My Greatest Whiffs

Sherm and I get together after work maybe six times a year. Our schedules just don’t overlap much. Since he’s crisscrossing the country, I leave it to him to find a crack in his schedule and call. He does some interesting things, so I always look forward to hearing about it. He called last week and invited me to breakfast.

This is new. Breakfast? Something was up, but I could wait to find out.

So, the day came and I showed up at the appointed place. Sherm was on time. Something was really up. We ordered. No sense wasting time. I asked what was on his mind.

Sherm is a wheeler dealer in the national market for major commercial real estate. He and some deep pocket investors were looking at an office building and doing a walk-through. They stopped to talk to one of the tenants, the executive director of a nonprofit that advocates a particular technology. He enthralled them with a concept of a potential product that would apply this technology.

On the way home, they forgot about the building and talked about starting a company to make the product. May sound weird, but that’s how some of these things go down. I went to Texas once to see a company about making a part for me, and wound up buying the company.

They each kicked in some seed capital to explore the design and potential for this product. It looked like it held some promise. It was time to tee it up and drive it, or get off the course. But, who had the time or the inclination? Sherm’s got his real estate thing and the other guys make their dough shuffling money around. Which brings us to the breakfast.

“I wanted to see what your appetite is for this. We give you fifty grand to take the concept and run with it. There’s another fifty when design is finalized and chips hit the floor (tooling commences – I’m impressed he’s already picked up product development jargon). Another fifty when you get the bell cow contract to do a full production run. Then, 20% of NBT (net before tax) for three years, or 20% of purchase price, should we sell the company. Sweet, huh?”

“Maybe.”

“Maybe? You get a nice piece of the action without putting up a dime. This is a home run.”

“Do you have any idea what it takes to get a new product to market? Not to mention the fact that this technology advocate has probably floated the idea to fifty other people. He isn’t just sitting around, waiting for people to walk down his hallway.”

“I’ve been in real estate development for almost three decades. Trust me, I know what hurdles are. I’m sure there are things I don’t see here, which is why I came to you. But, it’s a can’t-miss.”

“Then, you should appreciate why I’m not pushing my way to the front of the line to leap off the cliff. I’m covered in the scar tissue of can’t-miss ideas.”

That I am. But, taking the high hard one is part of the game. You don’t get to jack one out of the park unless you’re willing to stand in the box.

I recall some of my greatest whiffs. Let’s call these scenarios hypothetical and fictitious to protect the innocent.

I’m at a coal conference in Denver years ago. The buzz is the problem of new sulfur emissions standards that have caused a major shift in the supply chain for utilities. Most had been burning high-BTU (energy) coal, and transportation via barge or ship made the delivered cost low. But, the quick shift in requirements was not paced by stack scrubber technology. So, sourcing shifted to low-sulfur western coal.

The conference agenda included a jaunt to newly mined coal fields in Gillette, Wyoming. While the seams were large, it was low-BTU coal. And, it had to be railed long distances. So now, you’re burning a lot more coal (because of the low energy content) creating more fly ash waste and emissions, plus you have the additional energy use and pollution stemming from longer hauling with less efficient means. Yeah, that legislation was really thought out.

Okay, this was a political knee-jerk move. Good. Just the kind of thing that creates opportunities.

Reducing it to a simple equation, if someone could reduce the cost, someone could make a buck. So, find low-sulfur coal that was either closer, or that could be mined and/or delivered at less cost.

I found some defunct mines in Alaska. It was a short haul down to Cook Inlet. There were some bears and Indians in between. Yeah, I said Indians. It was an Indian reservation, so they were Indians. A few meetings were arranged with the Indians and they were cooperative. There were a couple impromptu meetings with the bears. Not so cooperative. But, not a big problem.

Once at the inlet, you drop the coal into huge ships and haul it down to the waterside utilities of the major west coast cities. They’re happy to get it at greatly reduced cost. I make a pile of dough. Nothing is ever that simple. This was not that simple.

There were three things I learned in due course. First, the tides of the northern latitudes have big swings. I knew that, but didn’t realize how much difference that would make in terminal design and cost. That’s added expense and operating complexities.

The second thing I learned was that no one wanted to invest in ships the size I had envisioned for outstanding economy of scale. The upper limit was Panamax. This is the term for the maximum size that will fit through the locks of the Panama Canal. Should the enterprise go belly up, you wanted a ship that could be used in other trade, or that was salable to someone in another business.

The final lesson was a real kidney punch. Because the ship would operate between two American ports, the law requires that it be an American Flag vessel. The Jones Act was another political snafu, enacted to appease powerful unions and other lobbyists. It stacked the deck to favor these special interests, although the company line was that it was that it was to ensure that the U.S. maintains a fleet staffed by U.S. crews and owned by U.S. companies. Since it was rooted in government think, it essentially decimated the domestic merchant marine. The unions lobbied for this, thinking they were creating a gold mine for shipbuilding labor and ship crew. It wiped out their jobs and domestic ship building and operation. Bravo.

That’s why you see so many tankers, container ships, etc. with “Monrovia” painted on the stern. Liberia will gladly register your ship, and take the fee. They have lower standards for construction, crew, etc., so your costs are low. Much lower than American Flag vessels. To digress, this also led to the development of the integrated tug-barge, that skirted the American Flag requirements. It made no sense from an engineering, operations or safety standpoint. A design that made no sense, except in the artificial and illogical world of politics. What is inflated cost and some dead sailors when there are campaign contributions to be had?

Okay, so I rework the numbers and it’s still cheaper than railing the coal over the mountains and all the way to the west coast. Time to call on some utilities and close the deals. I can save them millions. It’ll be the easiest sale I ever made.

Not interested. Huh? How can you possibly not be interested? I can save you and your customers millions of dollars? Just not interested.

The project died on the vine. It would be years before I could backtrack and figure it out, and even then I couldn’t get total confirmation. But, this is a hypothetical story.

Utilities are limited on how much profit they can make. After all, they’re granted a virtual monopoly, so it wouldn’t do to permit them to gouge the good citizens. Utility commissions capped the profit margin and protected the taxpayers. Or, did they?

You’re a utility and, thanks to the monopoly, you’re making a decent buck, even though you’re limited on how much you can make generating power. It’s still a can’t-lose. But, that’s not good enough for you.

You have to buy low-sulfur coal from someone. Or, do you?

Why not just acquire some coal mines, through some convoluted channels, and sell yourself coal at a high price and profit margin? They can limit your profit margin on electricity, but not how much you pay for coal. As your costs go up, you raise the rates and maintain your acceptable profit margin on electricity. And, those higher costs are just going into your other pocket, where you make the real dough off the consumers.

Suppose this young buck comes along, then, and says he can get you coal much cheaper, saving you and the consumers millions? Well, then you’d lose your fat coal profits from selling to yourself. Not interested.

Whiff number two begins with the emergence of the VCR. After the consumer feeding frenzy, they’re looking at secondary markets. Some bright soul sees the potential in training. VCRs are sold en masse to a large auto producer. The idea is that they will make sales training tapes and ship them with a VCR to each dealership.

I know people who own dealerships and what they think of direction they get from the mother ship. I smell opportunity.

I approach one of the most successful salespeople in the country. This guy cranks out cars like they’re packs of gum. The deal. We make a videotape with him telling how he does it. I market it to car dealers, who we know already have the VCRs for training. I give him a royalty on every copy sold.

This will not be a low-price tape. If it kicks up a dealer’s take only five or ten percent, it’s still worth a fortune. The deal is cut.

Fortunately, I’d been doing a lot of direct marketing, even though the science of it was still in its infancy. I knew enough to do a test mailing before going to the expense of rolling out to every dealer in the country. You have printing, postage, list rental and the mailing house (labeling, stuffing and sorting). Not cheap. You test before you go full out.

I know I’ll get at least 50% of the response within ten days of the drop. I eagerly wait to read the entrails. And, I’m already deciding which model Harley to buy with the initial profits.

The mailing bombs. Not, didn’t do that well. Not, falls short of expectations. Not, didn’t cover the investment. It bombs.

I review the mailed package. You always put some seed names in the list so you receive them and have a good idea of what and when recipients got. No major gaffs, like they forgot to enclose a return envelope or something. I flip through a printout of the list that was used, going to zip codes where I know the dealerships. They’re on there with correct addresses. No easy answer, so it’s time to pry the cover off the back of this thing and poke around the innards.

I start calling dealers who received the mailer to see exactly what their reaction was. I’m not getting through to many of them. Those I do get on the line are tap-dancing. I’m getting nothing.

I’ve had some foul tips before, but never a complete whiff. Sometimes you pick the wrong color for a response card, others, the wrong benefit for envelope copy. But, you get something back. I needed to know why this tanked.

Into the car and off to the dealerships. It’s not that I expected the general managers to talk. The salespeople would talk. They always talk.

As with many things, it’s not what you see that tips you off. It’s what you don’t see. No VCRs.

As near as I can tell, the dealers received the VCRs and training tapes from the manufacturer. Some of them might’ve even watched the factory tape before pitching it. Then, they took the VCRs home and hooked them up in their family rooms. VCRs were expensive then, so this was quite a plum. Why didn’t I guess?

When my promotion arrives, they don’t need a training tape at the dealership. They don’t have a VCR there to play it. The promotion bombs.

The problem with getting a brainstorm is that you get so excited, it blinds you. Cognitive dissonance sets in and you overlook key facts that contradict your sunny scenario.

I told Sherm that I wasn’t slamming the door on his foot. But, I’d do my own research before answering.