My first knowledge of gross margin and net profit came on a Saturday morning, June 13, 1953, at Avon Lake, OH, on the south shore of Lake Erie. That was the day I opened my first business: Don’s Bait Shop. It was a movable business, self-contained in a Western Auto red wagon, pulled to various lakefront locations by the proprietor, a chubby 9 1/2-year-old kid seeking sufficient wherewithal to purchase Cokes and snacks while otherwise idling in the out-of-school summer sun.
The business had four large (two-gallon size) metal pots, liberated from my mother’s later-summer canning of tomatoes, string beans, peas and corn. One was filled with rich, dark dirt from the family garden and three with water dipped out of Lake Erie. In the dirt were dozens of giant night crawlers from the garden. In the three pots with water were assortments of dozens of small, medium and large minnows netted upstream from a creek that emptied into the lake. These were plump fingerlings that were irresistible to the Lake Erie Sheepshead and the other three- to five-pound lovelies that the fishers of Avon Lake went a mile or more by boat out into the lake to catch.
My business day -in an early pattern that would stay with me the rest of my life -began at 4 a.m. Out in the garden in moonlight, I forked up night crawlers, having wet the ground well the evening before to draw them up to the surface. With a gross or two of worms fresh and active, I moved to the creek area about 5 a.m. and began netting and sorting minnows. By 5:30 a.m., I was en route to my early morning selling location, the Avon Lake Boat Club, where the fishermen (and they were, entirely, men) hauled their boats from the boat sheds to the water on a miniature trolley. I set up Don’s Red Wagon Bait Shop on the shore at the end of the trolley tracks, ready for business by 5:45 a.m.
Night crawlers and minnows were priced at 15 cents a dozen or two dozen for a quarter. My inventory was two gross minnows and one gross worms, or 36 dozen in total. I usually sold out by 7 a.m. and my revenues were $4.50 for three hours work. I could do that seven days a week for $31.50 revenue a week. My gross margin was 100 percent (the inventory was free), and my net earnings were $31.50 a week (no overhead, no marketing costs, no variable expenses). And, it was a cash business making about $400 a summer, a veritable fortune in 1953 for a kid.
The fishermen learned after the first week that I would be there -rain or shine – every day. They also learned that, for a quarter or two, I did all the work and they didn’t have to dig or net or go to the real bait shop in town, which didn’t open until 7 a.m. or maybe 8 a.m. I was sold out by then and off to the bakery for doughnuts.
I had figured out that all I had to do was go where the sale could be made easiest and earliest. I also figured out that I needed a better product -fresher, well-oxygenated, clean water with frequent changes, no lifeless worms, no dead floaters in the pot. And I learned the sweet spot for pricing was two dozen with a 5-cent savings. The average order value was 50 cents, eight to 10 orders a day, heavier on Saturday, highly seasonal.
The other element to the business was the short, moon-faced kid with the perpetual smile of summer and the question asked to every fisherman, “Ever seen fatter minnows or livelier, sir?” In my striped polo shirt and buzz cut, I was as irresistible as the product. The fishermen wanted to buy from me. Most of them saw themselves when they were my age. Plus, they admired entrepreneurship and politeness.
So what did Don’s Bait Shop have? It had great products and a great target market. It had great service. It had a great offer. It had great rapport with customers. And it had location and an “early-bird-gets-the-worm” strategy – literally. I can’t see where anything has changed in the 53 years since then.
The Expansion
After the first few weeks, I decided to add white bass lures to my Red Wagon Bait Shop. Lake Erie used to have schools of white bass numbering in the thousands. They would boil the surface of the lake in a feeding frenzy, especially when the Mayflies or, as we called them, Canadian Soldiers, hatched and lived out their amazingly short 12-hour lives. White bass are attracted to a white feather lure, usually two or four on a spreader attached to a four-inch oval-shaped wood float, a kind of giant bobber. Well, the feeding frenzy was so violent that you could catch four fish as fast as you could cast and reel in your rig. I can remember fishing with my brother and our father and taking as many as 600 white bass at a time. We froze them and ate bass filets all year. Many lures and bobbers were constantly lost in the action, and the fishermen would have to re-rig and re-supply. I learned that they would pay me to make their rigs.
I started creating my own lures to sell and shaping and painting my own bass floats. Of course, this involved the purchase of fish hooks and, so, it was off to the Western Auto store and the fishing aisle for least-cost hooks. The white feathers I obtained free from a chicken coop down the road. The rest was a little paint and time spent in the garage. Result: An additional $14 a week. My business had grown by almost 45 percent.
The Market Growth
Now, a lot of people would buy a bigger red wagon. But, I remember sitting on the granite pier with my feet in the water and thinking about how to make more money. I discovered I had a loyal customer base and I had some excess capacity. My chores in those days involved weeding and hoeing a half-acre family garden. We canned vegetables, tomatoes and corn, and grew all of our own produce, including carrots, lettuce, radishes and a variety of other garden delights. There was more produce than we could ever eat, and we shared a lot of it with neighbors. We lived right on the bank of Lake Erie, and the garden’s abundance was phenomenal. We had beefsteak tomatoes that went two pounds each.
I proposed a deal with my parents whereby I would expand the planted area and maintain the garden in even better condition if they would allow me to harvest and sell a wagon-load of assorted produce each day. They agreed.
You see, all those fishermen had to come back to the boat yard. Some had fish, some didn’t, but all had to go home to the family. They would start coming in from the lake about 2 p.m. to 3 p.m., generally in time to catch the Cleveland Indians game on the radio at the Avon Lake Tap and knock back a couple before going home. So, there I was with -you guessed it – Don’s Red Wagon Produce Stand. I made their lives easier by providing beautiful peace offerings and bounty for the table. I worked this gig from 2 p.m. to 4 p.m. and always sold out. “Excuse me, sir. Ever seen such huge tomatoes and so many for a quarter?” Tomatoes were a quarter a basket (usually five big ones). Carrots were 10 cents a bunch. Beans were 15 cents a basket (big, overflowing, green or yellow). Lettuce and cabbage was a dime a head. The net additional revenue for another three hours of work: another $4 a day and about $24 a week.
Now the business was bringing in almost $70 a week. And my only costs were fishhooks and seeds. My net EBITDA was about $69 a week. I had an $800 summer business and, at a multiple of five times EBITDA, it had a valuation of $4,000. There were grocery stores in Avon Lake, OH, in 1953 that weren’t doing that well.
Don’s Bait Shop and Don’s Produce Stand had exactly the same business model: product, service, offer, rapport, location.
Thirty-seven years later, I would start the Olde Maine Lobster Company, and I was still netting my product from the water at no cost and selling it by catalog for $22 a pound delivered to your door. Even today, as a consultant, I still have a 100 percent gross margin business.
Sure, the old Avon Lake Boat Club retail location has now morphed to become a catalog and a Web site, but the fundamentals of the business remain the same: a strong target audience, immediately identifiable; good products, good service with innovation; doing business with people you like and who like and respect you; and finding ways to sell more stuff to the same customer, preferably at a high margin.
We direct marketers sometimes tend to get a little tangled up in our socks. We try to make it all so complex and formulaic, so analytical and metrically introspective that we forget what it was we set out to do: find good products to sell to loyal customers and give them service and an offer that makes it easy to buy from you. Plus, be there earlier and longer and at the right place at the right time -and smile and ask for the order.
I’ve been thinking about shining up the old red wagon and heading down to the lake early in the morning . . . I don’t need too much more than $69 a week . . . and it would be such fun again to ask, “Ever seen such fat and lively minnows, sir?”
