Rob Slee is making a repeat appearance on our podcast. He’s one of the most interesting and prolific writers about what makes a middle market company tick. Today we’re going to be talking about instant companies, what they are and how you can create one.
The purpose of an instant company is to take what used to take 25 years to create and learn what we need to do if we want to get the same result in 2 years instead. With that in mind, here are some of the things we’ll be learning about in today’s podcast:
- How to do in 2 years what it used to take 25 years to do.
- What the transformational age of business is.
- Learn what a niche is on steroids.
- Why you’ll never get your niche right the first time out.
- You’ll need to get comfortable with failures because it’s part of the process.
Narrator: Welcome to The Sustainable Business Radio Show podcast where you’ll learn not only how to create a sustainable business but you’ll also learn the secrets of creating extraordinary value within your business and your life. In The Sustainable Business, we focus on what it’s going to take for you to take your successful business and make it economically and personally successful.
Your host, Josh Patrick, is going to help us through finding great thought leaders as well as providing insights he’s learned through his 40 years of owning, running, planning and thinking about what it takes to make a successful business sustainable.
Josh: Hey, how are you today? This is Josh Patrick. You’re at The Sustainable Business. We have a repeat visit from an old friend of mine, Rob Slee.
Rob is one of the people you need to know about if you own a private business. I’m about to write a blog entry on this, as a matter of fact, very soon about the five to ten people who you need to know about if you own a business and you have between 25 and 200 employees. Rob is either at the top of the list or pretty darn close to it. He is an author – a very accomplished author. He’s written a book called Private Capital Markets which, if you are brave, I recommend you read. He’s also written Midas Managers about what it takes to be a great manager. Midas Marketing about what it takes to be a great marketer. And his most recent book is Time is Money which is how to work for $5000 an hour. And I think we’re actually going to be talking about way more than $5000 an hour today. So, instead of me talking about Rob, let’s bring him in and start the conversation.
Hey, Rob, how are you today?
Rob: I’m fine, Josh. How are you? Thanks for having me again.
John: Oh, my pleasure. It’s always fun talking with you. So, you wrote something recently to me which kind of piqued my interest which is why I want you to come back on the podcast, which is this concept of an instant company. So, what is an instant company?
Rob: It comes in one of two forms. It’s either a niche startup on steroids, meaning that a company launch, you’re a middle-market company at the launch which is, “You know, we’ve got to get our minds around that”. Or, it’s a game-changing company that is called a unicorn whereas you’re disrupting or creating a new industry. And in that case, you’re not a middle market company, you go straight to a million-dollar valuation. So, these instant companies are in two different flavors.
Josh: So, if you’re a middle market company, what do you specifically need to do to become an instant company?
Rob: Well, when you start, you get a valuation of over $25 million. And so, what that means is you’re doing a lot of preparation work and getting your value proposition, your business model straight. Usually just a few customers to begin with but they’re big so you do a lot of trial and error. And the day you launch, you do in two years what used to take 25 years. That’s an instant company.
Josh: Oh. Well, that’s kind of cool. So, what do I have to do in that two-year period?
Rob: Yeah, it’s probably going to be a disruption that you’re doing because if you do things normally and incrementally which has been the normal way of building a business, you know 10% a year for your whole life. And at the end, you know, hopefully it’s big. If you do it that way, that’s not an instant company. That’s sort of the traditional way.
In my latest book, Time Really is Money book, I talk about this new age of business, we’re in the Transformation Age. And because of technology, it enables us now to create very interesting value propositions and deliver them at cost that are just a fraction of what used to be the cost structure, and we’re able to disrupt either niches within industries or the whole industry. And that’s pretty much all I do now, is I pick these business, start instant companies and then disrupt the industry.
Josh: So, can you give us an example of what this might look like?
Rob: Yeah. I mean, the steps really of all this is – and I’ll tell you, there’s a couple of things that I’ve recently done that are instant companies. I mean, you’ve got to find your niche because I’m not suggesting that the listener goes out and tries to start a unicorn, this billion-dollar valuation, at startup. There’s 200 of those in the U.S. Those are too difficult. I did one of those. It took me four years, it almost killed me. I’ll never do another.
So what I am suggesting though is the listener starts up one of these niches on steroids. So you’ve got to find your niche first, right? And so, how I find my niche is I just talk to people and I ask them what have they been trying to source or buy in the last year that they just haven’t been able to find. I bet I have that conversation 500 times a year with people on planes, with people in meetings and if I hear the same response three or four times in a fairly short period of time, then I’ll really look into it and do my homework to say, “Okay, what is that niche? What’s that product or service? Is it possible to really do something there?
Here’s an example to what I just finished that I’m working on now but basically is behind me now is, I go to China a lot. I have for many years. I own several companies in China. So I talk to Chinese constantly and I’ve been hearing the same thing for the last year is that, “Oh, if they only had a safe source of vitamins.” Because if things coming out of China, manufactured in China can be, let’s just call it, “iffy” – you’re not exactly sure what you’re putting in your mouth. And all the Chinese know this. So they don’t look for things that are manufactured in China. They prefer things, believe it or not, manufactured in America, or Canada, or Europe as a third choice because the quality of all products basically from America and Canada are better than what’s manufactured in China. I mean, that’s a reverse of what a lot of Americans think but that is how all the Chinese think.
So, as I hear this, “Oh, we need a safe source of vitamins.” And I see a billion and a half people that won’t put a Chinese vitamin into their mouth. Well, I start thinking, “Well, you know, I own businesses in Canada, America and China. Maybe there’s a way to go into this – I call it the nutraceutical market and create a branded product line and sell. So I got that idea. There’s my niche.
Well, the thing about niche picking is that you never get it right the first time in terms of what your model and your value proposition. Model being highly organized to meet your goals business model. Value proposition is “what’s in it for me?” So you answer that successfully for all the stakeholders.
I’m not smart enough to ever get those two things right until about the 10th or 12th iteration. So I talk a lot about this in Time Really is Money, that you have to test, test, test, fail, fail, fail. But you just test quickly and fail cheaply. And eventually, if you stick with it-most humans give up after three or four iterations of failure. What I’ve learned is the real sustainable business is about eight or ten iterations of failure because everybody else has given up and they won’t easily replicate what I’ve created.
So, I’ve spent the last–it’s almost been a year now – test, test, test, and fail, fail, fail my model and my value proposition for this branded vitamin line. Well, finally, I’ve got it right because we were testing in China and people were really liking it. They like the brand. They like the safeness of it.
So, here’s the trick of all these niche fights that you pick to be instant companies, proof of concept design. So if you’re the developer or the promoter of the instant company, you’re the creator of it, you almost always have to use your own money to get the proof of concept. And then you use institutional money to scale it. I always do that. I always use my money for proof of concept and then once I’ve proven it, well then it’s easy to get scale money. I mean, you can raise $1 billion if you have proof of concept and they can see that it’s a scalable business in a scalable market.
So that’s what happened here in my Chinese vitamin market. I did all that testing, all that failing, used my money to create this 50-product line of branded products of various vitamins, all the likely suspects. And then the key was, “Well who’s my partner through the scale? Can I do just money partner? You know, like the private equity people or the family offices? Or do I use somebody that can pull the product right through into China?”
Well, I always prefer to use a strategic partner for the scale money because they bring more than just money. In this case, I found a Chinese business owner, a private company over there and somehow he owns 10,000 – we would call them pharmacies. They’re called something different over there but let’s call them Right Aid stores. So, just by replacing what he already has on his shelf or what he’s already selling – a different brand, we have $150 million a year revenue business.
So, no other customers. They wanted business. I’ve got a $150 million annual business and I do nothing outright. And so, that’s what I’m talking about. That’s an instant company. So, year one revenue, is I go from 0 – not even in the industry to $150 million in sales. I think that’ll be closer to $500 million because, obviously, we’re going after other customers that don’t compete with them and that’s what I’m talking about. That’s an instant company.
Josh: So, Rob, what are some of the iterations you went through along the way to get to this launch that you’re working on right now?
Rob: There were three or four keys of failure, (1) the brand name. We had to get a brand name that worked in China because not all words translate well. You know, just because it’s in English, you think it’s going to translate exactly that way in China. There’s nuance in every language and custom and culture. And, oh gee, I couldn’t get that straight. So all our testing – nah, it wasn’t really good. So that was probably six iterations just to get that straight.
The second thing was (2) packaging because we wanted something that was unique to the brand. So when you saw the bottle, for instance, it was, “Oh, I know what that is.” So we messed around with that for three or four iterations.
The third was (3) what’s going to be in that bottle? [inaudible 00:09:06] size, whether it’s the best vitamins of the highest selling things in China and various nutraceuticals. Oh, that took a lot of study and a lot of testing. And so, we had at least a half dozen – maybe eight or ten iterations of that. And I’m not 100% sure I’m still there on that.
And then the other thing is price points because when you’re going in with an instant company, you sort of got to nail it because you’re making all these big investments in product, or service, or its infrastructure. So we had to have our price point right and that took a fair amount of testing in China just to say, “Okay, what price will sell here?” because some of the famous American vitamin companies are in China right now and they’re doing nothing. They’re going nowhere because it’s too expensive. The Chinese are value buyers. You can’t just lob in. Even though I have the shelf space, I can’t just lob in with just any old bang and [inaudible 00:09:51] I’m going to get all that [inaudible 00:09:54] sales, you know? And so, all of that took many iterations to figure out.
Josh: So there’s two things that come up with me when you talk about that, (1) one of my favorite sayings which is “Fail fast, fail cheap”—
Josh: Because it sounds like all your iterations are really small experiments.
Rob: They are.
Josh: So you’re only testing one thing a time, not five things at a time?
Rob: Well, sometimes, they’re happening simultaneous because we’re able to test simultaneously but often they all happen sequentially. And that’s why it takes a year or two, on average, for me to create one of these things. And you have a very patient party if your investor is the one who is going to – I’m 50/50 on this deal, so my investor’s got a half benefit from this. And probably more so because this gives him a chance to create branded products of all types in his stores because this is his first test of owning a product line. So there’s a lot of testing and you have to really understand that if you try to goose that and speed that up, so try to do it in six months, you’re probably going to get hurt. It’s just the homework issues.
Josh: So, well that leads me to my next thing which is a recurring theme with me on this show which is the concept of mistakes because, in my experience, one of the things that gives business owners completely stuck, they just don’t do mistakes well.
Josh: And it just seems to me, they even get to the point where you can say, “Hey, I have a chance for an instant business.” You better love your mistakes.
Rob: Well, it’s true. Even with just incremental niche building. You’re already in business. You go out and pick the next niche fight which is just maybe six degrees left or right from where your current product or service is. You’re not going to get it right the first time. What I always tell everybody is if I get it right – so the value proposition, the model and the delivery system and the channels.
If I get all that right in the first three times of trying, Oh, I do not have a sustainable niche. Somebody can knock it off and steal it too easily. I have to put enough intellectual capital and I would call it, in the Time Really is Money book, a mashup. I have to put enough various things – the attributes within that product or service such that it’s going to take me eight or ten iterations of failure to figure out how they play well and what that [inaudible 00:11:56] mashup value proposition’s going to look like. You just don’t figure that stuff out in the first few iterations.
Josh: No. That’s absolutely true, at least in my experience.
Rob: Yeah, same here.
Josh: In fact, I would say sometimes it takes multiple years to figure it out and that’s working hard at it.
Rob: Well, it took me four years to do this big telecommunications project I did because I just couldn’t get it straight. I mean, we would try stuff and it was so expensive. Every iteration, when you’re doing big industry-changing projects, is so expensive that you just have to swallow hard. And then after about the third or fourth iteration, you’re on your knees just about in tears, you know, because you know what it’s going to take to do the next one. There’s no mystery at that point. And I just couldn’t get the variables straight and in alignment – and four years doing it. So, sometimes you just got to know you’re in for a lot of fight but when we started that company, you know, it’s a multi-billion dollar valuation and blah, blah, blah, blah. So I mean, you know, that’s the payoff for all that kind of stuff.
Josh: So how much money does it cost to start an instant company?
Rob: Yeah. It really varies. Something like the nutraceutical, what did that really require? Okay, you know, doing the branding and finding the right people first. What’s that look and feel? You know, that was probably 50-grand. To get all the packaging straight, 50 grand. Probably, all the trips I had to take, just my out-of-pocket to both Canada and China, probably 7500 grand. And then this, that and every other thing with various consultants. I usually figure I’m in for something like that, a quarter million dollars. Out of pocket would be the minimum and that would be sort of an annual cost. So if it takes me multiple years, if this [inaudible 00:13:30] by the number of years, that’s kind of what I figured.
Josh: So, you recommend funding this out of your own pocket but there’s not a whole lot of people who are going to take a quarter of a million dollars out of their pocket per year on what they might consider a flier. What would you say to somebody like that?
Rob: Well, I mean, there is a cost to play the game. If you’re going to go buy a business, it’s going to cost you a lot more than that. You know, I bought businesses over time on my account without outside money and I’ll tell you, you put a lot more money into it than that and you end up in a lot lesser of a place. So, it all depends, what you see when you look in the mirror. If you see a substantial value creator staring back at you, there’s going to be a certain cost.
Now, I understand that not everybody’s just got a quarter mill sitting around to play. And that’s why people have partners. You’re not alone in the universe, in terms of none of us are, in terms of being able to find somebody. Maybe you can get that down to 75 or 100 grand by splitting the load and that’s not always bad either.
Josh: No, that’s great. So, you probably need to learn the art of how to do a pitch if you want to be in this world, I would assume?
Rob: Yeah, you’re constantly pitching. I mean, even to your vendors. You know, I have this thing in my book that says, “It doesn’t matter, you’ve got to pitch to the best employees, pitch to the best professionals, pitch to the best vendors, pitch to the best customers, pitch to the money people.” So yeah, I’d say a pitch is one of those three or four things that you just have to have. And if you don’t have that, it’s probably a non-starter.
Josh: So, Rob, we’ve talked a lot about this and actually you were a little bit hesitant about coming on the show to talk about it because you said, “Well, you know, business owners just don’t get it, so why bother?”
Josh: Why don’t they get it?
Rob: For those exact reasons you mentioned a few minutes ago is that once you get into business, there’s a settling point in your mind and in your life. And I’ll tell you, this has happened to me a number of years ago too that all of a sudden I didn’t want to risk what I had to get what I didn’t have. So I didn’t want to bet it, to get what I didn’t have which would be maybe a tripling of the business or maybe a whole new niche. And this is what happens to the most and I’ll say 97% of owners is that, you know, there comes a time, you just get tired of placing big bets and you just don’t do that anymore.
And so, this is why the millennials, for all their faults, there’s one thing you can really say positive about the millennials, they are startup people. They’re all about startups and the reason is that they’re using technology similar to what I’m doing. They’re just doing it on a smaller scale, generally, although not all. But they’re using startups as their growth mechanism because they don’t have anything to lose, you know what I mean? It’s not like they’ve got 30 years vested in the business. You give me somebody – an owner that’s been in business 15 years, 20 years, they’re not a candidate for any of the stuff I’m talking about right now, typically.
Josh: So if you were to start a new business, I’m, you know, say 55- or 60-year-old guy and you say, “Okay, I’m making good money but I’m not making great money.” In other words, I might be making $500,000 to a million bucks a year which is certainly very good money by any stretch of the imagination and I’m going to start a new division. I want to get one of these instant businesses.” You know, it seems to me like it might be a good idea to go out and find yourself a millennial to partner with.
Rob: I would. That’s how I would do it because the game is so fast, I would conceptualize with that millennial what the fight is and I would try to pick a fight that I already knew a substantial amount about the behavior of the players in that market but I just had already wrapped up a value proposition for those particular market participants, but I knew generally how they would act to any new value proposition. I’d create a budget and say, “Okay, let’s put this on milestones. Let’s spend six months figuring out step 1. What’s that going to be? Make sure we have the right value proposition and business model. How much that’s going to cost. I would put that in a budget and work from there. Let the millennial do all the work.
Josh: That’s what just occurred to me. I’ve been to a bunch of meetings with millennials and recently with very successful businesses. And these are incredibly smart guys who left Goldman Sachs to open up their own businesses.
Josh: So, they’re out there. I mean, there are tons of these sort of folks out there who are just great partners.
Rob: Hey, look, who are the unicorns? 200 unicorns in this country and I’ll bet you 90% of those are under 35 year olds. Startup, I mean, you know, so yeah, there it is.
Josh: Yeah. No question about that. One more question then we’ve got to end because we’re almost out of time, Rob. Is there a way for a blue collar business to become an instant company?
Rob: Yeah. I don’t really—sometimes, I create instant companies that are not these high-flier tech because I’m not a high flying tech guy. You know, I’m in my 50’s so. You know, and I use technology but I’m not one of those people that’s looking to purely disrupt using technology. And so, I think now, it’s possible to create a niche startup on steroids in any business, any time, any industry. It won’t be maybe $100 million value but you don’t need that.
What I’ve learned is that if you have the right niche – I think you’ll agree with me on this. If you have the right niche that did 20 million in sales and it’s an instant company, then you are making 5- or 6-million a year in EBITDA, what would you give for that? I think that’s a great business. And so, that’s attainable from any starting point – any industry.
Josh: So, to do that, what would a blue collar guy have to do? Just real quickly.
Rob: Yeah, he’d have to stop thinking the way he’s thinking. What we did when we were mentoring 100 companies in Midas Mentoring, something I did in the past and you were somewhat involved in that, We would leave the mother ship alone – the core business and not touch it. Barely even look at it. And we would go out and start niche divisions that would only have a couple of people in it but they were change agents. We would test value propositions and use some of the resources from the mother ship in terms of IT and some of the other stuff.
But for the most part, we use niches we’re intended to 5 million to 10 million in sales, making 2 million to 3 million in profit which is really good, you know, once you add that to the mother ship. And we were able to successfully create a half dozen niches per mothership company in most cases. And that one only had a couple of employees for each of those niches so it isn’t that you totally divorce yourself blue collar work or from what you’re doing. You just have to – in these niches, different value proposition, different business model, different delivery system, different language in some cases but, you know, you’d still be, maybe make the machine parts. You know? You just may be using 3D printing to do it. You know, that’s what I’m talking about.
Josh: That’s another topic [inaudible 00:19:40]
Rob: Yeah. Yes.
Josh: Unfortunately, we’re out of time and we don’t have time to get into it, so maybe some time in the future.
Josh: But, Rob, if somebody wanted to contact you, how would they go about doing that?
Rob: Yeah. I travel so much as this conversation indicated. So the only way to get me is through e-mail and that’s email@example.com.
Josh: Okay. Cool.
Hey, Rob, thanks so much for your time.
Narrator: You’ve been listening to The Sustainable Business podcast where we ask the question, “What would it take for your business to still be around 100 years from now?” If you like what you’ve heard and want more information, please contact Josh Patrick at 802‑846‑1264 ext 2, or visit us on our website at www.askjoshpatrick.com, or you can send Josh an e-mail at firstname.lastname@example.org.
Thanks for listening. We hope to see you at The Sustainable Business in the near future.