THE JOURNEY IS THE REWARDCharles Foley was 18 when he told his mother he expected to invent things that would be used
everywhere. At 67, the inventor has 130 patents to his credit, including one for the venerable
party game Twister, which he invented in the 1960s and still sells today.
But Foley, of Charlotte, North Carolina, is still at the inventing game. He recently revived a
discovery of his from the 1960s, an adhesive-removing liquid, and sold the rights to make
and market it to a company headed by his son. He's also working on new designs for fishing
floats and a home security system.
Driven to search for success? Hardly. Foley's just following his bootstrapping nature on a
journey that's lasted a lifetime. “I was born with a gift,” he shrugs. “Ideas pop into my head.”
WHAT’S A BIG COMPANY GOT
THAT YOU HAVEN’T GOT?Most of the companies you deal with every day, read about in the media, or learn about in
school are companies with hundreds or thousands of employees. They have an ongoing cash
flow and a proven business model. (I'll explain what that is in the next chapter.)
Because this is the way you've always seen business done, it's easy to imagine that the only
way to run a business is with secretaries and annual reports and lawyers and fancy offices.
Of course, this isn't true, but it's worth taking a look at the important distinctions between
what they do and what you do.
Just as playing table tennis is very different from playing Wimbledon tennis, bootstrapping
your own business is a world apart from running IBM. You need to understand the differ-
ences, and you need to understand how you can use your size to your advantage.
Traditional companies succeed for a number of reasons, but there are five key leverage
points that many of them capitalize on.
1 DISTRIBUTION. How is it that Random House publishes so many best-selling books, or Warner
Music so many hit records? Distribution is at the heart of how most businesses that sell to
consumers succeed. In a nutshell, if you can't get it in the store, it won't sell.
Companies with a lot of different products can afford to hire a lot of salespeople. They can
spread their advertising across numerous products and they can offer retailers an efficient
way to fill their stores with goods.
Traditional retailers want the companies that sell them products to take risks. They want
guarantees that the products will sell. They want national advertising to drive consumers into
the store. They insist on co-op money, in which the manufacturer pays them to advertise the
product locally.
That's why Kellogg's cereals are consistently at the top of the market share list. Lots of small-
er companies can make a better cereal, and they can certainly sell it for less. But Kellogg's
is willing to pay a bribe (called a “shelving allowance”) to get plenty of space at the super-
market. Kellogg's airs commercials during Saturday morning TV shows. And Kellogg's has
hundreds of sales reps wandering the aisles of grocery stores around the country.
Kellogg's wins the market share battle in mass-market cereals because it succeeds at the last
and most important step: getting the product in front of the consumer.
2 ACCESS TO CAPITAL. The big guys can borrow money. Lots of it. It's no big deal for a car
company to raise $200 million to pay for a new line of cars. In industries where the expenses
for machinery, tooling, research and development, and marketing are high, big companies
with cheap money often prevail.
Microsoft, for example, took six or more years to turn Windows from a lame excuse of a
product into the market-busting operating system it is now. Year after year after year, it lost
money marketing lousy versions of Windows. How could it afford to do this? By raising
money from the stock market at very low cost and hanging in.
Big companies have access to capital that a little guy can't hope to match. A hot
company like Yahoo! is able to raise money from the stock market with no personal
guarantees, no interest payments, no downside risk. And it can raise a lot. More
established companies can issue bonds or get lines of credit for billions of dollars. The
banks and investors that back these companies aren't looking for a monthly or even a
yearly return on their investment. Instead, they're focusing on building profits a de-
cade from now. A bootstrapper could never afford to compete with this approach.
If a market can be bought with cash, a big company will do it.
3 BRAND EQUITY. Why would you be more likely to try a new line of clothes from Nike
than from Joe's Sporting Goods Store? Because Nike has invested billions of dollars in
building a brand name, and you've learned to trust that name. Nike can leverage its
name when introducing new products.
Don't underestimate the power of the brand! Financial World magazine estimates that
the Marlboro name and logo are worth more than $2 billion. Any tobacco manufacturer
can make a similar cigarette. But only Phillip Morris gets to extract the profit that comes
from having more than 50 percent market share.
If the consumer of the product is likely to buy from an established brand name, the
big company has a huge advantage.
4 CUSTOMER RELATIONSHIPS. Especially for companies that sell in the business-to-busi-
ness world, access to customers is a tremendous advantage. Time Warner collects nearly
one-third of all the advertising dollars spent on magazines in this country every year.
When Time launches a new magazine, it has a tremendous advantage in selling the ad space. A
fledgling competitor, on the other hand, has to start from scratch.
Last year, Costco sold more than $30 million worth of shrimp in its giant warehouse stores.
The company can choose from hundreds of different shrimp suppliers (it all comes from the
same ocean!), but it deals with only three firms. Why? Because the shrimp buyer at Costco
doesn't have time to sift through every possible supplier every time she makes a new pur-
chase. So she works with companies she trusts, companies she's worked with before.
In established markets, customer relationships are a huge advantage.
5 GREAT EMPLOYEES. Big companies are filled with turkeys, lifers, incompetents, and political
operators. But there, among the bureaucrats, are some exceptional people. Great inventors,
designers, marketers, salespeople, customer service wizards, and manufacturers. These great
people are drawn to a company that has a great reputation, offers stability, and pays well.
Smart companies like Disney leverage these people to the hilt.
During a meeting with someone at Disney, I saw a stack of paper on the corner of his desk.
“What's that?” I asked. He replied that they were resumes. More than 200 of them, all from
extraordinarily qualified people, one with a gorgeous watercolor on it. All of them had come
from one tiny classified ad in the LA paper. Big companies attract powerfully talented people.
It’s easy to imagine that the only way to run a businessis with secretaries and annual reports…
Of course, this isn’t true.
