What Matters: September 2004
Making a Living through Niche Marketing
By Herb Kavet '58, MO '60
I've always been an entrepreneur. Even before I could spell the word, which was probably not until I graduated from MIT, I was always starting businesses. As a kid, I sold junk in my front yard. Some of you might even remember the charter flights to Europe I started while at Tech. When graduation neared and friends started thinking about career paths, a wise older classmate mentioned the fierce competition present in high tech entrepreneurial operations. Go into the laundry business he suggested, or garbage collection. "Why compete against brilliancy?" "Be a low-tech entrepreneur." He was right. Rather than compete with the brainpower of those able to thrive in Course 6 or 8, I started a series of decidedly unsophisticated businesses. My degree in Civil Engineering was useful exactly once in deciding whether to replace a cracked beam in an old factory building I had purchased.
My first venture was a game and puzzle company and while it eventually prospered, I struggled for many years and made lots of mistakes along the way. After selling this business in 1982, I created the "Seven Great Rules" to ease my way in future ventures. These rules are not applicable to every business but were useful with my kind of operation and I'm happy to share them here.
Rule #1
Pleasant attractive employees are vastly better than disgruntled, mean and ugly ones. Hell, if you are going to an office every day it might as well be a happy place to spend your time.
Rule #2
Reward key employees generously. If someone is good and important to the business, do everything you can to keep them. I, on the other hand, preferred not to share equity, finding that employee-stockholders greatly complicated my life and brought little additional loyalty.
Rule #3
If the bank, your reps, suppliers, landlord or others are making lots more money than you are, perhaps you are in the wrong end of the business. In the inflation period of the 70s I had big loans outstanding at 22 percent interest and the bank was the only one making money from my business.
Rule #4
Never employ more people than your span of control. I found this translates into nine to 12 employees. Workers are fine, they create value but once you have more than a dozen you start needing middle management. Middle management seldom adds value but they always add expenses. With small numbers of employees, I found it easy to be profitable. When I had 150 people, every payday was a struggle.
Rule #5
Play to your strengths. If you can sell and create don't also try to run a manufacturing facility. I was lousy at manufacturing and my factories only seemed to generate union organizations, bloody injuries, and pilferage. I did much better letting someone better suited to manufacturing worry about OSHA, pension plans, and how many people were sleeping on the third shift. I met someone at a trade show in England years ago who ran a $20 million company with only six people. You couldn't help but be successful with sales like that and such little overhead.
Rule #6
Don't let business interfere with your fitness program. Fitness is life and youth itself, and no amount of money will buy that. I used to work out at noon and I've probably had less than a dozen business lunches in 40 years. Now that I'm 67 and working less, I exercise all the time and am vastly healthier than when I was at school.
Rule #7
Sometimes, even after following all these rules, some problem will arise that keeps you up at night. You should ask yourself if this problem is going to affect your standard of living. If not, you shouldn't really lose any sleep. If the problem can affect your standard of living you better damn well work on fixing it first thing in the morning.
Following these rules, my next business was a publishing company with a handful of employees that sold to a niche market. Rather than try to compete with the large publishers selling to bookstores, I created humor books for specific gift-giving occasions, selling them in card and gift shops. We had little competition and thrived with titles such as "You Know You're Over 40 When," "Is there Sex After 50?" "Rules For Sex On Your Wedding Night," "The Fart Book" (don't ask me what gift-giving occasion this fits but we sold four million copies), and hundreds of others. Our outlets were in places like Spencer Gifts, Hallmark, and thousands of little gift shops. We had few employees and were very profitable. The profit margin with books is fabulous because books contain something called editorial content. If you want a particular book, you really don't ask why it costs $9.95 when it can be printed for 23 cents. If you want to read the subject matter you pay the price. Even better, copyright protection prevents a competitor from selling the same book for half your price.
We had general competition but it was never noticeable. The large publishers looked at the gift market as a sideline and would turn it over to some recent graduate with an English degree. We could devour these people before breakfast. Occasionally we would cooperatively work with a major publisher and both sell the same book in our respective markets. With our concentrated and specific marketing we would greatly outsell much larger companies.
I always dreamed of selling my companies and retiring with a fortune. Actually, I sold them several times but never for a real fortune. I also learned that large corporations usually fail at running an entrepreneurial business. I'd sell the company and within two years somehow got it back, once even for free, continuing the operation while improving the efficiency by running it with fewer employees. After the last sale (and subsequent return of most of the company) I sold the business to my younger son who had been working as a manufacturer's rep. In a few short years he somehow transformed the publishing company into a snack food company selling major chains rather than the fragmented gift market I had thrived in. He is about to match my best year's sales and operates with even less people than I did. Yeah, he keeps a list of the Seven Great Rules in his desk.
About the Author
Herb Kavet '58, MO '60 graduated Course 1 in 1958 and lives in Wayland, MA, with his wife of 40 years, Karen. His older son, Gregg, was a lead writer for Seinfeld and now does films, TV series, and books. Younger son, Matt, runs Boston America Corp., the successor to Ivory Tower Publishing which is the successor to American Publishing Corp. etc. Herb has written several hundred books, all published, which is quite easy to do when you own the publishing company. He skis all winter and bikes in exotic countries the rest of the year. He just returned from biking Mongolia and the photo shows him trying to convince the Mongolians he is really a descendant of Genghis Khan. Karen and Herb's next adventure will be a bike tour of Vietnam.
What Matters is a guest opinion column written by a different MIT alumnus or alumna. The views expressed are entirely those of the author and do not necessarily represent the views of the Alumni Association or MIT. Interested in writing a column? Email whatmatters@mit.edu.
