Key Idea #1: Serve The Underserved
Paul and Vicki determined before they bought an existing business that they had to change their product to avoid head-to-head competition with the big guys.

Q: How did Vicki and Paul find out what types of cheese they should make?

A: They looked at national demographics to determine what niche markets were not being served. The largest niche in America today is the Hispanic market. Next, they gathered together people who had lived in Mexico and South America and asked them to talk about cheese. They asked what they liked and didn't like about the cheese they found in American grocery stores. The Scharfmans learned that cooking with American cheese is very frustrating for Hispanics who are used to the cheeses from their homeland. The biggest difference is that American cheese melts when heated whereas Hispanic cheese holds its shape. So, when you cut into an enchilada made with American cheese, the cheese oozes out. However, if you use Hispanic cheese, the enchilada stays inside the tortilla. Paul took these ideas to his cheese makers who have decades of experience and they developed what is today the best selling product from Specialty Cheese - Queso Blanco.

Q: Why is being unique so critical to the success of a small business?

A: A small business can not compete "toe-to-toe" with a big business because the big company has economy of scale. A big company can buy large amounts of raw materials at a discount, they can afford to have the biggest most efficient equipment for the different manufacturing processes, and they can even ship goods cheaper in large volumn. Being unique is the way a small business is competes.

You think about it: Taping the talent of your current employees and using your existing equipment, what new product could you roll out?

Key Idea #2: Look Before You Leap
Since Paul was fired from Oscar Meyer, he was forced to make changes in his life. He liked living in Madison and decided to become a small business owner by purchasing an existing business.

Q: What were the advantages of Paul buying a business rather than starting something from scratch?

A: His career counseling showed that he was doing what he should be doing (sales and marketing in the food industry). Since he found a business that was weak in those areas, it made sense for him to use all of his energy doing what he does best rather than starting something that would require him to learn all the manufacturing processes or hire people who had that experience. The assets of every company are hard and soft, tangible and intangible. Paul wanted to build a business, and the old Heim Cheese Co. had some quality people and equipment.

Q: How much money did Paul and Vicki spend before they even bought the factory and why?

A: They spent $100,000. The factory had been going down hill for years. Unless they could determine if there was a product they could make that would increase the business, they would not buy the cheese factory.

You think about it: What kind of information do you need to make your next big move? Are there experts you can hire to help you? What steps can you take to reduce your risk?

Key Idea #3: Find Out What People Want
Rather than stay in a rut that was taking the company's sales in the wrong direction Paul and Vicki decided that they had to come up with new products.

Q: Do most small business owners do research before they launch an idea?

A: Not much. Paul and Vicki's education and experience in big business trained them to do extensive research. Most entrepreneurs get an idea and proceed, especially if they have some money and don't need to convince a banker to make them a loan. Many new ideas fail because no research is done up front, but, many also succeed. You've heard the expression, "I have a gut feeling that this will work." For those who say that, the "gut feeling" is based upon years of experience so it is not a wild guess. Others act on their "gut feeling" and strike it rich because they are in tune with the trends or popular culture.

We did the story about five guys who got an idea when they were in their late teens. They developed a computer game in three parts. When it was ready, they gave away part one on the Internet and posted an #800 number to call to order parts two and three. In the first week, 150,000 people called and paid $39.95 for parts two and three. The company they started is called id software and the game that launched them became the most popular of its type: "DOOM." The company did $20 million in sales in 1995, long before the Internet was truly embraced by the masses.

Q: What should research reveal?

A: Research should tell you how large the market is going to be for a new product. You should also learn about the competition, how to price an item, and how to deliver it to customers. Remember, Vicki said this: "Marketing says, 'Find out what your consumer wants, what your consumer needs and what they're not getting from the current offerings in the marketplace, and go out and tailor your dream to what they want.' And that's going be the right fit, that sells product, OK? So that's the start of it. "And, in fact, one of the difficulties of coming into the business that we are in is it's a completely production-driven business. It is not a marketing-driven business. And so you have employees, and it's industry wide, saying, 'You know, we made the same stuff year after year. It sold just fine for my grandpa and it sold fine for my pa and it'll sell well for me.' And it's not true. Markets change. And that's what we felt we would bring to the party, was an understanding of how markets change and to tailor the products."

Q: How did Paul and Vicki find out what Hispanic Americans want?

A: They invited a group of Hispanic Americans to an event and asked them to critique the cheeses made by other companies. They asked the group to taste the existing products and tell Paul and Vicki how the cheese should be changed to make them feel at home with the new product.

You think about it: When was the last time you asked your customers what they would like to see you offer? How would you go about finding out what new products or services you could offer your existing customers? Do your customers love your product and keep coming back for more?

Key Idea #4: Let Employees Do What They Do Best
In his work at Oscar Mayer Paul practiced the art of marketing and was never involved in the day-to-day manufacturing process. This made it easy for him to let the cheese makers do their thing.

Q: If people tend to not like change, was it hard for Paul to convince the employees that they would have to make new types of cheeses?

A: Probably not because they knew the company was in trouble. They were at an all time low in sales. To keep their jobs and help grow the business, everyone was willing to change. They were grateful for Paul's creativity and enthusiasm.

Q: What problem did Paul face when they decided to go into large production of Queso Blanco?

A: He had seven cheese makers and they each made the cheese the way they thought best, so the batches tasted different. Paul had to get them together and have them agree upon a standard procedure so that every batch would taste the same. You can't grow a business with inconsistent products, although there is a trend toward "handmade" looking food products and Specialty Cheese is riding that wave. They control the taste and consistency but allow the shapes to vary slightly so the consumer feels they are buying something handmade.

You think about it: What employee might you be offending when you come into their space and take over their job? Do your employees have freedom to do their jobs free from micro-management? How long does it take one of your employees to get an answer from you? Do you think you are a good communicator? Do you think you are an inspiration to your employees?

Key Idea #5: Grow Carefully
Leaders put systems in place to manage growth. When Paul wants to work on improving systems, he has brainstorming sessions with the expert cheesemakers.

Q: How did Paul prepare for growth?

A: He asked everyone to slow down. He asked the cheese makers to document their procedures so they could codify the recipes. He put together a training manual to insure consistency and to protect himself against employees who might leave the company with the operation secrets in their heads.

You think about it: What keeps you from growing? Do too few people know too much? Where is your bottleneck?

Key Idea #6: Think Hard About Your Future
Paul and Vicki are excellent thinkers. Both have MBAs in marketing and in that pursuit they learned to use logic to process information.

Q: What questions did they ask before they bought the business?

A: They asked themselves:

1. Could they succeed going forward with the same products?
2. What were the transferable assets?
3. How could they use those assets to build a bigger, stronger business?
4. Could they hold on to the knowledgeable employees?
5. Since they both had the same skills, how would they divide the tasks?
6. Where would they get the money to buy the business?

Q: What is the benefit of buying an existing business rather than starting from scratch?

A: Products, processes, people and repeat customers are already in place.

You think about it: What do you do to force yourself to keep thinking? How do you avoid falling into a rut? What do you do to stimulate your own learning? When did you last revamp a process or product? Who do you hang around who is smarter than you? Who do you have in your life who inspires you to stretch?

Key Idea #7: Collaborate With Colleagues.
Collaboration is better for small business than competition because we specialize in a niche. This means customers they can easily be shared. Rather than seeing other cheese makers as a competitor, Paul sees each of them as a collaborator. Together, they can give a customer every type of cheese they could possibly want.

Q: Why is it a bad idea for a small business owner to try to compete with every other small business owner in the industry?

A: There's not enough time and money to compete and so much opportunity to share. Here we learned about the specialty shops in an historic business district that share their mailing lists and together publish a newsletter. This would be very expensive for a one-business owner but cheap when they do it together. They have one customer who buys in many shops and they know it. This way they spend their money getting that shopper to come to their district instead of the big malls. As a group, these merchants see themselves competing with the mall, not each other.

Q: What new product came out of Paul's affiliation with other cheese makers?

A: Just The Cheese.

Q: Describe the packaging dilemma they faced with Just The Cheese.

A: With a clear package, consumers could see the chip and couldn't believe it was all cheese. And, it took several iterations for Paul and Vicki to get the insight that seeing the chip first was a bad idea.

You think about it: What other small business owners do you admire and try to learn from? With whom could you form a collaborative relationship? Do you know the other owners in your industry?

Key Idea #8: Admit What You Don't Know
When you start a business or buy one you will face a steep learning curve.

Q: What did Paul say he learned the most in the process of buying the factory?

A: He learned what he didn't know. This is important because you must be willing to admit you don't know something before you're willing to learn. In other words, you must have an open mind. Paul said: "If I could give a small business owner just one piece of advice as they start in business, it is know what you don't know." And once you know what you don't know, you got to go find it out. But you have to fess up first. I don't know that. I don't know how to set up an office. I don't know what my customers want. I don't know how big the market is. There's going be a long list of 'don't knows.' Line 'em up, start checking them off. Go learn." My advice to people is, "Don't overrate your own knowledge. You're only one person. A person can do anything, but you can't do everything."

You think about it: What woud you like to be accomplishing that you are not now accomplishing? What would you have to learn to achieve that goal?

Key Idea #9: Measure Your Marketing
Marketing seems mysterious to many small business owners.

Q: Why do so many of us avoid measuring our marketing efforts?

A: Often an owner gets a wild idea and just tries it. The idea might be to pay for a banner to hang at the local high school football stadium. John Wargo is saying this is a bad idea unless you also are able to give out coupons at the football games which you can then count as people bring them in for redemption. Without a tracking mechanism, we never know if that $300 banner plus the $100 per game we pay for it to hang provides a return on investment.

Q: If a marketing plan isn't working, should we dump it all at once?

A: John says we should make one change at a time to analyze the problem. The issue could be price, product mix, location, ease of use, etc. This is good news because the money you have invested is not all lost. Perhaps you only need to make a few tweaks to improve your results.

You think about it: What changes could you make to better track the return you are getting on your marketing dollars?