Brains versus Capital

Entrepreneurship for Everyone: Lean, Smart, Simple

Günter Faltin

• Editorial: WSPC
• Año: 2018
• ISBN:
  9789813234635
• Categoría: Business
• Categoría: Entrepreneurship

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Entrepreneurship is not a calling only for the selected few. Creative work and economic self-realization are goals that anyone can pursue. Learn how to create your own "idea-masterpiece" as a collage or puzzle made from existing pieces, and construct your own company from pre-existing components that are freely available to everyone. Brains versus Capital: Entrepreneurship for Everyone opens up many channels of opportunity for many people who never thought that they would start their own company. This book emphasizes knowledge-based start-ups, which offers a crucial difference to classic self-employment and the new technology based start-ups. Günter Faltin has been teaching this approach for decades, and he has applied his theoretical concept with great success to "The Tea Campaign" (Teekampagne), the largest mail-order tea company in Germany. A growing number of companies uses Professor Faltin's principles successfully. Featuring practical examples of successful companies, Günter Faltin shows how anyone can refine an idea to create a new company. By combining components that already exist, a small start-up founder could even challenge the big companies.

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--> Contents:

• Foreword by Fritz Fleischmann, Babson College
• Introduction
• The Tea Campaign as a Case Study
• Start-ups: Creative Concepts, Not High-Tech
• The Step-Child Concept: It Pays to Finetune Your Concept
• Avoiding Overload
• Building a Business with Components
• Playing in the Big Boys' League
• How to Work Out Your Own High-Potential Concept: The Entrepreneurship Laboratory
• Entrepreneurship as a Challenge
• Say Goodbye to Old Ways of Thinking (Don't Draw Conclusions about the Future Based on the Past)
• An Invitation to a Dance
• Appendix: Everyone Can Become an Entrepreneur: An Interview with Professor Muhammad Yunus (Excerpt)
• References
• Acknowledgements
• About the Author
• Endnotes

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--> Readership: Students, practitioners and general public interested in entrepreneurship and founding businesses. -->
Entrepreneurship;Business Model;Teekampagne;The Tea Campaign;Innovation;Personal Development;Self-Employment;Start-Ups;Entrepreneurial Design;The Entrepreneurship Laboratory;Social Entrepreneurship;Economic Enlightenment;Cultural Entrepreneurship;Business Plans;Knowledge-Based Start-Ups0 Key Features:

• The original German version is the most successful book on entrepreneurship ever sold in Germany
• This book demonstrates in easily understood and approachable terms that a well thought out idea is more important than a patent, modern technology or a large amount of start-up capital, in deciding the success of a company

CHAPTER ONE

INTRODUCTION: ALL ROADS LEAD TO ROME

This saying from antiquity also applies to the ways to establish a business, but not all ways are equal. Many seem narrow and mysterious; others appear clear and open. However, all of them are difficult and require hard work, or so it is said.

It is striking that, along the way, you will run across advisers who claim to know the road without ever having traveled it themselves. Even more striking is that when you take a closer look, you find the main route closed. Which of us mere mortals start with a technology patent, research findings or an abundance of capital?

This book describes a road that until now has been little recognized — a road that has more to do with ideas and their development, than with research and high-tech advancements, a road that does not primarily focus on commercial technologies and the quest for capital. A road more compatible with our own times, one could say; one that makes use of the business tools available to everyone, one that makes the realm of entrepreneurship accessible to many more people than is the case today. It is a road that makes the figure of the entrepreneur seem closer to that of an artist or composer than to a typical business owner or manager. It is a path that the author himself has traveled, and which he describes from personal experience.

Nowadays, you can get to Rome more easily and more economically than ever before.

1.1You Have Got to be Crazy

You have got to be crazy if you want to be an entrepreneur: you will have to work 12 to 14 hours a day, there will be no vacations in the near future, and you will have little to no private life anymore. You will be at risk of losing your friends or your life partner to others who are under less stress and have more time. You will be the first one in the office in the morning and the last to leave at night. You will have to understand bookkeeping and financial statements. You should have some idea of tax law, business law, and labor law, and not to mention, contract law. You will have to be able to lead your staff, and be able to talk to and shrewdly negotiate with financial institutions. Naturally, you will have to have a good marketing plan, keep your business in good order, and make sharp calculations. Risks will come at you, and in droves! Not to mention, your chances of survival in the market are less than 50%. According to many studies, as many as 80% of start-ups have failed by their fifth year, at the latest. Thus, bankruptcy looms — at least, statistically — in return for all your valiant efforts. To put it plainly: in our society, with the high level of social entitlements that we have achieved, a person would really have to be crazy to start his own business.

Now, there are always people in a society who not only veer off from the mainstream, but who also form an extreme category: alpine mountain climbers who take enormous risks, racing drivers, stuntmen, balloonists like Virgin founder Richard Branson, bungee jumpers, marathon runners, trapeze artists. Could it be that we expect entrepreneurs to be a kind of extreme sportsmen, with a penchant for masochism?

However, our society needs start-up entrepreneurs — and not just a few. On the contrary, we need as many as possible, a kind of people’s entrepreneurship. If this is the case, must we not approach the establishment of start-ups in a way that is totally different from what has been the model up to now? The chapters of this book will tell you the things you can do to get out of this malaise. Many of the notions that still make up the bulk of start-up advice today can be tossed aside as easily as you would discard a worn-out toothbrush. We need a radical re-orientation. Fortunately, many of the latest economic developments dovetail with the very things that we are striving for.

1.2The Fascination of Economics

Back in my school days, I enjoyed reading about Henry Ford, Andrew Carnegie, and Joseph Schumpeter; not as a class assignment, but reading about them surreptitiously under my desk. Back when I was in high school, an interest in economics was regarded as something almost disreputable, even indecent. However, I could scarcely imagine anything more fascinating and informative. I was raised to be frugal. I did not spend the first salary I earned; instead, I invested it in stocks. My parents were shocked, and so were my teachers. It was obvious that I would study economics.

However, to my amazement, the subject that had seemed to me so interesting and compelling turned out to be dry and boring at the university. What I had previously experienced as lively and exciting was, as an academic discipline, as lifeless as a cadaver being dissected. Now, it is true that the study of medicine does start in the dissecting room, but sooner or later, the medical student will work with living people. However, with the study of economics, I waited for that in vain. The fascinating figure of the entrepreneur that I had gotten to know with Schumpeter had been replaced by the principle of profit maximization. As a student of economics, one is primarily occupied with mathematics and abstract models. I quickly put this kind of academic study behind me, and without the pressure of exams, I became even more involved in investigating why a fascinating field like economics became totally lifeless through its study as an academic discipline.

Would anyone ever come upon the idea to teach sports in such a way that the only thing analyzed would be the participants’ desire to win, and then to do this using mathematical formulas, with the result that there would no longer be any competition included in the study of physical education, but only mathematics? You think that is ridiculous? What is taught about competition between companies follows this precise model — starting from the assumption of profit maximization, this formulaic approach with its mathematical models marches into the foreground. It is scarcely possible to find any contact with the living subject embedded in reality. Economics becomes marketing, finance, organization, bookkeeping, and accounting. This is the way the cadaver is dissected. The different motives and characteristics of the persons involved no longer exist.

The study of economics from a single perspective diminishes the subject. This is not a matter of whether profit maximization or mathematical formulas are good or bad. The only aspect of interest here is the (unplanned) consequence that not only is the fascination for the subject of economics — which is so central to our society — lost for most students, but it is also lost for the many who would like to use it as a tool.

In life, it is not unprecedented that someone is called to the very field of endeavor that he had previously criticized so harshly. When a few years later I received an invitation to teach at a university, I swore I would teach economics differently. So how could one do this better than by the example of founding a company?

Me, an entrepreneur? In those days, it was difficult to bring these words across my lips. How to achieve this, pray tell? To get started, do you not need a patent, plenty of capital and, above all, solid economic tools?

That was, in any event, the prevailing wisdom.

CHAPTER TWO

THE TEA CAMPAIGN AS A CASE STUDY

The concept of the Tea Campaign did not develop overnight. At the beginning, it was not at all certain whether the project would involve tea or some other business. I had no firm notions what “my” company would look like. At the beginning, my only goal was to combine academic theory with hands-on entrepreneurial practice.¹

It was like putting together a puzzle, but one whose final result was unknown at the outset and whose individual pieces had yet to be invented.

2.1The Genesis of the Idea

On my many trips to developing countries, it struck me that products like coffee, bananas, sugar, and tea cost approximately 10 times as much in Germany as they did in their countries of origin. What made these products so expensive here, and why was tea, in particular, so exorbitantly expensive in Germany, even in comparison to other European countries? Was this attributed to shipping costs, insurance or retailers’ high profit margins?

After extensive research, it became clear: it was not these costs that made tea expensive, but rather the sheer number of middlemen, plus the small-sized packaging customary in the trade. Then, what if we cut out the middlemen and offered larger, more cost-effective packaging? That seemed reasonable to me, but why was no one doing it?

Figure 2.1: The Tea Business — The Conventional Model

Let us take a look at how tea is usually sold in Germany. What makes for a good tea store? It has a good location, friendly and knowledgeable sales help, a pleasant ambiance, and above all, a wide selection of teas. A good tea store carries approximately 150 types of black tea alone, not to mention green teas, and a wide variety of flavored teas, such as cherry and passion fruit.

Very quickly, this gets the retailer up to several hundred types of tea. When he sells out of one variety, he calls the wholesaler and orders more. The wholesaler in turn purchases from an importer, who buys from an exporter. For orders of three to five kilos, which are customary for retailers, it is impossible to bypass the wholesaler because the order is so small. Much larger quantities are involved at the importer and exporter level.

It is easy to say that you should avoid the middleman, but a conventional business cannot bypass the wholesaler. It simply does not make any sense economically. If you want to offer a wide selection, you must keep each variety in stock. If a retailer wishes to purchase directly in the country of origin, he must purchase — and this was borne out by my research — at least two tons of each variety, in order to justify the higher shipping costs and the expenditure of bureaucratic time and effort. Thus, he would encounter problems with even only 150 varieties. His little shop front would have to have a warehouse the size of a football field behind it.

2.2Economically Rational Behavior

Still, the idea remained enticing. If one could bypass the middlemen, this would drastically reduce purchasing costs. However, as a consequence, if one wanted to behave in an economically rational way, the number of types of tea would have to be limited — significantly.

Alright, so the product range is reduced, but would tea buyers go along with this? After all, customers do not always want to drink the same kind of tea. Would it really be possible to limit the selection? A broad product range is something positive, is it not? For quite some time now, the trend in the tea business has been to create and bring to market ever-new varieties of flavored teas. Anyone who wants to stick with the conventional model for selling tea will not get beyond this.

Nonetheless, I just could not let go of the idea that you could offer tea at substantially lower prices if you limited yourself to a few varieties. Yes, simple common sense dictated that it would be most economical to limit yourself radically to a single type of tea. Your purchase quantities would then be large enough for you to buy directly in the producing country, and you would still be able to keep the size of your warehouse within reasonable limits.

2.3Function, Not Convention

Could buyers be influenced to forego the multiplicity of teas, select a single variety, and then drink it for an entire year? Certainly not! “Only a professor could come up with an idea like that,” is what I heard over and over again. For a while, it looked as if the idea would fail because of this. If customers are accustomed to being able to make their selection from among many varieties, why should they want to limit themselves so radically? I took a long breather to think things over.

However, I could not let the idea rest. Tea really could be so much cheaper. Moreover, if the purchase price of the tea — which was low in comparison to all the other costs — played only a minor role, then I did not have to cut corners on the price of the tea I bought. I could purchase an expensive, even a very expensive tea. Yes, why not buy the best tea in the world?

There is such a tea — all the experts agree on this. It grows on the southern slopes of the Himalayas and is named for the region where it is cultivated — Darjeeling. As I was no tea expert, much less a tea drinker, this is something I learned at the library of the Free University of Berlin. If you could have such an outstanding tea, especially for so little money, perhaps customers would be willing to do without a wide selection. So, I thought: as a wine drinker, if I could buy Rothschild Lafite, one of the world’s most expensive wines, for the price of an ordinary house wine, then I would only ever drink Rothschild Lafite.

Limiting the selection to Darjeeling alone had yet another advantage. How was a customer to recognize that my tea really was a much better value? After all, every merchant claims his goods are the best quality at the cheapest price. There has to be a way to make a comparison, and the measuring standard must be well-known. Darjeeling is a well-known type of tea and is usually very expensive in the stores. Accordingly, consumers are already familiar with both the quality and pricing for Darjeeling, and are thus in a position to make a value-for-money assessment.

2.4“Trapped in His Ivory Tower”

The second major cost factor comes from the small packages. Obviously, the consumer wants goods that are not spoiled, so small packages are a must. Or are they? What is the shelf life of tea? This is an important question if the consumer is to give up small packages. Even if tea kept its flavor for only one year, that would be long enough if customers bought a year’s supply. Then you could sell large packages, and see significant savings on packaging materials and packaging expense.

According to legal regulations, tea has a shelf life of three years. Why, then, is tea not already being sold in large containers? The marketing experts patiently explained that I simply did not have a clue about actual practice — the average household size in Germany has shrunk, customers are accustomed to small packages and they want 100 grams as the standard. There is even a trend toward supplying 50-gram packages and, yes, even tinier 25-gram cans are being offered successfully with increasing frequency.

I had always been a coffee drinker, and even today, I would not want to do without my morning coffee. At one point, I realized I was holding a 500-gram bag of coffee in my hand. What? Why is pre-ground coffee, which loses its flavor so much more quickly than tea, sold in packages with a standard weight of 500 grams, while tea is sold in 100-gram packages? This did not make any sense. Upon closer examination, the standard of 100-gram packages turned out to be mere convention. If you sell ground coffee in 500-gram quantities, then tea can also be sold in packages at least as large.

Figure 2.2: The Tea Business — The Unconventional Alternative

The Tea Campaign’s entrepreneurial risk at the beginning could be boiled down to the question: can consumers be convinced to buy only a single type of tea, and, on top of that, only in large economy-sized packages, if this is rewarded with significant savings? I was sure that we would succeed in convincing customers of the economy, simplicity, and rationality of this. However, at the beginning, I stood totally alone.

My students were dubious when I presented the idea for the first time. “Will we still get our certificates at the end of the semester?” was their first response, referring to the certificate of completion for successful participation in seminars, customary at German universities. (Only practical success would succeed in convincing them.) It was also difficult to find anyone who was willing to sell me tea at all. Most of the exporters I wrote to did not deign to reply; the few who did resp...

Índice

• Cover
• Halftitle
• Title
• Copyright
• Contents
• Foreword
• Chapter One Introduction: All Roads Lead to Rome
• Chapter Two The Tea Campaign as a Case Study
• Chapter Three Start-Ups: Creative Concepts, Not High-Tech
• Chapter Four The Step-Child Concept: It Pays to Fine-tune Your Concept
• Chapter Five Avoiding Overload
• Chapter Six Building a Business with Components
• Chapter Seven Playing in the Big Boys’ League
• Chapter Eight The Entrepreneurship Laboratory: How to Work Out Your Own High-Potential Concept
• Chapter Nine Entrepreneurship as a Challenge
• Chapter Ten Say Goodbye to Old Ways of Thinking: Do Not Draw Conclusions About the Future Based on the Past
• Chapter Eleven An Invitation to a Dance
• Appendix Everyone Can Become an Entrepreneur: An Interview with Professor Muhammad Yunus (Excerpt)
• Acknowledgments
• About the Author
• References