There’s no penalty for boldness
What next 36 taught me in 90 minutes
Your competitors may not be as smart as you think and asking for the moon gets easier every time you do it: These are just two of the lessons I drew from 90 minutes in a classroom with Reza Satchu, a Toronto entrepreneur who cofounded the Next 36 program to transform high-achieving university students into highimpact entrepreneurs.
When the Next 36 are not working on building technology businesses or coding at midnight over pizza, they can be found in class, absorbing the wisdom of top business professors and entrepreneurs from across North America.
This kind of education is too valuable to be only for the young. So I recently sat in on one of Satchu’s lectures. Maybe he can inspire you as well.
Most of Satchu’s classes begin with a case study. On my visit, it was Nantucket Nectars, founded by two friends from Rhode Island’s Brown University. Tom Scott and Tom First began selling cold drinks and other supplies to yacht people in the harbour of Nantucket, Mass. In 1990, they started reproducing and selling a peach-juice drink First encountered in Spain. By the end of the year they had sold 8,000 cases, and Nantucket Nectars had entered the “new age” beverage category that giants such as Pepsi and Coke were still eyeing.
Years of steady but unprofitable growth followed as the two Toms learned the rigours of national distribution, and the high cost of shelf space. A $600,000 investment by Alamo Car Rentals founder Mike Egan kept the company afloat, but profit remained elusive. The company continued to develop new flavours, and in 1994 it obtained Massachusetts distribution rights to another upstart “new age” brand, Arizona Iced Tea. But by the late 1990s, the pair decided to find a strategic buyer with the clout to make Nantucket a national success.
Nantucket couldn’ t be more different from the techbased businesses of Next 36. Why, Satchu asked, were they studying this case? “If you ask most people if they would like to be entrepreneurs, they say yes. But when they don’t do it, they say it’s because they never had the right idea.”
This case, he said, proves that simply starting — doing almost anything — is better than waiting for the right idea. “Selling juices to a bunch of rich people on boats seems like a pretty crappy job,” Satchu said. But the daily experience of meeting customers and learning what they wanted led to First’s idea of selling a new drink. “It was just random. Like the opportunities all of us get.”
Satchu tried to get his students to analyze Nantucket. One said he didn’t like the industry: “If you don’t control the distribution, you give up a lot of margin.” But Satchu noted the new-age category was growing 30% a year. “Plus, the biggest players aren’t in it yet.”
But that’s the problem, a student said; one day Coke and Pepsi will come in and crush everyone. Not so fast, said Satchu: Starbucks scooped out the coffee category; Dell showed the PC industry a new way to sell; Amazon took online books from Barnes & Noble. “Much larger, well-capitalized competitors miss things all the time,” he said. Vision and speed can beat incumbency.
“So what’s the smartest thing Tom and Tom did?” Satchu asked. The classroom is silent.
Satchu talks about the problem of winning shelf space for an unproven product, then gives the answer: “Nantucket Nectar got its competitor to hand over its customer list.” By allowing it to distribute its product, Arizona Iced Tea left itself open to attack. “Never underestimate the stupidity of some of your competitors. Just capitalize on it.”
Next question: Why did Tom and Tom believe they had to sell? “Look at the financials: sales have doubled, to $30-million, but they’re not making any more money. What’s really happening?” No one responds.
“Look at the balance sheet. It’ll tell you what you want to know,” Satchu said. “Do these guys have any idea how to run a business? They don’t know how to procure things, they don’t know how to manage people. These are sales guys. They funded their growth with debt. They’re teetering on bankruptcy, yet they’re in a market that’s on fire.”
So why would this company be worth anything to anyone? The students seem unsure. The right strategic buyer — someone who can eliminate Nantucket’s high production costs and distribution challenges with a wave of the arm — would win a proven producer in a hot market, he said.
The point of studying the case is not to figure out the right thing to do. “The right answer is thinking about creative solutions to your problems.” These may not be hard to do, but they may be unconventional. For instance, Satchu said, how hard was it for Nantucket to suggest a distribution deal with Arizona? The chance of making a deal might have been slim, but there’s no penalty for boldness.