In 1993 a friend took me to the Lemuria Bookstore, which literally changed my life. John Evans, the owner, hired me and became a good friend and mentor. After about two years at Lemuria, I combined my independent bookselling experience with a three-year stint at a university press before deciding to pursue my MBA for professional development and to consider opening a bookstore. Using the business plan I had to create for a class project, I negotiated a lease and hired an architect, a lawyer and an accountant. The plan was and still is the key element for evaluating, planning and executing the birth and growth of Newtonville Books, my bookstore in Newton, Mass.

Recently I was given the opportunity by Tom Gardner, cofounder of The Motley Fool, to be a guest speaker at his MBA class at Georgetown. What follows is a distillation of that talk.

To be an entrepreneur and compete in a marketplace, you must have passion, focus, impact and sustainability.

On Passion

It takes passion because you've got to get up every morning wanting to do your entrepreneurial thing more than anything else. Friends will be making more money and changing jobs seemingly every week. You've made a serious commitment that places a substantial strain on your health, your family, your friendships and your finances, not to mention your ability to watch all of the NCAA basketball tournament.

On Focus

Competing takes focus because you must understand your passion and be able to articulate what you are attempting to accomplish in a matter as simple and profound as a mission statement. This degree of focus can only stem from understanding your market, your customers, yourself and your competitive position. I believe that all of this can only be defined if you have a good, sound business plan.

To understand my market, I evaluated the bookselling industry by analyzing bookselling trends and consumer book-purchasing statistics. I also studied this information and my competition in a local, regional and national sense. I evaluated my customer base by obtaining demographic information on my local area, matching it with consumer purchasing statistics and demographic information for a typical independent bookstore patron. I also spent time in the area, observing and talking to people and local business owners.

You need to know yourself in the sense of your capabilities and your vision and values pertaining to what you want to create as a business. This is important because it will help you determine the type of people to enlist for your business and help you match your values with the type of competitive position available for your business. Available opportunities may or may not jive with who you are and what you want to create for your business and yourself. For example, consumers basically weigh five factors in determining whether to patronize a particular retail store:

  • the breadth and depth of product assortment

  • the price of goods sold

  • the service

  • the convenience of the shopping experience

  • the ambiance of the store

By understanding these retailing factors and knowing my competitors' strengths and weaknesses for each, along with understanding my customers and myself, I was able to develop a focus for what I wanted to create and how I was going to compete in the marketplace. I knew we would lose the battle of price, so I chose not to compete at all. Even with a smart, eclectic selection, a Web site with searchable database, a good location and long hours, I would at best hold my ground for selection and convenience. My competitive position must then be a combination of service and ambiance, which matched my vision for a store like Lemuria. John Evans effectively surpassed competition in these two factors. He accomplished this task by creating a bookstore with wonderful, vivid colors and design combined with great books, a smart, well-read staff who offered good service and recommendations and by hosting an incredible events program. I called this combination of service and ambiance the experience of a retail store and chose to compete by elevating my customers' experience above that of my competition.

To accomplish this competitive position, I invested in creating a brilliant ambiance for my bookstore by combining vivid colors and specially designed bookcase displays, and by exhibiting artwork by local and regional artists that changes every quarter. As for employees, I hired two smart, local parents with book experience who job-share the week and help ground the bookstore into our community. I pay them well for retail and look for other benefits by offering flexibility for taking time for family during the school vacations and holidays. Other benefits include a 40% discount on books, a wealth of galleys to read and health care for my full-time staff. I promoted my best employee to manager when I saw that she was more capable of managing the employees and daily duties than I was. Quite simply, we look for people who love to read, are smart, nice and articulate. In the words of a bookseller I admire, "You can teach someone just about everything except how to be nice—and that's more important than anything else in retail."

For my book selection, I work very closely with my sales reps and try to buy directly from all publishers. I select every book for my store based on a combination of sales history, my sales reps' advice and our opinion of the book's value in my bookstore. My goal is to be both a teacher and a student of the community, listening to their interests, relaying the interests of the broader industry and wading through the thousands of choices to expose them to good books that might otherwise be overlooked.

As for events, I think we have some of the best in the country. We have brought over 100 authors to our community and have created an events series that competes with other local entertainment options and helps elevate our community. Two new series are hosted with a local restaurant. One is a Book Club Dinner with the Author evening where patrons get a chance to have dinner with an author as part of the book club meeting. The other is a Books & Brews series where author and patrons share in free appetizers and a free pint of beer after the reading, giving customers a chance to meet and talk with an author on a more personal level. The guiding influence to all our work and my decisions is based on my focus on creating an experience for our customers that is well above that offered by any competitors.

On Impact

We are a 1,500-square-foot bookstore in a suburb of Boston and we are somehow growing at a 30% pace in a nationally flat market—without discounting. We have a well-recognized events program, and I sit on the Strategic Planning Committee for the American Booksellers Association and Advisory Councils for the ABA and the New England Booksellers Association. When I first decided to open an independent bookstore, people asked me, "Why in the hell are you doing this?" and now some ask, "How in the hell are you doing all this?" The good work is there for us, but I'm quite sure there are other booksellers doing just as good work without the recognition.

Your work must have impact or no one really knows about it and it cannot be competitive. To have impact, it is critical to understand how to market your good work to the people who matter. You first need to understand that the term "customer" is broader than one might imagine when it comes to whom you target for marketing to create impact. I target book buyers, my employees, my family, other booksellers, publishers, authors, media and other local merchants when marketing my work. I want them all to know about me, my bookstore, our work and my vision for bookselling. I send out a bright, two-color monthly postcard listing upcoming events, underwrite spots on our local NPR affiliate radio station, print flyers for in-store handout, send releases about our events to local media, enlist local businesses in some of my promotions and write a weekly e-mail newsletter in which I try to be personal, informative, fun and brief.

You need to be consistent in your marketing work and be patient when choosing the moment for attempting impact. There is an Asian proverb that says, "Don't deploy a concealed dragon." In other words, a power should be hidden until it is mature and sufficient enough to affect a situation constructively. For me, the time to unleash the dragon came when we were nearing our two-year anniversary. Everything seemed to be in line for the bookstore: our employee situation was good, our events program was strong, our energy level was high and our work and marketing efforts were consistent. So I decided to write a major release about the bookstore, our work and my involvement in the industry and send it to places like our National Public Radio affiliate, Publishers Weekly and the Boston Globe.

For the release, I enlisted the support of authors who had visited and loved the bookstore by asking them to provide blurbs about the store. It was wonderful. About 12 authors sent stunning testimonials that I used in the release, on our bookmarks for customers to enjoy and in my weekly newsletter to tout our work. The result was pride among our staff, our customers and the authors and a publicity surge that included a full-page article in PW and an interview with me and a writer friend on NPR's Here & Now. That was over six months ago, and people still mention reading about the store in PW and listening to that interview on NPR.

That impact helped us discover new customers, made existing customers more loyal, impressed publishers and authors and elevated the value of our work in the marketplace.

As a bookseller, I must now make some book recommendations for reading when considering marketing. There are some great books out there on marketing, such as Emanuel Rosen's Anatomy of Buzz (Doubleday), Malcolm Gladwell's The Tipping Point (Little, Brown), Harry Beckwith's Selling the Invisible (Warner), Sun Tzu's The Art of War (Shambhala) and Seth Godin's Permission Marketing (S&S). My recommendation is to read, observe and learn how to market with impact.

On Sustainability

So, now we are working on the next level of impact for the bookstore by focusing on our events programs and inventory management. Why inventory management? I've discussed passion, focus and impact but an element key to competing that is often the most difficult is sustainability.

Someone with more years of experience and more battle scars should be writing about this matter, but I'll tell you what I think is important for sustainability. You must understand the numbers; if you are making managerial decisions for your business, then you must learn at least a basic understanding of financial statements. This includes the balance sheet, the income statement and statement of cash flows. You should understand the ratios that are important for evaluating your business and its performance. Have a good accountant, but only you can understand the implications of these statements and ratios and the implications of decisions that change those numbers.

Again, my business plan detailed the financial statement projections and exhibited for comparison a "highly profitable" bookstore's financial statement as a percentage of income (obtained from the ABA). Each quarter, I evaluate my sales growth over the previous year's quarter and analyze my income statement. I compare my income statement's percentages to that of a "highly profitable" bookstore. With the income statement and balance sheet, I can create a cash flow statement that tells the story of where the money for my business is coming from and going to.

For example, from 1999 to 2000 we saw growth of over 35% in sales but I took very little money from the business and did not know why. By evaluating these statements, I could see that nearly all of the growth in sales went into increasing my level of inventory (150% increase from 1999 to 2000). The bookstore's packed shelves and overstock showed it as well.

By simply managing my bookstore's inventory level more effectively, I could draw a substantial amount of money from the store's cash flow. Another example is that my payroll is about 35% higher than that of a highly profitable bookstore. I could lower this level relatively easily, but I understand that my employees are a critical part of my bookstore's experience. This is not an area in which I want to be stingy because it is critical to my competitive position. Only by understanding what the numbers mean both on paper and in real life can you make the decisions best for maintaining your focus and investing in creating impact for your business.