This course focuses on challenges faced by existing private businesses when they attempt to grow substantially.
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Grow to Greatness: Smart Growth for Private Businesses, Part I
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The Truth About Growth
This module presents an overview of growth in business with common myths and truths. There is a required reading: Edward D. Hess, "Growth is the
Dynamic Confluence of Strategy, Entrepreneurship, and Values." An option case study reading on Eyebobs Eyeware, Inc is also available. Please visit the Eyebobs website at https://www.eyebobs.com and think about whether Julie's vision and customer value proposition connects with you. What do you like about the site? What do you dislike? Why is her website so important to her
business? What should Julie do to keep her website "fresh"?
Rencontrer les enseignants
Edward D. HessProfessor of Business Administration
Darden School of Business
Welcome back. How did you do on the quiz?
Did you learn something? I hope so.
Notice anything different? How do you like my glasses?
Pretty classy, huh? It's okay to go on the class forum if you
want and vote for which pair of glasses you like the best.
The Eyebob's glasses or it's fuddy-duddy glasses.
Alright, that's what Eyedobs, Eyebobs builds, ladies and gentlemen,
they manufacture fashion high quality reading glasses.
And the Eyebobs story is the story of Julie Allinson and bare with me a moment,
let me just get the case. because I want to talk to you about Julie
and her background. Wasn't this a fascinating read?
A fascinating story, okay? Here is a woman, okay, that really late
in life, decided she wanted to start a business.
And what was Julie's background? Well, what's so fascinating is, is her
background influenced how she wanted to start her business.
In each of these cases, we'll have many teaching points that involve some further
classes in the future. I am going to bring them all out, because
as you go along, all the cases will come together in reenforce things.
But the first point Julie makes is, is how she didn't want to borrow money from
a bank when she started her business. She didn't want to have investors.
Did you want, did you find that interesting?
because most people think about, wow, I need to go get investors or maybe I need
to, to borrow money. But Julie said, no, I didn't want to do
that. Why?
Did you think about that? Take a second.
If you have, if you owe banks money or you owe investors money, what do you have
by definition? Yeah, partners.
Your bank is your" partner". Your friends are your partner.
And what are they don't want to know? How you doing.
But what do they really want to know? How much money are we making, when I'm going
to get my money back plus my profit? And Julie said, and I'm going to from the
case some today. Every case I'm going to do that, because
I want you to follow with me. If you can look at the case on page one,
and I'll give you a minute to go, to pull it up,
okay? Also get you a piece of paper with a pen,
have it right there on your desk. Take a second, stop the, the show, stop
the class there. Go get a piece of paper and a pen because
we're going to learn a little bit by doing and thinking real time.
Alright, Julie said, I didn't want anybody beating on my back,
grow faster, grow faster. I wanted to be comfortable with it.
I wanted to make the decisions, not someone else pushing me to make
decisions. So, think of that,
okay? As soon as you borrow money or you take
money to start a business, you've got partners who want you to, to basically,
to grow. Now, think about Julie's background.
She was raised on a farm. [UNKNOWN] when she talked about her folks
praying for rain and then praying for the rain to stop.
And she said that my family was really just like an entrepreneur.
That they lived, if you will, by their own doing and almost day to day dealing
with it. Now, I happen to love the point that
Julie makes the analogy between entrepreneurship and farmers.
I agree with you. Let's think this through.
What do farmers do everyday? In season, they get up and they go out
and work sunup to sundown. Some days they plow,
some days they fertilize, some days they water,
some days they pull weeds, some days they harvest.
Some days they plow under and then, some days they start all over.
Well, ladies and gentlemen, growing a business is just like farming.
Sunup to sundown and basically some days, you're fixing mistakes, plowing under,
some days you're building the platform, building the processes, teaching,
training the people. Some days you're out there planting
seeds, calling own customers. Every day you go to the business and
every day you must work on the business. And so, Julie is right.
It's a lot like farming. And one interesting, when she said on
page two, I didn't want to live that type of life but I ended up just like them,
being a entrepreneur. And that's an important point for you to
understand. Growing a business is like farming.
And it's not just growing an entrepreneurial business.
In big public companies that I studied, I wrote a case oh, six, seven years ago, on
a big public company called Sysco, S, Y, S, C, O.
And in that case, I said, this company is more like farmers than they're like
investment bankers. They are into the details of their
operations and so, should you be if you want to grow your business.
So, why did Julie start Eyebobs? As Julie was growing older,
she needed reading glasses so she went to the store and she found out that there
were two alternatives for Julie. Buy the very high end 200 plus dollars
high fashion reading glasses or go to the drug stores and buy the low end no
fashion glasses, alright? She said, I want something
different. I want something that says something
about me. I want my glasses to make a little bit of
a statement. So, Julie said, aha, there's got to be
lots of people over the age of 40 that need reading glasses.
She did the research and there is, alright?
In fact, there are people every year that need reading glasses.
And Julie says, I want to make glasses like I would like and I think there's
lots of people that are like me, that want fashion plus being able to read.
And you know what, she was right because the glasses I had
on before are my wife's glasses. My wife has a set of Eyebobs in every
room. In some rooms, she has two. In fact, it's through my wife that I
found and learned about the Eyebob case and learned about Julie's case.
And Julie agreed to participate in my research study.
Now, Julie makes another point.
She goes into quite detail about what was the process of starting her company.
because the reason I want to go into this, even though it's before she grew a
business, it shows you the type of homework that's required even if you try
to grow your company. You have to think through.
How am I going to manufacture more? How am I going to sell more?
How am I going to deliver more? How do I keep my quality?
And Julie, okay, remember, used her own money, she bootstrapped, she
bootstrapped. She basically says, how do I manufacture?
What did she do? She went to China and she visited 24
manufacturers. And she learned,
she learned how they do it. Why did she go?
Because she wanted to see for herself, because she's going to be back in
Minnesota, she wanted to see who would manufacture
her glasses. What role and how big she had to be until
she got top spot, top quality? Was she going to be important to these
people? Were they going to give her the best
quality workers? Were they going to give her the best
quality raw materials? She went and put her boots on the ground.
She did her homework. And what she learned was the best
quality, the best quality ingredients came from Italy,
came from Italy. And now, we're talking really about this
concept here of manufacturing the product.
It came from Italy. What did she do?
She went to Italy, she went to Italy. And she met the people in Italy.
And she learned a very important lesson. If I want people to take me seriously and
to care about my product, I need to personalize it.
Business is really all about people, ladies and gentleman.
It's people making stuff for people, selling stuff to people,
taking care of people, hiring people.
so you can grow and do more. Business is a people business, most
businesses. She went and she found a manufacturer in
Italy, okay, who not only had the best quality materials, just like used in the
high fashion Italian eyewear, but they had manufacturing plants in China and
they agreed to take on her business. Hard work and some luck basically helped
Julie solve her manufacturing problem. Now, this took time,
alright? Now, she can manufacture.
What is she missing? You're supposed to be thinking.
Customers. Hm,
how does she get customers? What's the obvious question?
Let's go to opticians. Opticians sell glasses,
okay? She went to opticians.
Now, an optician, how does an optician make money?
Sell the most profitable which usually, in this case, is the most expensive
glasses. Julie got some opticians to take her
glasses. What happened?
The opticians put them under the shelf because they'd rather sell you the
expensive ones first. And then, when they didn't want to lose a
sale, they brought out Julie's. It took Julie a while to learn this,
ladies and gentlemen. Then, she was at a loss.
It wasn't a cool in the story. It's sort of like unbelievable in the
story. Julie's breakthrough,
Julie's breakthrough came. And remember now, she's only selling
reading glasses for women at this point in time.
Only for women, like her. Julie's breakthrough came in a men's
store in Minneapolis, a men's store that sells like sport
coats, shirts, to men. And she went to the owner and he says,
Julie I've tried to sell lots of things and nothing has worked.
But because you're local, you're one of us, I'll try it.
And what happened? He called back and said, I need more.
They're selling. I've sold them all.
Now, think about that. Julie is selling women's fashion, quality
reading glasses in a men's store. Who's buying them?
The women that come in either with children, sons, husbands, or men who want
to take a gift home. So, Julie said whoo, I've got to find
more men's stores and what did she do? The owner of the men's store said, Julie
you should go to a fashion men's stores trade show, which is a big convention of
people like me in New York. So, she said, okay.
And she did. And what did she do the first year or
first trade show? Excuse me.
The first trade show. She found out that all the sales reps for
the, loved the glasses. In fact, she sold a lot of them to the
sales reps. But she didn't sell a lot to the stores.
She went back again the next show and those same sales reps came back and they
bought for their clients because they had used the glasses or loved ones had used
the glasses or friends had used the glasses and the glasses were high
quality. They were as advertised.
So, think about it. Julie grew her business.
First, she had to find the right manufacturing and then she had to find
the right distribution channel. The right road to, if you will, the right
road to the customer and it's this distribution channel,
okay? That was the trade shows and that put her
basically on the road. And as you remember, it took Julie six
years of hard work to hit the first $1,000,000 in revenue.
Six years she worked, ladies and gentlemen, to hit one million.
What happened then in year seven? Did you notice that in the case?
Well, if you did, you should have. She went from one million to four and a
half. And then, it's not in the case.
But then, the next year, she went for 4.5 to 9 million.
She had basically found or learned how to scale her business.
How to basically quickly accelerate growth because she solved the
manufacturing and volume problem, she solved the distribution problem, and if
you will, she was able to deliver. Now, with this growth, came some issues,
didn't it? Julie talked about in the case how she
basically started her business and hired two, three people,
hourly workers, answered the phone,
do customer service, do the accounting,
do the administrating. Julie wanted the glasses shipped from
China to Minneapolis so she could inspect them all.
She wanted to keep control of quality control because she knew a bad pair of
glasses was bad for business. She wanted to keep control of actually
the shipping, so she knew when it was going to get to her customer.
Julie, in lots of ways, okay, knew what to keep control of,
alright? Control of that customer contract and
control ultimately of that quality control function.
Now, Julie basically, as you read in the case,
caught one of the employees making personal charges on Julie's credit card
and basically then had to get rid of all her beginning employees.
And by that time, she had grown. Now, think about this.
Julie learned a very valuable lesson. When you're growing your business and you
start adding people, you, the entrepreneur, always keep control of the
money. No one writes checks but you in the
beginning. No one charges anything but you in the
beginning. You have to control the money.
Why? because money is the lifeblood of the
business circulatory system. If you get out of whack on money, you
either got to go ask people for money, borrow against your house, go into your
savings account, go into your kids' college account.
You got to basically know where you are every day with money.
Remember, in the case Julie said, cash flow is king.
Now, Julie, okay, now faced her first people
issues, challenges. And what did she do? She did what we call
upgrading. Julie upgraded and went and found
experienced people, two of them, in fact. And she got very fortunate, In fact, she
was lucky. Most people do not make great hires the
first time. Because of Julie's prior experience, she
had experience, she had learned how to interview people, how to have hiring
processes. Growth requires you to put in processes,
remember? Growth stresses people processes and
controls. Julie knew how to hire people, how to
interview people, how to onboard people. And she found Kim and Saul.
Both who came with lots of experience. And then Julie did something else that
few entrepreneurs or many entrepreneurs find it hard to do.
She was very honest, Julie, about what she was good at and what she was not good
at. And she learned that I love design.
I love, if you will, selling. I'm not good at customer service.
I don't handle phone customers calling in really complaining.
It's hard for me to act the way I need to act because all I want to do is interrupt
and solve the problem. Kim was a professional at that.
Kim added value to Julie, Julie's business because she complimented her.
Saul had experience in a big department store.
He knew distribution, logistics, and modernized at all.
Julie, also at the time, put in some technology.
As you learned in the case, her husband, new technology.
And he did it part-time. But then, as you learned in the case as
the business grew, Julie's husband came to work full-time to be in charge of
accounting, because he was a CPA, and technology.
Julie went from one employee to three, four employees, counting herself, back to
one employee, added Kim, Saul, and her husband, and then grew as you know from
four to eighteen employees in an iterative fashion as her business grew.
Now, wasn't it fascinating in the case and I
want to read it, something to you. At the end of the case,
Julie says, on page eleven, unmanaged growth could easily swallow you up.
She had this fear of losing control because if she lost control, bad eyewear
would get out there and what hurts you in business?
Bad customer reputation, bad customer references, okay?
That hurts you more than anything. She also was very, very selective about
who her customers were going to be. She says, I only want customers that can
pay me. I just don't want to sell glasses on
credit to retailers. I want to sell them to the right people
who can pay me on time. And notice how she had a discussion in
the case about how she turned down taking on big customers.
Why? Wow, most people would think take on a
big customer and that would be if you will,
the glory day. I have it made.
I have a big customer that's going to spend hundreds of thousands of dollars
with me. But what's the risk?
You should learn by now from this class, from your readings and everything, we
talk a lot in this course about the risk of grow.
Well, the risk of having a dominant big customer is what we call customer
concentration. What happens to your business if that
customer leaves? Where are you?
Because you have hired up, you have inventory, you are staffed to take care
of a large volume, and that volume just goes, poof.
Gone. But your expenses are still there.
What are you going to do? Fire people?
What are you going to do with your inventory?
Discount it? Well, that's going to get all over the
internet. Julie didn't want to run customer
concentration risk. She wanted to grow in a measured way and
she wanted to have no one customer have a large portion of her business.
By that, Julie wanted to able to lose any one customer and not be in deep trouble.
So, Julie faced people challenges. Controls, financial controls,
quality controls, logistic controls. The technology, as the business grew,
she had to put in place more technology. The logistics, how she would deliver.
And wasn't it cool at the end when she said her husband put in this technology
where everything just could be imprint, basically typed in one time, one time.
And she was linked to UPS. She was linked to her inventory system.
She was linked to her billing system. She was automated from a technology
viewpoint. But Julie never, in no business, ever
solves the competition problem. Because, okay,
honey attracts ants. If you're making money, competition is
going to see it, and bigger competition saw the success that Julie was having and
basically, what the case talks about are knock-offs.
People started making glasses that looked pretty, not the same quality, and trying
to undercut Julie's prices. And on page 13, Julie says, what this did
was, it just put a whole different competition, put a whole different set of
issues on my worry plate. Think about those words,
my worry plate. Entrepreneurs always will have something
on their worry plate. If you reach the point when you're
building your business, of thinking, I've got it knocked, I've got it solved, I can
now coast, ladies and gentlemen, that is the first step to your downfall because
you will never reach that point. The fact is, there will always be
something on your worry plate. Thank you, Julie for saying those words
and making that point for us. Now,
at the end, Julie says, what do I have to do to keep my business ahead of the pack?
Remember, Kyle and I are walking in the woods.
All I've got to do is be ahead of him with the bear.
Julie says, how do I stay ahead of the pack?
I have to stay in front. I have to be more creative.
I really worked hard. What am I going to do?
Stand there and look over my head? No.
I want to look straight ahead, down, going forward, doing all the things that
I can take my business forward. I want to constantly improve.
I want to constantly go forward. Now, after the last lecture segment of
Week 1, you're going to hear a short conversation with the founder of Eyebobs,
okay, which is Julie Allinson that we've been talking about. And aren't those
glasses cute? Aren't those really cool?
Now, my wife hasn't ordered those yet, thank goodness, okay? But they're sort of
wild, but whatever she wants. Alright.
A couple of CEO quotes. You don't want to bring on all the
business that you can easily, growth can easily swallow you.
Think of a big whale's mouth opening up and you're being swallowed.
Another entrepreneur, in fact, the father of one of my ex-students, built several
businesses. And he said to me, Ed, business is a lot
like sailing. You know where you are.
You know where you want to go and it takes a whole lot of tacking, bobbing,
weaving, twisting, turning, zigzagging to get there.
What we know is, is that, ladies and gentleman, growth doesn't occur in a
continuous linear manner. Growth is a zigzag,
up, and down. It's a little bit like a rollercoaster.
That's why understanding and being realistic about growth is so important.
I talked in the beginning about the myths of growth,
okay? All growth is not good.
Bigger is not always better. You do not have to grow or die.
All you have to do is increase your prices,
your revenue by inflation, to make a living.
Now, some of you saying, this stuff is weird.
I understand, that's what my students say, but it's what the science says.
It's also what the research shows what happens in the real business world, okay?
I'm not anti-growth, I'm just realistic about growth and a part of this first
lesson is to set the stage. I want you to be realistic about growth.
Why? because you're more likely to succeed.
Why? You're more likely to avoid the emotional
and financial pain of making the obvious growth mistakes which many people make.
Okay, time for Quiz 2. Take a break, take the quiz.
Okay. Look forward to having you back.
Five minutes. And we'll keep the ball moving.
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