Mail order through catalogs is a method of consumption of a bygone era.
Today, the concept has transitioned to the internet. The days of paper catalogs filled with pictures are gone and the experience, along with selection, has vastly improved. Sears or Montgomery Ward catalogs have been replaced by Amazon, Shopify, Flipkart and others. You can receive a shipment quicker today than a mail order company could have ever received your order.
The evolution of the mail order business is an instructive one for the entrepreneur and investor. It teaches us the importance of timing, finding and dominating a niche, and that industries do not last forever. Leaders need to evolve their businesses faster than anyone else or pivot by finding another niche to dominate.
This will be a two part series. I’ll highlight two mail order companies that went both routes and were successful, along with unsuccessful contrasting examples.
Edwin Wegman of Honor House Products Corp. opted to focus on another niche to dominate after his mail order business started to dry up. His company, now run by his son Thomas, is today worth over $400 million.
Who was Honor House Products Corporation?
Edwin’s timing was impeccable. His uncle dabbled in the mail order business and provided the idea. Gag gifts and other novelties had been sold through publications geared to the younger demographic, although Edwin would focus solely on comic books. Superhero comic books were entering a renaissance with the baby boomer generation providing a huge tailwind to advertisers.
Anyone who has ever read a U.S. comic book from the 50s or 60s is probably familiar with Honor House Product’s ads, just not the name. The company, founded in 1951, sold products that caught the imagination of children. All kids had to do was send in money and they got the product through the mail.
Those infamous X-Ray glasses that allowed you to “see” under someone’s clothes were from Honor House. They just happened to be pieces of cardboard printed with red and white hypnotic spirals and the words “X-Ray Vision” where the lenses should have been. Thanks to a feather glued inside, each of the cardboard “lenses” made an illusion.
Edwin Wegman, like other mail order hawkers in comic books, was a master marketer. He could sell a kid dirt labeled as “Genuine Soil From Dracula’s Castle!,” sold Sea-Monkeys and “Life-Like Lady’s Legs.” Many of the original ads, along with the actual shipped items can be found in the book Mail-Order Mysteries. Often these were cheap Asian products that over-promised and under-delivered.
Regardless of the ethics in selling kids low quality wares, Honor House Products was a business and made money. “I don’t think he ever made a ton of money out of the mail order,” Wegman’s son Thomas Wegman said. “It was a business, but it wasn’t a multimillion-dollar thing.”
As the cost of postage and comic books rose, companies such as Honor House Products needed to pivot. One of the other larger businesses Johnson Smith Company stayed in the novelty business and still operates today with six different websites. However, they did not achieve the same outcome as Edwin Wegman and his son Thomas Wegman. In the same building that Honor House Products operated from there was another venture.
Biospecifics Technology Corporation
By the mid-1980s when the mail order business had all but dried up, Edwin Wegman focused his full attention on his other venture Advance Biofactures Corp., a biopharmaceutical company he founded in 1957 (known today as Biospecifics Technology Corp [Ticker: BSTC]). Biospecifics created a product called Collagenase ABC which was the raw material used in an ointment called Santyl to help dermal ulcers, otherwise known as bed sores.
Under Wegman’s watch, Biospecifics became a highly profitable, growing business supplying their German pharma partner BASF. Biospecifics began trading on the NASDAQ in 1991 one of the few biopharma companies to do so with revenue and growing profits. The company’s market cap was $21 million at the time, went up five times, then fell for the next fifteen years. Edwin could not find ways to grow the company’s bread and butter collagenese product.
Persistence often pays off in the long term with the appropriate mindset. Intelligent fanatics allow themselves time to get lucky. There Are No Shortcuts to Long-term Business Success.
Edwin never took on debt to grow Biospecifics. No long-term debt allowed Biospecifics time to get lucky finding the right partner.
Additionally, Biospecifics never issued shares outside of minimal stock options. The business sustained itself, a rarity for microcap pharma and biopharma companies.
Edwin’s son Thomas Wegman learned his father’s entrepreneurial spirit and has applied an intelligent fanatic mindset to the business. Thomas eventually worked his way up the ladder at Biospecifics. In 2006, Biospecifics sold their old collagenase business. Prior to the sale Edwin’s other son Mark and his childhood friend Laurence Korn scored an agreement with Auxilium (now Endo) to develop and license their collaganase technology as an injectable under the name XIAFLEX.
BSTC’s patience paid off handsomely. Biospecific’s revenues and profits have continued to trend up and the stock has been a 60 bagger in the last eleven years.
Had an investor held Biospecifics from their IPO to today, they would have achieved a 12.6% compounded annual rate versus the 7.5% compounded annual return from the S&P 500. Thirteen of those years BSTC lagged the S&P 500. In business it can take years, in this case decades, for a company’s investments to bear fruit.
Had Edwin Wegman stayed in the novelty toy mail order business, much like Johnson Smith Company, sufferers of bed sores and later Dupuytrens along with Peyronie’s disease might not have had an appropriate form of treatment. Moreover, the Wegman family, and BSTC shareholders, would not be as wealthy.
Unfortunately for Ines Mandl, the woman who originally isolated the collagenase enzyme in the 1950s, she did not wait. She received a block of shares for consulting with Advance Biofactures early on and sold almost all her shares prior to 2006. At 92 in 2009, Dr. Mandl sold the last of her shares and regretted her earlier sales.
Industries do change, so you have to keep an eye on where the market is going and must be willing to pivot.
“Great companies are shape-shifters and can maneuver quickly as they grow and as the markets in which they compete change. Whether you are an investor or entrepreneur, invest in the best human capital you can find.” – Intelligent Fanatics Project
And if you can, lay off the debt; it’s intoxicating, addictive and doesn’t give you time to get lucky.
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