For the past 15 years or so, I have presented a case study to MBA students at the Darden School of Business at the University of Virginia. The structure of the case is simple: I present the basic economics of a typical trophy business and ask the students to debate whether or not it makes sense to start a trophy business. After about an hour or so of discussion, I take a poll of the students to see how many think entering the trophy industry is a good idea. Invariably, the vast majority of students think it is a really bad idea.
It is not hard to reach this conclusion: the industry is tiny and barely growing, there are few barriers to entry, product supply is concentrated among only a few distributors, margins are slim, each order is unique, business is seasonal and cyclical, average order size is small, acquiring new customers is expensive and good retail space is expensive. Most students want no part of the business.
I then tell them that I own a trophy company (now for over 20 years) and challenge the students to come up with a way to create a successful trophy business. And for the next half hour or so, we struggle to come up with some ideas to improve the economics of the business. Rarely does the class come up with compelling ideas that change the students’ impression that the industry should be avoided. On the face of it, I really cannot argue with them. Starting a new business is always precarious and starting a trophy business is particularly challenging due to the underlying fundamentals.
So what makes a successful trophy business? There is no quick answer and indeed even the question itself is a bit complicated. First, you have to define what success means to you and it is often way more involved than simply the financial lens viewed by the MBA students. We simply all look at success differently. While there are many types of successful trophy businesses, I will group them into a few buckets.
The Side Gig. The cost to enter the trophy business is small and can provide a small income from a proprietor working from his/her garage. These businesses are constrained by space and ability to bring on employees. They tend to be part-time businesses to supplement income, often in retirement. They either grow into a retail location or dissolve when the owner retires.
Lifestyle Trophy Businesses. For the vast majority of business owners in our industry, the business is a lifestyle choice. These are the small trophy shops located in most towns and cities across the country. While revenue and income from these businesses would in no way appeal to MBA students, they provide a platform for rich lives with deep relationships with customers, employees and suppliers. These businesses are the quintessential mom and pops, with fewer than 4 employees, and either disband when the owner retires or they are passed on to family members. The financial success of these businesses depend upon strong community involvement, attention to detail and strong customer relationships to keep customers from seeking less expensive alternatives.
The Retail Trophy Business. A few lifestyle trophy businesses grow beyond the mom and pop stage into companies with more employees, professional financial, production and sales processes and a greater chance of thriving after the original owner retires. These businesses come with additional challenges: inventory storage, cash flow management (employees and landlords want to be paid every month despite the seasonality of the business), payroll services, etc. While some of these companies have launched rudimentary web businesses, growth of these businesses is largely limited by geography and often financial resources.
The National Trophy Businesses. There are a couple dozen larger national trophy companies. Most of these businesses started out as retail stores which subsequently added mail order and later internet sales channels. A few, like my company K2Awards.com started out exclusively as an internet company and bypassed the retail business stage altogether. These companies have large warehouses stocked with managed inventory, over 30 employees and are professionally managed. The investment requirements are significantly higher than for the straight retail business due to the more complex and expensive websites, the larger real estate commitment and the employee and management costs. With the added risk and investment comes the possibility of attractive financial rewards with the larger companies selling over 1 million trophies, plaques and medals each year. Due to the small size of the industry and the relative short time frame in which these companies have existed, most remain family businesses that are expected to be passed onto family members.
Over the years, the number of trophy companies in the US has declined. So what do all of these remaining successful trophy companies have in common? The answer is not so much different than other industries: dedicated employees, quality products and services offered at fair prices, and an intense focus on the needs of the customer satisfaction, supported by prudent financial management.
To bring this blog full circle, the trophy industry is indeed competitive and challenging. While it is possible to achieve significant financial success, be prepared to define your success in other ways.
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