Let’s take a look at a case study focusing on one of my early stage clients. I selected this particular company because it not only represents the kind of work my advisory firm (Growth-Logic, Inc.) does, but it should serve as a tremendous motivator for all companies and vendors that are trying to get off the ground.
Two years ago, I was referred into an early stage company by a CPA in Los Angeles. He told me that a few guys had invented something that was really cool and that I should be interested in it. When I made contact with the company, the president described their invention and I found it quite fascinating. Simple, but captivating.
The inventors are in the flooring tile business and they proceeded to explain why their invention was so critical. What they told me was that the traditional way of laying flooring tile is based on a concept that’s 40 years old, and it needed to be updated.
They told me that flooring tile is laid by splashing a cement-like material called thinset on the ground. The tiles are then placed into the thinset in the direction that they’re intended to go. A little plastic spacer is put in-between the tiles so they get square – with nice even lines. The area is then left to dry overnight.
The next day, a laborer walks across the floor and picks out the plastic spacers one at a time by hand, being very careful not to break or chip the tiles. After the spacers are removed, a layer of grout is applied and the floor is done.
Unfortunately, very frequently, the tiles laid the day before do break or chip when pulling out the tile spacers, which means that replacement work has to be done. Another typical problem is that plastic spacers might be neglected to be removed at all in order to expedite a job. This practice causes the grout to crack at the grout joints.
It is after watching the process that the genius occurs. One of the tile guys asks the million dollar question: “Isn’t there a better way to do this? Why do we have to remove the spacers once they have been placed in the ground? Can’t we install a spacer that can just be left in the ground?”
Now they’re not the first people to ask this question. Many people have asked it along the way. But these guys are the first guys to figure out how to actually take action and make a spacer that stays in the ground after it’s been placed there so the grout can be applied right over it, saving the step of having to remove the spacer. This particular company also applied for patent protection.
They figured out how to create a spacer that’s made out of the same thinset material that is placed on the ground before the tiles are even laid. Therefore, the spacer becomes part of the tile floor. In fact, the company takes its name after the process: Thinset Tile Lock Company (TTLC). The company is lead by the president and inventor, Scott Gerling.
Imagine, not only did this new spacer eliminate the need for the laborer to pull out the plastic spacers, but it also is environmentally friendly because there’s nothing to throw away. There is also a workman’s compensation insurance advantage because not having to remove the plastic spacers is just one less place for a laborer to hurt himself. It’s one less place where time is wasted, and it’s one less place where money is wasted on unnecessary labor.
Brilliant ideas, but the company was having a problem. They couldn’t raise the money they needed to get off the ground. In their first four years of development, their total revenue was zero.
It’s not uncommon to see young companies who have no revenue after a long time, especially when they’ve invented something that is completely new. That’s why I was brought in. We needed to architect a growth plan.
Keep reading on Friday, September 26, 2008 to find out how I looked at this deal. It always starts with a question and on Friday, you will find out what my most critical question about this deal was.