Want to Build a Million-Dollar Business? Focus on Your People, Not the Money.
Carey Smith never graduated from business school. He’s only ever read three business books (and couldn’t tell you what they were called), and only reads business magazines when doing research on a new product. And yet, he has sold his most recent business for $500 million.
After graduating with an economics degree and dropping out of business school, Smith launched his first business in 1981. Sprinkool was a company that installed sprinklers on industrial rooftops to cool the spaces below. For the next twenty years, he visited sweltering factories and warehouses across the country, when he eventually got wind of an even better idea for cooling: large-diameter, slow-moving fans. So, in 1999 he sold Sprinkool and used the proceeds to start the business that would become Big Ass Fans.
As Smith told me during a phone interview, “The way I look at it is, we grew the company from six to 1,000 people at one time. We had to make money to stay in business, but we weren't in business to make money.”
Smith views everyone in his company as part of his tribe. “We are not family, but we’re related. When an employee’s spouse died without life insurance, we raised $10,000 to help her bury him. And during the great recession, when we were at $33 million in revenue with 150 people, I refused to lay anyone off, even when revenue dropped by 10 percent. But then, when the recession ended in Q1 2009, we were ready to rock, and grew from $33 million to $265 million in a relatively short period of time.”
How did he do it? You’d be surprised at his approach, something he calls The Kitchen.
The Kitchen was a business model that Smith instituted at Big Ass Fans to ensure the company would continue to innovate outside of its core business. The Kitchen was a pre-R&D team that would run out ideas on a variety of subjects. For example, they once explored using fans and UV lights to eliminate the spread of tuberculosis at hospitals in Rwanda and Haiti.
“When I sold the company, they allowed me to carve out a piece of the business, and I carved out The Kitchen -- seven guys and a gal, half of which are engineers and other half finance and business minds -- all of them accomplished and between the ages of 21 and 31 (we have one 40-year-old outlier).”
Smith has now formed another company from The Kitchen, where individuals on his team run out unique business ideas (such as aquaculture, sake and modular construction). Smith employs a stock appreciation rights incentive model, where each individual has a financial stake in both The Kitchen and the individual business he or she is building.
“I believe in building very transparent companies -- if I have a problem, I’ll let everyone know what it is. And when the company does well, I pay bonuses to everyone. Stock appreciation is key for me -- when I sold my last company in December, I wrote checks to 150 employees for $50 million -- I looked forward to it. It is impossible to be a workaday person and build wealth. In the meantime, you have to put up with a lot of bull. If you are intelligent and driven, then you deserve better. What we are trying to do is not necessarily make money, but teach our team to build companies on their own. Whether they stay in The Kitchen or not doesn’t really matter. As long as they don’t go work for a hell-hole company.”
When asked what advice he might have for “innovators,” Smith was quick to offer these four thoughts:
1. Know your market.
At least in the beginning, you as the individual who started the company have to know not just how to make the fan. You also have to be able to look at the market and understand it. No matter how good of an idea you have, if your customers don’t agree, you don’t have a business.
2. Don’t get obsessed over money and raising funds.
Giving half of your company away to some clown is not success. Bootstrapping is important in the beginning. It teaches you to pay attention to the details. People get too fixated on money -- they want funding so they can fly first class to the west coast. I bought a $6,000 pickup truck and drove to the west coast. For me, success isn’t about focusing on money, but on enjoying the work.
3. Avoid resellers.
If you can go direct to your customer and stay away from middlemen, you’ll be much better off. The worst thing you can do is sell through Amazon or Walmart. It is like selling 40 percent of your business to a VC because you aren’t running the show. They’ll run you all around the block.
4. Delegate to others as you grow.
You can’t build a big company by doing everything yourself. Don’t get some old fart who was at GE for 100 years. If they had any gumption, they would have left. If you get a smart kid from out of school, train them up a little bit, and give them the reigns, you’d be amazed at what they can do. It’ll scare the hell out of them, but they don’t know what they can’t do.
When asked what is next for The Kitchen, Smith laughed and said, “We’re moving to Austin. My first question for my team was, ‘Where should we locate?’ and they decided on Austin, so that’s where we’ll go!”