Lesson 2: Switch business models on a dime

1-800-Mattress: Founded by Napoleon Barragan with $2,000

In 1976, Napoleon Barragan placed a classified ad in a newspaper that promised something then unheard of: home delivery of a mattress sight unseen.

The day after that $18 ad ran, it generated five calls and two sales -- a bonanza considering that the typical volume at Barragan's two-year-old mattress store in New York City was six sales a day.

Convinced that he was on to something, Barragan began investing 10 percent of his business's revenue in commercials on late-night TV, which cost about $30 per spot. The ads produced results -- insomniacs, it turns out, buy a lot of mattresses.

By 1985, Barragan had graduated to daytime TV, and in 1986 he hired Howard Stern to promote his company on air. Volume soared, leading Barragan to expand his delivery radius to 50 miles.

A willingness to experiment has continued to serve Barragan well. His company, now known as 1-800- Mattress, crossed the $100 million mark in 2004.

To fend off threats from manufacturers, which are increasingly selling directly to consumers, Barragan is taking a step toward franchising.

He recently struck a co-branding and revenue-sharing arrangement with Los Angeles-based Mattress Gallery, which boasts 57 locations. To make this model work, Barragan will have to learn how to manage independent-minded franchisees. He's hopeful that he still knows what makes them tick. "I still feel like I'm one of them," he says. "The only thing that has changed is the numbers."

Pick a Model, Any Model

Napoleon Barragan of 1-800-Mattress has been consistently inconsistent when it comes to building his $100 million company:

Brick and Mortar

In 1974, the Ecuadorean immigrant and his wife invested $2,000 in a furniture store. When it failed, he moved into a tiny storefront, paid the $500 rent with a postdated check, and started selling mattresses to students.

Delivery Service

Two years later, Barragan discovered TV ads and over-the-phone sales.

Online Sales

In 1999, Barragan set up the first mattress store on the Web. Copying the 1-800-Flowers model, he signed up 300 independent reps to fulfill orders beyond New York City.

Franchising

Barragan's latest idea. As a first step, he signed a co-branding and revenue-sharing deal with a Los Angeles chain.

That Rare Insight

Barragan got the idea to sell mattresses by phone after he saw an ad for a company called Dial-A-Steak.

Read on: Lesson No 3