From the November 1996 issue of Startups

Direct mail generated $131.2 billion in direct-order sales to consumers and businesses in 1995, according to the "Economic Impact: U.S. Direct Marketing Today" report from the Direct Marketing Association (DMA).

When you think of direct mail, you may think just of the stuff that lands in your mailbox--each day's smorgasbord of catalogs and offers from retailers, bankers, insurers and charities, all wrapped, folded, stapled or stuffed into official-looking envelopes and, sometimes, even sealed in plastic bags. According to the U.S. Postal Service's most recent Household Diary Survey, the average American household receives more than seven catalogs each month. The DMA in New York City extrapolated Postal Service volume data and determined that last year, 13.2 billion catalogs were mailed out, including both consumer and business-to-business mailings.

Catalogs are a big part of direct mail, surely, but there are other opportunities for entrepreneurs who are interested in being a part of the overall mail industry. Following is advice from four entrepreneurs who have been on all sides of the mailing business.

Home Office & Postal Services(HOPS)

What could be simpler than running a private mailbox service and preparing packages for overnight delivery? Plenty, as Ken and Linda Kunzman of Carrollton, Texas, discovered as they prepared to open Home Office & Postal Services (HOPS) in May 1993. For one thing, they discovered that Carrollton, a Dallas suburb of 92,000 people, had 19 other shops--mostly privately owned--doing a lot of what they wanted to do. Undeterred, they resolved to succeed by doing more. They've tapped into some new areas of business, like providing computer technical support.

"It's a little family business that draws on our strengths," says Ken, who had taken early retirement after almost 29 years with IBM. Once their son, Nicholas, started school, Linda wanted to get into a career that would give her the flexibility to set her own hours. While they wanted to pattern their business after a variety of franchise operations, the Kunzmans felt they were too independent to operate under the strict direction of a franchisor. Once they knew what they wanted to do, the Kunzmans would stop by stores in other areas to talk with the owners about their own start-ups. They found most to be open and willing to share tips. One woman in particular, a store owner in North Dallas, helped reaffirm their decision to go on their own instead of with a franchise.

"She reminded us that packing boxes and putting mail into slots is not rocket science," Ken recalls. "And she advised us against signing an expensive, 10-year franchise agreement with someone who would try and tell us that it was."

It cost the Kunzmans less than $50,000 of their own savings to start the business. It could have been less, Ken says, but they started by buying rather than leasing their equipment--a decision neither regrets today. When it came to naming the business, they thought "Home Office & Postal Services" would immediately convey what their business was all about.

To implement their decision to offer more than mail boxes and packaging services, Linda called on her earlier work experiences to develop a desktop publishing arm of the business, including stationery and business-card design and resume writing, while Ken drew on his IBM background to take on some computer-consulting work, under the HOPS umbrella.

"We had to learn to look at our business as a convenience store," Ken says, "and we had to form alliances with other businesses and add services to produce the results we wanted."

Linda adds that quality customer service brings homebased business owners into the store. "They like the advantages of having an address with a `suite' number," she says. The Kunzmans also accept overnight packages for their customers, many of whom travel and cannot always be home when the packages arrive.

Know what you're getting into before opening a business, they advise. The Kunzmans feel they helped themselves by joining a professional association, Associated Mail & Parcel Centers, in Napa, California, which provides support to its members. "You can also visit companies like the one you want to start," Linda suggests. "Talk with the owners about their business highs and lows."

"And don't expect success in six months," Ken says. "Expect success in one or two years. It is a lot of work, but the rewards are high."

The Gluten-Free Pantry

When she was diagnosed with celiac disease, an immunity disorder that requires a strict gluten-free diet, Beth Hillson decided that it wasn't going to stop her from eating the foods she loved. Although many foods contain gluten, a protein found in such grains as wheat, rye, oats and barley, Hillson found a way around the problem by creating her own special baking mixes and other gluten-free foods.

Hillson soon realized the need for a specialty-food catalog after having a difficult time finding tasty food, besides her personal mixes, that was wheat- and gluten-free. Fortunately, her background in journalism and marketing, as both a food writer and cooking teacher, provided the ideal platform for her to establish the Gluten-Free Pantry Inc. It originated as a small project in her basement in Glastonbury, Connecticut in 1993.

"I do all the designing of the catalog, including the recipes, art, production, etc.," explains Hillson. "The beauty of this business is that it balances all my skills. I think my background, as well as my instinct for what our customers need, is what makes this catalog successful."

For anyone interested in starting a specialty-food catalog, there are a few things to consider, besides your background and instincts, according to Hillson. "You are not going to be big overnight," she says, "so start conservative and with small investments. However, always be open to new ideas, as long as they remain within the scope of your audience."

To find her audience, Hillson sent out samples of her mixes and informational pamphlets to five or six support groups that specialize in celiac disease. The members prepared the mixes at their meetings and, pleased with the results, soon became regular customers. Using the contacts she had made as a food writer, Hillson garnered a large amount of publicity for Gluten-Free Pantry Inc. from various food columnists and editors throughout the country. Without ever purchasing a mailing list, the company grew rapidly. Currently employing 12 workers, Gluten-Free Pantry Inc. managed to double their revenues in the last year.

In the past three years, Gluten-Free Pantry Inc. has expanded its catalog to include items other than baking mixes, such as vitamins, pasta, bean soups, and ready-made cookies. They also offer specialty items, such as heavy-duty mixers, bread slicers and cookbooks. Even during the process of expansion, though, Hillson concentrated on only providing products which her special audience could not find in the general marketplace.

Hillson also stimulates sales by promoting certain recipes that use special ingredients or require cooking utensils that are normally difficult to find. Whenever she publishes a new recipe, she offers the mixes and utensils to go along with it. "When we published our English Muffin recipe in our newsletter," Hillson illustrates, "our mix and muffin-ring sales rose tremendously."

During the holiday season, Gluten-Free Pantry Inc. includes an assortment of gift items along with its regular selection of products. "We offer gift-assortment packages and small appliances that friends and family might want to give their gluten-free relatives," says Hillson, "such as special bread-makers that have proven to work well with our recipes and mixes."

Finally, whenever customers orders products from Gluten-Free Pantry Inc., they also receive a copy of "The Gut Reaction," a quarterly, two-page newsletter that offers detailed coverage on wheat- and gluten-free diets, including recipes to make from scratch or with mixes from the catalog, as well as updated information for the celiac population and notices about upcoming changes within the company.

After working in the mail order market for three years, Hillson has a few tips for maintaining a successful catalog and clientele base. "Always remember three things: 1) Stay focused--don't let your ideas stray from your original purpose; 2) Service and responsiveness--always provide a quick turnaround time for your customers, and if there is a problem, call them; 3) Quality--don't sell anything that you wouldn't buy yourself."

Advanced Mailing Services

Jeff Burkett might not have succeeded as a mailing-list broker had he not found a mentor to guide him through the rough spots early on. "I would advise anyone getting into this business--or any other business--to find a mentor in a noncompetitive market, and put every question you can think of to that person," Burkett says. That's just what he did before opening Advanced Mailing Services Inc., a list brokerage, mail processor and databank management company, seven years ago in Greensboro, North Carolina.

Burkett's background as a CPA had included a stint as controller at WFMY-TV, at that time owned by Harte-Hanks Communications Inc. of San Antonio, which also owned a direct-mail business in Greensboro. Burkett, in a mix of good and bad timing, was recruited to switch from the TV station to that operation shortly before the company sold the station and, unfortunately, closed the direct-mail operation. Burkett, who had become interested in the mailing business during his short stint there, toyed briefly with the idea of buying the business from Harte-Hanks, but decided instead to round up financing from local banks and start his own business.

While his previous experience helped, Burkett says he learned how to run his own business from the late Dewey Massey, who owned a mailing business in Raleigh, about 70 miles east of Greensboro. Since their companies were far enough apart geographically so as not to be competitors, Massey agreed to help Burkett get started. "I spent two days in his shop and learned more than I could have in two years by myself," Burkett says. Their friendship continued up until the time of Massey's death five years ago.

Burkett says he didn't draw a penny from the business during its first year. His start-up costs, including leasing 4,500 square feet of office space and buying two large pieces of mail-processing equipment, were less than $100,000, most of which came from a bank loan.

While he still does large mailing jobs--such as folding, inserting and applying labels--for clients, he is most excited about having tapped into the list business. As a broker, Burkett will work with a client to determine a market to target with a mailing, and then go out and find the best list to reach that target. On his own, Burkett has developed two lists of addresses and telephone numbers, one of businesses and the other of residences. This information was taken, largely, from phone directories around the country, but the resourceful broker will also go to whatever source necessary--mostly available from libraries and trade associations--to meet a client's needs.

"If I've got a paint company that wants to find homeowners whose houses might need painting," Burkett explains, "I'll go to the courthouse and get tax listings that show the value of a home and its age. I can break that information out by zip code and compile a list of, say, 10-year-old homes in a particular area that might need painting." The price of lists varies, depending on their source, from 4 to 9 cents per name. His mark-up is a standard 15 percent.

Besides finding a mentor, Burkett says it's critical for anyone interested in the mail business to develop a good relationship with the local post office. "They want you to succeed," he says, "and they want to help you do it right because, when you do, it helps them do a good job."

Where The Bucks Are . . .

Want to get into the direct-marketing business? Maybe you should move to California, which led the nation last year in direct marketing sales ($117.6 billion), according to a new survey by the Direct Marketing Association (DMA--membership includes access to their library & resource center, online service, publications and seminars, and representation in the marketplace, the media, and in government).

That figure represents the value of the jobs, sales, and advertising expenditures generated through all types of direct marketing. New York was in second place last year, with $77.4 billion.

In 1995, direct marketing in America generated $594.4 billion in consumer sales and another $498.1 billion in business sales. The study also revealed that more than 19 million jobs in 49 industry segments are attributable to direct marketing nationwide--with California again taking first place with more than 2.07 million direct-marketing-related jobs.

"Direct marketing plays a unique and often hidden role in many states' economies," says Jonah Gitlitz, DMA's president and chief executive officer. "From retail and business services to the pure mail order market, increasingly all types of advertisers are relying on direct-marketing methods to move commerce."

The top 10 states for such enterprises, ranked by total direct-marketing sales and jobs, according to the DMA survey, are:

California

$117.6 billion

2 million jobs

New York

$77.4 billion

1.4 million jobs

Texas

$73.2 billion

1.3 million jobs

Florida

$57.1 billion

1 million jobs

Illinois

$54.9 billion

935,000 jobs

Pennsylvania

$50.2 billion

892,000 jobs

Ohio

$47.1 billion

800,000 jobs

Michigan

$39.3 billion

661,000 jobs

New Jersey

$36.3 billion

611,000 jobs

North Carolina

$33.2 billion

584,000 jobs

Contact Sources

Advanced Mailing Services Inc., 6211 Chimney Center Blvd., Greensboro, NC 27409,

(910) 299-0800.

Gluten-Free Pantry Inc., P.O. Box 840, Glastonbury, CT 06033-0840, (860) 633-3826.

Home Office & Postal Services (HOPS), 1060 W. Frankford Rd., #203, Carrollton, TX 75007, (214) 394-0901.