Lesson #229: Marketing Tactics Evolve as You Scale--A Big Ass Case Study

Very rarely does the same entrepreneur that founds a company have the same skillsets that are required to scale the company.  And, when I meet entrepreneurs that have successfully accomplished that, I give them extra special credit. I recently got introduced to Carey Smith, the founder and CEO at Big Ass Solutions, a Lexington, Kentucky based manufacturer of ceiling fans and lighting that Carey successfully grew from $0 to $200MM in revenues over its 17 year history (1999-2015).  He was kind enough to share his "sales and marketing playbook" for each phase of the company's growth, to show how it was accomplished and evolved over time.  Hopefully, there are some useful tips for all of you to learn from.

$0 to $10 million

At the very beginning (1999), the company was founded as the HVLS Fan Company and had very little money. Only a few people were involved with the business and advertising budgets were less than $10,000 a year. The company wrote a lot of articles and did a lot of public relations in the early days. And, they relied heavily on offering customers a "try before you buy" satisfaction guarantee, as many customers did not believe a large ceiling fan could actually cool a large industrial facility as well as an air conditioner could.

After gaining a small foothold with six initial products, the company tried working with some distributors. But, the company quickly recognized that their interests and the resellers’ interests rarely converged, given the heavy educational aspects required in selling the product, one they had never seen before. So, after the company learned the distributors were not all that helpful in driving sales, they quickly shifted entirely to a direct sales process which they could control.  And, that's when the business really started to take off, hitting the $10MM revenue market after around 5 years in business.

In 2003, the company heard their customers start referring to their products as "those big ass fans", and the company made a major rebranding decision to rename the company to Big Ass Fans--a name that would much better be remembered in the customers' minds.

$10 million to $50 million

It took the company approximately 8 years (2004-2011), to grow from $10 million to a $50 million, driven by big investments in people and product development, including its first mobile floor fans.

In 2004, the company released a new industrial fan that was 20% more efficient than what had come before, and the company was materially scaling up its employee base to keep up with the growth (where recruiting became a lot easier, after the company was seeing material growth and success).  They moved to a new headquarters in 2006, that was able to house all 50 employees in marketing, sales, customer service and manufacturing were all under one roof.

With more people coming on board, Smith knew if he was going to build the company, he’d need them to stick around. The company offered better hours and more stability than other manufacturing businesses in town, which instilled long term loyalty with employees. And, the company made sure everyone got what they needed, in terms of salary, bonuses, and equity ownership in order to attract and retain the best people.

In 2007, the company hired its 100^th employee, effectively doubling in size in less than two years. The company continued developing, testing and adding products and in 2008 it released its first fan designed for non-industrial settings, such as churches and auditoriums. It also opened its first overseas office, in Australia.

$50 million to $100 million

Getting to $50 million (216 employees in 2011) took 8 years, but the jump to $100 million (480 employees in 2013) only took 2 years. Part of that can be attributed to the investment in research and development as well as people during the 2008  recession, which allowed the company to recover quickly. But, the company believes its rapid growth – approximately 30% every year since 2009 – is the result of its commitment to customer service, employee satisfaction and supplier relationships. 

Always looking for new opportunities, the company added more overseas offices, where they work with various partners and resellers because of logistics. These decisions led the company in a new direction in 2011 when the company forged a relationship with John Noble, the designer of a silent, energy efficient residential fan in Malaysia. The company released its new, sleek Haiku residential line in 2012, which has been very successful. With the addition of smart technology and automatic operation, Haiku has forged a path into the burgeoning world of “The Internet of Things.”

Carey said "Any day somebody might contact you with a new idea that could save time or money, or lead to a promising new path. And, at the same time, you need to encourage innovation within the company by employing dozens of engineers, including a designated R&D group, whose sole assignment is simply to explore unusual uses for the company’s products."

$100 million to $200 million

The company continued its growth from $100 million in 2013 to $200 million in 2015.  And, the company is on its way to $300 million in sales in 2016 with an employee base of 850 employees today. Approximately $70MM of this is the under the Haiku residential brand launched in 2012.

Part of this growth is a result of the company launching a new lighting division in 2014, Big Ass Light, which began with a focus on industrial strength LEDs, but has quickly branched into commercial and residential fields with the continued development of new products. The creation of Big Ass Light led to the company officially changing its name to Big Ass Solutions in 2014. 

The company also tested the big box store market with a few big retailers such as Home Depot, and launched ecommerce efforts for its Haiku residential division. In addition, the company reduced the number of resellers that it works with, replacing them with more strategic partners such as Amazon, Nest and Thread.

Big Ass Solutions now has sales offices in six countries, and its products are distributed in over 125 countries.  The company has aggressive international expansion plans, planning to double its international offices to 10 locations in the coming year.

Conclusion

What an adventure!  The most important thing to glean from this post was how Carey continued to pivot and grow the business in new directions over time.  Industrial was expanded to residential.  Domestic was expanded to international.  Few products got expanded to many products.  Fans got expanded into lighting.  And, so on. Not to mention, recruiting and retaining great talent along the way.  Thanks Carey for sharing your great story here, and congratulations on all your amazing success.  Let it be a lesson for all of us to learn from.

For future posts, please follow me on Twitter at: @georgedeeb.

Continue to Innovate, or Die a Slow Death

Your core products or services are your lifeblood. They are what attract customers, drive revenues and enable a company to thrive. And, the better your products are, the more customers want it, the faster you grow and the further you distance yourself from your competitors. But, a common mistake I see with many entrepreneurs is a mindset that once the product is built, they can change their focus to other areas of the business, like sales or marketing. That mindset is their first flawed step right towards their grave.

Read the rest of this post in Entrepreneur, which I guest authored this week.

For future posts, please follow me on Twitter at: @georgedeeb.

Your Startup Isn't About You!!

I just read this great post by my good friend and colleague, Mark Achler, a Managing Director at Chicago-based Math Venture Partners.  He was kind enough to let me republish it, in its entirety, for all of you Red Rocket readers.  This is a must read when pitching investors.  Thanks, Mark, for sharing your valuable insights here, from a VC's perspective.

______________________________

Your startup isn’t about you, and it’s not about your product, either.

Your startup is all about your customers. It’s hard to overstate how critically important this seemingly simple insight is.

I recently wrote an op-ed piece called “Entrepreneurs are Lazy,” about how entrepreneurs rarely seem to take the time to prepare before pitching to venture capitalists. In the piece, I raised the question of how these entrepreneurs can expect to deliver effective pitches without understanding how we think and make decisions.

Showing up poorly prepared at an investor’s office makes for a bad first impression, sure. But more importantly, it raises a serious red flag about the viability of your business.

Most startups fail

To explain why that is, let’s start with a simple fact: most startups fail. There are studies that range from 50 percent to over 80 percent, but whatever the exact number, I think we can agree that most fail. Because let’s face it: it’s really tough to build a business from scratch.

I also think it’s fair to say that no company ever went out of business because they had too many customers. So the fact that most startups fail seems to suggest that most entrepreneurs don’t know how to sell.

This is actually the core investment thesis of our venture capital fund, MATH Venture Partners. We love to invest in entrepreneurial teams that know how to sell. Who deep in their DNA have a profound appreciation for what it takes to acquire customers. And, who have an “unfair advantage” in customer acquisition.

Founders who have this unfair advantage possess a trait I like to call “radical empathy.” They have an ability to deeply and truly understand their customers’ needs. They see where customers are coming from, speak their languages and understand how best to reach them.

Poor preparation is a tell

In poker there is a term called a “tell.” It’s when a player tips their hand about the cards they are holding. For us VCs, the lack of preparation when they meet us is a tell. We treat it as a proxy for lacking the ability or desire to truly understand their customers. Someone who possesses radical empathy would never show up at our offices unprepared.

One of the key ways entrepreneurs reveal that they haven’t prepared is by showing up at our office to talk about product features. I invariably stop them and say, “I don’t care.” (OK, maybe I care a little.) But what I really care about is for the entrepreneur to tell me what problems their potential customers are facing, and why those customers will trust their startup to solve them. What are their selling points? What’s the sales strategy?

To paraphrase Field of Dreams, most entrepreneurs believe that if we build it they will come. But a great product without customers is a great product — not a business. Building a business is all about sales.

Understanding is more than just listening

Beware, though, that understanding your customers is not always the same thing as listening to what they say.

I used to head up innovation for Redbox. This was still in the age of Blockbuster, so we were doing extensive market research to find out what customers would look for in a reimagined movie rental service. When asked, most customers told us that the number one thing they looked for in a movie rental service was choice: of course price mattered, and convenience was helpful, but they wanted every movie ever made. They wanted international films and documentaries.

But when we started digging through 20 years of Blockbuster rental data, what we found was that the vast majority of rentals were new releases from the 30-day wall.

Radical empathy is all about diving deep and truly understanding your customers. Sometimes better than they understand themselves.

If you reach that level of understanding and build your business entirely around your customers’ needs, your business is sure to stand out from the thousands of other startups out there.

Image via MATH Venture Partners.

Mark Achler is a serial entrepreneur and a managing director of MATH Venture Partners. Follow him on Twitter @MarkAchler.

Programmatic Advertising and Rapid Changes in Digital Ad Space

With all the rapid changes happening in the digital advertising space, especially around the exploding growth of computer-driven programmatic advertising, I needed a crash course to get up to speed.

Read the rest of this post in The Next Web, which I guest authored this week.

For future posts, please follow me on Twitter at: @georgedeeb.

Lesson #228: Beware of Joining a Family Business

Back in Lesson #42, I wrote about the plusses and minuses of working with family members.  This post talks about whether a third-party employee, should sign up to work for a family-owned and operated company.  Hopefully, it will help you avoid a lot of unexpected grief down the road, that can often come from working inside a family owned business.

WHAT IS A FAMILY BUSINESS

First of all, we need to define what we are talking about here.  A family business is one where one family owns the majority of the company (and most likely 100% of the equity), and often has one or more family members operating in the management team.

HOW IS A FAMILY BUSINESS DIFFERENT

There is not one single answer here.  But, typically, the biggest differences versus non-family businesses are: (i) there are no outside third parties on the board of directors or advisors helping the company make decisions; (ii) which typically means there is no-one to keep the family member CEO accountable to making the right decisions in maximizing shareholder return; (iii) such CEO is typically making financial decisions at the intersection of what is best for the company and what is best for his or her family; and (iv) all decision making typically starts and ends with the family members of the management team (even if outside managers are involved).

WHY THIS MATTERS

The worst thing that can happen is you think you are joining a business that will approach growing their business with a "business first and business only" mindset, and then those types of strategies and decisions get overridden by personal needs of the family.  For example, let's say the business needs outside capital to be successful in hitting its goals.  A family member may not dig into their own pocket for those funds (as it may be better spent on their kid's college education, in their mind), and may be unwilling to raise it from outside investors (as they don't want to deal with the change in 100% control that they have today).

Not all family businesses are poorly managed or have these types of issues, but the vast majority struggle with issues like these.  Which puts strains on the relationships between the family members and the non-family members that are participating as part of the management team.

A CASE STUDY

I was working with a company that was family-owned and operated.  They wanted to materially scale up their business and started to hire professional managers around the table.  The managers told the company it needed to raise capital to effectively hit its goals, materially raise salaries to better attract talent and launch a stock option plan to better retain talent.

The resulting actions were none of the above were accomplished.  The company simply lowered its growth target to a more affordable level within the cash flow of its current business (upsetting the outside managers that thought they were joining a faster growth business), they partially raised salaries (but not to the full level required to be competitive) and didn't think a stock option plan was needed (based on the poor advice they were getting from inexperienced advisors).

Worst yet, the company didn't fully appreciate the long-term nature of investing in sales and marketing in a business selling into enterprise scale companies.  The limited investment the company did make (a fraction of what was needed), was unwound the minute the company got into a cash crunch (which was easily predicted by the outside managers well ahead of time, but ignored by the family members that thought they could get away with a lower spend scenario).  And, I am not aware of any business that can quickly grow without fully investing in sales and marketing.  So, now the whole plan is in jeopardy.

Instead of doing it right from the start (raising enough capital and solving the recruitment issues), going down the "half-baked" route only caused more strains and heartache on the business, negatively impacted the company morale and resulted in a revolving door on talent.

BUYER BEWARE

When you are looking to join a new company that is family-owned and operated, it is critical you do your homework first.  Always bias family-owned companies that have professional outside boards of directors or advisors that can help keep the family executives educated and accountable on the best ways to realistically build a business.  Otherwise, be prepared to work for some family's lifestyle business, where the only opinions that are truly listened to are their own, and driving material and sustainable growth will be hard to achieve.


For future posts, please follow me on Twitter at: @georgedeeb.

Lesson #227: How to Run a Strategic Planning Process

All the way back in Lesson #7, I wrote about how to write a business plan, including the key components that are needed to attract investor attention.  But, this was more of an external document to use with third parties like venture capitalists or banks.  Building an internal, long-term strategic plan for the business, that is going to guide management with its decision making, is different.  It is a lot more detailed and can take months to create.  Here are the key components for building a killer strategic plan for your business.

Assess Industry, Competitor & Customer Trends

The first step of any strategic planning starts with studying the overall market in which you are operating.  How big is the industry?  How quick is it growing?  Who are the key competitors?  How well funded are they?  What moves are they making?  What are pricing trends? What products or services are your customers asking for?  Any macro-economic trends at play?  Any government regulation issues?  You cannot set an effective plan for your business unless you truly understand what you are up against from an industry and competition perspective.  Think about this as an "external" evaluation of overall market trends that impact your business.

Complete a SWOT Analysis on Your Business

A SWOT analysis critically evaluates your company's Strengths, Weaknesses, Opportunities and Threats.  Strengths in your staff, customer base, market position, financial resources, sales channels, products, profitability, growth, etc.  Weaknesses in your staff, market position, margins, financial resources, competitive vulnerability, missing products, customer complaints, missing sales channels, etc.  Opportunities to enter complimentary markets, form alliances, raise funds, launch new products, pursue M&A activity, exploit customer weaknesses, etc.  And, Threats around the economy, losing key staff, lack of financial resources, limited cash flow, disintermediation, falling prices, etc. Think about this as an "internal" evaluation of your business.

Define Your Mission and Vision

Once the external and internal evaluation is done, you are in a good position to begin crafting your high-level  mission statement and vision statement.  Your mission statement speaks to "why do we exist?"  Something like "our  mission is to replace expensive offline market research with equal quality insights from social listening".  Your vision statement speaks to "what are we offering and where are we heading".  And, all good vision statements should be quantifiable and timebound.  Something like "We plan on driving $50MM in revenues from our industry-leading social listening platform within 3 years".  These are the "North Star" statements that will guide all detailed decisions from there.

Define Your Corporate Business Goals

Once you know where you are heading, at the 30,000 foot view, and what you are up against from an industry and competition perspective, now you are in a position to start drilling down into specific business goals that will enable  you to achieve that vision.  Your goals are the specific outcomes you are trying to achieve.  This could include things like changes to product offering, sales & marketing strategies, financial resources, operational efficiency, employee culture, financial targets and beyond. What high level things need to happen to make your vision a reality.

Drill Down to Department Level Objectives

As we continue to "peel back the layers of the onion", now we need to decide what specific objectives and initiatives do we need to implement to help the company achieve each of its business goals.  This is typically done department-by-department within the company--setting specific objectives for the product team, sales & marketing, operations, technology, finance and human resources.  For example, a business goal might be "improve company morale" and a specific objective of the HR department to support that goal might be "launch new employee benefits".  You should limit all department-level goals to the handful of items that the department can rally around in any one year.  And, these objectives needs to be made SMART--Specific Measurable, Achievable, Results-Focused and Timebound.

Determine Staffing, Budget and Financing Needs

Once all the departmental needs have been defined and quantified, now you are able to aggregate them up into one centralized corporate plan, organization structure and budget.  If you don't have the full financial resources you need to achieve the plan, you have one of two choices:  (i) lower your targets to a level you can more easily afford; or (ii) raise the capital required for you to achieve your full plan.

Often times, it is helpful to engage an outside business coach or advisor, like Red Rocket, to help facilitate these internal discussions between the managers building the plan.  They can help keep the process organized and managers focused on the stuff that really matters.  They can also help to break any ties or mediate any disputes between managers with different opinions.  Because at the end of the day, if all managers are not 100% on-board with the resulting strategic plan, it will not be achieved.

For future posts, please follow me on Twitter at: @georgedeeb.