Yesterday I did an extended Q&A session at Techstars Chicago. Great group, great questions. I really enjoyed it.
Before the talk, Troy, the guy who runs Techstars Chicago, showed me this board they had propped up on an easel outside the office.
The board listed every company in the current Techstars Chicago class, along with some numbers. The columns included inventory, inventory sold, remaining inventory, and net profit.
Here’s a picture of said board:
These are the results from the challenge. But what was the actual challenge?
The challenge
Each company was told to go sell bottled water. Each company had to decide how many bottles of water they wanted for their inventory. They couldn’t get more later. They had one set of inventory and that was it. They could charge whatever they wanted per bottle.
A few other rules… They couldn’t sell them in the Merchandise Mart (which is the massive building where Techstars Chicago is headquartered), so they had to hit the streets to find buyers.
I believe they had one day to sell their water.
Observations from the results
- The companies that were over-confident lost the most money. In this case I define over-confident as taking on too much inventory.
- 75% of the 40% of the companies that were profitable ended up with zero inventory. If they had a second chance, I wonder if they’d increase the price of their water. It’s impossible to tell from the board when the companies with zero inventory ran out of inventory, but they may have been better off selling their bottles for more and ending up with just a few extra at the end rather than zero. Does zero mean they underpriced their product?
- It’s a lot better to only sell 110 bottles and make a profit of $108.60 than it is to sell 868 bottles and end up losing $331.20. Again, impossible to tell from the chart, but I wonder how much work went into selling 868 bottles only to lose $331.21 compared to how much work went into selling 110 bottles and ending up with a $108.60 profit.
- The top two sellers (Peoplematics and Project Fixup) both lost money.
- SocialCrunch, the company that ended up with the highest profit, were sitting in the front row at my talk ;)
I wonder if the results in the water challenge will mirror the results of the companies themselves if/when they get their own actual products to market.
Overall, I love this exercise. I think this is a great idea. No matter what you do in life, selling is a core skill. And there’s nothing quite like having to hit the bricks and sell your wares. It’s the best teacher you’ll ever have.
Jared McKiernan
on 11 Jul 13http://www.chicagobusiness.com/article/20130606/ACCELERATOR/130609916/inside-techstars-chicago-one-startups-summer-long-sprint
This article has a few more details about the contest rules and how SocialCrunch pulled out the victory.
Greg
on 12 Jul 13@Jason
Apparently you’ve never watched an episode of The Apprentice.
This basic format is common on that show.
The top performers always:
- have low inventory, and
- most importantly … pimp out their rich friends to buy a single bottle of water for a ridiculous sum of money.
Essentially, it becomes a popularity contests on who has the richest friends who will come down and buy your product.
As a result, these contests immediately become useless.Spac
on 12 Jul 13Interesting. This reminds me of an interview of DHH talking about revenue vs profit.
@Greg
on 12 Jul 13Sitting there telling Jason about business while you purport to watch TV all day. Baffling.
Vicki
on 12 Jul 13I want to know: what the water cost per bottle what each company sold their bottles for if they were allowed to change the prices (apparently so, from the other article) if they were allowed, dd they change the price as the day went on
Knowing that each company was “dinged” $80 for every participating employee was interesting.
Vicki
on 12 Jul 13Greg -
You wrote: “The top performers always: ... most importantly … pimp out their rich friends to buy a single bottle of water for a ridiculous sum of money.”
In this case, the top performers cut deals with big companies. Seems like a rational and typical business move to me.
Alex
on 12 Jul 13As one of the guys on the Peoplematics team, I’d love to share with you what we were thinking going into this exercise. In mind was that famous quote from Michelangelo: “The greater danger for most of us isn’t that our aim is too high and miss it, but that it is too low and we reach it.”
Our team made the conscious decision to pick an outrageous target (in this case 2 pallets of water) just to see how that would push us to perform. We also made the decision for our entire team to participate in the experience even though it came at a cost simply because it was a great bonding opportunity. We actually continued to have sales for the remainder of that day and ended up selling over 1200 bottles and breaking even.
We did learn many important lessons from this exercise which included the difficulty of selling, challenges of forecasting, startup optimism, and the logistics of moving over a ton of water. However, I think had we tried to make this an exercise of profitability rather than an exercise of personal challenge, we would have achieved only a fraction of what we ended up doing.
Thanks for visiting us Jason and for a great talk. We were inspired.
Greg
on 12 Jul 13@Vicki
Said another way … Enterprise Sales.
Exactly the business Jason has repeated said he doesn’t want to be in.
Lee
on 12 Jul 13Interesting… but all I can think about is all those wasted bottles. Can we stop with the bottled water already? Chicago tap water is fine.
Mart
on 12 Jul 13Reminds me of the local guy that sells Christmas trees out of a little grocers show and a conversation we had. For the 3rd year running they had way too many left at the end of the season – literally a few hundred left. The boss always over ordered. Three years running that had happened. Three years they had made a loss on this line.
But it was the simple devastating truth of the wizened shop floor guy at the sharp end, that cut through to the bone: “The most important thing you must do is sell them all -it’s the surest way to make money.” That would have made it successful. From there you can learn and have funds to reinvest with much more knowledge of what worked.
Joe
on 12 Jul 13I think you’re reading too much into this exercise. The most profitable team sold much of their inventory to friends for $25 to $75 per case. Asking friends to pay 5 to 15 times market price for a product hardly seems viable for a company’s real products.
Sarah
on 12 Jul 13@Joe
Luxury brands do exactly this and have quite a bit of success doing so.
Parker
on 12 Jul 13Regardless of how interesting the exercise may have been it just makes me sad to hear that much bottled water was being sold.
Bottled water is a plague on our environment and not something that should be encouraged! Something that is virtually free being sold for more per gallon than gasoline and at the environmental expense of the community it was pumped out of.
Guangzhou Rolex
on 12 Jul 13@Sarah: “Luxury brands do exactly this and have quite a bit of success doing so.”
Luxury brands make money by asking friends to buy their stuff?!
Akii
on 12 Jul 13probably not all the teams tried to sell ridiculously overpriced water bottles to their friends. Still loss is a clear sign of wrong strategy.
GeeIWonder
on 14 Jul 13@Parker A pointer: Saying water is virtually free is not a helpful (or necessary) addition to the world view you are espousing. It most certainly is not.
Mike Ekim
on 14 Jul 13So, Nexercise sold water for: US$ 0,01636 each?
Awesome.
Berserk
on 14 Jul 13@Mike Ekim: No, they made $0,01636 per bottle. They had some costs too.
Fabiano
on 14 Jul 13I still don’t get how much a single bottle of water costed to the each company for the initial upfront.
This discussion is closed.