25 Heat Seeking Missiles (and 10 Key Lessons)

First Round Capital's Josh Kopelman recently wrote a great post talking about entrepreneurs as heat seeking missles. Here is an excerpt:

I've lately started to realize that our most successful companies are led by entrepreneurs who have a unique talent -- they are heat seeking missiles.  It doesn't matter where the missile is aimed pre-launch.  Successful entrepreneurs are constantly collecting data -- and constantly looking for bigger and better targets, adjusting course if necessary.  And when they find their target, they're able to lock-onto it -- regardless of how crowded the space becomes. 

At the end he says

You can't predict success based on where a missile is pointed pre-launch.  Instead you have to assess the quality of the targeting system (the team) and the density/size of targets (the market).

He makes a great point. If you want to read about many more "heat seeking missiles," I’d recommend a book called “Retail Superstars” by George Whalin (http://www.retailsuperstars.com/) which talks about 25 great entrepreneurial success stories.  

I LOVE observing and studying great retail entrepreneurs because there is nothing quite like the retail business. There is no other business which puts entrepreneurs in front of customers so close, so personal and so often. I grew up in a retail environment. My mother owned franchised Hallmark Card and Gift shops and I remember chipping in, working every Christmas season, helping customers and gift wrapping thousands of presents over the years. Depending on the person and who the gift was for, I often made small, last minute adjustments on the type of wrapping paper, ribbon or knot (also, I did it to keep it more creative and interesting).  

The book essentially describes 25 great entrepreneurs (and their families, since most are family-run) and the story of how they built fantastic businesses which have not only survived but thrived in this most recent era of retailing dominated by Wal-Mart and big box retailing. 

The assault on independent store operators (most of which are run by entrepreneurs) didn’t just happen with Wal-Mart (which got started in the mid 1960s). There is a book called “Chain-Store Retailing 1859-1950” which chronicles how chains such as Sears, Montgomery Ward and JC Penny began spreading across America putting local merchants out of business along the way. The chains were becoming so powerful that in the 1920s and 30s, some communities and even states enacted laws to limit the number of new stores by chains.

The "retail superstars" defy conventional wisdom and epitomize the “think different” approach that all great entrepreneurs take. They provide proof that great entrepreneurs can succeed, against all odds, in ANY market against even the toughest competition.  The book is truly inspirational (if you love and admire entrepreneurs).

The top 10 lessons and common traits across the 25 retail superstars are:

1. There was no up-front plan or even long term vision. “When asked whether their companies had been built based on a business plan or set of guidelines, they invariably answered no, their growth was guided by what customers wanted and expected from their stores, what the marketplace dictated, and how they could best serve their customers.”
2. They got started with no outside funding - and ALWAYS with very modest stores, or sometimes no store at all - like selling fruit out of a cart. They all became hugely successful, one modest step at a time.
3. They are scrappy survivors. Many suffered disasters, even death as some businesses moved from generation to generation, yet they all kept growing.
4. They hired great people (friendly, knowledgeable staff) and kept them for a long time (which is unusual in retailing). They took care of their people who, in turn, took good care of their customers.
5. They embraced change and instilled a culture within their companies to allow staff to innovate and adapt to the needs of their customers and communities.
6. Even as circumstances changed, they maintained long term relationships both inside and outside of their stores. Repeat customers and word of mouth advertising fueled growth in each business. They figured out viral marketing long before it was so hip.
7. Surprisingly, they used technology to their advantage. Technology is just a means to an end. Most used the Internet and social media to engage their customers and broaden their reach (before the Internet, they used catalogs and direct mail). Every single business in the book grew with an absolute focus on the customer. If technology is useful for that purpose, it should be used.
8. They all gave back. Each retailer were pillars of their communities and incredibly generous to various causes around their communities with not only money but time and thoughtfulness.
9. They defied conventional wisdom and showed that there are many ways to succeed. Some retailers had great selection and huge stores. Others were focused and had very small stores. Some retailers offered great value and led with price. Others catered to the very high end and would give you sticker shock! Some operated in very big cities and big markets. Others operated in very small towns in the middle of no where where customers would have to drive miles to visit - yet they all built very successful, growing businesses.
10. A company can lose its soul when hired guns (i.e.“professional management”) take over. Home Depot was a fantastic entrepreneurial success in its growth phase when it started out employing skilled carpenters, painters, plumbers and electricians to work in its stores. “They served their customers well and the company grew into the largest home center retailer in the country. When management changed and a take-no-prisoners, cost cutting approach was adopted, most of those full-time craftsmen got caught in the cross fire. Without skilled employees, Home Depot’s sales suffered and its sterling customer service reputation was tarnished.”

One great retailer not covered in this book is Borsheims in Omaha, which operates the largest jewelry store outside of Tiffany's in NYC. It's the place Bill Gates flew his private jet to to pick out a ring for Melinda (their buddy Warren Buffett owns it). Nebraska Furniture Mart is another great retailer, also in Omaha, and also owned by Warren Buffet's Berkshire Hathaway. 

Woodman's is one of my favorite success stories of all time. No book has been written about them, unfortunately. They are an employee owned chain of grocery stores in WI and IL and have built a $1B+ business that has been evolving and growing for decades and will continue to kill the local Safeways, Whole Foods and Wal-Marts (http://www.woodmans-food.com/). One can learn a lot about how to compete and run a defensible business by studying a company like that. 

One of my favorite retailer-entrepreneurs, Barnett Heltzberg, wrote a book called "What I Learned Before Selling to Warren Buffet." I've blogged about him in the past and it's worth a quick read if retailing or entrepreneurship fascinates you. His key lesson was "Focus on the Controllables" (http://www.blog.altosventures.com/vc/2007/06/the_controllabl.html).

Finally, one of my favorite entrepreneurs of all time is Sam Walton. There have been so many articles and books written about the man as well as his company but the one I'd recommend is "Made in America."