21 Hats Podcast, Episode 3: I'm Trying to Survive in Retail

[Music] hello everyone welcome to the 21 hats podcast I'm Lauren Feldman your host every week I sit down with three business owners to talk about the challenges they're facing it's the kind of conversation you don't often hear in public our panelists address difficult topics like why their business isn't making as much money as they think it should why their digital marketing isn't working or why exactly they hired their brother-in-law owning a business can be a lonely and isolating pursuit but at least you'll know that you're not the only one facing these issues got a question you like us to address send it to us and follow us on Twitter at 21 underscore hats or on our website 21 hats comm let's meet the 21 hats podcast team with us this week are Karen and clark cole who is CEO of blink UX a digital research and design firm based in seattle jay cults who has several businesses in Chicago including a picture framing shop artists frame service and Jason home a home furnishing store and Laura's and their CEO of Jimmy beans wool a digital version of a neighborhood yarn shop that is based in Reno Nevada but who's joining us today from Texas laurel we're gonna start with you you've had a lot going on lately in the last couple of weeks you've been to Vietnam China and Texas what's going on you know as you mentioned we're the digital version of a yarn shop and we also have a retail brick-and-mortar store and it has been a crazy couple of years trying to figure out how to survive in this retail market so what we are doing and hoping it will work as we have started to acquire some of our suppliers and some of the brands that we sell to increase our margin to be able to do some of the design and kind of reimagine some of these brands and give some of these brands new life so we bought in May a company that made knitting organizers and crochet organizers that was based in Vietnam so I went to go visit my partner there and then I bought a company that does all the manufacturing out of China last year and so I've been visiting China frequent and manufacturing different handbags for knitters and crochet errs there was that a company you had a relationship with yeah yeah you know it's it's the Knitting industry it's the yarn industry and so you become friends and having been in this for 17 years it's a creative industry and I've had lots of friendships with most of the suppliers that and most of the brands that we carry so when it came time for them to step down like the bag company she got a divorce and so they had to close the business because it was her her husband and her sister-in-law that owned it the organizer company she was a CPA by trade and not a knitter and when her lease came up after ten years she just decided to go back to you know the corporate world and we had been friends and had spent lots of time together and so she called and asked if we would take it over and then on Wednesday I bought our biggest supplier which is a yarn company based in Texas and they hand iron here in Texas the owner has been ill developed a mess about a year ago and has just not been able to just let me not been able to come to work and particularly on a regular basis so they needed to I asked them if I could possibly take over and I did as of Wednesday sorry you claimed before that you wanted to stay small that doesn't sound very small it is small in the grand scheme of things we're not you amazing limit you started this by saying I wanted to put some more meat on these bones you said survive the retail market yes what I'm them so you'd have to understand that this isn't about wanting to grow big it's changing your business to stay relevant and have a business model you're still in business so yeah went afford to just sit tight because the world's changing I'm gonna assume that when you say survive the retail world I'm assuming you're getting lots of online competition though yeah absolutely yes and a lot of the brands that we've historically carried are disappearing you know people are either aging out there tiring out and they're the new brands that are coming up to take their places are all selling direct you know so we just end a lot in some of the brands that we've carried for years and years and let's say somebody that we've sold $50,000 worth of their product in a year well they're now going direct because that's what they need to do to survive and they're cultivating direct relationships and so our sales for that brand are down to $10,000 you know our revenue has gone down so how do I replace that and we're discovering that we're we have to figure out how to replace it on our own it's not that you're growing you're evolving that's brilliant see I think what you're saying is you're not growing you're evolving and it's the same thing I had to go through and that years ago 20 years ago already I started importing frame molding some Italy in Spain and now I have a wholesale business that sells to 1,000 frames shops around the country because I have access to stuff that they don't have and we're we're getting more design driven and I'm just a probably 10 years ahead of where you're at because you just started getting pressure from the internet I've had pressure from baby boomers basically slowing down the framing they were doing so Laura and Jay how are you guys funding these acquisitions I didn't have any acquisitions I just did it from internal organic growth Laura Huck's college fund Puck is your son yes Wow and he's 10 so it gotten kind of big yeah I'm actually great question this is the first time that we've had to go to the bank and we just took out we're taking out a loan that's great yeah that's great that you're not giving away equity it's kind of great and it's maybe not great but it is what you got to do yeah we've just personally reinvested back into the company but we're going to transition you know we just got out we just took a small paypal like they have you know capital that you can take and then you just pay it based on your paypal sales they just take I think like 30 percent of your sales to pay back so yeah we're gonna borrow a little bit we're gonna leverage a little bit so that we can reduce our personal risk just a teeny bit that's how we're considered getting some VC money in exchange for equity we have considered it yeah many times to be honest Doug and I we are entrepreneurs and we like we don't want to have to report to anybody is what it what it boils down to and we have just decided that it's not worth the stress of having somebody that we have to report to so if we can figure it out and even if that means that we grow a little bit slower and maybe it's not the wisest decision it helps us sleep a little bit more at night like I said I'm 15 years ahead of you I figure it out in my world better to own a 10 or 15 or 20 million dollar company and make plenty of money to buy a nice house and everything else you want then shoot two on thirty percent of a hundred million dollar company and have a phone call on Thursday with some person you don't particularly like telling you what to do it's like at some point you can make enough this is about a lifestyle business either you can make a fortune doing it the way you're doing and having everything you want and I have to answer to anybody and I know that that that goes opposite of what everyone reads these days but you know who needs to answer to somebody if you don't have to lure tell us about the loan it sounds like you chose PayPal which I assume is kind of the alternative lender route rather than a traditional bank loan what was the thinking there well the thinking was timing this transaction has been on an unpredictable path in term and I'm trying to figure out how to mince words a little bit it has been so up and down in such a rollercoaster so we needed access to cash within four hours and PayPal gave us access to cash within four hours the bank loans gonna take three weeks for so they had made it very very simple very easy I have mixed feelings about PayPal for sure just based on our experience or personal experience with them well it has to be more expensive to write no it has actually not it's just that you don't have five years to pay it off they just every dollar that we take Avenue they take 30 cents of it until it's paid off rest of you paying her there is no interest my understanding Doug set it up but what he said is there's I think it was a flat fee of like $1500 that's what it cost us to borrow this money okay but yeah $1500 translates into you could call that interest for surf besides so one was 15 our dollars is that a hundred thousand dollars ten thousand dollars I mean that's a big difference it was six figures for sure a multiple of six figures but that's money it was very very very cheap money what we'll do is spend the two weeks to get the line of credit through the bank reactivated and then just pay back the paypal so that we have three years to pay it back instead of having it paid back in nine months or whatever that would take just so people understand a lot of these these companies that say oh you don't debate father with the hassle the bank and this is easy and fast yeah there's a reason they can do that it's because people don't understand they're paying eighty percent interest and it's hidden they say oh oh we'll give you thirty thousand and you'll pay back thirty six thousand at six months and people think they that's 20% interest no its 18% interest because they're only paying it back in six months and they're paying it down as a go so you have to multiply it double twice and that's why it's so easy and fast so it's it's it's be very expensive borrowing to say the least so Lori you've spoken in the past about wanting to enjoy your lifestyle and having a son that you're raising and being concerned about the amount of time that you're putting in you're now managing react juez ish ins that you've made in the last less than a year right yeah how are you feeling about that I am feeling like I am doing what we need to do so that hopefully in a year to two years I can have the lifestyle to which I would like to become accustomed are you hoping to incorporate them into the culture of Jimmy beans wool do you look at them as you know their employees are just like the employees you have in Reno and if so how are you making that happen today is my second full day on the job so we integrated our slacks together we're sharing photos of each other we have a trade show coming up in two weeks so I'm gonna bring somebody from Madeline Tosh in Texas to the show to meet the team and then we're gonna start working on bringing people from Texas up Torino once or twice a month bringing people from texture from Reno down to Texas once or twice a month and you know we'll just do the best we can to integrate both technically and in-person so we're on slack you know so we've kind of combined our channels and I've already yelled at the people here and I put a little emoji chart I'm like okay here are all the brands Jimmy beans uses exclamation marks della queue uses hearts namaste uses a flower and Madeline Tosh uses a rainbow and you know we'll just kind of start to learn digitally how we talk to each other so that we understand the tones that we're all using Karen you've done a lot of acquisitions yourself what are you thinking as you listen to Laura I think it's great I love that she's not giving away equity and it's the I've never heard of that PayPal route and I think that's because we're not in a product selling business so I think that's that kind of funding hasn't been available to us but we've done we as well have not taken any VC or equity type of money and have done our acquisitions using a pretty big line of credit at the bank and so that's based on our receivables for us it is limited on the our capacity to do work so we can't borrow beyond the work that we're doing but sometimes our receivables take 60 90 120 days to come in and so that's a long time for a cash flow perspective to hang on so the bank helps us Evan flow with that and then they gave us a separate acquisition line of credit essentially based on the receivables of the company that we're buying my credit line is based upon receivables and inventory and generally from what I see they usually will give you maybe 75 cents in the for receivables and the bank hates inventory so they might give you 25 cents in the dollars for inventory Karen how is the gun for you in terms of integrating the operations you've acquired into plank what have you done to try to you know build a cohesive culture across these additional businesses yeah it's it's a big full-time job for us so as consultants we have we really want the companies that we've bought and there's about five of them all together I think fire six we want to have one blink quality of service for our clients and so it's really important that we're all speaking the same language and we make we make sure of that before we even consider acquisitions and similar to Laura they're companies that we've worked with before we know them quite well and so that the integration is much easier in that case but we have a cultural framework that I developed about five years ago with who's now our chief culture officer she was a consultant to us at the time and she helped me develop this framework when we were trying we were growing from we were probably 30 or 40 people and I knew that we were going to start growing more quickly and I needed a way to describe the culture that we had so you could walk in the office and there was a great energy there was a there was just a feeling that was sort of a jeunesse a quoi and no one really knew how to define it and we'd certainly didn't have a language around it and we didn't know how to cultivate it and so as we go we'll go out to get bigger I knew it was important that if we were going to nurture it or and grow it we had to have a way to talk about it we had to have a way to hire for it to fire for it and that began with understanding what is it about the culture that's that's causing these people to thrive and and feel happy and do great work and give great service to our clients so we developed this framework and it has six pillars in it and and we really it's it's the Holy Bible here so we manage towards it so all of our management team get training and how to look for these things and how to nurture them and it's a big part of our hiring as well as our firing honestly it gives us really clear criteria when somebody's not meeting the bar so when we buying a company we really start with this we explain it and then we start start creating a framework around it gradually for the company if I'm not mistaken Karen you've been buying companies that are based in the US where I'm guessing everybody speaks English Laura what's it like dealing Oh buying a company in Vietnam or China where's the language issue a problem it's not a problem it's a challenge I mean it's exciting I've been trying to learn a little bit of Vietnamese and a little bit of Mandarin and learn some Hindi because I do a lot of work in India as well so that's I mean I love it having to communicate very carefully you know and strategically makes me slow my brain down a little bit and it's just and actually when it comes to even product development what I've discovered is not being able to communicate as quickly and as easily in one language forces me to use other senses you know so I have to describe things with my hands and with you know it's just it's really forcing more creativity which I think has been phenomenal can we assume that these companies you bought that you were the best buyer because there was a synergy there and you were already using it and it was worth more to you than to other people and that perhaps if you wouldn't have bought it they might have had a hard time finding another buyer for it is because that's exactly what I did was I bought a company that makes acrylic frames and I bought from a guy that was basically closing up his business but we were selling a lot of it and it it worked is that the case in your face 100% that is a very accurate assumption you did not make an ass out of you or me [Laughter] Laura you bought a manufacturing company in China what impact are the terrorists having on you oh they're lovely they are just great the I am lucky enough that we knew that the tariffs were going to be on the horizon so I was able to price to the tariffs and incorporate that said I was not planning to wholesale the products and didn't wholesale them for a year or so for many reasons one was just mitigating risk like I needed I didn't know how to do manufacturing so I didn't want to spread this stuff out too far until I understood quality control until I understood that the products would be good and then secondly I just I didn't know how to do it did you or did you sense there was a problem and go to them with the company in China they approached me about three years ago three or four years ago when they closed the business about two years ago or last year we had made a hire our general manager is absolutely phenomenal and so I finally had a team and had the so I texted the previous owner and was like hey I know you don't have any inventory I know that the you know we don't even have a website anymore but could I buy this name and could I buy it can i buy it from you and so we went from there and then the small company that is doing the manufacturing in Vietnam she approached me and said that she was done and then this yarn company I approached them I knew that things were tough for them personally and professionally so I just said hey could could we take over like we would love the opportunity it's the largest and best-known hand-dyed company in the u.s. for sure if not in the world but just hadn't been given enough attention in the last year or so due to kind of what was happening personally so I have a team right now that I've never had before that was able that's able to give it the attention it needs you've just completed all these purchases you're still kind of absorbing them it sounds like what's the vision where do you see this going in three four or five years the Knitting industry the yarn industry and as Jay said a lot of the retail industries are becoming fragmented and I want to use these companies to do what I can to drive knitting into the forefront of people's minds you know I want to continue to make knitting you know a household word and you know I told the staff here I'm like I just I want to be creative I want to have fun I want us to make things and play you know that's what yarn merchandising is all about it's all about playing so if we can pay the bill if we can play and we can also pay the bills and all have a nice life then that just seems like a win amen as time passes and we keep having these conversations we will talk some more about how that's going but but thanks for sharing really an exciting time and I appreciate your letting us in on what you've been going through I Karen let's let's move on to something else I asked you guys to think a little bit about talking about something that you've really struggled with is there something that you know in all the years you've been doing this that you're still trying to figure out yeah resourcing and I don't think it's ever gonna go away sort of come to that conclusion and for us that means assigning people to projects that are a good fit for them that they're excited about that where they'll be successful and doing that back to back year over year with a hundred and forty people and the the trick is project teams vary depending on what the project work is they they vary in how many people you need and the skill set that you need and how long the project goes on for some are some are you know a couple of months and some are a couple of years and some are a few people and some are you know six to ten people and for us as a consulting company we we bill out our time and then we're usually billing in fixed fee but then we have to sort of look at it as you know in terms of hours we need to bill forty hours a week for each person to pay the bills because when when we're not billing out somebody's time to a client then then we're paying for it and so it when you add that up you know for multiple hours for multiple people we call that bench time it's extremely expensive for us and it comes really right out of the bottom line and so we're always looking for creative different ways to manage that and mitigate it with you know scheduling people so you want to schedule to come off a project and then the next day they really ramped back up on to another project and but how do you do that with giving people a break and they got to clear their heads what happens that reminds you this is a struggle for you when it's a daily conversation still after 20 years with who my everyone in the company I mean it's just sort of what we all talk about constantly you know I have weekly reports however we have a resource manager whose job it is to do this full-time and then we have general managers who also have to watch out for this full-time and then we have you know various other people who are looking at this constantly and particularly that we have a group of people the most senior people in each of our practice areas so design research strategy engineering who are assigning the right people on these projects and so they're also looking like who's available who's the best fit and it's just sort of a massive puzzle piece and so daily it gets there isn't a day that goes by I think that somebody doesn't talk to me about it in one way or another or I'm not asking somebody and maybe I could stop asking but then in my CFO is telling me about the numbers and so that all comes back to utilization Jay Laura anybody got any advice yeah I tell you I'm at a custom thing and I would ask the question if you thought about trying to have some product where you could have some engineers tied up on it and when you get busy you can pull them off because I'm in a custom business but I also got into making some stock stuff so that I could handle the flow of I can pull people off of that when we get busy when we get slow we can build inventory that seems to be you've no inventory to build yeah I mean that's it we do have a couple of little products but the trouble is our expertise is in designing products not running and managing and maintaining them and so all of a sudden if we're in a you know selling product business it's it's a different infrastructure that we need and you know we could invest the money to do that I suppose but it's feels dangerous to me we actually have a little product that we spun out into a separate company to to not put a big liability on our consulting side that we know how to do how about you Jay what are you struggling with on some level I'm probably struggling with my average person's been here ten and a half years but I've got people here for 25 years and I'm at the stage now where I'm kind of hands-off and everybody is doing their own thing like last week we're so and so oh they're in China honest to god they went to China you think somebody would have mentioned to me we were sending somebody to China buying it's not a big deal but I'm struggling with a little bit of the good news is I've got competent people that I give room to and they take care of business but it would be nice if they told me some relevant things once in a while like they're in China wait I have the same problem we have we do research all over the world even our clients are largely in the US and they'll be like there'll be a whole team doing like on the ground field research in India and I sort of found out about it in the back-channel so I'm like oh my god like can't you just tell me for fun so I can enjoy all this I'm very careful not to make a big deal cuz like you can't have your you can't have your cake you need a tool like I've given them room I've given them the feeling that it's basically their job their company and they treat it like it's their own and I totally appreciate and respect that so I don't want to start going hey you should have told me about that so I'm just trying to find a reporting structure or some structure that it's that you know I'm in the loop enough so what did you do when you found out someone was in China my first reaction was to call the person and go what the hell you couldn't tell me and I didn't I gotta tell you I didn't I'd let it slide and I was talking to my production manager about a month ago and he's been with me for 24 years and I said Dale you know the reality is I'm 75% entrepreneur and 25% manager he goes no you're not you're a hundred percent entrepreneur and you're a mentor and he's right I don't get into the management stuff what I should do is simply make sure I discipline myself which isn't a good word for me every Friday to sit down with the person for 10 minutes to do it that's all I would need to do but I haven't done that so this is on me I what I'm gonna do is I'm gonna make sure that once a week I get a ten minute with that and find out what's going on in you know in play manager we have one big office and then several smaller ones but whenever I'm in the kitchen I always make sure to ask whoever I see what they're working on and to tell me a little bit about it and that the inside I get from that alone and it takes like two to five minutes is phenomenal for me it gives me such a great different perspective on a company it's really awesome are you sure you haven't just taught everybody to avoid you in the kitchen my problem is I've got a production facility this 15-minute smear so I'm not in the same building with a lot of these people and that's a problem and if we were I that I probably would have found out about he would have said something to me when he ran into me in the kitchen but we're not in the same kitchen do you have a routine where you go visit the facilities yes every Friday I go there for the production meeting and I need to just discipline myself when I'm done with the production meeting to go upstairs and talk to the person I'm talking about and I'm gonna start doing and the time we have left I'd like to talk about a news item that I think is relevant to each of you since you all have websites recently the Supreme Court declined to hear a petition from dominos who'd been sued by a potential customer saying that their website wasn't accessible to handicapped people they took this case Domino's took this case all the way to the Supreme Court hoping not to have to adjust their website and the Supreme Court declined to hear the case so that means that it's a it's a decision not to hear the case was a loss for Domino's and for and a win for a disability advocates it means that businesses will have to have to deal with this I've never read a number of stories about the actual litigation but I have no idea how big a deal is this is whether most websites are compliant or not how expensive it is to make one compliant if it's not compliant and I'm curious how the three of you are looking at this Karen this is kind of the business you're in let's start with you what's your reaction to this sure I think it's great I mean obviously I can see how corporation doesn't want to be told what to do but the reality is it's it's absolutely critical and essential disabilities don't just include the you know the sort of ones that might come top of mind we have a huge aging population they have trouble with mobility with you know hand and eye coordination they have trouble seeing hearing speaking in some cases and then we have a whole huge population of people who are illiterate and you know that they like pizza too and so compliant is checking the boxes yeah we've got the alt tags we've got these various other little things which cost money to implement if you do it after if you do it while you're building a website it's it's virtually no additional cost you have to have a plan in place for it you know but there's all kinds of things that a company like Domino's could do when a huge part of their population its delivery service so they're really they could be really catering to all kinds of people with various disabilities and really knocking it out of the park and paving the way and having a great example could you give us a feel for the the expense here you said that expenses you know almost nothing if you build it in when you're building the site but if you have to go back how expensive is it to to make it compliant or how expensive is it to go beyond that and make it innovative in your term sure if you're innovating you need to do it while designing so you can't you can't retrofit innovation right but but because that really involves thinking differently all right how do you solve a problem in a different kind of way but in terms of I'm making this up but it's probably anywhere in the range from I don't know 10 to 20 thousand dollars depends how big the site is and how complicated it is for sure but if you're going in and just putting in some compliances that's some it's different but it but and I'm sure the price could go way up to you're missing a piece of this puzzle the piece of the puzzle you don't have is some law firm sued them trust me this is how it works this isn't about disability advocates this isn't this is about law firms that do nothing would sue everybody who have websites for money and for all you know they had a million dollar lawsuit against some and that's why they went to court and that's what's going on well and that's Lauren from our perspective as a relatively small business that is online and built our site 17 years ago and whose chief developer happens to be you know my husband and co-owner the principle totally makes sense like I couldn't agree more absolutely 100% but this has affected us like almost to a personal level because all of a sudden the opportunity cost of Doug has had to spend it took him three weeks you know so that 10 to 20 grand you know in terms of development time well for a business like ours that's that's a part-time employee you know that's one person that now can't pull in Shep orders or can't take pictures and put them on the site Doug had to spend two or three weeks trying to figure out what the rules were because nobody could tell him he went to the ad a site and the ad sites not 88 compliant and to learn that the enforcement is not going to be done by the governing agencies but by lawsuits is really scary what prompted you to look at it Laura did somebody sue you or yeah absolutely yeah we got a letter we got a letter from somebody and we're a business that's just that size that is visible I mean all we need are ten people to sue us and have to pay five or ten grand each time just in legal fees just to defend ourselves that's I mean that's a showstopper for us did get you where you need to be he got us where we need to be but if you think about kind of the opportunity cost of those weeks that he could have spent trying to help us build the business and again I'm not arguing I mean the principle it totally makes sense it would just be really great if we maybe had nine months you know or a year to be able to come to compliance and that the government or somebody else would make sure that we were compliant as opposed to having to defend ourselves through the legal system and just not having any time into Jay's point to it's it's sort of sad to think that somebody's running a business on looking for these things and suing people absolutely I mean we've got seen so many times for different things like this you know that we don't get to build the business we just are playing defense constantly so did you settle the lawsuit or no we didn't settle it I mean we just got compliant you know Doug worked 20 hours a day maybe two months ago three months ago yeah I'm not so sure that you're done with that I'm not sure we're not you're gonna get a letter in the mail and they're gonna and that's how it works I don't think they just did it to be nice they're gonna sue you where do you stand Jett has this been an issue for you no III had I actually know a decent amount about this most of these lawsuits are coming out of New York and Florida and there's law firms this is their new this is their new cash cow and they're going after everybody that they can think of it as a website and then they settle so did you become compliant to did you get sued and have to adjust yeah but it's frustrating because the government should be regulating this and they should put standards out there the problem is from what I understand the government hasn't taken really a stand on where they stand with this whole thing with the 8 so there's no rules out there so all of us are out there doing what we think is right don't even know about it and then you get sued and to Laura's point there isn't even somewhere you can go that tells you exactly how to do it it's a gray area I think I just heard two business owners ask for more regulation I was just thinking that sounds like a great line of business is to provide a site that it actually will check it for you and help you and do some consulting and it's an opportunity $3,000 to a site like that that will go help you do it then pay it to a law firm who is not doing anything except suing you absolutely you know with lote we want to make sure and that's our client base as well and it's just the right thing to do but and we will do the work just tell us what the work is and on that note thank you all for another week of the 21 hats podcast we will rejoin this conversation soon thank you thank you thanks for listening everybody this episode was produced by Jess Stuber on founder of blank word productions remember if you liked what you heard tell your friends tell your enemies subscribe like us and best of all connect with us follow us on Twitter at 21 to underscore hats and visit us at 21 hats calm well it's not what questions or issues you'd like to hear our panel of fearless business owners address see you next time you [Music] you