Spring 2003 Clear Skies, Flying High
Max F. James has come a long way from his rural roots. From flying high with astronauts in the Astronaut Recovery Program at Cape Canaveral, to Air Force Combat Air Rescue during Vietnam, he has settled in with his own successful company, American Kiosk Management.
James grew up on a farm in Tennessee, but much bigger venues awaited. He trained as a pilot after graduating with honors from the United States Air Force Academy, which led to his experiences with astronauts, and the war in Vietnam. Home from the war as a highly decorated combat pilot, he finished his service as a combat instructor pilot.
A civilian again, he enrolled in the MBA program at Stanford University. While taking business classes at Stanford by day, James took real estate courses at a junior college at night to prep for the California broker’s license. “It’s a statistical fact that most of the world’s wealth is held in real property,” James says, having watched family and friends enjoy success in real estate as he was growing up.
Stanford offered several specialty real-estate courses that captured his interest. His class paper on setting up an offshore real estate investment trust brought him to the attention of an attorney, who hired him after graduation. James’s career path eventually led to jobs as an international investment analyst, a real estate sales executive, and a developer. And that, in turn, led him to specialty retail.
Building a dream
Starting in 1979, James and partners built, owned and operated the Days Inn Hotels in California and Nevada. “[That] put me not just into real estate ownership and development but, obviously, into operating a company,” he says. “When you have a large number of hotels with a lot of employees, you develop some skills at managing multi-locational operations.”
These skills would serve him in a way he didn’t anticipate. Soon after selling his interests in the hotels in 1985, a former desk clerk called him about investing in a company. “I was so impressed that this young desk clerk would step up to the plate with ‘the big guy’ and take this big swing.” James invited the clerk to make a presentation—and James heard about multi-level marketing for the first time. “I was absolutely taken with the entrepreneurial flavor of network marketing,” he says. “Found out that some very large companies had started that way, and saw some of the success. The biggest success, obviously, being Amway.”
The product the desk clerk was pitching: a nutritional supplement. James saw an opportunity, and moved into multi-network marketing. “Learned the ropes. Paid my dues. And really did enjoy it, honestly. It’s a matter of building a team of people through good leadership.”
But real estate beckoned again, and he left network marketing to acquire several sales territories from RE/MAX in northern California. However, the timing was bad: the Department of Defense was closing military bases, and the bottom fell out of the area’s housing market. So he decided to shift gears. As he divested his real estate interests, another nutritional supplement marketing company contacted him. And so he joined New Vision International. “We were offered an opportunity to get into that at the early stages. And we did well at it.”
While with New Vision, James was approached by an attorney who spoke highly of a young company that was hunting for a CEO. James said he wasn’t interested in a job but, on the advice of the attorney, he went to San Diego to meet with the company’s three owners. That company was Metabolife.
“I don’t think I was the right guy for the job, even if I had been interested. But they told me about a new program that they had started.” After building brand awareness through radio interviews and testimonials, they were letting some of the network marketing distributors set up carts in shopping malls.
“I said, ‘Well, I don’t think I would have any interest in that. I don’t know anything about retail. And what does it cost, anyway?’” Start-up costs were less than $10,000, they told him, and the company would buy back the inventory if things didn’t work out. They also pointed out that these were leases that ran for 30 days, not three years, so the most he could lose would be about $5,000.
James thought it was a reasonable risk, but what kind of money could a cart be expected to make? They said the carts that were up and running were making about $10,000 profit. He thought they meant per year. They were quick to tell him $10,000 per month. He thought they were kidding. “I didn’t fall off the turnip truck yesterday.” So they asked him to look at the 25 carts that were doing business. James brought in a partner and together they checked out Metabolife carts in Texas, Oklahoma and California. “We couldn’t find one that wasn’t doing at least that well.”
They did the math. “You know something? [At] $10,000 a month, if you add 100 carts, that would be adult money, wouldn’t it? That wouldn’t be play money, that would be adult money.”
The two partners decided to set up 100 Metabolife carts—and American Kiosk Management. In 1997, they created and incorporated AKM to manage the large number of carts, and put nearly 70 carts into operation. “It was extremely lucrative,” says James. Case in point: on a cart in Memphis, one young sales staffer sold 108 bottles of Metabolife in one eight-hour shift. Retailing at about $50 a bottle and with a very good profit margin, “we thought we had died and gone to heaven.”
Winds of change
That “heaven” ended in the summer of 2000 when competitors began selling cheaper knock-offs, and Metabolife found its way onto drugstore shelves at a lower price. “It cut our margins to a point where we really could not continue to compete in the shopping mall or specialty-retail environment.” After serving as “consultant” under a new two-year agreement with Metabolife, they got out.
But with the corporate structure of AKM still in place, James began to explore other lines, other specialty-retail opportunities. He tried yo-yos, but they’re primarily seasonal, and he didn’t like seasonal items. “It just didn’t fit with our corporate structure.” A couple of cosmetics lines came next. And for a while, he was one of the largest distributors of discgear, but “that turned out to be more seasonal than we liked.”
Trial-and-error has its benefits, though. Along the way, James developed three points to guide him in product selection. “I came up with three categories that I believe can be successful in the specialty retail cart and kiosk venue. This is how we look for new product lines.”
First, he wants something that can be demonstrated. “There are so many great examples, starting with the classic food chop-chop machine—products you can demonstrate in order to attract the impulse buyer as they walk by your location.”
Second, James wants a product everyone wants, like sunglasses. “Seems as if everyone has one or two pairs. And they break.” So, obviously, a product everyone wants more than once is even better.
Third and most important, James wants a product that’s already well-known in the marketplace but isn’t readily available in traditional retail locations. He says his biggest past mistake was to make incorrect assumptions about brand awareness and competitive channels. Armed with that understanding, and with his three principles to guide him, James and AKM moved into a new era.
Clearing the way
In 2002, James entered into an agreement with Guthy-Renker Corporation, the giant infomercial company, to sell Proactiv Solution. Proactiv is a skin care system created by two doctors and, at the time, promoted solely through infomercials.
James says of Guthy-Renker: “One of the real keys to being successful in the infomercial business is to pick a celebrity spokesperson who can really identify with the product. If you’ve seen the Proactiv infomercial, you know that Vanessa Williams tells her story about having had serious acne.”
As a product, the Proactiv system met all the criteria James established in his guiding principles. It isn’t a seasonal product: acne is year-round. The product is easily demonstrated. It’s a product people want and need: many consumers have acne, adults as well as teens, and are constantly searching for, buying and trying treatment products. And since Proactiv is a “consumable,” they’ll want to buy it more than once. Finally, Proactiv is a well-known brand.
“The luckiest move was being able to acquire a distributorship for a product that was well recognized as a successful product,” he says. “You can advertise all you want, but if the product doesn’t work, you know the customer isn’t going to come back. And you can’t make a living in this business with a one-time customer, I don’t think—not with the kind of margins we have.”
With the AKM corporate structure, a strong product, and a terrific promotion and demonstration mechanism, James’ new venture was a go. A staff of excellent employees ready to help customers provides the person-to-person link. “What we’ve discovered at the carts is when a salesperson comes on board, as soon as they make the transition from trying to sell the product to truly helping the customer, sales go up enormously,” says James. As for cart managers, the company makes a point of hiring people who are responsible, loyal, ethical—and committed to running the business. “We develop systems for holding the manager accountable,” he says. “We believe that most people want to be held accountable.”
A starter kit contains three, four or five skin-care basics, with an additional 37 products in the line, from shampoo to makeup. “[A customer] typically starts with one of those basic kits,” and after they have success with the basics “and are sold on the benefits of the product line, then they will buy the additional items,” he says. An average sale is more than $40, and customers spend more than $500 a year with the full regimen.
Employees are gratified when customers who come back to the cart to show how much their complexion has improved and say how satisfied they are with Proactiv. “It just really gives [the employees] a great deal of satisfaction that they’re doing something besides, you know, putting their hand in somebody’s purse or pocket and taking money. They really are truly helping people.”
After a three-year test of retail sales with six carts, AKM expanded to 32 carts in 2002—with gross sales exceeding $8 million. By spring of 2003, AKM’s 40 carts were doing more than $1 million a month. “Our best Proactiv cart last year did $730,000 in sales,” he says.
Today, AKM is one of the largest cart and kiosk management companies in the country, with locations in California, Arizona, Nevada, Colorado, Utah, Texas, Tennessee, Georgia and Florida. Plans for the company’s Proactiv operations call for 100 carts operating by the end of this year, with projections for the carts to average $35,000 a month in gross sales, and more than $30,000,000 in total annual sales.
James attributes much of AKM’s success to Linda Johansen, chief operating officer. He says her skill and passion enable her to train and motivate employees across the country. Johansen, in turn, credits James: “It’s the way that Max has developed American Kiosk Management and our beliefs in, first of all, taking care of our customers and hiring the best people.”
A self-described “serial entrepreneur,” James says he’s picked up a lot of scars over the years, but also some “pretty good trophy cases.” The farm boy from Tennessee is still flying high on the wings of specialty retail, and enjoying the ride.
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