CHAPTER SEVEN – Flying Lemonade Stands
“A few decades ago, a guy named Doug Spence decided to display – in wide open, unlocked showcases – every style of engagement ring in the world. And not just every style of ring, but every size and shape of center stone in each of those different styles. We’re talking thousands of rings out in the open. Customers could just walk in, pick up a ring, read the price tag and try it on.”
The younger man asked, “How long did it take them?”
“The security guards.”
“The security guards at the insane asylum. After Doug Spence escaped, how long did it take them to recapture him?”
The old man chuckled. “It sounds crazy, I know.”
“How much money did Doug have on display?”
“A hundred and eleven million dollars if all those rings had been made of diamonds and gold.”
“He was selling fakes?”
“No. Spence sells diamond engagement rings of the same quality you’d buy from the jewelry stores on Fifth Avenue.”
“Now I’m confused.”
“Are you getting used to it yet?”
The old man continued. “The goal of Doug Spence was to give customers Fifth Avenue quality, but at a price regular folks could afford. The rings he put on display were designer prototypes. But prototypes aren’t what put Spence on the gold medal podium at the Olympics.”
“Doug was an Olympian?”
“That was just a metaphor. Prototypes aren’t what made Spence a huge success.”
“Is Spence huge like Kesslers?” the young man asked.
The old man nodded. “But in a different way.”
“So there’s more than one customer-centric way to run a jewelry store?”
“There’s more than one customer-centric way to do everything, Sunshine.”
“So the prototype idea wasn’t a big innovation?”
“It was big, alright. But huge success requires more than a single innovation. You’ve got to have a culture of innovation. Hundreds of of jewelry stores have prototypes on display, but only a few can compete with Spence.”
“Their engagement ring prototypes are supplied by the manufacturers they buy from; the customer picks out a ring, the jeweler orders it from the manufacturer, and then adds his retail markup to the price.”
“Isn’t that normal?”
“Sure. It’s normal, but that’s not how Spence does it.”
“What does Spence do?”
“Doug Spence sold his stores to a young man that worked for him. A kid named Sean Jones.”
“Spence Diamonds is obviously customer centric and Doug launched a culture of innovation, so what exactly did Sean Jones add? What was his super power?”
“He added badda-bing and badda-bang. ”
“Continuous Optimization and Corporate Agility?”
“Badda-boom, Sunshine, badda-boom. Spence Diamonds creates engagement rings on demand. They don’t pay someone else to manufacture the ring and then add a retail markup. They bring that ring into existence themselves. The manufacturing facilities at Spence look like the operating room in a hospital. Spotless. Immaculate. Pristine.”
“They eliminated the manufacturer’s markup?”
“Yes, but not just that. They eliminated two other layers of cost with it.”
The younger man’s forehead wrinkled, “What other layers are there?”
“One: the inflated cost of correctly-cut diamonds.”
“But aren’t diamonds a commodity? Doesn’t everyone pay about the same price for them?”
“More or less, Sunshine, more or less. But don’t be fooled. The beauty of a diamond isn’t unleashed by its color or clarity. The beauty of a diamond is determined by its cut.”
“You’re saying Spence hires their own master diamond cutters?”
“No, that’s not it.”
The younger man smiled, “I’m definitely getting used to this feeling of being confused.”
“Every diamond cutter knows how to cut a diamond perfectly, but most diamonds are cut so they sparkle dimly.”
“Why in hell would a diamond cutter do that?” asked the younger man.
“Because diamonds are sold by weight, Sunshine.”
The old man gave a single nod as he continued, “If I gave you a one-inch cube of pure, 24-karat gold and a special knife to carve it into any beautiful shape you wanted, but all the shavings would be lost forever, what shape do you think would be most beautiful?
The younger man was beaming. “Poobah, I’ve never seen a shape quite so beautiful as a one-inch cube.”
“That one-inch cube would be worth $21,400 at the world’s record price of pure gold. But a single ounce of 1-carat diamonds – at an average value of just $6,000 each – is worth more than $850,000 dollars. So now you’re a diamond cutter. What’s your favorite shape now? How much of that rough diamond crystal do you want to grind away?”
“I’m cutting that diamond as close to the shape of the original crystal as I possibly can,” answered the younger man.
“Most rough diamonds don’t lend themselves to efficient cutting,” said the old man.
“That’s why diamond cutters make diamonds too tall and give them a thick girdle. It increases their weight, but it causes the facets to be misaligned so the dazzle of the diamond is forever diminished.”
“So where does Spence find diamonds that are cut correctly?” asked the younger man.
“From the same diamond cutting houses as everyone else.”
“You were right, Poobah. Confusion is beginning to feel natural to me now.”
“But Spence doesn’t pay a premium for correctly-cut diamonds like the Fifth Avenue stores. They get them at rock-bottom prices.”
The younger man’s eyes were squinted as he asked, “How?”
“By stationing a man at the door of each cutting house at the end of the day with cash in hand.”
“Most jewelry stores ask for payment terms?”
“Badda-bing,” answered the old man.
“And I’ll bet most jewelry stores ask that the diamonds be brought to them for evaluation?”
“Badda-bang,” said the old man.
“Badda-boom,” whispered the younger man. “Spence gets first pick of the diamonds and better prices because they’re on-site and they’re paying cash.”
The old man said, “Sean Jones made Spence a customer-centric company with a culture of innovation that employs continuous optimization with corporate agility.”
The younger man said, “I can see how Spence avoids having to pay the diamond cutter’s carrying costs, but you said they also eliminated a third layer of cost.
The old man nodded. “Spence eliminated the cost of financing an inventory.”
Manufacturing on demand,” said the younger man.
The old man said, “The average jewelry store turns a multimillion-dollar inventory one-and-a-half or two times a year.”
“That’s a pretty crappy inventory turn.”
“But the last time I talked to Sean Jones, “Spence’s inventory-on-demand model was giving them a 27-time inventory turn. They operate with a 2-week supply of gold and a 2-week supply of diamonds.”
“They buy diamonds every day?”
“They buy diamonds every day,” echoed the old man. “Simple, but not easy.” Then he stared hard into the younger man’s eyes as if he was trying to hypnotize him or read his mind, “Take your inspiration from wherever you find it, Sunshine, no matter how ridiculous.”
“When is inspiration ever ridiculous?” asked the younger man.
The old man said, “A little boy named Brian Scudamore begged his mother to buy him Lucky Charms breakfast cereal. Do you remember the TV commercials with the leprechaun?”
“It’s magically delicious!”
“Brian’s favorite movies were Willie Wonka and Peter Pan and Doctor Doolittle.”
“Is Doolittle the one that could talk to animals?”
The old man nodded as he continued, “Scudamore was inspired by the way Wonka and Pan and Doolittle always made people happy. Wherever they went, everything glittered and twinkled with fairy dust and people could laugh and fly and their magic seemed to happen so effortlessly.”
“You’re saying this Scudamore kid built a business inspired by ‘magically delicious’ breakfast cereal?”
“Take your inspiration from wherever you find it, Sunshine, no matter how ridiculous.”
The younger man heaved an exaggerated sigh and said, “Now this I’ve GOT to hear.”
“Scudamore dropped out of school at 18 and was waiting for a burger in the drive-thru line at McDonald’s. Just ahead of him was an old pickup truck filled with junk, and spray-painted on the side were the words ‘Junk Hauling’ with a phone number. Scudamore looked at the truck and said, ‘I could do that.'”
“Now THAT’s a lemonade stand,” laughed the younger man.
“You might think so,” answered the old man, “but when I first met Brian Scudamore, 1-800-GOT-JUNK? was doing about $25,000,000 a month.”
The younger man spewed coffee across the table. The waitress from the serving window ran over with a sponge and a towel to clean it up. The old man smiled a big smile and said, “Thanks.”
The younger man looked sheepish and said, “I didn’t mean to do that. But $25,000,000 a month!”
The waitress hurried back to her station as the old man said, “Oh, that was awhile back. Brian has since started 3 new franchises and he’s cheerfully headed to a billion dollars a year.”
The younger man laid his forehead on the table, his arms hanging limply at his sides. “A billion dollars a year… A billion dollars a year…. A billion dollars a year.” Then, looking up, he asked, “How does he do it?”
“Brian Scudamore decided his full-service junk removal company would deliver a magical experience.”
“Like the breakfast cereal leprechaun?”
“Yep,” said the old man, “like Wonka and Pan and Doolittle.”
“So how does he do it?”
“It’s a lot like Disney World,” said the old man. “His people are always well groomed and happy and they look for opportunities to delight people. They say, ‘All you have to do is point.'”
“And junk disappears?”
“Like magic. And they work until midnight, 7 days a week and all calls are answered by a crack team of telephone elves working in a single location.”
“You’re describing Santa’s workshop.”
“The customer’s experience is the only thing Scudamore cares about,” said the old man.
“You say he started 3 new franchises?”
“Shack Shine makes your home sparkle.”
“They clean the windows and power wash the exterior walls, sidewalks, decks and driveway. Their ‘before’ and ‘after’ photos will convince you magic is real.”
“WOW 1 DAY PAINTING.”
“Let me guess… They show up at your house in the morning and by the time you come home from work, your whole house has been painted inside and outside in whatever combination of colors you want?”
The old man just smiled and said, “You’re catching on, Sunshine. And then there’s ‘You Move Me,’ Scudamore’s magical moving company.”
“They show up in the morning and when you sit down to eat dinner that night, you’re completely moved into your new house?”
“Effortlessly. Seamlessly. Happily. Like magic.”
The younger man shook his head slowly and said, “Their technology and training must be astounding.”
The old man said, “customer-centricity, a culture of innovation, continuous optimization and corporate agility.”
But what blows my mind is, where does he find the people? How does he know whether a potential franchisee is made of the right kind of stuff?”
“It’s almost impossible to buy a franchise anymore,” the old man said. “Scudamore prefers to promote from within.”
“He promotes people to ownership?”
“Brian Scudamore has made dozens of multimillionaires.”
“That’s some serious mojo, even for a leprechaun,” said the younger man.
“Brian will hire a person to manage one of his companies for him, and if they do a magical job, he’ll set them up with a franchise of their own. His recruitment ads say, ‘We’re not looking for franchise partners with money in their pockets. We’re looking for partners with happiness in their faces, determination in their hearts and attention to detail in their eyes.'”
“You know a lot of interesting people, Poobah.”
“And you’re one of them, Sunshine.”
The younger man said, “Sean Jones and Scudamore know how to make big things happen fast, but not in a way that works less and less well as time goes by. Their corporate agility and continuous optimization make their customer-centric innovations work better and better as time goes by.”
“The big fish aren’t eating the small fish, Sunshine. The fast fish are eating the slow.”
The younger man nodded slowly as his unfocused eyes stared into the distance.
The older man finished his coffee, then poured half of Sunshine’s into his cup. After he had finished that, he said, “Sunshine, do you understand the principle of a flywheel?”
# # Next Week, Chapter 8! # #
© 2017, Roy H. Williams