May 2000 - Case Study: The Birth of NetRam Computers

The Entrepreneurial Dream; Getting a Lucky Break; Going for the Touchdown; Internet Resources: Articles, Books, Links
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This compelling true account shows both the upside of high-tech start-up success as well as the harsh realities faced by high growth companies.

Our guest author, Don Klosterman, is a client who originally found us through the Internet. We watched the story unfold as it actually happened and can attest that it was even more exciting, intense and breath-taking than his story reveals. As you read it, try to imagine what you would do in the same situation. Thanks again, Don, for allowing us to share your story with our readers.

The Birth of NetRam Computers as a Viable Consumer Brand

By Don Klosterman, Sr. Vice President, Parker Stephens (used with permission)

This is a true American success story of small group of people who were armed with little more than determination on their way to creating the opportunity for themselves to become the next Dell. If only things had gone just a little differently ... .

Some History

Parker Stephens is a medium sized advertising and marketing services firm located in Costa Mesa, CA. We are principal-owned and operated by a group of seasoned advertising executives who trained and worked for years in big 10 advertising agencies such as Saatchi & Saatchi, McCann Erickson, Ogilvy & Mather, as well as Wells Rich & Green and former O.C. regional power Salvati Montgomery Sakoda, which merged with Bozell and is now FCB. Additionally our key partners have client marketing experience at Sunkist Growers, Allergan Pharmaceuticals and at IRS Records (a former division of Capitol Records). That broad experience was put to the test with this client.

One day in 1997 we were introduced to a couple of motivated individuals who manufactured single units and small batches of computers, mainly for corporate customers. They made them in their very small offices in Orange County, one at a time. They had sales then of about $1.5 million per year. They wanted to increase their business, so one of the partners, a determined person, decided he wanted to sell computers at retail, and specifically at Fry's Electronics. Fry's is the 13th largest computer retailer in the country, and is well known for its hardball style of relationships with its computer vendors.

Going for the Brass Ring

The partner was terribly naive as to what it takes to be successful in the retail environment, but he got on the phone one day nevertheless, called the Fry's headquarters, learned the name of the computer buyer and became such a persistent pest for 30 days that the buyer finally caved in and granted a meeting. He was given three weeks to make his once-in-a lifetime pitch.

The Chance of a Lifetime

The two NetRam partners met with us to ask for our assistance, which we promptly declined. The world did not need, we felt, another non-descript, white box computer built by a couple of determined, yet na�ve guys in little more than a garage-type environment. They also had little backing, little marketing knowledge, no packaging, no positioning, no sales materials, no technical support, no retail presence whatsoever....etc.

Following Your Intuition

But for some reason, I couldn't get it out of my mind, so later that night I decided to stop in to the Fry's store in Fountain Valley on my way home.

I thought I'd be there for about 15 minutes. I ended up being there until closing, some three hours later. The reason was that I had found the Fry's sales people receptive to talking with me and I became intrigued. Of course, I posed as a customer. I was able to become very friendly with one of them.

Doing Marketing Research

The next morning, I decided to stop in to the store again and the same sales clerk from the night before was there again. This time, he suspected I wasn't a customer, so I confessed and told him I was performing in-store research for a new computer company.

We'd become friendly enough that he saw I had developed a genuine interest in how Fry's sells computers, so he opened up to me to reveal the inner secrets of what was wrong with competitive offerings and where the opportunities for a new computer company existed.

Using that information as a foundation, I spent the good part of the next week going into most of the Southern California Fry's stores and some competitors.

After this period, there were some very obvious opportunities that arose for a new computer company and that enabled our firm to put together the proper strategies, which eventually lead us to what was to become a great success.

Making the Pitch

During the next two weeks, we put together the presentation for Fry's. I boarded a plane to their headquarters in San Jose along with one of the NetRam partners and proceeded to make the presentation to the buyer.

I took a direct and frank approach, laying out all the issues I'd learned in my many hours in his stores. Of course, this was risky because all the issues I laid out were problems for which the buyer was responsible.

I felt I had to take the aggressive road. It turned out to be the right one.

To my surprise, the buyer was appreciative of all the research that had been done, but he was especially interested in the fact that we had set up NetRam as the only computer company that A) was aware of the unique competitive issues that existed at Fry's; and B) had set up our marketing plan and in-store presence to uniquely address those issues.

Getting a Lucky Break

A few short days after the meeting we received an initial order. That set off a frenzy back at our place, because most of the marketing materials we presented to Fry's were only in concept form.

All the packaging, labeling, in-store marketing and P.O.P. (point of purchase), sales training to store personnel, returns, customer service, 800 lines, in-store factory reps, you name it, all had to be put into place in a short one month period.

The two NetRam partners were barely equipped to handle the office and manufacturing duties, so it was incumbent upon us to become NetRam's Marketing Department and for me to assume the surrogate marketing director's job.

Our first purchase order was for 32 machines. They were to be the industry's first Pentium II systems offered at retail, so the deadline was very tight.

The launch was a complete success, in spite of some severe manufacturing issues that strained our patience, as well as that of the Fry's buyer. Those 32 machines all sold within 36 hours.

Keeping the Ball in Play

With some adjustments and success in the manufacturing process, and a couple of short test months at Fry's, it wasn't long before we started receiving larger, substantive orders on a weekly basis. $100,000 worth of orders per week came through the fax machines.

Then, a few weeks later half million dollar orders, then 1 million dollar orders, then 2 million dollar orders � PER WEEK!

Can you imagine? A company that was selling only $1.5 million in annual sales is now a $30,000,000 company and is on track to be a $50 million company in its first year of retail presence!

Building Strong Vendor Relationships

We also started to become the favorite computer to sell of a few key store salesmen throughout the chain who were extremely influential to the rest of the sales army at Fry's. Our strategy was to have a strong management presence in each of the 16 stores, identify the key sales people and make them strong advocates.

That required thousands of hours of our time in the trenches. We knew we had the best computer on the market and we added the best sales closing materials, the best in-store marketing, the best packaging, the best sales training, the best manufacturer's rep presence, and the best sales commission of all the offerings.

We didn't spend one dime on traditional advertising, so our profits were applied in the store where many customers would come in not having a specific brand in mind at the time of purchase.

Growing the Relationship

Remember that pre-launch research? We accurately determined that if we could get a small percentage of those naive buyers we'd be a hit. After all, Fry's is a very high volume chain and even a small percentage of market share there can make a company successful.

We devoted a strong presence to the five new Fry's grand openings that were a huge success. NetRam systems

Computers literally sold by the pallet load at these festive and high volume events. We used them not only as promotional launching pads, but as tremendous "first impression" opportunities to train the new sales forces at these new stores to sell NetRam as the "Go To" system.

It was common to see up to three end caps and huge sales "mountains" of our NetRam Computers for sale and it didn't take long for those mountains to whittle down in the form of fast register sales.

Going for the Touchdown

We became the number one selling computer in the Fry's chain � outselling all other brands including the national brands � combined!

It wasn't long before we were able to break into another major, mid-west retail chain.

Sales soared.

The two partners could not continue managing the company with this growth so they sold it to another party who had been helping them with financing along the way.

Going National with a Celebrity Spokesperson

Our in-store marketing was beefed up with the new owner's ability to persuade NFL Hall of Fame legendary coach Bill Walsh to become company spokesperson. They had a contact who knew Mr. Walsh and since we didn't have much operating profit yet, he agreed to provide his services for few dollars and interest in the company.

We worked with Mr. Walsh in producing on-screen sales videos, in-store P.O.P. materials and of course web site presence.

Mr. Walsh's name and likeness gave our unknown computer brand accelerated credibility that endeared NetRam not only to unknowing customers, but also, and very importantly, to the Fry's sales staff who are so influential to the sales process. After all, that army of sales people held the keys to our success or failure.

Our success was made possible by our ability to endear ourselves to them. Of course, using Mr. Walsh properly was critical and we did that very well.

Bill Walsh Gets Coached for NetRam

NFL Hall of Fame member and 3-time Super Bowl Champion coach with the San Francisco 49ers, Bill Walsh receives direction from NetRam�s Retail Marketing Director, Don Klosterman, during a recent shoot for a video project at a Fry�s Electronics store. Fast growing NetRam Computers and Mr. Walsh have teamed up to promote its increasingly popular line of high quality computers that are made only with world-class, brand name components.
(A past press photo and caption.)

Expanding to Handle the Growth

That company decided to build a new factory in the Irvine Spectrum. It was a beautiful, state-of-the-art facility. I referred to it as "The House that Parker Stephens built."

Prior to that the larger orders were built by a third-party contractor in Costa Mesa. He was very efficient and built computers to very high standards.

We had a great thing going and felt we were on our way to becoming a true national power in the category.

New Owners Take Over

The new owners took over. When the new factory opened, the new owners found it extremely difficult to manufacture computers with the same high quality on which our foundation had been built.

And worse, they could not deal with the new economics of the computer business.

Many problematic computers left the factory and became faulty returns. This turned out to be the kiss of death.

Our reputation was gravely damaged and NetRam soon lost the Fry's account.

. . . and the Dream Slips Away

NetRam went out of business. It was heartbreaking, to say the least.

Lessons Learned

We proved that we have the ability to successfully create a unique presence for a new brand in a very crowded field. And better, we did it without spending one dime in advertising, putting all our energies into the in-store environment.

The experience also unfortunately reaffirmed to all of us that great marketing and determined effort alone don't create success. It's truly a team process.

We put our many years of working for blue-chip, national brands to work for NetRam and succeeded.

Author: Don Klosterman, former Senior Vice President, Principal, Parker Stephens, Inc. is currently: Principal, Klosterman Marketing Communications (updated August 2005), contact: donklos [at] charter.net (714) 501-5949

Articles

The news is full of success stories. To give our readers value, many of the links are stories of failure, lessons learned or resources that provide practical advice rather than hype.

Look Before You Leap http://www.smallbusinessresources.com/apr99-1.htm
Lessons from Silicon Valley http://www.businessweek.com/1997/34/b354199.htm
Building a Bullet Proof Startup http://www.business2.com/articles/1999/07/text/startup.html
Startup Failure Story http://www.forbes.com/asap/99/0222/018.htm
Interior Designer Reaps Fruition of Marketing
http://lvrj.com/lvrj_home/1997/May-15-Thu-1997/business/5379905.html
US SBA Award Winner - Orange County 1999 http://www.imri.com/press.html#110399
Don't Forget #1! - Pay Yourself First http://www.smithfam.com/news/n4.html
Stories from Hell http://www.ecatalyst.com/hellStories.shtml
Failure in Silicon Valley http://www.npr.org/news/business/1997/Feb/970212.failure.html
Bootstrapping: A Long But Not Impossible Road to Hoe http://www.chicago.tribune.com/tech/specialreport/article/0,2669,ART-36985,FF.html
Counselors to Rising Startups http://www.ljx.com/practice/corporate/forum.html
Rebel in the Valley http://forbes.com/forbes/99/0531/6311186a.htm
Open Season in Silicon Valley http://www.forbes.com/forbesglobal/99/0531/0211106a.htm
Verse: "Failure" http://hannibal.net/stories/062498/Failure.html

Books - Disclosure: We get a small commission for purchases made via links to Amazon.

Nudist on the Late Shift. Po Bronson. Book review:
http://sunsite.uniandes.edu.co/sunworldonline/swol-09-1999/swol-09-bookshelf.html Broadway Books; Reprint edition (May 2, 2000) ISBN: 0767906039
What No One Ever Tells You About Starting Your Own Business (Startup Advice from 101 Entrepreneurs. Jan Norman. http://www.smallbusinessresources.com/whatnoone.htm Upstart Pub Co; (January 1999) ISBN: 1574101129