The Empire Builders Podcast

Momofuku Ando is the father of Instant Ramen. Feeding Japan after the war. But how do you get Americans to eat it? Dave Young: Welcome to The Empire Builders Podcast, teaching business owners the not-so-secret techniques that took famous businesses from mom-and-pop to major brands. Stephen Semple is a marketing consultant, story collector and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is … well, it’s us, but we’re highlighting ads we’ve written and produced for our clients. So here’s one of those. [AirVantage Heating & Cooling Ad] Dave Young: Welcome to the Empire Builders Podcast. I’m Dave Young. Stephen Semple’s right there standing by, and he just told me what we’re going to be talking about and, man, it took me back to college days. In fact, I was looking at photos over the weekend. I have some photos of when I was in college, and this is way back 20 years before the turn of the century, to tell you how long ago this is. Stephen Semple: I hate how you put it that way. Dave Young: This is 20 years before the turn of the century. That’s a lifetime ago. But there were days in college where it’s like, “Well, gosh, Mom and Dad haven’t sent me any money and I haven’t gotten the job that I told myself I’d get,” so you go to the store, and what do you find? It’s either ramen or, if you want an upgrade, Cup O’ Noodles. And the Cup O’ Noodles, as everyone that’s ever been poor knows, is a noodle soup in a cup, and you take the lid off, put some water in it, throw it in the microwave, voila. Am I right? Is that what we’re talking about, or is this some new form? Stephen Semple: No, no, that’s what we’re talking about. That’s what we’re talking about, not some new Tesla called Cup O’ Noodles. No, no, you’re right, but I want you to hold onto that thought of it as being an upgrade from ramen, because we’re going to revisit that. Dave Young: Not an upgrade? Stephen Semple: We’re going to revisit that whole idea, because that’s brilliant. It was started in the 1950s and it was a new idea then, but today there’s over a hundred billion servings of instant noodles eaten every year. And it’s estimated that Cup O’ Noodles sells between 18 and 25 billion servings a year. It’s inside of a larger organization, so it’s hard to know exactly, but that’s the estimates I’ve come across. Dave Young: Dude, that’s like feeding the planet three times in one day. Stephen Semple: Right? Isn’t that crazy? Dave Young: Yeah. Stephen Semple: So, empire? Yeah. Dave Young: Yeah. There’s some guy sitting on top of that noodle money somewhere, and I guess we’re going to hear the story. Stephen Semple: So in the 1950s in the United States, food is boring. Eating out was like literally going to diners, and international food really only existed in big cities that had Chinatowns. Dave Young: Yeah. Stephen Semple: And, following World War II, there was actually a strong anti-Asian feeling in the United States. Meanwhile, back in Osaka, Japan, there’s a food crisis after the war because basically Japan has been decimated, and bread is being distributed by the U.S. and it’s really plentiful, but people wanted more traditional meals. Dave Young: They’re not used to bread. Stephen Semple: Right. It’s not part of what they normally eat. So Momofuku Ando is a 48-year-old businessperson. He’s lost his company. He went to jail for tax evasion. All sorts of bad things went on, but he’s out of jail and he’s looking to start his new business, and he sees people lined up for ramen, so there is a ramen tie in here. Dave Young: There you go, yeah. Just to be fair, I wasn’t talking about ramen from a store or from a vendor. I’m talking about those little bricks of Top Ramen. Stephen Semple: Yeah, yeah. Hold onto that. Hold onto that thought. We are going to come back to that, yes. So, ramen was created when noodles basically came over from China, and 1910 is the earliest record we could find of a ramen shop in Japan, so it looked like it was around 1910. Dave Young: Yep. The Japanese didn’t have noodles till 1910? Stephen Semple: They didn’t have the type of noodles in ramen, yes. Dave Young: Okay. See, I mean, we could go a whole nother direction on this if you wanted to, in the Japanese industrialization of them going around the world and bringing all kinds of new technology back to Japan in the early 1900s. Stephen Semple: Yes. Dave Young: Turns out, including noodle technology. Stephen Semple: Including noodle technology, and we forget how closed Japan was. Dave Young: Oh, yeah. Yeah. Stephen Semple: Basically, the only thing that was imported was silk. Right? That was about it. Very, very closed economy, and then yes, lots of … And when things changed in Japan, boy, they changed in a hurry. It went from basically medieval to industrial in like, that. It was crazy. Dave Young: Yeah. Stephen Semple: Yeah. Dave Young: I mean, you and I are both whiskey fans, and we know that the story of Japanese whiskey is the same story. The Japanese guy goes to Scotland, falls in love with Scotch whiskey, figures out how to make it, comes back to Japan and builds the Japanese whiskey industry. Stephen Semple: Yeah. Dave Young: Let’s go back to noodles. I’m sorry. I will distract us all day long. Stephen Semple: No, but it is an interesting thing. Now, the main drawback to ramen is it’s hard to make at home. The noodles need to be fresh. They’re hand-cut. They’ve got to come from shops. And so what Momofuku decides is he wants to make a ramen product that is tasty, non-perishable, easy to make, affordable, and ready in five minutes with hot water. Dave Young: Wow. Stephen Semple: That’s his goal. Dave Young: That’s a goal. Stephen Semple: On top of that, he has no culinary training. So he invests every last penny into this, because he needs something he can put into a grocery store as well on the non-perishable, because there’s few refrigerators or ovens in Japan at this time. Dave Young: Okay, yeah. Stephen Semple: And the key is the broth, and it can take days to make the broth. So here was his question. If everyone loves ramen, why is it so hard to make? And so he tries drying the noodles, then he gets the broth dried into the noodles, and he spends several years working on this and nothing seems to work. And one day, he notices his wife tempura-frying food and the batter dehydrates immediately the moment it hits the oil, because what does oil do? Removes water. So now what he does is he drops the noodle into this high-heat oil, and it creates a shell. He then takes fresh noodles, cooks them in the broth until it’s saturated, drops it into the oil, and the water is cooked out. It works. Dave Young: Wow. Stephen Semple: It works. He’s now got this dried noodle. Now he needs to get it in the store. So he starts with chicken ramen, and that’s more expensive. It’s about six times the price of regular ramen, but what he finds is people are willing to pay for the convenience. So in 1961, it hits stores in Osaka and it sells like crazy, and it’s called Magic Ramen by customers. Dave Young: Magic Ramen. I like that. Stephen Semple: Yeah, and he gets to the point where he borrows a million yen to open a factory. In the first year they’re doing 13 million packages, and the second year, 50 million packages a year. Now, to put that in perspective, 50 million packages a year, the TV dinners at that time is one half the number of sales of the amount of ramen that they’re selling in Japan, of this instant ramen. Dave Young: Wow. Okay. Stephen Semple: It’s 1962, and this idea is getting very copied. There’s now 70 companies in the space in Japan in a few short years. And some are also cheaper and the economy in Japan is still recovering, so Momofuku decides he’s going to spend a couple of million bucks and he’s going to bring this product to the United States. Dave Young: Okay. Stephen Semple: Now, the timing is really bad. In 1968, there’s a hoax letter written to the New England Journal of Medicine by Dr. Kwok that MSG is unsafe and The New York Times reports on it, and this becomes a placebo effect on all Chinese food. Dave Young: What year was this? Stephen Semple: ’68. Dave Young: ’68, okay. Stephen Semple: The letter was written on a bet by Dr. Howard Steele, who was a pediatric who was having a hard time getting published, and there was this bet that, “Oh, I bet you if you wrote something this way, it would get published,” so he creates this hoax and it gets published. Dave Young: And people still believe it? Stephen Semple: Yeah. He created this fake research facility with a made-up name, and it’s amazing. Sounds kinda familiar for the world we’re in today, and MSG is declared unsafe for years later. Dave Young: Well, my wife thinks MSG doesn’t agree with her. Stephen Semple: Well, some people, it may not. Dave Young: Maybe it doesn’t, but I don’t know. Stephen Semple: But again, that could be just a food intolerance, right? Dave Young: You don’t know, yeah. Stephen Semple: Yeah. So Momofuku travels to the United States. Here’s one of the things he figures out. He runs into a bit of a challenge with the U.S. market. He realizes he needs to do sampling, because it became successful in Japan because it was a familiar food that became convenient, right? So it was only one step away, a familiar food that became convenient. It was not a familiar food in the United States, so he decided he needed to do sampling, so he goes over to the U.S., sets up sampling in grocery stores. This anti-Asia movement is so strong, people won’t even try it. It’s too new. Dave Young: Yeah. Stephen Semple: Won’t even try it. Dave Young: And don’t know what ramen is. Stephen Semple: Right. So when he’s done, he’s got all this product left over and he decides, “I’m not going to take this product back to Japan,” so he leaves it for the staff, but what he notices is the staff are eating it, but very differently. Dave Y

Larry Page said in the early day, a guiding principle is Do No Evil. I wonder if we can say that today or is it just business as usual? Dave Young: Welcome to the Empire Builders Podcast, teaching business owners the not-so secret techniques that took famous businesses from mom-and-pop to major brands. Stephen Semple is a marketing consultant, story collector, and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is, well, it’s us, but we’re highlighting ads we’ve written and produced for our clients. So, here’s one of those. [Out of this World Plumbing Ad] Dave Young: This is the Empire Builders Podcast, by the way. Dave Young here, Steve Semple there. I wonder, Stephen, if we could do this whole episode without mentioning the name of the company that we’re going to be talking about. I ask that for the simple reason of they already know. They already know what we’re talking about. They already know we’re talking about them. They probably knew we were going to talk about them. Stephen Semple: Because of all the research I’ve done on my computer. Dave Young: No, because they’re listening to everything. They probably already know the date that this is going to come out and how long it’s… I don’t know, right? When they first started, and I don’t think we felt that way about them, and I can remember back in the early 2000s, just after the turn- Stephen Semple: In the early days, they had a statement. Larry Page was very famous. Dave Young: Yeah, “Do no evil.” Stephen Semple: “Do know evil. Do no evil,” and that was a very, very big part. In fact, in the early stages, they made a bunch of decisions that challenged the company financially because they were like, “This is not good experience for the person on the other end.” I wonder if anybody’s guessed yet what we’re going to be talking about. Dave Young: Well, then you go public, and it’s all about shareholders, right? It’s like the shareholders are like, “Well, we don’t care if you do evil or not. We want you to make money.” That’s what it’s about because you have [inaudible 00:03:01]. Stephen Semple: All those things happen. Dave Young: Yeah. Stephen Semple: This company that we’re talking about, we’ll go a little while before we’ll let the name out, was founded… On September 4th in 1998 was when it was actually founded. Dave Young: Oh, ’98. It goes back before the turn of the century [inaudible 00:03:14]. Stephen Semple: Yeah. It was founded by Larry Page and Sergey Brin, who met at Stanford. Interesting note, the Stanford grads also created Yahoo. Dave Young: Okay, yeah. Stephen Semple: That’s giving you another little clue about the company that we might be talking about. Dave Young: In the same geek club. Stephen Semple: Yeah, so 1998. I was thinking back, one year after I graduated from university, Windows 98 is launched and, believe it or not, the last Seinfeld episode aired. Dave Young: Are you kidding me? Stephen Semple: No, isn’t that crazy? Dave Young: ’98. Stephen Semple: Yeah. Dave Young: I mean, I was busy raising four daughters in ’98. Stephen Semple: Yeah. Today, this company, as you said, because you didn’t want me to name the company, has more net income than any other business in US history. It has, now, I got to let the cat out of the bag, eight and a half billion searches a day happen. And yes, we’re talking about the birth of Google, which is also now known as part of the Alphabet group. Dave Young: Alphabet, yeah. It’s funny how they got to get a name that means everything. Did they have a name before Google? I know Google was like… Oh, it’s a number really, right? It’s a gazillion, bazillion Googleplex. Stephen Semple: As we’ll go into a little bit later, they actually spelled it wrong when they registered the site. That’s not actually the way that the word is spelled. I’ll have to go… But yeah, the first iteration was a product called BackRub was the name of it. Dave Young: Backrub, okay. Stephen Semple: Alphabet also owns the second largest search engine, which is YouTube. Together, basically, it’s a $2 trillion business, which is larger than the economy of Canada. It’s this amazing thing. Going back to 1998, there are dozens of search engines all using different business models. Now, today Alphabet’s like 90% in the market. Up until this point, it’s been unassailable, and it’s going to be really interesting to see what the future of AI and whatnot brings to that business. But we’re not talking about the future, we’re talking about the past here, so back to the start. Larry Page was born in Lansing, Michigan. His dad is a professor of computer science. His mom is also a computer academic. This is in the ’70s. Between 1979 and ’80, his dad does a stint at Stanford and then also goes to work at Microsoft. Now, Larry and Sergey meet at Stanford, and they’re very ambitious, they’re equal co-founders, but Larry had this thing he also talked about where he said, “You need to do more than just invent things.” It wasn’t about inventing things, it was about creating things that people would use. Here’s what’s going on in the world of the web at this time to understand what’s going on. Here’s some web stats. In 1993, there’s 130 websites in the world. In 1996, three years later, there’s 600,000 websites. That’s a 723% growth year over year. The world has never seen growth like that before. Dave Young: Right, yeah. It was amazing to experience it. People that are younger than us don’t realize what it was. Josh Johnson, the comedian, has a great routine on trying to explain to people what it was like before Google. You needed to know something- Stephen Semple: What it was like for the internet. Dave Young: Yeah. You had to ask somebody who knew. If you needed the answer to a question, you had to ask somebody. And if they didn’t know, then you had to find somebody else, or you had to go to the library and ask a librarian and they would help you find the answer- Stephen Semple: Well, I don’t think it’s like a- Dave Young: … maybe by giving you a book that may or may not have the answer. Stephen Semple: Here’s an important point. I want you to put a pin in that research. We’re going to come back to it. I was about to go down a rabbit hole, but let’s come back to this in just a moment, because this is a very, very important point here about the birth of Google. Larry and Sergey first worked on systems to allow people to make annotations and notes directly on websites with no human involved, but the problem is that that could just overrun a site because there was no systems for ranking or order or anything along that lines. The other question they started to ask is, “Which annotations should someone look at? What are the ones that have authority?” This then created the idea of page rankings. All of this became messy, and this led to them to asking the question, “What if we just focused on ranking webpages?” which led to ranking search. Now, whole idea was ranking was based upon authority and credibility, and they drew this idea from academia. So when we would do research, David, and you’d find that one book, what did you do to figure out who the authority was on the topic? You went and you saw what book did that cite, what research did this book cite. The further you went back in those citations, the closer you got to the true authority, right? Do you remember doing that type of research? Dave Young: Yeah, sure. Stephen Semple: Right. They looked at that and they went, “Well, that’s how you establish credibility and authority is who’s citing who.” Okay. They decided that what they were going to do was do that for the web, and the way the web did that was links, especially in the early days where a lot of it was research. Dave Young: Yeah. If a whole bunch of people linked to you, then that gives you authority over the words that they used to link on and- Stephen Semple: Well, and also in the early days, those links carried a lot of metadata around what the author thought, like, “Why was the link there?” In the early days, backlinks were incredibly important. Now, SEO weasels are still today talking about backlinks, which is complete. Dude, backlinks, yeah, they kind of matter, but they’re… Anyway, I could go down a rabbit hole. Dave Young: Yeah. It’s like anything, the grifters figure out a way to hack the system and make something that’s not authoritative seem like it is. Stephen Semple: Yeah. It’s harder that you can’t hack the system today. Anyway, but the technology challenge, how do you figure out who’s backedlinked to who? Well, the only way you can do it is you have to crawl the entire web, copy the entire web, and reverse engineer the computation to do this. Dave Young: Yeah. It’s huge. We’ve been talking about Google’s algorithm for as long as Google’s been around. That’s the magic of it, right? Stephen Semple: Yeah. In the early days, with them doing it as a research project, they could do it because there was hundreds of sites. If this happened even two years later, like 1996, it would’ve been completely impossible because the sheer size to do it as a research project, right? Now, they called this system BackRub, and they started to shop this technology to other search engines because, again, remember there was HotBot and Lyco and Archie and AltaVista and Yahoo and Excite and Infoseek. There were a ton of these search engines. Dave Young: Don’t forget Ask Jeeves. Stephen Semple: Ask Jeeves? Actually, Ask Jeeves might’ve even been a little bit later, but yeah, Ask Jeeves was one of them once when it was around. Dave Young: There was one that was Dogpile that was… It would search a bunch of search engines. Stephen Semple: Right, yeah. There was all sorts of things. Dave Young: Yeah. Stephen Semple: There was another one called Excite, and they got close to doing a deal with Excite. They got a meeting with them, and they’re looking at a license deal, million

When your year’s earnings are stolen and you need a quick way to make some cash on the cheap, you invent chocolate chip cookies. Dave Young: Welcome to the Empire Builders Podcast, teaching business owners the not-so-secret techniques that took famous businesses from mom-and-pop to major brands. Stephen Semple is a marketing consultant, story collector and storyteller. I’m Steven’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is, well, it’s us, but we’re highlighting ads we’ve written and produced for our clients. So here’s one of those. [North Texas Gutters Ad] Dave Young: Welcome to the Empire Builders Podcast. Dave Young here, along with Stephen Semple. Gosh, Stephen just keeps coming up with topics that are just so near and dear to my heart, and I think I might know the essence of this. Is it an empire? We’re going to talk about the birth of the chocolate chip cookie. Stephen Semple: Sure, but what’s the empire? There’s a lot sold? Dave Young: There’s a lot of… Boy, if you would have invested in chocolate chip cookies back in the day, think how much you’d have today. I’m guessing this has to do with Toll House- Stephen Semple: Yes. Dave Young: … and the inn… Was it an inn or a woman’s name? Stephen Semple: Yes. Inn. Dave Young: It was an inn. They’ve told the story I think on the bags or something. Anyway, have at it. I’m all in on chocolate chip cookies. Stephen Semple: So it’s the late 1920s and cookies have actually emerged as a business. The National Biscuit Company, Nabisco- Dave Young: 1920s. Stephen Semple: … yeah, has been a top seller for the last 20 years with their Oreo, mainly bought in stores, not made at home. Basically, to really understand the birth, we’ve got to go back to Whitman, Massachusetts, to Ruth Wakefield, who taught Home Ec, and she was also college-educated and she was interested in cooking. Ruth, her husband Ken, quit their job, invest their life savings into converting a 19th-century old home into a restaurant. They want to create a restaurant of their dreams, has these seven tables, doing traditional New England food, even has a kid’s menu with a dessert menu, but by the time they open the doors, it’s 1930. They’ve invested two years in doing this. Dave Young: Oh, no. And? Stephen Semple: And they’re down to their last few dollars. Now, they had picked a location with lots of traffic. They had picked a location that was basically where wealthy people traveled from Boston to Cape Cod and went through this area. They called the restaurant the Toll House. Now, because it was located on an old toll road, it was not the toll building, but it was located on an old toll road. Dave Young: Sure. Stephen Semple: Things started slow, but word got out and it started to get busy and they were known for their desserts, including the simplest. They did this butter pecan cookie that came with ice cream. Soon, customers are requesting the cookie without the ice cream. So they add cookies, they add these cookies as a standalone dessert. It’s 1935. It’s Labor Day. It’s the end of season. They’ve got lots of cash. They’ve done really well, and they are robbed. Dave Young: Oh, no. Stephen Semple: All their money is gone. They’re now at this crisis point because they’re the end of the season- Dave Young: Were they keeping all their money in a cookie jar? Stephen Semple: Perhaps. Basically, it’s the end of the season, they have no money, and they need to make something that is affordable, but it won’t cost much to make so they can create cash. They start with the butter pecan cookie, but then, she has this idea of a chocolate cookie. Dave Young: Yeah, pecans are expensive. Stephen Semple: Right, right. So Ruth says, “Okay, here’s what I’m going to do. I’m going to take a baker’s chocolate bar. I’m going to cut it up and add it to this cookie.” That was the idea. Now, they’re made out of baker’s chocolate, which is unsweetened, and it didn’t work out so well, and so they then started taking a Nestle semi-sweet bar and they took basically an ice pick to that and chip it away and let small pieces into it, which then created this sweetness without it being overly sweet. Dave Young: Yeah, because you’ve got the sweetness of the sugar and the dough and all of that working for you, too. Stephen Semple: Yeah, and they called them chocolate crunch cookies. Dave Young: Chocolate crunch cookies. Stephen Semple: Because remember it was the pecan. They were still a pecan with the chocolate chips. Dave Young: Oh, okay. Stephen Semple: And people started asking for the recipe. In fact, Boston Globe newspaper published the recipe and the recipe went crazy. Now- Dave Young: Sure. Stephen Semple: … enter Edouard Muller, who’s the Nestle CEO, and he’s in the US office. Sales are down 60% because war breaks out in Europe, not down in the US, but he wants to break into the US market because the US market is small for them at that point. He sees this sales spike in the Northeast. He’s like, “There’s this 500% increase in sales around Whitman, Massachusetts area.” Dave Young: Of Nestle chocolate. Stephen Semple: Right. He’s like, “What’s going on with that?” So he approaches them about buying the rights for the recipe. Dave Young: Okay. Didn’t know you could do that, but sure. Stephen Semple: Well, and in many ways, one could argue it was published by the newspaper, so it was in public domain, but he approaches them and he says, “Look, I want the rights to this recipe.” They pay her a dollar for it, plus hire her as a consultant, publish the recipe on the package and share the name of the restaurant so it also promotes the restaurant. That’s the deal they cut. Dave Young: Toll House. Yeah. Okay. Stephen Semple: Nestle changes how their bar is made, making it easier to cut up, and they rebrand and sales drop. Dave Young: Sales dropped? Stephen Semple: Yeah. Because what they find is the texture’s all wrong, people can’t break it along the lines of the bar and all this other stuff. So they have this crazy idea: why not just sell the broken pieces? Dave Young: Sure. Stephen Semple: And they start off calling them Nestle Toll House Morsels. Dave Young: Yeah, brilliant. Stephen Semple: The other thing he does is he gets it out of the candy aisle and puts it in the baking aisle. Because that was the other problem is it was sitting in the candy aisle. Dave Young: It’s where it belongs. Yeah. Stephen Semple: Put it in the baking aisle. Sales soar. Now remember the story of Ruth chipping off the chocolate? So why’d they call them morsels? People, because they knew the story, were calling them chips. Dave Young: Chips. Chocolate chips. Stephen Semple: Right. Now global sales in Nestle in 1945 rise 125% to 225 million, which would be about four billion today. During the war, they advertise, “Bake for your soldiers overseas,” and offer this as a recipe. Now, following World War II, we come into the convenience age and we have the new Nestle CEO, Carl Abegg, who does pre-made cookie doughs, and he launches those in 1955. And here’s the thing. When we talked about this as being the birth of the chocolate chip cookie, up until 1950, the bestselling cookie was Oreo. Dave Young: Really? Okay. Stephen Semple: Yeah. 1955, Oreo is no longer the favorite cookie that has been for decades, is now the chocolate chip cookie. Dave Young: In a package like Chips Ahoy or something? Stephen Semple: Yeah. Well, just like chocolate chip… Yeah, just basically that ends up becoming the category. Dave Young: But you couldn’t make Oreos. Stephen Semple: Well, that’s true. That’s true. But the point is, it starts to shift. Now Nabisco starts to also want to enter the race with something new. Lee Bickmore wants to get into this game, but now not with a prepackaged chocolate chip cookie. The problem was, how do you make something shelf-stable, can’t use eggs and butter, they are hard and not chewy but they still taste good, they’re crispy rather than chewy? He does this test market with children and parents, and they also remove the nuts from the original recipe. So now what they’ve got is they’ve got this hard, crispy cookie with no nuts in it, and they decide to package that up. Well, what’s a great fun name to put on it? Chips Ahoy. Dave Young: Chips Ahoy. Yeah. Stephen Semple: Right? Fun way to emphasize a large number of chocolate chips. Dave Young: And it’s all chips. Yeah. Stephen Semple: Yeah. They advertise on kids’ shows and magazines. They have a cookie man as the character, and they advertise there’s 16 chips in it. Dave Young: So kids are breaking them apart, counting them. Stephen Semple: Yeah. That was Nabisco entering the race, and then basically Nestle does these attack ads saying the real Toll House cookie needs to be baked at home, and so this whole chocolate chip cookie war happens. But the part I wanted to talk about on this was what I thought was really interesting was the evolution of this idea of a chocolate chip. Dave Young: Stay tuned. We’re going to wrap up this story and tell you how to apply this lesson to your business right after this. [Using Stories To Sell Ad] Dave Young: Let’s pick up our story where we left off, and trust me, you haven’t missed a thing. Stephen Semple: What I thought was really interesting was the evolution of this idea of a chocolate chip. It came from this person having this restaurant, making the desserts, hit this point where, holy smokes, we’ve got to come up with something that is small-priced, that we can easily make, that we can create some cash, and she just decides, “Well, I’m just going to hack some stuff off of this bar of chocolate.” Advertises the recipe, it gets no one. And the smart part, we’ve got to give Nestle… It would be one thing to say this is all a creation of Ruth Wakefield, we have to give Nestle some credit here. They noticed a sales increase in a particular market where they were doing nothing different and they

Ferdinand wanted to make cars for the people, but the Porsche brand we know is an empire of performance. Dave Young:  Welcome to the Empire Builders Podcast, teaching business owners the not-so-secret techniques that took famous businesses from mom and pop to major brands. Stephen Semple is a marketing consultant, story collector, and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is, well, it’s us, but we’re highlighting ads we’ve written and produced for our clients, so here’s one of those.  [ASAP Commercial Doors Ad] Dave Young:  Welcome to The Empire Builders Podcast. It’s the podcast where we talk about empires that were built, businesses, business empires. You know what we… If you’ve listened before, you know…  Stephen Semple:  Something like that. I get it. Businesses that have done pretty well over the years.  Dave Young:  They started small.  Stephen Semple:  They started small.  Dave Young:  They started small and then they got big. They got so big to the point that you could call them an empire.  Stephen Semple:  That’s it. That’s the idea.  Dave Young:  It’s a pretty simple premise.  Stephen Semple:  That’s it.  Dave Young:  So as we counted down, Steve told me the topic today and it’s Porsche.  Stephen Semple:  Yes, sir.  Dave Young:  Porsche. I’m assuming this is the car.  Stephen Semple:  The car, yes, the car.  Dave Young:  Okay.  Stephen Semple:  The car.  Dave Young:  And I’m trying to… I know some Porsche jokes, but I probably shouldn’t tell those on this show. I’m trying to think if I’ve ever actually been in a Porsche.  Stephen Semple:  Oh, well then you’ve got to come up and see me, Dave.  Dave Young:  You own one. I know you own one.  Stephen Semple:  Well, I have one. Bernier’s got two. I don’t know how many Steve has.  Dave Young:  I see how it is. I see how it is. Maybe I will tell my Porsche joke. So you guys that own them, do you call it Porscha? Because some of us just say Porsche.  Stephen Semple:  Well, if you actually take a look back, that’s the proper German pronunciation as Porsche.  Dave Young:  Porsche, okay.  Stephen Semple:  And it’s supposed to not be… It’s not Italian Porsche, right? So it’s Porsche.  Dave Young:  Porsche, Porsche. Okay, I’ll accept that. I’ll accept that. I’m guessing we’re-  Stephen Semple:  Well, look, you got to always call a dealership to double check. They’ll tell you.  Dave Young:  Now, if I had to guess where we’re headed to start this off sometime around the 40s, maybe earlier.  Stephen Semple:  A little earlier than that, actually. It was founded by Ferdinand Porsche in 1931 in Stuttgart, Germany. You’re not far off. But the interesting thing is where the growth really happened, even though that’s when it was founded, when things really started to happen, was actually post-World War II.  Dave Young:  That makes sense.  Stephen Semple:  You’re correct on that.  Dave Young:  So, it started in 31 and by the time you hit the late 30s and 40s, you’re part of the war machine.  Stephen Semple:  Yes.  Dave Young:  Okay.  Stephen Semple:  So it was founded in 1931, Stuttgart, Germany by Ferdinand. And when we take a look at the history of the business for a very long time, they were a part of the VW group, although they were recently spun off into their own separate business. And there’s a lot of shared history between VW and Porsche. A lot of people make fun of the fact that it’s basically a VW. There’s so much connection. Now here’s the other thing is, there’s a lot of connection in Nazi Germany here as well. And I mean-  Dave Young:  That’s what I was intimating but trying not to say, but yes, there was definitely.  Stephen Semple:  And not one of these ones of, “Oh, I’m a business and I got sucked up into the machine.” I mean, very early on. Very early on. Ferdinand was a member of the SS following the war, both he and his son were charged.  Dave Young:  No kidding.  Stephen Semple:  He served two years in jail. His son six months. So we’re not talking loose connections here. He was a buddy of Adolf. Let’s just put it out there. And if you remember, going back to episode 21, VW was founded by Nazi Germany. So episode 21 about The Beetle, and Ferdinand was the guy who designed the Beetle.  Dave Young:  Right, right. I remember you saying that, Ferdinand Porsche.  Stephen Semple:  And look, Porsche has not always had the success it has today. It’s become pretty big. They do 40 billion EU in sales. They have 40,000 employees. They make 300,000 cars. There was a time that they’re making cars in the hundreds and thousands. It wasn’t that long ago. But let’s go back to Germany to the early 1900s. And if we think about Germany at that time, pre-World War II, pre-World War I, there was lots of history of engineering and science in Germany. More Nobel Prizes in Science was awarded to Germany than anywhere else in the world at that time.  Dave Young:  Right.  Stephen Semple:  Germany was a real leader in science and engineering. And the first commercial automobile was made in Germany by Mercedes-Benz. So it’s 1906 and Daimler recruits Ferdinand because Ferdinand had been the winner of the Pottingham [inaudible 00:06:05] Prize, which is the automotive engineer of the year, which is given to new chief engineers and basically allows the person to have this designated doctor engineer honoris causa, Ferdinand Porsche. And he would go around calling himself all of that.  Dave Young:  Okay.  Stephen Semple:  And this is an honorary doctorate because he never actually finished college, but he had real engineering chops, Ferdinand. So he moves to Stuttgart, which at the time is a center of car making in Germany, including all the suppliers. And he works for Benz for 20 years. Okay. Now, it’s Germany in the 1930s and 2% of the population own a car in Germany as compared to the United States, which is 30%.  Dave Young:  In that time?  Stephen Semple:  In that time.  Dave Young:  Okay.  Stephen Semple:  Ferdinand comes up with this idea of we should make an inexpensive car. We shouldn’t be making car for the wealthy. We should make an inexpensive car. The board rejects the idea. Ferdinand leaves in 1929. And in 1931… Kicks around for a few years, and then 1931 starts a consulting firm. Now, this dude knew how to name things. You’re ready for the name of the company?  Dave Young:  Of the consulting firm?  Stephen Semple:  Of the consulting firm.  Dave Young:  Okay.  Stephen Semple:  I have to read this to get it right. The Doctor Engineer Honoris Causa Ferdinand Porsche Construction and Consulting and Design Services for Motor Vehicles.  Dave Young:  Now, if I know anything about German, that was all one word that you just said, right?  Stephen Semple:  Well-  Dave Young:  No spaces in between any of those words.  Stephen Semple:  Translated, you’ll see it as Dr. in H period, C period, F period, Porsche, capital G, small M, small B, capital H.  Dave Young:  It just rolls off the tongue, doesn’t it?  Stephen Semple:  Now, here’s the crazy thing. Up until 2009, that remained the official name of the company. You actually can find, if you see Porsche’s older than that, that if you look for that, it’ll be stamped somewhere in the car that that’s the manufacturer.  Dave Young:  They changed it finally because it was just too expensive to-  Stephen Semple:  It cost too much-  Dave Young:  Put that many letters in a dye cast.  Stephen Semple:  Exactly, exactly.  Dave Young:  Holy cow.  Stephen Semple:  So it’s 1934 and they land a contract with Germany to design a small affordable car for the people called the Volkswagen.  Dave Young:  Volkswagen.  Stephen Semple:  Beetle. Right, there you go. Now, here’s the thing that’s weird. Post World War II, the allies are in trying to rebuild Germany and no one owns VW. VW was owned by the state. So now it’s in the hands of the British and the British and the allies want to create a strong economy in West Germany because it’s now the Cold War. So the big defense to defending against East Germany and the expansion of communism is to really get the economy going in Germany. And so the British government, as we know from episode 21 about the Beetle, approached Porsche who designed it and said, “Help us get this car built.” And this is where it gets just a little bit weird because the son goes in one direction. Ferdinand’s doing his own thing. They both got arrested for war crimes. Son gets out first because he did six months.  And his son’s name’s Ferry and his dad is in jail for two years. So between this time where dad’s still in jail and son’s out, here’s one of the things they did towards the end of the war. We don’t know exactly how many, but it was probably about 20 of their best engineers and they moved them out into the farmland of Austria and basically had them working in a barn because they didn’t want to get them arrested or killed, quite frankly. So Ferry gets out and he goes to this barn in Austria and he’s looking around and he goes, “What the heck are we going to do to make some money? Let’s start fixing up cars.” Now, not a huge business fixing up cars. It’s post-war and there weren’t a lot of cars in Germany anyway, but they had to do something.  Then the dad gets out of jail and he ends up doing this work with Volkswagen. Now, here’s what’s interesting. And this is where the really tight ties between Porsche and Volkswagen start. The deal that the German government gives Ferdinand, the deal that the allies give Ferdinand is this.  Dave Young:  Stay tuned. We’re going to wrap up this story and tell you how to apply this lesson to your business right after this.  [Using Stories to Sell Ad] Dave Young:  Let’s pick up our story where we left off and trust me you haven’t missed a thing.  Stephen Semple:  The deal that the allies give Ferdinand is this. We want your help designing and distributing this car. We will give you a royalty for

When two employees of Handy Dan hardware store gave this idea to management, they got fired! So, they started Home Depot. Someone’s kicking themselves now! Dave Young: Welcome to the Empire Builders Podcast, teaching business owners the not so secret techniques that took famous businesses from mom-and-pop to major brands. Stephen Semple is a marketing consultant, story collector, and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is… well, it’s us. But we’re highlighting ads we’ve written and produced for our clients. So here’s one of those. [No Bull RV Ad] Dave Young: Welcome back to the Empire Builders Podcast. I’m Dave Young. That’s Steve Semple whispering in your other ear. And on today’s episode of the Empire Builders- Stephen Semple: [inaudible 00:01:44] your live stereo. Dave Young: We knew that it would only be a matter of time having so recently discussed the Lowe’s Empire that we would be discussing Home Depot, and today is that day. Stephen Semple: Today is that day because really, there’s a pretty shared DNA there. Dave Young: Sure. And again, I always think, “Well, okay, start as a little hardware store and then somebody grew into a big hardware store and then they made a bunch more.” Stephen Semple: It’s a little bit like that. Dave Young: A little bit? Stephen Semple: Except this is a little different. It’s a little bit different. Dave Young: Okay. I always like a good twist. Stephen Semple: There’s a little bit of a twist in this. So it was founded in February 6th, 1978, Marietta, Georgia by Bernard Marcus, Arthur Blank, Ron Brill, Pat Farrah, and Ken Langone. So these guys basically got it started. Dave Young: So it doesn’t go near as far back as Lowe’s. Stephen Semple: Yeah. Lowe’s is a little bit earlier, but not much. And today they have over 2,300 locations. They do 160 billion in revenue with over 450,000 employees. So it’s a big deal. And we all know who the Home Depot is, right? We’ve all pretty much heard of it. Now, a couple of the guys got basically fired from a hardware store in the West Coast called Handy Dan. Dave Young: Handy Dan. Okay. Stephen Semple: And it wasn’t really all that big and it was one-stop. But here’s why they got fired. They kept pestering management saying, “You need to go larger, then you need to go national.” And basically, management got tired of listening to that and fired them. So I told you there was a little twist. So when they left, they called one of Handy Dan’s investors, Ken Langone, and said, “Here’s what we want to do. We want to make 100,000 square foot hardware store, stock everything, make it cheaper, and make it more like a wholesaler. That’s what we want to do.” And they drew their inspiration from Walmart. They’re looking at what Walmart was doing. They said, “We want to do the Walmart thing for hardware and building.” And Ken was like, “Great, let’s do it.” And they drew up a plan that basically said they needed $25 million to get going, and they had to settle on raising three and a half million. So this is important to keep in mind because it shapes a couple of things that they do. And so the first thing that they needed to do… And they had a guy, Pat Farrah join them for merchandising. The first thing that they needed to do was create a name for the company. Now, I don’t know if you remember Crazy Eddie’s, the guy in New York City? Dave Young: Yeah. Stephen Semple: New York City. And he was selling electronics and all this other stuff. Dave Young: But he’s no Handy Dan. Stephen Semple: He’s no Handy Dan, but they were inspired by Crazy Eddie’s. And what I found interesting is in Toronto around the same time, there was a furniture company that started that also was inspired from it because it was Bad Boys. They would dress in the black and white retro, “I’m a prisoner” uniforms. And they’d be like, “Bad Boys. Does anybody have a better price? Nobody.” That was their slogan. But what these guys decided was they were going to call it Bad Bernie’s Buildall. Dave Young: Bad Bernie’s Buildall? Stephen Semple: Bad Bernie’s Buildall. Yes. The investors didn’t like it. That name did not go forth. Dave Young: Of course they didn’t like it. Stephen Semple: Well, because it didn’t have the name Home and all those other things. So they said, “Okay. Well, let’s call it the Home Depot.” Dave Young: Look, Lowe’s doesn’t have the name Home in it either, but it’s not Bad Bernie’s. What was it? Builders? Stephen Semple: Buildall. Dave Young: Buildall? Stephen Semple: Yes. Dave Young: It doesn’t roll off the tongue. It blurts out of your mouth in a not great way. Yeah. I have to side with the investors on this one. Stephen Semple: I have to say, I think even on this one, the investors, they’re often not right, but I think on this one they were right. So they opened in Atlanta, 60,000 square feet. Remember that little bit of a difference in terms of the money that they wanted to raise? Dave Young: Yeah. Stephen Semple: They wanted to raise the 25 million and only had three and a half million. So it made a couple of things difficult, such as stocking 60,000 square feet full of merchandise. Dave Young: Sure. That’s a lot of merchandise. Stephen Semple: So to make it look full, they went out and they bought empty paint cans, thousands of empty paint cans and thousands of empty boxes and basically put them on the shelves. Dave Young: Oh, boy. Stephen Semple: And they wanted to make it feel like a working warehouse so they threw sawdust on the floor. So it’s sawdust on the floor, empty boxes, empty paint cans. Dave Young: Just have one guy driving around with a forklift randomly just… Stephen Semple: They couldn’t afford a lit sign, so they had to make it bright to stand out. So that’s why they went with the orange. Now here’s what’s really interesting. Dave Young: Okay. That makes sense. Stephen Semple: Our client in Edmonton who sells used RVs has a location that’s relatively close to the airport, so you can’t do a lit sign. Jay Mistry Art Design. We picked a very specific shade of orange because what we knew is the setting sun would hit it. And when the setting sun hits that sign, it looks like it’s glowing. And then we got Rick to buy a spotlight and Jay even said to him, “Spotlight has to have this specific criteria to it.” And we put the spotlight onto it and it looks like it’s glowing. There’s cheap ways to make a sign look lit without lighting it. But anyway, that’s why it was orange. Dave Young: Shining the light on it is fine. Stephen Semple: Right. But that’s why they went with the orange, is like, “We can’t light it. It’s got to stand out.” So they do launch day. Launch day does not go well. Literally, they had a newspaper ad that was supposed to run that didn’t run. Nobody showed up. They literally sent kids and family into the parking lot, literally to hand out dollar bills, come to the store. First year’s a disaster. They lose a million dollars in the first year. Dave Young: Here’s what we know about hardware. When do we buy hardware? When we need it. Stephen Semple: Yes, when we’re fixing something. Yep. Dave Young: When we’re fixing something, when we need it. I don’t need it today, but I don’t know if I need it tomorrow because nothing’s broken yet and I don’t have a project I’m working on. So you got to be patient in the hardware business, don’t you? Stephen Semple: Well, they also did something interesting to stimulate sales. So the first year they lose a million dollars and then they get this chance to buy fireplace accessories really cheap. Now think about this. It’s the summertime, they’re in the South and there’s these cheap fireplace accessories. They buy 4,000 of them and they plan to sell them at just above the price and advertise it like crazy. They’re selling these things for 37 bucks. And here’s what’s crazy. People travel from miles away to buy this stuff. And when they’re there, they’re walking around and they buy other things. So the original history- Dave Young: Get an empty can of paint. Stephen Semple: Yeah. And to get some paint. Dave Young: A big box. Stephen Semple: So the original history of Home Depot is they did all these flash sales. Flash sale, flash sale, flash sale. Okay. So in 1980, they do more sales. But one of the things they also do is they start hiring professional contractors and start running these clinics inside the store. This whole idea is we’re going to do a flash sale. Dave Young: I remember that. Yeah. Stephen Semple: Right. We’re going to do a flash sale to bring people in and then people will maybe watch the clinic and then they’ll buy other stuff. Dave Young: They’ll learn how to do tiling or all that stuff. Stephen Semple: So it’s 1985, they have 50 stores. Lowe’s has 300 stores and Lowe’s secret shops them. They start copying each other at this point. Now, Sam Walton, founder of Walmart, ends up becoming important in all this because Sam Walton calls them and you’re going to love Sam’s advice. Dave Young: Stay tuned. We’re going to wrap up this story and tell you how to apply this lesson to your business right after this. [Using Stories To Sell Ad] Dave Young: Let’s pick up our story where we left off and trust me, you haven’t missed a thing. Stephen Semple: Sam Walton calls them and says, “Guys, love what you’re doing, but you need to shift your model.” And you’re going to love Sam’s advice because it speaks to what we do from the standpoint of running these sales, there’s a downside to running all these sales. And he said, “Get rid of the flash sales, buy in bulk, keep everything as cheap as possible.” If that’s your dealio, low prices, don’t do flash sales, just do low prices, advertise that you got low prices on everything, go that way, and sales soar. So remember, Home Depot was 50 stores and Lowe’s was 300 stores. So that was ’85. So 1992, seven years later after implementing Sam Walton’s advice, Home

From negotiating on the phone for some art to generating 10 Billion dollars a year, Pierre Omidyar built an empire out of other peoples stuff. Dave Young: Welcome to the Empire Builders Podcast, teaching business owners the not-so-secret techniques that took famous businesses from mom-and-pop to major brand. Stephen Semple is a marketing consultant, story collector and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor which is, well, it’s us, but we’re highlighting ads we’ve written and produced for our clients. So here’s one of those. [Travis Crawford Ad] Dave Young: [inaudible 00:01:32] and sold. eBay is the topic today. Oh, by the way, welcome to the Empire Builders Podcast. I’m Dave Young, that’s Steve Semple in your other ear. Is that how this works, are we each in one ear? Stephen Semple: I’m not sure. Dave Young: I don’t think that’s how this works. Stephen Semple: I don’t pay enough attention to things like that. Dave Young: As the countdown timer went down, Stephen told me we’re going to talk about eBay and I went immediately to the sound of the auctioneers of my youth back in my hometown. Stephen Semple: Oh, God. Dave Young: There’s cattle sales and estate sales. On any Saturday morning walking around in a small town, off in the distance you hear somebody with one of those cheap portable PA systems, “Give me five, give me five, give me five, give me five, five, five.” Aren’t you glad that eBay doesn’t have sound effects? Stephen Semple: Maybe it should. It might make it more entertaining. Dave Young: There’s some AI auctioneer going 24/7 for two weeks. Stephen Semple: Oh, my God, Dave, the fact you’ve now said it, you know what meme is going to happen. Oh, no, you put it out there. So when you come across this as a meme- Dave Young: There’s that little mute thing on the screen where if you turn it on, there’s some AI, “We’ve got $12.50. Since Tuesday, we have $12.50. Anyone, anyone?” Stephen Semple: So when this meme is driving us nuts on social media, you can blame Dave Young. Dave Young: I don’t see it happening. Oh, yeah, back. Oh, we’re going to talk about eBay. Stephen Semple: But talking about auctions for a second, here’s what I always find fascinating. Somebody will have something and they’ll go, “Okay, do I have an opening bid of $500?” Nothing. “Okay, do I have an opening bid at $200? Now do I have an opening bid of $100?” Somebody bids for 100 and then the damn thing ends up selling for 750. Dave Young: Yeah. Stephen Semple: And I’m like, “Wait a minute. It sold for 750 and no one was willing to open at 500. What the heck?” I don’t get it. Dave Young: I know. There’s a … Man, I’m not a big auction person. It stresses me to be in the bidding war. Stephen Semple: Right. Dave Young: I don’t know why. Even on eBay. Stephen Semple: Right. Dave Young: But there’s a psychology of auctions- Stephen Semple: Clearly. Dave Young: … that certain people … I don’t know for sure, I’m not a psychologist, Stephen, but I play one on a podcast. I think there’s a compulsion that’s similar to gambling and I think it’s just there’s a dopamine hit involved when you’re active in an auction. Stephen Semple: There probably is. Dave Young: And I think there’s a bit of a compulsion to it maybe. Stephen Semple: Maybe. Dave Young: Because it also, as long as you have the money to do it, it’s probably a little safer than gambling because if you lose, you don’t lose then. Stephen Semple: Right, right. Dave Young: If you win, hopefully you’ve won and purchased something that’s worth more than you paid. Stephen Semple: Right. Dave Young: That’s the upside. The downside is that you didn’t get the thing that you wanted. Stephen Semple: Right. Dave Young: But you didn’t lose any money. Stephen Semple: Cool. Well, let’s talk about eBay. Dave Young: Let’s do. Wasn’t Musk involved in it, and Thiel and those guys? Stephen Semple: No. Dave Young: Or am I thinking wrong? Stephen Semple: You’re thinking wrong. Dave Young: I get all my American oligarchs confused. Stephen Semple: They were over in the PayPal world. Dave Young: Okay. Stephen Semple: But the thing that’s interesting about eBay is it’s still a really important player in online retail. We can kind of forget about it because the growth has been stalled a little bit in the last bunch of years, but they still do $10 billion- Dave Young: That’s amazing. Stephen Semple: … in sales, which- Dave Young: I remember back when, probably in the first five or six years of eBay, you could use eBay, like if you had something you wanted to sell. Stephen Semple: Yeah. Dave Young: Not a garage sale, but just list somewhere to sell. Stephen Semple: Yeah. Dave Young: You could actually scour eBay and see what it was probably going to get you, what would be a good way to price it. That was always a way to see what are these going for? Stephen Semple: Right, because you could see what things were bidding at. So they are a really important part of the history of online retailing. And they were founded by Pierre Omidyar who was born in France to Iranian parents, and immigrated to the United States as a kid. And the company was founded in March ’96. And he had worked at a startup that he had got bought out from, he did pretty well. And he set up a consulting business called Echo Bay Technology Group, so that was the first thing he had going on. Dave Young: Echo Bay, okay. Stephen Semple: Echo Bay, Echo Bay Technology Group. And one day, a friend noticed that he had bought these bunch of drawings and was like, “Oh, tell me about these drawings.” And he was like, “Well, I saw them listed in the newspaper and I gave the guy a call, and we backed-and-forthed a few times, and I got a really good price on it.” And this was a seed of an idea. He was like, “You know what? There’s lots of stuff listed in newspapers and classified ads.” And if we remember, back in the day, going way back in the mid-’90s. Dave Young: Sure. Stephen Semple: The most profitable part of many, many newspapers was the classified ads. I remember being a portfolio manager and looking at one company called Torstar, it was a big newspaper group here in Canada. And yeah, literally, 25% of their revenue was classified ads. Massive part, massive, massive part of the business. But if you think about a classified ad, you’ve got to call up the newspaper, you’ve got to create the ad, you’ve got to send the ad over, and then somebody’s got to phone you, and then you’ve got to back-and-forth on price. There’s lots of friction there. There’s lots of touchpoints. Dave Young: Well, and you have to go pay the newspaper even before you could pay them online, right? Stephen Semple: Oh, right, you had to go … Yeah. Dave Young: You had to pay for that ad. I think most of those were probably in. Stephen Semple: Yeah. Dave Young: Unless the newspapers take a payment over the phone. Stephen Semple: So he looked at it and he went, “Not only is there all these touchpoints to creating the ad and paying for the ad, there’s all these touchpoints in terms of the selling process.” And he looked at it and he went, “I think there’s a way for technology to eliminate all of that, and it’s clearly a big business because people spend lots of money-“ Dave Young: Sure. Stephen Semple: “… on classified ads.” So this was the seed, this was the seed of the idea. How do I make this easier, frictionless, and all this other stuff for customers? So he decided, “Well, I’ve got this consulting webpage, I’ll just do a page on my consulting site. On Echo Bay Consulting Services, I’m just going to put a page in there and I’m going to play around with it.” Because what he wanted to do was eliminate the need to contact the newspaper, make it easy to write the ad, and then basically make it easier to make the sale, and he really felt the internet could do this. Dave Young: Sure. Stephen Semple: And he also wanted to facilitate the price negotiation because he felt like people don’t really want to do that whole back-and-forth. Dave Young: Yeah. Stephen Semple: And the model he looked at was auctions. He went, “Wow, what if I could do an online auction site?” Because now, now the buyer and seller don’t have to have this conversation. Dave Young: Yeah. Stephen Semple: And the marketplace will just set the price. Dave Young: And you know that they’re going to be paying attention as the time wears down. Stephen Semple: Yeah, all sorts of things with that. So he launches it with a really simple design, there’s no pictures or anything like that, which we look at that today. But then I thought about and I went, “Well, wait a minute, that’s not really a disadvantage,” because there was no pictures in the newspaper one either. Dave Young: Yeah. Stephen Semple: So the whole idea of requiring a picture, we were used to doing this stuff without pictures through the newspaper classifieds. Dave Young: Yeah. Stephen Semple: Yeah. So he sets up the site and he calls it Auction Web. And he launches it on September 3rd, 1995. Dave Young: Okay. Auction Web. Stephen Semple: Sorry, I said the wrong date. I said the wrong date earlier, the date was when it really started making sales. But Auction Web launches September 3rd, 1995, not March ’96. He decides to do a test, and this is people of … This has test has been written up a whole pile of times. He’s looking around, he’s got this broken laser pointer. Dave Young: A broken laser pointer. Stephen Semple: It’s broken. Dave Young: Okay. Stephen Semple: And on the ad he even says, “This is broken.” And he puts it up and it sells after a few weeks for $14.83. Dave Young: Sweet. Better than throwing it away. Stephen Semple: He even calls the bidder because he’s like, “I got to make sure this guy know it’s broken. I don’t want to send this to him and have him ticked off.” And he goes, “Yeah, I know it’s broken, but I know how to fix these things and it’s cheaper to fix it.” So h

Lucious Lowe never saw his empire, but his son and son-in-law figured out how to give the customer what they needed. Dave Young: Welcome to the Empire Builders Podcast, teaching business owners the not-so-secret techniques that took famous businesses from mom-and-pop to major brands. Stephen Semple is a marketing consultant, story collector, and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is… Well, it’s us, but we’re highlighting ads we’ve written and produced for our clients, so here’s one of those. [OG Law Ad] Dave Young: Welcome back to the Empire Builders Podcast. I’m Dave Young, Steve Semple’s here, and we’re going to talk about another empire. Stephen Semple: Another one. Imagine that. Dave Young: And it’s another one of these big boxes. Stephen Semple: Yes. Dave Young: So this is brick and mortar big box store. And so there’s two things. One thing I love, one thing I hate about big box stores in this category. I used to love going down to my local hardware store and just tooling around. Stephen Semple: Yeah. Dave Young: And I guess you can still do that, but there’s something about some old guy walking up and chatting with you about what you could maybe buy or not. Stephen Semple: Yeah. Dave Young: And so Lowe’s is our subject today. Stephen Semple: Yes. Dave Young: I’m interested to see how they started. And again, I love shopping at Lowe’s, I hate shopping at Lowe’s, for two different reasons, right? Stephen Semple: Yeah. Dave Young: The variety. It’s all there. Stephen Semple: Yes. Dave Young: The old guy that knows every piece of hardware in the store. Good luck finding that person. I mean, they may be there, they may not. It’s hit and miss. Stephen Semple: Yes. So the first Lowe’s, of course, started as one of those old-timey hardware stores. Dave Young: Sure. Stephen Semple: It was a 3000-foot store in 1921 in North Wilkesboro in North Carolina by Lucius Smith Lowe. That’s basically the first Lowe’s was way back in 1921. Dave Young: Lucius Smith Lowe. Okay. Stephen Semple: But the success of Lowe’s actually did not come from Lowe, but rather an in-law named Carl Buchan, who came on the scene in 1943. Dave Young: Okay. Stephen Semple: So when Lucius died in 1940, the business was inherited by his daughter, Ruth Buchan, who then… Now, I was not able to find the family story on this, because I find this interesting. It was inherited by the daughter, who then sold the company to her brother, and I always thought, “Why’d the brother not inherit the business?” Dave Young: Right? Stephen Semple: Now, I also get why she probably sold it, because as we know, one of the really big problems, especially back in the 1940s, was women couldn’t get credit, and it was very, very, very hard in the forties for a woman to actually run a business. So I also understand why she sold. Dave Young: Yeah. Yeah, and weird estate planning goes on that you don’t know why they did what they did. Right? Maybe the son had an insurance policy. Right? Stephen Semple: Who knows? Who knows? Dave Young: I don’t know, but maybe he got… Who knows? Stephen Semple: Now, at the same time, when she sold it to her brother, her husband, Carl, ended up becoming a partner in the business. Dave Young: Okay. Stephen Semple: So it was this really weird, father dies, it goes to the daughter, the daughter sells it to the brother, and the husband ends up becoming a partner. Dave Young: Who knows about the transactions inside family businesses, right? That’s a… Stephen Semple: Right? All I’m just saying is, if it sounds weird, it was. Dave Young: Yeah. Stephen Semple: That’s all I’m saying. But moving forward, what’s really incredible is today, Lowe’s is 1700 locations doing 80 billion in sales. So it is- Dave Young: That’s not nothing. Stephen Semple: That’s not nothing. That’s not nothing. But back in the early forties, hardware stores did not have building supplies. They didn’t have plywood, they didn’t have… They didn’t have building supplies. Dave Young: Yeah, yeah. You went across to the lumber yard to get that stuff. Stephen Semple: Correct. Correct. Dave Young: Yeah. Stephen Semple: And so one day Carl gets this deal on toilets, and he decides to buy a whole pile of toilets. When I say a whole pile, the whole truckload, which was 400 toilets. Dave Young: Okay. Stephen Semple: And James? James Lowe comes in the office one day and he’s like, “Toilets in the office.” And he says, “Carl, why is there toilets in the office?” He goes, “Well, I bought 400 of them and I ran out of space, so they’re sitting in here.” And he’s like, “We don’t sell toilets.” He goes, “Well, we are now, because we got 400 of them.” Dave Young: “Yeah, we sell toilets. Sell them or else.” Stephen Semple: “[inaudible 00:05:20] now!” So, “Yes we are.” And what turns out is that they sell out really quickly. And Carl looks into this a little bit more and he sees this trend. Right? Think about it. It’s 1946. What’s happening in the United States? There’s a building boom. Right? The number of homes being built has grown 10 times over the last three years, because we got the baby boom happening. We got the return of the soldiers, we got the baby boom, we got the sprouting up of the suburbs. That part is growing. So they sell out these toilets in like a week, and so he wants to open a second store. He goes, “Look, here’s what I want to do. I want to open a second store and we’re going to sell everything for building and fixing a home. Everything. We’re going to turn specialty stores into one shop.” So in other words, you don’t have to go to the plumber… you know. Look, this is another variation on the department store and the convenience store. Dave Young: Absolutely. Stephen Semple: So Lowe agrees, and they invest a hundred and sixty thousand dollars in the second store, and it’s a 10,000 square foot, so they’ve gone from 3000 square feet to a 10,000 square foot store in Spartan, North Carolina. Dave Young: And so yeah, we tripled the size. It’s all the space we’ll ever need. 10,000 feet. Stephen Semple: Right. So it’s 1949, and literally customers are coming. Yeah, that’s right. It’s 10,000 square feet. I missed that for a minute. Yeah, yeah. Hold that thought. Dave Young: “Hang on.” Stephen Semple: Hold that thought. So it’s so popular, they’re actually finding customers are coming from states away from, outside of North Carolina. So Carl wants to open a third store, and Lowe doesn’t want to. He doesn’t want to grow this thing. Dave Young: Isn’t it amazing that the whole company’s not called Carl’s instead of Lowe’s? Stephen Semple: Well, here’s what ends up happening. Lowe says, “Look, I don’t want to do this. Why don’t you just buy me out?” Carl buys out Lowe, but says, “Well, let’s keep the name.” Dave Young: Yeah. Stephen Semple: “Let’s keep the name.” Dave Young: Yeah, that’s smart. You got equity there. Stephen Semple: Yeah. So in 1952, Lowe is bought out, but they keep the name. And it expands rapidly. They quickly open 13 more stores. [inaudible 00:07:27] Dave Young: Oh, wow. See, I did not know they were this old. Stephen Semple: Yeah. So it starts growing like crazy, but then they hit a problem. After six years, profits stall. Dave Young: Oh, okay. Stephen Semple: What he notices is, he’s been focusing on opening stores, but not focusing on the buying experience. And if you went into a Lowe’s at that time, it was super disorganized. Stuff was just all over the place. Dave Young: Okay. Stephen Semple: And so it was not appealing. So he hires Bob Strickland, marketing guy. Bob points out that people come in to get what they need, but what if we were able to make them to stay and buy other things? Like instead of an oven, how about a whole kitchen? Dave Young: Sure. Stephen Semple: So he says, “Let’s be like a department store.” They looked at how Sears was laid out, right? There was these departments. Dave Young: Yeah. Stephen Semple: And basically this is the model that they created, which is really the template that all these big box home improvement stores are built on. Here’s the appliance section, here’s the flooring section. Dave Young: Yeah. Stephen Semple: But it didn’t just have flooring. It had, okay, along with the flooring, the caulking and the this and the… Dave Young: Yeah. Stephen Semple: All the things that you need with it. Dave Young: So take those toilets out of the power tool section and put them where they belong. Yeah. Stephen Semple: Yeah. So they create this template that they’re going to roll out, and before they’re ready to roll it out, Buchan passes away. Dave Young: Oh no. Stephen Semple: And so now it’s up to Strickland to open with the new idea. So Strickland takes the ideas. He opens five stores on it. They’re super successful. In two decades they got a hundred and eighty stores, 1978 they’re the largest in the region, 1979 they’re 200 stores, and they just grow and grow and grow and become what they are today. But Lowe’s basically built this idea. The two innovations Lowe’s did was built this idea of, “We should have a store that’s dedicated to home improvement,” because they saw the trend on it. And then they created this whole idea of looking at department stores and saying, “This is how a home improvement store should be organized.” Dave Young: Yeah. Stephen Semple: That template? That template, that idea that every one of these big box home improvement stores is built on, was created by Lowe’s. Dave Young: Stay tuned. We’re going to wrap up this story and tell you how to apply this lesson to your business right after this. [Using Stories to Sell Ad] Dave Young: Let’s pick up our story where we left off, and trust me, you haven’t missed a thing. Stephen Semple: … that idea that every one of these big box home improvement stores is built on, was created by Lowe’s. Dave Young: Well, and so the reason I didn’t know about them when I was younger

From Jeffy’s Online Books to everything from A to Z, Amazon.com is an empire amongst empires. Bezos created something remarkable. Dave Young: Welcome to the Empire Builders Podcast, teaching business owners the not-so-secret techniques that took famous businesses from mom-and-pop to major brands. Stephen Semple is a marketing consultant, story collector, and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is… Well, it’s us, but we’re highlighting ads we’ve written and produced for our clients. So here’s one of those. [Pinpoint Payments Ad] Dave Young: Ding-dong. Okay. Well, I was making noises there as we started. Welcome to the Empire Builders Podcast. Dave Young here alongside Stephen Semple, and we’re talking about empires. I mean, businesses that started tiny and grew into behemoths, in this case, and often… Well, every time what we do is we let the countdown to the recording start, and then Stephen whispers in my ear today’s topic, and we see if I recognize it. Maybe perhaps I’ve heard of them. And today, he just said one word, Amazon. And I’m like, “Is that a river?” I mean, that’s what we all said back in the day when Jeff Bezos started it- Stephen Semple: Yes. Dave Young: … was, “Really, you named it after a river in South America? What are you thinking? What’s wrong with you?” But I guess he proved them wrong. Stephen Semple: What you’re going to discover, wasn’t actually the first name. Dave Young: Oh, cool. They started with a different name and then switched to Amazon. Stephen Semple: Jeffy’s Online Books? Dave Young: Well, and here’s the thing. We’re 200-and-some-odd episodes in, and we’ve managed to hold off not covering Amazon. That’s a good point. Yeah. Stephen Semple: And I resisted myself, because basically everything that’s to be said about Amazon has probably been said, but I did come across a couple of interesting little tidbits that we’re going to focus on- Dave Young: Oh, cool. Stephen Semple: … that I hope gives a little bit different picture to Amazon than the other things, people. Look, Amazon is a massive success, has changed the way the world is, was unbelievably innovative and forward-thinking. And today, Amazon does like 8,000 orders a minute. Dave Young: A minute? Stephen Semple: A minute. Dave Young: Unbelievable. Stephen Semple: Crazy, isn’t it? Dave Young: Mm-hmm. Stephen Semple: And Jeff Bezos is one of the richest men in the world, and Amazon is just a monster out there. But here’s the thing that’s also really interesting. Jeff Bezos did not come from technology or retail. And how often have we seen this over and over and over again, that these businesses are built by people from outside the industry? That is like 9 out of 10, or probably even more like 99 out of 100. He was an investment guy that was working in the early ’90s on Wall Street. That’s what he was doing. And he was making big bucks doing research in the technology space. So he was working in the space, but he wasn’t a tech guy or a retail guy. And he comes across this report about growth in the internet space. And he literally… It boggles his mind. He’s working away in Wall Street, comes across this report, and it says, the space is growing at 2300%. And he literally, as the story goes, picks up the phone, calls the analyst, and said, “There’s a typo here.” And they were like, “No, this is how it’s growing.” And he was like, “Oh my God.” Now, let’s think about this for a moment, because it’s easy to forget this. 1989 is when the first online transaction on the World Wide Web happened. Dave Young: I wouldn’t have thought it was even that long ago, but yeah. Stephen Semple: Yeah, yeah, but it was, like, one- Dave Young: Yeah. It’s ancient history now, but… Stephen Semple: We forget, we forget how much the growth is. And if you really want to go back, probably the best documentation of the growth we’ve had is episode 227 on AOL. Because AOL was really a driver of internet growth. It really was. It was really one of the pioneers that took people online. So to be looking at these things in the early ’90s and go, “Hey, I see growth in online retail,” that’s really forward-thinking. I’ve got to give Bezos credit. Not a lot of people were thinking that way. So he looks at this growth and he says, “There’s got to be potential to do a business in this space.” And that’s where he starts off. We’ve got to do a business in this space. So he does brainstorming ideas with his wife at the time, McKinsey, and they look at investment sites, they look at advice sites, but he decides it needs to be a store, because people shop every day. Everyone. It’s mass- Dave Young: An online store, yeah. Stephen Semple: It’s mass, it’s something we do all the time, it’s habitual, and he doesn’t want to do something that’s a niche. And it has no boundaries, and ideally you could remove a lot of the friction in shopping. But he realizes he can’t start that way. This is the other part where I thought he was brilliant. His vision was always online store, but he knew you can’t start as an online store. You can’t become known for being an online store. It’s too big. You need to pick one thing. Dave Young: But he had that vision long before he started selling books. Stephen Semple: The goal was to sell everything. Dave Young: Everything. Stephen Semple: But he knew that’s not where you start. And this is what I find interesting. It’s amazing how many startups I talk about have these massive visions, and it’s too big. You can have that massive vision, but you got to still start with something smaller. And that starting something smaller doesn’t limit you. Jeff Bezos has proven that. So he steps back in this point. He’s trying to figure out, “Well, what’s the one thing I want to do?” And he ordered a book called Cyberdreams by Asimov, and it took two weeks to arrive and arrived damaged. And the ordering process was a bit of a pain in the neck. And he went, “You know what? There’s an opportunity to do better here.” And at the time, the book business is very fragmented. There’s two big players, Barnes & Noble, and Borders. But they combined are only 25% of book sales. So still, most book sales are being done by little retailers. So it’s dominated by all sorts of little players, and they don’t do a good job of shipping books. So he says, “There’s the opportunity. Books is the opportunity.” He quits Wall Street where he is making like a million bucks a year, moves to Seattle to start the business, and he moves to Seattle because University of Washington at the time has got basically the top computer engineering school, Microsoft is there, so there’s lots of good engineers available. Dave Young: Gotcha. Stephen Semple: Hires a programmer, Shel Kaphan. And the first name of the company was not Amazon. It was Cadabra, as in- Dave Young: Cadabra. Abra. Stephen Semple: As in “Abracadabra, your book arrives.” Dave Young: Yeah. Stephen Semple: Name didn’t work well. People thought it was… Dave Young: Magic supplies, or- Stephen Semple: No. Well, they actually mistake it, Cadabra for cadaver. Dave Young: Yeah, that’s not good either, now that I think about it. Stephen Semple: So they needed a new name, and they had very much still the phone book mentality. Remember how everybody wanted to be listed first in the phone book? Dave Young: Sure. You start with an A. Stephen Semple: So you start with an A, and the first name that kind of came along that they thought they could do anything with was Amazon. Okay, yeah. You know, it’s [inaudible 00:08:32] a river, all this other stuff. So they just went, “Sure, let’s do Amazon. We can make that work.” Dave Young: Well, and the smart thing is he picked a… unless I’m wrong, he picked one word as the name. Stephen Semple: Yes. Dave Young: It wasn’t Amazon Booksellers. Stephen Semple: No, Amazon. Dave Young: Amazon Online Booksellers. Stephen Semple: Right, because he still had the vision — Dave Young: That’s limiting. Yeah. Stephen Semple: Right, because he still had the vision, “I’m going to do more than this, but I need to start with one thing.” So Amazon. Dave Young: So that vision dictates you find a name that is big enough to handle the vision. Stephen Semple: Yes. World’s biggest river, right? So it’s June 16th, 1995, Amazon goes live. They wanted to make it simple and easy to order books, and what would happen is they will get the sale, then they turn around and buy the book from the wholesaler, repackage the book, and ship it out to you. So they basically had no inventory. Dave Young: I was going to say, you could test the whole idea by just setting up your office near a brick and mortar bookstore and walking over and buying the book. Stephen Semple: Instead, they were buying the wholesale. Dave Young: Drop it in the mail. But they’re buying from wholesale, so there’s a little profit in it for them. That’s good. Stephen Semple: Yep. So the book would come in, they would repack it, ship it to the customer. So really, at first they had no physical inventory, but they had a list of a million books. They could basically sell any book that they could get from a wholesaler. And Amazon rolls out with this claim. They have the Earth’s biggest bookstore, which is really crazy. Any book store could claim that, because they all had access to the same million books. But I also love… There was a little bit of an unusual wording here. Dave Young: Stay tuned. We’re going to wrap up this story and tell you how to apply this lesson to your business right after this. [Using Stories To Sell Ad] Dave Young: Let’s pick up our story where we left off, and trust me, you haven’t missed a thing. Stephen Semple: I also love, there was a little bit of an unusual wording here, because you sort of expect it to be the world’s biggest bookstore, rather than the Earth’s biggest bookstore. Dave Young: Oh yeah, that’s a good point. Yeah. Stephen Semple: Right

Cynthia Tice started Lily’s Sweets at the age of 60 and sold it to Hersey’s 11 years later for $400 Million. Wow! Dave Young: Welcome to The Empire Builders Podcast, teaching business owners the not-so-secret techniques that took famous businesses from mom-and-pop to major brands. Stephen Semple is a marketing consultant, story collector, and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is, well, it’s us, but we’re highlighting ads we’ve written and produced for our clients. So, here’s one of those. [Seaside Plumbing Ad] Dave Young: Welcome to The Empire Builders Podcast. I’m Dave Young, that guy next to me is Stephen Semple, and we’re talking about empires. We’re talking about businesses that started with nothing and grew to be huge, as we say. And today, Stephen whispered in my ear the topic and I’ve never heard of it. No idea. Stephen Semple: Yay, finally stumped. It doesn’t stump Dave very often. Dave Young: Thanks for listening to The Empire Builders Podcast. That’s all we’ve got for you today. Oh, no, wait. Stephen Semple: Because clearly if Dave- Dave Young: Oh, wait. Stephen Semple: Because clearly if Dave’s not heard about it, it’s not interesting. Dave Young: Wait a minute. I forgot to have you tell me about them, so go ahead. Go ahead with your little story there, Stephen. Stephen Semple: Yeah, so it’s a company called Lily’s Sweets. Now, they’re a chocolate company and they make sugar-free chocolate. And I’m not surprised that you haven’t heard of them, but here’s the reason why I think they’re worth talking about, is 11 years after the business started by Cynthia Tice, it was sold to Hershey’s for $400 million. Dave Young: That’s a nice little getaway. Stephen Semple: Yeah, that’s worth talking about. Don’t you think? Dave Young: So it’s owned by Hershey’s now. Stephen Semple: It’s owned by Hershey’s now. Dave Young: Do they still operate under the name Lily’s Sweets or is it all just a- Stephen Semple: Yes, they do. Dave Young: … Hershey’s conglomerated candy corporation. Stephen Semple: The bar is called Lily’s Sweets, so you can still get Lily’s Sweets bars. They’re made by Hershey’s. And as I said, Cynthia sold it to the company after 11 years for- Dave Young: 11 years? Stephen Semple: … $400 million. Yes. Dave Young: That’s brilliant. Stephen Semple: Now, here’s the other thing is she started the company at the fine young age of 60. Dave Young: I love this story. Stephen Semple: Right? Now you understand why I wanted to share this story. Dave Young: There may yet be hope. Stephen Semple: And so they do these sugar-free chocolates, and the goal for her was always to make a good, enjoyable chocolate product. Because we go back to early days of the sugar-free products, they were marketed to people who are diabetic and who are trying to lose weight, and they really didn’t taste good. But the anti-sugar movement triggered something that was bigger because people started to discover that sugar’s tied in inflammation, and there’s been this explosion in these products. To give you an idea, in 2024, the no-sugar chocolate area as a category doubled. That’s how much the growth is. Dave Young: 2004? Stephen Semple: 2024. So still even today- Dave Young: 2024. Doubled in ’24? Stephen Semple: Still even today, yes, the growth is really rapid. But this is what Cynthia saw, so let’s go back to 2008 in Philadelphia. Cynthia Tice is a food consultant and a graduate of Temple University. And Temple University is actually a big presence in Philadelphia. I had a chance to speak at Temple and it’s in downtown Philly, and downtown Philly’s pretty neat. And look, if you’re ever in Philadelphia, you have to go do the Rocky statue, right? Dave Young: Oh, yeah. Stephen Semple: And it’s amazing today that there’s still a lineup to take a picture at that statue. Dave Young: My dad went to Temple. Stephen Semple: Oh, did he really? Cool. Dave Young: He didn’t go to college there. After World War II, he had dropped out to join the Navy. And so after World War II, he got his GED at Temple before heading off to University of Wyoming. Stephen Semple: Oh, that’s cool. Dave Young: He’s a South Jersey guy, so Temple’s just a few miles away. Stephen Semple: Yeah, that’s cool. Dave Young: Yeah. Stephen Semple: Cool. Dave Young: So I love that personal connection to Temple. Stephen Semple: There you are. So back to Cynthia. So around this time, Stevia got approved and she had set up this consulting business to help companies find organic products because she had always had an interest in more organic foods. And growing up, she felt sick all the time. One day when she was eating lunch, a random person told her, “Look, if you’re not feeling well, it’s probably what you’re eating and how you’re eating.” And this hit her to the bone. So in the last year of college, she graduated in ’74, she got into natural foods and she became a real zealot to the degree where she would take her own food to family dinners. And she wanted to do a natural food store, and her dad lent her the money. She found a location. She started up this 400-square-foot store. And her dad helping her out was a big deal because growing up, her dad had some clothing stores in the area, and her younger brother went into the business, but the belief in the family was women should not do business. And she was also the first woman in her family to get an education, so this was a big deal. Dave Young: This is. Stephen Semple: So she opens a store, and then a friend has a store, they join, they make this bigger store, and they never really made any money. She was single. She lived in a little place in the bad part of town, but she didn’t really care about money. She was on this mission. She was happy. She was able to support herself. She loved helping other people because she really wanted to bring this idea of healthier food. Then in 1989, there was a real turning point in the food space, but still it was very, very niche. And it was this whole idea of Alar on apples. It became a big deal. Meryl Streep spoke about it. Dave Young: Yeah, I remember that. Stephen Semple: Right. And when Meryl Streep spoke about it, all of a sudden it put things very much more mainstream. And this drove a lot of first timers into organic stores, and this created an opportunity to turn people. And what started to happen is more larger format, organic stores started to pop up and traditional stores started to take a look at organics. But while this growth was happening, she was starting to get burned out. She had been at this for 20 years and not really making- Dave Young: Oh, wow. Stephen Semple: … a lot of money at it. And at the same time that she started to see consumers looking for organic products, she was at a conference at the Food Marketing Institute, and presenting was Whole Foods. Dave Young: Oh, wow. Okay. Stephen Semple: Now, this was in the infancy of Whole Foods. Now, the supermarket retailers in the audience asked Whole Foods this question. “Is your customer base large enough?” Whole Foods’ reply was, “We’re after your customers.” This was a light bulb moment for Cynthia. Traditional retailers are now worried, and she realized there was an opportunity to help stores make the transition. And now, she made a lot of money. She opened up this consulting business that helped traditional stores do the transition to organics- Dave Young: Oh, wow. Stephen Semple: … and all this other stuff. And lots of people approached her saying, “Hey, you should create a brand around this.” And she didn’t want to do it because she understood what it would actually take to build a brand, even though she had all these relationships with these buyers. But she met this woman, Elizabeth Fisher, and they started to work on a product together, and the idea was a natural soda in 2007. Now, right around the time they’re ready to launch the soda, Coke and Pepsi announced they’re entering the space with a natural soda and they went, “Oh my god, there’s no way we can compete with Coke and Pepsi.” So they decide to do chocolate because, again, they were wanting to avoid sugar and they wanted to build a product, because what they’re finding is companies were using used momenta, variations of it, and the chocolate did not taste good. Then Stevia entered and it was approved. Now, Stevia is natural. It’s from a leaf. It doesn’t spike blood sugar. And they tried several recipes and nothing worked. And they even tried contacting some chocolatiers and it didn’t work, and it was terrible in chocolate. And during that time, they had a falling out, so Cynthia went out on her own. But Cynthia then discovered someone who had developed a bulk chocolate that actually worked, that actually tasted good, and it came in these wafers and it tasted great. And what they did was they used other sweeteners to mitigate the flavor issues. So she reached out, asked for some modifications, and started to build a chocolate bar. And also around 2011, diets like paleo were becoming a vogue, and there was still no chocolate in this space. And she really wanted to believe that there was people who would want a sugar-free chocolate and would want something that tasted good. So, she ended up bringing on a partner, Chuck Gennardi, who also owned a little store and hated it. And he shut his store and he had a little bit of money that he could finance the development of this chocolate. And they worked together, developing it and creating the packaging. They found a manufacturer, because here’s things she was good at. She was good at pricing. She was good at sales strategy. And what I love is when they came up with the name Lily’s Sweets. Dave Young: Stay tuned. We’re going to wrap up this story and tell you how to apply this lesson to your business right after this. [Empire Builders Ad] Dave Young: Let’s pick up our story where we left off. And trust me, y

Stephen Continues his discussion with Michael Jacobson about how he help save and ultimately revive his uncle’s business. Dave Young: Welcome to The Empire Builders Podcast, teaching business owners the not-so-secret techniques that took famous businesses from mom and pop to major brands. Stephen Semple is a marketing consultant, story collector, and storyteller. I’m Stephen’s sidekick and business partner Dave Young. Before we get into today’s episode, a word from our sponsor, which is, well, it’s us, but we’re highlighting ads we’ve written and produced for our clients. So here’s one of those. [Travis Crawford Ad] Rick: Told you, Brian. Brian: Told me what? Rick: This is part two of last week’s episode. Brian: Oh yeah. And it was getting good. Rick: And if you missed it, you can always listen to the first one. Just back up to last week’s episode. Take it away fellas. Stephen Semple: In my TEDx Talk that I did, the very, very first slide, the very first slide is win the heart and the mind will follow. Michael Jacobson: That’s exactly right. We’re humans. We’re emotion lead. That’s exactly right. Stephen Semple: Even engineers make decisions emotionally. We are wired to make decisions emotionally and connect with things emotionally. So you’re 1,000% correct on this. Michael Jacobson: Thank you. Yeah, I mean, so far so good. So ultimately, the market will decide if that’s true or not, but I tend to believe that that is true. Stephen Semple: Well, it’s already voted that way with you so far. Michael Jacobson: Yeah, I mean, it’s coming that way. And so we really focus our brand on making the client feel like the hero because they are. Buying flowers from us should feel as good as receiving the flowers. It is a remarkable act to send flowers to somebody. You are literally creating a more loving world. Stephen Semple: Yes. Michael Jacobson: And I don’t know what the meaning of life is, Kay, but when I ask people, a lot of times the response is it’s human connection. Or if they want to go even deeper, the meaning of life is love. And so that’s the business we’re in. And if you’re leveraging flowers, the most meaningful gift you can give to tell somebody that you love them, you should be praised for that. And so we make our centers feel very good about that as they should be. Stephen Semple: Well, if you think about it, your business is very, very similar. Let’s just look at the emotional part. Your is very similar on the emotional level as engagement rings. The person who gives an engagement ring, yes, they want the person that they’re giving the ring to feel good, but it’s that I give this beautiful ring to this person. They feel good. I feel good in return. So you’re absolutely right. The gift of giving when it’s done right both end up getting positive emotional feelings about it. The receiver feels great. And when it’s done right, the giver feels great as well. Here’s the other thing that people discount in gift giving, it now actually creates a shared narrative. Michael Jacobson: That’s right. Stephen Semple: Because we’ve actually shared in that gift, even if it’s thousands of miles away, even if I never talk to the person, even if the person’s in a coma and it goes to the hospital, I still have a shared experience now with that individual through emotionally taking that act. You’re absolutely 1,000% correct on these things. Michael Jacobson: Yeah, thanks. It bothers me because we would not be doing what we’re doing if somebody else was. We never had the ambition. So I want to answer your question on my franchise. We wouldn’t franchise, we wouldn’t even expand corporate locations if there was somebody in our industry that was doing it as well as we thought it should be done. But nobody is. Our market leader is 1-800-FLOWERS, and my job is not to bash the competitors. We shine our own lamp. But pragmatically speaking, we think somebody can do a better job than 1-800. Stephen Semple: For them, it’s a commodity that’s being moved. I want to share a thought with you, and you may have considered this thought, but you’re in an interesting situation because as soon as I hear somebody say, “Hey, we want to educate the consumer on doing this thing, and I want to change the consumer behavior,” I always look at that from a marketing perspective as being a really… Michael Jacobson: Very expensive. Stephen Semple: Well, it’s expensive and it’s a difficult challenge. However, you’ve got an interesting strategy that you can do. So if I was working with you based upon a 20-minute conversation, so this strategy is worth the amount of time and effort of money that’s been put towards it. Michael Jacobson: I know. You can do this for however many years to get to this answer. Stephen Semple: Right. But if you think about it, there is a bit of a thin edge of the wedge strategy here, especially where you’ve optimized and worked hard to make sure the customer becomes a repeat customer. So anytime I’m in a situation where I go, I’ve got a good long-term value of this customer, and I’ve got good stickiness, and I’ve got good return, and I’ve got to educate them on a behavior that they’re not doing today, I can do a kind of interesting thin edge of the wedge type approach. So in other words, okay, my acquisition strategy is not give a gift you’ve never thought about giving. My acquisition strategy is lean into the gift you’re already giving, but then make it so amazing and make it so incredible, and now that I’ve got a relationship with you, I can start to talk to you about gifting in other ways. It’s almost like that I can use the one to acquire and then I can pivot that customer into a different relationship now that they’re a customer. Michael Jacobson: Totally. Stephen Semple: Is that kind of the strategy you’re employing? Michael Jacobson: It is. Yeah, no, I mean, I think that it’s… I’ll add onto that because I agree and to add an additional perspective there as well because I agree with you. On the surface, it looks like we’re trying to shift consumer behavior to purchase flowers more frequently and purchase for non-occasions. If our culture right now is to buy for happy birthday and we’re trying to say, “No, buy for a random Tuesday,” that is a difficult thing to do. What we’re trying to do instead is a little bit more like inspire, educate, motivate the buyer into… It’s not educating them on something new. It’s something they already know very deep down. Giving flowers, it incredibly goes back to our ancestors. I mean, it’s been around for thousands of years that act of giving flowers. It’s in us. Stephen Semple: It’s not a new thing. Michael Jacobson: We view our job as reminding people of that. And so it’s not necessarily shifting. It’s resurfacing something that people already know very deep down, I think. And maybe not deep down, maybe people already really do know that. Stephen Semple: Yeah, it’s rekindling that, but the interesting place is the easiest place to rekindle that is with the customer who’s already had the great experience. Michael Jacobson: Yes, exactly. Stephen Semple: With you. Michael Jacobson: Yes. Stephen Semple: Because they’ve also now experienced how wonderful it is and how superior your product is and how great the experience was is that, okay, well, now I want to do that again. And you’re able to communicate them about, well, you don’t need an occasion to make somebody feel good. Michael Jacobson: Totally. Stephen Semple: Right? Michael Jacobson: Yeah. Stephen Semple: But the interesting thing with that is that type of messaging is a different type of aspirational messaging, and as you were saying, is expensive. Look, it doesn’t fit into where the traditional florist marketing is, which is web-based pay-per-click style advertising, because what you’re speaking to is doing something that a person isn’t searching for but kindling that idea. Michael Jacobson: That’s right. That’s exactly right. Stephen Semple: There’s lots of really cool ways that you can do it. Look, and this is also how a lot of lux… And I know you’re not a luxury good, but you are a luxury good, but it’s a lot of how those goods are sold because they’re sold around an aspirational emotional idea. Michael Jacobson: So I agree with you. I think the perception is that we’re a luxury company. Okay, I challenge the floral industry. I challenge the franchise industry. I think most franchises suck. Can I say that? Stephen Semple: Absolutely. Michael Jacobson: Most franchises suck. Stephen Semple: Sure. Michael Jacobson: There are a couple of good franchises. I think Chick-fil-A does it okay. I think Orangetheory does it okay. We’re following a model like when we say we’re franchising, we don’t have to get into it. Just know we’re trying to flip the franchise model on its head and actually run a great franchise system that puts the franchise on first. And even more than the franchise on first, puts the end consumer first. Anyways, that’s one thing. So we flipped the floral industry on its head. We’ve flipped the franchise model on its head. And now from the consumer perspective, what does a luxury company mean? We need to design some apparel for our team members to wear. Apparel that’s high quality, make them feel really good, really special. I went Rodeo Drive to get some inspiration. Look at Louis Vuitton and Hermes and all these companies, right? Stephen Semple: Thank you. Michael Jacobson: Okay. This is what I found. Remarkable craftsmanship, I will say. An unbelievable amount of thought goes into those designs. Then you look at the price tag and it’s $4,000 for a cotton t-shirt. Stephen Semple: Yes. Michael Jacobson: My mind is like, is there a way, and this is a very difficult thing to do, but this is our current challenge where we continue to push the brand we have and we continue to, can we create an experience that feels like a $4,000 experience, but we can charge $40 for it? If somebody can’t take their whole entire paycheck and bu

Michael Jacobson wanted to help his uncle sell his flower shop, but now it is growing like a weed. Dave Young: Welcome to The Empire Builders Podcast, teaching business owners the not-so-secret techniques that took famous businesses from mom and pop to major brands. Stephen Semple is a marketing consultant, story collector, and storyteller. I’m Stephen’s sidekick in business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is, well, it’s us, but we’re highlighting ads we’ve written and produced for our clients, so here’s one of those. [Seaside Plumbing Ad} Stephen Semple: Hey, it’s Stephen Semple here and we are without Dave Young today because we have an opportunity for a really, really special interview. I have with me Michael Jacobson from French Florist and we had a conversation, it was probably about a month and a half ago, and I just thought some of the things that you shared was amazing and I was like, “I got to get Michael onto the podcast.” Now, the first question I asked Michael is, what’s your title? “We don’t believe in titles.” I said, “Are you the founder?” “Well, sort of.” That’s where we’ll start. That’s where we’ll start the story about French Florist in terms of how you came to be the owner and what’s happened in the time that the business has been with you. Michael Jacabson: Awesome. Thanks Stephen. This is a generous introduction. I appreciate that. Thank you. When I say we don’t believe in titles, we really don’t. As we get to be a bigger organization, we brought on a chief operating officer who’s a lot smarter in operations than I am. And that’s become my job is hire people that are smarter than you and give them the reins, so maybe, I don’t know what title that is, but whatever that job is, and she tells me we do need titles because it helps with accountability and that kind of important stuff. I thought it was a little boring, but she did convince me. Stephen Semple: Before we go on, what size are you at today? You’re large enough that you brought in a chief operating officer, so how many employees do you have now? Michael Jacabson: We’ve got just over 100 employees now. Stephen Semple: How many locations? Michael Jacabson: We have 10 locations now and we’ll have 17 open by the end of the year. We’ll have 60 open by the end of next, so a lot of our employees- Stephen Semple: Awesome. Michael Jacabson: … right now aren’t necessarily for the immediate now, but we’re building the infrastructure to support tomorrow. Stephen Semple: That’s cool. That’s cool. That’s amazing. That’s amazing growth, so 100 people now, but you’re really looking to go to that… You’re at 17, going to 60 locations. That’s awesome. Going back to the early days of how you found yourself owning French Florist. Michael Jacabson: Oh, gosh. Okay, so I don’t know if this will resonate with the audience. Hopefully it does. I’ve graduated college… You hear the statistics of how many startups fail, whatever it is, 90, 95% of startups. I did- Stephen Semple: Most. Michael Jacabson: Most. And I actually joined a few startups in college that I didn’t found but kind of joined their team. All of them, but one failed, so I saw firsthand too. And I took a job in super boring corporate consulting right out of college, paid super well, great opportunity. I could work alongside awesome executives at really awesome companies. That was the pitch. I didn’t make it even a year. I made it about one year and it just didn’t feed that fire in my belly. That was the wall that my ladder was leaned against and I could sit there and climb that ladder or if I’m not happy, do something about it. And so I had my ear to the ground with different opportunities and I got a call from my uncle one day and he says, “Mike, I’ve been running my flower shop for 38 years. I’m working six days a week, 60 hours a week or more, and I’m losing money. I’m tired. I don’t want to run the business anymore.” I studied finance, so he said, “Can you help me sell the business?” I said, “Sure, happy to take a look at it.” That’s how I got in and it evolved. I originally joined French Florist to help my family out and sell the business. Stephen Semple: You’re initially there to help with the exit? Michael Jacabson: That’s right. Stephen Semple: Okay, cool. Michael Jacabson: From there I went around and did what any normal exit would look like, where you go and you look at comparables, what are other florists doing well, what are they not doing well? How much are they selling for? Looking inside the business, let’s clean it up a little bit. Let’s get some proper bookkeeping and accounting in place so we have some numbers that we can share with prospective buyers. You know what I realized really quickly though was there’s such an incredible systemic issue in the floral industry. It wasn’t just my uncle struggling, it was all florists are struggling with the same exact issues, if not the same exact, very, very similar issues. You have the dominant market player… And Stephen, I’ll ask you, this’ll be interesting, if I say french fries, what company do you think of? Stephen Semple: It’s McDonald’s. McDonald’s, Wendy’s. Michael Jacabson: And you’re in Canada too, so I’d be curious to get your answers here. If I say coffee, what company do you think of? Stephen Semple: Starbucks would be top of that list. Michael Jacabson: Probably the top one for me too. Stephen Semple: Well, for us it would be Starbucks and Tim Hortons, those are the two. Michael Jacabson: That’s what I was expecting. Every once in a while you’ll get Dunkin’ for somebody on the East Coast too, but generally there’s a clear player that comes to mind. Stephen Semple: Yes. Michael Jacabson: If I say flowers, do you have a company that comes to mind? Stephen Semple: For me, it’d be like FTD or Teleflora or one of those, but certainly not anybody local. Michael Jacabson: You’re right. The top three players in our market, 1-800-Flowers, FTD, Teleflora, those are the three players. All of them have the same exact model and what that model is, they take an order online and they syndicate it to a local florist, fine. The problem they take up to a 40% commission after all of their fees on that order, so you’re paying $100 for the order, the florist is getting 60 or $65 on that. They’re getting hit so hard and a lot of florists are super reliant on the order aggregators for their orders. And then obviously most importantly, more than anything, that bleeds into the client experience and the client experience, you order… That’s where you get the memes on the internet where it’s like what you ordered versus what you got. And it’s just this massive discrepancy, that’s how that happens. Go to your local florist, that’s my pitch. That’s one systemic issue, but also the lack of technology. The downside of the supply chain, how we’re importing from the farm is unbelievably antiquated as well. And there are tens of thousands of flower shops in the Americas and 99% of them are single unit owner operator, mom and pop, so it’s terribly fragmented. Nobody has the economy of scales, nobody has a brand. Anyways, all of those amalgamation, lots of issues there. Where do you even start? But that was interesting to me because I was like, this is a very real problem where ultimately the consumer experience… People, they have such high expectations with Amazon and two-day delivery and now it’s two hour delivery. But when it comes to the floral industry, I don’t know how consumers have been so okay with how the flowers are getting delivered. They become complacent. And when I saw my uncle’s business and I saw what a good delivery could and should look like and that was not the norm for our industry, that’s a really cool opportunity to build a brand that’s creating very real value in the world. And we’ll get into why flowers as well. Stephen Semple: And you bring up something though very interesting, and this is ongoing theme from the podcast, it is amazing how we’re over 200 episodes in, and I’m going to say that the vast majority, probably 200, almost all, I can only think of one or two exceptions, these businesses and these ideas have been started by outsiders. And I think the reason why often it works with outsiders, an outsider comes along and looks at it and says, “This makes no sense.” But the industry goes, “But this is how we’ve always done it and there’s these long list of reasons why we need to do it this way.” Where an outsider says, “I know if we do this differently, consumers will love it and if consumers will love it, they will buy from me.” And I think that complacency not from the consumer, I actually think the complacency comes from the industry because the consumer’s not been given any other choice. Michael Jacabson: You’re right. You’re 100% right. Stephen Semple: And then when they’re given that choice, they’re like, “Oh, my God. This is amazing. Give me more.” And that comes from that outside perspective, so good for you. Michael Jacabson: Nice. And I’ll share one of the things that could be interesting too. The business’s name was French Florist, and I said, “Why are we called French Florist?” And my uncle didn’t have a good answer, but I was like, “We need to have some intentionality about the business. We’re in flowers too. We’re delivering emotions and really powerful emotions too.” It’s like we’re not necessarily saving people’s lives, but we are delivering love pretty much. That’s it. I’m yet to be convinced that there’s a more powerful emotion that exists than love, so we feel the weight of what we do and we value what we do and we don’t want to mess it up. When somebody is telling somebody that they love them and we’re the vehicle to help them do that, that’s an important task. We do carry that with weight. And so I said, “We need to have intentionality about what we do. We’re an American brand. We’re called French Florist. How does that make sense?” I really sat down for

From almost going out of business in 2000 to becoming the biggest toy manufacturer in the world. This is an empire! Dave Young: Welcome to the Empire Builders Podcast, teaching business owners the not-so-secret techniques that took famous businesses from mom-and-pop to major brands. Stephen Semple is a marketing consultant, story collector and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is… well, it’s us. But we’re highlighting ads we’ve written and produced for our clients. So here’s one of those. [OG Law Ad) Dave Young: Welcome back to the Empire Builders Podcast. Dave Young here, along with Stephen Semple. What Steve told me is that it’s a little bit different episode today. We’re not talking about the building of an empire, but the saving of the LEGO Empire, right? It was already an empire, and as empires sometimes do, I guess starting to collapse. Stephen Semple: Yep, yeah. Dave Young: And then something happened. Stephen Semple: Here’s the thing that’s remarkable. According to studies I’ve come across, when companies go through the type of challenge that LEGO faced, only literally one in 10 survive it. Most businesses do not survive it. And they not only survived, they went from being, I think they were the third-largest toy manufacturer to after facing this crisis, they became the largest toy manufacturer in the world. Dave Young: Wow. Okay. Stephen Semple: So not only did they survive, they thrived. And today they employ over 30,000 people, they have over 1,000 stores. And you can learn more about the early days of LEGO by going back to another episode, episode 28. Can you believe it was 28? We did it in the first year- Dave Young: Wow. Yeah. Stephen Semple: … of the podcast. But in early 2000, they literally almost went out of business. They were facing a moment where it was unclear whether they were going to survive and they were even in conversations to sell to other toy manufacturers. They were even in conversations with Mattel. Dave Young: Because I don’t know exactly how this went, but I can hazard a guess that the pivot they were able to make was to just start prepackaging kits and licensing things from movies and other things, other toys. Because when I was a kid, I had LEGOs, but man, if you wanted to build something specific, you had to come up with that yourself, right? There was no kit that made a battleship or a Star Wars fighter or anything like that. You were lucky if you had a couple of the little window things and maybe one or two little figures, but that was about it. Stephen Semple: Ironically, it’s part of what saved them, but also part of what almost killed them. Dave Young: Oh, okay. Stephen Semple: So it’s interesting. Dave Young: Right, I’m leaning in. Stephen Semple: Yeah. So we go back to 1997, and basically sales had started to stall in ’93, and so they were looking for other ways to grow the business because video games were coming in, all these other things were going on. And in 1997, Peter Eio is an executive with LEGO, and what he’s noticed, because he’s working in the US market, he’s seen a trend in the toy business where half of the toys in the US are being sold under licensing deals. So he puts together a deal with Lucasfilms to do Star Wars. And at first, LEGO’s really hesitant because they’ve never, first of all, done the licensing. Their real hesitation is the Lightsaber and blasters and the fact that it involves weapons. Because LEGO was always committed to, “There would never be any violent use of the toys.” Dave Young: They’re peaceful Scandinavians. Stephen Semple: Companies being run by Kjeld Kirk Kristiansen, who’s a family member, and the grandson of the founder, they do some focus groups and they come around to it, because the evidence is that parents don’t associate Star Wars with violence. So this wins over the execs. And while it’s a departure from the past, they decide to do this licensing deal. And LEGO Star Wars is born because they wanted to do this. Now, 1998 was actually their first ever loss. And Kristiansen steps down, and Poul Plougmann comes on the board because he did a big turnaround in Bang & Olufsen, and he does an analysis of the decline. What they believe at this point is children are playing with things differently. They want computer games. They don’t want to build toys, they just want to open up a box and play. His belief is the strength is no longer in the brick; it’s in the name, the LEGO brand. And he wants to extend the brand to other things, go beyond the brick. Now, what’s really funny is whenever companies want to do this expansion of the brand, it’s amazing how often it doesn’t work. There’s a really famous book, 22 Immutable Laws of Branding, and several of the chapters are, “Don’t extend the brand.” It’s like when Gerber wanted to make adult food. Dave Young: Nobody wants that. Stephen Semple: Right. It’s like, “Well, we make food, we can make it for adults, right?” It’s like, “No, you can’t. It’s baby food.” So anyway, they come up with lots of new ideas, they want to do a LEGO parkland in California, which is $130 million investment, and they plan on doing parks every two years. They want to do a chain of stores, mimic Disney. Now, the Star Wars tie-in is a huge success. It sells 200 million and it exceeds expectations by 500%, and it takes them almost back to profit. The problem is it’s not quite as profitable because of all the licensing fees, but they want to build on that success. They do a Harry Potter, they develop another tie-in with a Spielberg Moviemaker Set, which comes with the camera and does stop-motion. What’s really incredible with that is one of our business partners, Gary Bernier, his two boys, Dylan. Dylan, who’s now a partner. When they were kids, they had that and they did a ton of these stop-motion animation things that they posted all over YouTube and whatnot. But anyway. And they decide to open up design labs around the world to come up because they’re looking for these blue ocean opportunities. Now, one of the things they kill was Duplo, which is big bricks for little kids because they fear kids aren’t going to be interested in that, electronics is going to take over. They rework LEGO Explore to not be based upon bricks. They buy a tech startup because they want to tie bricks into what’s happening on the screen that they shut down after three years. So basically, in 2001, they developed all these new products and sales are up 17%, but they’re losing hundreds of millions of dollars because all this money that’s being spent on innovation. Now, the best revenue are products with tie-ins, because kids love playing with things with stories. So your point, I bet it has to do with these tie-ins, which they did have sales success from that, but they’re low on revenue because of all the licensing things. So here’s what LEGO decides to do, and this is where the problem starts. They decide to create their own stories. So they create an action figure, Jack Stone. He’s larger and it’s a simpler set. This belief that kids into video games don’t want to build complicated worlds, that’s the belief of LEGO. Now, here’s the mistake. You know who they never spoke to? Was someone who freaking designs games. If they talked to a game designer, what they would’ve actually learned is no, people do want complicated things. So they also create this other world, Galidor, which has no bricks and snaps together body parts, but feels more like Transformers. And they decide to market using a TV show. Now, marketing a game using a TV show is not a new idea. It was done by Transformers, was done by He-Man. But you know what Transformers and He-Man did, is they brought in comic book folks like Marvel to help them with it. Instead, LEGO hires a Hollywood producer. They create this live-action show. It’s fall 2002, they release it. But there’s this problem. First of all, the show’s not very exciting, but secondly, retailers are not sure where to put the toy. Is it an action figure? Or is it a building toy? And kids don’t like Jack Stone because for kids who like building, it’s too simple. And for kids who like action figures, there’s not enough action. It’s that classic, “I’m going to try to appeal to both of these people and go into the middle.” And what always happens when we go into the middle, Dave? Never works. Dave Young: Nothing usually, yeah. Stephen Semple: Right. So then they launched Galidor, which has got these big special effects, and it’s high cost, and it’s a poor story. It’s mainly an ad. And they were so convinced it was going to be a hit that they flood the shelves with this stuff, and both struggle. The warehouse was full of stock, Christmas 2002 is terrible. The theme parks are losing money. They bring in this consultant Knudstorp, who is a consultant from McKinsey, and he digs into the state of LEGO. And in June of 2003, basically, he reports things are worse than everybody expects. LEGO may not survive the next two years. Dave Young: Stay tuned. We’re going to wrap up this story and tell you how to apply this lesson to your business right after this. [Empire Builders Ad] Dave Young: Let’s pick up our story where we left off. And trust me, you haven’t missed a thing. Stephen Semple: And in June of 2003, basically, Knudstorp reports things are worse than everybody expects. LEGO may not survive the next two years because there’s also no new movies. One of the things they did not anticipate when they did the movie tie-ins, sales drop when there’s no new movie. And they had been losing money even when sales were good. It’s now November 2003. It’s a critical Christmas coming up. They’re on the verge of bankruptcy. They’re losing a million dollars a day, and they do not even know what products make money. They’ve been doing so much innovation, the finances are a mess. Dave Young: Wow. Losing a million a day. Stephen Semple:

Did you know that at it’s peak America On Line was responsible for 50% of all Compact Disc production in America? Dave Young: Welcome to the Empire Builders Podcast, teaching business owners the not-so-secret techniques that took famous businesses from mom and pop to major brands. Stephen Simple is a marketing consultant, story collector and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is, well, it’s us, but we’re highlighting ads we’ve written and produced for our clients. So here’s one of those. [No Bull RV Ad] Dave Young: Welcome to the Empire Builders Podcast. Dave Young here alongside Stephen Semple. And Stephen, you’ve got mail. Stephen Semple: That’s right. Dave Young: You’ve got mail. You’ve got mail. Stephen Semple: Could you imagine? Could you imagine if it’s still happened that way? You got mail. You got, you got, you got mail. Dave Young: It’d be all day long. I can remember in those early days when getting an email was like, oh, shit, I got an email. Or, somebody sent me an email, or they replied to one of mine. Oh my gosh. Stephen Semple: Yes. Dave Young: So AOL, that’s the… There was a time. Stephen Semple: America Online. Dave Young: There was a time they’d send out their what? CD-ROMs. Stephen Semple: Yep. Dave Young: You couldn’t reach into the seat back pocket of a car without finding one. Stephen Semple: And we’re going to explore that whole marketing campaign. But here’s the crazy thing- Dave Young: [inaudible 00:02:37] cereal. Stephen Semple: All of it. Yeah. At its peak, one half of CD production in the United States was dedicated to America Online. Dave Young: Oh my God. Stephen Semple: Isn’t that crazy? Dave Young: Say it isn’t so. Stephen Semple: I can’t. AOL was founded by Steve Case, William Von, Jim Kimsey and Marc Seriff in 1983 in Brooklyn. And as we know, it went on to become one of the biggest names in the internet. And in January 11th, 2001, it merged with Time Warner being one of the largest corporate mergers at the time, which actually it turned out was a disaster, but we’re not going to talk about that. But back in the early days in 1983, let’s put it in perspective, because sometimes it’s really hard to think about these technological evolutions, but in 1983, Sony released the first consumer camcorder CD-ROMs were developed. And the first cell phone, remember the Motorola one that looked like it was a World War II walkie-talkie? Dave Young: Well, before that were bag phones. My first one was a bag phone. Stephen Semple: Yeah. Dave Young: The cell phone that you carried around with a giant battery in a bag. Stephen Semple: Exactly. Yeah. So that’s like 1983. And AOL did not start as AOL. It started as a company called Control Video Corporation, CVC, founded by Bill Von Meister. And here’s what they created. They created this thing called Gamelink, and basically it’s a modem that plugs into the Atari 2600 game module, and they would sell the modem for 50 bucks, and it was a $15 setup fee, and you could download games for a dollar over the phone. That was the idea. This whole idea of the internet did not exist. It was this idea. Now, Steve Case, who becomes the main character in our story, worked for Bill and less than a year later, 1984, CVC is struggling because the video game boom has gone bust. Atari cancels the 2600 because only 3,000 units are sold. So the business is a bit of a tough space. Dave Young: This is a couple of decades almost before the boom, the bust? Stephen Semple: Yes. Oh, yeah. Dave Young: The bursting of the .com bubble. Stephen Semple: But this is the video game business goes through this a little bit, softening. The board sidelines, Von Meister and parachutes in Jim Kimsey, who’s a former military guy, and immediately he downsizes the business from a hundred people down to 10, including pretty much everybody in marketing. But he keeps Steve Case, because Steve’s cheap, hardworking, and driven, and they become close. He mentors Case. Now, the first goal is stop the creditors, keep the business alive. Now, the big advantage they have is they have almost no assets. So essentially they would say to creditors, “Go ahead, but you’re going to get nothing, so you might as well support us.” Dave Young: A couple of office chairs. Stephen Semple: Exactly. Now, it’s 1985 and one in 10 Americans own computers, but it’s rising. So it’s starting to get out there. CompuServe is around, but there’s not much else around for online. And CVC decides to build an online service for the most popular computer of the day, which is the Commodore 64. Remember the Commodore? I had a Commodore 64. Dave Young: I didn’t, but I had an old RadioShack one and I think I just skipped over the Commodore at some point. Stephen Semple: There you go. Yeah. Dave Young: Somehow. Stephen Semple: So CVC changes its name to Quantum Computer Services. It’s not AOL yet. Dave Young: Yeah, yeah, Quantum. Stephen Semple: Quantum. Dave Young: Everything goes better with Quantum. Stephen Semple: Quantum. That’s it. Now, it’s 1985 and things aren’t on the web. Online is really these competing subscription services, mainly email, chat, news. And each is separate. You can’t email across platforms. Dave Young: There would be bulletin boards you could dial up into. A BBS system. And then you could access whatever they had- Stephen Semple: Whatever they had. Dave Young: … and you could leave me a message in the bulletin board, and if I happen to log back into it at some point I might get your message. Stephen Semple: Yeah. That’s basically how it works. And it’s slow. To put in perspective, if you were going to download a song, it takes three days to download a single song. So they’ve got this service for Commodore and it’s $9.95 a month plus a usage fee. And online is still very niche. And they launched this Quantum link, which is email and news and games. And in 1986, there’s 10,000 subscribers. Not profitable, but enough to get some investors in behind it. But here’s the problem, you can also, not only is it only that platform, you can only use it on the Commodore 64. Each one of these things are designed for a specific computer. Commodore 64- Dave Young: That’s why I didn’t use it. Stephen Semple: Yeah. And Commodore 64 is now losing market share. So they’ve got to find some other computer companies and they decide to go with Apple just because of Steve Jobs and the way he sees the world. Although Apple’s struggling a little bit too. The Mac’s weak, the Apple two struggling, but they still see an opportunity there. So Case moves California for a little while to really work on lobbying Apple, and he eventually gets him as a partner. He lands Apple and this moves Case up the chain and becomes an Executive VP at the company. And then they go on the launch services for PCs. Now, when Case looks at CompuServe, what he sees is something that’s faceless. You sign on and there’s that warble and all that other stuff. And he wants their service to feel friendly, so wants a sound instead of a warble. So Case suggests a greeting that tells them when they get something like mail. So he hires Elwood Edwards for 200 bucks. Who does the voice of Welcome, you’ve got mail. Dave Young: You’ve got mail. Stephen Semple: Elwood Edwards is the guy who did the voice for that. So that’s cool. Dave Young: Yeah. Stephen Semple: So it’s October 1989. They now have 75,000 subscribers. Chat rooms are the ones that are popular and the most popular ones, I guess, what subject are the most popular ones, Dave? Dave Young: Well, let’s see. It’s internet. So porn, I’m guessing. Stephen Semple: Well, conversations about sex. Yes. Conversations about sex. Now, this is a concern for… So this is a concern for Quantum because they want to be family-friendly and they’re afraid this could cause a scandal and all this stuff. And they’re thinking about shutting those chat rooms down until they take a look at the numbers. Because remember, more time on site, more money. And that’s where the time is being spent. Dave Young: Because they’re charging by the minute at this point. Stephen Semple: They are, yes. So they decide, you know what? We can keep these. CompuServe is the leader at this time. Now, Apple cancels the service and Apple owns the link name. So now they’ve got to find a new name. Case decides to hold a contest for the new name, takes a look at all the names have been submitted, doesn’t like any of them, decides to pick his own, which was America Online. Dave Young: I think he chose wisely probably. It seems like it. Stephen Semple: Yeah, AOL. So it’s late ’91. They’re about to go public. They have 155,000 subscribers, 24 million in sales. CompuServe has now risen to 900,000 users. IBM Sears. Now, I didn’t realize Sears was a partnership in Prodigy, but IBM and Sears had partnered together to create Prodigy, and they had more than a million subscribers. It’s the early ’90s. 15% of homes have computers. And this is an important part in innovation. Dave Young: Sure. Stephen Semple: There’s this whole idea of when you get to that 15% mark, you’re about to explode into mainstream. And about the amount of time it takes something to go from zero to 15, 12, 15%, it’s about the same amount of time it takes for something to go from 15 to 80%. But the type of user changes. It’s no longer the early adopter. It’s now your mainstream consumer, but it’s also really rapid growth at that point. Commodore is dying. Apple is struggling. PCs and IBM clones are winning. Modems are getting faster. And Case believes AOL is primed for online. It’s got good visuals, it’s easy to use. Access to the web is still restricted to government, military, and research institutions, but a lot of people still look at AOL and see online as a novelty. March ’02, AOL joins NASDAQ. Case becomes a CEO. And in 1993, Jan Brandt joins as a marketing executive. AOL is now struggling becaus

Joe Thompson saw the future shifting with the invention of the refrigerator. So with innovation after innovation we now have convenience stores. Dave Young: Welcome to the Empire Builders Podcast, teaching business owners the not-so-secret techniques that took famous businesses from mom-and-pop to major brands. Stephen Semple is a marketing consultant, story collector, and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is… Well, it’s us, but we’re highlighting ads we’ve written and produced for our clients, so here’s one of those. [OG Law Ad] Dave Young: Welcome to the Empire Builders Podcast, Dave Young here alongside Stephen Semple, and Stephen just whispered into my ear the name of the empire that we’re going to discuss today, and oh, thank heaven. I’ve been waiting for this one to come along, 7-Eleven. Stephen Semple: 7-Eleven. Yeah. Dave Young: 7-Eleven. Stephen Semple: It’s the largest retail chain in the world. Dave Young: Is it really? Stephen Semple: Yes. Yes. Dave Young: Is it franchises, or is it a combination of something? Stephen Semple: Oh, it’s franchises. Dave Young: Okay. Stephen Semple: Yes, it’s franchises. But 85,000 stores in 20 countries. Dave Young: That’s amazing. Yeah, they’re everywhere. Stephen Semple: There’s 13,000 in Canada and the U.S. alone. Dave Young: You know what I love about their name? It’s spelled the same no matter what language you speak. Stephen Semple: Well, that’s a good point. I never thought about that. Dave Young: Right. You look at a 7-Eleven sign, and it doesn’t matter what the native language is, it’s two numerals, and you recognize that brand by the color and the numerals, and you know exactly what to expect. Stephen Semple: Yeah. They’re the largest in the world. They’re also now owned by a Japanese company. It was bought out after a disastrous leverage buyout that was done by the Thompson family, but a story as old as life itself. Dave Young: Sure. Stephen Semple: But back to 7-Eleven, and it’s a story that starts back in 1927 in Dallas, Texas as the Southland Ice Company. Now, I wasn’t actually able to find the founding date for the Southland Ice Company, everything, I found said it was 1927, but I really believe it happened before that. But that said, that’s when our story starts, is in 1927, with the selling of blocks of ice. So we think about- Dave Young: Sure. Stephen Semple: … in those days, ice houses were really important. People would go and buy big blocks of ice and take them home, and that was basically your ice box. Dave Young: Yeah, or there would be delivery trucks going around with big blocks of ice. Yeah, either way. Stephen Semple: Yeah. But it was an important part of life. We forget that how you kept things cool was, you basically had… Let’s face it, what you basically had was a cooler in your house. You threw ice in the ice box, and that’s what kept things cool. And look, every town had one, or if it was a bigger town, more than one. So Joe Thompson is the owner of the Southland Ice Company, but he sees this new trend coming, and he’s a little bit worried. He’s worried that refrigerators are going to start to steal his business. Now, the early refrigerators are actually quite dangerous. They would break down, and they would release these dangerous fumes. But in 1927, GE releases a new refrigerator that runs on Freon, and it could also get below freezing. Dave Young: Okay. Stephen Semple: And look, electricity was starting to be in most homes. And shortly after GE’s launch, 56 other companies started to also develop refrigerators. Dave Young: So you could make your own ice. Stick it to the man. Stephen Semple: Yeah, there you go. Dave Young: Yes. Stephen Semple: So he’s thinking about other opportunities. He was wondering, “What other things can we do?” And along comes Johnny Jefferson Green. Now, Johnny Jefferson Green is a manager of one of the Southland Ice Company’s locations. Now, one of the things he did while people waited, Johnny would give them a freebie. He’d give them a slice of watermelon, he’d give them a cold drink when he was going down to grab the ice while they’re waiting- Dave Young: Gotcha. Yeah. Stephen Semple: … he would give them this. Little surprise and delight. Wonderful, right? Then one day a customer asks, while he’s waiting, saying, “Hey…” Because he gave him a bottle of Coke, went and grabbed his ice, and when he came and gave the customer the ice, customer said, “While I’m here, could I buy a couple of bottles of Coke off of you?” Dave Young: Right? Yeah. Stephen Semple: Yeah. And he did. But then he started thinking, “Why don’t I start selling some of these items at the ice house?” So he started selling these items like watermelon, and cold drinks, and all this other stuff, and it starts doing pretty well. And in fact, as it increases, he tells Joe Thompson what’s going on, because there’s so much demand, he actually can’t keep up. This idea is kind of unheard of in the time, because remember, in the 1920s grocery stores are starting, but they’re not really a big thing. Dave Young: It was still your neighborhood store, right? Your little general store? Stephen Semple: Yeah. You buy fish in one place, you buy meat somewhere else, and there’s maybe a general store. And the other thing that’s really cool is this also gives an opportunity to sell people something in the wintertime when there’s less ice demand, right? Dave Young: [inaudible 00:06:25]. Stephen Semple: He tells Joe Thompson about this idea, and at the same time… So Thompson supports him, says, “Yeah, let’s lean into this.” But he also wants to run a little bit of an experiment, because let’s increase the price a little bit for the convenience. So he decides to charge a little bit of a premium price. After six months, Thompson visits to see the success, and basically it’s $1,000 in profit is his cut of it. Dave Young: Okay. Stephen Semple: Which is a lot of money back in the 1920s. Dave Young: Sure. Stephen Semple: That’d be 1/3 of an annual salary for most people. Dave Young: I mean, I’d take $1,000 today if somebody offered it. Stephen Semple: Yeah, there you go. There you go. So he pours company funds in all 16 of the stores in Texas, and he stocks them with 12 food items. Dave Young: Okay. Just 12? Stephen Semple: Just 12. He starts off with 12 food items. Now, there’s a backlash, because his big customers, he sells ice- Dave Young: To the stores. Yeah. Stephen Semple: … to people who sell food. And some of his biggest customers, he faces backlash on. Dave Young: Sure. Stephen Semple: And here’s the challenge, do you protect your existing business, or do you go after the new business? There’s this idea that was put together, and I know he didn’t use it, but this is one I’m going to share with listeners, there’s this idea called the Boston Consulting Grid, and it goes something like this, for helping make these decisions- Dave Young: Okay. Stephen Semple: … you drew a vertical line, it’s about the opportunity. Dave Young: Okay. Stephen Semple: Is the opportunity growing, or is the opportunity shrinking? So that’s your vertical line. Dave Young: Okay. Stephen Semple: Boston Consulting Grid would actually talk about market share, but I like to think about it as being opportunity growing, opportunity shrinking. Horizontal line is, does it take investment? Does it take cashflow, or does it create cashflow? Dave Young: Okay. Stephen Semple: So now, top right-hand quadrant are what you would call stars, because they have growing opportunity, and they’re creating cashflow. Dave Young: [inaudible 00:08:18]. Yeah. Stephen Semple: Your question marks are ones that have great opportunity, but require cashflow. So that’s where you make investments. Dave Young: Okay. Stephen Semple: Then you’ve got ones that create cashflow, but shrinking opportunity, those are your cash cows. And then your dogs, of course, are the ones that take money, and- Dave Young: Yeah- Stephen Semple: … have shrinking opportunity. Those are the ones you want to get rid of. But when you look at it, he had a cash cow in the ice business, shrinking opportunity, but creating money, but he had a question mark, which requires investment in this whole idea of selling food through the ice houses. So what does he do? Leans into the future, says, “I’m prepared to lose the customers.” Dave Young: The handwriting’s on the wall for him too with the ice business, just in the fact that these grocers, these people that he’s also selling a lot of ice to, they’re also looking at refrigeration. Stephen Semple: Yes. Dave Young: There’s no way they’re not, and on a massive scale. Stephen Semple: Right. So while it’s obvious, how many times we’ve seen businesses that have been unable to make that pivot because they can’t give up… Dave Young: That- Stephen Semple: They’ve become committed to the cash cow, which is not going to be a cash cow forever. Dave Young: Yeah. The cash cow isn’t necessarily committed to you. Stephen Semple: And the other is an investment, so it takes time. Dave Young: [inaudible 00:09:34]. Stephen Semple: So that grid helps people figure out the pivot. Dave Young: Gotcha. That makes sense. Stephen Semple: So anyway, so he loses the customer, and they do represent more money than he’s making selling food, but he sees food as the future, but he also starts thinking about what more can he sell, and there’s another business emerging, gas stations. Because before this, you would go to a hardware store, and you would fill up a gas can, you’d take it home, and then… Because at this point, half of Americans own a car, and it’s being filled by an attendant. So he decides to put pumps in front of the store. So now he’s got ice, gas, food. Dave Young: I mean, these are things that you need all the time. Stephen Semple: Right. Dave Young: Yeah. Stephen Semple: Right. And in 1929, he starts even buying com

Joseph Blumenthal, Jack Beresin and Milton Holloway, all kind of came together to make movie concessions happen. Dave Young: Welcome to the Empire Builders Podcast, teaching business owners the not-so-secret techniques that took famous businesses from mom-and-pop to major brands. Stephen Semple is a marketing consultant, story collector and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is, well, it’s us. But we’re highlighting ads we’ve written and produced for our clients so here’s one of those. [Maven Roofing Ad] Dave Young: Welcome back to the Empire Builders Podcast, Dave Young here alongside Stephen Semple. And Stephen just told me what we’re going to talk about today, and it’s not really, I mean, it’s an empire sort of. It’s an empire in terms of its category, right? Stephen Semple: Yes, yes. Dave Young: But it’s not so much like you can’t put your finger on a brand name for it. So we’re talking about movie concessions and how things got started. So I’m guessing in the early days, you didn’t buy a big old thing of popcorn. You just sat down and watched a movie. Stephen Semple: No, that was what I found, so I found interesting about this, and I thought, and when I went down it, I was actually researching one particular business. And then what I suddenly realized is that, no, there’s a couple of things that converge together that really made the modern movie concession. And there’s three players that went into this, and all three of them ended up building fortunes in the process. That’s Joseph Blumenthal, Jack Beresin and Milton Holloway, all kind of came together to make movie concessions happen. As we know today, movie concessions are like a multi-billion dollar business, and concession sales are like close to half of movie theater profits so they’re a big deal. Dave Young: Where I am in Austin, we’re, I don’t know, half a mile from an Alamo Drafthouse, and I don’t go to the theater as often as I did before all the things. But Alamo Drafthouse is known for pioneering like you have a menu and you sit down, you order a meal while you’re, and they’ll bring it to you in the theater. Stephen Semple: Yes. Dave Young: We’ve always known that you’re going to spend more on popcorn and drinks, than you did it on the movie ticket. Stephen Semple: And they’ve taken it to a whole other level, but wasn’t always that way, Dave. In June 19th, 1905- Dave Young: 1905? Stephen Semple: … was the first movie, like the first movie showing kind of in a theater sort of setup, and they were called nickelodeons. That’s what they called the early movie houses because it was nickel and all that other stuff. And it was super successful, and pop-ups started happening all over the place. And as we know, the early movies were silent. So what would happen is people would buy a ticket to go to the movie, like vendors would buy a ticket to go to the movie, and they would walk up and down the aisle going, “Popcorn, popcorn. Who wants…” and selling stuff just like they did at the ballgames and there was- Dave Young: Or the circus, yeah. Stephen Semple: But there was no connection to the theater. These were like, literally, Dave Young would buy a ticket, show up, and then basically walk up and down the aisle selling whatever food he had to sell. Dave Young: And they just let him. Stephen Semple: So concessions were not a thing at all. At all. Dave Young: Okay. Stephen Semple: So Jack Beresin is working at an opera house, and he’s looking at a way to make some extra money, and he saw people buying and eating food at a nickelodeon. So he approaches his manager with the idea of, at this opera house now, you can’t go up and down the aisles in the opera house. The whole idea, let’s set up a table and do concessions during the intermission. Dave Young: Sure. Stephen Semple: Now eating in the opera house was kind of considered uncouth, and his manager was a little bit resistant to the idea until Jack said to him, “Guess what? I’ll split the profits with you 50-50.” Suddenly, he’s like, “Yeah, let’s give this idea a try.” Dave Young: Okay. Stephen Semple: So it turns out to be so successful that Jack sets up concession stands in nine different opera houses. Now we enter the 1920s and the movie industry is exploding, like to the point where wealthy people didn’t use to go to movies. That was like a working man’s thing. Well, now what ends up happening in the 20s is that wealthier people start going to the movies, and they start building these things called movie palaces start to open. And in the 1920s, they built like 5,000 of these get built in the 1920s, and they’re really elegant. So think Grauman’s Chinese Theater, like they’re super elegant. Dave Young: The one that always pops into my head there’s a theater, I forget the name of it off top of my head, but it’s in Santa Barbara, California. And it’s one of these just gorgeous old theaters with ornate balconies and constellations painted on the ceiling. Stephen Semple: Yeah, they’re beautiful. Dave Young: Like they glitter. Yeah, yeah, amazing. Stephen Semple: They’re absolutely beautiful. They really are. And anytime you have a chance to, there’s not many around any longer, but anytime you get a chance to visit one, it’s like well worth doing. So the vendors hawking stuff in the aisles are gone, A, because now they are talking, and, B, they’re now opulent. So Jack sees an opportunity in the movie theaters to do the concession idea, but he wants to do something that is easy, scalable, and he can take national. So he comes up with the idea of selling concessions, not using people, but vending machines. Dave Young: Oh, wow. Okay. Stephen Semple: So comes up with this idea of selling concessions, not using people, but vending machines. And vending machines this time are pretty popular, but they’re not being used for food. You can buy stamps, as we talked about some of the early tobacco ones, cigarettes, but they haven’t been used for food yet. So he plans to install these in movie theaters and dispense popcorn, crackerjacks and peanuts, okay? Now, the theater owners, especially ones with these theater palaces, are against the idea of popcorn and peanuts because they make a mess. Dave Young: A mess, yeah. Stephen Semple: Right. Enter Joseph Blumenthal. So now we need to go back a few years. Let’s go back to the early 1920s and Blumenthal’s family business makes extracts to flavor things, right? Dave Young: Okay. Stephen Semple: By the early 1900s, this has become a really crowded space. There’s like over 400 companies that do this business. But Joseph saw an opportunity in chocolate, but what he wanted to do was make chocolate powder, the ingredients for baking and things along that lines, which also means he wasn’t going to be competing heavily with Hershey, who’s in his area. So they pour their savings into this venture, but the problem is they know nothing about chocolate. And so they hire this German immigrant with a chocolate background, and they have to fire him because he shows up every day drunk for work. They have all the equipment and the cocoa beans and no one to make it, and they’re close to running out of money, and they end up finding somebody to extend them a line. But they slowly get started and get the formula right, and they start making this chocolate powder. But then they also start looking at the consumer market. And in the 1920s consumer chocolate starts getting crowded because there’s a few titans that are dominating it, but combination bars start entering the marketplace. Like think Mars, where it’s not just… Like Hershey’s was just chocolate. And to go back Episode 175 and 176, we talked a lot about that with Mars. But what they decided to do is do this big drum with chocolate and put other things in it like seeds and nuts and things like that, and have it being coated. And they thought, well, this would be a great idea because it’s a new and different idea. It’s not a bar. It’s these little individual little bites. But it doesn’t really do all that well until they meet Jack Beresin, who has a problem. “I want to sell things through a machine, but the stuff I want to sell is messy. Wouldn’t these little chocolate-covered raisins and peanuts and things along that lines be perfect for selling in a concession like vending machine?” Dave Young: Yeah, we can package them in a little cardboard box so that the vending machine doesn’t have trouble with like an envelope or a packet of some kind, stacked nicely like packs of cigarettes. Stephen Semple: That’s exactly what he does, Dave. They create these little cardboard boxes. He puts these candies in it. This would be perfect for vending machine. And they’re not messy. They’re each little individual pieces, right? Dave Young: The Raisinets and the Goobers. Stephen Semple: Bingo. Exactly. And they coat Raisinets and Goobers. Dave Young: They coat them in wax so they don’t melt on your fingers. Stephen Semple: And that’s exactly what they were called. This is the origin of Raisinets and Goobers. Bingo. Right on. So now- Dave Young: Oh, those are my core values when I was a kid, Raisinets and Goobers. Stephen Semple: So Jack goes back to the theaters because now he has these candies, rather than peanuts and popcorns, and there’s still lots of pushback on the idea. Then he remembers what he did with his manager at the opera house, right? Dave Young: Stay tuned. We’re going to wrap up this story and tell you how to apply this lesson to your business right after this. [Empire Builders Ad] Dave Young: Let’s pick up our story where we left off. And trust me, you haven’t missed a thing. Stephen Semple: So Jack goes back to the theaters because now he has these candies, rather than peanuts and popcorns, and there’s still lots of pushback on the idea. Then he remembers what he did with his manager at the opera house, right? Dave Young: Ah, splitzies

Haim Saban is a Billionaire and it all started with a trip to Japan and only one thing on TV. Way to Go Go Power Rangers. Dave Young: Welcome to The Empire Builders Podcast, teaching business owners the not-so-secret techniques that took famous businesses from mom and pop to major brands. Stephen Semple is a marketing consultant, story collector, and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is, well, it’s us, but we’re highlighting ads we’ve written and produced for our clients. So here’s one of those. [OG Law Ad] Dave Young: Welcome back to The Empire Builders Podcast, and we’re talking empires today. Stephen Semple’s there. I’m here. I’m Dave. Gosh, if anybody that ever thought I was reading the intros like that, it’s not okay. Stephen Semple: Mystery solved. Dave Young: Mystery solved. Never the same twice. So Stephen, you told me that we’re going to talk about Power Rangers today, and I think of that like an entertainment franchise sort of thing, but also what also toys. Stephen Semple: They are also toys, yes. Dave Young: Was it one of those things where it’s like, oh, we’re going to invent this toy and then we’re going to have an entertainment program to go along with it? Because these things seem to go hand in hand these days. Stephen Semple: Yeah, and they very much was hand in hand. The two came about very much together. And it’s got an interesting history to it because it was launched in 1993 and it was created by Haim Saban, who is now a billionaire. He’s gone on to do a bunch of things. Not just making a ton of money from this, but if you look him up on Wikipedia, it’s estimated he’s worth a couple of billion dollars. So he’s done well in the entertainment industry. And Hasbro acquired the company back in 2019 for $522 million. So it certainly has contributed to his wealth. And he was a cartoon theme songwriter is where he got his start. Dave Young: Really? Okay. Stephen Semple: He worked on things like Professor Gadget and Masters of the Universe. Those were the things that he was writing theme songs for. Dave Young: Oh, cool. Stephen Semple: But he wanted to create his own property. He always wanted to have his own thing. And at the time, he’s on a business trip in Japan, and the only thing you can get on the TV is this Japanese animated series called Choudenshi Bioman, which is part of what they call a Super Sentai series. And Saban was fascinated by this concept of five masked people in spandex fighting monsters. So it’s in 1985, and he produces a pilot of Bioman. And the idea of adapting Japanese productions to the US market started basically in 1970 with Marvel. Marvel did a deal with Toei Company to exchange ideas, and Toei created a Japanese version of Spider-Man that did actually really well. And what Marvel tried to bring to the US, not so much. So it sort of worked. Initially, America to Japan was working, but Japan back to America was not working as well. But that didn’t stop Saban. So what he decided to do was create a show where they could keep the original action scenes, because the action scenes are complex and hard to film, and then just replace the other scenes with good-looking American actors. So basically when there was the action scenes, it was actually the original Japanese content. And then they would put in… Dave Young: Oh, wow. Stephen Semple: Yeah, he just basically said, okay, here’s this Japanese thing. I’ll keep the original story. I’ll keep the Japanese content. And then where any of the acting is, I’ll put in good-looking American actors. Basically that footage is already shot and the toys already existed. So it was also economical to import it to the United States. This was his idea. So he gets a meeting with Toei and Bandai, and they agree. What the heck? Sure. Take our content. Take it to the United States. So he gets agreement from them. They already got the toys. They already got the expensive action scenes. All they got to do is splice in the other stuff. Dave Young: So on the Power Rangers, I mean, I had little kids at that time. Anytime they’re in their helmets and they’re fighting and it’s the bam, bam, bam stuff, that’s all from original Japanese shows. Stephen Semple: Original Japanese content. At least that’s how it started. I don’t know as it progressed whether they changed that, but initially, yes, that’s what it was. Dave Young: And so then when they take their helmets off and they’re just sitting around the Power Ranger den or whatever it is. Stephen Semple: Yeah. Dave Young: Yeah, okay. Wow, what a cool idea. I mean, an interesting way to mash up content. Stephen Semple: And so they’ve got nothing to lose on it. They agree to license the US rights of all of this to Saban. So it’s in 1987 and Saban’s ready to pitch it to US networks. It has this kind of campy feeling, right? They say, “Yeah, no, we’ll pass.” He talks to everyone and no one wants it. And the problem is for him to keep the licensing alive, he’s continuing to pay the license. There’s a minimum licensing fee. It’s draining him. He’s continuing to pay this licensing fee to keep this alive. Now, it’s 1990 and people are now looking… Remember, 1990, Teenage Mutant Ninja Turtles happens. So now there’s a little bit of an appetite for these things, and there’s a new president at Fox Kids, Margaret Loesch. Now, here’s the interesting thing. Margaret Loesch knew the series because she had been at Marvel and had done these ideas with Stan Lee in the 1970s. So Marvel was doing these cross-pitchings, she was part of all of that. She was actually running that. And so she loves the idea. She was immediately on board, and she takes it to her bosses. But the upper management hate it. Live action targeting at kids. It’s too new. Not going to happen. And she puts her job on the line. She says, “I’m going to do this.” So it’s 1992, she puts her job on the line. Saban gets a green light, but he needs a new name. They want a little bit more than Power Rangers. So it becomes the Mighty Morphin Power Rangers. Dave Young: Mighty Morphin Power Rangers. Yup. Stephen Semple: Mighty Morphin Power Rangers. Now, Bandai is small in the US at this time, like $4 million in sales. Hasbro’s doing like $2 billion, but they’re going to save all this money because the toys already exist. And not only that, all the characters are from the same mold. They just do a different color. Now, the size is a little bit off standard because the Japanese market’s a little different standard size than the US, and they want to do something to really make it stand out. So here’s the interesting packaging thing that they do with the toy. Toys at the time were like there was the toy would sit in the middle and you’d see it, right? Dave Young: Yeah, the action hero in the… Not the shrink grip, but the… Stephen Semple: So the window would be in the middle of the packaging cardboard… Dave Young: Plastic formed thing. Yeah. Stephen Semple: Yeah. Well, what they decided to do is put the character in the corner of the packaging. So now the window wrapped around the character. So you could see the front of the character and the side of the character, and it would also make it unique. Stand out on the shelves. They created this corner packaging. So now the show comes out and it’s a hit. Dave Young: Stay tuned. We’re going to wrap up this story and tell you how to apply this lesson to your business right after this. [Empire Builders Ad] Dave Young: Let’s pick up our story where we left off. And trust me, you haven’t missed a thing. Stephen Semple: So now the show comes out and it’s a hit. It’s such a hit that when the Nielsen ratings come out, people don’t believe the numbers. Dave Young: Really? Stephen Semple: There’s no way it was this popular. It was so popular that they moved it from the mornings to the afternoon and put it up against Oprah. Dave Young: Wow! Okay. Stephen Semple: And by October, Power Rangers are surpassing Oprah. Dave Young: That’s crazy. Stephen Semple: Isn’t that crazy? And the toy explodes. You can’t get your hands on it. In 1993, the demand is so high, it’s now becoming the story that’s out there. Bandai makes 4 million of these toys. It’s not enough. They’ve got 11 factories. It’s not enough. Christmas 1994, they can’t keep up. Literally in Christmas in 1994, Power Rangers represents 40% of all action figure sales. Dave Young: That’s amazing. That’s amazing. Stephen Semple: In the first three years, they do a billion dollars in sales. Dave Young: Outstanding. Stephen Semple: Is that crazy? Dave Young: I had a niece that was really into the Power Rangers. My kids really weren’t, but yeah, what a cool thing. That’s a lot of plastic. Stephen Semple: Yeah. What I really liked was Saban, he saw this idea in Japan. And again, it wasn’t all that new thing of trying to bring something from Japan, but what I really loved was the way he looked at it was it became almost a slam dunk for people to license it to him. Because it’s like, we’re going to reuse your toys, even though the US market’s a different standard size. We’re going to reuse your content, all the expensive stuff. We’re just going to reuse it. And here’s how we’re going to make it an American feeling is we’re just going to splice this stuff in. When I heard that, I was like, wow, that is brilliant. What a brilliant way of reusing content. Dave Young: Well, on a microscale, it’s what’s happening all over TikTok and Instagram, everything. Stephen Semple: Today? Dave Young: Yeah, you mash it up. You take somebody else’s something and do something else with it. Stephen Semple: Yeah. I thought this was really clever. And then fortunately, the change that happened over at Fox Kids is what gave him the roll forward. And again, it’s that usual protest of, well, no one’s done this. This is too new. And yet, how many times is that too new thing always the thing that explodes? It

Chris Ricobono walked into garment makers all over the fashion district in New York and no one would make an off spec shirt for him. Dave Young: Welcome to the Empire Builders Podcast, teaching business owners the not-so-secret techniques that took famous businesses from mom and pop to major brands. Stephen Semple is a marketing consultant, story collector, and storyteller. I’m Stephen’s sidekick in business partner Dave Young. Before we get into today’s episode, a word from our sponsor, which is, well, it’s us, but we’re highlighting ads we’ve written and produced for our clients. So here’s one of those. [Pinpoint Payments Ad] Dave Young: Welcome back to the Empire Builders Podcast, Dave Young here alongside Stephen Semple. And we’re talking about empires being built and fortunes being made and brands being established and something different happening. And you mentioned the theme for today’s show. The topic is a shirt brand called Untuck it. Stephen Semple: Untuck it, Dave Young: And I am a little familiar with them. Number one, Stephen Semple: Oh my God, a fashion brand that Dave’s a little bit familiar with. Dave Young: Oh, I own two of them. I have two shirts. And I feel like I’m responsible for the brand. Stephen Semple: Okay. Dave Young: I’m just that kind of guy that my torso is the weird length and I cannot for the life of me keep a shirt tucked in. So years ago, I quit trying, unless I’m going to be in a tuxedo with a cummerbund that tightens that up. I’m like, you’re not going to find me in a tucked in shirt because it’ll untuck itself. So I’ve always embraced the idea of buy shirts that look good, whether they’re tucked in or not, and Untuck It actually created dress shirts. Stephen Semple: Yes, sir. Dave Young: That you don’t tuck in. You’ve got quite enough tail to be tucked in. So I’m interested in how they got their start. And I bought my two shirts from an actual Untuck store in a mall in Portland, Oregon. Stephen Semple: There you go. Yeah. Dave Young: So I think I know where you’re headed with this, the experience. Stephen Semple: Yeah. Today they have, I think they’re approaching 90 stores now today, and they also now have got a women’s line and of course a major strong online presence. But it was founded by Chris Ricobono and Aaron Sendez in Hoboken, New Jersey in 2010. And they are, as you said, a shirt designed to be worn untucked. And in fact, their early ads featured Chris basically walking down the road talking about how this is what he wanted to create. And they’re kind of funny actually. If you go look at them, they’re a great origin story. And he’s walking down the street in New Jersey and he has this unbelievably serious tone to him about how he wanted to fix this whole shirt problem. And that actually in the early days, David Letterman and Colbert and whatnot were making fun of these ads, which he loved. Like, “Hey, I’m getting some free press here.” But yeah, go and check them out on YouTube. Kind of great. I can really understand why those ads work. So Chris grew up in New Jersey and he took finance and college, and he was actually always really nervous about corporate America. He was worried about his career. And so his whole idea was he was going to get a job, but while he got the job, he was going to look for what the next thing was going to be. So he was always looking for the next idea. And he was nervous in corporate America because he wasn’t good in crowds, and he wasn’t good with spreadsheets and he wasn’t good with socializing. So he always sort of felt like he was an outsider there And eventually got a job being a salesperson and medical devices for GE. And he was there for about 10 years, but he knew he was never going to be long-term. And while he was at GE, he did an MBA at Columbia and it stimulated a lot of ideas for him, and he knew he needed to get an idea. And the early one that he did actually was a wine blog. He did this wine blog called Pardon That Vine. Dave Young: Oh wow. Stephen Semple: It was the only idea he had at the time, and he did it. It was his passion. He loved collecting and drinking wine. And in fact, how that all started was he was invited to a dinner from a cousin of his and his cousin was a wine guy, and his cousin would say, “Go down and grab a bottle of wine, grab any bottle of wine.” And he’d bring up the wine. And this is going to speak to you, Dave. He would bring up the wine and they would tell a story about the wine, about the region, about the grapes, about the winemaker. And all of a sudden Chris fell in love with wines through the stories, which is what you guys teach at the whiskey marketing school, right? Dave Young: Absolutely. Yeah. Stephen Semple: And he became obsessed with it. And so he decided to do this blog and he thought it would lead to some consulting and presenting, and social media wasn’t around yet. There was only Facebook, and it was kind of limited. And wine was very snobby then, and he wanted to make it accessible and mainstream. Now, turned out this helped him at his career at GE because his customers would want to go out for dinner with him. He wouldn’t sell them anything. He would take him out to dinner. They’d have this great dinner. He would tell the story of this wine, and then they would end up buying product from him, power of that story. But he hated the shirts, so they would always feel uncomfortable and whatnot. And what ended up happening one day as he bought a shirt that was off spec, a J. Crew shirt that was off spec. So in other words, it was a medium shirt, but it wasn’t the right length. And he loved it. He wore it all the time. To the degree that when he would go into stores, he would try to find off spec shirts. He would specifically look for ones that were improperly made. In other words, they were too short. And he started sharing this idea with his friends of, “I think I’m going to do this as a company.” And his buddy, Aaron, who was a partner at one of the big accounting firms, forget which one. Dave Young: Fives. Stephen Semple: Yeah. He shared that idea with Aaron. And Aaron was like, “Let’s do it. Let’s do it. We’re going to do this idea.” Now, here’s the fun part. Neither one of them had any background in fashion. Have we heard this theme before? Dave Young: Sure. Stephen Semple: New idea coming from someone with no background in the industry, but lived in New York. He was outside of New York in New Jersey, and as we know there’s a huge garment district in New York. So he grabbed this J. Crew shirt and he would walk into places going, can you make this. Dave Young: Okay? Stephen Semple: He would go through the pitch with the garment makers and they all go, “You can’t make a shirt like that. It’s off spec. You can’t make a shirt like that. It’s off spec. You can’t make a shirt like that. It’s off spec.” Dave Young: Yeah. This is the new spec. Stephen Semple: He went door to door. It took him two years to find somebody who’d be willing to make the shirt. Dave Young: Wow. Two years. Stephen Semple: Two years. So he went door to door two years, and I finally found somebody who’d make the shirt. So he had to raise some money, they had to build a website, and they had to come up with a name. He came up with the name Untuck It. Now, the interesting thing is anybody he shared the name with, they all hated it, but he decided not to listen to it. And I think Untuck it is an awesome name. It’s a verb. Dave Young: Sure. Yeah. Stephen Semple: It’s a verb. And right away it describes what his product is. The Untuck it dress shirt. Do I need to say anything more? Dave Young: No. Stephen Semple: Shirt designed to be worn. Untucked. Dave Young: Right? You don’t tuck it in and you don’t wear a tie. Stephen Semple: Right? Dave Young: Damn It. I’m in. Take My Money. Stephen Semple: They pull together 150k. They found this guy from Poland who had an office in New York City. They’re going to make the shirt in Poland. Now, it’s interesting, Chris believes that today it would be far easier of all of these fashion brands that are springing up to do this today. And he actually feels, because of the challenges, it actually created an advantage for him. So the first shirts were terrible. They didn’t know that they had to be pre-washed, so you have to pre-wash stuff before you make it. The shirts were wrong and they started getting back this terrible feedback, but they had to still sell the shirts. And here’s one of the decisions they made. We’re still going to sell the shirts. We’re going to keep these people’s names. And when we eventually get it right, we’re going to give them a free shirt, but we need the money. Next one, buttons were wrong. You could just pull the buttons off because the machine, something was wrong with the button machine. And so they sent everybody an apology letter and a five-dollar coupon, take it to your laundromat, have them fix the buttons. So initial quality was, they struggled a long time with it, but they remained positive. When people first got the shirts, they would get this big long letters from folks about how much they loved it. And the problem was they didn’t understand this idea that there’s this tech pack that you have to send when you do a shirt. It has to be laundered this way. It has to be done this way. It has to be done. They were figuring all that out because the problem is cotton both grows and shrinks. And length really would vary because even when you pre-washed it, you’re pre-washing 15,000 shirts together, one would shrink a little bit more. It turned out to be a very imperfect process, and it took them a long time to figure out how to make the length exactly the same. And it took them like three years. For three years, they were actually selling shirts that were not that great a quality. And Chris talks about today they would be killed because today the social media postings and whatnot would kill them. But they eventually got it right. And they’re also happy

Avis found a loophole for selling used cars at whatever price he wanted. This became the norm for all rental companies. Dave Young: Welcome to the Empire Builders Podcast, teaching business owners the not-so-secret techniques that took famous businesses from mom and pop to major brands. Stephen Semple is a marketing consultant, story collector, and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is, well, it’s us, but we’re highlighting ads we’ve written and produced for our clients. So here’s one of those. [ECO Office Ad] Dave Young: Welcome to the Empire Builders Podcast, Dave Young, here alongside Stephen Semple. And again, breaking from tradition, if you listen to the episode just before this, which is the Hertz Rental Car, you realize that we have a spoiler. Stephen told me the topic of this podcast, gosh, a whole podcast ago. Stephen Semple: That’s it. Dave Young: We talked about Hertz Rental cars, and now we’re going to tell the story of Avis, number two, but they try harder. Stephen Semple: If you haven’t listened to Hertz, I recommend go back and listen to it because these two stories kind of tie together. And it is interesting. We think about Avis as number two. They’re not number two any longer. They’re now number three. It’s now Enterprise, Hertz, Avis. But that’s a whole different thing. Avis is still… Look, it’s a massive business. They have 5,500 locations. They do 5 billion in sales. They’re a big deal. And they were founded by Warren Avis in Detroit in 1946. So just shortly after the end of World War II. Dave Young: Okay. Stephen Semple: So the war’s over. Troops are returning home. Cars are now being produced for the domestic market. Because, if you remember, one of the things we talked about in the last episode was you could not sell a car domestically. All car production was going into the war effort. We’ve got people returning home. Roads are being built. The suburbs are the place to be. Cars are now being produced for the domestic market, and sales are exploding for cars. It’s going crazy. And so Warren decides to open a Ford dealership. He sinks 10 grand of his own money in. He gets a $75,000 loan. But there’s one problem with being a new car dealer at this time. The federal government puts a cap on what you can charge for a car. So there’s price controls on cars. So it’s actually hard to make a living selling new cars because the margin is really thin, even though lots of people want to buy it. Dave Young: If you’re renting cars, you’re selling them over and over and over almost. Stephen Semple: Well, you’re really close. Warren finds a loophole that you can hold onto a car for six months, and then sell it as a used car, no restriction. So this is what he starts doing. However, this creates an expensive inventory problem. So it’s hard to do and hard to grow because he’s holding onto the cars for six months. Around this time, Warren Avis rents a car from Hertz. Now, if you remember in the Hertz episode, while Hertz did amazingly well during the war because you couldn’t get a car and they had cars for rent, at the same time they couldn’t replace their cars. So the cars by this time were pretty rough. Dave Young: Yeah. Oh, I bet. I mean, usually rental cars now, you don’t have to have very many miles on them to have them be a little rough. Stephen Semple: And Hertz was also in what was now becoming poor locations because Hertz had located in downtown locations, and now people are moving out to the suburbs. So it was out of the way, kind of a crappy car. So Avis decides to take his new cars that he has on the lot, rent them, and then sell them as used at the six-month mark, which means he would always have new cars for rent. Dave Young: Yeah, this is the business model they’re all in now. Stephen Semple: Yes. This is the business model they’re all in. Dave Young: So Avis started this. Stephen Semple: Right. Now, also, if you remember, GM bought Hertz. Dave Young: Right. Stephen Semple: So Avis goes to Ford, and makes them a deal because these could then also act as a demo for Ford, just like what GM was doing with Hertz. Dave Young: Absolutely. Stephen Semple: So all the Hertz vehicles were GM, all the Avis vehicles were Ford. Now, when he decides to grow beyond his dealership, so he starts doing it at his dealership, he looks at the market and Hertz has a lock on basically train stops and downtown locations. But there’s a new untapped market. Dave Young: Airplanes. Stephen Semple: Bingo, as air travel was growing. Because keep in mind, in the 1950s, this is a staggering number… In the 1950s, air travel increased 1500% in a decade. But airports are outside the cities, so why not bring the car rental agency to the airports? Dave Young: Sure. Stephen Semple: So it’s 1946, and he opens at Willow Run Airport in Detroit, which is about 30 minutes from downtown. Now remember, in the late 40s, early 50s, how important Detroit was at that time. Detroit was the fourth-largest city. It was booming. It was the heart of the automotive industry, which was just massive. So Detroit was a big deal. What Avis did is set up a rental counter at the airport baggage claim. Cheap location, and turned out to be the best location, because while waiting for bags, people are being pitched on renting a car. The car’s right there, and the test works. So he decides on opening at other airport locations. Dave Young: All right. Stephen Semple: Now here’s where things get really interesting. The next location he decides to do is Miami. Dave Young: Okay. Stephen Semple: Miami’s a big hub, huge airport, opens with 11 cars. So he’s anticipating sales are going to be amazing because it’s this much bigger market. Dave Young: 11 cars. Stephen Semple: Sales are slow. Cars don’t move. Here’s what he discovers. At a large airport, it’s hard to get the word out. It’s bigger. It’s noisier. Things are spread out. But we see this with our clients as well, where they have an idea that works in the small market that’s built on small promotion and word of mouth, and they move to a large market and it doesn’t work, and they blame the idea. Where what it usually is is that share of voice. The bigger the market is, the noisier it is, the harder it is to stand out, the harder you have to work to get noticed. So Avis doesn’t abandon the idea; he realizes he needs to promote it better, and he needs to find a better way to promote. And here’s what he notices. Dave Young: Stay tuned. We’re going to wrap up this story, and tell you how to apply this lesson to your business right after this. [Empire Builders Ad] Dave Young: Let’s pick up our story where we left off. And trust me, you haven’t missed a thing. Stephen Semple: So Avis doesn’t abandon the idea. He realizes he needs to promote it better, and he needs to find a better way to promote. And here’s what he notices. No one’s advertising on airplanes. Dave Young: On airplanes. So yeah. Stephen Semple: He makes a deal with American Airlines to put brochures on the planes for the car rental in Miami. And he’s the first to advertise on airplanes. Dave Young: I bet that worked. Stephen Semple: Worked huge. Worked huge, especially where you’re the only one advertising. So he’s the first to do that. Business starts to soar, and he does lots more airports. He’s like, okay, I’m going to do as many airports as I can, advertising on the planes. This is how we go. By 1953, Avis is number two with 75 airport locations, including now, Chicago, Hertz’s hometown. And in 1953, Avis starts opening actually locations in Hertz’s stronghold, the city centers. At this point, this whole idea of car rental starts to catch on. The market starts to get flooded, and Avis decides, you know what? I want to get out of this. And he sells for $8 million to a competitor and basically takes his money and runs and decides to retire and do other things. Dave Young: 8 million and Avis is out. Stephen Semple: 8 million, and Avis is out. But 8 million in 1953, that’s some walking around money. Dave Young: He left their name, yeah. Stephen Semple: Now, the part that I loved about all of this was, again, he saw a problem, and the problem was he couldn’t make money selling cars new. So he found the loophole, held onto the cars, but he had this unleveraged asset. And the unleveraged asset was, he had cars for six months, and that unleveraged asset now ended up becoming this differentiator that allowed him to move into the car rental business. My cars will always be new, and I’ll be at more convenient locations, I’ll be at the airports. And I just thought that that was really, really brilliant. But the other part is when he went from a small market to a large market and it didn’t work, he didn’t go, oh, the idea doesn’t work. It was the promotion doesn’t work. Dave Young: In Miami, you couldn’t open a booth across from the baggage department, baggage carousels because there were bunches of them. It was just too big a space. So you didn’t have that focused attention. Stephen Semple: Right, right. Dave Young: Not everybody that picked up their bag would be walking past you. Stephen Semple: Right. So he went to, where can I get their attention? I can get their attention on the plane. I thought it was just a really interesting that, here’s one problem. If you actually look through it, here’s one problem. Can’t make money selling them new, going to hold onto them, they’re used. Problem number two is I’m holding inventory for six months. So then why don’t I, oh, there’s this gap in the marketplace where inconvenient locations, poor quality cars, so therefore I’m always going to have the car being new, which is now the model today. Next thing, GM has bought Hertz. So I’m going to do a deal with Ford, opens the door with Ford. Next thing, Hertz has got the train stations in downtown locations sewn up. Oh, there’s this new thing, air travel, I’m going

Walter Jacobs was an automotive geek. From the assembly line to owning a Ford dealership to Rental Car King. Walter built and Empire. Dave Young: Welcome to the Empire Builders Podcast. Teaching business owners the not-so-secret techniques that took famous businesses from mom and pop to major brands. Stephen Simple is a marketing consultant, story collector, and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is … Well, it’s us. But we’re highlighting ads we’ve written and produced for our clients, so here’s one of those. [Travis Crawford Ad] Dave Young: Welcome back to the Empire Builders Podcast. Dave Young here alongside Stephen Semple, and we’re talking about empires. We’re talking about big businesses that started out as usually smaller businesses. None of them ever start big, Stephen, when are we going to talk about businesses that just started huge? Stephen Semple: I don’t know that they’re as interesting, Dave Young: But today we’re talking about Hertz Rental Car. Stephen Semple: Yes. Hertz Rental Car. Dave Young: And in my mind, they’ve always been the big one. They’re the big guy. They’re the top dog. Stephen Semple: Well, actually in the market today they’re number two. Enterprise is the largest one, and they’re number two, and then Avis is number three. Dave Young: But the Enterprise combined … They conglomerated a bunch of them, right? Stephen Semple: Yeah. And there’s even a few that are under Hertz as well these days. None of them are just one banner anymore. Dave Young: Yeah. Everything’s becoming one brand. Stephen Semple: They’re big. They do over nine billion in revenues in 160 countries, and they’re part of the S&P 600. So they’re a big deal. Dave Young: They’ve been big for a while. Stephen Semple: They’ve been big for a long time. Dave Young: I remember when Avis started, this was back in the Mad Men era. The big idea, the big advertising slogan for Avis was, “We’re number two, but we try harder.” So at that point, Hertz was number one. Stephen Semple: Yeah. We’ll find out as we go into the story, Hertz was the first national brand as well. Dave Young: Okay. Stephen Semple: So they really, and in many ways, kind of created the car rental business as we know it today. Dave Young: Awesome. Stephen Semple: They were founded by Walter Jacobs in 1918 in Chicago. And as I was saying, today they do like nine billion in revenue. So it’s 1918 in Chicago, and the Model T Ford has been out for 10 years. There’s about six million cars on the road, which is about 60 cars per 1000 people in the United States at that time. So they’re pretty new, but you’ll see a car. They’re not foreign, but they’re not new. It’s kind of at that stage where you’ll see them. Dave Young: Sure. Stephen Semple: So now back to Walter Jacobs. Walter’s this real car junkie, and he had started out actually working on an assembly line, and now he owns a Ford car dealership. He really sees cars as the future. And when he opens the dealership, he has some sales success, but he runs into a problem. Lots of people are coming in to test drive a car, but they really still see them as a novelty. So if you think about it, there’s no driver’s license. Vehicles are standard, they’re not automatic. And he would take people out for this test drive and it’s kind of exciting, and it’s a thrill, but what he’s finding is that people are coming to do these test drives for the thrill. They’re not really buying, to the stage where people come back and offer him money to take the test drive. Dave Young: Do another test drive. Stephen Semple: It was almost like an amusement ride for them. So lots of people want to drive, they don’t want to buy it. And Walter looks at it and goes, well, people like the idea of a car. At that point people were still used to getting around other ways, and most really did not need a car for every day. There might be specific need that they have for the car, plus there’s this amusement factor, but they want to experience the car. Dave Young: Well, the big box stores had not driven out all the local neighborhood markets yet. Stephen Semple: Well, the suburbs hadn’t sprung up. Everything was in walking distance. All of that. Dave Young: You could still walk to the store. Stephen Semple: He looked and said, “Well, what if I let them rent a car? What if I do that instead?” And there’s a precedent for this because Walter’s dad was a traveling salesman, and when he was on the road, he would rent a horse and buggy. So why- Dave Young: I didn’t know you could do that. Stephen Semple: I didn’t know that either, but it makes sense. Dave Young: Sure it does. Stephen Semple: So why not cars? Dave Young: My mind is blown just by realizing that back in the day, you could rent a horse and buggy. Stephen Semple: Yeah. So why not cars? Dave Young: Yeah. Stephen Semple: And I thought about it because we would always hear about these traveling salesmen. So of course, how did they get around? Dave Young: Yeah. Stephen Semple: Right. Dave Young: Okay. Stephen Semple: So it’s now this new market with new customers, and Walter decides to take all of his money, plus borrows 2,500 bucks and turns the dealership into a rental office. He goes 100% in. Dave Young: Not selling him anymore, just renting them. Stephen Semple: 100%. People thought he was nuts. “People will steal the car, they’ll wreck the car.” Auto insurance didn’t exist. Dave Young: Airplanes didn’t exist. Stephen Semple: Right. Dave Young: He wasn’t near the airport. Stephen Semple: So he went all in with a fleet of 12. Dave Young: I mean he might’ve been. Stephen Semple: Well, hold onto that airport thought for the next one. So he went all in with a fleet of 12 cars and even had an extra fee for self-starting cars. So it was an extra fee for that, so he already was figuring out the upgrade thing, and it was a slow start because people didn’t think of it. And the most common question he had was, did it come with a driver? He decided to call the company Drive Yourself Car Rental. Dave Young: Drive Yourself, yeah. Stephen Semple: Drive yourself. And he did a marketing blitz. He did posters, he put things in the phone directory. He put billboards on the side of the cars. Word started to spread and sales started to take off. So with this advertising campaign of becoming known, how many months did it take for it to take off, Dave? Dave Young: Gosh, I don’t- Stephen Semple: What would we tell a customer today if they’re doing mass media advertising on something? Dave Young: Anywhere from four to eight, nine months, something like that. Stephen Semple: Yeah, the eight-month mark. Dave Young: Okay. Stephen Semple: The eight-month mark it starts to take off. Now how quickly does it take off? He started with 12 cars, at the eight-month mark started to take off, by the end of the year he has 30 cars and he can’t keep up. Dave Young: Okay. Stephen Semple: So when it took off, it just like boom out the gate, right? Dave Young: Yeah. People have to get used to the idea. Stephen Semple: Yeah. So it’s five years in the business, and he gets noticed by a prominent Chicago businessman. John- Dave Young: Sorry, I got a question. I got a question first. Stephen Semple: Yeah. Dave Young: What time of year did he start and when was the eight months? Stephen Semple: Oh, that’s interesting. Do I have- Dave Young: I’m guessing there’s a change of season. You’d advertise it starting in the spring, and then by the time fall hit and it got a little cold … Stephen Semple: I don’t know, because I don’t have the- Dave Young: That’s okay. That’s just what’s going on in my head. Stephen Semple: That’s a great question, though. That’s a great question. So it’s five years in the business, he’s growing, he gets noticed by prominent Chicago businessman. Guy by the name of John Hertz. Dave Young: Okay. Stephen Semple: Recognize the last name? Dave Young: Rings a bell. Yeah. Stephen Semple: So John Hertz had started actually as a car salesman, like Walter. Then he went into taxis and he now has the largest taxi service in the world. Yellow Cab. So John had started Yellow Cab. Dave Young: That explains Hertz’s color scheme. Stephen Semple: There you go. Bingo. Bingo, bingo. That’s totally it. Now, the cab business is a hard business. It’s cutthroat, drivers are hard to find, and there’s literally taxi wars going on in some cities. People are actually getting killed in these taxi wars, and the business was successful, but Walter’s kind of a little fed up with it. And so Hertz offers to buy the business from Walter. And the thing that John learns how to do was replicate the cab business in other cities. And this is what Hertz wanted to do with car rental. Dave Young: Stay tuned. We’re going to wrap up this story and tell you how to apply this lesson to your business right after this. [Empire Builders Ad] Dave Young: Let’s pick up our story where we left off. And trust me, you haven’t missed a thing. Stephen Semple: And the thing that John learns had to do was replicate the cab business of other cities, and this is what Hertz wanted to do with car rental. He knew how to do that. So Jacobs agrees to sell the business and stays on running the business. And the goal is to become the first national car rental company. And they used franchising, which is also pretty new, and they used what’s called the conversion model. And the conversion model is what was used in the oil industry. So the oil industry would go to an existing mom and pop gas station and say, “Hey, do you want to be a Texaco?” Dave Young: Okay. Stephen Semple: So what they started doing was going to existing mom and pop car rental businesses and saying, “Do you want to be a Hertz?” Dave Young: Gotcha. Stephen Semple: And converting them into Hertz. And the new name is Hertz Drive Yourself. Dave Young: Hertz Drive Yourself. Okay. Stephen Semple: Along comes 1925 and they

LeNoble has prided itself, since generation #1, that because it is hard to do, it has to get done. Then mastered the how… Dave Young: Welcome to the Empire Builders Podcast, teaching business owners the not-so-secret techniques that took famous businesses from mom and pop to major brands. Stephen Simple is a marketing consultant, story collector and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is, well, it’s us, but we’re highlighting ads we’ve written and produced for our clients. So here’s one of those. [Tapper’s Jewelers Ad] Rick: Told you, Brian. Brian: Told me what? Rick: This is part two of last week’s episode. Brian: Oh, yeah. And it was getting good. Rick: If you missed it, go back and listen to part one first. Take it away, fellas. Stephen Semple: There’s got to be some really interesting, unique challenges to delivering your products and whatnot in Manhattan. Dan LeNoble: Yeah, Manhattan, it’s just tough dealing with the congestion, the amount of people and everything like that. It is not an easy place to do it. If it was easy, everyone would do it. But what we’ve spent a lot of time and resources doing are hiring the right people to do the job. And Ben does a lot of our hiring as well as a few other key people in our organization and finding people that want to do it the right way, don’t want to cut corners, don’t want to, I’m going to park the truck on the corner here and they can come find me. Getting good drivers, good yard guys, that’s the world of difference. It’s simple to say no, but how do we get to yes. Stephen Semple: That’s interesting. Dan LeNoble: And getting those key people has really been, I think that’s what transforms us. I think our people are our single greatest asset that we have. Everyone around us it makes our life that much easier because of their skill and professionalism. Jessica LeNoble: Our dispatch team is incredible when it comes to navigating what truck goes where if there was a mistake, how to fix it. And there’s never… I shouldn’t say never, but there’s not a blame game. If I go downstairs and I’m like, “Hey, this happened.” The first thing out of the dispatcher’s mouth is, “All right, what do we have to do to fix it? How do we get this done so that way they’re happy?” Stephen Semple: Well, in this dispatch thing, I just want to give some background that people may not realize is in the construction space, in the home services space, I have lots of clients who are in the suburbs of a city, whether it’s Philadelphia or Toronto or Vancouver or Los Angeles, who will say, “Yeah, we do not go into the downtown core because it’s a pain in the neck. It’s too hard. It’s too difficult. There’s all these challenges.” I think both Jessica and Dan, you guys hit the nail in the head. What you’re recognizing is one of your competitive advantages is dispatch. And also people getting that parking around the corner and they’ll find us ain’t good enough. You’ve got, yes, the city’s challenging and you just have to overcome that challenge. Jessica LeNoble: We’ve never been outside of the city, so this is what we know. Stephen Semple: Right. Right. Dan LeNoble: I think also one of the things that is giving them the tools to use, and what I mean the tools in this case is just some of the logistics with trucks. It’s easier to just have these massive tractor trailers that you can load up with however many stops and it just goes on its run. But when you’re dealing with these narrow city streets and you have to make these sometimes, not huge deliveries, having a smaller truck that’s nimble and can actually maneuver gives you a little advantage. So for a company our size, we’re operating 42 vehicles that range anywhere from little box trucks up to those big trailers and everything in between. So if you need two units of plywood into the city and you’re on a difficult street, we have an 18-foot flatbed that makes it much easier to maneuver than a 53-foot tractor trailer. And what Jess was talking about with the dispatch team is they understand those needs. They have the tools to do the job. We’re just there to support them, give them the tools they need to make the job easier. Stephen Semple: You’re like right in Manhattan, are you not? Ben Bernstein: We’re one mile outside of New York City in Long Island City, Queens. Stephen Semple: Oh, you’re in Long Island City, okay. Ben Bernstein: Yeah. Stephen Semple: But the fact that your history is New York City, and you guys really understand that, the fact that New York City is big, lots of opportunity, but all of these massive challenges that come with it that you guys know, right, from a DNA level because that’s the history of this business, how much do you think that that is your competitive advantage? Dan LeNoble: It’s definitely a huge advantage. Having just grown up in it. It’s what’s ingrained in us. Stephen Semple: Right. Dan LeNoble: And those challenges with the difficulty of just the logistics of New York City, we understand that well, how can we take those particular set of skills and bring that into other markets where no one else is kind of doing those things? What you were touching on with some of your other customers is we don’t go into the city, it’s too hard. They have a particular way they run their trucks and do everything, we do as well but it’s different. And we like to think that our service allows us to go into these other industries that haven’t been as accustomed to the high quality service that we provide, and that gives us that competitive advantage as well. So it’s taking that DNA of being in the city, being in that rough grind, and how can we take that and go into other sectors where people actually want that kind of service but aren’t accustomed to it from who’s currently servicing those markets. Stephen Semple: Right. So when you’re looking at other sectors, so going back to what Ben was saying, where there was a point where you knew you needed to diversify. Part of that diversification question wasn’t just like, oh, I need other services, but what are other services where this stuff that we figured out around the logistics and dispatch and size of truck and getting around and whatnot, what are other ones where that’s a competitive advantage that we can bring is probably kind of how you looked at it? Is that what I’m hearing? Dan LeNoble: Kind of. Yeah. Ben Bernstein: Yeah. Just to touch on that, I think that even though we’re in Long Island City because of how we are set up operationally, we deliver all the way up to Connecticut, Upstate New York, Eastern PA, Southern Jersey, and all the way out to the Hamptons every single day. And I would argue that we can do that at a more efficient clip sometimes than some of our competitors who are even closer because we’ve set ourselves up, we know what it takes to make these difficult deliveries around the city, and we take that same mindset and we’re able to efficiently get material even farther out, outside of our range. Jessica LeNoble: And I think there’s also that mentality of we just have to do it. It’s not, “Oh, this is a hard street to get down. Oh, we don’t want to go into the city. Our customer needs this and we’re going to get it to them.” Because one thing about us is, going back to my grandfather when it comes to one of his biggest actresses was loyalty, a customer calls and it’s not just a voice on the other line. A customer still calls Ben, still calls Dan, even though they’re running the business and we answer and we know them by first name. We know what they need. We know that if they say a certain item that they didn’t really mean that item. Oh, did you mean this? Oh, absolutely. So we want to get our people, not just customers, they’re our people, what they want. So even though logistics does play a role, we just got to get it done. Stephen Semple: Awesome. So looking to the future, looking to the future there’s definitely changes happening in the construction industry, changes happening in the future. What do you guys think is your biggest opportunity and your biggest challenge? You’re now the third generation, taking this out to generation number four, what do you guys see as being the big opportunities and big challenges for LeNoble? Ben Bernstein: Our biggest opportunity and our biggest challenge is scaling from where we’re at. I think that the way everything we’ve talked about with how we run our people, how the operations department runs, we’ve put a lot of time thought and effort into how the organization is structured, that we think that we’re ready to take that next step into scaling into other areas outside of the five boroughs and all the other areas I mentioned that I think is our biggest challenge going forwards as well as finding talent, finding that next generation to the next nucleus at this company to help bring ourselves to the next level. That’s going to be our biggest challenge going forwards. Stephen Semple: So you see the big challenge as being really the people and the talent? The opportunities are out there, if you have the right people and the right talent, you can seize those opportunities is what you’re seeing? Ben Bernstein: Yeah. I think that we are a great organization that offers a younger generation, that have been pulled into different industries away from the construction and blue collar industry. I think that it’s left a void here where there’s some real opportunity for those who are in this industry in our generation to really seize that and take this company to the next level. Stephen Semple: There’s no question there’s massive opportunities in the trades business. What I find amazing is how many of my customers who’ve got trades businesses that ultimately have realized that to grow, they’ve built their own plumbing school or electrical school or school for fixing heating and air conditioning units because that’s the only way t