From Debt to Dividends
A. S. ATKINSON
From System Magazine
TEN years ago there was an unimportant, second rate ship-chandler store in lower New York, catering to the few captains of wooden ships running into the port. The owner depended more upon the friendship of the old sea captains for his trade than upon any business acumen or effort. But old sea captains die off and in time the old ship chandler found himself without customers, a low assortment of stock, high store rent, and plenty of shrewd, pushing rivals. There seemed to be only one thing for him to do—clean up what little money he could make from the stock and close shop.
But his head clerk—I’ll call him Caldwell, for convenience—had been with him ten years, and had learned the business from foundation up. He went to the old man, and said:
“I’ve saved up a thousand dollars from my wages, and I want to start 1O0
in business for myself. Can’t we make some arrangement to keep the store going?”
The old man demurred ; said the business was no good, and that any man who attempted to run it would lose all of his money; the times were disjointed and there was no longer any profit in the ship chandler business. It took hard talking and persuasion for the head clerk to convince the old man that young blood might have a chance where an old man would be left behind in the race. But the sight of that thousand dollars, carefully saved through ten years of hard, pinching work, caught him. He let the young clerk take over the business, after paying down his thousand dollars and giving his notes aggregating ten thousand dollars due at various intervals in the next three years.
ft seemed like a one-sided bargain.
The stock was so depleted and illassorted that an expenditure of nearly a thousand dollars more was required to make a decent display. The raising of this thousand dollars was almost as difficult as convincing the old man that he should sell out to his clerk.
First Caldwell tried advertising for additional capital, but no one seemed eager to invest his money in such an uncertain undertaking. The few replies and interviews he had were so discouraging that he abandoned this course as suddenly as he had taken it up.
Then he took a list of his friends and the business associates of the old house. But by the process of elimination he found that there were only a few that held forth even a ray of hope. To these, however, he applied himself with energy, exhausting his persuasive vocabulary in trying to show them that he had a “good thing” if he had half a chance to develop it.
But friends are not always so ready to trust their money to the uncertain manipulations of others. One told him that it was like throwing good money after bad and he could not afford to entertain such a risk. Another in a fatherly sort of way advised the young man to stick to clerking and not try to go into business for himself. “For don’t you know,” was the conclusion, “that nearly every business man fails in his first venture, and many in their second and third?” A third friend pleaded off from investing because he had all the load he could carry himself. Another said he wouldn’t put money in a new enterprise if his own brother asked him for it.
Caldwell gave up seeking capital through others and fell back upon his own resources. Fie had a life insurance policy for three thousand dollars on which he had been paying for some time. He went to the insurance company and asked how much he could possibly raise on that. He found that he could get a loan of $600 on this policy with interest at six per cent.
Then what other available assets had he? There was the furniture of his little apartment. It had been purchased little by little. On this 'he secured a chattel mortgage without removal for two hundred dollars. Then by putting up as security all his valuables he raised the final two hundred. It seemed like mortgaging every earthly possession, and starting in under a big handicap; but he needed the money to establish credit with the big houses, something which the old man in recent years had not had.
Then came a process of rigid economy and paring down of expenses. The very fact that he had exhausted his ability for raising further capital, and stood in now' for utter and complete failure if he did not succeed in his new enterprise, made him serious and careful. There could be no leak, no unnecessary expense, no luxury whatever. He cut down his own personal expenses.
Then he turned to reducing expenses in business. He let the two clerks go ; they were not anxious to stay anyway when they knew how poor the new owner was. He called in his two brothers to take the places of the clerks. One wras just out of school, and the other was making eight dollars a week as a runner for a hardware store. Rent day would come around regularly, and $200 a month was a pretty big item to meet. So he solved this latter bv dividing the store in half, and renting part of it to another, but not a rival, concern. He secured a slight advance for this rent over what he was paying, and thus saved $10 a month on the rent of Fus Fn’f.
The youngest brother was installed as indoor clerk, and the other with himself, started out to drum up trade. They visited the few remaining old sea captain friends of their former employer, and found they were such old fossils it was useless to urge them further for trade.
The returns were slow for the first month ; and rent day was approaching without much prospect ahead of raising the amount. Caldwell realized that his only hope to meet his rent and hold up his credit was to land a big order quick.
Now the captain of an incoming ship will often give his orders for new supplies to the first ship chandler house whose runner boards his craft first. Sometimes the race down the bay and out across the ocean between these runners is as strenuous as between the pilots. Many of them go down in sail boats, and a few manage to accompany the pilot boats to get ahead of all rivals.
Captain J-, of the steamer
M-, a big tramp, was known for
his sporting blood and good-natured heartiness. He nearly always gave his orders for new supplies to the first runner who boarded his steamer on approaching New York; and as these sometimes amounted to several thousand dollars, there was intense rivalry to secure the prize.
Caldwell determined to get this prize. The steamer M-was ex-
pected within forty-eight hours. Telling his plan to his brothers only, he, late that night, boarded an ocean liner that was loading up for its regular trip. He stowed himself away in the forward hold, with his supply of food and water and a life preserver, and at midnight the ship steamed out of the harbor. The second day out he appeared on deck, and sought the captain. Frankly telling his story, he asked if he could work on deck until
they sighted the steamer M-. After
the first astonishment, the captain appreciated the young man’s earnestness and the seriousness of his position, and helped him in his game.
Ten hours later 'the big tramp steamer hove in sight. When she was abreast of the ocean steamer. Caldwell jumped overboard with his life preserver. The captain of the big tramp saw the man fall in the water, and, as the ocean liner continued on her course without lowering a boat, he sent men to the rescue. They brought the dripping figure aboard. m
Approaching the captain, Caldwell said :
“Captain, I’m from the ship chandlery firm of Caldwell & Caldwell, and I want your order for the next trip.”
There was a moment of blank surprise on the stolid face of the sea captain ; then his eyes twinkled and he grinned. He took the dripping figure below and got his story. Later the adventurous young clerk got his order, a big one.
Caldwell met his rent—the first test.
The second came when the first of the notes fell due. The three brothers during the first year increased their business and established good credit. They were more than paying expenses and earning a decent living. But how could they meet notes amounting to three thousand dollars? They could not stretch their credit beyond a certain point, and to keep this intact they had to pay out nearly as fast as they received money in. The money had to come from outside resources. Caldwell went after it.
In the intervals of strenuous scurrying for new business, he had been working on a patent ventilator for pleasure yachts ; it was a good device, and some day he intended to manufacture it himself and make a fortune out of it. He figured that about every pleasure yacht, motor boat, and steamer in the country would use one or more of these ventilators when they were once on the market.
Now he took his precious patent to
Commodore S-, of the New York
Yacht Club, and explained in detaii just how it worked. He installed one on the Commodore’s yacht, and left it there, saying nothing about price or money arrangements. At the end of a month he went to see the Commodore again.
“How’s the patent ventilator working. Commodore?” he asked.
“Finely,” the Commodore answered. “Couldn’t do without it. What’s the bill?”
“Three thousand dollars cash.”
The florid face of the Commodore grew purple and apoplectic ; and his vocabulary still darker. When he had to pause to find breath, Caldwell said :
“You , don't understand, Commodore : that includes the patent as well as the ventilator. If you want the exclusive right to it you can have it for three thousand. If not, I'll take
it off and turn it over to Mr. A-,
he wants it, I know—but I gave you first choice.”
Now the Commodore had, as Caldwell of course knew, a penchant for owning things that nobody else could use or imitate. He wanted to be exclusive in his possessions, and in particular he wanted to outrival the man Caldwell had incidentally mentioned, a member of the same yacht club. Caldwell knew his man. From anger and bluffing, the old yachtman turned to argument and reason. The patent was in the name of Caldwell and he was willing to turn it over to the Commodore for the price named. As a clincher, Caldwell added :
“You can use it exclusively on you: yacht ; nobody else can have one without your consent, and when you’re tired of it you can make a small fortune by manufacturing them for the general market. I’ll offer to do it myself some day on commission when you’re ready. But just now I want that three thousand dollars ; I must have it.”
And he got it. The first notes were promptly met—much to the astonishment of the retired ship chandler.
So the third stage of businessbuilding was passed—business started, trade-current started, credit established. Remained three more: finding an opening for a new line of trade, perfecting the organization, expanding the business.
Like the initial period of any struggling business, the first year had been a time of makeshifts—to pay the rent, to buy needed stock, to find bare food money, to meet that first big account.
Now there was a breathing spell— and other problems. First new patron-
age had to be attracted, a trade built up. Competition was keen. Older houses had their hold.
To get trade Caldwell saw it was not enough to keep up with his competitors ; that would not make him conspicuous. He had to get ahead of them. By new lines of goods, by new selling methods, by new service —by some means he had to differentiate himself from the established houses. That only would attract the buyer’s attention.
Up-to-date goods — near-perfect service: those were the features Caldwell chose. And—“Not up with the times, but a little in the lead”—was the line that he put on his stationery and advertising, and carries there today.
About this time the marine gasoline motor was beginning to reach its full development, and there was every promise of a remarkable boom in motor boats of every description. The racing motor boats were too few and scattering to lead any ship chandler !o carry a large assortment of special equipments. But what if the pleasure and commercial boat came into public favor?
Caldwell realized that here was a new field worth cultivating. He decided to make this his first feature. Immediately he began to lay in a line for motor boats. He was the first in the field, and he built up a reputation for carrying the largest assortment of motor boat equipment and supplies of any firm, before most of his old rivals awakened to the fact that there was an entirely new and profitable field for exploiting. It was not a side line of specialties he carried, but a full assortment of samples of everything that could be used on a motor boat. No matter what an owner of a motor boat wanted, it was his for the asking. Sometimes it cost more than the article was worth to get it in time to meet the demand, but that didn’t affect results.
Here is where he applied his idea of near-perfect service. Once an order came in for a certain kind of spark plug which was not in stock and never had been in stock. In fact, there was no such spark plug in existence. The inquirer had seen in a technical paper a drawing of it which an amateur had sketched and had concluded that it was on the market.
Instead of writing back that the plug could not be obtained, the ship chandler called into service an electrician and mechanic, and within twenty-four hours had a dozen of the spark plugs made from the design and ready for shipment.
That little order cost the maker ten times what he received for it, but he satisfied a customer. Not only that, but he satisfied himself that the spark plug was of unusual value. He tried it, tested it, and made certain that it was the best on the market. Then he applied for a patent, received it, manufactured it, and advertised it under his name. To-dav forty thousand of these spark plugs are sold for use in motor boats.
And this experience taught Caldwell to watch for novelties that might become permanencies. From that time on every new device announced in the patent columns of the papers that in any way related to his line he investigated carefully. In a number of instances he received exclusive selling rights for his territory of marine articles that later came into common use. And in a few cases he secured complete ownership.
A trade established and growth assured, organization—a real system of conducting his business—was Caldwell’s next problem. F'irst came buying. Here a triple-faced situation faced him; a lot of his stock was antiquated ; he needed new goods and the effect of a display; he had little money.
Fie played the first against the last to win the middle. He took a complete stock of his goods ; he gathered together the old cast iron and other old-class-boat equipments that were giving way before galvanized, bronze and brass articles; and he sold these
at any price he could get, in order to turn the stock into capital.
That gave him money.
Then he spread this money as thin as he dared to get a great variety and big display—and yet not affect his established standard of service. So he carried to the extreme the modern idea of small-lot purchases—at a time when it had not been preached and proved as it has been to-day.
Instead of trying to carry a large stock in any line, he kept on his shelves and store room what amounted to little more than a sample line; but he carried a wide variety. He could replenish his stock and even fill a big order in a few hours by telephoning the manufacturer. By this method Caldwell actually carried a larger assortment and a more quickly moving stock with a less investment than in the old days.
Expense of operation was the next managerial point of attack.
Flis thin stock saved interest on money invested, rent on space required. He went further. Cost of handling was reduced by sending goods direct from the manufacturer’s factory or local warehouse to the vessels, saving re-packing, extra haulage, time, clerical hire. Fie carried this to a point, during this period of close figuring, where a goodly percentage of the goods he sold never entered his store.
Caldwell saved money in his buying. To begin with, he bought only what he could sell—soon and at a profit. “Let the other fellow handle the goods there’s no margin on or that have to be carried on a gamble,” he said. And no salesman could load him up with a big stock of even a popular or staple article—even at a discount.
“1 can always buy from you below the retail price,” he would say, “but I can’t always sell above the wholesale price. As long as I’m sure of my dealer’s profit, why should I gamble?”
And he bought low. For he paid his bills when they fell due—if in ten days or four months. And while he bought in small quantities, he bought often ; he moved the goods—and that is what the manufacturer likes to see.
So the second note came due and was paid without a great strain ; and the third with less. It was a regular routine of business by that time—an ordinary “bills payable.”
Then began the real expansion. The kind of growth that every American business will recognize. The store
needed more space ; so he knocked out the partition between his store and the next and used the whole for his display room. Then he needed more store room for a bigger stock— so in a few years when his lease came up for renewal, he took the whole building for a term of five years.
For in the meantime Caldwell’s buying policy had changed. He was building up a higher standard of service—and he had more money. And
with money a business man can do much that would have been poor policy or impossible before.
Caldwell now carried a large stock where he before had carried an assortment. Often he found hurry orders had to be filled on the spot. Some motor boat would run up along the wharves and the owner come into the store for certain equipments which he wanted to carry away with
him. He could not afford to lose such customers. So he made a specialty of “filling orders while you wait.”
He came to carry the largest line of motor boat supplies and marine equipments in the country. Then he took the agency for a particularly good line of marine motors and for special batteries and spark plugs. He had to have more exhibition room for these, and hired another store in the
city with large show windows where he could display these to greater advantage.
Then came national expansion. Caldwell had started a mail order trade long before. In his third year he had gotten out his first ambitious catalogue and began to make a bid for the national as well as the local trade. He advertised conservatively and increased space in trade and other papers only as actual orders warranted.
The mail orders increased. Big out-of-town sales and shipments warranted the next step—the opening of branch stores in other cities of the country. These branch stores were selected in response to demand only. And as this came chiefly from people interested in motor boating, the strategic locations were on the rivers, lakes and along the seashore. And in the summer time when the motor boat season was at its height, temporary agencies for their goods were established at points where the demand appeared to warrant it. On some lakes and rivers Caldwell & Caldwell
now keep the agencies open four months in the year, and then close them in the fall, but re-open again in the spring for business.
Then came the final development— manufacturing. It started with the little spark plug—and got a real impetus when the old Commodore grew tired of the ventilator that saved the first anniversary day. When Caldwell had reached the state of assurance he proposed to the Commodore that they put the ventilator on the market. And to-day it is being manufactured on a large scale—with the royalties evenly divided between the Commodore and Caldwell.
After this Caldwell was always ready to take up a new appliance in his line. And to-day he owns and controls a score of patents—and the product is sold from his big new building in New York, his many local stores, his dozen branches, his score of agencies.
And it all began with a thousand dollars and a worn-out trade.