After weathering the dot-com meltdown and reengineering his business model several times, Jerry McLaughlin of Branders.com continues to ride high as an online distributor.
When talking with Jerry McLaughlin you get the feeling that you’ve known him a long time—he’s the kind of guy you’d like to sit down with and swap tall tales over pizza and a beer. At the same time you realize you’re talking with a charismatic individual who embodies the term entrepreneur. He’s inquisitive, smart, brimming with ideas and not afraid to try new things.
McLaughlin says he has always been curious about new experiences, and a little bit of a risk-taker—it’s this personality trait that prompted him in 1999 to leave a successful career as a venture capitalist and throw his hat into the ring with three partners to form one of the first online distributor promotional products companies—Branders.com (UPIC: BRAN8536). Today Branders is one of the leading promotional products distributors with millions in revenue, 3,500 products and more than 50,000 repeat clients. But it hasn’t always been easy.
In the 10 years that Branders has been in business, McLaughlin has weathered the dot-com meltdown, spent millions, lived in three different countries, changed the business model several times, and seen his three partners leave and pursue other interests. (McLaughlin is the only founding partner still with the company.) McLaughlin says all four partners are still good friends.
“There was no drama. One is now a sales coach and has just published a book and another moved to Eastern Europe,” he says. “Life comes along, things change. People move on to do their next thing.”
Like his former entrepreneurial partners McLaughlin pursued several different, yet successful careers, before landing in the promotional products business. He’s always looking for something new to learn, a new opportunity or challenge. Prior to his position with the prestigious California-based venture capital firm, Altos Ventures, he was CEO of the first internet-based clearinghouse of employee benefit information. He has practiced law (he received his Juris Doctorate with honors from Temple University in Philadelphia), was the founder of a successful advertising company in Philadelphia and was a U.S. Marine officer.
“There’s no master plan, I’m just curious by nature—to the horror of my father-in-law,” he jokes. “I’m interested in different experiences. I really want to live it [the experience],” he says.
With Branders, McLaughlin saw the prospect of starting a company where he could grow, learn and experience new things. He’s still growing and learning. It’s a place he expects to be for a long time. “Branders has been recreated along the way. We were realistic and had to face up to a need to change, to take it on. It is the same company, but there have been changes and new experiences. We’ve made enough money (through the years) to survive our own mistakes.”
The business was originally built on a model that convenience and ease in buying on the internet would drive customers to their site to buy products—a model similar to that of Amazon.com. In 2005 McLaughlin and his team saw a need for change and began a restructuring of its operations with an eye toward radical price reductions and low production costs. Rather than the Amazon model, the company was leaning toward the Costco, Wal-Mart model—creating a profit by making production costs lower than competitors’ and selling on low price.
The company cut costs, laid off employees and moved its operations to the Philippines with McLaughlin and his family moving to Manila so he could oversee operations full-time. But still, costs weren’t low enough.
From 2005 to 2008 McLaughlin continued his quest to lower production costs and prices. He moved to China to seek out the best-priced products, and built a U.S. factory where he could house and decorate the goods.
After almost 11 years the strategy is working and Branders is profitable. The business model, though, is a little out of the ordinary.
“Our market position is to do two things well,” he says, “bring people really good service and the lowest price we can bring. We try to be the customers’ buyer—get the best price we can—we aren’t trying to maximize our price. We set modest margins and don’t try to make a lot on each sale.”
This unusual business model is reflected in how products are sold and how the Branders sales force is compensated. Salespeople actually have a disincentive for making too much of a profit on sales.
“Our salespeople have a low target margin and variable compensation,” McLaughlin explains. “We only count repeat business; there is no commission on new business. The salespeople take care of customers hoping to turn them into repeat customers.”
McLaughlin says, while unorthodox, he and his team believe this compensation model is reasonable and rational. “It is a very interesting business model and it took us a long time to get there.”
Claire Covington, vice president of Branders, says she has seen many changes in the company since she first signed on in 1999.
“It has been wonderful working for Jerry—and I’m not just saying that. I worked for another promotional products company before I joined Branders and it has been a great learning experience,” she says.
“He brings new ideas and a new approach. Where I might have said ‘no, no, no,’ he’s very straightforward. He does a lot of research, evaluation and analysis [before making a decision.] That’s why he is so well respected.”
While speculation has Branders topping $100 million in sales in 2009, McLaughlin says as a private company they never disclose revenue. “We’re profitable by loads,” he said.
While it’s been a wild ride as one of the first e-commerce-based promotional products distributors, there has been one thing that has kept McLaughlin grounded—his family. With every change and every move he has their interests in mind.
“Manila is the pearl of the Orient. They have an American-friendly culture and some of the friendliest people you’ll ever meet.”
And, the move to Shanghai allowed his children, now 17, 15 and 11, to understand the Chinese culture and learn the language. “Learning is a lifelong experience,” he says.
Living back in California for a little more than year now, McLaughlin says he and his family spend time scuba diving and fly fishing. “I really get a kick out of my kids. I know they’ll grow up and leave one day, so we do a lot of group activities together—things that they can learn now and keep doing as they get older.”
As for his future and that of the company, McLaughlin says he expects to be with Branders though his kids’ lifetime. The business is thriving and he believes it will continue to do so. “It is having great growth, even through the bad times. We’ve seen web traffic go up a lot. Now’s not a bad time to be the better price.”