Learning from experience

5/7/2009 - After being let go from his executive job at a grocery store chain, Tom Stemberg was looking for the next big opportunity in retail.

And he found it in pens and paper.

Stemberg founded Staples, which grew to become the world’s largest office products company. Now a managing general partner of the Highland Consumer Fund at Highland Capital Partners, Stemberg learned many lessons while building the office supply chain. He shared some of those insights May 4 with Kellogg students as a guest speaker in Clinical Professor of Entrepreneurship Lloyd Shefsky’s Successful Entrepreneurship class.

Among them:

Learn the fundamentals of every business that you are getting into. After business school, Stemberg worked for grocery stores for 12 years, learning everything he could about retail. The management skills he developed, from hiring and firing employees to motivating and retaining them, helped him be a better leader later on.

“These skills are hard to learn, but if you learn them in your 20s, it will serve you better later in life,” Stemberg said.

Entrepreneurs take adversity and turn it into opportunity. Stemberg opened the first Staples store in the Northeast. The cost of doing business in that region, with its higher rents, salaries and advertising, posed a challenge. To save money, Staples implemented a centralized distribution center and focused on database marketing. Now, Staples has 1,832 stores nationwide and is in 27 countries.

Those cost-cutting efforts offered lessons that help guide the retailer’s worldwide expansion down the road.

“We were deeply concerned about the adversity we felt in the Northeast but it forced us to learn certain skills that gave us a competitive advantage over time,” Stemberg said.

Focus on the customer. Before starting Staples, Stemberg sought advice from his business school professor about starting a new specialty retail business. The professor said that opportunity would be found in an industry that was underserved by its distribution channels — in other words, in an industry where customers were getting “ripped off,” Stemberg said.

Stemberg identified an opportunity in office supplies, because stationary stores were selling supplies at full cost. Staples could service customers by selling those supplies at a lower cost and by providing a central store for all the consumer’s needs, from software to pens.

“Good ideas are markets looking for a product,” Stemberg said. “Talk to consumers about their behavior rather than their intent.”

Power-build the organization ahead of the firm’s growth. Stemberg said that start-ups will rarely have the same management team as they expand.

“No matter how good your team is when you open the first store, there is no way the same team will open the 1,000th store,” Stemberg said.

He said that executives also are part of that process, noting that Staples has gone through a few chief executives in its history. The company was led by “the right person for that point in time,” he said.

“You need to think through the hiring process,” Stemberg said. “There is no perfect team. You have to grow and evolve the team.”

Stemberg’s presentation was sponsored by the Larry and Carol Levy Institute for Entrepreneurial Practice.