Like many private companies in China, Carpenter Tan suffered capital shortages during its expansion. The company's combs finally began attracting customers nationwide in 1997. While Tan needed capital to continue expansion efforts, his main loan lender would not offer him additional funds. With insufficient fixed assets for mortgages of 1 million yuan ($146,000), the future of the company hung in the balance. Tan's solution was unprecedented—he published an advertisement titled "Bank Loans Wanted" in the Chongqing Economic Times in August 1997, and finally secured a mortgage from the China Construction Bank.

Managing franchise operations has posed another challenge to the comb maker. Carpenter Tan signed a contract with its first franchise store in 1998 and has since relied heavily on sales of combs, hand mirrors and other decorations at these stores for revenue.

Today, a unified management platform allows Carpenter Tan to standardize renovation, decoration, and prices of products at all stores, and prevent retailers from selling products at discounts even if they are willing to sacrifice their own profits. For years, 95 percent of its franchise stores have survived on a gross profit rate of more than 50 percent.

The company now plans production according to orders. It boasts an advanced system of distribution and logistics solutions, and controls sales information through point-of-sale terminals installed at each store.

Carpenter Tan now has 853 franchise chain stores nationwide, one in the United States, and two in Singapore and Malaysia, respectively. It also has four company-owned stores in Hong Kong.

Concentrating on the comb

Tan's business principle is simple: concentrate on combmaking, not diversifying.

"I think the one thing startup companies can learn from our example is the importance of business concentration," Tan said.

Like many Chinese entrepreneurs, Tan once dreamed of the diversified development of his business. During one attempt, Tan invested 2.5 million yuan ($366,000) in a TV series in 1998, only to sell his stake later at 1.5 million yuan ($220,000).

This investment failure turned Tan into a steadfast supporter of the concentration strategy.

"We don't want to have a big corporation, instead we hope to make Carpenter Tan a brand of good products and a brand that will stand the test of time," Tan said, hoping his business could follow the footprint of small century-old European workshops which have evolved into high-end brands.

Tan said they could have made profits several times higher if they had bought land for property development several years ago. Instead, Tan avoided the temptation to speculate on the housing market.

"We didn't do that because too much money could disturb the peace of mind and divert our interests from making combs," he said.

The comb market still has great potential. According to a market research study conducted by the company last year on its target customers—women between 18 and 35 years old—40 percent had heard about Carpenter Tan and its combs, but only 2 percent had actually purchased one.

Tan plans to open 200 stores including several company-owned flagship stores selling high-end wood combs and about 60 renovated franchise stores this year. In addition, the company will introduce a furniture store for high-end home décor and boutique products, called Tan's, in Hong Kong, Taiwan and some east Asian countries as part of its overseas strategy.

The company launched its first Tan's flagship store, a three-story European-style building of 2,200 square meters, in Chongqing on January 10. The store sells combs, high-end Chinese style wood furniture, handcraft artworks as well as other home furnishings.