A Classic Case of Build to Sell

I've found that sharing everything I've learned after every single class is almost impossible.

New knowledge keeps rushing at me, and new things keep piling up one after another.

So writing down a few important takeaways and inspirations in good time is already pretty good.

"Done" matters more than "perfect."

The Dr. John's Case

Case SummarySerial entrepreneur John Osher's team created a low-priced electric toothbrush, the SpinBrush (retail price <$6), powered by two AA batteries, with a "Try me" button on the packaging so shoppers could feel the power without opening the box. From 1999 it was tested on a small scale in channels such as Meijer, selling up to 7 units per store per day, far above the norm of "one a week" for an ordinary toothbrush; by early 2000 it was selling more than 6,000 units a day, had entered big-box chains such as Wal-Mart and Target, and was starting to show up in the IRI rankings. But the giants (P&G/Crest, Gillette/Oral-B, Colgate, J&J/Reach, etc.) could follow at any moment, and the team faced a choice: keep expanding independently? License the brand? Or sell the whole company?

Why the company could break through the market1. It came in at the "<$6" price band, solving the pain point that "electric toothbrushes are too expensive"; 2. A hybrid brush head (fixed + moving bristles) kept the feel of a manual brush while cleaning more efficiently; 3. Try-me packaging dramatically lowered the barrier to a first try; 4. It leveraged high-quality Chinese contract manufacturing and 30-day payment terms to drive down cash needs and costs; 5. A lean 9-person team dealing directly with big retailers, with an ultra-small span of management

Industry and key dataIn 1999 the US toothbrush market was about $800 million in retail sales, of which manual toothbrushes were about $545 million (1999 retail sales 544.8m) and electric/accessories about $231 million (1999 retail sales 230.8m); penetration of electric toothbrush bases in US households was only about 15%, leaving plenty of room for growth.

Osher's "Sixteen Mistakes Entrepreneurs Do Not Have To Make" is very good, so I've put it here in both Chinese and English. John Osher's List of the Sixteen Mistakes Entrepreneurs Do Not Have To Make:

Wrong Expectation Mistakes 1. Miscalculate size of market, timing and ease of entry, as well as potential market share. Overestimating/misjudging: getting the market size, the timing and difficulty of entry, and potential market share wrong.

2. Underestimate financial requirements and timing. Run out of money. Underestimating how much money you need and when it arrives: underestimating the amount and timing of funding, leading to a cash crunch.

3. Over-project sales volume and timing. Fall short of sales projections. Overly optimistic sales forecasts: estimating volume and pace too high, and ending up missing the sales forecast.

4. Cost projections too low. Costs are higher than budgeted. Cost estimates too low: actual costs come in above budget.

5. Hire too many people and overspend on offices and facilities. Overhead too high. Overexpanding headcount and offices: hiring too many people and spending too much on offices and facilities, so overhead is too high.

6. Lack contingency plan for shortfall in expectations. No contingency plan: no backup plan for when reality falls short of expectations.

General Mistakes 1. Have too many unnecessary partners. Too many partners, and unnecessary ones.

2. Hire for convenience rather than skill requirements. Hiring for convenience rather than based on skill requirements.

3. Lack continuous overview of company, manage in parts. Lacking a continuous big-picture view: managing the company piecemeal, with everyone doing their own thing.

4. Accept "not possible" too easily rather than "find a way." Accepting "it can't be done" too easily, rather than insisting on "finding a way through."

5. Too much focus on sales volume and size of company rather than profit. Focusing too much on volume and scale rather than profit.

6. Seek confirmation of one's actions rather than seeking the truth. Seeking confirmation of one's own actions (confirmation bias) rather than pursuing the truth.

7. Lack simplicity— create too complicated business that requires too much talent to execute and manage. Lacking simplicity: making the business so complicated that it takes too much talent/manpower to execute and manage.

8. Lack clarity of ones long-term aim and business purpose. Long-term goals and business purpose are unclear.

9. Lack of focus and identity. Too many directions at once. Lacking focus and identity: chasing too many directions at once.

10. Lack exit plan and strategy. Lacking an exit plan and strategy.

My Class Notes

1. Concept does not lead to a number, look at the numbers.

2. The only thing you can spend and borrow is cash, not multiples.

3. In the negotiations, Dr. John's had a very high growth assumption, because in just a few months it had reached 10% market share. A company needs momentum, and if it already has it, it needs to say so. —— Arcus42 is only a few months old, and what we've achieved represents our momentum.

4. How convincing about your company? You need to think from the perspective of each stakeholder: how convincing is our company?

5. What is our track record?

6. When calculating an offer price, bring along a "probability analysis"

7. Build to sell: from day one, Dr. John set selling to P&G as the goal, and even studied how P&G's share price would change after it acquired them. From Day One, P&G is the target!

8. They made the company a product! Even as a small company, their contract manufacturer already met P&G's standards — white caps and all that.

9. An important question to think about: How do I create something that someone wants to buy , not something i want to sell

10. "If we were to sell the company, how would it fetch a high price?" is a really good mindset — it lets you see the company's weak spots and strong suits