The Opening of this Show.

First Principles

HATTIE: Hi, I'm Hattie Bryant. And this is SMALL BUSINESS SCHOOL. Every week right here, we tell you the truth about business, real, small business owners telling you their secrets. Step into our Master Class with Lupe Fraga and see for yourself how a bookkeeper-turned-business owner has built a company with elbow grease and love.

1

HATTIE: So whatever happened to the paperless office?

LUPE FRAGA: Right. Exactly. Hey, this has been one of the biggest, biggest misconceptions. We're selling more paper now than we ever have. We make your business day easier.

HATTIE: (Voiceover) ...is the slogan of Lupe's company, Tejas Office Products, which has been operating in Houston since 1961. If you need something to run your office, Tejas will find it and deliver it to your desk.

Unidentified Woman #1: One moment.

HATTIE: (Voiceover) Hundreds of customers can order via phone, fax or the Internet, and they will be taken care of by some 50 employees. While dozens of small office supply companies have either fallen off the edge or been absorbed by the big guys, this company is growing. Lupe's sales have increased 40 percent over last year, bringing the total to $7.5 million for the last 12 months. ?

LUPE: I was practicing as an accountant for Platoplex, Incorporated, a pipeline coating company here.

HATTIE: Are you a CPA?

LUPE: No, I'm not. I was doing accounting. And Jim Kindig, who had an office supply company, was servicing this company and he came to me and he asked me if I was interested in going into the office supply business. So being single and just having returned from the United States Army serving in France, I said, `Why not?' So I took the opportunity. He loaned me some money, co-signed the note at the bank. Had one delivery truck and one secretary, and that started me out.

HATTIE: You bought his business.

LUPE: Yes.

HATTIE: ...and he financed it for you.

LUPE: Yes. So I said to myself, `Listen, this is still not working out that well. I'm going to need a little more money.' So I had a fiancee, Irene, my wife, who was interested, of course, hopefully, in me making it. So I said, `Irene, I really need a couple of thousand dollars. That would really help me to meet my payroll this week. And could you help me out?' She did. I have never repaid the loan back, but I'm just wondering how much interest I owe her.

HATTIE: Did you think you'd ever get it back?

IRENE FRAGA: I didn't even think about it. I gave it to him.

HATTIE: You were 19 years old? IRENE: About 19, 20. HATTIE: Where did you get $2,000 when you were 19 years old?

IRENE: I did very good in tips in what I did.

HATTIE: OK. You were a hairdresser and you earned it yourself. You earned it yourself.

IRENE: Yes HATTIE: So you loaned your hard-earned money to this young, handsome man that you were in love with who says, `Oh, gosh, I have a cash flow crunch. Do you have any cash?'

IRENE: Yes.

HATTIE: And you loaned him your hard-earned money.

IRENE: Yes. Even when I was working, I always gave my mom some money. I didn't have everything when I was growing up. We were poor, but I saved.

2

LUPE: And so I said to myself, I said, `Look, I really want this to work.' You know, I don't really need--you know, I mean, I'm living at home. I'm supporting myself.

HATTIE: You're living with your family, your parents?

LUPE: I'm living with my family, with my parents. So I really don't need that much. So really I kind of laugh. I look back at my income tax returns from those early years. I really didn't take hardly anything.

HATTIE: Did your mother say, `Hey, when are you going to start paying rent around here?'

LUPE: But no. My mother, again, was very supportive, also, and she really helped out, too.

HATTIE: Hey, two really fabulous women in your life.

LUPE: Exactly. And you know what, HATTIE? I think I'm sort of an intuitive person. I kind of do things on feelings. We had a little printing shop at that time. Some of our business was in printing, which we don't do any more.

HATTIE: When did you say, `That's not driving enough business'?

LUPE: It took us about 8 to 10 years to recognize that. HATTIE: So 8 to 10 years later you figure out that this is not profitable. You know, let's concentrate on what we're really good at, and that is office supplies. Also, we didn't want to be a retail store. We felt our niche was going to be as a distributor.

HATTIE: A lot of people get spread too thin.

LUPE: That's what's wrong, I think, with some of the businesspeople or entrepreneurs is that they're afraid to admit that maybe you made a mistake.

3

HATTIE: How do you know what to stock? See, again, you're--all these dollars tied up in this inventory, and what if you make a mistake and how do you know what to stock?

LUPE: That's the deal, and that is a secret really, HATTIE.

HATTIE: You won't tell me? It's a secret?

LUPE: No, no, no, no. That's a secret. No, no. I will tell you. But really it's not that complicated. You really go by what people are buying, you know? And we have these reports that we can run daily, again, without technology we would know what we have now. Before we had the technology, you had--all this was hand-posted on columnar pads. But now, really, we're able to get instant reports We can tell customers exactly what they bought for the last month, last year, last six years, whatever.

HATTIE: You could tell me how much I spent on pencils?

LUPE: Exactly.

HATTIE: ...and how much I spent on paper clips and how much I spent on pads and how much I...

LUPE: And you know what? That is the big selling point as far as marketing to our customers. When we go in there and we give them these reports and we tell them how they're spending their money, they love it because, again, our competitors, can't do this.

HATTIE: They don't do that.

LUPE: They don't do that. You're not going in there just to get an order. You really suggest to these customers, `Look, if you buy this binder instead of this one, it's $2 cheaper,' or whatever, you know... .or, `Use these indexes instead of the ones you're using now.' The people have told me--he says, `You're just like one of our employees. I mean, you're here all the time. You're helping us. You know, you're helping us with our costs and so forth.' So that's what you want to do. You want to portray the idea, the feeling that you're on their side.

4

HATTIE: You're on their team.

LUPE: You're on their team, yes. We may sell $10 less of paper, but we may get, you know, coffee, you and insulated paper cups.

HATTIE: Cups. But see, when I think of office supplies...

LUPE: Yes?

HATTIE: ...this is not my first thought.

LUPE: I know it.

HATTIE: This is not my first thought.

LUPE: And that's a misconception.

HATTIE: So what you're saying is your customers say to your salespeople--or your salespeople say, `Hey, I notice you have coffee. Can we do that for you?'

LUPE: Yes, it's our salespeople.

HATTIE: They go in there and they see they use Styrofoam, `So we'll supply that.' Is that when you started to buy this because your salespeople say we need to supply that?

LUPE: Yes. And also, Hattie, one very important thing. These corporations nowadays are saying, `We don't want 500 vendors.' People want to say, `Look, why don't we just buy everything from you?'

HATTIE: `What does it take to run our office? And we want to buy it from Tejas Office.'

LUPE: Exactly.

HATTIE: And you have Palmolive because you know that everybody has a little kitchen.

LUPE: Exactly. That's what I'm talking about.

HATTIE: How did you decide that Palmolive's the product that people would buy from you? Why not Joy? Why not Ivory Liquid?

LUPE: Again, by customers' preferences. We asked them, you know, which one they want. I mean, they tell us.

5

HATTIE: Now you are a member of the National Office Products Association.Do they help you? Is their research a collective brain trust? Do you gather data that you share with each other, `This is the number one seller'?

LUPE: Oh, this is what makes it--I don't see how anybody could survive without belonging to a national association or an association of any kind, a trade association. We get training. We get reports. We get financial information, you get to know other dealers.

HATTIE: Research.

LUPE: Yes, the research. Columnar pads. You know, I remember we used to sell tons of columnar pads, but that's those little, green pads, you know, that in the old days before computers, you know, that's what us accountants used, you know, and we still use them.

HATTIE: Did you think, `Oh, my gosh, they've cut out all their pads because they have it on computer--oh, my business is going to go down the drain'?

LUPE: I promise you. That caused some sleepless nights.

HATTIE: When you look back at that, do you think that there was anything you could have done to anticipate that?

LUPE: I believe you've got to be out in front. You've got to speaking to your competitors, to your customers, associations. You know, we belong to the National Office Products Association.

LUPE: They were very helpful, I mean, because they see the trends. They see what's happening. And I think at that time that taught us a lesson, `Hey, we better be out front.'

HATTIE: All right. Now one thing that's come out of this trade association relationship is a mentoring relationship that you have.

LUPE: Yes.

HATTIE: Tell me how that started, and does the trade association try to put people together in an organized way, or was this just serendipity and you latched on and you've got this mentor?

LUPE: What happens here is, really, through the association you get to meet dealers. So it was sort of just by chance that we got to meet this organization. They're in North Carolina--Forntsen Supply. And they've been a terrific mentor for us.

HATTIE: So do they know that they're a mentor to you, or do you just call this guy up, the owner and ask him a lot of questions?

LUPE: No, they know they're a mentor to us. And we told them that we want to eventually get to the stage where they are.

HATTIE: All right. So any business owner ought to look for this kind of relationship.

LUPE: Oh, ask a lot of questions, be open. Don't be afraid to admit you don't know.

HATTIE: Right. Is there one thing piece of advice he's given you or one lesson you've learned that has had a great impact?

LUPE: Yes. He gave us the secret to stock levels and mix. Our catalogue used to list 15 different kinds of one-inch binders. Now the research and everything says, `We'll stock one binder.'

HATTIE: One one-inch binder.

LUPE: One one-inch binder. You buy that one, that's your best deal. Our inventory used to run practically a million. Now we're down to about 400,000, so half.

HATTIE: Cut your inventory in half. LUPE: Yes.

HATTIE: Wow! You're getting rich now!

LUPE: I tell you, this is dynamite.

HATTIE: It only took 40 years!

LUPE: Exactly! Forty years! Make sure you have a good banker, a good CPA and a good attorney, really. Even though I have some accounting training. I still have a CPA that guides us.

HATTIE: Absolutely.

6

LUPE: When looking for a banker, I want a relationship before I need money. They all come to see you if you name is in the newspaper or if they find out that you bought a piece of land. I would tell these guys, I said, `Look, what I want you to do is get to know me. I don't need any money right now.'

HATTIE: Did you buy this building?

LUPE: Yes and this is a first for me and I really believe that to really control your destiny you've got to own your resources. Own your buildings, really. Because if not--otherwise, you're at the whim of whoever you're leasing from.

LB

HATTIE: You're on the cover of Hispanic Business magazine.

LUPE: Yes.

HATTIE: You're a dot-com. What did it take to move to online ordering? LUPE: Remember, we talked awhile ago about columnar pads?

HATTIE: Yes.

LUPE: ...and how you've got to be out front?

HATTIE: Right.

LUPE: We saw--and, again, Wayne Bartkoviak, who's on our staff is really, I think, the tops in the area of dot-comming. But anyway, we saw that the trend was to Internet ordering and over the Internet, and having to supply reports for customers, you know. And so we were out front, and Wayne came to me and he says, `Look, we've got to make an investment.'

HATTIE: So what kind of money did he ask you for?

LUPE: Really. First, it was $10,000, $20,000, you know.

HATTIE: Then he keeps coming, `I need more. I need more.' LUPE: He keeps coming, you know. I said, `Wayne, when is this going to stop?' But no, I could see the benefits of it. You know, again, the banking relationship that I talked about. I go to the banker, I say, `Look, come on. You know, this is a trend in our industry.' I had already established a relationship. So it wasn't a case of him not knowing what we were doing

HATTIE: You've got your line of credit. Now you go to the banker for a big chunk of cash.

LUPE: Yes. Exactly. This is what our industry's telling us we need to do.

HATTIE: So you had stats from the industry. And Wayne had done all this homework.

LUPE: Yes.

HATTIE: You don't just go to the banker and say, `I need money to be a dot-com now.'

LUPE: No, no, no, no, no, no, no, no. Really, we told them what the possibilities were. Our sales would increase, you know. And so they were very receptive.

Unidentified Man #1: The Internet ordering is now becoming a requirement to do business. And approximately 20 percent of our business is conducted over the Internet. We have all the tools that the big guys have. But we also have one thing that they do not, and that is the personalized service that goes along with it.

LUPE: There used to be about 500 office supply companies here in Houston. I think we're down to 50 now.

HATTIE: Ten percent of what there was, maybe, in the '70s.

LUPE: And it's because, again, everybody panicked, everybody gave up. We didn't. We just kept fighting on through. And people said, `Well, how do you compete with an Office Depot and...'

HATTIE: Right. Tell me, how do you?

LUPE: Oh, it's easy.

HATTIE: I love that. I love that. 'Let the big guys come. No problem.'

LUPE: Yeah, let them come. Because they forget about the customer.

HATTIE: (Voiceover) For the past 10 years, the University of Texas-Houston Health Science Center has purchased office supplies from a big company. This year, Tejas won the account. The green plastic delivery tubs replace cardboard, and are part of the Health Science Center's sustainability program.

GERALD TEBOLA: Tejas started delivering their goods in green tubs to see how we can keep so much cardboard from coming into the university.

HATTIE: (Voiceover) Director of distributions Gerald Tebola.

GERALD: And the neat thing about Tejas is they're way ahead of some of the large businesses. There's nothing that they won't do for the customer, and we have seen that in so many ways. For instance, I have a story here. There was a customer who ordered a rubber stamp, a measly little rubber stamp.

HATTIE: And this is a person that works in your health science center.

GERALD: Absolutely. In this building, as a matter of fact. And somehow the package was lost, and when it was finally found, Mr. Fraga himself brought the package out to him and delivered it.

LUPE: (Voiceover) I have gotten more compliments on our drivers. You greet everybody. OK, so that's the first thing you do. Unidentified Man #2: Good morning. Unidentified Woman #2: Hi.

LUPE: (Voiceover) Second is, `Where do you want me to put this merchandise? Can I move this for you, or do this, or whatever?' We really feel that our delivery personnel are also salespeople for the company--for the organization. And we reward them, give them cash sometimes. I mean, it's just an arbitrary amount, you know, that they don't even know that it's coming, and they love it.

Unidentified Man #2: You have a good day.

Unidentified Woman #2: OK.

LUPE: When we're hiring, people kind of laugh at me. But I say, `How do you feel about people? Do you like people?'

HATTIE: Is that a question that you ask?

LUPE: I ask them. I say, `Listen, do you like being around people? Do you like being friendly and jovial and so forth? Because that's what we want.'

SHEILA PESADA: I got some of these made up for some of our customers just to show them we appreciate them.

HATTIE: (Voiceover) Sheila Pesada is an outside salesperson who came up with her own marketing idea for Halloween.

SHEILA: And I have the Tejas touch: `We make every day a treat for you.'

HATTIE: Sheila, did you do these on your own computer at home on the weekend on your own time?

SHEILA: Yes, I did, the whole weekend. And my kids helped me out, too, and we cut them out and did the ribbons on them.

HATTIE: Did your kids get to have some of the candy? SHEILA: Yes, of course.

HATTIE: Why are you different from Office Depot or Staples or any other big guys, or even any of your small competitors, too? What is the Tejas difference?

LUPE: I tell you--you said you wanted a specific, right? I'm going to give you one. We had to buy an item from Office Depot one time because they're the only ones that had it, and we're going to take care of the customer. So even if we don't make any money on the item, we're going to go ahead and take care of this.

LUPE: So I go to Office Depot, I buy the item, I bring it back here, I deliver it to the customer. The customer doesn't care where it comes from. So later on, a couple weeks later, I get a statement from Office Depot, saying, `Hey, you owe this invoice.' I said, `Fine. OK, I'll pay you.' I mean, we're talking, like, $10, $15, you know. I said, `Send me a copy of the invoice.'

HATTIE: Because you're going to use it in your billings for your other customers.

LUPE: Exactly.

HATTIE: Right.

LUPE: I said, `I need a copy of the invoice.' You know what they told me? `It'll take you six months. It'll take us six months to get you that.' Isn't that something? When I heard that, that was like music to my ears. I said, `If it takes six months to get a copy of an invoice, boy, what about access to a buying history?' The key is that they get so big they forget about that customer and consequently, they're not able to really serve them like the customer wants to be served.

HATTIE: Most small-business owners admit that they win and keep customers with a personal touch. This is our competitive advantage over big companies. We know the names of our customers. We live in the community with our customers, and we even come to see customers as a part of our family. But high touch is not enough in this competitive world. As a small-business owner, you must have high-tech to support your high touch. You can be the nicest, friendliest, kindest, sweetest, most attractive person, as is Lupe, but if you cannot provide customers with the efficiencies of technology, you will lose them, and you won't have a prayer when it comes to winning big companies. Lupe embraced the Internet early. He partners with a technology company that specializes in software for office supply firms. When big competitors made it possible for customers to order on the Internet, Lupe was there. Don't think that friendship and charm can make up for outdated business practices. High touch must be supported now by high-tech.

Announcer: (Voiceover)You can learn more at SmallBusinessSchool.org. There's streaming video, transcripts and interactive study guides.

7

(Voiceover) Irene and Lupe have been busy building a business. But at the same time, they have raised three children who are now all leaders in the company. Michelle is the firstborn, and the day we met her, she was busy teaching a new manager and leading a customer service training session.

MICHELLE FRAGA: If everybody brings to the table all the details, all their ideas, this will help everyone on the whole. It will help Tejas as a team.

STEPHEN FRAGA: Here's West Park, here's Bissonette...

HATTIE: (Voiceover) Stephen, the youngest, says they all wear many hats, but he is now focusing on improving systems in the warehouse.

STEPHEN: From being at the bank and the training I got there--has enabled me to bring that here, and allowed us to know, as a small company, what we need to be showing a bank.

HATTIE: (Voiceover) Alisa, the middle child, deals with human resources. ALISA FRAGA: I have the nickname--`Bulldog' is what I am called. It's true. I want you to give it your all.

HATTIE: Do you think caring brings--the act of caring will bring dollars to the bottom line?

ALISA: Yes, I do.

HATTIE: (Voiceover) Irene and Lupe never used business as an excuse not to rear their children right. How did you have time to lavish love on your kids when--you know--in the '80s, they were little. You must have been consumed by your business.

LUPE: I tell you what. To me--that's, again, what I learned from my parents, how important family is. And Hispanics, really--the family is the thing. You know, Sunday dinners, and, you know, fiestas, and conchinettas and all of that. And that's what it was. I think the Hispanic family is a close-knit family.

HATTIE: Your parents came here...

LUPE: From Mexico.

HATTIE: What stories did they tell you about why they left Mexico?

LUPE: They came to Houston because they wanted to give a better life to their children. And so I saw my parents work, work, work, work so that we could have an education, so that we could, you know, make a difference. Lots of love, lots of love,

HATTIE. I mean, my parents would do anything for their children. We are at a place that really means very much to me.

HATTIE: (Voiceover) As a child, Lupe played in the shadow of this church building, Our Lady of Guadelupe. The lessons learned and habits formed back then serve as a steady guide today.

LUPE: We lived upstairs, and there was a grocery store downstairs. Six kids and my mom and dad. I never thought of myself as being poor. To me, love in a family is what really matters, and that's what we had a lot of. So I never knew anything else but a family's love. You're never poor when the house is full of love.

HATTIE: What do you think Lupe has that makes him so good at running this business?

IRENE: He has everything.

HATTIE: But what is it?

IRENE: He's so honest, he's so sincere, he's people-oriented. He gives back. He gives back a lot.

LUPE: I've been so blessed. God really--I mean, I've gotten so much out of this life that sometimes I'm embarrassed. The most satisfaction that I can get is not getting a big order, not getting a big profit margin...

HATTIE: (Voiceover) Who wouldn't want to work for Lupe, or be his friend or his child? I kept trying to find his clay feet. Lupe is proof that love is the most powerful motivator for good in the universe. Want to know how to grow your company? Put a little love in your heart.

Marketing

John Wargo, our marketing adviser, says if you have to build a mailing list, there's help.

JOHN: About 20 percent of the addresses in the United States change annually.

HATTIE: You're kidding.

JOHN: Twenty percent. So the first thing you want to do is to make sure that you're using the change of address services that are available so that you keep your address list updated. By keeping it current, you at least have the base. Now in order to add to the base, my first recommendation: go to the Yellow Pages and look for list brokers or letter shops. Because these companies are professionals in showing you how to build your list. Because there's a couple of ways that you can build your list. You can get a compiled list. You can get a response list. You can get a list based on recent buyers who are buying similar products to yours. You can get a list that's geographically based. So there's a lot of ways to build the list. What you want to do is to sit down and say, `Let's, first of all, look at my customer base. What does it look like?'

HATTIE: Who are these people?

JOHN: `Who are they? Where to they live? What are they buying? What are some of the demographics and psychographics?' And then what you want to do is to start finding a list that matches that. Now the best way to do that is, really, to be dealing with people that are familiar with list management and list services. They're in the Yellow Pages, they're on the Internet. My recommendation is that when you want to expand your list is go to a professional. Sit down and work with them and make sure that what you're getting is the most up-to-date list with the most up-to-date addresses.

HATTIE: Can I afford a professional?

JOHN: You can afford a professional because the flip side is, as you want to build your mailing list, you want to reach your target audience. What you don't want to do is just make another mailing. You want to make a mailing that's relevant. That's their business. So what you want to do as a business person is go and buy that service. It really will pay for itself.

HATTIE: Don't think that friendship and charm can make up for outdated business practices. High touch must be supported now by high tech. We'll see you next time.

The Closing of the Show