Rules to Live By, and Break, According to Staples Founder Thomas Stemberg (page 1 of 2)

These words, said Stemberg, who gave a talk last month at Wharton's Entrepreneurship Conference, have spawned a stream of bankrupt restaurants and golf companies. "I think following your passion is a really dumb idea. I follow a great market that provides an opportunity to satisfy customers and to make money."

In 1985 Stemberg did just that when he founded Staples. At the time, high-margin stationers dominated the sale of office supplies. Big corporations got discounts, but individuals and small businesses paid a premium. Headquartered in Framingham, Mass., Staples now operates 1,500 stores with sales of $11.6 billion. It is the largest of the three national office superstores, which together have a market of $27.8 billion.

Stemberg gave up running Staples' day-to-day operations in 2002 and is now working on ways to continue building the chain, including the rollout of a new concept, Staples Business Expo. The new store sells Staples's traditional office products, but also has teams of in-house consultants to help small businesses with computer and telecommunications equipment and photocopying.

In addition, Stemberg, a grocery executive before founding Staples, is building several new consumer-oriented businesses: Olly Shoes, a children's shoe retailer; KaBloom, a chain of floral shops, and Zoots, a dry cleaning company.

Successful entrepreneurs are optimists, according to Stemberg, who proceeded to tell a story about twin brothers - one an optimist, the other a pessimist. On Christmas morning the boys' parents showered the pessimist with gifts, all of which brought him anxiety rather than joy. He worried, for example, that the toys' batteries would wear out and that he would lose the Lego pieces. Meanwhile, his optimistic brother raced down the stairs to discover his present - a pile of horse manure. The optimist was overjoyed. "With all that horse manure, there's bound to be a pony in there somewhere," he said, and set out to shovel through the manure to find his pony.

"If you have ever hoped to be an entrepreneur," said Stemberg, "You have got to be one of those people with the shovel because you're going to be shoveling a lot along the way."

Overpaying for Bic Pens
Entrepreneurs must be willing to break the rules, said Stemberg at one point, citing the founders of Southwest Airlines, Rollin King and Herb Kelleher, who faced financial problems and 13 years of legal challenges on their way to creating a new model for their low-cost airline. "Kelleher and King were optimists and they prevailed. They did so by breaking the rules." Businesses always have to be on the move, Stemberg continued. "New competitors are springing up as old ones fade away. If the playing field is changing so much, so are the rules and you, as entrepreneurs, must break [them]."

Stemberg set out to break the rules of selling office products when he founded Staples. At the time, big companies did business with local stationers who gave their large customers discounts of 50% to 60% off list price. The best a small business could expect was 10% off, he said.

While researching his idea for Staples, Stemberg found that Toys R Us executives paid 85 cents for a dozen Bic pens. Individual customers and small business owners paid $3.68 for the same pens. "Let's be real," he said. "If you paid too much for advertising, maybe you got better creative. If you paid more for a lawyer, maybe you were getting better counsel.