winter of 1882 was dogged by illness and mounting debt and he sold the business and headed to Denver. It was while working for a confectioner in Denver that Hershey learned adding fresh milk to caramel improved its quality and extended its shelf life--a discovery that would later prove crucial. Hershey eventually left Denver to start candy businesses in Chicago, New Orleans and New York City. But none of the ventures succeeded, and Hershey wound up bankrupt. When Hershey returned to Lancaster, he found he'd been cast out by his relatives--they refused even to take him in, let alone lend him money to start another business. But Hershey soon found salvation in the form of an old friend and employee. Henry Lebkicher, who had briefly worked for Hershey in his Philadelphia store, not only offered Hershey a place to live, but also lent him the money he needed to bring his candymaking equipment from New York. The pair then scraped together enough capital to start Lancaster Caramel Co.
Drawing from his experiences in Denver, Hershey experimented with using fresh milk in the candy-making process. Impressed with the quality and shipping stability of Hershey's new, chewy, milk-based caramels, an English importer placed an order for £500 worth of candy, enabling Hershey to secure a $250,000 loan to expand the business. By 1893, in addition to the original Lancaster factory, the now incorporated Lancaster Caramel Co. had plants in Mountjoy, Pennsylvania; Chicago; and Geneva, Illinois; which together employed more than 1,300 workers. But that was just the beginning. During a visit to the 1893 World's Columbian Exposition in Chicago, Hershey witnessed a demonstration of chocolate-rolling machinery from Germany. Inspired, Hershey started Hershey Chocolate Co. the very next year and produced more than 114 different types of chocolate candies, including the product that would make his name world-famous--the milk-chocolate Hershey Bar. It became an instant phenomenon, so Hershey sold the Lancaster Caramel Co. for $1 million and turned his attention solely to chocolate. Before long, Hershey set out to build an ideal town where his work force could live, play, work and prosper. Because of its rich supply of clean water, proximity to some of the finest dairy farms in the country, and plenty of land for expansion, Hershey chose land near his birthplace, Dairy Church, Pennsylvania. In 1903, Hershey broke ground for his factory. It was modern in every way, with hightech machinery that eliminated the cost and tedium of making and wrapping chocolate by hand, and made possible mass production of quality milk chocolate at affordable prices. Hershey, Pennsylvania, the town developed by Hershey for his factory and employees, featured affordable housing, a sewage system, paved streets, electricity, schools, stores, a trolley system, churches, a library, a hospital, a zoo, an open-air theater and even an amusement park. Both the community and the company prospered; by 1915, the chocolate plant alone covered 35 acres, and company sales sky-rocketed from $600,000 in 1901 to $20 million in 1921. When the stock market crashed in 1929, Hershey embarked on a building plan devised solely to keep his workers employed. They constructed a new high school, a sports arena, a community building and a lavish 170-room hotel. Both the company and the town survived the Depression and continued to flourish, thanks to Hershey's efforts. Hershey remained at the helm of his chocolate empire until 1944, when he finally retired as chairman of the board at the age of 87. He spent the 88th and final year of his life still experimenting with new confections, including celery, carrot and potato ice creams and a surprisingly successful beet sorbet. After Hershey's death in 1945, the chairman of the board of the National City Bank of New York proclaimed, "Milton Hershey was a man who measured success not in dollars, but in terms of a good product to pass on to the public, and still more in the usefulness of those dollars for the benefit of his fellow man."
Sweet Success
Before the early 1900s, all chocolate was handmade through a time-consuming and costly process that made chocolate an expensive treat, affordable only by the rich. But Milton Hershey was determined to change that. By developing and using innovative machinery that eliminated the need to make and wrap chocolate by hand, Hershey introduced the first method for mass-producing chocolate at affordable prices, allowing everyone to experience the joys of his magical creation, the Hershey Bar.
If The Name Fits...
"New eco-topia"..."Old money flats"..."Kids & cul-de-sacs"...if these areas don't sound familiar, listen to what Michael J. Weiss has to say: Your customers live there. By Laura Tiffany
arketing meeting: Take One. "We sell electronic organizers so we should market to anyone who needs organization or likes gadgets. Let's send a flyer to everyone in town." marketing meeting: Take Two. "We've cluster analyzed ZIP codes in a five-mile radius of our store. Area one and four are mostly seniors and blue-collar families, so we'll focus on areas two, three and five professional singles and white-collar middle class and affluent families who buy personal electronics. We'll target 30 blocks with three separate mailers." isn't it nice to know the person you're marketing to may actually want your product or service? Geodemographics, also known as cluster or lifestyle marketing, jolts demographic marketing up a few notches. "Geodemographics is kind of a holistic approach to marketing," says Michael J. Weiss, author of The Clustered World: How We Live, What We Buy, and What it all Means About Who We Are (Little, Brown and Company). "It doesn't just consider demographic information like age, income and marital status. It also looks at the effect of whether people live in a city, a small town or a rural area. It looks at lifestage whether you're young and single, a couple with kids, or a retiree. And it also looks at other factors, specifically how you behave in the marketplace." Weiss, a freelance writer by trade, initiated his study of geodemographics after interviewing Jonathan Robbin, founder of Claritas Inc. Robbin, a social scientist, merged census data, marketing surveys and ZIP codes into a lifestyle segmentation system called PRIZM (potential rating index for ZIP markets), the basis for cluster marketing in the United States. Intrigued by the geodemographics concept, Weiss took on the marketingscience beat. We've asked Weiss to provide the lowdown on cluster marketing to help you make the most of your marketing efforts. So, who are the people in your neighborhood? Keep reading to find out.
LAURA TIFFANY: Why is cluster marketing more effective than other types of marketing? MICHAEL J. WEISS: It's based on a powerful sociological phenomenon that birds of a feather flock together. That is, people who live on the same block tend to share similar backgrounds, values and consuming patterns. So by looking at what clusters are found in a given trading area, an entrepreneur can learn from surveys what the residents tend to eat, drink, drive and think about. And that information can help a person decide whether to open a store in a particular area, what products to stock, what music to use in a commercial and even what colors to use when they're designing a brochure. It's much better than intuition, which is what a lot of small-business people use when they're trying to plan their marketing. And it's more powerful than demographics because it considers lifestage and urbanization. TIFFANY: The number of PRIZM clusters increased 55 percent from the 1980s to the 1990s. Do you see a similar increase in the approaching decade? WEISS: I really think we're becoming more and more diverse in this country. I think we'll see a continued population growth out in exurban America, so you're going to see more telecommuters countryside taking their city tastes with them. Also, the high cost of housing inside the nation's beltways is pushing younger families out to rural America. Baby boomers are going to start entering their retirement years come 2005 and 2010. As a result, we'll see more active retirement communities in the Sunbelt. Boomers will also want to retire to college towns where they have great memories and are near a cultural center. There's also going to be a group of boomers who have no desire to leave their neighborhoods in cities and suburban areas. Another big trend that's going to create more clusters is the increase in immigration. Half of all U.S population growth in the next 50 years will occur among immigrants coming to America. A lot of people don't realize Hispanics will be the largest minority group in this country, so we're going to see more second generation Hispanic Americans who are upper middle class and affluent with their own lifestyle types. TIFFANY: In your book, you say there's a "thriving homogenized culture" exemplified by places like Wal-Mart and Home Depot. How does this mesh with the idea of clustering? WEISS: Basically you have several different cultural phenomena taking place. America still has a very thriving homogenized culture, and you can see it in all the cookie-cutter malls you see off the interstate, and in the spread of McDonald's and Home Depot and Wal-Mart stores all around the country. But the reality is that a lot of these mass-appeal businesses really don't reach dozens of the clusters.
So you have these two tracks going on in American business--a booming homogenized mainstream business culture, as well as numerous specialty stores and boutiques, which are really catering to these cluster niches. I think the nation is big enough to support both kinds of business types. TIFFANY: As the country becomes even more clustered, will the Wal-Marts and McDonald's still have mass appeal? WEISS: I see two conflicting trends taking place. This whole notion of shopping as entertainment will still draw people to the big-box stores and megamalls in the same way that town centers drew people to be around their neighbors 100 years ago. On the other hand, the blossoming of niche marketing, where you have dozens of cable television channels and Web sites that reflect very specific tastes and values, also reflects the fact that more and more Americans want to be targeted in the way they receive information. There's so much information clutter out there that people are going to want to have a filter. I see a real boom in Internet-based marketing, specialty-boutique marketing and very narrowly focused stores in the business community. TIFFANY: Which clusters are the trendsetting ones? WEISS: The rich and sort of funky clusters in the big cities are the real trendsetting cauldrons. These are areas where you have a lot of art galleries, specialty boutiques, museums, small theaters and colleges nearby, so you have a very receptive climate for new products, services and technology. These are areas where you have the early adopters, like the Urban Goldcoast, Bohemian Mix, and Money and Brains clusters, who are the first to glom on to different ideas and trends. The products and services then slowly filter out from the city centers to the hinterlands, down the socioeconomic ladder to smaller towns and more downscale areas where they're spread out to the entire populace. TIFFANY: In your book, you give an example of a camera store that should market to Winner's Circle addresses (the second most affluent cluster, residing in new money suburbs), whereas the local hardware store might do better marketing to Kids & Cul-deSacs addresses. Isn't this limiting your possible sales? Shouldn't you explore all your options--not just the most likely? WEISS: That's a very critical question because I really look at cluster-based marketing as a risk-lowering device. When you do a cluster analysis of a trading area, you are finding people who are most likely to be interested in your product or service. But then the question becomes, what happens after you've saturated that audience? How do you reach out to new kinds of consumers for your product? That has to be part of your cluster-based analysis. The great thing about clusters is when you do a profile of your trading area, you can find that out of 62 clusters, there are 35 that are nowhere near this area. They're just not
interested in a lawnmower in city neighborhoods or a swing set in a singles area. So the clusters can really help you focus in on the people who you want to go after, in addition to those who you really know are completely outside your area. TIFFANY: If someone can't afford to hire a cluster marketing firm, how can they use this method themselves? WEISS: First of all, companies like Claritas sell very basic trading-area profiles for only a few hundred dollars. But I believe in guerilla marketing, and you can do some of your own analysis right from your own cash register. Look at receipts and the people who are coming into your store, and try to map your own trading areas. Then do some test-marketing: Send out a flier featuring one kind of product or service at your current price or at a discount to the area and see which kind of customers respond. Then do a bigger mailing to the different neighborhoods or the different ZIP codes that reflects what you found. Small businesses should do focus group research, even if it just means bringing a dozen friends to your house and asking them if they like this cookie or that one, this book or that hammer. Find out exactly what they like about it, and then figure out where these people live to do your own cluster marketing. I'm a firm believer in the idea that homegrown cluster marketing is a lot better than no-target marketing and a lot better than intuition. TIFFANY: What types of things should you ask your customers when you're analyzing them at the purchase point? WEISS: Talk to people who are regulars and ask them where they live, what they like about your store, what they don't like about it, what they wish you had in the store, and what other kinds of stores they like. Or, if you think people will be sensitive about answering personal questions, you may say, `What kinds of people live in your neighborhood? What kinds of stores are really popular? What kinds of cars do people drive? What kinds of homes are in the neighborhood?' So you're not just asking what the particular customer is doing. TIFFANY: Can you explain the idea behind global clusters? WEISS: There are now cluster systems in 25 countries, and it's possible for multinational companies to target the same kind of consumer in one country or another. Nearly every country has its neighborhoods of Old Money Flats and New Family Suburbs and Working Class Villages and Waterfront Retirement areas. And the consuming patterns of each of these lifestyle types tend to be the same, whether you're in Australia, Italy or England. So a company can now find the lifestyle type that's most receptive to its product or service in America and then pick and choose the same kind of
lifestyle type in Spain, France or Italy, and market its product there as well using similar kinds of messages. There's even a global cluster system called MOSAIC, from Experian Information Solutions Inc., which has classified 14 common lifestyles in 19 countries. This is the way of the future--doing cluster-based marketing throughout the global village. TIFFANY: How can global clustering help Internet marketers? WEISS: There are now Internet marketers using clusters, and they're able to learn where people live by using cookies on the Internet and getting demographic data from people who fill out applications and customer profiles. So you don't have to use a geographicbased address to reach people in the different clusters. They can came to you in what historian Daniel J. Boorstin has called consumption communities: communities based on people with shared tastes and consumer behavior. TIFFANY: Some arguments against cluster marketing include concerns about privacy and that clustering stereotypes and oversimplifies consumers. How do you dispute this? WEISS: Cluster systems are very good arguments against concerns about privacy since they're based on geography. They don't really care about what individual households are doing because clusters are based on the theory that birds of a feather flock together--that, essentially, you reflect the neighborhood where you live. When it comes to the concern about being pigeonholed into these classification types, I see that concern as reflecting good news and bad news. The bad news, of course, is that Americans hate to be pigeonholed, and they really resent that they can be so easily targeted into one of these different lifestyle types. The good news is that we're really a very diverse people, and there are at least 62 kinds of us in any appreciable number in this country. We have to recognize that marketing technology is able to identify patterns of behavior and different lifestyle types within the great American population. That's a good thing because businesses have a way of getting out products and services that we're interested in as opposed to a lot of stuff that we really don't have time for. I look at that as a positive force.
Latino America
The United States is the fifth-largest Latino nation in the world with 31.1 million residents. In 2009, Hispanics are expected to surpass African Americans as the largest U.S. minority group. All the more reason to pay attention to the Latino America cluster, which, as 1.3 percent of the nation, is comprised of younger Latino middle-class families. Usually found in
metropolitan areas like Los Angeles, New York City and Chicago, money can be tight. Leisure time is important; nightlife is bustling, though often dangerous. One resident with whom author Michael J. Weiss spoke says Latino America is "an immigrant gateway community," with families building a better life for themselves and their relatives. With a median income of $30,000, these large, young families (under age 34), live in predominantly Latino households, are high school graduates (10 percent have graduated college), and work at blue-collar and service jobs. Voting booth: Although voting rates aren't high, community involvement is. Often liberal Democrats, they voted for Clinton and are concerned with gun control, publiceducation funding and defusing racial tensions. Reading material: Baby Talk (384), Cosmopolitan (228), Muscle & Fitness (188) Watching and listening: Spanish radio (992), All My Children (333), Late Night With Conan O'Brien (298) Eating and drinking: avocados (230), tequila (204), canned ham (140) Driving: Kias (238), GMC Safaris (180), Toyota N81 pickups (151)
Kids & Cul-De-Sacs
The largest cluster in America, these minivan driving, Disney-worshiping families center on the pint-sized set. Three percent of the population, this cluster creates the common definition of suburbs: predominantly white and Asian, upper-middle-class professionals, soccer moms and barbecue dads. Weekends are comprised of trips to Price Club to spend $150-plus on groceries, renting videos for their two or more VCRs, ordering pizzas, organizing the kids' activities, and trekking to the local theme park or zoo. Family folks with money, the Kids & Cul-de-Sacs cluster has a median income of $61,600, are college grads, and work in white-collar professions. Voting booth: Conservative Republicans who voted for Bob Dole, they treasure their kids above all else and are concerned about family values, tax reform and public-school funding. Reading material: Golf Digest (230), Bicycling (215), Travel & Leisure (210) Watching and listening: soft rock (160), Wall Street Week (152), news/talk radio (152) Eating and drinking: low-fat sour cream (158), Entenmann's snacks (148), candy bars (137) Driving: Toyota Previas (323), Nissan Quests (300), Mercury Villagers (290)
Bohemian Mix
One of the trendsetting clusters, Bohemian Mix are real-life Friends, the young singles and couples who dress hip and frequent coffee bars, microbreweries and arthouse movie theatres. This cluster is open to new things. With almost three-quarters of the Mix single or divorced, and almost a third gay, author Michael J. Weiss notes this cluster is "a haven for alternative lifestyles." This is where the Gay Pride parade will be held, the multiethnic clothing boutique located, and the McDonald's and Wal-Mart willfully rejected. Also called "the young and the restless," these singles consume almost twice the national average in alcoholic beverages, enjoy aerobic activities to work those imbibed calories off, and lead sales in condoms. Living in the heart of downtown, these apartment-dwellers are ethnically mixed whitecollar professionals who earn an average salary of $33,700. Voting booth: Predominantly liberal Democrats, they voted for Bill Clinton and are concerned about gay rights, legalizing marijuana and defusing racial tensions. Reading material: New York Magazine (440), GQ (340), Esquire (307) Watching and listening: Nightline (270), Homicide (185), contemporary rock radio (184) Eating and drinking: imported beer (201), gourmet coffee (191), imported wine (180) Driving: Alfa Romeos (277), Volkswagen Cabriolets (234), Audi 90s (228)
New Eco-Topia
City dwellers are returning to the good life in small-town, rural America. New EcoTopia, comprising one percent of the United States, mixes an interesting bunch of folks: those escaping downtown and those who've never lived downtown, or as author Michael J. Weiss says, "a mix of granola and grits." Although they're earning middle-class incomes ($35,300), the Eco-Topians bring a touch of big-city tastes to the back country with a penchant for imported cheese and organic gardening, AOL and public broadcasting, Subarus and Humvee trucks. Averaging 35-plus, New Eco-Topians are rural blue-collar, white-collar and farm families living in single-unit housing. They're predominantly white, some have children, and most have graduated high school and attended college. Voting booth: Overwhelmingly moderate Republican, they voted for Bob Dole in 1996, and their key issues are tax and welfare reform and legalizing marijuana. Reading material: Country Living (223) , Organic Gardening (195), Popular Science (151) Watching and listening: NBC Nightly News (218), As the World Turns (200), Today Show (158) Eating and drinking: beef (145), imported cheese (143), low-fat sour cream (136) Driving: Dodge 4WD pickups (586), Humvee trucks (580), Jeep Grand Wagoneers (491)