Find A Boring Industry

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.

The Take-Away

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.

 

Ed Nevraumont_CroppedBio: 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.

4 comments on “Find A Boring Industry

  1. This was an interesting read. I’m trying to do just that in the online world building an e-commerce business that aggregates purchases of high value, relatively mundane items across a network of websites. It’s not my primary vocation, but rather something I stumbled into while looking for a small business to buy. Boring is often profitable and not terribly competitive.

    JW
    WG’07

  2. Perhaps good advice for someone who doesn’t care what industry he’s in, but I would venture to say most people aren’t like it. If a budding entrepreneur isn’t compelled to get into senior living but she does anyway, then she’s already lost– I don’t care how scalable her model is, how many pain points it addresses, how high the market size is, how great the exit ops are, etc.

    One of the most important requirements for an entrepreneur, and really any ambitious professional, is passion. It’s what drives an individual to put in long hours, take initiative in his work and display an infectious attitude of which his colleagues and bosses will take note.

    Advice like “avoid popular industries because they are saturated” is not what I would give to any Wharton students. We are supposed to be the best of the best, so why settle for something that doesn’t captivate our interest because we’re not comfortable throwing our hat in the ring? I say if an individual is passionate about a specific industry, especially a Wharton grad, then she should go make herself the best damn asset in that industry.

    Cheers,
    Nihaar Sinha
    WUGR ’14

  3. Great read. I am not sure boring is what I would want to do. Most people say if you start a business or job you love doing then it really isn’t a job or business…it’s a lifestyle.

  4. Re: Nihaar
    Great point regarding passion. My opinion is a lot of people get caught into the thinking that they need to be passionate about the industry they work in. My push-back is that it is far more exciting to be passionate about the work you do.

    It is a fine distinction, but an important one. And it’s one that is lost on a lot of people to their detriment.

    Instead of saying, “I want to work in music”, instead think, “I want to spend my days doing xxxx type of work.”

    To be a successful entrepreneur you better be passionate about entrepreneurship (and all the activities that go along with that: scrounging for capital, skunk-works to get things off the ground, building a team on a dream, managing with limited resources, making decisions with limited data, testing and pivoting quickly, and all the other things that go along with it. Assuming it’s an online business you better be passionate about creating online products, UX, online marketing, and so on), but you don’t need to be passionate about the specific product you will be selling. In fact there is a good chance your product or your customers will change before you are done. You may start selling domain names to other businesses and end up running a B2C telecom (TuCows), or looking to build a string of Physical Therapy Clinics and ending up with an online learning platform (MedbridgeEducation.com). But what’s important is you are passionate about the stuff you are doing every day.

    If you are passionate about cars, that doesn’t mean you will put in long hours and tireless work to build a car lead-generation website. But if you are passionate about UX design, testing, online marketing, partner relations, etc. then you will likely be there well into the night.

    One last comment. You said, “We are supposed to be the best of the best, so why settle for something that doesn’t captivate our interest…”

    I guess it all depends on how you define ‘best’. If you want to restrict it to just top tier MBAs at say the top four schools, that’s still ~3000 people a year. But you aren’t just competing with your year – what about the people a year ahead of you and a year ahead of that. If you look out 10 years that’s now 30,000 people. And we still aren’t including the non-MBAs (like that McKinsey Business Analyst who decided that two years at McKinsey and a stint at Google was enough that he wanted to start something without going the Wharton); And there might even be a few business school grads that make ok entrepreneurs from such radnom schools as Chicago, or Insead, or Columbia or some crazy place like that.

    Being an entrepreneur is hard. Being a successful one is even harder.
    It may make sense to think about every advantage you can get to increase the odds of success, rather than assuming that you are smarter than everyone else and that will take care of things.

    Here’s another fun number:
    Let’s assume you and all your friends are in the top 1% of people on the planet (in terms of intelligence, drive and tenacity). Now let’s assume that you have met 1000 people at a close enough level that you could evaluate their intelligence, drive and tenacity. That means that ‘best’ person you’ve ever met is about 1/100,000 -> in the top 0.001% of people on the planet. Pretty impressive. It also means that there are likely 3000 people in the US better than her, and 70,000 more people better than her around the world.

    Edward

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