I Took My Eye Off the Numbers

[Music] hello everyone welcome to the 21 hats podcast I'm your host Lauren Feldman this week Jay Golds tells sha busy and Jackie Russo that while he's always been good with numbers he's never really enjoyed tracking his finances it's not what drove him to start a business and over time he stopped paying close attention but now after seeing his inventory levels and some big expenses get out of control he's diving back into those numbers and pretty much serving as his own chief financial office officer something he says he should have been doing all along plus Sean explains how one book and a specialized accounting firm and a monthly routine have gotten him comfortable with his numbers and Jackie says it took years for her to learn to ignore the accountants who always gave her the same advice cut expenses instead she tells us we spent probably the past 8 years really rightsizing what we charge and now I feel like I can breathe even in Good Times owning and running a business can be a lonely Pursuit our hope is that these weekly conversations brought to you by a principal sponsored the great game of business will let owners know they are not alone in facing challenges same thing with our daily newsletter the 21 hats Morning Report which Jak magazine named the best newsletter for business owners and which you can subscribe to for free at 21h hats.com where you can also find transcripts of our podcast episodes and lots of other articles and interviews joining me this week on the podcast or regular Shan busy CEO of Kinesis which is based in Portland Oregon and works with small businesses on marketing culture and strategy Jay goz CEO of the gos group whose companies in Chicago include a picture frame business artist frame service and a home furnishing store Jason Hol and Jackie Russo CEO of brand Russo a marketing agency based in Lafayette Louisiana the episode is titled I took my eye off the numbers [Music] welcome Jay Jackie and Sean uh it's great to have you all here I I want to talk today about how you guys go about tracking your numbers and I want to do that in part because of conversations that Jay and I have been having about his business recently as I understand it Jay you've come to realize that you lost money last year but you're not entirely sure how you lost the money or where the money went which has sparked a further realization on your part that you haven't been paying enough attention to your numbers of late do I have that right is that fair I I know where it went I had to spent a lot of time and energy on it I mean I've got four separate businesses that are in some ways connected but very different in other ways with the gross profit margin with one's wholesale one's retail the other one's furniture store it's just they're all different and I've had a CFO for over 20 years that took care of everything and he retired and I replaced him and I should have been paying paying more attention along the way but it just reminded me that I have an accounting degree but the point is I didn't go into accounting for a reason because it bores me and there's a reason my business got big is because I I'm you know I like the marketing thing I like figuring out businesses I like looking for opportunities and that's not accounting so I've spent all of my energy on that over the year not all most of it on that and I've come to realize at this stage I need to be I used to be 75% entrepreneur and 25% manager and I need to be 100% manager now cuz I I need to stop entrepreneuring and I need to just spend time and energy fine-tuning the business it turned out to be my greatest strength is my greatest Ailes heel I'm good with numbers but I haven't paid any attention I I paid not enough attention to them for sure there's some great lessons in this for all parties I would think I would think so too I mean if you could struggle with this I imagine any owner most of whom are not going to be as comfortable with numbers as you are uh could struggle with it as well I I do want to hear how you're solving this problem what you're thinking about doing to make sure it doesn't happen again but I want to make sure our listeners understand what the problem is why wasn't it obvious to you where you were losing money why did you have to figure that out it's easy I have a ton of inventory it's not barcoded it's not like I'm selling stereo systems I've got picture frame molding comes in and you know you cut a frame it you have to guesstimate how much scrap there is there's just a lot of moving parts and what happened was fundamentally labor is way more expensive than it was three years ago the interest rates are way more freight has been out of control my real estate taxes went up I didn't realize this but I've been paying more for Visa Mastercard exchange rates all these points they're giving away they charged the vendor so that was that was half a point and then Insurance his Skyrocket and the problem is when you're in a business like mine most people base their prices upon what do you pay for something and then you mark it up and when that product goes up in cost you change your price well when overhead costs go up like your real estate taxes or your Visa Mastercard exchange rates or your insurance that's not part of the formula so you have to go back and look at your business model and realize I got to cover that somehow and when all these things happen at once over a year or two it's not obvious my business is way too big it's not it's not like I can run it by the checkbook I've got so much difference between the payables and the receivables that you can't just look in the checkbook oh we're doing well there's money in the account it's way more complicated and the lesson I've learned which I should have known I don't care how big your company is small big you can't ever stopping the CFO to some degree you can't go and hire someone and just go okay I got it covered there taken care of it all I think small business owners not think I am confident the small business owners need to have their own key performance indicators and monitor them regularly and stay on top of it which is basically what Lum Masa keeps talking about and he's right I mean you can't run your business out of the checkbook Jackie uh what do you do how do you keep track of your numbers that's a great question I actually uh learned from Jay when we were all together in Fort Worth that I might be overpaying myself um because Laura Xander and I looked at each other with quite shock when Jay said that the um owner CEO's salary should be a certain percentage of the total sales and I was like never thought about it from that perspective did some quick math I'm like okay well then we just need to make more money because I'm not giving myself a pay cut so working on that right now that's very loose I I you know and I probably shouldn't I mean there's some truth to that but if you're smaller but you've got great margins it's not going to work but if you're doing bigger volume there's it it gets more relevant I think I think it's relevant period listen this is how I think about benchmarks they're a place to start you may be a little higher you may be a little lower but at least you know what the Benchmark is yeah and I would say simply Market rates if you're paying yourself what you could go out in the world and get okay can't argue with that if that's the case I'd like to think somebody would pay me hack more than what I pay myself so I feel like I'm great Jackie how do you keep track of those benchmarks what reports do you get uh how often do you look at them well we've talked about this a little bit in a previous episode that I never felt like I really mastered even though we we learned it in the Goldman Sachs 10,000 small business classes we've discussed it in the different CEO roundtables that I've done I still feel like when I look at a p&l or a balance sheet I see the numbers I'm I'm smart enough to understand the numbers but I don't really know the numbers like I don't know is this good is this bad how does one thing move to affect another thing I I just I didn't take any Finance or accounting classes so I'm Flying Blind back on day one you know February 1st 2001 I started an Excel spreadsheet that is now a Google sheet that I have you know over the years updated and altered and it it become quite I think comprehensive and we track everything there and it works for us so you ask me a number I can tell you the answer I can't tell you off a QuickBook but I can tell you off this Excel document we started with an in-house CFO and she was the third employee and a CPA because our very early years we were a media buying company and handling millions of dollars of other people's money and that made me very nervous I wanted to make sure we did everything right and that I wasn't going to put myself into a pickle and so I was glad to have the support around well round about year maybe 10 the CPA decided that he thought the CFO was doing some things maybe not appropriately and launched a full forensic investigation turned out he was wrong but there were burned Bridges and it was a whole thing and it was awful and so that cfo's gone that CPA's gone and we do things differently now and like Jay though I realized I kind of took my eye off the ball last year and so I've stepped back in because there were some opportunities that we were missing and some costs that weren't being controlled and some subscriptions that were being renewed for no reason and so I've gotten back involved which gets to my whole point of I use the phrase model income statement which simply means you sit down and say to yourself all right I think we can gross this amount and if we do here's how much money we should make and you start to fill in numbers and say all right I think we can get the labor to this number that's not something an in-house accountant has the ability this is like strategic accounting that's not what the typical accountant does it's that's what the entrepreneur is supposed to be doing is that what you were not doing Jay um I was I certainly had my own model income statement what I didn't recognize is these aren't little numbers when I throw these numbers out when I tell you Freight went up I'm not talking about it was $10,000 it was six figures when I tell you my Mastercard Visa exchange rate went up it's not 10,000 it's these are all tens of thousand these are 50 $150,000 numbers so when these things start going up and you think oh my God that's terrible look how bad real estate taxes went up the question is that I turn around and go we better raise prices to no I didn't I took that hit and then I took the next hit and then the labor thing which I think has affected a lot of people compared to four years ago most people are paying everyone a lot more than they were paying him four years ago and did you did you change your pricing structure because of that I can't tell you that I did enough I didn't the minimum wage kept going up in Chicago and and I'm not complaining about that I'm really not I I I don't think it's unreasonable the labor think a major piece of the puzzle for most companies and again you got to look at your pricing it always comes down to margins overhead sales revenue and sometimes you got to tweak what you're doing and you know we all come up with what we're charging where did that number it really comes down to what you're charging Sean what's your practice how do you keep track of your numbers maybe I'm a little like you Jackie in that um Finance was never my strength starting the business you know I came from a creative background and really good at really good at the humanities um so our company really got into trouble you know about 10 years in uh in the Great Recession and I realized I I needed to approach it very differently so I read a book called Simple numbers by the author Greg Crabtree he has a really approachable philosophy about Finance especially for the owner run business and simplifying um the numbers you're looking at and so I eventually hired his firm they became a bit of an outsourced CFO controller and the process that they engage in is taking our Quickbooks on a monthly basis reconciling everything and then converting it into a spreadsheet that tracks a couple of key indicators that we've used for a very very long time those are especially valuable which are management ler and direct labor ler I think those are really critical numbers for an owner to understand that is essentially for every dollar of input into labor how many dollars of output do you get and that allows you to Benchmark yourself and see how that's changed over time and it reduces a lot of the confusion especially if you have a lot of pass through costs so that's our process is having a third party who is looking at and examining our finances on a monthly basis and being a bit a source of Truth and then they can also compare us to other like businesses which helps me understand how we're performing now that is a specialty firm that does that this is not just an accounting firm correct correct yeah this is where the problem lies for many people first of all let's be realistic how many people to become entrepreneurs would say oh my B my biggest strength is finance I don't think many unless you're in that kind of business so usually it's your into sales you're into whatever you're doing okay so this isn't most entrepreneur specialty the problem is they go to an accounting firm and they think oh I've got a good accounting firm that is not what the typical accounting firm does and even my accountant who's been my accountant for 23 years and makes a lot of money and works for a big firm he said well your your your margins are fine your overheads too high that is exactly what I'm talking about I said how do you know that's the case versus maybe my margins should be higher because I'm giving a specialty product it isn't that simple it just isn't that simple you can't look at the books like that you have to be the entrepreneur and look at it and think do I have too many people is the overhead too high or am I not charging enough it's just not that simple and I've never okay I'm just going to say in my experience I've never met an accountant I've had four of them since I started that ever came in and gave me great Insight on running the business I mean it it makes a lot of sense that it's not working for you and doesn't work for most people because if you think about the domain of accounting It generally is a domain about risk avoidance and compliance right you have to follow the rules of the IRS and so you have a Persona that is much more about thinking within boxes versus being creative and what you actually need as an owner is you need somebody who can bridge the gap between that very left brain activity and that very right brain activity and in my experience it's not been an accountant no it's the entrepreneur is my point and that's what we're supposed to be doing and like I said in my case you could either say well either my overheads too high you have to look at who works for me how much am I paying them or am I just not like for instance the biggest one on me was the freight cost hundreds of thousands of dollars we we needed to build that into the cost and we didn't and you know that's not about overhead I mean I would add a Nuance to that Jay and that yes it is the entrepreneur but I think most entrepreneurs is trying to do it from nothing is really hard sure and you have a background in finance you were trained in it and so I think your ability to cross that Chasm is easier today I can do it pretty easily but I could not do it 14 years ago and I needed somebody to hold my hand and really educate and train and get me to a place where now I can build my own spreadsheets like Jackie has done but I couldn't do it in the beginning no I totally accept that Sean you say you get monthly reports from that firm correct yeah right do you review them carefully I mean if there's a a leap in an expense somewhere that you should be concerned about do you spot it or do you rely on them to flag it for you yeah so we have a monthly meeting where we review the numbers together and since we've been doing this for so long we have baselines and so if something gets out of Baseline they'll often say Hey you know I see your marketing expense is twice what it was you know the month before can you tell me what that was for was that worth it you know and your it expenses is up what is that about so having somebody who's on the outside looking in with a dispassionate lens is really helpful and it catches things too because you know to Jackie's Point sometimes expenses creep in there and you know as your business grows you start to ignore stuff you don't see stuff and so having somebody on the outside say hey why are your you know subscription costs you know double what they were last year just having that rhythm of somebody looking at it for you is so valuable which frequently turns into the question of is that going to continue happening because if you're saying no it's the new world I've got to keep well maybe you need to change your pricing that's really one of the critical pieces that Most accountants the ones I've dealt with have never brought that up to me I was growing like crazy for years and nobody said to me Jay raise your prices 5% your bottom line isn't big enough and you're growing at 30 that's all someone would had to tell me it would have been lifechanging yeah well the incentives are all wrong because the CPA is incentivized to complete a tax return that's it I mean cynically that's what they're paid to do and so whether that tax return says you owe money or you get money back they kind of don't care because they're being paid to finish a tax return and and again I'm generalizing there are good CPA who would raise the flag but most of them don't in my experience I can also tell you having an accounting degree if you think that they teach you this in accounting they don't I'm telling you I'm just good with numbers I can tell you the training that I got they didn't talk about small business they didn't talk about anything like margins and just now this was 50 years ago wow okay I mean there weren't computers but my point is yeah I wouldn't expect that people that are getting out of college now with an encounter degree could jump into a small business say oh I can help I that's that's a stretch I think it it requires like a firm you brought in that's what they do I think there's no question you're right that that's not what they're trained to do and and they wouldn't argue otherwise I don't think I think I really I really think you have to look for a different type of animal than a CPA you have to look for somebody who really understands small business finances and they don't have to have a CPA degree probably shouldn't absolutely not my experience yeah Jay I want to go back a couple of things uh one when you were explaining how you figured out where the money went the first thing you mentioned was inventory and I can imagine some of our listeners wondering in this day and age with all the technology that exists why is it so hard for you to track your inventory and I understand that you know you have molding it gets cut it may not be as precise as you'd like but you're you're sending out a frame of a certain size why is it hard for you to keep track of your inventory the problem with the inventory there's millions of dollars worth of inventory it's not barcoded and then you could go oh well that's oh you should barcode it great idea the problem is when you're moving fast and you got all this stuff going on I need a new computer system there's no question that I need a new computer system it's hundreds of thousands of dollars it's going to require a lot of time and energy we're working on it but if I was a big company I'd already have it but I can tell you from what I've looked around there are a lot lot of companies in my situation that have Legacy computer systems that we're used to that are working kind of they're working but I need a new computer system there's no question that that's part of the problem I mean you're you I can't imagine a more complex business than your business Jay from a finance perspective yeah no right I've got manufacturing I've got wholesale I've got distribution I've got the internet I've got direct sales and every one of them is a different a different combination so I'm fixing it I got it under control but there's no question that I should have paid more attention along the way and just things like our financial reports splitting out how do you take the salaries of the HR person or the who who pays for that how much do you put on each business it's like even that stuff just the separating of the numbers was something I should have been involved with and I wasn't and I told I take full responsibility I I'm not going to let it happen again I'm going to get it all straightened out but if you don't keep track of the numbers the numbers will track you down and beat you to a bloody pul that's what's GNA happen Jay when you say you took your eye off the numbers I mean what has been your practice I'm embarrassed to say I should have had monthly meetings and sat down for an hour after go line by line and I haven't I was that because your your old CFO well he was taking care of it for 20 some years and it was not and this is where I bring up the Achilles heal thing I I'm add I'm sure I'm add I have a short attention span I like figuring out ads I like figuring out new opportunities I like figuring out oh we found some new stuff to sell new trade shows I'm totally a business junkie and all that stuff I don't get enjoyment out of going through and I realize this is part of the problem I don't use Excel I I don't I don't use any of that stuff you have to remember when I got out of college there was no computers I I certainly use a computer now I certainly do stuff on there but I'm not doing Excel spreadsheets on there so I'm kind of old for this I will absolutely going forward oversee things be the CFO I've been sitting down with my accounting manager for for a couple hours a day it's been extremely high opening for her and me so we're fixing it really well I will continue I will have I will fix this now my suggestion to everyone who's in business is yes you could go hire somebody first of all you'd have to be big enough to afford this person because like how how does a $4 million business3 million $2 million business afford to go pay someone this isn't a $60,000 job right and the accounting this is going to cost some money first of all how do they afford that they probably should have a part-time person well it's Jackie said she had a CFO pretty early how did you do that Jackie um how did I afford it yeah well we were making money from day one you know I went and picked up clients and I I know I've mentioned on here before I was eight months pregnant waddling in and getting media clients and so before I quit my full-time job I had uh four or five clients and so then they came on as a fractional CFO okay and then by month six I had 10 clients and they were managing now do I think we should have had someone of that level no do I think that we were probably overpaying based on the need yes but I felt secure knowing somebody was making sure I wasn't spending clients money on something that wasn't supposed to be fent on in my case I have to make up the pricing in your business isn't there some kind of standard fee or something that how does the pricing work in your business well in at that time with our media work yeah straight 15% commission so that was easy as we've evolved from that because I mean we'll do some sometimes for clients but they have to be on retainer so then you start talking about either an hourly model or retainer model that's where it gets interesting yeah and that's tricky to figure out yes well and the other thing too I think this is really common in smaller businesses the the numbers are not accurate like they're not true meaning the owner is doing all kinds of hij Janks with their business that make it really hard to get a clear picture of what's going on and so what I what I mean by that is like abut oh I bought a car through the business even though the business doesn't really need a car or I pay myself $40,000 a year even though the CEO position in a say a $5 million company would probably pay $2 to $300,000 a year and so their numbers are not they can't make good decisions from their numbers because they're they're full of holes right and that's really common listen I've been in four or five business groups over the years so I've seen everyone's numbers and that is absolutely I always say wait wait stop stop telling us how much money you made what did you pull out last year because in some cases they're paying themselves a quarter of what that job should pay or in other cases they're paying themselves twice what so like the bottom line is meaningless unless you Peg the salaries at what an appropriate salary is ass so you're absolutely right that people are getting numbers but they're skewed for some reason that's right you know somebody can claim like oh we have incredible profitability but it turns out they're not actually paying themselves even close to Market but they can also extend that into their company I've seen this happen where really young businesses are good at hiring ambitious well meaning people and paying them very little money and then as the business matures you need to hire more expensive more talented people and they built a financial model based off of that really inexpensive ambitious hire and then things start to break so I've seen that too I've seen that problem as well or paying their kids or all kinds of crazy stuff no you can double it the husband wife teams which I we have on this podcast the two of them could be underpaid by 100 Grand I me this could be serious money between two people but then you also have to balance what they're paying themselves in salary what they're paying in a shareholder distribution and What expenses the the business is covering so you have to really look at how much you're being paid yes you you have to normalize if you're going to do that stuff like I I don't do that stuff but if you're going to do that stuff you've got to then build your own system for a p&l that gives you a true a true picture of the business they have a word for that there actually is a word for that they it's called recasting the financial statements do you know it used to be in the olden days you could join a country club and write it off right okay well they they stop that okay you can't do that any longer so I was saying to a guy he was telling me Oh yeah you got to strip that I go whoa whoa that's IL legal you he goes trust me they bury it that's what he told me that people still do it they just bury it somewhere so I don't do that stuff but there are some companies that do bury the they take a vacation and they write off as a business trip in some some cases it's not that much money but in some cases it is a lot of I don't do any of that stuff I just I don't need to worry about I just don't do that stuff Jackie like Sean you have a Professional Services firm do you know which of your services are profitable and which ones maybe aren't profitable yes but because we've changed our our business model a little bit we've kind of limited what services we provide and we've expanded some because they now fit under the retainer so people come to us through really one of two Avenues either we're doing a rebranding project for them so it's a brand identity uh created from scratch or they've grown and evolved over the years and now we need to make sure all their pieces fit together properly so their logo system works Etc so that's a way in the door for us or they come in because we're going to do a strategic branding plan for them using our razor branding process and so we're going to map out you know target audience and messaging and annual plan and budget a campaign and all the things that they need either one of those is the way in the door and so I can tell you exactly profitability around both of those because there's very very little outside expense and then uh they move into the retainer model so now we're handling there marketing advertising social media email campaigns Etc under that that gets a little bit vager because we don't do hourly billing and so I have to do a little more work to keep an eye on which clients are in line taking advantage or super profitable because they're not using nearly enough of our time which we're fine with so I'm going to call that strategic accounting and my point is that's your job that's my job that's everyone's job don't think you hired an accountant to work for you and they're going to come to you and go hey I don't think we're Char that's just not what they do correct in all those years with whether it's our in-house CFO or CPAs or whatever no one ever said you should charge more they always talked about cutting expenses always I'm like but wait a minute we we are running a pretty bare not Bare Bones operation but I think we're efficient with our time I think we're efficient with our work I'm not going to ask my people to work after five I'm not going to ask them to work on the weekends so I'm not cutting expenses I'm not driving a $200,000 car I'm not living in a million dollar house I'm not getting exp not that there's anything wrong with living in a million dollar house or driving it to I mean it really there's not that's My Lifestyle now I did have four kids in private school so that was my big Splurge um and it paid off because they all got through college without any debt but my point is that we realized like you did Jay early on we should have been charging more and so we've spent the past probably eight years really right sizing what we charge and now I feel like I can breathe you know you put your finger on one of the worst problems that I see with the financial consulting industry which is their kind of one trick pony nature which is they come into a business and then they start looking for things to cut without actually having a good understanding of the ramifications of those things you know if you start asking your team to work 10 more hours a week you're going to churn through people and then you're going to have to pay costs in other hidden ways like training and onboarding and loss of customers so the expression I like here is like there's just not enough one PL toilet paper in the world meaning you know if you go from two ply to one ply it's not going to freaking save your business so most of the time you know moving the needle is not about cutting costs especially in small businesses most of the time it's about getting the right customer who's willing to pay you what you need to make in order to have a sustainable business or at least from the accounting standpoint it would be nice if they understood that and say okay maybe your overhead is too high but let's also look at what your charging your margin they they just I was in an accountants office one day he had a bumper sticker on the wall it's said overhead kills what a ridiculous seriously and that's what a lot of they think the secrets of successes don't spend money and that is simply not the case that doesn't mean they're not right sometimes but you know Sean does your specialized firm help you figure out which of your services are more profitable than others this is where you know I would say they took me from kindergarten to high school you know to helping me understand my numbers and then to go to college and grad school I I started to have to do things myself you know so for example like Jackie you were talking about your clients I had to build you know a spreadsheet that helped me understand client level profitability so I could know oh this client is actually a really great customer you know they kind of stay within the bounds of what we've expected this client is becoming difficult they're they're really asking a lot of us we're going to have to adjust our pricing over time this client maybe we're we're actually charging them too much and we need to either find ways to deliver more services no actually there is a thing if you I I really believe this if you start making like an extreme amount of money on a client it it can be it's an indicator that there's probably something at a problem there it's a long-term risk meaning that you're probably not delivering enough value they're not engaged with you enough that that's just my that's my belie um agree so I I'm really thankful for our firm that has helped us and I still engage them but I don't expect them to take me into graduate school level Finance you know I've had to learn how to do that myself but without their training without their help I could never have gotten there I couldn't have gotten there on my own my whole thing is look at there's three parts of business there's marketing there's management and there's Finance I'm going to suggest that most people that are successful are really good at one like gifted on like really really really good at one they're good at the second one and they're okay at the third one and that's where the Achilles heel could come in that I don't think any of us can afford to be just okay pretty good good would be better and I certainly could have kept my eye on this better than I and I am now when I'm fixing it but that's not where my attention was and I think there's a lot of people that are just they just want to bring in sales and they think it'll take care of everything and for a while that will probably work but now when you get big when you start adding layering in salaries after sale I got 130 people and then the new thing to add to the complication now all of a sudden some people morphed into working from home well that's a little harder to keep track of and now when they're at work when they have nothing to do they can sit on their phones and talk to their friends it's not what it was 20 it's different and you gotta manage differently Jay in describing what happened to you last year you talked about not being aware uh at the time of all these price increases that you've had to deal with from you know from Freight to taxes to everything else well I was aware of them I just didn't take action and the action that you would have taken um you suggested was you should have raised prices you've also acknowledged here many times that a a lot of people think framing is already very pricey there's no question would that if you had raised prices are you confident that would have solved the problem so the question is first of all you got two options three there's three different outcomes one is you could do nothing well that doesn't work because I didn't make any money so you got to raise prices chances are I'm sure you will lose some business but I doubt that you're going to Lo the definition of an elastic product is that if you raise it 10% if you lose more than 10% in sales that's called elastic if it's not it's inelastic so if you're a brain surgeon and you raise your prices 10% you're probably not going to lose much business and it's not elastic so I should have raised prices because it is what it is and I just came back from the frame show they're complaining about high prices trust me they're going to complain whether if the price you're charging now or it's 7% more the difference is you'll be making a living I mean it is what it is the problem with the freight thing was and you've just read about it maybe it was even in the 21 hit report companies are reevaluating this free shipping thing it's costing everyone a fortune I mean and then this whole ridiculous thing with zapo is they would order oh I like that shoe I think I'll order it in all 12 colors and see which one I like and then they get them and they return a lot that stuff's drying up very quickly this isn't just me everyone who's selling stuff on the internet is dealing with high shipping costs so just the fact that you're giving free shipping maybe instead of at 100 it maybe it should be not free shipping at 100 maybe it needs to be 150 so I was subsidizing a lot of free shipping which was also a problem if you think about it that's all a legacy of the free money era right it's you know Amazon doing it because they have tons of free money and they can they can lose money in order to get customers and it's unfortunate because then it forces small businesses to fall into line too and it kills their business there's no question look at Wayfair you all hear Wayfair they don't make any money they lose hundreds of millions of dollars every year I I I mean this is the environment that many of us are living in I'm I'm competing with companies that are losing money on every losing money regularly except it is what it is out in the marketplace it's a it's a problem do you feel like they're going to last though I mean in this new environment I feel like like the the chickens are coming home to roost here well it happened in 2000 if you recall everybody was giving stuff away and that I'm not saying they're not going to figure it I don't know I can just tell you this shipping Furniture is a pain and it's very expensive so I I don't know about that one there's other businesses where it's easy to ship and they'll probably be okay here I ordered some shirts from a company and I couldn't figure out whether I was a large or an extra large so I ordered like a couple of each I got them and I really didn't like the fabric so it was 175 bucks I contact the company I want to return them they said you know what just give them to a homeless shelter really $175 worth of shirt now it doesn't cost that much to ship back which makes you wonder why didn't they take them back it's what is it 12 bucks UPS to get them back is their margin that big on this stuff I don't know what the answer to it is but anyone who's doing anything shipping stuff is dealing with this and my Co sale business selling the frame shops every single order is shipped UPS or FedEx so we're talking hundreds and hundreds of thousands of dollars with a freight bills I have it from Jason Homes shipping out Furniture I have from the wholesale business and then in my retail framing business I don't have either of those but then I got the real estate taxes went up a lot and insurance went up a lot so every one of them had some weights thrown on it and I didn't react quick enough to fixing it and like I said I'm doing that now have you gone ahead and raised your prices Jay on some stuff sure I I I have to I used to tell people in the framing industry there's two big questions that are number one in America two questions who killed Kennedy and why is framing so expensive so I've changed now the question is no longer why is framing so expensive the question is why does so many people still do it and they still do it because it's fabulous because when you get your thing framed and hanging on your wall it is lifechanging and it put you on a whole new trajectory so the fact is framing important framing is beautiful framing makes people happy they're just going to have to pay what it costs to do it I have to regularly why is framing so expensive I said tell me something else you buy that's custom where you stand at a counter with someone for 45 minutes and then they take an hour or two nothing is the answer most people don't buy anything that's custom has anyone been surprised when they call out the person to put blinds or Shades in their house that's also like $10,000 $15,000 so anything that's custom cost a lot you got to charge what you got to charge I tell people and the same thing that the two of you do you need to charge enough money to make money and if the customer thinks it's too much money they shouldn't be hiring you what are you gonna do am I wrong are you going through the same process with your home store Jay absolutely I have no choice well there it's trickier right because at least with the framing it's it's not like there's a price on the wall That's suddenly going to be higher when somebody walks in but the price of sofa people may be familiar with well there's only so much I can do with in particular sofas because it's a brand name and they're out there over but I carry I literally using the word literally properly I literally send people all around the world to find cool interesting crafty artisan-made stuff so we have a very unique selection which is why people love the store and we have cool interesting stuff so it's not like they can take my lamp that's made out of a piece of wood with a blah blah blah and go find so I sell unique unique interesting stuff and that costs more and our prices are appropriate for out there because I'm not selling just plain old you know vanilla stuff I mean we talked about this a little bit Lauren you know in the in the um piece we did the other week about marketing which is the more commoditized the thing is that you do the harder it is for you to have control over pricing no question and so you know Jay's way of escaping that trap is to find things that are really hard to get you know there there is no comparison and if you sell something that I can go on Amazon and find it too that that's tough I mean you're in a race to the bottom especially if there's a name to it you know Coleman sto boom I mean you got 40 vendors the key is there's a reason why people and when I tell you they love my store they don't like it like regularly oh my God I love your store I mean it really really really makes people happy we find Artisans that can't sell the big stores they can't make enough of the product so we carry cool interesting stuff that people love and that's why the store is popular and that's why we do well I have to cover the freight costs well Jay that does raise another interesting question though in in the past when you've talked about the inventory problem that you have I've asked you you know it was unforeseeable it was the result of the pandemic and the supply chain issues but was there anything you could have done differently and your answer was no there really wasn't because exactly what you just said your store Jason Hol relies on you finding cool interesting stuff around the world and you couldn't stop in that even though you had inventory backing up do you still feel that way no that was a good answer at the end of 22 what I should have figured out is this can't keep going on I mean there's the Artisan parts of this and I always laugh about the fact that you know Sean you're you're you're an artist I I'm an artist in my own way I don't make pottery but like I'm a business artist I like finding cool interesting stuff and making people happy so I'm like a junkie on it so oh I want to keep buying stuff at some point you have to stop and say okay if you're making pies and you've got 30 pies at some point you have to stop making the 50th Pi out of cran whatever I mean there's some point where you just need to stop and I should have told the buyers start being more selective what you're buying we got too much inventory I kept thinking the solution was we just need to sell through more and get rid of more well it's two parts it sell through more slow down the buying I should have absolutely slowed the buying down in 23 22 there was nothing I could have done about it it was all pandemic related with shipments got tied up and they finally came in but here's the joke I had a guy come by here uh he owned a chain of paint stores in Chicago very well known in the 70s and 80s and he came in for framing and I was friendly with him hey give me a tour so I walked him upstairs at the time I did the production of stairs and he looked at the racks and racks I had a molding and he just turned to me I mean I was all of I was probably 30 at the time he just turns to me and he just says keep an eye on your inventory yeah oops Yeah I think most retailers would tell you keep an eye on your inventory it's easy easy easy for it gets out of control so I never had something that all big businesses use they have something called the open to buy that's the phrase they use I never had an open to buy now I tell my buyers here's the open to buy we can't buy more than this this year figure out how to make that happen I never I never worked anywhere else that's another one of my problems I never worked anywhere I never if I would have worked at a bigger store I would have known that I didn't know that well I I mean I think this is such a good example of like how most problems are never caused by any one thing you know it's like we love to talk about oh the Space Shell all exploded because of the O-ring you know I mean it there's all kinds of other things that led to that problem you know leading up to that and I think you know there's that really bad movie a while back called The Perfect Storm where it was like all about awful it was so bad but you know it was basically it was a great title it really was a great title but you know essentially it was like oh these three storms are all colliding at the same time on this one ship and what what I hear from what you're talking about Jay is you had a couple of things like one was yeah you didn't keep your eye on the ball on inventory you know that's kind of a function of now you're you're running the Queen Mary and not a speedboat anymore yeah you like many people did not expect the acceleration of inflation like the rate of inflation that has hit us across all Industries is just Bonkers and and it's really hard to kind of see that because you've never seen it before I mean what has it been since like the 80s that we had this kind of inflation well here's the other one that's interesting interest rates think about this this is my own Theory I didn't read it in a publication think about this I'm going to argue that 40% of furniture that's bought in America is bought bought because somebody moved okay interest rates are where they're at I think the statistic would back up would would back up the fact probably half as many people are moving now well half of 40 is 20 I'm told in the furniture industry I talk to a rep he goes everyone he knows is down 20 that explains it so you're right part of it was inflation part of it was high interest rates that drive people not moving part of it was insurance rates have gone up it's it's in my case it really wasn't two things telling you it was all 60 all at once I'm not cutting myself any slack I should have paid attention to it here's the good news here's the entrepreneurial news I'm really good at fixing things when I screw them up really really good prti fixing yeah right absolutely I just want everyone to know if you're torturing yourself about whatever stop torturing yourself take charge fix it it'll be okay and um that's what I'm doing and uh I'm hoping this is my last piece of the learning curve that I have to go through I think I figured the rest of it out I think do any of you have a specific metric that you watch you know to the extent that you're keeping track of your numbers what are you looking at first to let you know if uh you're heading in the right direction and things are okay or what's a warning sign that things are moving the wrong way for me the the big one is number of new inquiries because that's a forward-looking metric it's not backwards a lot of people have backwards looking Financial metrics which are important you know net operating income management L direct labor Etc but the forward-looking ones are the really important ones because that helps you understand if you're going to hit an iceberg so you know like for us for a long time we knew if we got about four inquiries per month that would sustain about 10% growth per year now like like clockwork and then with the pandemic that number went way down and that's when things got really hard so I would really encourage folks to to develop some forward-looking metrics not just backward looking metrics how do you define an inquiry Sean yeah somebody raises their hand you know calls you sends an email contact form meets you at a conference says hey I'm kind of interested in what you guys are doing um so it's that early stage of the funnel I I'm interested it's um it's almost even pre-qualification and then there's seate metrics for that like okay so if we get four that'll turn into two that are qualified to buy and of those two that'll turn into one that's a customer you know I'm just kind of picking numbers here but we have all of that data to know what the what the typical conversion rates are and if you can do that for your company if you can figure out what those forward-looking metrics are it really helps you plan it really helps you know oh we need to hire because in six months we're going to be like overwhelmed with work do you have anything like that Jackie we we do we have a forecasting document and we track every lead that comes in did it come from the website was it a speaking engagement that I did was it somebody who emailed out of the blue did they respond to some thought leadership we put out there you know whatever the source might be and then I'm able to track the percentage the turns into discovery meetings that turn into proposals that turn into yeses a lot of owners don't have that really they don't yeah well if there it makes sense in your kind of business but it depends what kind of business you're in I mean my retail thing you open a store people come in on its own there you don't have to really do a whole lot if you're in a wholesale business it's a matter if do you have sales reps calling in a customer finding business it depends what kind of business you're in as to what's going to be the what's turning the machine what's what is the driving force is it sales reps is it adverti like what about the internet whatever you thought three years ago I know people that made a fortune on the internet because they bought a word and they got all these leads well it went from a dollar a word to for the word to $10 a word and the business model didn't work anymore that's really common yeah I think you you you bring up a good point you know I'm talking about what metrics matter for my business Jackie's done a great job of building a lead a lead to customer flow for her business but at least the small businesses I talk to often do not have that forward-looking trick whatever that is you know it's number of calls made by a sales rep or you know number of folks who ask for a sample of something you know there's just there's like going to be some key numbers in your business business that are going to help you understand what the future looks like those are harder to figure out for most businesses it's it's easy to Look Backwards hard to look forward all right well my thanks to Jackie Russo Shan busy and and especially Jay goz Jay I appreciate your nobody likes to talk about losing money I also want to thank our sponsor the great game of business which helps businesses use an open book management system to build healthier companies you can learn more at Great game.com thank you all wait wait don't leave yet if you have a question or a comment that you'd like the 21 hats owners to address send it to me by replying to your Morning Report or by email at Lauren 21h hats.com that's L Ren at 21h hats.com do it now before you forget and don't be afraid to tell Jay what you really think you can take it and if you got something out of this conversation help us reach more business owners tell a friend subscribe and review us wherever you get your podcast follow us on Twitter subscribe to the morning report at 21h hats.com this episode was produced by just through Baron founder of blank word Productions okay now you can leave thanks for listening everyone [Music]