Go to Top
(800) 851-2530

An Economist Walks Into A Bar…

Except…it's not a bar. And it's three economists, not one.

When three economists on a roadtrip to Maine after an academic conference in Boston wandered into a local shoe store looking to kill some time, little did they know it would spark a nationwide trek in search of Main Street business lessons that big and small business alike might learn.

Michael Mazzeo, Paul Oyer and Scott Schaefer were so intrigued by the unusually pushy sales staff that they engaged the owner and staff in a long conversation about the merits of the store’s secret shopper program. The conversation inspired the trio to hop in a car, escape the ivory towers of b-school, and head out on a road trip through America’s heartland on a quest to answer a single question: What can big businesses on Wall Street learn from small businesses on Main Street?

Instead of teaching the tried-and-true case studies from the likes of GE and Microsoft, what if they could instead uncover from back road businesses a more tangible way to learn about everything from pricing to brand management to team building?

Why study Sports Authority when you can learn from Mike Bodart, the sporting goods king of Columbus, Indiana? Or why not learn about scaling a business from Dr. Burris, the flying orthodontist who operates multiple, profitable practices in rural Arkansas?

The story of their journey is told in ROADSIDE MBA: Backroad Lessons for Entrepreneurs, Executives and Small Business Owners, a sort of Keynes-meets-Kerouac book packed with authentic insights from small businesses from Alabama to Idaho that every executive or entrepreneur can learn from. At every strip mall and mountainside pit-stop, the authors apply classic economic reasoning to the strategic questions these small town small businesses – and all businesses – struggle with.


I asked each of the others the same question: what is your personal favorite lesson or example with respect to what are arguably the most pressing challenges facing small business owners today: scaling a business, product differentiation, setting prices, negotiating effectively, and incentives for employees.

On Scaling a Business

Scott: We heard a great growth story during our visit to Mugshots Grill and Bar, which started in 2004 with a single location in Hattiesburg, Mississippi. Owner Ron Savelle now operates three locations across Mississippi and even one in Baton Rouge, Louisiana. The geographic spread means Ron needs to find ways to monitor operations remotely, and he does so with clever uses of technology, including microchipped beer taps that send data straight to Ron's phone.

Paul: I talk to students about lots of businesses where I say, “That won’t scale” and I probably would have said that about orthodontics. But Braces by Burris in Jonesboro, Arkansas shows there are scale economies to be had in orthodontics if you look at it right. They have a number of good examples of this including the fact that they made infrastructure investments so that they could quickly and profitably handle Medicaid claims. This allowed them to increase their business substantially and better amortize their other investments in equipment and the like.

Mike: Even a business with profound economies of scale won’t be successful if there isn’t enough demand to justify the initial investment. Steele Rubber Products, Inc. of Hickory, North Carolina manufactures replacement rubber parts for classic automobiles – it is a scalable business because once a mold is made for a particular part, it is relatively inexpensive to produce the actual rubber parts for sale. Deciding whether to make molds for a specific classic make/model involves carefully estimating future demand for collecting that type of car. The company recently added the Ford Pinto to its catalog, a surprise to us given its reputation as a lemon but sensible given the large number initially sold and the recent emergence of Pinto collectors clubs.

On Product Differentiation

Scott: As we trekked last month through California's Central Valley, we visited with Rosa Brothers Milk Company in Tulare. Milk is a commodity, but the brothers (Noel and Rolland) are trying to break free by differentiating on quality. They've built a milk processing plant and are selling milk (in glass bottles) and premium ice cream from Bakersfield to Fresno. Building a brand, securing distribution, and managing a plant present new challenges for the brothers --- very different from those of managing a herd of dairy cows.

Paul: I’m going to use an example based on a company I visited with a small group of students near Stanford. We went to the Palo Alto branch of Fraiche, a small frozen yogurt chain. Frozen yogurt is everywhere now and competition is fierce. Fraiche has focused on the high-end, organic segment, leaving the lower end to Yogurtland and similar outlets. There is not room for many such stores in the area and, as a result, Fraiche can gain a loyal and sizeable market in a segment that is not the most price-sensitive.

Mike: Diana Geddes is the affable owner of FitTime for Women in Frankfurt, Kentucky. Diana carefully tailors the services offered at her gym to the target demographic – there are lots of fitness classes, free child care, etc. But, as importantly, Diana has carefully chosen not to invest and incur costs in things her customers don’t value. While competing gyms have purchased the latest new fitness equipment, Fit Time has continued to use older models because according to her ladies, “a treadmill is a treadmill.”


On Setting Prices

Scott: One of my very favorite visits was to Arnold Tool and Die in Council Bluffs, Iowa, a machine shop that specializes in custom work. To price jobs, owner Jim Hackett needs to somehow anticipate his own costs to make a part he's never built before and then also anticipate the value he'll be creating for his customer. Pricing is more art than science in cases like this, and Jim's 40 years of pricing experience create a barrier to entry that's tough for less-experienced shops to overcome.

Paul: When in doubt, talk about dogs! We visited Dogma Dog Care in the suburbs of Atlanta where the owner, Robin Crawford, had learned how to attract the price-sensitive dog owners while not giving too much away to those for whom Dogma is particularly convenient (so they are willing to pay a bit more.) She used coupons and targeted advertising to help bring in customers and keep the bottom line healthy.

Mike: It’s often difficult for a business to discount its products; in retail, for example, manufacturers may have minimum advertised price (MAP) policies that essentially prevent sales. Rosi Johnson, the president of Mississippi Music in Hattiesburg, described a creative solution to this challenge. While she can’t offer a price break to parents purchasing an instrument to play in the school band, she offers services like repair/replacement contracts and financing as a bundle. This expands her strategic options because the instrument is more attractive to purchase along with the additional services.

On Negotiating Effectively

Scott: Paul Dennis, President and CEO of Gaylord Chemical in Slidell, Louisiana, faced one of the toughest negotiating challenges we saw. The company manufactures a solvent that has a variety of applications. To do this they need a steady source of sulfur, a corrosive element that is notably hard on industrial equipment. Gaylord built a plant next to an oil refinery in Alabama, and now the two entities find themselves mutually dependent. Gaylord needs the refiner for sulfur and the refiner needs Gaylord to get rid of its sulfur. Nailing down partnership details in an up-front, long-term contract enables Paul to spend his time on the core business rather than haggling with his partner.

Paul: It was not the best smelling place we visited, but the lessons in negotiation were rich at Eko Compost in Missoula, Montana. It’s a great example of the importance of knowing your own next best option, as well as that of the party you are negotiating with. Eko Compost gets its primary input from a sewage treatment plant next door. Knowing that the plant next door would find it very expensive to get rid of the waste any other way helps Eko Compost be aggressive in negotiations.

Mike: You’re in a better position in a negotiation if you have better information. Panhandle Converter Recycling in Dothan, Alabama made gathering information about the value of precious metals present in junked catalytic converters a cornerstone of its strategy. Uncertainty about the value would lead to bad price offers to junk dealers, but if Panhandle has a good idea what’s inside before it makes a deal it can avoid overpaying. Lyle Peluso, Jr. gave us a great tour of the recycling facility but wouldn’t share his spreadsheets – the company’s key competitive advantage.

On Incentives for Employees

Scott: Financial incentives tied to performance can be a double-edged sword, and we saw a great example of this in Saint Joseph, Missouri. JR Cheek owns JR's TBA (which stands for tires, brakes and alignment). JR told us he wants his technicians to do a thorough examination of customers' cars --- in part to identify needed repairs that customers might not be aware of. To motivate this additional effort, JR experimented with tying the pay of technicians to their success at identifying these repairs, but found that this caused techs to do a hard sell, which turned customers off. JR now monitors and encourages this activity, but doesn't factor it directly into pay.

Paul: Throwing money at a problem does not always fix it. Employees respond to incentives but, if you ask them to do something they can’t do real well, incentives won’t work. We saw that at Lewis, Hooper, and Dick, an accounting firm in Garden City, Kansas. They wanted to grow and build more of a sales-oriented culture so they started paying a bonus to people who brought in new clients. It helped but not a lot – you can’t change a culture quickly with money.

Mike: Giving your employees monetary incentives to perform better can enhance your productivity, but it’s important to make sure the rewards are tied to activities that the workers actually control with their effort. Rudy Klein of Klein’s DKI in Coeur d’Alene, Idaho had two types of employees in his disaster cleanup business: sales people that called on insurance companies and estimators who proposed a price based on how much the cleanup would cost. Since jobs were only profitable if the costs were estimated well, offering a bonus to estimators tied to profits made sense. But such a bonus plan would be problematic for the sales people; since they only had an impact on the revenue side of the ledger.

I asked a final question: what's the one thing you want readers to take away from this book?

Mike: The idea that the answer to any question of business strategy is, “It depends”. All industries and companies are different and their strategies have to reflect that. There’s no “right” answer that applies to strategic issues across companies. The successful companies are those that figure out what is appropriate given the markets they face and their own capabilities.

Scott: Most business books won’t accept this reality – they claim to have a secret formula or that your company will be a success if you just follow what other successful companies have done. We believe that kind of advice is shallow and potentially dangerous.

Paul: And, most importantly… visit the South in the Winter, visit the North in the Summer, and don’t take Scott to any hotels that have any character.

NOTE: Originally published on Amex OPEN Forum.

24 Responses to "An Economist Walks Into A Bar…"

  • Moncler Women Overcoat
    Tuesday, November 18th, 2014 - 4:07 PM

    Moncler Women Overcoat

    Delbert Belton (snapshot from Belton company)Spokane police major frank Straub, with just one media news release seminar wednesday that’s streamed real time about the, said thinks Demetrius Glenn on top of that Kenan Adams Kinard, Both 16, previously…

  • doudoune moncler homme
    Thursday, November 20th, 2014 - 6:18 PM

    doudoune moncler homme

    This absolutely will sound like a definite case of the RIAA getting angry this not anyone is actually acquiring new music much any more, and they are losing profits, thus take a look at merely pursue this one guy and also YOUR PET pay money for the bel…

  • Canada Goose Soldes
    Sunday, November 23rd, 2014 - 6:08 PM

    Canada Goose Soldes

    Initial posting: The 5 various Finest WEB OPTIMIZATION Guidelines You Keep Ignoring | Straight Procedures Worthy publish Donald. Often the article ventured into become far more practical than what We estimated whilst pressing the link about BlogEngage.

  • gucci women low shoes
    Tuesday, December 2nd, 2014 - 1:57 PM

    gucci women low shoes

    When deploying ammo bags / boxes or medpacks indoors, they will ocasionally float up to the ceiling in mid air, as if gravity has suddenly reversed, then fall. I unaware if this is just a silly graphical bug or actually affects the dynamics of the bag…

  • nike air max 90
    Thursday, December 4th, 2014 - 4:08 PM

    nike air max 90

    Here’s they have got all of us gotten simply soon: Mr. Nesson

  • boxing day timberland bianca
    Saturday, December 6th, 2014 - 8:45 AM

    boxing day timberland bianca

    Finita la settimana del Salone del mobile, con relativo Fuorisalone, abbiamo tirato le somme. Dieci post presentano la selezione della redazione di Abitare su quello che più ci è piaciuto. Diteci anche la vostra preferenza

  • timberland kids shoes 54 below
    Saturday, December 6th, 2014 - 9:38 AM

    timberland kids shoes 54 below

    Un complesso lavoro di omogeneizzazione ci ha comunque permesso di stilare una sorta di classifica dei costi complessivi di ogni missione. Quella più corposa va sotto il nome di competitività e sviluppo delle imprese, a cui nel 2010 sono stati destin…

  • timberland boot company insoles
    Saturday, December 6th, 2014 - 11:21 AM

    timberland boot company insoles

    Vabb猫 ormai vi siete annoiati a sentir parlare della Curva di Laffer. Si tratta in fondo di un semplice grafico in cui si mette in evidenza come all delle aliquote (da un certo punto in poi) diminuisce il gettito. E regola di buon senso che i nostri po…

  • authentic gucci hobo bag
    Saturday, December 6th, 2014 - 12:56 PM

    authentic gucci hobo bag

    14. POMPIDOU CENTER or Beaubourg Museum, opened in 1977, closed Tuesday; mostly post 1918 art work; duct work and steel framing on outside.

  • モンクレール ワッペン
    Monday, December 8th, 2014 - 1:28 AM

    モンクレール ワッペン

    Zero amount video clip game, Or amusingly generally known as Zero mike match in a sheet of Engrish in an original title card internet page, is a pretty simple little bit offspring within creativities really in the act. we travelling to few of new spous…

  • グッチ 財布 コピー代引き
    Monday, December 8th, 2014 - 12:41 PM

    グッチ 財布 コピー代引き

    (a lot german born preachers I have seen, the native in german, by means of your sermons word for word.) i decided I needed to look professionals in the eye furthermore get hold of them face to face. this I could make additional problems, about the con…

  • モンクレール ダウン 激安
    Monday, December 8th, 2014 - 7:25 PM

    モンクレール ダウン 激安

    game One goes! Krillin demonstrates Pintar a immediate golfing lessons additionally clears the engagement ring for the next number of dating services? Piccolo and as a consequence tibia. Piccolo stuns the audience by- surrendering inside it’s strange…

  • wow gold
    Tuesday, December 9th, 2014 - 8:23 AM

    wow gold

    They wow gold short-lived perfect. people assist you stay styles, not damp and they really feel absoutely pleasing. these are the ideal winter season wow gold really. It’s really invaluable during the cold months. flavor, relaxation & fashionth multi…

  • 2014 Replica Handbags
    Tuesday, December 9th, 2014 - 12:17 PM

    2014 Replica Handbags

    love it thanks for shipping so quickly

  • buy wow gold
    Wednesday, December 10th, 2014 - 3:52 AM

    buy wow gold

    take pleasure in. these types of. buy wow gold.

  • sac celine modele
    Wednesday, December 10th, 2014 - 2:18 PM

    sac celine modele

    Here’s a research paper on the anti inflammatory effect of lempoyang :The aqueous extract is as effective as reference NSAIDs.

  • mcm london 2014
    Wednesday, December 10th, 2014 - 5:37 PM

    mcm london 2014

    “We believe we submitted the best primary routes available, given the complexity,” he said.

  • cheap mulberry bags
    Thursday, December 11th, 2014 - 10:20 AM

    cheap mulberry bags

    try awdio. comits an international dj web page.. a lttle bit diff as opposed to radios on below but nonetheless amazing Try out filtermusic. online it is number of plenty of web r / c.

  • nike tn pas cher
    Thursday, December 11th, 2014 - 12:32 PM

    nike tn pas cher

    Even if Now i’m managing Macintosh, iPad and iPhone Need to declare this kind of videos with the preview search super very good.

  • wow gold
    Thursday, December 11th, 2014 - 7:12 PM

    wow gold

    I got my brand new Bailey Press button wow gold during chocolates the previous week monday, and they are just about the most pleasant wow gold that i’ve ever worn out! It is suggested these wow gold that are going to including ease but additionally a…

  • mcm bag price
    Thursday, December 11th, 2014 - 7:14 PM

    mcm bag price

    Hyun Jin Ryu is the solid third starter, and the Dodgers added Dan Haren to the mix in the offseason.