By Michele Bell (May 2010)
To start a brand-new business model, one that people rail against as the harbinger of the end of an industry, and cultivate it into a successful, organic entity that grows while others have failed, is surely the definition of an entrepreneurial endeavor. It’s also the story of Jerry McLaughlin and his company, Branders.com (asi/145021), which was the first and, at more than $100 million in sales in 2009, the largest of the online start-ups.
McLaughlin and his three partners founded Branders.com in 1999. Back then, most people in the industry were terrified that the Internet would end The Industry As We Know It.
Well, not so much. “The idea for Branders.com came from one of our original founders, Chris Harms,” says McLaughlin. “Chris had the dot-com bug and was looking for something that might sell better online than offline. He hit upon promotional items, believing 1) that the computer would let the customer see their own logo on the product before they committed to a purchase, and 2) that customers would like being able to search a very big, up-to-date catalog at their convenience.”
McLaughlin, Branders’ chairman and CEO, agrees that the initial reaction to the company among industry veterans was polarizing. “Some said online would never work because customers value seeing their reps too much to ever shop on the Internet for promotional items, and others said online will quickly take over the entire industry,” he says. “Obviously, both predictions were wrong.”
David Nicholson, president of Counselor Top 40 supplier Polyconcept North America and a vendor for Branders.com, agrees. “We’ve enjoyed working with Jerry and the Branders team over the years,” Nicholson says. “They’ve taken a unique approach to providing great promotional solutions. From themed Web sites targeting different industries to instantly customizable samples, they’ve been a trailblazer in the online space. Jerry has never been afraid to push the envelope and try new approaches – and the result has been a revolutionary distributor model.”
Traits For Success
When asked to what he attributes Branders’ continued growth from year to year, McLaughlin says he and his partners stuck to their goal of remaining the largest online promotional items company in the world.
“A lot of competitors, chasing growth, either expanded beyond promotional items or added traditional sales reps in the field, or both,” McLaughlin says. “Over the last decade we stayed focused on continually using technology to further improve the customer experience. A few years ago we expanded the focus to include continuous improvement in our prices. The approach was successful, but required tremendous patience, and more than a little bit of work.”
And mistakes? They made a few. “We didn’t take product pricing seriously enough, early enough,” McLaughlin says. “Today, we’re the lowest-priced source for any promotional item we carry anywhere in the U.S. But we didn’t hit price hard until 2008. Before that, we worked to be ‘price competitive.’ Today, we set the lowest price available anywhere in the market. We have a cost structure that allows us to do that very profitably.”
McLaughlin has some specific, pointed advice for other entrepreneurs in the industry: “In our experience, very few people cheer on a business model innovator – expect to walk alone for years,” he says. “On that walk be flexible, frugal, patient and then, fanatical. Be flexible because much of what you try won’t work. You’ll have to learn as you go and revise your plan accordingly. Be frugal because you’ll spend time and money trying to perfect your formula. Be patient because business model innovation growth is rarely explosive in the early years. And, fanaticism is essential once you have the idea figured out. At that point, pursue the essence of your unique business model fanatically – wherever it leads you.”
And how does Branders continuously stay true to its low-price business model? “We went to our suppliers and said, ‘Look, we really believe that our success depends on delivering low price so we’re not against industry suppliers making profits with us, but we need to get some kind of a new model.’ ”
McLaughlin says that some of the suppliers went along with the Branders model and they’re doing very well right now. “I liken them to the guy who gave McDonald’s founder Ray Croc a good deal on potatoes,” he says. “We told the suppliers, ‘If you go with us, you’re not going to make a lot of money on every potato – but you’re going to sell a lot of potatoes.’ ”
And, business has been good for Branders, which was one large distributor that grew its business in 2009. “We were actually up quite a bit last year,” McLaughlin says. “What we found was that repeat business was off and everybody was spending less – smaller average order sizes, fewer orders. We had a year better than we expected because of a lot of new business. And a lot of the new business was, we think, partly driven by the fact that people were seeking value and lower prices.” – MB
Source: ASI Central