Now, this is the way to start a promotional products home business. Leave your old job one day and immediately open up shop with clients ready and willing to sign deals.

Meet Scott Mollahan, the founder of Insight Resource Group (asi/231569), based in Orinda, CA, just outside of Oakland. “I talked to some of my clients to see if they’d stick with me if I started my own company. Many were very supportive,” Mollahan says, as he sips a glass of zinfandel during lunch at a golf course in the heart of Napa wine country. “It helped my conscience to know that there was some built-in revenue there when I first started out.”

Like the first deal he signed when he was on his own. Just about the day after opening Insight Resource Group, Mollahan was on the phone with Chalone Vineyards, a wine producer in the Napa region, that was looking to put together a program for its sponsorship of professional golf tournaments throughout the year. He had managed the promotional program for one tournament for Chalone at his previous company, but now they wanted him to oversee the production of their promotional items at eight different tournaments over a six-month period.

“I couldn’t believe it,” he says. “Here I am, I just opened up shop, I’m barely operational, and somebody is already throwing a huge deal at me. I was psyched. At the same time, I was also quite nervous.”

It was a big deal-indeed for Mollohan’s new home business. Mollahan says the Chalone golf tournament contract is a $100,000 project. Not bad for your first day in business. Mollahan was tasked with putting the Chalone logo on golf balls, bags, hats, shirts, umbrellas, golf tees, ball markers, and flag sticks. And all of the items had to be finished at the same time, delivered to the appropriate tournament sites and packaged like the client needed.

“It was quite a task, but it was so worth it,” Mollahan says. “I mean, that was a huge kick start to my business. The program has had a great response, and the client is looking to expand it even further. It was perfect timing.”

A Banner Beginning

Who owns a client: a company or a salesperson? It’s an age-old question, but in this case the answer is quite clear. Mollahan left his previous job and says he took about 80% of his clients with him. He had been a sales rep for Applied Graphics for more than 11 years, helping the print and promotional products company grow from a $5 million operation to more than $35 million. He alone was responsible for more than $3 million annually in revenue. He built a good client base in the wine and spirits industry – his backyard is chock-full of wineries and liquor companies – and had a solid mix of business between printing and promotional programs.

But when Applied Graphics was acquired by Innerworkings (asi/231438) in October 2006, Mollahan knew his time at the company was short. He stuck it out until the middle of last year, but the new management structure led him to think of other options. His first thought: Strike out on his own. “I felt confident enough and knew enough clients that I felt were loyal to me to take the leap,” he says.

Of course, starting a business at 38 with four kids at home under the age of 8 can be quite the scary proposition. “Yeah, I was freaked out initially,” he says, while driving to see a client and also reading e-mails on his Blackberry. “It’s scary times when you decide to leave the comfort of a job you’ve had for many years and start out on your own. You worry about a lot of things that you didn’t have to think about before – like paying bills and hiring employees and having enough money to cover your costs.”

Yes, that’s an area that gets most new businesses into trouble. Cash flow is often the issue that entrepreneurs underestimate – and Mollahan was no different. Insight Resource Group had such a successful beginning that Mollahan soon found himself in a cash crunch in the fall last year. The company reeled in revenues of about $2 million between June 2007 and January 2008, and the need to front money on many of those deals to pay vendors before clients paid their bills put Mollahan’s company into a cash crunch that successful new businesses often find themselves in.

“It was tough for about a month there,” says Mollahan, who started his business with his own savings and no other funding behind him. “The payables and receivables just weren’t lining up, and I was paying out a lot more than I was getting in within any kind of timely fashion.”

The solution? Mollahan had to spend a lot of his time talking to clients about bills and convincing them to pay. “It’s not something I like to spend time on because it means I’m not out selling,” he says. “But it was necessary at that time. I think clients had to personally hear about the situation from me to really react. They receive bills and confirmations that clearly lay out payment terms, but it seemed to really work when I picked up the phone to talk to them about it.”

Small Company; Unique Approach

As the lone salesperson for his company, Mollahan knew he’d need personnel help to get his company where he wanted. He readily admits one of his weaknesses: “I’m not a good administrator,” he says. “I’m a salesperson. I like building relationships and coming up with projects for clients.”

So, thankfully, he has somebody in his own home who can take on some of the administrative aspects of Insight Resource Group. Mollahan’s wife, Valerie, was instrumental in getting the company set up initially. She purchased and set up the computer system (six computers and one backup), scouted out office space, helped to hire employees, determined human resource programs and developed some marketing plans. “I love the various aspects of the business,” says Valerie, who is in the office on this late-February day to take the company’s employees out to lunch and get a pulse of how things are going in the office. “We have so many different programs and interesting projects going on at any one time,” she says. “I’m happy to help out in any way I can.”

In envisioning his company, Mollahan knew he wanted to have a family-friendly atmosphere. Really, how could he have it any other way? With three boys and one girl at home (ages 2, 4, 6 and 8), the Mollahans have their hands full without a promotional products business to run. So, in hiring employees, Mollahan is using job-sharing situations as an enticement to strong workers who are looking for a flexible schedule. He has hired four women who share two full-time jobs. Two of them, Michele Houston and Mary Jaccodine, share the job on the promotional side of the company. And the other two, Robin Bateman and Dana Roberts, share a job on the print production side of the business (Mollahan says that the two sides of the business are about evenly split as far as the company’s revenue is concerned).

“It really started as a job share, and it is ostensibly a job share, but they’re all so dedicated that they’re always reachable by e-mail and phone even if they’re not in the office,” says Mollahan, who motivates his staff with a 401(k) program and bonus incentive plan that’s based on sales. “It has worked out great,” he says. “They update each other every step of the way on projects so that they each know what’s going on. We never miss a beat when one leaves the office and another comes in.”

Which is vital, because the Insight office is a busy little place. It’s only a three-room, relatively nondescript office, but the company fulfills projects for 25 to 35 clients, Mollahan says. Like the one he’s talking to on this pristine February day in Northern California. About a half-hour drive from Mollahan’s office is one of his biggest clients, Foster’s Group, the makers of various brands of beer, wine, spirits and non-alcoholic beverages. He’s meeting on this day with Lisa Cervone, a Foster’s brand marketing associate to discuss some point-of-purchase displays that Mollahan is building and printing for Foster’s.

Cervone and Mollahan have worked with each other for years, and she is one of the clients that supported his move when he struck out on his own. They have a client-vendor rapport that makes them practically buddies. “Scott usually knows what I’m looking for from our promotions,” Cervone says about Mollahan, who has serviced the Foster’s account for more than 10 years. “I wanted to still work with him when he started his own business because it helps to have a vendor who has experience with our brand. That consistency is important.”

What’s Next

While many entrepreneurs lay out a clear business plan for where they want their companies to be in one, three and five years, don’t count Scott Mollahan among that group – for now, at least. He wants to gauge his success after a year in business before he creates a concrete plan for the company. “I think it’s hard to do a five-year plan before you’ve had a year under your belt,” he says, as he drives away from Cervone’s office. “I want to see what we accomplish in our first year before I decide what our next steps are.”

For now, though, he knows one thing: He’s not hiring any additional salespeople. He’s got it covered himself. While the company has passed the $2 million in revenue mark within its first year, Mollahan doesn’t at this point want to take on the task of attracting, interviewing, training, and paying new salespeople. “I don’t think we’re at the stage where we’re ready to put sales on the payroll,” he says. “Really, I only trust myself to do the sales for now.”

Mollahan does, however, have big goals that he knows he wants to accomplish over the next year. For one, he needs to diversify his client base. While the wine and spirits market has been very lucrative for him, and has helped him to launch his business in a way that brings in a lot of quick revenue, he knows that he has to spread his wings a bit. Consolidation has hit this market, and so he’s starting to lose clients as companies merge. Separately, he knows the foundation of his business will be much better if he is to diversify where his revenues are coming from.

“In the beginning, you go to where your clients are and wherever you can get business from,” he says. “So, I’m ok with how we’ve started, but we need more widespread clients. No one account is like 50% of our business, but Foster’s for example is big for me. If I lost them to a merger or budget cut or something, I’d be hurting.”

That’s precisely why he’s spending the next six months focused on diversifying his client base and trying to make deeper inroads into current clients. To do that, InsightResource Group recently launched what it is calling “The Green Roadshow,” which is a sales presentation to new and current clients focused on eco-friendly promotional products and print options. Throughout the months of March and April, Mollahan is visiting clients with eco-friendly products in tow, and is pitching them on the benefits of promotions that have a “green” flavor. To introduce the program, Mollahan sent a targeted e-mail promotion to seven of his top clients. He immediately got three appointments to present his ideas to an especially receptive client base in environmentally-conscious Northern California.

“Our clients are beginning to say that their consumers are asking for these kinds of things,” he says. “We want to be at the forefront of this. Our goal with the roadshow is to introduce clients to this stuff and let them know all the capabilities. We want them to think of us when they think eco-friendly promotions.”

Part 11—Smart Marketing

In this installment of our ongoing Open For Business series, Scott Mollahan details how a creative marketing plan helped him overcome a slump.

What’s the best remedy for a business slump? Creative and aggressive marketing techniques. It’s a strategy that Scott Mollahan is now employing. After a banner first eight months in business – a six-figure deal the first week he was open certainly helped – Mollahan found himself in an unusual position a few months ago. His company hit a soft patch in sales during the first quarter of 2008. “We were going great initially, but then the beginning of this year was a little slow,” says Mollahan, whose client base is centered around the wine and spirits sector. “It’s somewhat of a traditional slow time for the wine industry and the economy in the Napa Valley has been a little slower this year.”

It was that kind of atmosphere that motivated Mollahan to do something different, to push the marketing envelope so he could get in front of more prospects and clients. “I knew we needed to take action in marketing and sales and not just sit around hoping that things would turn around,” he says. “We had to create something that was new.”

And so the Insight Resource Group’s Green Roadshow was born. The plan was to create a marketing pitch to current clients and new prospects that was focused on using eco-friendly promotional products within their marketing campaigns. Of course, it helped that the “green” marketing effort was pitched to companies in the environment-friendly culture of Northern California, where Mollahan’s business is based. “From previous conversations with clients in this area, I knew that they’re trying to promote themselves as caring about the environment,” he says. “It seemed like a natural fit.”

Mollahan sent a personal letter to about 20 clients introducing his company’s Green Roadshow. The pitch? Let me come to your office and show you the wealth of eco-friendly promotional products that can be used in your marketing plans this year. Clients were quite receptive. Mollahan and his staff made eight presentations within a month of launching the program and he had another four appointments scheduled in the second month. “I see the whole Roadshow as a way to introduce clients to green products,” he says. “I’m not trying to close business during these meetings.”

However, one meeting in particular has turned into big business for Mollahan’s promotional product company. He met with a minor league baseball team’s marketing department and the timing was perfect. The team, he learned during the meeting, has made a commitment to make its whole stadium green – everything sold and used in the stadium (think cups, plates, everything) will be eco-friendly. So, green promotions are a natural fit for this organization.

Mollahan has now sold them an eco-friendly bag that the team gave away to fans on Shopping Bag Day in April, as well as stadium cups that are made of biodegradable plastic. “We also ordered them an organic cotton apron that they’re giving away for a Father’s Day promotion,” Mollahan says. “We’re discussing all sorts of stuff with them and I’m sure we’ll continue to get orders for green items from them.”

Ultimately, Mollahan believes that the marketing effort of his Green Roadshow has opened new doors for his company. “Clients have been really responsive,” he says. “They appreciate hearing about this information and thank us for providing it, because it’s something they know they need to look into but maybe haven’t had the time yet. We want to position ourselves as more of a marketing firm, and this is helping us do that. It gives us a way to provide marketing ideas to our clients. That’s our pitch right now.”

Confident that his sales slump is over, Mollahan took the step to hire another full-time employee, bringing his roster to five employees. When hiring, Mollahan likes to get referrals from friends, business acquaintances, anybody that he knows and trusts. This hire came through a referral from his accountant and the match was perfect. “She’s strong with data analysis and is well versed in Quickbooks, so we didn’t need to train her on order entry or anything like that,” Mollahan says. “She basically closely watched our other employees for a week and then was up and running.”

Indeed, like all small businesses, Mollahan’s company doesn’t have time for a full training period. This newest hire was managing a large order for hats in her second week on the job. “Things move quickly around here,” he says. “There are a lot of projects happening at one time, so we can’t afford a long ramp-up time. Any new hires have to be chipping in immediately, and we’ve been lucky to identify people who want to do that.”

Overcoming A Sales Slump

It happens in every entrepreneur’s lifetime. At some point, the sales slow down, clients don’t call as much and revenues begin to slide. It’s the business slump.

Scott Mollahan experienced a brief slump at the beginning of this year, and he quickly dug his company out of it with a creative marketing strategy. How can other distributor entrepreneurs find their way out of a sales downturn? Get aggressive,experts say. “I see far too many people cut back during a slump and find ways to cut costs as opposed to finding ways to increase their sales,”says Jan Alexander, founder and principal with New York management consulting firm The JAX Group. “A downturn is the time to get out there even more, meet with as many people as possible, and prove that you belong.”

Alexander suggests increasing your call volume in times of a sales slump, and if you have employees,make sure they’re doing the same. Now is the time, she says, to get aggressive with your sales calls and give clients a reason to speak to you. “Either cut prices or offer something that they can’t get elsewhere,” Alexander says. “The key is to catch people’s attention and get in front of as many buyers as possible.”

A slump certainly isn’t the time for the meek. As Alexander points out, you have to get in the face of potential clients where they are. So, increase your networking, she says. “And as a seller of promotional products, you can find buyers anywhere, you always have a sales opportunity if you’re willing to take it,” Alexander says. “In the supermarket, at the bank, where you buy coffee in the morning. These are all potential buyers of promotional products. Don’t let an opportunity go by without talking about what you do.”

Alexander also advises entrepreneurs to firm up their client relationships during a downturn in business. While you have to increase your new business, you can’t ignore the clients that are the backbone of your top line revenue. “Take somebody to lunch once a week or send a birthday card to an important client,” she says. “You should stay front and center with these people so they don’t forget about you when it’s time for them to order new promotional products. Also, listen to their marketing challenges during your conversations. That’s where your biggest sales opportunities will come from.”

When To Take On A New Employee

While Scott Mollahan has a big enough business that he’s hired five employees in his first year in business – including his most recent addition two months ago – most entrepreneurs struggle with how and when to bring on an employee. In fact, moving from a one-person shop to a company that has to hire, train,manage and retain employees is a huge step that most entrepreneurs aren’t sure how to tackle.

The key? Making sure your overhead can sustain having an employee. “I talk to entrepreneurs all the time who are guilty of hiring an employee before they really need the person and before they can really afford the person,” says Howard Lefebvre, president of HLA Associates, a consulting firm based in Nashua,NH. “They figure they can just cover the salary and they’re good to go.”

What they often tend to forget about, Lefebvre says, is other expenses like taxes, health care costs,insurance, computers, lost productivity due to sick days, etc. “An entrepreneur has to be sure that he can really cover the costs for thatfirst employee,” he says. “Most end up overlooking something and then regretting it.”

Lefebvre suggests waiting one quarter to two quarters before actually making the leap and taking on anew employee. In other words, once you’ve decided that you need help,wait another three to six months before actually hiring somebody. “You need to know that your bottom line and cash flow are flush enough to sustain having an employee,” he says. “And you should take worst-case scenarios into account. Will you have enough cash if revenue drops 25%for a couple of quarters? Are you taking on this person because you’re anticipating higher revenues? That’s not a good reason to bring somebody on. You should absolutely need somebody on staff to help with current projects that you’re overloaded with.”

Once you’ve determined that you have the resources to hire a new employee, the key is to find the right one. Lefebvre believes the best first employee for an entrepreneur is somebody who’s not like them – somebody who brings new skills to the company. “Many managers gravitate to people like them who have the same work style, but that’s not what you want in a first employee,” he says.“Bring on somebody who can do things that you can’t do. You’ll be a two-person operation, and the last thing you want is to have both people with identical skill sets.”

Ultimately, Lefebvre believes,an entrepreneur’s first hire should have entrepreneurial aspirations themselves, and should show an ability to solve problems quickly. During interviews, he suggests asking questions about previous businesses or departments that the candidate has overseen and make the person offer anecdotes about how they got the department out of a problem.

“You want to determine if they have good decision-making abilities, because you won’t be able to make every decision yourself,” Lefebvre says. “You need a partner – somebody who can manage a business but isn’t exactly like you.”

Part III: Expansion Plans

In this installment of our ongoing Open For Business series, Scott Mollahan discusses his decision to hire a new salesperson and how he’s trying to diversify his business.

Sometimes it takes a little slap in the face for a small business entrepreneur to realize his company’s weaknesses. That’s how it happened for Scott Mollahan, when he was on a recent sales call. T Visiting one of his best clients – a company he’s worked with for years now – he heard some great news. “They told me that they had named me one of their preferred promotional vendors,” Mollahan says.

It was a proud moment for Mollahan. This was a big company with large budgets to spend on their promotional programs, and Mollahan saw this as a chance to solidify a base of revenues. Of course, every good instance for a budding entrepreneurial star has to be dampened by a reality check, though.

“They then said that my company was one of three companies that were being named as preferred promotional vendors,” he says. “They were honest with me and said what they felt I did well and that they’d be buying those things from me, but they also said that my company has a weakness in apparel. So they’re giving that substantial business to another company.”

Ouch. Yet, that was exactly the kind of wake-up call Mollahan knew he needed. His company had just celebrated its one-year anniversary in the beginning of June, and he reached all of his revenue goals in that fiscal year – raking in about $4 million in revenues. But he knew there was a hole in his offerings.

“I come from the print world, especially in the wine industry, where we’ve done a lot of packaging, gifts-with-purchase promotions, and those kinds of things. But I haven’t done much work with apparel,” Mollahan says. “It’s an area that I knew we needed to focus on and figure out how to break into, but hearing it directly from one of my top clients was the push I needed to make it happen. Clients that I’m already working with use a lot of apparel in their promotions, and right now they’re giving that business to other companies. I don’t want to miss out on it.”

So, Mollahan decided to do something he hadn’t yet planned on doing. He hired a new salesperson specifically to break into the promotional wearables market. As of press time, this rep had agreed to work at Insight Resource Group, but hadn’t started yet. The key for Mollahan, though: She has a history – and a book of business – with wearables. “She knows everything there is to know about selling apparel into promotional programs,” he says. “It’s exactly what we need to expand and grow our business to another level.”

The strategy was an about-face from Mollahan’s original plan. He had been the sole salesperson at the six-person company. And he wanted to keep it that way. “I don’t think we’re at the stage where we’re ready to put sales on the payroll,” he said when Counselor first met with him in February. “Really, I only trust myself to do the sales for now.”

But that was then. Now, Mollahan says his outlook has changed. The conversation with his client helped push him that way, but he knew he had to make the move sometime soon. “I was the only one selling,” he says. “There’s just so much one person can do.”

And Mollahan believes the risk of bringing a new person onto the payroll is worth it. The compensation plan he’s set up has a mix of salary and commission, but more of the fixed cost is on the front-end. “There’s an initial three-to-six months risk, but she’s coming with a book of business, so we should begin to realize new business quickly,” he says. “It’s a bit of a financial risk but I think it’s worth it right now. Her strengths are where our weaknesses are.”

The Need to Diversify

The new salesperson will certainly help Mollahan achieve one of his main goals from earlier this year: business diversification. Before starting his company, Mollahan had become a promotional and printing expert in the wine industry. In fact, most of his clients today are in the wine market. But with that sector succumbing to some economic pressures and going through consolidation, Mollahan knows he has to broaden his customer base.

“We’ve achieved a high level of success in one market, but we need to branch out more,” Mollahan says. “We’ve found it easier said than done, but we’re working on it.”

While Insight Resource Group has certainly found new business outside of the wine industry – the company is outfitting a local minor league baseball team with a host of promotional products as the organization focused on offering eco-friendly giveaways to its customers this season – Mollahan has actually tried to leverage his wine industry contacts to broaden his company’s market reach. He has been working closely with the ad agencies that represent his wine industry clients to approach their clients in other markets.

“That effort has been pretty good,” Mollahan says. “It helps that I’ve worked with these agencies for a while, so they feel good about referring me to their other customers. It’s opened up some doors for us with a couple of new retail clients we’ve begun to do some projects for. Any referrals we can get are great and really help us spread our wings. It’s hard to diversify when you’re only a one-person sales force. I can only do so much myself as the only salesperson.”

Yet, Mollahan has been acting as a highly successful sales team all on his own so far. His company reached all of its financial goals for its first year in business – bringing in about $4 million in revenues – and he says he’s shooting for 30% growth in his second year in business. Ultimately, he knows he’ll need his current crop of clients to help him to achieve future benchmarks.

So when Insight Resource Group crossed its first anniversary in early June, he and his staff sent personal thank-you notes and gifts to all of their clients. Each person the company currently works with received a note thanking them for their business and for supporting the company in its first-year of existence. Each client also received a rose plant that they could place on their desk and watch grow (of course, remembering Insight along the way), just like they’d help Mollahan and his company to grow too.

“It can be a tough market right now, so we know that we need to stay in front of our clients as much as possible,” Mollahan says. “There’s a lot of competition and we’re a new company, so we need to do everything we can to remind our clients that we’re here and ready to help them with their marketing plans and promotional programs. They were thankful for the gifts and we’ll continue to do more things like that.”

Final Analysis: A Home Business Success Story

When we first met Scott Mollahan, the head of Insight Resource Group (asi/231569) in Orinda, CA, he was busy trying to determine how he could diversify his promotional products business. It certainly wasn’t the typical challenge for a start-up business.

While Mollahan was trying to find new clients outside of the wine and spirits industry – his niche market – other start-ups are simply trying to find anybody to say yes. Indeed, most new companies go after any business they can find, and pounce whenever somebody with a pulse is willing to buy.

Not Mollahan. He already had a book of business. The year before, he had left his full-time job as a salesperson for Applied Graphics. He was there for 11 years and had built up a rabidly loyal customer base in the wine industry, many of whom told him that they’d be willing to take their business with him if he started his own operation. So, Mollahan began fulfilling deals on day one – as opposed to hunting deals down.

“I talked to some of my clients to see if they’d stick with me if I started my own company,” Mollahan told us last year. “Many were very supportive. It helped my conscience to know that there was some built-in revenue there when I first started.”

Built-in revenue indeed. Mollahan brought in nearly $2 million in the company’s first year. And in 2008, Insight Resource Group’s first full calendar year in business, Mollahan’s operation racked up approximately $3.7 million in sales – about 60% of which came from the wine market. No, it’s not your typical start-up result.

But Mollahan has had some of the normal start-up obstacles of trying to get clients to pay on time, finding good people to hire for his growing company and deciding when and how to move into a new office space. He’s also operating in an industry that’s going through layoffs and consolidations, and he’s been dealing with rising prices on many of the goods he gets from overseas he’s finally got a Web site up and running after being in business for a year and a half.

So, no, everything hasn’t been perfect for Mollahan’s fast-growing company. But the results in year one can’t be denied. “We’ve done great,” he says. “We had one period in the middle of last year where I was concerned with a little slowdown, but then we ended the year really busy.”

And now, Mollahan is looking forward to expanding his home based business even further. He has six people on staff, but is looking for another salesperson now and knows he’ll need even more operational help as Insight grows. Of course, he has his worries – like the layoffs and consolidations hitting the wine market, the rate of unemployment in California and the depressed real estate market, the cost of goods from overseas and running a fast-growing operation with four kids under the age of 10 at home.

But he’s very happy with his first year in business. “It’s a whirlwind, for sure,” he says. “You’re making different decisions every day. But it’s great right now. We’re growing, we have a great staff and we’re always busy. All is good.”