2018-02-23 18:58:03 +00:00
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---
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created_at: '2016-12-10T20:46:37.000Z'
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title: How my startup failed (1999)
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url: http://alumni.stanford.edu/get/page/magazine/article/?article_id=41260
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author: vivekd
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points: 141
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story_text:
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comment_text:
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num_comments: 21
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story_id:
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story_title:
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story_url:
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parent_id:
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created_at_i: 1481402797
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_tags:
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- story
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- author_vivekd
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- story_13147805
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objectID: '13147805'
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2018-06-08 12:05:27 +00:00
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year: 1999
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2018-02-23 18:58:03 +00:00
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---
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2018-03-03 09:35:28 +00:00
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He wanted to be the king of condom key chains. But there are some things
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they don't teach you at the Business School.
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2018-02-23 18:19:40 +00:00
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2018-03-03 09:35:28 +00:00
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By Robert L. Strauss
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2018-02-23 18:19:40 +00:00
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2018-03-03 09:35:28 +00:00
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There was no doubt about it: I had discovered The Next Big Thing. Like
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Edison and the lightbulb, like Gates and the pc operating system, I
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would launch a revolution that would transform society while bringing me
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wealth and fame. I was about to become the first person in America to
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sell condom key chains.
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2018-02-23 18:19:40 +00:00
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2018-03-03 09:35:28 +00:00
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I first encountered the condom key chain while working in Bangkok. Faced
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with a warehouse full of soon-to-expire condoms, the ingenious leaders
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of a Thai community development organization took the aging
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prophylactics, sealed them in plastic and attached a key ring with a
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tongue-in-cheek logo: "In Case of Emergency, Break Glass." They couldn't
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sell them fast enough.
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My belief that the condom key chain would quickly eclipse the legendary
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success of the Pet Rock was confirmed by a simple market survey. I
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showed one to my mother. "Robert," she said, "these are the funniest
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things I've ever seen\! Get me 50. I'm going to give them to all my
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friends." Mom loved it. She thought all her friends would love it.
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America would love it. What more did I need to know?
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Plenty, as it happened. Though I had a Stanford MBA and regularly
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consulted on multimillion-dollar projects, I didn't know the first thing
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about starting a business. When I asked a successful classmate how to
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invoice a customer, he suggested I go to one of the large
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business-supply warehouses. "They sell 'Business in a Box,' " he told
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me. "It's got everything you need." I didn't realize he was joking until
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I asked a clerk for one at Office Depot. While there, I bought a copy of
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How to Form Your Own California Corporation. I spent $30 on a special
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seal for all the important documents I would have to emboss. I
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registered a "doing business as" name. Finally, in anticipation of huge
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sales, I linked my marketing database with the word processor on my
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personal computer and invested $10,000 in my venture.
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My order of 10,000 key chains was scheduled to arrive from Thailand just
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in time for the San Francisco International Gift Show. When the shipment
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came in, I raced to the airport.
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"Where are your papers?" the clerk asked.
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"What papers?" I asked.
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"Customs clearance," he told me.
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"Customs clearance?" I said. "I've got 10,000 condom key chains to get
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to the Gift Show by tomorrow."
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"Well, Mr. Strauss, I guess this is where the rubber meets the road," he
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said, breaking himself up.
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Hours later, with papers finally in hand, I backed up to the loading
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dock. My 10,000 key chains had been shipped in two cardboard boxes.
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Lifting them from the dock, I noticed that the bottoms of both boxes
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were discolored with large greasy stains, like the blotches beneath
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leftover pizza. With the Gift Show starting in less than 24 hours, there
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was no time to complain about mishandling. Once home, I ripped the boxes
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open like a kid at Christmas.
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I had written a series of clever slogans to supplement the original "In
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Case of Emergency, Break Glass." There were 2,000 marked "Slippery When
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Wet" and 2,000 marked "Merging Traffic Ahead" adorned with little yellow
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yield signs. For Pac-10 schools, I had 2,000 "Beat the Trojans" key
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chains. How could this miss?
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I reached into the boxes to fondle these jewels of schlock
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merchandising. My hands came away covered with light, clear oil. The key
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chains were all stuck together; my entire shipment was covered with goo.
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It didn't take long to realize what had happened.
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The outdated, lubricated condoms had been sealed in plastic, and the
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change of air pressure during shipment had forced the lubricant out
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through the seams. With the Gift Show beginning the next day, my elbows
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deep in slimy key chains and my $5,000 payment deposited in Bangkok, I
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began to panic. I filled the bathtub with hot soapy water, dumped in my
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10,000 key chains and began scrubbing.
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My love affair with my product soon began to fade. The key chains would
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not come clean. No matter how much I scrubbed, they still felt as though
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a posse of banana slugs had just oozed over them. Two weeks later, a
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friend of mine flew to Thailand on vacation. Back with her went my key
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chains. A single American woman entering Thailand with 10,000 condoms.
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She said the customs officials were very accommodating.
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The replacement shipment was slime-free. I soon began sales calls on
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buyers ranging from novelty shops and porno stores to gay rights groups
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and Planned Parenthood clinics—customers conspicuously absent from the
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cases I had studied at the Graduate School of Business. It became all
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too apparent that the condom key chain was no Pet Rock. My gross profit
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margin was tremendous, but overhead had driven me $13,000 in a hole that
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was getting deeper and darker. Retailers told me that what the customer
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really wanted was a key chain with a usable condom. Soon I had new key
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chains flying in from Thailand, each capable of holding a single condom.
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All I needed were 10,000 good prophylactics.
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But most manufacturers weren't used to getting orders that large from a
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single individual. After being turned down by every supplier in the
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country, I began to have nightmares: I was endlessly in line at
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Walgreen's buying hundreds of Trojan "family packs." I would wake up
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wishing that I had followed my classmates into something simple and
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easy, like investment banking.
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Finally, one small-scale manufacturer agreed to sell me the condoms I
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needed. Fame and fortune were, once again, within reach. Or so I
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thought.
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Then came the fine-print details. According to the Food and Drug
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Administration, I needed to include a "how to use" guide with each key
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chain. I realized I needed insurance in case some fool inadvertently
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Bobbittized himself with my product during a drunken tryst. My
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conversations with countless insurance agents are among my more
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forgettable experiences in the business.
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"I need product liability insurance," I would say.
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"Sure," the agent would reply. "What's your product?"
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"Condom key chains," I would answer.
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"New market penetration?" the agent would say. This was funny, maybe,
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the first 10 times.
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At long last I had insurance, instruction cards, adhesive logos and
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10,000 condoms and key chains. I sat down at the dining room table to
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put them all together. Two hours later, with my fingers cut and
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bleeding, fewer than 100 key chains were ready for sale. As I sat there
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sinking deeper into debt and depression, the only thing I couldn't stop
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calculating was exactly how big an idiot I was.
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Eventually, though, business picked up. People began buying my key
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chains. Small gift shops in small towns bought dozens and dozens and
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regularly reordered. I sold thousands to Planned Parenthood
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clinics—until I received their corporate counsel's certified letter
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ordering me to "cease and desist" using their "PP" logo or face
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immediate legal action. I called my friend.
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"Congratulations," he said.
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"Congratulations?" I said. "What are you talking about?"
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"Hey\!" he said. "You're not in business until somebody sues you."
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Other customers were satisfied to a fault. There was the account in
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Houston that bought lots of minimum orders for cash. After several
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months they increased their order tenfold and asked for 30 days' credit.
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I sent the shipment and never heard from them again. I tried to recover
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my money and ultimately spent more than they owed me without collecting
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a dime.
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A Bay Area gift shop used a similar technique on me just before
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Christmas. Desperate for sales, I sent the order. On December 26, the
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owner simply closed up shop and disappeared.
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I learned a few other lessons during my two years as the king of condom
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key chains. One was that it's tough to get rich quick with a single
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item. I learned that a markup of 150 percent doesn't mean much when
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you're only making 75 cents per item. It took a lot of key chains bought
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at 50 cents and sold for $1.25 just to pay the phone bill. After selling
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more than 50,000 pieces, I was $10,000 poorer than when I began. When my
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inventory dropped below 500, I took the remainder to a local advocacy
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group for prostitutes.
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"Do you think you could use these?" I said to the receptionist, who told
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me her name was Dark Star.
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"Sure, baby," she said. "These are hilarious. You gonna give these to
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us? I bet you could sell thousands of them."
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Robert L. Strauss, MA '84, MBA '84, is a writer based in San Francisco.
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