By Ed Nevraumont, Wharton MBA 2005; SVP, A Place For Mom
I started my career at Procter & Gamble. Sometimes people would leave P&G to work for Disney and took about a 20 percent pay cut to do the same job. We called it the Mickey Mouse discount. A close friend left telecom to work in the music industry and took a 50 percent pay cut to do it. That’s still better than people starting in film who are expected to work for free for a few years to prove themselves. No one works for free in oil exploration or aluminum siding installation or cardboard manufacturing. Some companies and industries are considered ‘cool’. As soon as that happens they find it a lot easier to find people to work for them – and correspondingly can choose to pay that talent less than market rates.
You may say: “But I’m an entrepreneur. That’s a good thing. If I start a company in a cool industry I don’t need to pay my employees as much.” That’s true, but remember as a start-up you are already ‘cool.’ Even if your start-up is the most boring thing in the world, there will still be an attraction to be part of building something. Getting cheap labor is not your biggest concern; being successful and getting traction is. That’s where being in a ‘cool’ industry gets you into trouble.
A few years ago I was working at Expedia and had an inspiration. In many ways restaurants are the same as hotels. Both have high fixed costs (real estate, labor) and low variable costs (housekeeping, food). The difference is that hotels have spent the last 20 years getting very good at managing a high-fixed-low-variable business. They charge different prices different nights. They change prices daily based on forward looking demand. They have multiple channels to handle different price sensitivities (AAA, Corporate discounts, group discounts (weddings), online bookings (Expedia, Travelocity), opaque booking (Priceline, Hotwire), packages (Air+Hotel for one price), flash sales (Groupon, Travelzoo), and more). They even create programs to reward frequent travelers with more perks (not a price discount, but effectively a quality increase for the same price). Restaurants generally don’t have those things (except now there are flash sales with Groupon). My idea was to take these tools and give them to restaurants.
My partner and I (another 2005 Wharton MBA grad) built a company called Restauranteers to do just that. My VC friends told me, “This is the best idea I’ve ever been pitched.” We thought we had a winner. Restaurants we spoke to loved it (after we were able to actually talk to them). Consumers loved it (get discounts at your favorite restaurants by eating at non-peak hours. Or try a new restaurant at a discount using our opaque model). The problem was everyone loves the restaurant space. Here’s why that matters:
Restaurant owners: They get multiple calls a day from entrepreneurs trying to sell them their latest idea that will increase sales. Most of the ideas are bad and they are busy. It’s not worth their time. This makes them very, very difficult to get ahold of and actually have the conversation about how a venture can help.
Restaurant users: Consumers search for restaurants online and get a ton of people advertising to them – many irrationally. Because so many people are targeting them, the price to advertise to restaurant users is driven up.
Effectively this space is ‘saturated’ and you need to be a lot better, a lot luckier, and have deeper pockets than everyone else to make a go of it. UrbanSpoon, one of the market leaders in the space, is pitching to restaurants: we will give you free booking ability on US.com and give you a free iPad to manage it. How do you compete with free+free?
I currently lead marketing for A Place For Mom. APFM is the opposite of ‘cool.’ We help people (usually 50+ year old daughters) find assisted living, memory care and other senior living for their loved ones (usually her mother). The company has a simple business model: We do marketing and get families in touch with our senior living advisors (employees who work from home across the country). The SLAs help a family understand the process and then give referrals to communities that meet the family’s criteria (almost like a real estate agent). APFM gets paid by the community if a family moves in. Simple.
Yet the company was founded in 2000 and didn’t get its first competitor until ten years later. Even today we have little to no competition. All those entrepreneurs in the first decade of the 21st century were looking for ‘cool’ places to create businesses – some industry where they thought it would be ‘fun’ to work. The APFM founders were left on their own to build relationships with the communities who were desperate for help. No one else was talking to them.
I am often asked to take calls with friends of friends who are thinking about starting businesses. Not a single call has been about senior housing, but I have had dozens about the restaurant space. The same ideas come up again and again:
– A booking engine for small businesses
– A simple loyalty program for small businesses
– A marketing tool to get more visitors into the restaurant (usually involving an iPhone app)
– A way to get more information about diners and use analytics to market to them (usually via email or an app)
Someone once gave advice to new writers: “write what you know.” This led to an inordinate number of memoirs and loosely fictionalized angst about 20-something writer-narrators. That has a parallel with entrepreneurs trying to solve problems they see in their own life. For example half of the new mothers I know have started building businesses to solve newborn problems. Better advice for both writers and entrepreneurs is to “know what you write.” Yes that may mean writing about your life or solving a problem you already encounter. More likely it means doing research and finding an area that is less explored. It makes for a more original, interesting novel and it makes for a business that doesn’t have to be the best, luckiest and richest in order to be successful.
Bio: Edward Nevraumont (WG’05) is the SVP of marketing for A Place For Mom, the nation’s largest assisted living, dementia care, and senior living referral service. Prior to APFM Edward ran Loyalty and Database Marketing for Expedia and was a consultant with McKinsey & Company. He also has a best-in-class, fully operational (and active) restaurant booking engine available for sale to the right buyer.