How To Build A Million-Dollar Business
You don't have to be the first or the biggest. You don't need the brains of Einstein or the cure for cancer. You don't have to be bombastic or even egomaniacal.
Nor is attaining success a question of doing everything right. Rather, turning your business into a winner is a matter of vision, intuition, charisma, leadership and character. To build a million-dollar business, you need the evangelical spark of Southwest Airlines Co. CEO Herb Kelleher, the bull's-eye delivery of Jamba Juice Co. founder Kirk Perron, the innovative eye of Barnes & Noble Inc. chairman Leonard Riggio, the gracious stamina of Ruth's Chris Steak House founder Ruth Fertel, and the pioneering spirit of Yahoo! Inc. founders David Filo and Jerry Yang. Here's how six seemingly ordinary people turned good ideas, real commitment, and perhaps just a touch of irrational optimism into real-life tales of fortune.
Making People Count
The pitch went something like this: Rollin King sketched out a triangle on the back of a cocktail napkin with the words "Dallas," "San Antonio" and "Houston" at each corner. With these three routes, the pilot suggested, a lean, mean intrastate airline could take flight. Never mind the competition. Never mind the red tape. Just fly people safely, cheaply and conveniently between these three cities, and you'll have a profitable airline. It was brilliant. It was insane. But was it impossible?
"Rollin, you're crazy," attorney and friend Herb Kelleher responded. "Let's do it.'
Do it they did. Nearly three decades later, the airline they founded, Dallas-based Southwest Airlines Co., continues to set new standards for productivity, affordability, profitability and fun in an industry that isn't exactly renowned for its innovation and responsiveness. Despite what should be unwieldy proportions--49.6 million passengers in 1996 and a current staff of more than 25,000--Southwest is a miracle of efficiency, boasting the best on-time performance, the fewest customer complaints and the best baggage handling in each of the past five years, according to U.S. Department of Transportation statistics.
And that ain't all. Since its founding in 1971, Southwest has been a maverick in virtually every area of operations. It offered air fares so low, it gave bus and car travel companies a run for their money. It eliminated airline meals in favor of peanuts--saving money and manpower. It threw out assigned seating on the principle that customers were capable of finding their own seats, which cut valuable minutes off its boarding times and turned its planes around faster. It encouraged flight attendants to crack jokes during the in-flight emergency instructions. It was the first major airline to champion ticketless travel and one of the first to put up a Web site and offer online booking. All this, and Southwest is widely hailed as one of the safest and friendliest airlines in the skies.
Who's responsible for all this genius? Ask outsiders, and they'll point to CEO and chairman Kelleher, now 66, whose leadership has made Southwest one of the most dynamic, responsive--and zaniest--companies in history.
Ask Kelleher, on the other hand, and he'll tell you it's the employees who make Southwest great. "Competitors have tried and failed to copy us because they cannot copy our people," Kelleher says. He believes it's as simple as seeking out exceptional employees, treating them with respect, and giving them the latitude and encouragement necessary to do their jobs better than anyone knew possible.
What isn't simple is the execution. In an industry fraught with competition and rapid-fire change, an intelligent and motivated work force is everything. Southwest's rules and regulations are kept to a minimum so employees can solve problems on the fly. And at the helm is an entrepreneur who knows the value of the personal touch.
"I'm always willing to look at [market research], but I never want to get bogged down in it," says Kelleher. "We get a lot of employee feedback on what they hear as to our customers' likes and dislikes. I'd rather we be out there doing things for the customers and gauging their responses on the front line."
Kelleher's advice to entrepreneurs: "Ask your employees what's important to them. Ask your customers what is important to them. Then do it. It should be that simple.'
Southwest In A Nutshell
Company: Southwest Airlines Co.
Founded: 1971 by Herb Kelleher and Rollin King
1996 vitals: $3.4 billion in operating revenue,
$207.3 million in net income, 108.4 million bags of peanuts served
Number of job applications received in 1996: 137,504
Number of new employees hired: 4,857
From co-founder Herb Kelleher: "Don't be afraid to be a maverick. We caution our employees never to rest; they should always be looking over their shoulders and seeking new and better ways of doing their jobs.'
Juice Up Your Image
It's not the lively purple and green graphics, nor the quaint sight of wheat grass growing in the display case that gets you first. It's the scent of oranges, so piquant and insistent that your mouth puckers and your stomach starts grumbling in sync with the blenders. You are in smoothie heaven, swirling in a vortex of delicious dilemmas. Do your taste buds demand raspberries or strawberries, bananas or oranges? Do you choose the echinacea to charge up your immunity or the ginseng to boost your energy? Whichever way you go, you'll leave Jamba Juice positively vibrating with health and vitality--even if some of that buzz exists only in your mind.
Welcome to Kirk Perron's vision of 21st century marketing, where advertising isn't king. Though the San Francisco-based Jamba Juice Co. does have a marketing program--and a fine one at that--founder and CEO Perron knows that no direct-mail, coupon-driven, broadcast-based, image-enhancing stunt is going to outperform the real hook at his outrageous fruit juice and smoothie stores. His secret: It's the experience, stupid.
"I don't consider us to be marketing-driven," says Perron, 33. "We rely on people to spread the word. We didn't invent smoothies or fresh-squeezed juices, but we've created a niche by focusing on a sensory experience."
What's so ingenious about that? Nothing, unless you consider that Jamba Juice has grown from a single unit--originally called Juice Club--in the Central California town of San Luis Obispo to a substantial 59 units in only seven years. Nothing, unless you witness the mob of groovy patrons, including grandmothers and baggy-clothed teens, that squeezes into the stores morning, noon and night.
In a universe that's wise to every kind of marketing ploy, Perron's experience-driven philosophy just might be the hardest sell going. Let everyone else promise freshness, flavor, health, nutrition, simplicity, affordability, sweetness and light. Jamba Juice skips the promises and delivers--again and again.
Perron's cutting-edge savvy doesn't come from a marketing textbook but from experience. The Jamba Juice story begins in 1990, when a health-crazed Perron decided to turn his "juicing" habit into a business. His particular brand of high-quality, high-energy Juice Club smoothies and juices became so popular, expansion was inevitable.
Juice Club tried its hand at franchising in 1993 but quickly changed its plan and raised money from equity partners so the company could maintain better control of its growing retail network.
Though the Juice Club formula had been an unqualified success, Perron felt it could use a little tweaking to compete in an increasingly crowded environment. "As more stores began opening, the name started getting lost in all the clutter," he says, "There was Juice Stop and Juice Connection. We needed a name that was more identifiable," and an image to go along with it.
So Juice Club got itself some jamba, a West African word for "celebration," and gave itself a hipper, more global feeling. What was once a sterile, health-food-store atmosphere has been replaced by vibrant purple, green, orange and hot pink colors and natural wood.
"This business may look like one where you can buy a few blenders and make a fortune, but it's more than that," Perron says. "Our company exists not simply to make money. We're providing enrichment to our customers' lives. People aren't stupid." Nor, he might add, are they susceptible to the same old marketing hype: "They know what's real."
Jamba Juice On Tap
Company: Jamba Juice Co.
Founded: 1990 by Kirk Perron
1996 vitals: 4 million pounds of strawberries purchased, which makes for 14 million strawberry-based smoothies (Note: Nine of the company's 20 smoothie varieties don't contain strawberries.)
Proof of power: Tiger Woods drinks Jamba Juice.
From founder Kirk Perron: "I'm surprised there aren't more companies creating a culture beyond selling, [offering] a soulful experience for the customer. That's been the basis for our success.'
Barnes & Noble
Build A Better Mousetrap
Leonard Riggio doesn't simply compel you to buy books; he makes you fall in love with them. At any of 449 Barnes & Noble superstores nationwide, you'll find customers curled up in comfy chairs, sipping cappuccino, or gathered round for poetry readings. Parents and toddlers are poring over picture books here, and over there is a college student engrossed in her studies.
This is not retailing as usual. "What we've tried to do is develop the bookstore so it's more like a community center than an ordinary retail establishment," says Barnes & Noble chairman and CEO Riggio, 56, who might be the world's most accommodating host in addition to being one of its more innovative retailers. Riggio doesn't view lingering, lounging customers as a drain on his profits. They're the very reason his stores are profitable.
Any bookstore can bring in folks who are looking for books. Barnes & Noble brings in people who are looking for entertainment, or peace and quiet, or--dare we say it?--intellectual stimulation. It just so happens that whiling away a few hours of quality time in the world of ideas also inspires people to spend money. The proof is in the sales. Revenues at Barnes & Noble stores totaled almost $2 billion for fiscal 1996, up from just $921 million for fiscal 1991.
The New York City-based Barnes & Noble chain is part of a larger, $2.45 billion operation that Riggio has grown virtually from scratch--one that includes 566 B. Dalton Bookseller, Doubleday Book Shops and Scribner's Bookstores; a million-customer mail order operation; and online commerce via America Online and the Internet.
If Riggio's domain seems massive and diverse, it is. And it's all the more impressive when you consider how it all began. "I was an engineering student at New York University," says Riggio, "and to help pay expenses, I got a job at the NYU bookstore." That job sparked an interest and led Riggio to open his own bookstore on the NYU campus in 1965 with $5,000 in savings. He owned nine college-based stores by 1971, when the opportunity arose to purchase New York's venerable Barnes & Noble bookstore.
The Barnes & Noble of 1971 didn't much resemble the company's current format. Founded in 1873, "it had been bought by a conglomerate and was a shell of its former self," Riggio says.
So Riggio reshaped it. Realizing that vast selection was one of Barnes & Noble's biggest selling points, he set about collecting the most comprehensive inventory possible. "We put that together with a fanatical commitment to customer service and increased the volume at the store eightfold in five years. [In the process,] we brought an energy and enthusiasm to the [book] business that didn't exist before."
New Barnes & Noble locations followed--first in New York City, then in other cities, and finally into the suburbs. Wherever it goes, the Barnes & Noble formula is tough to beat. The encyclopedic inventory, together with discount pricing, a welcoming environment, cultural and educational events, and conscientious, sentient customer service delivers a knockout punch. In some communities, book sales have risen as much as 80 percent after Barnes & Noble moved in.
All because Riggio had the vision and chutzpah to take a perfectly functional industry and improve it--far beyond any expectations. What can the average entrepreneur learn from such a wild success story?
"Don't look at the megastores of the world vicariously and say `I could never do that,' " Riggio advises. "An intelligent human being willing to commit himself to a goal can achieve almost anything."
Quick Read On Barnes & Noble
Company: Barnes & Noble
Purchased by Leonard Riggio: 1971
1996 vitals: 449 Barnes & Noble superstores, 566 mall locations, $2.45 billion in total sales
Number of titles in an average Barnes & Noble: 150,000
From chairman Leonard Riggio: "Don't look at successful people as aberrations. Excellence is out there for anyone.'
Ruths Chris Steak House
Never Give Up
You wouldn't have bet the farm on Ruth Fertel in 1965. A divorced mom with a degree in chemistry and physics, she wasn't exactly a prime candidate for building an empire of upscale steakhouses.
Luckily, Fertel didn't realize her apparent limitations. "From the very first day, failure just didn't even enter my mind," says Fertel, 70, who now presides over 59 Ruth's Chris Steak Houses worldwide. Last year, sales at the Metairie, Louisiana-based company reached $176 million; this year, Fertel is forecasting sales of $205 million. Not a bad day's work for a woman who has successfully weathered skepticism, food fads, growing pains, natural disasters and every other standard-issue entrepreneurial challenge for more than 30 years.
Fertel bought New Orleans' Chris Steak House from the original "Mr. Chris" in 1965. "I had two teenage sons who needed to go to college,' she says. "I was working as a lab technician at Tulane University, and I needed to make more money." Fertel was skimming the classifieds when she came across an ad offering the locally known Chris Steak House for sale. "I thought `A steak house?' " she recalls, " `I can do that.' " So she mortgaged her home and used the $18,000 to buy the business.
Fertel worked hard. "I thought employees would respect me more if I worked right alongside them, so I did," she says. "The hours were terrible, but customers saw how hard I was working, and they wanted me to succeed."
But it wasn't just hard work that clinched Fertel's success. She had a knack for turning misfortune into good fortune. "A few months after I bought the restaurant, Hurricane Betsy came through New Orleans," Fertel recalls. "We had no electricity for a week, and I had a cooler full of steaks that would only last three or four days."
Instead of letting the food spoil, Fertel cooked up meals for the disaster workers and the disaster victims in a neighboring community. "Everyone was appreciative," says Fertel. "And many of them became loyal customers."
Ten years later, the restaurant burned down. "I called the bank crying, and it just so happened that a man who did construction was in the bank at the time I called," says Fertel. "He said he could get my new location open in a week--and he did."
The upshot? "The new restaurant had 160 seats, compared with 60 seats at the [old] place. People who were discouraged by our two-hour wait suddenly started showing up," Fertel says. "Business boomed again."
This, despite the fact Fertel had to scrap the restaurant's well-known name because her purchase agreement stipulated she could only call it "Chris Steak House" at the original location. The unusual new name, "Ruth's Chris Steak House," has been a blessing. "It's so recognizable," Fertel explains.
Ruth's Chris has become synonymous nationwide with gracious dining, impeccable service and tender, hearty beef that makes you feel well-nourished and invincible. Fertel started franchising Ruth's Chris in 1976, and now has 35 franchised locations. She has since stopped issuing new franchises but plans to continue expanding with company-owned locations.
"I've always tried to operate on the KISS principle--keep it simple, stupid," says Fertel. "The key is focus," even when that means ignoring froufrou food and dishing up meat and potatoes. And even when it means staring bad luck in the eye until, finally, it blinks.
Serving Up Ruths Chris
Company: Ruth's Chris Steak House
Purchased by Ruth Fertel: 1965
1996 vitals: $176 million in sales
Number of steaks served daily: 11,000
From CEO Ruth Fertel:"I've been so lucky to fall into a business that I really love. The hard work is never a chore.'
In 1994, David Filo and Jerry Yang were in typical start-up mode--working 20 hours a day, sleeping in the office, juiced on the idea that people were discovering their concept and plugging in. There was only one difference between them and most new entrepreneurs: They weren't making any money. We're not talking about an absence of profitability. We're talking about an absence of revenue. There were no sales. None. And, the fact is, the Yahoo! founders didn't care. Filo and Yang were working like maniacs for the sheer joy of it.
Their mission? Bringing order to the terrible, tangled World Wide Web. Back then--in the prehistory of the Internet--plenty of interesting Web sites existed. But the forum wasn't organized; there was no system that enabled people to find the sites they wanted in an easy, orderly way.
Even Yang and Filo, who were studying for their Ph.D.s in computer engineering at Stanford University in Palo Alto, California, found the Web cumbersome. "We had started looking at Web sites, but we couldn't keep track of the good places we'd been," says Filo, 31. So the two created a list of their favorite Web sites, along with a framework for organizing the Web and a search engine that made finding the right site as simple as typing in the right keywords. They dubbed their service Yahoo!, an anagram for Yet Another Hierarchical Officious Oracle. And it took off.
By 1995, the service had become so popular, the partners were able to raise $1 million in venture capital to expand the business. There was no trail to follow, however; back then, Internet commerce was still in its infancy. But the partners knew they had a tiger by the tail. "What we did took 20 hours a day," says Yang, 29. "But we were one of the first to [try to organize the Web], and we did it better than anyone."
And the consensus is, they still do. Now based in Santa Clara, California, Yahoo! gets an astronomical 1 billion hits per month. Compare 1997 first-quarter ad sales of $9.5 million to last year's first-quarter sales of $1.7 million, and it's a cinch that this year's ad revenues will beat last year's $19 million by a sizeable margin.
Good as it sounds, inventing a new industry has presented challenges at every turn. The first and most basic: How to make money. Even as the Internet was gaining popularity, efforts to commercialize it met with more than a little resistance. To make matters worse, Yang and Filo were among those who believed in keeping the Internet accessible--and therefore free.
"It was tough," Yang admits. "We really didn't know which business model would work, and we considered everything," including systems that would simply support the operation without generating a profit, such as promoting companies in exchange for some of their hardware.
Though advertising emerged as the clear choice (allowing Yahoo! to eschew user fees), it wasn't clear that advertisers would go for the idea. That Yahoo! has landed sponsorship from such diverse corporate giants as IBM, American Express, Lexus, British Airways and Guinness is a testament to its momentum.
But can the momentum continue? Keeping the service fresh, fascinating and at the fore isn't easy. Every day, expectations rise, and new companies enter the fray. Then again, Yang and Filo have more than investment capital, a nifty computer program and 225 employees to help them stay online and on target. They've also got commitment. "We believe the Internet can change people's lives," says Yang. It certainly changed theirs.
Setting Sites On YAHOO!
Company: Yahoo! Inc.
Founded: 1995 by David Filo and Jerry Yang
1996 vitals: $19 million in advertising revenues; $35 million public offering
Number of entries in Yahoo! directory: 600,000 plus
From co-founder Jerry Yang: "This company isn't really about technology; it's about solving people's basic needs for efficiency, effectiveness and simplicity. From that standpoint, we're really like a lot of other companies.'
Jamba Juice Co., 1700 17th St., San Francisco, CA 94103-5136, (415) 865-1100
Yahoo! Inc., (408) 731-3300, http://www.yahoo.com