What To Do When Investors Think You're Crazy

When everyone in your industry says your idea won't work, what do you do next? The founder of Staples has the answer.

The relationship between entrepreneurs and experts is complicated.

Most entrepreneurs can see their vision clearly, but the experts in their field can often think of reasons why the entrepreneur is mistaken and will fail.

Despite this, many entrepreneurs follow through with their visions, ignoring the experts’ noisy dissents. They do this not out of arrogance or ignorance, but because the entrepreneurs know they can visualize the end product more than the naysayers.

It is essential that entrepreneurs dream because they see what others do not. And confidence to follow the dream comes from both the clarity of the vision and the recognition that naysayers simply don’t have vision.

Staples Inc.’s Tom Stemberg is a case in point:

Pitching The Vision

When Stemberg pitched his Staples idea to every investor he could find, they all thought his idea crazy. Nobody said it, of course, but the message was: "You’re nuts; you must be, since everyone in the industry disagrees with you."

Investors declined his invitation at first because they saw the high risk associated with such a drastic reinvention of the industry. Besides, they argued the conventional wisdom—that the stationery industry was inherently only marginally profitable.

Investment bankers and others told Stemberg to share his ideas and get reactions from industry experts. So he talked with the late Howard Wolf, who was the CEO of United Stationers. Howard had led his company to great success, and he was a respected leader in the industry.

Wolf told Stemberg that his idea for a Staples-type store was "horrible."

Ignoring the Naysayers

That might have scared off many newbies to the industry and to entrepreneurship, but Stemberg believes that Wolf told him it was a horrible idea because "he thought if we succeeded it would be real bad for United Stationers. And he was right about that."

Stemberg says he knew Wolf was wrong because Wolf’s arguments didn’t make sense.

[United Stationers] were all about the customer wanting service and hand holding when, in fact, most of these office products dealers were giving lousy service. I had talked with a lot of customers and I knew that they weren’t aware how badly they were getting ripped off. But when you told them that the same dozen pens they were buying for $3.68 you could get for about a dollar, they were going to leave their loyal, great dealer in a New York minute.

Ask The Customer

Stemberg did his homework. He went to law firms, to friends who were lawyers there. He asked them how much they spent on office products. Few knew. After all, this was before law firms had computerized systems that could spit out such information instantly.

So they’d ask their assistant or office manager, who would generally guess that they spent $200 per employee. That would have been $20,000 for their 100 employees. Tom would urge them to check, not only as a favor to him but also to themselves.

Lacking a computer system, that meant reading and adding up old invoices. That they did this attests to Stemberg’s salesmanship.

They found that they were in fact spending over $100,000 for those 100 employees. The lawyer who managed his firm’s audit for Stemberg was beside himself.

Stemberg recalls asking the lawyer, "Let me ask you a question. If we could save you one-half of that, but you’d have to do some work and go to a store, would you do it?"

The lawyer replied, "Are you kidding me? That’d pay for my entire family’s cars and those of my partners. Where do I go? How do I do it?" Obviously, Stemberg was getting more accurate information than was shared by Mr. Wolf.

Look To Other Pioneers

Stemberg had observed the success of Jack Miller, the founder and CEO of Quill, a major distributor of office supplies to businesses, whom Stemberg describes as "a wonderful guy."

Miller was in fact a true industry leader whose innovative moves and annual messages were gospel to his peers. Jack had carried a case all the way to the U.S. Supreme Court to eliminate state sales tax charges for his company and for other similarly situated companies that chose to follow his example.

Quill was charging much less than the corner stationery store, and Quill’s business was already big and growing. Stemberg saw that the company’s quick delivery served some customers well, but small orders were burdensome. Miller freely encouraged Stemberg in his initiative, even though Stemberg was a potential rival. Years later Staples bought Quill for about three-quarters of a billion dollars.

Stemberg learned important retail lessons. He saw that wholesale clubs—Costco, Price Club, BJ’s, and Sam’s Club—that had only a hundred relevant products in each of their stores were doing $4 to $5 million revenue per store each year. He knew that with nearly 5,000 items in each of his stores, nearly 50 times what the others carried, he could do very well indeed.

Stemberg did his research and knew that the naysayers were off base. They were using poor logic or had distorted facts or had manipulated one or both to support their naysaying in order to protect their own turf.

Adapted from Invent, Reinvent, Thrive: The Keys to Success for any Start-Up, Entrepreneur, or Family Business (McGraw Hill Professional, 2014) by Lloyd E. Shefsky.

Lloyd E. Shefsky is clinical professor of entrepreneurship at Kellogg School of Management, as well as founder and co-director of the school's Center for Family Enterprises and co-founder of its Center for Executive Women.

[Image: suntud talek via Shutterstock]

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