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Anatomy of a Start-Up

Michaela Raner started her distributorship from her home while five month’s pregnant. Now, as a mom of two, she’s overseeing a growing business.

Imagine being in labor, about to give birth, and calling up a business contact for advice. Not the ideal time to make networking calls, you say? Don’t tell Michaela Raner.

This was the situation on a sweltering day in Tempe, AZ, last August when Raner, the founder of Mack & Jack’s Marketing Solutions, found herself having contractions just a few months after she’d launched her business. Not expecting that the baby was really coming—she wasn’t due for another four and a half weeks—Raner grabbed her BlackBerry and laptop and headed to the hospital just to be on the safe side.

For the next few hours, she patiently fielded client calls, while experiencing progressively stronger contractions. But that didn’t deter Raner from answering the phone. “I had a laundry list of unfinished business, and I wasn’t feeling that bad,” Raner says. So with her nervous husband by her side, she took call after call from clients from her hospital bed. She provided advice. She answered their questions. She even took an order. And then, ever so patiently, she told each of them that she was about to have a baby and ended the call.

Jackson Robert Raner was born at 6:04 p.m. that evening and by that time, Raner not only had a second child—she had a substantial piece of new business as well. “One hot prospect told me that they were so impressed with the customer service that I provided while I was in labor that they were going to move all of their marketing and advertising business to Mack & Jack’s,” Raner says. “Needless to say, I was thrilled.”

This situation might sound slightly over-the-top to some. To Raner, it’s simply the way she prefers to conduct business: She is determined to give clients personalized, 24/7 attention, and nothing, not even the small matter of childbirth, is going to get in the way.

Certainly, Raner’s determination was evident that day she opened Mack & Jack’s (named after her two children), a full-service advertising agency, out of a home office last May. Most women wouldn’t think of starting a business when five months pregnant, but for Raner, the timing was right. After seven years in sales and marketing—including a five-year-long stint in direct mail advertising—Raner decided to strike it out on her own in order to gain the flexibility to spend more time with her growing family. She worked out a deal with her last employer, the owner of a local print shop, who agreed that she could take some of her clients with her provided she use the employer as her quick-copy print vendor. “My go-to market strategy in the beginning was on the print brokering side,” Raner says. “I never really even thought about selling ad specialties.”

But after just a few weeks in business, a client she’d brought over from her old job, Interstate Mechanical, called Raner and asked if she could procure some logoed hats for him. “I told him I wasn’t a hat dealer, but I’d do some investigating,” she said. She stumbled on to ASI and subsequently, to hundreds of suppliers who could provide her with the hats she needed. She ordered the hats from Hit Promotional Products (asi/61125) and soon after, spread the word to clients that she could provide promotional products as well as other advertising and marketing services.

A Personal Touch

As difficult as it might have been to launch a brand new business while pregnant, plodding through the first few months with a new baby proved to be an even bigger challenge, Raner says. Since she was still heavily into the client acquisition phase of her business, Raner couldn’t afford to take off any time after Jack was born. The day after she got out of the hospital, she hit the pavement, making cold calls and servicing the clients that she already had. Since she was nursing full-time, Raner had her mom drive around with her on sales calls, and stay in the car with the baby—air conditioning blasting to combat the 110-degree desert heat—while Michaela gave her pitch to prospects. “I’m really big on pitching people face to face rather than over the phone,” Raner says. “I find it’s easier to build a rapport with someone that way.”

Raner’s spiel is short and to the point. “I’m honest, I’m extremely well organized, and I can serve all of your advertising and marketing needs,” she tells potential clients. And she leaves them with an informational brochure about her company, and sometimes, product samples, if they are in the market for advertising specialties.

In August and throughout the fall, Raner logged hundreds of miles on her Toyota Sequoia driving all over the Valley of the Sun—and spent more time than she might have liked nursing while in the driver’s seat. In retrospect, those first few months were tough, Raner says. “My mental state was not what it normally is,” she says. “A new baby and a new business at the same time—that causes a lot of anxiety.”

But Raner was determined to make personal visits to as many local businesses as she could. And slowly, that effort began to pay off. One of Raner’s biggest clients to date is Splashadello, a retail store that’s opening up in Tempe this month, and sells essential oils and skincare products. The owner, Rita Lewis, needed help with her marketing efforts, and heard about Michaela through a babysitter. “As soon as I met her I thought, ‘this woman is an organizational freak.’”

Raner arrived with a binder in hand, offering a suggested timeline for what Lewis should do on the marketing side in the 60 days leading up to her store’s grand opening. “She told me when I would have to order my bags, tissue paper and stickers; when I’d need to get my signage, when I’d have to book advertising and when I should talk to the media to generate excitement for the store,” Lewis says. “I was impressed. I remember turning to my husband and saying, ‘She’s a turnkey marketing solution. We just press a button and, boom! We have a marketing plan in place.’”

Indeed, Raner prides herself on her organizational abilities. She has a large whiteboard in her office which she uses as a project board. She breaks it down into sections: estimates, projects in progress and completed projects ready for invoicing. She also takes copious notes when meeting with clients, and always follows up after a meeting to reiterate a timeline that’s been agreed upon. “It helps my clients stick to their deadlines, too,” she says. “They are always very receptive.”

Another way Raner makes sure that she’s dotted every “i” and crossed every “t” is to deliver items to clients, such as artwork or promotional products, in person. Obviously, she could hire a courier to do these tasks, but Raner isn’t willing to do that just yet. “It would really be nice for me to hire someone to pick up things and make deliveries, but I’m one of those people who can’t quite let go,” she says. “I look at each delivery as an opportunity to talk to the client and see what else they might need. So there I am, every day, driving like a maniac all over the valley.”

Challenges Ahead

Raner didn’t set any hard and fast revenue goals for her first few months in the business. With a new baby, she figured she’d just work as hard as she could and see what happened. But she’s set ambitious goals for 2008, and so far the outlook is promising. Raner hoped to reel in revenues of $30,000 per month every month of this year, and she achieved that goal in January, and blew it away in February, with $50,000 in sales.

If she wants to keep up that pace, though, Raner realizes she’ll have to make some changes in the next few months. For instance, she frets that she soon won’t be able to do everything herself—even though she prefers it that way. “I’m getting to the point where I’m going to need a project manager—preferably someone with design experience as well—who can help me handle some of the day-to-day activities.

“I’m good at multi-tasking,” she says, “but it’s difficult to decide where I spend most of my time. Right now, I’m doing all the invoicing, all of my own accounting, all of my order placements ... at some point, this is going to be too much.”

Raner also wants an office—quickly. At presstime, she was looking at a site that would give her more space than the makeshift office she’s fashioned at home. And, Raner hopes to find the time to be even more creative in her prospecting. Currently, she’s experimenting with a kit she could leave behind with prospects who have just opened their own new businesses. “I call it a ‘Start-up kit,’” Raner says. Inside, the kit has samples of everything a new business might need, from letterhead stationery to business cards to logoed pens and magnets. “I want to drop this off to every new business and say, ‘These are some of the things I can help you with.’”

Finally, Raner would at some point like to figure out a specific niche she’s good at, and penetrate it. “Right now my clients are all over the map,” she says. She recently scored a deal with a local Carl’s Jr. franchise to do their interior signage. And, she sells promotional products to Baja Motorsports, a large company that sells off-road vehicles to companies like Pep Boys. A diverse client base for sure.

But, Raner acknowledges, until her business is more established, she’ll likely continue her travels throughout the Arizona desert, calling on any and all businesses that might use her services. “Right now,” she says, “I’m just going to take whatever I can get.”

Part II: Movin' Out

In this installment of our ongoing Open For Business series on startup distributors, Michaela Raner wrestles with the decision to move into an office.

The way she describes it, Michaela Raner recently dodged a bullet. In March, she was all set to sign a contract for her very first office – a small, attractive 900-square-foot space just minutes from her home – when the deal fell through at the last minute. “The person who leased the space led me to believe he was open for negotiation,” Raner says.

The pricetag on the office was $1,200 per month, and Raner figured with a little wheeling and dealing she could shave a hundred dollars or more off the monthly price. When the lessor wouldn’t budge, Raner backed out – and is now relieved about her decision. “In retrospect, it was really too expensive for me at this point,” says the perky blond.

The sour deal gave Raner time to formulate a new plan, one that she thinks makes much more financial sense. She’s decided to share a space with a business contact who owns a commercial cleaning company and needs storage space. The two will rent an industrial-type office space that has both a front office and storage space. “I’ll occupy the front office and the cleaner will use the back for his storage,” Raner says. Such office space, in a slightly less upscale part of Tempe, will also be cheaper for Raner. She estimates her monthly rental costs will be about $400. “It may not be as pretty but it’s what I need at this point,” she says.

Whatever she does, Raner still feels strongly that now is the time to move her business out of her home. With Mack & Jack’s acquiring new clients nearly every week, her office is piling up with promotional products and catalogs (much to the chagrin of her husband).

“My desk looks like a bomb went off and my husband is a neat freak,” Raner says. “The two things don’t really mix.”

Besides some gentle pushing from her husband, Raner believes that she needs office space in order to present a more professional appearance to clients, which include a number of local companies, including Baja Motorsports, a bath products retailer and a Carl’s Jr. franchise. Right now, Raner is forced to meet with clients in their offices or at a local Starbucks. “I’d really like a place clients can come to where I can showcase the work I’ve done,” says Raner. “A showroom of sorts.

“It’s definitely time for me to find my own space.”

Part III: No Time to Sell

In this installment of our ongoing Open For Business series on startup distributors, Michaela Raner figures out how to better manage her time.

Throughout the spring, Michaela Raner was musing over her good fortune. Not many advertising specialties distributors can boast revenues of more than $30,000 per month after just a few months in business. An upswing in sales prompted Raner to sign a lease on her first official office space in May, moving out of her home office to a 600-square- foot, $720-per-month-spot just three miles from her home. She had her mom paint the office to match the company’s logo colors – white, orange, green, and navy blue – and Raner waited for more deals to roll in.

Then the housing crisis hit. “It’s absolutely horrible here,” says Raner, speaking of the mortgage lending fiasco that has hit Tempe particularly hard. “All of the small business owners I sell to are freaking out, because people aren’t spending money.” Indeed, the housing situation is grim in Arizona. In May, there was one foreclosure for every 201 households in The Sunshine State, compared with one in every 483 households nationwide.

Although Raner said she hasn’t lost any of her customers, some of her clients, including a retailer selling high-end bath products, have pulled back on routine spending for promotional products. “A few are skipping trade shows, or ordering items quarterly when they used to do it monthly,” Raner says.

As a result, sales have been up and down for the last few months. In April, Mack & Jack’s brought in only $17,000 “and May was in the toilet,” says Raner, with sales of $12,000. But the news isn’t all bad. June and July picked up for Mack & Jack’s, and at presstime, Raner was confident she’d be back at her $30,000 monthly revenue goal for July.

To keep sales up, Raner is doing what many smart distributors are doing in an uncertain economy: Right from the start, she’s positioned herself as a marketing consultancy – and she said most new business is coming from clients who want more out of her than just a few products.

She recently scored a major coup when one of her clients, LeVecke & Co., a franchise organization that includes 170 fast food and quick stops including a number of Carl’s Jr. and Hardees restaurants, sent out a call for RFPs. Raner had been fulfilling the company’s business card orders for several months, and competed against several other business owners to win the business. Now, she’s handling the company’s promotional products, signage, brochures, and other printed materials, to the tune of more than $10,000 per month, and expects that amount to grow significantly.

Help Wanted

Of course, with big deals come big challenges. Ever since she opened her doors, Raner has been struggling with how to best manage her time. “I’m only one person,” she says, “and I can only do so much. It’s just me doing everything – finding new clients, finding vendors, picking projectsup, making deliveries. It’s too much.”

That pressure has only increased as Raner’s business picks up. And certain things she’s got on her to-do list – such as attending networking functions hosted by the Tempe Chamber of Commerce – have been impossible to complete.

Raner recently hired a freelance creative director to alleviate some of the pressure, but finding sales help has proven to be more difficult. At the beginning of the year, she hired a childhood pal who lives in Oregon as an independent sales rep. The friend had no previous sales experience but was excited about the prospect of a flexible job with 100% commission. Unfortunately, the partnership has flopped. “She was gung ho in January and sold two projects right away,” Raner says. “Since then, nothing. She thought it would be a good opportunity but maybe she doesn’t think so anymore.”

Indeed, finding experienced reps who are willing to work on 100% commission can be a challenge. But in late June, Raner snagged another rep who seemed promising. Through a family friend, Raner learned of a woman who had just quit her job after 13 years as global marketing manager for Intel. “She kind of wanted to lay low for a while before starting her new gig,” Raner says.

But Raner enticed the woman to shadow her for a day, and took the woman on an action-packed day-trip that included a publicity photo shoot at one of her retailer client’s stores. At the end of the day, the woman signed on as an independent rep. At presstime, she’d already brought in four new clients to Mack & Jack’s. “We still haven’t worked out our roles fully yet, but I hope she’ll focus more on sales and I’ll be able to attend more networking events and focus on business strategy,” Raner says.

Pricing Squabbles

Another time-gobbler is putting together accurate bids for clients. Raner has recently taken pains to make sure she’s allocating all of her costs, and has had some push back from clients on items like delivery charges. “People have asked me why I am charging them a surcharge for delivery and I’m like, ‘Gas is four bucks a gallon now, people,’” she says.

Clients sometimes balk at design charges, Raner says, which is frustrating to her. “Sometimes, customers will say, ‘Can’t you just do this extra thing for free, it’s not going to take you that long,’” Raner says. “But I’m in this business to make money.”

Another challenge for Raner has been maintaining positive cash flow while dealing with slow-paying clients, including LeVecke, which typically pays 90 days out. Raner quickly developed a solution by requiring all of her clients to pay 50% up front. Although she has met little resistance to the new procedure, Raner said it was difficult for her to implement. “I’m a salesperson by nature,” she says, “so it’s hard for me to also be the person who lays down the law.”

Targeting The Right Talent

With more projects to fulfill than time in the day, Michaela Raner recently decided she needed to add staffers to her growing company. She hired a freelance graphic designer and two sales reps who are operating on a 100% commission pay structure.

The only problem she had is that one of the reps – a childhood friend – isn’t working out. Despite an initial flourish, this salesperson just isn’t motivated enough to succeed for Raner. It can be a common problem that start-up distributors in the ad specialty industry have – finding good people willing to work for a 100% commission sales job.

Experts say the key is to target the right type of people. It may be hard to find somebody with industry experience who’s willing to work for a start-up business on a commission-only basis, so distributors need to expand their horizons. Janet Haas, president of Lightning Consulting, a coaching and training company based in Reno, NV, suggests targeting a couple of different sectors for new industry talent.

“Look at moms who are looking to get back in the workplace and college kids who need money,” Haas says. “Those two demographics can be perfect for a 100% commission sales job. The college kids need the money, and the mothers who have been out of work for a while will be motivated simply to work and find quick success.”

Haas says that distributors can more easily target these demographics today than previously, because the Internet has specific sites where these people hang out. A company could advertise on Craig’s List or other message boards for college students, and it could post notes in church bulletins and other local media for moms hankering to get back in the workplace. “It’s funny how ignored that demographic is, but I talk to more women looking to reinvigorate their careers than any other identifiable group of people,” Haas says. “It’s an underserved recruiting market, but it’s something that should be tapped into. It can generate a lot of talented people at a low cost. Money isn’t usually their motivation. Work is.”

 “The best person to sell for a new company is the person who started the business.” – Janet Haas, Lightning Consulting

Haas says, though, that entrepreneurs have to be careful about the types of jobs they’re hiring people for. For instance, she says that start-up companies should be looking for administrative employees before they’re looking for any new salespeople. Her message? It’s important to build up sales, but customer service is key in the beginning.

“The best person to sell for a new company is the person who started the business,” Haas says. “You shouldn’t be wasting time training a new salesperson; you should do everything you can to free up your own time so that you can sell as much as possible. Hire an administrative assistant to handle projects and customer calls that you don’t have time for. Don’t waste your time with things that can be done by a very low-paid intern or assistant. Hire those people first and go out and spend your time selling.”

The Price Is Right

One struggle that Michaela Raner has had in her first year in business has been getting pricing right. As she’s tried to tack on shipping and transportation charges, she’s gotten pushback from clients. When she wanted to add design charges to her invoices, some clients have balked. It’s a problem that many entrepreneurs consistently face and experts say the key is to factor in all of your costs to the overall price you quote to clients.

“Some clients need completely itemized invoices, and in those cases, you can’t just lump all of your costs into one number. But otherwise, it’s a good idea to approach pricing as an all-encompassing thing,” says David Klubacher, vice president of JAX Ideas, a management consulting firm based in Denver, CO. “The key is to factor in more expenses than you’re used to thinking about when it comes to pricing.”

Like rent and electricity, says Klubacher. Most entrepreneurs price their products based on the amount they paid for those products plus the profit margin they’re looking to achieve. That’s too shortsighted, he says. “Don’t you have other costs in your business besides just the cost of that product?” Klubacher asks. “Your gross margin on the price you set probably isn’t going to cover all of those other expenses, so you have to factor those in.”

Klubacher believes entrepreneurs tend to price their products and services too low out of fear of losing business to lower-cost competitors. But, he says, it’s an entrepreneur’s job to prove the value in their offerings to prospects and current clients. “If you undercut yourself in the beginning of a client relationship, you’ll never get that money back,” he says. “New businesses should do their best to price products on the high side – with everything factored into one price – so they can truly make a net profit that matters.”

Overall, Klubacher says the best thing entrepreneurs can do as far as pricing is concerned is to truly figure out the amount of profit you need to make on each deal so that you cover all of your costs. Total all of your monthly expenses, he advises, and then divide that amount by the number of deals you have each month. That’s when you can determine how much to add onto each deal above the cost of goods. “Then and only then,” he says, “is when you’ll know what to charge customers.”

Part IV: Show Me the Money

In this month’s installment of our Open for Business series on start-up distributors, Michaela Raner figures out how to get clients to pay up.

If Michaela Raner had the chance to play good cop or bad cop, she’d always opt to be the good one. “I never like to be the tough guy in any business situation,” she says. But this fall, when some key clients began to get behind in their payments, she found herself having to reconsider her approach.

Raner was accustomed to giving clients 30 days to pay their bills, fronting the cost of goods herself on credit cards. (She says she is unable to get a small business loan.) That seemed to be working until recently, when a late-paying client put her $17,000 in debt in a matter of a month. “I put myself in a pretty bad situation,” she says. After some prodding by her husband, Raner realized that she was going to have to require all clients – no matter how big or small – to pay 50% upfront. And, she took a harder line with deadbeat customers.

“I put my foot down,” she says. Raner solicited the help of a lawyer to track down payments from clients with outstanding bills, “and basically put the fear of God in them.” She also took a hard look at her client list and fired a handful of clients who were frequently late paying their bills. The process, she says, was not an easy one. “It’s difficult when I’m supposed to be the happy-go-lucky sales rep but at the same time be the mean accountant that needs the money,” she says. “But I had to get wise. I’m not a bank.”

Sales for November were over $45,000, $15,000 higher than Raner’s $30,000 per month goal for 2008.

Branching Out

Unlike some distributors right now, Raner is bullish for 2009. Her key growth strategy is looking beyond her backyard in Tempe, where the burst of the housing bubble has really affected business, to find big clients that could guarantee her a steady stream of income well into next year. One of her strong points has always been her ability to work her networking contacts. And that process is paying off. This fall, through a former co-worker at Kinkos (where she used to work), Raner learned about a group of resorts in Park City, UT, that was getting ready to do a promotional blitz in Europe. Raner supplied promotional items for the company, which liked her work so much, they gave her the name of another Park City company that was looking for marketing services. The company, which sells fractional ownership of multi-million-dollar homes, ended up hiring Raner to be their exclusive marketing and advertising agency. As a result, she’s providing all kinds of promotional products, such as robes, slippers, shampoos and towels, to the company for use in the homes. Plus, she’s handling all of the firm’s advertising and print work, including its marketing plan.

Final Analysis: The Nonstop Networker

When we first met Michaela Raner, president of Mack & Jack’s Marketing Solutions (asi/258682) in Tempe, AZ, she regaled us with tales of taking phone calls from clients and prospects while in labor with her second child, Jack. (Raner named the company after both of her children.) Looking back at her first full year in the ad specialty industry, Raner credits much of her success to her ability to constantly network with clients, old colleagues and even child hood friends who might give her referrals.

Raner finished 2008 with revenues of $238,000, $122,000 short of her original goal. But she says she’s pleased with how the year turned out. “Obviously, the economy stinks,” she says.

And the greater Phoenix area was particularly hard hit when the housing bubble burst, putting a severe damper on the local economy. Over the summer, she lamented that retail clients she had been relying on for business were reducing their marketing spend. But instead of continuing to tap into the local economy, Raner expanded her horizons and worked old business contacts in Park City, UT, to gain a number of accounts in the popular resort area. Now, she’s regularly flying to Utah to service a new client, a fractional ownership company, and provide promotional products to a group of ski resorts. Plus, she just inked a deal to provide marketing services to a Park City firm that is about to launch a new cosmetic product that will be touted as a non-surgical alternative to a tummy tuck.

At the same time, Raner is feeling more bullish about her prospects with local businesses in Tempe, ironically, because the economy is so bad there. “Because so many companies are laying off their marketing teams, they’re starting to outsource their services,” she says. “It’s a win for me because they still need marketing services, even if they don’t have people to do the job.”

After changing her payment policy (she now requires clients to pay 50% upfront), Raner also now has more cash flow and plans to spend more on marketing her company. She also recently discovered that many suppliers are willing to provide her with discounted products for self-promotions. She’s taken some of the suppliers up on their offer and is planning to purchase towels and water bottles to do a promotion at her local gym, a 24 Hour Fitness franchise, which lets members hawk their services on select evenings.

She and her independent rep, Christina, a recent college graduate, are also putting together a marketing kit they can use on cold calls that includes sticky notes and other small promotional items that feature the Mack & Jack’s logo. Both Christina and a second employee, a graphic designer also just out of college, have proven to be great finds for Raner. But finding such talent hasn’t been easy: Raner first went through a series of bad hires, all of whom were friends or friends of friends. “One lesson I’ve learned is that hiring friends is a good way to ruin a friendship,” she says. She also has found that hiring entry-level workers is a better way to build her business, at least for now. “When I hired people who were my age or older, they had this mentality that they knew better than I did how to build my business,” she says.

With a full year under her belt and a continued focus on growing her pipeline of contacts, Raner has set a goal of $600,000 in sales for 2009. And in five years, her dream is to be listed among the top 25 local advertising agencies in the Phoenix Business Journal. “That’s when I’ll know that I’ve finally made it,” she says.