By Dileep Rao – Guest Contributor
Joe Martin started his first business in 2004 with $375 when he was an international student at a community college in Florida. He built this business to more than $10 million in annual sales by 2012. He used $500,000 in profits from this business to start Boxycharm.com in 2013. Martin now controls and leads a beauty company with sales of approximately $250 million in 2019, is on track to hit $500 million in annual sales in 2020, and is considered to be the largest full-size beauty-box business in the world. This is how he did it.
Martin fits the profile of unicorn-entrepreneurs who either avoided venture capital (VC) or delayed it. Martin grew with internal financing, i.e. savings and sales, until 2016, when he raised a minimum amount of private equity. Although his business was profitable and had annual sales of $20 million, he wanted to raise capital for a rainy day. Since then, he has grown with cash flow.
Here are 10 lessons from Martin’s meteoric growth.
Get Inspired and Improve on an Emerging Trend: Innovation consultants and academics can harp about first movers and innovation. The smartest entrepreneurs in the world are inspired by first movers, but they improve on the first movers. They are inspired by the first-movers’ idea but go on to improve the strategy and/or execution. This is much smarter than trying to come up with a perfect product that investors will gush over. Leave that to shows like Shark Tank. No one can predict success for your product unless you have cured cancer or the corona virus. Improving on an emerging trend is what some of the world’s most successful entrepreneurs, including Jobs, Gates, Zuckerberg Walton, and now Martin did. Martin was inspired by Birchbox and improved on the strategy by offering full-sized products at great prices in a monthly- subscription strategy.
Get the Right Skills: 99% of unicorn-entrepreneurs take off with the right skills – not with venture capital. The key differentiator between the first movers and the first dominators is the business strategy, as noted above, and the skills to execute the strategy. For a previous venture, Martin spent two years mastering the art of selling online. When the Boxycharm.com concept came along, he was an expert at online sales and could execute it without VC.
Finance Growth with Control: Entrepreneurs who seek financing for their venture too early end up losing control. To avoid losing control of the venture and the wealth created, take off without VC and financiers are more likely to accept your leadership. This is what great unicorn-entrepreneurs, including Jan Koum and Mark Zuckerberg, did. Unicorn-entrepreneurs who delay or avoid VC keep 100% to 500% more of the wealth they create (see The Truth About VC at www.dileeprao.com) than entrepreneurs who seek and get VC early, and lose control to the VCs and hired CEOs. In his first venture, Martin got financing from vendors who wanted to liquidate inventory. In Boxycharm, he got financing from customers who wanted his beauty products and from cash flow. To control his needs for cash, and grow with profits rather than with external capital, he also controlled his growth rate.
Use the Best Bootstrapping Sales Driver: To grow without VC, entrepreneurs need to master two key variables that kill many new ventures – the cost of sales and marketing, and the level and timing of sales. Spend too much on sales and marketing or get too little sales, and you will fail. With his skills and experience in getting sales online, Martin was able to sell Boxycharm subscriptions with minimal investment.
Make Customers Happier: Martin’s direct competitors primarily copied Birchbox and tried to sell samples of products. Martin chose to sell the regular sized products of desirable brands, not a teaser sample. His customers were happier and chose to stick with his company.
Keep Track of your Competitors: Many entrepreneurs often state that they have “no competition” because they are so unique. Everyone has a competitor, whether direct or indirect. The best ones learn from their competition and improve to beat them. Martin had quite a few competitors. He analyzed his competitors to understand who they were targeting, how they targeted them, and how he could make customers happier by offering better value. The problem is that when an industry is emerging, everything is hazy and opaque, and it is not always clear what competitors are doing. No war was ever won without intelligence. You need to know what your competitors are doing. Before the Internet, companies would often invest thousands in industrial espionage rather than millions in research and development. Today, we have the Internet and it can be used to track everything. Some suggestions from Martin:
- If a competitor opens a store, track traffic into the store
- Track comments about the industry using sites such as Instagram and LinkedIn
- Track competitors’ web sites, any changes, and web traffic
- Look at who they hire and the implications
- Look at competitors’ tactics to determine their strategy.
Try changes made by competitors. If it works, adopt it. If not, discard it. Do it quickly and move on. Kill bad ideas to reduce loss of money and time. Adopt the good ideas.
Attend to Details: When you are shipping thousands of boxes, the cost of shipping is a key factor. A few ounces can mean the difference between profit or loss. By keeping the total weight of his package under control, Martin was able to keep his costs low and profits high. He also focused on sales to countries where he could sell and ship easily, such as Canada, Mexico, and Puerto Rico.
Keep Cash Flow Positive: The major key to unicorn success, along with growth, is positive cash flow. Martin was cash flow positive and profitable from the first month. That’s how you stay in control of your venture. But to do so, you need skills. One strategy used by Martin was to outsource each of his departments. He asked each department, such as his art department, to develop external customers for increased revenues. By doing so, they increased both their experience and bonuses, and Martin got more cash flow.
Grow Skills as your Venture Grows: As the venture grows you will need new skills. Otherwise, your venture will stagnate or fail. As his business grew, Martin learned how to hire, how to control, how to organize, and how to lead. These are skills you can learn.
The Most Important Skill: Listening to Martin, I would conclude that his key skill is marketing – and his key trait is continuous learning from everyone, including his customers, his competitors, and his vendors. Some of his suggestions based on his experience include:
- Look at the best marketers in your industry to understand their genius marketing ideas.
- Find the next Rock-Star influencers and connect with them, especially before they make it to the big time. After they make it, they won’t have time for you. But before they get there, they will appreciate your help and insight, and (if they are decent human beings) be a valuable connection. To do this, you have to know how to identify influencers who will succeed, and to know your customers. Martin knew both.
- Develop the right algorithm for your industry. Martin developed algorithms to determine the best way to find new subscribers with low costs of sales and marketing.
- Keep movement alive. Constantly change as the market changes and the industry changes, especially in the ever-fickle beauty industry.
MY TAKE: There is a constant theme to unicorn success. It is nearly always in emerging industries. It is nearly always based on strategic innovation and flawless execution. And it is nearly always based on attaining the right skills
This column was first published in Forbes.
Dileep Rao is the author of Finance Secrets of Billion-Dollar Entrepreneurs (FIU Business Press, November 2020) and teaches entrepreneurship, unicorn-entrepreneurship, and venture financing at Florida International University. He is a former venture financier.
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