On the icy Head Walls of Colorado and of business
Paula and Margaret Quenemoen,
Jagged Edge Mountain Gear
Telluride, Colorado and Moab, Utah
- "Everybody has an idea for a business."
- Building a team is one thing; adopting employees as family is another.
- Build your business by selling the mission first, the product second.
- A written business plan helps recruit great people and attract money.
- You have to pay attention to all the details of business even before you start. For example, clear your name before you invest in it.
- Global business can be exciting and profitable.
- Being "green" can be expensive. Be careful.
- You really, really, really got to love it.
Key Idea #1: "Everybody has an idea for a business" is part of the opening of every show. And then Hattie goes on to ask, "But, how do you take that idea from mind to market?"
People throughout time have said that the idea is only 2%, the execution is 98%.
You think back ... What was the initial idea for their business? What drove Margaret to begin?
Possible answer. Survival? Margaret said, "... I needed outerwear. And so I started sketching up ideas of things I wanted to make." Yet, in virtually the next breadth, she pleaded with Paula (who was over in Mount Everest base camp), "... it's going to be good; it's going to be as good as Eddie Bauer." Then Paula added, "She was trying to put across to me that this was not some rinky-dink thing; this was going to be first-class from the beginning." Even though she didn't have money and didn't have technically correct clothing for technical climbing, Margaret had a huge vision right from the start.
She wanted to take on and compete with Eddie Bauer.
What do you think? We do dream dreams about starting, running and growing a business. Most of us can itemize several business ideas that we've had. It is profoundly part of the American spirit to want to start a business. It's that drive for freedom and independence. We do not want to "... go get a real job." We want to create our own.
And, it is profoundly interwoven within our history.
In school -- high school, college and even business school -- most of us do not study the history of the concept of a corporation. However, today's concept has its roots within the American Revolution and those roots go deeply into the politics of the Massachusetts Bay Colony and the founding of Harvard University.
Oscar Handlin, a Pulitzer Prize-winning historian and the Carl M.
Loeb University Professor Emeritus, Harvard University, reveals within 10 pages
(
We learn that in
1636 the colonists issued their own charter to start Harvard University. That
right to grant charters was held by the King of England. So angered was he that
these early colonists issued their own charter, the king revoked the
Massachusetts colony's charter and made it very difficult for the colonists
anywhere to form a legally-chartered company. By 1775 the need for corporations
had become so pent up, it was, without question, part of the "shot that was
heard around the world."
In Handlin's words, this story is quite
remarkable:
"In 1800 the United States was only beginning its history as
an independent nation. It was an underdeveloped country, primarily
agricultural, with a population of perhaps 4 or 5 million along the Altantic
coast. Already, however, the United States had more coporations, and more
explicitly business corporations, than all of Europe put together ...
." (our emphasis)
Today American's start any where from 250K (legal
corporations) to 3M (including all sole proprietorships, many unincorporated)
businesses every year. However, most go out of business in their first year.
One of the purposes of this show is to change that statistic.
Notwithstanding, this passion to start a business is a uniquely American phenomena. And, we are highly competitive and many of us have a similar idea at the same time, so there will necessarily be a lot of failure.
Key Idea #2: Building a team is one thing; adopting employees as family is another. The people part of business is the most difficult. Be careful. Study hard. Learn some ratio analysis to be able to read, understand, and interpret your numbers (balance sheet) to your team. You may discover that it is very possible to become too much of a family.
You think back ... Margaret said, "We are able to work in an area that is also our passion. We love what we do. When we come to work, we're not just coming to a job. We are coming to see our friends; I would call this a family. We work well together; we bike together, hike, climb ... it is really just a nice place to be." Did such intimacy cloud good business judgments? Can you become too close to an employee?
Possible answer. Yes. Business is business; and if the numbers are not working, some thing or somebody has to be cut back. Hard choices must be made. Margaret and Paula loved their team so much it was difficult for them to manage and to lead.
But wait a minute, let see if we can answer the question with a "No" which would mean that you can get as close as you want and not worry about it.
Remember back to Albert Black and his "tough love." When people join a business, they need to know, understand and buy into its mission. And, they need to be fully informed about the business's state of health. If they "buy in" and are fully informed, there is a place for tough love.
Then understanding and teaching the team about the key critical ratios from the monthly balance can help everybody stay in touch with reality. Ratio analysis teaches us about the health of a business, points out weak links, and provides a monthly, and sometimes even a weekly or daily analysis of every person's contribution.
So, in a "family business" if need be, everybody can decide to take less. In a family business sometimes people are sent out of business to "get a real job" just to get over the hurdles.
Key Idea #3: The Lightbulb. Build your business by selling the mission first, the product second.
Jagged Edge is a tiny company compared to the giants. Although Margaret and Paula continuously work to add distinctive features to their , outerwear products,Patagonia, Eddie Bauer and Jagged Edge are more alike than different. Knowing this, they have always built their image by selling the mission first, then the product. Their first unique products included designs for small women. But, over the years others have copied them and they find more results in attaching themselves to their mission than to any one specific design element.
You think back... What is distinctive about the Jagged Edge mission?
Possible answer. The mission comes from an ancient tradition that Paula experienced personally during her five years in China. Even though it is ancient it seems unique in this industry dominated by symbols of accomplishment, achievement and reaching the summit.
Paula told me, "Our competition sells the summit. We sell the journey."
Jagged Edge is teaching its customers how to think about life, and in the meantime, that same customer buys Jagged Edge outerwear to experience the journey.
What do you think? Why do companies do so well selling a mission as opposed to a product?
Possible answers: Human beings want to belong and we want to belong to a group that represents something that is meaningful to us. Just to buy a vest or waterproof outerwear is not an adventure. It is an adventure to buy from this little-known company that we believe we can identify with closely.
What do you think? Why is selling the journey so different when it comes to extreme sports?
Possible answers: The Zen teachings are very different from the traditional American value of: win at all costs. Winning means there's a looser and winning means there's a finish line. Paula and Margaret are trying to appeal to people who are tired of this winner-take-all, dog-eat-dog competitive culture. They want people to buy their gear and simply enjoy walking around wearing it and simply enjoy the path they choose rather than be forced to feel as if they have to get to the top of some summit. Also, it may take weeks to get to the top of a mountain then once you get there you may plant a flag, look and the view then head back down. The time spent on the journey is much greater than the time spent at the summit.
What do you think? Why does a company like Jagged Edge need a unique selling proposition?
Possible answers: Because they were not first to market and because they have huge competitors like North Face and Patagonia. Why should someone buy Jagged Edge when they can buy these other two big brands and get very much the same type of product?
Jagged Edge does attempt to make gear for small women because Paula and Margaret are small but the product uniqueness is not great enough to talk about as a unique selling proposition.
What do you think? Name some other companies who sell the mission harder than the product?
Possible answers: Volvo sells safety, Sundance Catalog, sells the wild west.
Key Idea #4: A written business plan will win support for your company: Paula and Margaret call their business plan, "The Book." Their banker, Tricia Mason, was so impressed with it that she helped the company by consolidating their debt and arranging an SBA-backed loan. It later became the key document for a Direct Public Offering.
What do you think? Can "The Book" serve a purpose other than for raising money?
Possible answer: Yes. It is a fantastic tool for recruiting employees and for training and motivating people to stay with you. When there is a question about values, mission and vision, everyone can go back to "The Book" to see what Paula and Margaret actually want to accomplish with the business. Also, for the owners of the business, "The Book" helps them stay focused.
Think back, how did Tricia help Jagged Edge?
Answer: As a banker she was able to consolidate their debt. Paula and
Margaret had accumulated credit card and individual loan debts and were paying
18-20% interest on this money. Tricia's bank loan paid off these old loans and
formed a new loan at a lower interest rate. The cost of money is critical to
every small business owner.
Key Idea #5: You have to pay attention to all the details of business even before you start. For example, clear your name before you invest in it. Margaret and Paula tell us about Workmen's Comp, insurance, and then trademark infringement.
Margaret named the company Jagged Edge, did enough research to discover that Jagged Edge had been used by a lingerie shop in Hollywood, but because she could not find a contact, assumed the business was inactive. Inactive or active, people hold rights and these rights have to be respected, or one pays the consequences. Had Margaret done a name search with the Patent and Trademarks Office, they may have decided on another name; the mistake cost them. Jagged Edge of Hollywood received a monthly licensing fee, then a one-time buyout for the rights.
What do you think? Why didn't Paula and Margaret just rename their company?
Possible answer: They had fallen in love with the name and felt they had too much invested in it to let it go. Since they were able to come up to an agreement, they lived with the expense and considered it part of the cost of doing business. But it is not trivial. The Hollywood folks got $2500 per year for four years; then, in a final settlement they received $10K in cash and another $10K in stock.
Ouch.
Key Idea #6: Global business can be exciting and profitable. Paula spent four years trekking China and Tibet. She learned the language and today she conducts business with Chinese factories by using the Internet, fax and global priority mail. With Jagged Edge, there is a psychological connect to Tibet because of Mount Everest. It is natural that they want to do business with people who live where the highest peak of the earth is located.
Think back, what does it take to feel comfortable dealing with global customers and vendors?
Answer: Understanding the culture and working with people the way they want to work. Paula has a tremendous advantage with the Chinese because she knows the language. You can hire translation services. Some of it is very inexpensive. You can even have your web site instantly translated. You could also find a person who lives in your town who immigrated from the country with which you want to do business. Plus, there is so much help through the Department of Commerce and/or locate a Small Business Development Center that specializes in international trade. We have studied many small business in the USA that are enjoying great global success: Jimmy Fand, Altoon & Porter, and Opici Wines to name just a few.
Key Idea #7: Being "green" can be expensive. Be careful. You can almost hear the song being sung, "Green, green, we're green, I say, but who's gonna pay the bill?" (Excuse us, Christy Minstrals, for the abuse of your lyrics.) But the question needs an answer: "Who is going to pay those added costs of being green?" Can these costs be allocated to part of the marketing-sales? Will the potential customer pay a little more? Will you take a little less?
No matter what their politics, outdoors people are some of the biggest environmentalist in the world. And, anybody with an ounce of commonsense would agree that we should not be depleting nonrenwable natural resources without carefully looking at alternatives. But in this little clip, you hear Margaret tell us that they spend an extra $1.50 per yard for "green" fabric woven from regurgitated plastic bottles.
What do you think? Is this practice -- Margaret calls it their moral imperative -- hurting or helping the business? Is that extra $1.50 per yard costing so much that she is pricing herself out of margin? Would a mix of "green" and "traditional" been possible or does her moral imperative (strong words, an indication of her depth of belief) cloud her options?
Answer: Business is tough. Margaret perhaps has a moral imperative to keep the doors open. She has a moral imperative to pay her bills. She has a moral imperative to be fair to her team members. And now, there are some backslider environmentalists who claim that we are spending more resources collecting, sorting and converting old plastics than we do processing the raw materials (oil) to create new. It is a difficult issue; the answers are not easy or straightforward, and we are open to everyone's contribution to this dialogue.
The bottomline, however, is the bottomline; and at the end of the day, we need to stay in business.
What do you think? Do you think Margaret and Paula made a special appeal to every environmentalist group to buy their clothing because it was "green"?
Answer. Yes, they tried with the Sierra Club and the club wanted a very high fee to structure the relation ($50K). A special campaign to target these smaller markets requires added resources and time. Like most of us small business owners, they have little extra of either time or money.
By the way, the fabric company at $1.50 per yard did not survive and Margaret had to resort to traditional fabrics. They are, however, researching a corn derivative as a substitute.
For more on this subject, go to our show special called, Staying Power.
Key Idea #8: "You really, really, really got to love it." These two love the stuff of their business. There is no question from watching them talk about technical climbing, whether up the headwall of an icy cavern or the rich iron mountains of the desert. But, Margaret warns everyone -- only start a business doing the thing that you truly love to do.
Michael Novak would call this "Business As Calling."
For immigrants and the Quenemoens, it was "business for survival." Margaret comments, "It's tenacity ... we didn't have the luxury of being able to stop." Paula adds, "Going out of business will never be an option. We don't have anything to fall back on." But, of course, they do. Both are talented people and easily could have gotten a 9-to-5 job. But there is something deep within us that says, "If I don't do this, my life will be incomplete" (the words from the closing of the show). For all of us, it is "business as a way to self-actualize." Choosing an easy road, a safe highway, doing a job just to get a paycheck and get by, is not a choice.
What do you think? Is this business for survival, to fulfill a calling, or to self-actualize?
Answer: All of the above. In one of our analyses of the reasons for this show (Why Small Business School?), there is an attempt to define business through three principles. The first principle of business is "to create order." Survival. We work to secure our meets and bounds (our shelter), then sustain the body (food), and then we begin creating an abundance of something of value. Once we have something to sell and we begin selling, it is a business; and we can move to the second principle of business, "building relations." Here we begin exchanging and transacting values. It is called a business when there is continuity, focus, and a growing expertise within a particular set of relations. That is much like Novak's "Business as Calling" (above). The third principle of business is about creating dynamic relations; the "peak experiences" of business. More about this in our next shows!
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