Breaking the Rules

Thomas Stemberg, founder of Staples, doesn't think entrepreneurs should just follow their passion.

Thomas Stemberg, founder and executive chairman of Staples, an office products retail chain, doesn't buy one piece of advice that is often given to aspiring entrepreneurs: Follow your passion.

These words, said Stemberg, who gave a talk last month at Wharton's Entrepreneurship Conference, have spawned a stream of bankrupt restaurants and golf companies. "I think following your passion is a really dumb idea. I follow a great market that provides an opportunity to satisfy customers and to make money."

In 1985 Stemberg did just that when he founded Staples. At the time, high-margin stationers dominated the sale of office supplies. Big corporations got discounts, but individuals and small businesses paid a premium. Headquartered in Framingham , Mass. , Staples now operates 1,500 stores with sales of $11.6 billion. It is the largest of the three national office superstores, which together have a market of $27.8 billion.

There is plenty to chew on in this interview, including this, which I liked:

Entrepreneurs must be willing to break the rules, said Stemberg at one point, citing the founders of Southwest Airlines, Rollin King and Herb Kelleher, who faced financial problems and 13 years of legal challenges on their way to creating a new model for their low-cost airline. "Kelleher and King were optimists and they prevailed. They did so by breaking the rules." Businesses always have to be on the move, Stemberg continued. "New competitors are springing up as old ones fade away. If the playing field is changing so much, so are the rules and you, as entrepreneurs, must break [them]."

Stemberg set out to break the rules of selling office products when he founded Staples. At the time, big companies did business with local stationers who gave their large customers discounts of 50% to 60% off list price. The best a small business could expect was 10% off, he said.

While researching his idea for Staples, Stemberg found that Toys R Us executives paid 85 cents for a dozen Bic pens. Individual customers and small business owners paid $3.68 for the same pens. "Let's be real," he said. "If you paid too much for advertising, maybe you got better creative. If you paid more for a lawyer, maybe you were getting better counsel. If you paid too much for Bic pens and paper clips, you were getting ripped off." Staples began to cut prices and became an outcast in the industry. Stemberg and his executive team were scorned at the annual office products convention. "Nobody wanted to be seen talking to us," he said. "Today, they trip over one another to get close to us."

The article mentions his other businesses too, one of which is Kabloom, a flower shop. They happened to open one in Melbourne, FL just a few weeks ago before I moved away. We went in to see what it was and I immediately responded "a flower shop??! How in the hell can a flower shop differentiate itself and make any money?" Well, they had blue roses in there and Mrs. Businesspundit was so taken with them that a few days later I sent her some. The store called her one week later asking how the flowers were doing, and offering to replace them if she wasn't satisfied. Wow! I guess better product selection and improved customer service is how they plan to compete. It's back to Stemberg's idea of "breaking the rules." Who would have thought the florist industry was ripe for innovation?

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