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You've probably heard this one. Tom Stemberg had just been fired from his job and was wondering what to do next. When he couldn't find a printer ribbon one afternoon, he got the idea for an office supply superstore.

Stemberg calls that "the fairy tale version" of how Staples got started. Everything in it is true, but it's not the whole story by a long shot. We tell that story in Ruthless Focus. Here's a shorter version.

After leaving Harvard in 1973, Stemberg went to work for Star Markets in Boston. That's where he developed the first "generic" line of groceries. Customers loved it and the company made money.

He moved on to First National Supermarkets' Edwards-Finast division as president. There, he created giant stores carrying Edwards-Finast groceries at rock-bottom prices. Customers loved it and the company made money.

That should have insured success. But First National Supermarkets sold Edwards-Finast in January 1985. Stemberg round himself out of a job with a year's severance.

Enter Leo Kahn who was already a legend in the supermarket and drug industries. Kahn had recently sold his company and was looking for a new opportunity. He approached Stemberg and suggested they go in together.

The idea for Staples came from two sources. One was Walter Salmon, who had been one of Stemberg's professors. Salmon suggested taking the techniques that Stemberg and Kahn had mastered in the grocery business to apply them to a different business.

But what business? The idea for office supplies occurred to Stemberg while he was shopping at a general merchandise "warehouse store." He noticed that the office supplies were "flying off the shelves."

That flash of inspiration wasn't enough. Stemberg did some research to find out if there was really a market for low-priced office supplies. When, for example, he found that big companies paid 85-cents for a dozen Bic pens and small businesses paid $3.68 for the same pens, Stemberg knew he was on to something.

At that point, Stemberg and Kahn had the answer to our first strategy question: "What will make us distinctive?" The answer was low-priced office supplies.

Many people would have stopped right there and assumed that the low prices would be enough. Think of it as a kind of "if we price it low, they will come" strategy. But Stemberg did more research. He wanted to figure out the details of how to make money from the strategy.

His research highlighted problems neither he nor Kahn had ever thought of. If they were going to succeed, they would have to convince small business owners of three things:

They had to convince them that there was a huge difference between what they paid for office supply items and what big businesses paid for them. Stemberg had found that most businesses didn't realize how big the difference in prices was.

They had to convince them that the difference added up to enough that it was worth paying attention to. Stemberg had found that most small business underestimated the amount they paid for office supplies by a factor of five.

They had to convince them that the buying process would have to change if they were going to reap the savings Staples could offer. Stemberg had found that the office manager was most likely to purchase office supplies in a small business. He or she had no incentive to purchase wisely and many incentives to stock more of more products than necessary.

Before they opened their first store, Staples would have to figure out how they would solve those problems. They would also have to negotiate favorable contracts with the makers of office supplies. Without that, they would be distinctive, but they might not be profitable.

One reason for Staples' success was that Stemberg and Kahn identified a market with a need, one that offered a huge opportunity. Equally important was their research into how that market worked so that they could develop ways to serve the market at a profit.

Check out, Ruthless Focus, at Amazon.

Posts about Ruthless Focus

Ruthless Focus: How to use key core strategies to grow your business
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Keep it Simple, Strategist
Strategy: Staying with What Works
Ruthless Focus on the Business Basics
Theo Albrecht, Trader Joe's, and Ruthless Focus
Ruthless Focus: What about Toyota?
Ruthless Focus: Three Kinds of Crisis
The story of Yahoo's shifting strategy
How Doing Acquisitions is like being a Fighter Pilot
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Danger, Trader Joes!