An Episode of the show
with Bob Orenstein
of International Wine Accessories
Dallas, Texas

1. If the shoe doesn't fit, get a new one.
2. Starting can be shocking.
3. Direct marketing boils down to statistical analysis.
4. Sell a lifestyle not a product.
5. Know your demo.
6. You can't mail your best customers too often.
7. Managing costs is just as important as increasing sales.

Key Idea #1: Start a business if you are unhappy at work. Life is too short.
Or, if the shoe doesn't fit, get a new one. So many people are unhappy in their work but they just keep doing what they're doing because it's easier to put up with the known than try unknown.

You think back: Why did Bob leave American Airlines?

Possible Answer: He said, "I think I was an entrepreneur--you know, born to be an entrepreneur. I was the oldest child. I was the one who was always responsible. You know, when I was younger, I sold Army-Navy clothes, surplus, when it was hot in the '60s. I was always, you know, inventing things. I was always involved with moving forward and doing different things in life. And I never really fit in the corporate culture. I did--I succeeded. I moved up four or five times in American Airlines. I had a good job, good reviews, but, you know, sometimes in your heart, you know you don't belong. I never belonged in the corporate world."

You think back: If Bob was born to be an entrepreneur, why did it take him so long to succeed?

Possible Answer: Making money is the result of the right idea executed properly at the right time. He said, " We trudge on, regardless. It's like going through a blizzard. You're probably going to freeze to death, you're probably going to die before you get over to the other side, but why give up? This was the only path to take. I was just going forward 'cause there was no turning back. And it worked. And I think that you get all the way to the point where you really start making money, and then it's time to re-evaluate again."

If you study Darrell Van Citters of Renegade Animation, you'll see him say about his own business, "I had to do this." Debra St. Claire of EcoNatural said she's a business owner because she can't take direction from others. Wanda Brice of Computer Directions said she has to be the boss. Money is just not the big point for most of us. The big point is freedom to pursue our ideas without having to ask permission.

Key Idea #2:Get ready for a lot of trail-and-error.
Starting can be shocking. In the beginning, there will be more errors than trials! Bob started his business thinking he would wholesale wine accessories to the retail liquor stores across America.

You think back: What happened when he called on his first potential customer?

Answer: He dressed in his corporate suit, prepared a corporate flip chart, spoke in MBAese and then was told, "If our customers don't have their own bottle openers, they can buy screw top bottles." Bob was probably a total turn off to the buyers of a large chain of liquor stores that was making plenty of money with the current mix of inventory. His target customer didn't want to give his concept the time of day. He had to change his strategy to create demand at the consumer level if he couldn't get his products on retail shelves.

That was the first shock Bob had after he quit his big job with American Airlines in the tax department. As one of those guys who had an MBA in finance before hardly anybody even knew what MBA stood for, Bob was accustomed to success. He always did well in school and was promoted throughout his career at American Airlines. So to be thrown out on his first sales call as a small business owner was a big bruise to the ego.

You think back: What else shocked Bob in the early days?

Possible answer: Rather than working 60 hours a week for American Airlines which got him a nice paycheck and great benefits, he was working 80 hours a week for no paycheck and no benefits. Also, he had to move his business out of the condominium building he and his wife lived in because a neighbor complained about the 40 foot delivery trucks backing into his driveway on a regular basis.

You think back: What shocked you about Bob's story?

Possible answer: My answer is that it took so long for him to make money and then just when he thought he was going to really hit it big, his costs ate him alive. He said, "In year one, we did $100,000 in sales and lost $140,000. It took till 1988 where I could take out a $30,000 salary and the company still could make about $20,000. By '89, we had a real business. We were making over $100,000 a year, taking out a salary. It was great.

By 1990, the recession hit and we lost $180,000 again in 1990. From '91 through '93, we kind of built back the base. '94, we started cross-marketing with the Wine Spectator and various other publications. In 1994, the business boomed, we grew 68 percent. However, the tax man took it all because we had to put more money into inventory, equipment and the payroll. So by the time I was done in 1994, I basically had the best year ever, made hundreds of thousands of dollars, I had to go to the bank and borrow money, you know, basically on my credit cards to pay my income taxes because I didn't have any money; it was all in the business. It took till 1996, where the revenues from the business didn't have to all go back in and I could take money out for myself."

Joe Dannis of Dawn Sign Press told us he would never have started a business had he known how hard it was going to be. It took him nine years of working alone to perfect his first product and he said it was too hard and too lonely. It took years for Roy Crownover of Texas Nameplate to pay a few thousand dollars back to his first investor and Heliodoro Valadez of Best Buy Tortilla often fell asleep next to his tortilla machine because of his grueling work load in the early days.

You think back: What makes a mail order business work?

Answer: Bob says, "Mail order is statistical analysis and review of numbers. It's all numbers, all, all, all." Sure you need the customer service, you need to buy the products right, you need the accounting, but it's statistical analysis because what you're doing is you're going out and you're rolling that dice each time you do a mailing. There are 300,000 catalogs in a mailing, and your response rates are only 1 percent and 2 percent. If your response rates fall, you could really lose a lot of money."

What do you think? What makes catalog retailing so different from brick and mortar retailing?

Possible answer: In the small business arena, I think the shop keeper is the person who loves to be with customers and help them select what they want and gift wrap it and then see that same customer regularly. Carol Schroeder of Orange Tree Imports said, "you have to have a mind for the numbers, but in retailing first and foremost you have to love people."

I'm not saying that Bob doesn't love his customers, but the mail order person must be happy thinking about customers in the abstract. And I want to add here that all business, not just mail order, boils down to numbers.

You think back: What kind of numbers does Bob concern himself with?

Answer: He says, "We look at the percentage of gross dollars that falls to the bottom line. We'd like to keep it well above 10 percent and, of course, we struggle to try to push it to 20 percent. Most businesses are lucky if they can get 4 percent or 5 percent or 6 percent or 7 percent. We try to keep it a lot higher, if at all possible. But really on a daily basis, we look at something called margin per thousand, which is unique to the mail order business. This tells us how many people respond to our catalog in percentages which generally run between 1 percent to 2 percent, closer to 1 percent. And margin per thousand is defined as the profit generated on a thousand pieces of a mail. And we try to keep it in the range of $500 to $1,000 per thousand, which really equates down to 50 cents to $1 profit per catalog mail. That's what we try to do. Traditional mail orders are lucky if they can do 20 cents or 30 cents."

So Bob is producing profits well above those experienced by most other mail order companies. He said part of their great success is that their average order is about $200.

Key Idea #4 Sell a lifestyle not a product.
International Wine Accessories is fun for Bob because he is giving others what he personally enjoys, the props of affluence. He is saying with his catalog that you need all of these items to enjoy life to its fullest.

What do you think? Why is this thinking so important to Bob's success?

Answer: It guides his every decision about what to include in his catalog and what the catalog should look like and how his salespeople handle calls. Because this country was and is being built by new wealth, Bob is helping this growing sector acquire the trappings of the fine life. He also knows that we need to be taught.

Did you know that a Pinot Noir needed to be poured into a glass with a large bowl so the full bouquet can be enjoyed? I didn't. So Bob is the teacher. He is explaining to all of us who didn't grow up with wealthy, educated, refined parents that the "good life" can be had, and you just have to be taught what it is and how to get it.

We have seen this strategy at Jagged Edge Mountain Gear, Sundance Catalog and Ebby Halliday Realtors. It gives the business the feeling of being part of a movement or a set of ideas rather than being just focused on making money for the sake of making money. This is almost a must tactic for the Internet. People are not coming to a web site for a single product; they are coming to be deeply educated about a way of doing things and they also want to be part of a community of interest.

>Look at Jim Morris Environmental T-Shirt and be sure to visit his web site. He is perfect at selling lifestyle not product. You'll quickly notice that Jim's lifestyle is nearly the opposite of Bob's.

You think back: Even though Bob is selling lifestyle, what types of productssell best for him?

Answer: He said functional and beautiful is better than just beautiful. The pricey products are justified by the customers because they perform a function. I actually held in my hand a $200 wine bottle opener. It was perfectly engineered. Sharper Image and Brookstone are two big operations who stress function and beauty.

You think back: Who is Bob's demo?

Answer: He said his research shows that his customer demographic is generally, "... a baby boomer thing. We're for people between 35 and 55. And the people that are spending the money on wine cellars and expensive glasses tend to be 45 to about 52." Knowing your demo means more than just having the names and addresses of people in an age group. Knowing means understanding them. In Bob's case, he is personally part of his demo which may make it easier for him to get inside the minds of his customers. But you have to remember that you are only one person and you have to listen to others even if you are part of your audience.

Bob is a member of the Direct Marketing Association which is good place to learn about demographics and how to reach a specific target of people. Also, see demographics.com and fedstats.gov.

Key Idea #6 You can't mail your best customers too often.

You think back: How does Bob identify his best customers?

Answer: He said, "That's database marketing. This is where the computers come in. This is where the data is extracted, interpreted, manipulated, and then we get an output, and from that output is what we mail."

What do you think? How does a mailing list develop?

Answer: Laura McClendon is a list broker. She gave us some advice about how to search for a mailing lists to reach any demographic. John Wargo gives us tips about direct marketing.

There are other companies that have had successful catalogs: Jim Morris Environmental T-Shirt, Sundance Catalog, and Madison Park Greeting.

You think back: Does International Wine Accessories only mail to the homes of individuals?

Answer: No. One third of the business today comes from wholesale distribution to wine stores, gift shops, hotels and restaurants. We visited the "white table cloth" restaurant which is part of a Houston-based chain. It buys wine glasses and Kobe Beef from Bob.

You think back: What were the full-time employees that we met doing?

Answer: Selling and shipping. Bob sees himself as a retailer not a manufacturer so everything that goes on under his roof is about selling. This gives the group tremendous focus. Having the warehouse handy so a salesperson can actually touch and feel the merchandise is very powerful.

What do you think? Do you think that Bob is old-fashioned to continue outsourcing his database management when it could be done on his in-house PCs?

Possible answers: He could be called old-fashioned. However, he has big expectations. He wants his information on a main frame because merging, purging and scrubbing then running his list up against others, such as Dun and Bradstreet's, requires very sophisticated computing. It's so important that it be done right, he doesn't want to try this at home. There are some tasks that require an absolute expert, and Bob really can't afford to buy mainframe computing power, nor does he need to. He can rent it.

For more about outsourcing, study Donna Baase of Cowgirl Enterprise.

You think back: How does Bob hold the line on printing costs?

Possible answers: Instead of printing 200,00-500,000 catalogs at a time, he prints 1.5 million twice in a year. And a series of covers are printed that have a little white box on the front which gives him a space to print a unique offer using inexpensive ink jet technology.This strategy gives him enormous economy of scale which dramatically lowers costs.

So if you are on Bob's mailing list you get a catalog monthly and in a year's time the inside will be the same six months in a row. Then it will change and it will be the same for the next six months. However, over the 12 months you will see 7 different covers which means five times you'll get a repeat cover. The secret weapon is that every month the offer in the little white box is unique.

In the PS David Pinkus talks about the Small Corporate Offering Registration (SCOR). For much more, go to the show about his work with SCORs to the section about money.