Tuesday, March 1, 2011

Successful Entrepreneurs Survive Being Told "No"

In the 1980s, John Paul DeJoria weathered 12% inflation and 18% interest rates. It was a tough path but he succeeded in founding John Paul Mitchell Systems, a hair care firm that registered $900 million in sales in 2010.

STANFORD GRADUATE SCHOOL OF BUSINESS —While today's economy is rough, rags-to-riches entrepreneur John Paul DeJoria says the situation pales compared to the 1980s when he launched his hair care products company with $700, selling door to door in Los Angeles out of the trunk of his car.

Back then, he said, inflation was over 12%, compared to about 1% now. Interest rates topped 18% then. In the 1980s, DeJoria recalled, "You had to wait in line for sometimes blocks at a time to get gasoline. It was a lot worse then than it is today."

That didn't stop him from plunging headlong into entrepreneurship, building the once money-losing company he started with a hairdresser partner into one of the largest independently owned hair care outfits in the United States. Operating in 87 countries, John Paul Mitchell Systems registered $900 million in 2010 sales and, according to Forbes, has turned DeJoria into a self-made billionaire whose other business interests include the Patrón Spirits Company.

On March 2, DeJoria and other business pioneers addressed the 2011 Conference on Entrepreneurship at the Stanford Graduate School of Business. Panelists shared their views from the trenches on topics that included "Fostering Innovation" and "Building a Distinct Company Culture." Other speakers, including Silicon Valley entrepreneur Steve Blank, analyzed emerging entrepreneurial trends from a more academic perch.

DeJoria - tall, lean, and sporting a perpetual smile and long ponytail - aimed to inject enthusiasm into the next generation of up-and-coming entrepreneurs from the Stanford community and beyond. The first reality - be prepared to have your ideas turned down a lot, as DeJoria experienced as a 20-something while working as a door-to-door encyclopedia salesman.

"I don't care how good your idea is, no matter how unique it is, you're going to get a lot of rejection," DeJoria explained. "You have to be able to knock on door number 100 and be just as enthusiastic at that door as you were on the first 100 doors that were slammed in your face."

From there he entered the beauty industry, where he rose through sales and marketing to executive positions.

Deciding to start an independent company, he joined with hairdresser Cyril Thomas Mitchell to start the eponymous John Paul Mitchell Systems line. "I was from the business end, the marketing end, and knew a little about product formulation," DeJoria explained. "My partner was a great hairdresser."

They pitched in $700 and worked on a shoestring, printing product bottle labels in black and white because, at 2 cents, each that was one-third the price of labels done in color. When business required him to see clients in New York, he boarded a $99 midnight flight and regularly turned free hors d'oeuvres available at restaurant happy hours into full meals.

He would pluck bottles of shampoo and conditioner from his car trunk and go from salon to salon, using his high-energy approach to urge hairdressers to use and sell his products. "One of the things I've learned is if you believe what you're doing is right, then don?t give up," he said.

Still, from day one, the company lost money. "It was miserable," DeJoria said. "I can remember not sleeping at night because I couldn't pay my bills. Every week, for almost two years, we should've gone out of business."

Rather than declare bankruptcy, the partners persisted. In 1982, after two years, they were finally able to pay all their bills on time. Since then, the company has become a retail powerhouse that includes 110 John Paul Mitchell Systems schools with 15,000 students throughout the country.

To build loyalty among stylists and create a healthy reorder business, the company's hair products are only available through salons.

Although selling the company's hair products in drug stores, super markets, and other mass market locations would be lucrative, DeJoria said, "We told our hairstylists, 'We'll never cut you out of the picture. We'll never desert you when you have built us.' Ethics is another good thing. If you say you're going to do something, you want to do it, and do it right away."

In addition to hair care, company-trained stylists learn other components of the John Paul Mitchell Systems way. The business' culture includes supporting a number of environmental and philanthropic events.

Another conference speaker, entrepreneur and author Steve Blank, told participants an "entrepreneurial explosion" is being fueled by changes in the business world. Better access to capital is driving the trend. No longer concentrated solely in Silicon Valley, venture capital firms have emerged across the globe. "Now, it's just as easy to start a company in Menlo Park as it is in San Francisco, New York, Shanghai, Israel, China, Singapore, and Finland," said Blank, who has founded or been a key participant in 8 Silicon Valley startups since 1978. He is the author of The Four Steps to the Epiphany: Successful Strategies for Products that Win, Cafepress.com, 2005.

A serial tech entrepreneur turned educator, Blank started his first tech company, E.piphany, in his living room in 1996. His other startups include video game maker Rocket Science Games; semiconductor firms Zilog and MIPS Computers; workstation firm Convergent Technologies; super-computer firm, Ardent; computer peripheral supplier SuperMac; and ESL, a military intelligence systems supplier.

He has taught entrepreneurship to both undergraduate and graduate students at Stanford University and elsewhere. In 2009, he received the Stanford University Undergraduate Teaching Award in the Department of Management Science and Engineering.

Lower technology costs is another positive factor for today's entrepreneurs, Blank said. With inexpensive personal computers and open source software, "the cost of starting a company is no longer measured in millions; it's measured in your credit card limit," Blank said. "It no longer takes years to develop a product. You can get a core part of your product out the door in months if not weeks."

Skills needed to run a big firm are often "detrimental" in the start-up world, he told the primarily MBA audience. For example, he said, truly innovative products don't need to contain every imaginable bell and whistle when they're launched; those can be added later, after the product's popularity has been assessed. That way, he said, entrepreneurs won't burn cash, launch products, and hire a ton of people only to find those products don't excite buyers.

A case in point - Apple's iPod, the biggest-selling digital music player of all time. "Who thought you could ever offer a music player without an FM tuner?" he asked. Rather than initially load up the product with features, he said, developers at Apple wanted to get the device out in the marketplace and see if their core idea was popular.

Relying on this more "agile" style of product development requires different kinds of corporate leaders and workers, Blank said, people who can be both "a football player and a ballerina at the same time."

His advice for anyone considering entrepreneurship? Remember that creating a startup is not just a job, nor are startups simply smaller versions of large companies.

"Startups are an act of faith. They're driven by the passion of an entrepreneur. This thing has to be something you can't get out of your head," Blank said.