Just Managing: The Four-Year Overnight SuccessThere's a showbiz verity that it takes years to become an overnight success. Indeed, instant success results from grueling years of learning one's craft, putting up with the indignities of small-time producers, growing an impossibly thick skin and creating a boundless supply of optimism in the face of daunting challenges and discouraging odds. Dennis Deandre knows a bit about this struggle, but not because his company has anything to do with the silver screen. Deandre founded and runs a company named LoopNet, which today is the Internet's largest commercial real estate marketplace. More than 90 percent of listings for commercial property are available on LoopNet, which also offers access to financing and other services. Top companies in the realty industry, such as Grubb & Ellis, Marcus and Millichap, and Trammell Crow, use the site, whose backers include GE Capital and GMAC. The robust activity on the site (LoopNet counts some 117,000 brokers and agents as users) is a far cry from the simple site Deandre launched in 1995. At that time, he was a commercial real estate broker trading institutional-grade properties for Arroyo and Coates, when he got the notion that this fragmented, highly personal market could be better served online. Listing services online, he thought, would bring everyone "into the loop," (hence the name) and create a more efficient market for property listings. Between the idea and the reality, of course, lies the shadow. And herein, LoopNet is a classic tale of the art of bootstrapping. Rather than focus his energies on seeking huge amounts of financing, Deandre concentrated instead on securing customers and improving the site. Deandre based his entire strategy on one tenet: that market share was the key metric for long-term success. "In certain Internet spaces, such as the one that we are in, generating a critical mass takes a certain amount of time because the exchanges are of no value until someone starts to use them - and then they are of exponential value," he says. The early days of LoopNet were not pretty. Starting with an $80,000 loan from a colleague, Deandre rented an executive suite in downtown San Francisco, hired an engineer to produce the site, and began cold calling corporations. He faced daunting challenges, among them the fact that his engineer would occasionally scoot out of the country for weeks at a time. When Deandre burned through the initial loan money, he sold his house. He liquidated all his assets. He even sold his car. All the while, he was working insane hours, calling clients and convincing them that his company was larger than it actually was (clever trick #14: always say "we" instead of "I."). Slowly, the site began to click. In April 1996, Deandre scored his first client, the New York State Commercial Association of Realtors. His next client came two months later. Soon, he could tell folks that his was the largest commercial site on the Internet, which, given the early days, wasn't a staggering claim. He took on small infusions of capital. As the market proved viable, Deandre faced competition from both Dow Jones and GE Capital. But over time, he prevailed. Today, LoopNet is one of the few Internet companies that owes its success to the much-heralded power of increasing returns, the theory that success accrues to the successful. While many would-be players base their pitch for millions of VC dollars on the claim that being the "first mover" in an industry insures a self-generating dynamic of success, LoopNet actually has leveraged that idea into a successful operating principle. The idea is that a player who grabs the right share of land can become so fixed in the mind of potential customers and clients that his fame and success attracts more customers, and that success literally fuels ever-greater success. The early investments generate increasing returns, since the real work is in generating critical mass. Deandre calls this a natural monopoly, a market in which "when one company wins, it is to the benefit of the user." He argues that having all the listings centralized on his site, which ultimately has become the de facto standard, benefits users by freeing them from sorting through a puzzling and fragmented array of listings. All the while, the bulk of the site gives users more choices. Reaching critical mass in the Internet industry doesn't, however, equate to overnight success. LoopNet owes its position today to the years Deandre spent cultivating customers, using his gradually growing base of clients as collateral to build trust with potential clients. It took about nine months to land his first clients and two months for the second one. Today he signs up an organization about every two weeks. Today it seems that everybody wants to grow a blockbuster company in the time it takes to download a song over a T1 connection. Yet many excellent companies still run at a 28.8-baud rate.
Madame Curie once said, "chance favors the prepared mind." The Internet analogy to that sentiment might be that success comes to the companies that are ready to succeed. Targeting the right customers with the right products and services isn't the right formula if you aren't also doing it at the right time. And the best way to ensure being in the right place at the right time is to be there for the duration. Bootstrapping one's growth - and in the process lengthening the time in which a company can hit its stride - is a wise and time-honored recipe for success. |
THE BOOK Read or print the Intro and Chapter 1. Read the book reviews at Inc and 1-800-CEO-READ. Read the publisher's press release. Buy this book from Amazon.com. Visit the companies that Tom discusses in the book Hear a recent lecture by Tom on the Startup Garden STARTUP KIT Buy my book and I will send you a worksheet and list of local and industry resources for your startup. Simply send me an email with your zip code and type of company and I will email you the free kit. Thanks! TOM'S WRITING Just Managing – articles that Tom wrote for The Industry Standard and some Business Articles written for Inc., Fortune Small Business, Harvard Management Update, and other places. RESOURCES Read about other books and web sites about starting your own business. |
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