Synchrony Business Schooled with Alexis Ohanian

Alexis Ohanian, co-founder of Initialized Capital and Reddit, meets the OG generation of entrepreneurs and learns how they started their own booming businesses. Click each icon below to listen to all the Business Schooled episodes.
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LESSON 1: Stitching it all together

Hamilton, Missouri

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AVO:
This is Business Schooled, a podcast by Synchrony. We’re here to help people and businesses grow into their future.

Alexis: 00:09
I'm Alexis Ohanian, Co-founder and Managing Partner of Initialized Capital, and before that, I co-founded Reddit. In these days, people tend to think that all the innovation is happening by founders under 40, but while we Millennials are grabbing all the headlines, baby boomers and Gen Xers have been busy building twice as many businesses. So, I'm traveling the country to meet these OG entrepreneurs and soak up some essential business and life lessons. Hopefully, you'll learn a few things too. This is Business Schooled.

Alexis: 00:45
This is the story of a family down on its luck. Its life savings wiped out, living in a small rural town that's seen better days.

Jenny: 00:53
The market crashed. We lost most of our retirement, and we really thought this was it for us.

Alexis: 00:58
Meet Jenny Doan, Co-founder and public face of Missouri Star Quilt Company. Her story begins right around 2008 when millions of Americans like her were struggling. The mother of seven and mid-life entrepreneur rose from that moment of financial desperation to create the Missouri Star Quilt Company, a 400-employee empire in a community of 1700. The reason I'm here is that Jenny created the model for the future of retail, and I'm about to find out how she did it. It's time to get schooled. Hey, you must be Al.

Alan: 01:32
I am Al.

Alexis: 01:33
It's so good to meet you. I'm Alexis. Don't usually get to see eye-to-eye.

Alan: 01:37
We giraffes, we find each other. Thanks for coming.

Alexis: 01:40
This is Jenny's six foot seven son, Al, but she usually calls him Alan. He's dressed in Khakis and a T-shirt and shoes today, but is normally far more casual. He's in his element in Hamilton.

Alan: 01:53
This is town.

Alexis: 01:54
I see, okay, you've got a sewing center.

Alan: 01:57
We've got a sewing center. We've got the flagship Star over here.

Alexis: 02:00
Star Quilt. Wait, everything is related to the quilting business.

Alan: 02:01
This entire city block is quilts.

Alexis: 02:05
She built this whole downtown?

Alan: 02:06
Yeah.

Alexis: 02:07
Literally, everywhere you look is a store selling enthusiasts something to help them sew together bits of fabric to make their own decorative quilts. The Doans and their Missouri Star Quilt Company have turned it into a wonderland of quilting. It's pretty and colorful and packed with excited visitors just like a resort town, but I quickly learned that it wasn't always this way.

Alexis: 02:29
I've heard this story of how this business got started, but I want to hear it from you because I don't know what kind of embellishments Al [crosstalk 00:02:35].

Jenny: 02:35
Terrible embellishments. The embellishments are crazy.

Alan: 02:37 [crosstalk 00:02:38] from Mom.

Alexis: 02:38
Jenny is the heart of the Doans. With nine people in the family and a host of in-laws, cousins and grandchildren, the Doans are like their own little community. The second you see her, you're drawn in by her natural star power. When she talks to you, she makes you feel like you're the only one in the room. Her positive energy pulls you right in even when she's describing the tough times her family and her town have been through.

Alexis: 03:03
What was the mood like, what was the atmosphere like here in Hamilton?

Jenny: 03:07
Oh my gosh. When we moved here in '95, it had two groceries stores and it was still fairly going along. Then the grocery store closed. We only had one. The gas station closed. Most of the shops closed on Main Street and it just kept getting more and more desolate. I mean, it was just really sad to see.

Alexis: 03:25
While Jenny, her husband, Ron, and the rest of the country were struggling, they weren't about to go down for the count.

Jenny: 03:31
Ron and I are hard workers. We work hard, and we just figured we'd work hard until we couldn't. I think the kids were worried that we were going to live in their basement.

Alan: 03:40
It's a valid concern. You do not want your parents in your basement.

Jenny: 03:43
You do not want your parents in your basement.

Alexis: 03:45
In an attempt to avoid her son, Al's, basement, Jenny fell back on the sewing skills she'd learned long ago designing theatrical costumes for plays and musicals.

Jenny: 03:55
When we moved to Missouri, nobody needed a costumer. I went right to the theater. They were like, "Well, we do one show a year, and we just really don't need you." It gets to a point where I have these seven children, and all of a sudden when you get to be about six foot five, you won't wear matching clothing. [crosstalk 0:04:09] I had to keep sewing, so it was my thing.

Alan: 04:11
Yeah, it's the worst.

Jenny: 04:14
Somebody said, "Well, you should take a quilting class." My comment to them was, "Old people do that." I was just against it, but I really had to sew. I decided to take a class. I went over here, 30 miles to the adult school and took a class. I was so floored by the creativity. I've made some pretty amazing costumes, but hands down, quilting's the most creative thing I've ever done.

Jenny: 04:38
One day I went to pick up a quilt, and Alan said, "What quilt are you picking up, Mom?" I said, "You know, I don't even remember what it is." He said, "Well, are you just really forgetful or what's going on?" I said, "It's been there a year." He was, ding, ding. It's like, is that a thing?

Alexis: 04:53
This business, where was it?

Jenny: 04:54
There are local longarmers all over the place. They have a longarm, and they put it in their garage or their basement or their living room and they work on stuff.

Alexis: 05:02
A long arm is a machine.

Jenny: 05:03
The longarm is the machine that actually quilts the top quilt, the fluff in the middle, and the back, and quilts it all together and makes it a quilt. We have, oh I guess, I don't know, we have more than a half a dozen, maybe eight or nine longarmers in our area, and they're all backed up. I mean, we have a gal in Cameron who won't even take more quilts because she's so backed up.

Alexis: 05:25
Okay, so this is a huge opportunity.

Jenny: 05:27
Yeah. That's what Alan, he's like, "Could you do this?" I'm just like, "Maybe."

Alexis: 05:33
What had you been doing before?

Jenny: 05:35
I quilted, so I'm a piercer, which means I sew the pieces together to make the top, but I'd never done the actual quilting through all the three layers. They got a quilt machine. Came to our house. It was too big for the house, so we had to buy a building. We bought a building. The building actually cost less than the machine did, just so you know. We painted up the building and put our quilt machine in there and put vinyl letters on the window, Machine Quilting. I practiced until I felt confident, and then we started machine quilting for people. That was basically what we did.

Alan: 06:03
The quilt shop, I can't emphasize enough how small the vision was for it. The idea was just put a machine in a building and let Mom cook on it. Then as the recession impacted more and more of us ... I lost my job. My brothers are electricians. Construction was down. People weren't hiring them as much. The quilt shop became this focal point of energy for all of us to try and make something work there. It became more and more important as we dove in. It was just like, "All right, this needs to go. If it doesn't, we don't really have anywhere else to turn."

Jenny: 06:40
One of the things, the UPS man, he would deliver stuff to us. He said, "I just felt so sorry for you because I just knew you were going to close up. It wasn't going to work."

Alan: 06:47
Getting shade from the UPS guy.

Jenny: 06:49
Yeah. He was just sure that it wasn't ... He just couldn't see it being successful.

Alan: 06:54
If we got a transaction a day, we were feeling pretty good.

Alexis: 06:57
You had to come up with some kind of solution. What did you try?

Alan: 07:01
I was spinning my chair looking at what we could do with the quilt company. I had an idea to do a daily deal sign. We called it Quilters Daily Deal. The idea was we were going to put one quilting deal up every single day. We were like, "Here's this bolt of fabric. Does anybody want a yard of that?"

Alexis: 07:19
Like a photo that you've taken?

Alan: 07:22
Yeah, legit. We had this Daily Deal site that we launched. I put it up on Facebook. It was like, "All right, everybody, I made a quilt shop page for Mom. You guys come check it out." It got two likes. Nobody knew it existed.

Alexis: 07:36
How many purchases that first day?

Alan: 07:38
Zero.

Jenny: 07:39
None.

Alan: 07:39
We opened up, the grand opening, at zero.

Alexis: 07:42
Not a great start.

Jenny: 07:43
Well, quilters weren't really online yet.

Alexis: 07:46
Were they your friends on Facebook?

Alan: 07:48
No. It turns out I also didn't have quilter friends on Facebook. We launched, but we didn't know who to launch to. I mean, that's kind of where we sat for three weeks. Then we got our first sale. It was my cousin, Jennifer, which was very kind of her.

Jenny: 08:00
My niece ordered.

Alexis: 08:02
Thank you, Jennifer.

Jenny: 08:02
I know.

Alan: 08:03
You hear the phone chimes, it does this little thing. You're like, oh my gosh. We get our first sale and then it's just like, "Man. All right. Who can we tell?"

Jenny: 08:10
How do we get this out there?

Alan: 08:11
Who can we tell? We were on Craigslist trying to be like, "Hey, does anybody need some quilting help," and trying to answer blog comments. It was just really hard start of ... We didn't know where to find them. We didn't know how to talk to quilters. We didn't know where to tell people about this quilt page that we'd made.

Jenny: 08:29
When you started the forum.

Alan: 08:31
Oh yeah. I did start a forum. We have a quilting forum with 60,000 quilters on it.

Alexis: 08:38
All right. How'd that start?

Alan: 08:40
To the same fanfare everything else starts. There's nobody on there.

Alexis: 08:42
Did you just show up and you were just like, "Hey, everyone."

Alan: 08:45
I knew it was a good idea, it was a good model because it's good shopping stuff that should exist for ...

Jenny: 08:52
Quilting just hadn't made the jump online.

Alexis: 08:54
The Doans found an obvious market opportunity, but they've invested in a machine that's more expensive than the building that houses it, and they're in a town with next to no foot traffic and a population in decline. They send out an email newsletter. They set up an online forum, and they try to reach new quilters through Facebook, but it's just not happening, so Jenny and Alan tried something new.

Jenny: 09:20
Hi, I'm Jenny from Missouri Star Quilt Company. Welcome to our beginner block series. Today, we're going to learn how to make a four patch.

Alexis: 09:27
Jenny became a YouTube phenomenon.

Jenny: 09:30
This may look backwards to some of you because, again, I'm left-handed.

Alexis: 09:33
When YouTube was mostly still people posting fail videos ...

Jenny: 09:36
For the purpose of making this block, you can cut it any width you'd like.

Alexis: 09:40
Jenny was making quilting tutorials, giving tips on hourglass quilting, stacking and whacking and how to make a Dresden Turkey.

Jenny: 09:49
Keep watching, and a turkey will appear. Okay, now we have some pieces ... Pretty much, Alan came in and he said he wanted to film me showing quilting things, and he was going to put it on YouTube. I looked at him and I said, "No one is ever going to go on YouTube to look for anything quilting." He's like, "Trust me on this, Mom." It was a leap for me. I would explain how to do something and right away, if we were filming, Alan would say, "Mom, I don't know what you mean." It caused me to really think how a beginner would think.

Jenny: 10:19
I would say, "Today, we're going to take four squares of fabric that are the same size. Two are going to be dark. Two are going to be light. We're going to sew a light to a dark and a dark to a light and it's going to make a block we call the 4 patch." Then I would show them how to do it. We were able to simplify it enough because quilting had always been this really elite thing, and people have made it really hard. People were just like, they loved it. They were amazed. Then if I made a mistake, I said, "Oh, well that doesn't look so good. Let's take that out and fix that."

Alan: 10:47
We ended up with this video that launches to the same fanfare that the website launched to, which is just crickets. It turns out quilters aren't hanging out on YouTube.

Jenny: 10:56
No.

Alan: 10:56
YouTube is, what is it, 75% 15 and under. It is not built for our demo. But what we did start having out of that is we had such incredible content in our emails, that as we'd send an email to our people, we got to be this very altruistic company. You'd sign up, and we're like, "Hey, we made this thing for you. We did this really cool thing that was hard for us."

Jenny: 11:21
It's for free. You get classes for free.

Alan: 11:22
People loved our emails.

Alexis: 11:24
People would forward them?

Alan: 11:25
Yeah.

Jenny: 11:26
Nothing in the quilt industry had been free before. Everybody charges for a pattern.

Alan: 11:28
It's all behind a pay wall.

Jenny: 11:28
They charge for a class. You have to go to the quilt shop to take a class. All of a sudden, they could do it in the privacy of their own home.

Alexis: 11:33
They were just asking for it?

Jenny: 11:35
Yeah.

Alan: 11:35
They loved it. Yeah, these tutorials would get forwarded around to all kinds of places. As our email list grew-

Alexis: 11:43
You hit one retirement community, you get one person there and you know everyone is hearing about it.

Jenny: 11:47
Totally. That's exactly what happened. That's exactly what happened.

Alan: 11:51
They would invite people in. They’d have watch parties for the YouTube stuff. As the word got out, as it spread, our user base came to us via email. I don't think they even knew the site that they were clicking onto to watch the video. They could care less that it was YouTube...

Alexis: 12:05
The more I speak with Jenny and Al, the more I realize they've created these clusters of community all around them.

Alan: 12:12
They loved that we sent them a free video-

Jenny: 12:15
Free, yeah.

Alan: 12:15
... every single week.

Jenny: 12:16
Key word, especially for my generation. I mean, that was huge for us because we paid for everything our whole lives.

Alexis: 12:23
Right, and you're bucking the trend of everyone else trying to lock up and charge for the information, and at a time in the recession when people are going to be more price sensitive.

Alan: 12:34
Then the next video went up and the next video. Eventually people started commenting. They would say things like, "Hey, where do you get that fabric? What fabric are you using there?"

Jenny: 12:42
I got a call one day from somebody who wanted my fabric.

Alan: 12:45
Mom was just using her fabric from her stash at home.

Jenny: 12:47
I'm like, "This is mine. You can't have it."

Alan: 12:51
We thought, what if we get some fabric and then you show people this fabric in your tutorials that you do?

Jenny: 12:58
I think we started with four or five little kits or something like this. I'd show it and I'd say, "And all you need is this." All of a sudden, they were gone. It was really interesting how people made that connection really quickly between the video and the product.

Alan: 13:14
It's like a next generation HSN QVC but around making, around DIY.

Jenny: 13:21
Right.

Alexis: 13:21
You're watching to learn something but then, oh, by the way, you can do it too-

Jenny: 13:27
If you want to make this ...

Alexis: 13:27
... just purchase ...

Alan: 13:28
When you lack some confidence in the beginning, you're early into the craft, you want it to just work. You want to have that feeling of success. That's where a lot of people found us was they would Google how to quilt or learning to quilt. I've never quilted before.

Alexis: 13:42
Because the content was so good, Google's algorithm privatizes you.

Jenny: 13:45
I don't even think it necessarily that it was so good. It was all that was out there. I started getting letters too. People, as they saw stuff, they'd start-

Alexis: 13:55
Love it. Wait, like written letters?

Jenny: 13:56
Oh my gosh, I have baskets of them. They were watching in countries all over the world, countries. I remember we would get mail from places and I'd be like, "What is this? What is this country?" I got a letter from a woman in Iran. It was three pages of what her life was like on a daily basis. Then she ended her letter to me by saying, "You have filled my war-torn life with color." I was just sobbing. I can remember I was just sobbing. Alan came in. He's like, "Mom, are you okay?" I said, "Alan, I really thought I was just sewing." You don't think what you're doing is going to change anybody's world. You just think you're sewing and you're teaching them how to make a quilt. Boy, I started really paying attention to a lot more things after that, I think, that it became real different for me.

Alan: 14:36
The model for us is content, commerce and community. Everything we do sort of focuses on one of those areas.

Jenny: 14:43
I think mostly community.

Alan: 14:45
We were the gathering place-

Jenny: 14:46
We were the gathering place.

Alan: 14:47
... for these people. They were waiting for somebody to raise the flag and say, "This is the spot."

Jenny: 14:51
I remember I said to Alan one day, "Every quilt has a story and every quilter has a story." He said, "Do you think so?" He put on Facebook, "If you have a story about your quilt, share it with us." He thought he'd get 10. We got thousands of stories. Everybody wanted to tell us their story, why they made their quilt.

Alan: 15:06
We made a book out of them.

Jenny: 15:08
We've made three books out of them.

Alexis: 15:10
Every quilt really does have a story.

Jenny: 15:12
It really does have a story.

Alan: 15:13
Think about it. You make this quilt for a baby. You make this quilt for this person that came back from the military. You make this quilt for ... There's a reason that you're sitting down and putting 20 hours into a thing to give to somebody. We just used that to sort of foster the community.

Alexis: 15:28
That community is big; 500,000 people subscribe to the Missouri Star Quilt Company's YouTube channel, and their quilting kits routinely sell out. That online forum now boasts hundreds of thousands of posts from quilting fanatics, but Jenny's fans don't all want to remain virtual admirers. She's taken to traveling the country, teaching quilting to arenas full of people, which, in turn, brings more visitors to the HQ. Hamilton's streets now hum with cars and buses bringing thousands of real people and their real dollars each day to buy fabrics, take classes, or hope to just catch a glimpse of Jenny.

Alan: 16:07
We've got 27 buildings in this town that are all doing something. If you're a quilter, you want to-

Alexis: 16:14
This is mecca.

Alan: 16:14
This is mecca. You want to come here and just love it. There are all different quilt shops. We break up the fabric by themes. We've got a man's land, a place for the dudes to hang out while their wives shop.

Alexis: 16:25
Stop it. Really?

Alan: 16:27
We own three restaurants.

Alexis: 16:28
Okay, there's a burger place.

Alan: 16:29
Because there wasn't anything else here, so we had to start something, right?

Alexis: 16:32
I see. That's not a quilter-themed burger shop though.

Alan: 16:35
You'd be surprised.

Alexis: 16:36
There's a few snuck in there?

Alan: 16:37
Go in there and ask for the half-square triangle special.

Alexis: 16:43
Wow. How long did this all take to build?

Alan: 16:45
We're 10-years-old this year.

Jenny: 16:48
The community are still very loyal to us. It's pretty amazing. They're like-

Alan: 16:53
Do you feel like people still feel as connected to us today?

Jenny: 16:57
Oh, absolutely.

Alan: 16:57
You do?

Jenny: 16:57
Absolutely, especially to me because I'm out there. I'm out there teaching, I'm out there visiting their shops. I'm traveling now a lot and I'm loving the traveling. All of a sudden, I'm gone more than I'm home, but people are starting to come to Hamilton. Alan says to me one day, "Mom, you've got to stay home. Part of their experience ... They have a relationship with you online. Part of their experience is they want to meet you here." I mean, it's like, "Mickey isn't in Disneyland. Nobody's happy." He's like, "You've got to stay home."

Alexis: 17:25
Or hire impersonators to be here.

Jenny: 17:28
I told him, "Make cardboard cutouts."

Alan: 17:30
And we did, made our cardboard cutouts of Mom.

Jenny: 17:32
And they did.

Alexis: 17:32
Yes, yes.

Alan: 17:34
No son should have to make a cardboard cutout of his mom.

Alexis: 17:36
I loved it. I love it. That is a beautiful son right there.

Jenny: 17:39
I love it. People would tell me, "We went to Hamilton, and you weren't there, but I got a picture with your cutout." They were so excited.

Alan: 17:45
People started coming here by the busloads.

Jenny: 17:48
We probably get, what, between 200 and 1,000 people a day.

Alan: 17:51
Yeah.

Jenny: 17:52
At least.

Alan: 17:52
They're quilters, and they're just looking for a big quilting experience. You come here and shop in our shops and eat the food and go home from our goofy town of Hamilton, and you love it. You love Hamilton.

Alexis: 18:05
The experience is so real and it's so tied into to you, your family, the history of the business.

Jenny: 18:13
We've offered everything they could possibly want to find out or learn or know or do here. People wanted to stay the night. We opened a retreat center.

Alexis: 18:25
This is a phenomenal thing.

Jenny: 18:26
We have a retreat every single week. They're three and four day events. They happen Tuesday through Friday.

Alan: 18:32
It's just a slumber party for women.

Jenny: 18:32
And it's a slumber party for women.

Alexis: 18:34
Some wine, some good music.

Jenny: 18:35
Whatever they want.

Alexis: 18:36
Whatever they want. You don't ask any questions.

Jenny: 18:37
No questions.

Alexis: 18:38
Ladies, no questions just ... Listening to Jenny and how she built Missouri Star Quilt Company, I learned that it's not enough in today's world to just find and target your customer. Anyone can do that. The real lesson is in creating a bond with a community of like-minded people. No one understands what makes that community tick better than Jenny.

Jenny: 18:58
Quilters are so good. They just love to give. You never give a quilt out of anger or hatred. You give it out of love. And so when you receive a quilt, it really changes you because you feel that love, you feel that emotion, and you know that somebody cared about you enough to spend hours and hours to make a beautiful thing. It's this amazing bit of history. I mean, it's just a beautiful piece of longevity that happens when you make a quilt. It's going to outlast you, and it's going to live somewhere amazing.

Alexis: 19:28
Jenny found this common bond and a natural way of scaling it into a successful business. The free video tutorials on YouTube created a door for the community to walk through. From there, she started selling quilting supplies so this community could get some practice. Then that community grew and grew, and it gave Jenny a built-in audience for an event business, a book business, a tourism business, a souvenir retailing business and a hospitality business. That's some pretty advanced stuff, but there's a simpler lesson here too, one that extends to everyday life. We should all be looking for new ways to create bonds with people to keep them coming back.

Alexis: 20:10
I'm Alexis Ohanian of Initialized Capital and you've been listening to Business Schooled, a podcast by Synchrony. Please rate and review this show and spread the word.

AVO:
Are you like Jenny and Al, looking to grow your business? Synchrony has financial solutions, payment technologies and data insights that can help businesses of all shapes and sizes. Whether you’re weaving together a quilt or your own business strategies, Synchrony is here to help. Meet us at synchrony.com.

episode_thumbnails_nightlight_pediatrics

LESSON 2: Practicing joy (and medicine)

Katy, Texas

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AVO:
This is Business Schooled, a podcast by Synchrony. We’re here to help people and businesses grow into their future.

Alexis: 00:03
I'm Alexis Ohanian, co-founder and managing partner of Initialized Capital, and before that, I co-founded Reddit. These days, people tend to think that all the innovation is happening by founders under 40. But, while we Millennials are grabbing all the headlines, Baby Boomers and Gen X-ers have been busy building twice as many businesses. So, I'm traveling the country to meet these OG entrepreneurs and soak up some essential business and life lessons. Hopefully, you'll learn a few things too. This is Business Schooled.

Alexis: 00:33
You're sitting in the emergency room. It's 10:30 at night, your child has a fever, maybe it's an upset stomach or sprained ankle, but whatever it is, you've been waiting to see a doctor for hours. We've all been stuck in ER purgatory. It's that scary and never ending period of waiting, when you know that you're not sick or injured enough to be seen right away, but most definitely in need of medical attention. Now, imagine how that experience would weigh on a child and their parent.

Alexis: 01:09
It's no wonder that Zawadi Bryant and Dr. Anastasia Gentles first urgent care for kids location was bursting at the seams. They were early movers in what's become an $18 billion industry. But with success comes a whole new set of problems.

Zawadi: 01:24
That's where the expansion woes started. The sleepless nights and the constant phone calls, we cannot live like this.

Alexis: 01:35
The idea is often the easy part. What's much harder is the execution. Especially growing that idea while still holding on to the thing that made it special and different. How Zawadi and Dr. Gentles turned things around, and now have 65 thousand patients on the books across eight clinics, is a case study in creating a workplace culture that supports rapid expansion and does it well. It's time to get schooled.

Dr Gentles: 02:00
Alexis Ohanian?

Alexis: 02:01
Oh, hey.

Dr Gentles: 02:03
We're ready to see you.

Alexis: 02:03
Hi.

Dr Gentles: 02:04
I'm Anastasia, Dr. Gentles.

Alexis: 02:04
Hi, Dr. Gentles, yes.

Zawadi: 02:06
Hi, I'm Zawadi Bryant.

Alexis: 02:07
Hi Zawadi.

Dr Gentles: 02:07
Welcome.

Alexis: 02:08
I meet the duo at the newest NightLight Pediatric Urgent Care Clinic in Katy, Texas. It's just outside of Houston, and a ways from the ocean. But on the walls is painted and amazing seascape of waves, fantastical creatures, and even a pirate captain complete with a wooden leg.

Alexis: 02:24
This is a very comfortable waiting room.

Dr Gentles: 02:25
All right. It's beautiful, isn't it?

Zawadi: 02:27
Like the pirate patient?

Alexis: 02:28
You know your audience well. Yeah. Very cool.

Alexis: 02:33
Okay, Dr. Gentles. The universe was clearly pushing you to be in pediatric medicine, right?

Dr Gentles: 02:42
And that's not a made up name.

Alexis: 02:43
Okay.

Alexis: 02:44
Anastasia is known as "The Gentle MD." She attended med school in California and wanted to stay there, but settled here to be closer to her parents.

Dr Gentles: 02:53
And I moved and started working at Texas Children's. And I worked at different pediatric offices as what we call "locums." You go to different offices, and then I moved into the ER. And that's when I noticed, you know, me and half of Houston at 2 o'clock in the morning, I was, "These people can be seen so much more efficiently someplace else." But in med school they do not teach you a lot of business, I don't know if it's changed since I went to med school, but it's like they suck everything out of you, out of the business, the business acumen out of you instead of teaching us how to run a business, which is awful. And so I was, "I don't know how to do that. I need to find somebody that knows how to do that." And lo and behold, I was going to church with somebody that knew how to run a business, so.

Alexis: 03:36
Wow. Okay ...

Zawadi: 03:38
I wouldn't say "knew how to run a business," you know.

Dr Gentles: 03:40
Well, I thought you did.

Zawadi: 03:42
I knew a few business jargon terms and she equated that to running a business. So, yeah.

Alexis: 03:51
To recap how NightLight came to be, Dr. Gentles had the idea to open an urgent care clinic. If your child has something really seriously wrong, like if they've fallen out of a tree, or swallowed something poisonous, you'd take them to the emergency room. It's an emergency. But working in ER, Dr. Gentles saw that kids with urgent but not life threatening problems were sitting in the waiting room, not getting seen, as sicker children came in. If she could open an alternative to the ER, working outside of the regular doctor's hours, she could treat cuts, colds, and rashes in a calm, efficient, and reassuring way for both the children and their parents.

Alexis: 04:55
So. Dr. Gentles had the medical training and a growing reputation in her field, but no business chops. Zawadi had an MBA and a Master's degree in engineering, and had been hired straight out of Cornell to join a computing giant. She was just giving her church friends some helpful advice.

Zawadi: 05:12
She was, "I have this great idea, or I think it's great. So I'd like to sit down with you and talk about the details. What does it take to run a business?" And it was more of a consulting business plan. I'm, "Okay, let's sit down and do a business plan and figure out, you know, what's the market, who's going to pay for this, how big is the market. What kind of skills are required to run this kind of entity." So we just started brainstorming and getting the business plan together, and at that point, I was, "This is a great idea. You should really go for it." And we started getting into the details about implementation, "You're going to need to know your numbers," I started going over accounting with her, and marketing, and she was, "Nah. I don't like this."

Dr Gentles: 06:03
We started meeting in her little garage apartment, upstairs apartment, and planning this and putting it together and putting little dots on a map around Houston where ...

Alexis: 06:13
For locations?

Dr Gentles: 06:13
"Where could we do this?" And then we decided on Sugar Land, because I ...

Zawadi: 06:19
We decided on Sugar Land because you were working there and it was already built in community where you had an awesome reputation and people already knew her. And we were trying to minimize costs, because we were going to sublease from that office that she was working at. Either they were open during the day, we would open at night, like boom. We don't have to pay, you know, huge rent and lease. And we thought it was a great idea, the numbers worked out, and we started shopping it around to the other pediatricians in the area. We went out, had lunch, give them a PowerPoint presentation, "This is our idea. Would you refer to us?" And they loved the idea and until they asked, "Well, where are you going to be located?" We're like, "We're going to be at this pediatrician's office," and they're, "No."

Alexis: 07:08
Well, why?

Dr Gentles: 07:08
We're not coming to see ...

Zawadi: 07:08
"We're not going to refer our patients to you if you're going to be there."

Alexis: 07:12
Winning over fellow pediatricians was vital to their plan. NightLight would only work if established doctors in the area felt comfortable and confident in referring their young patients to Dr. Gentles for urgent care during off hours, weekends, and on holidays. Those doctors had to be sure that NightLight was offering the best treatments and keeping meticulous records, but wasn't planning to poach their paying patients. That was quite a battle.

Dr Gentles: 07:37
It's just territorial, and it's something new.

Alexis: 07:39
Okay.

Dr Gentles: 07:40
When we started in 2007, hardly anybody was doing urgent care. I mean, everybody's comfortable with that right now, but back in 2007, they were, "What? What are you doing?" And they felt like we were going to steal their patients. And it felt even more so when we were in somebody else's office. "What if my patient goes over there and they see that doctor's office and they like that office and they equate that good care with that doctor's office?"

Alexis: 08:05
I see.

Dr Gentles: 08:05
So we had to be Switzerland. We had to be neutral.

Alexis: 08:07
Okay.

Alexis: 08:09
Armed with a bank loan and still holding down their regular day jobs, Dr. Gentles and Zawadi went to find an office on neutral turf for their urgent care side gig.

Zawadi: 08:18
And so divine intervention again. We were, "Okay, we've done all this research on Sugar Land. It's going to be in Sugar Land somewhere. Because we don't want to start all over with our research." And so we just started looking for locations and we found a location right next to Babies R Us.

Alexis: 08:37
Wow that's perfect.

Zawadi: 08:38
Yes.

Alexis: 08:39
Wow, okay.

Zawadi: 08:39
Yes. And so it was nice because it was small, it fit the budget. Because again, we're, you know, whenever you come up with an idea you think it's wonderful but it's new so just being very conservative. So we had 14 hundred square feet which is about half the size of this clinic. Four exam rooms.

Dr Gentles: 09:00
As well.

Zawadi: 09:01
And yeah, we just made it happen. And within a year and a half, we were busting at the seams.

Alexis: 09:06
18 months in, and their single clinic was already running at full capacity. And Zawadi was an ambitious high flyer. She wasn't about to quit her corporate job to go run a solitary clinic.

Dr Gentles: 09:17
Zawadi came to me and said, "You know, we need to grow."

Alexis: 09:20
What does that mean? Are there patients lined up out the door? You just don't have enough hours in the day?

Dr Gentles: 09:25
Yes, basically. We had a Black Friday line before we opened down the sidewalk.

Alexis: 09:30
Wow.

Dr Gentles: 09:30
And we had people sitting on the floor.

Alexis: 09:33
Yeah.

Dr Gentles: 09:34
People were just everywhere, you know. So we just had too many patients.

Alexis: 09:38
Yeah.

Dr Gentles: 09:39
It was a good problem to have.

Alexis: 09:40
Good problem.

Zawadi: 09:41
Good problem.

Alexis: 09:41
Yeah.

Dr Gentles: 09:41
It was a good problem to have, but we didn't want ... That takes away from the experience, you know?

Alexis: 09:44
Of course.

Dr Gentles: 09:44
You don't want a crying child, you need to think about your daughter being sick. And then sitting in this room with all these other sick people. So that was not a good scenario.

Alexis: 09:53
Okay.

Dr Gentles: 09:53
So we did need to expand.

Alexis: 09:55
Okay.

Dr Gentles: 09:55
So in 2009, we started looking outside of there, that space. And people were actually coming to us then, because at the time we noticed that, you know, this is a really good idea. A, we're bursting at the seams with patients all over the place. People were coming from all over, and I mean all over. We had people from Baytown going to Sugar Land, and that's ...

Alexis: 10:15
What's that?

Dr Gentles: 10:16
50 miles. So ...

Alexis: 10:19
That is a trip. Houston is a sprawling city.

Zawadi: 10:20
Yes.

Dr Gentles: 10:20
Very big. So ...

Alexis: 10:21
So these are ... Yeah. That's a journey. Okay.

Dr Gentles: 10:25
So people were coming from all over, from the outskirts. So we knew, "Okay, we need to start looking outside of Sugar Land."

Alexis: 10:33
Were you registering all the locations folks were coming from and using that as a guide for, "Hey, we're getting a ton of folks coming in from here, maybe this is where we start to go?"

Zawadi: 10:43
At the time, even the federal government was in on this reduce ER utilization. Everybody was ... All this grant money was involved, and trying to move people in other directions other than the emergency room. And Texas Children's health plan acquired some of that grant money. And they came to us and said, "You know, we have grant money to reduce ER utilization, do you guys want to use some of that grant money to fund another urgent care?" And we were, "Yeah."

Dr Gentles: 11:15
"Yeah."

Zawadi: 11:18
You know, so we had had plans to add another urgent care, another location, but they wanted it in Cy-Fair. So we're, "Well. You guys are paying for it, so we will build wherever you want it." So it actually did trend very well with a large group of patients that were coming to Sugar Land were coming from the Cy-Fair area.

Alexis: 11:42
Okay.

Zawadi: 11:42
So it was a logically good location to go next.

Alexis: 11:47
And where is Cy-Fair geographically in Houston?

Dr Gentles: 11:50
North ...

Zawadi: 11:50
Northwest.

Dr Gentles: 11:51
Northwest.

Alexis: 11:52
Okay. Okay. And so now, I assume that once that operation was up and running, it was pretty popular, pretty packed.

Dr Gentles: 12:01
Mm-hmm (affirmative)

Zawadi: 12:01
Mm-hmm (affirmative).

Alexis: 12:02
And so now I assume that once that operation was up and running it was pretty popular, pretty packed. And then how are you thinking about the rest of the expansion at this point?

Zawadi: 12:07
That's where the expansion woes started.

Alexis: 12:11
You all obviously couldn't be everywhere now.

Zawadi: 12:13
Right.

Dr Gentles: 12:14
Correct.

Alexis: 12:15
And these are far enough, it's not like you can just walk down the street, and check [crosstalk 00:12:18] location.

Zawadi: 12:18
They are far.

Dr Gentles: 12:18
They are far.

Alexis: 12:19
So, what were the woes?

Zawadi: 12:21
What were the woes? The sleepless nights. The constant phone calls if the light went out. “Okay. Switch out the light bulb.” You know, just simple stuff. We noticed in Sugar Land that the customer satisfaction was going down. We started hearing complaints from patients and from PCPs. “We're not getting our visit summaries.” Which is the note we send to the doctor the next day saying, “We saw your patient. This is what we saw them for. This is what we prescribed.” They weren't getting that which is something we regularly do.

Zawadi: 13:02
So just things started slipping through the cracks. As we're trying to build up the Cy-Fair location and get it up and going, the Sugar Land location started to decline.

Dr Gentles: 13:12
The customer service went way down. We noticed that. People were complaining that they weren't being treated correctly or they just didn't feel welcomed. Some of the other things that were happening, people were waiting too long, which is the kiss of death for urgent care. So this is a good problem for us to have, a lot of patients, but then also we needed to make sure our flow and our work processes were in place, our policies and procedures, as we're growing and having more and more employees. That they know that the policies and procedures are the same across multiple businesses, multiple locations. It's not when we're there, you're still doing the same thing, you're still giving great customer care, you're still doing what you need to do to move patients through the door and through the visit.

Alexis: 14:04
I think any company that is growing is going to have challenges, scaling culture and scaling quality of experience. Especially in a business like this where it matters so much that the care of the patient, the child and their parents, feels amazing. Especially because you built your brand on it. The whole concept was that this was better. What did this mean ... this could have meant a really bad end of the story, if it had really suffered. So clearly you all realized this was an issue and you turned it around and changed it. What were the things that you had to do in order to get that right? How did you figure out how to scale the un-scalable parts of your business, the culture and the experience?

Zawadi: 14:50
The reason why Sugar Land worked so well a) is because we were always there. And then secondly, we had a lot of family and friends and colleagues that we knew in other places of work that we brought on to the team. It was people that were like-minded, same work ethic, same belief in quality of care. That stuff was ingrained in them. It wasn't anything we had to teach them. So we took that for granted that not everybody comes to the table with that.

Zawadi: 15:24
When we opened Cy-Fair, we just assumed that the people we hired for Cy-Fair would have that same work ethic, the same “figure it out,” the same “We're gonna get this done.” But it wasn't the same. And so the breaking point was when we were hiring people, they weren't lasting, and we had this revolving door. That is so time consuming. To find them, to interview them, to train them, and then to find out that they're not working out. So it was like, “Why are these people not working out?” We just kept finding ourselves in that cycle. We were just burnt out. People would call in sick. It's like, “You can't call in sick. You're treating sick people. You can't call in sick all the time.” I mean, of course if they're sick, but at a certain point you're like, “This is the third time you've called in sick. You not sick.”

Zawadi: 16:33
You know what I mean. So it's the anxiety. We didn't have any peace, we couldn't take a day off. Because there was always gonna be something. There was gonna be something that was gonna happen that we had to be by our phone or be there ready to address whatever the situation was. So that was really the breaking point is, we cannot live like this. I did not sign up for this.

Alexis: 17:06
Right. And it is one thing when the business is struggling because you are, you're still finding product market fit. You're still finding the audience. You all had figured it out. You made something people really wanted, and now it was a matter of scaling that thing that people wanted. And you're right, no one ever carries as much as the founders. And then as you start to grow your team, which you have to do because you shouldn't be, if you found product market fit, if you have a business that's working, you should be able to do less and less of the day-to-day tactical work, because you've figured out that part. You can find other great people.

Alexis: 17:51
But you hit the nail on the head with the values. I mean I remember, I rolled my eyes for the first seven, eight, nine years of my working life at company values. And I remember in business school you talk about these values and you see all these companies, you see these massive Fortune 500s rolling out their corporate values and you just roll your eyes, and you're like, “This is so corporate and lame.” But I came around the moment that we had to take a company from 50 to eventually a few hundred because there was this breaking point where the values I had as a founder, literally needed to be written down. Or at least talked about. And talked about over and over and over again, so that the tenth person, the twentieth person, the fiftieth person that joined knew them. Now I'm totally on board with it, but I get how eye-rolly it seems until you have to do it and you realize it's the only way to scale that un-scalable part.

Alexis: 18:55
So as you all were going through this, what ... you identified the problem, and then what did you do to correct it?

Dr Gentles: 19:05
So we got our values and wrote them down, like you said. We had to write them down and go over it and over it and over it. We actually started, well Zawadi started, getting the management team together as we started to grow. We got managers and people that would be over these different locations and we got together and started, well she was giving us reading assignments. We actually read “Delivering Happiness.”

Zawadi: 19:34
"Delivering Happiness."

Alexis: 19:35
Oh yeah, Tony Hsieh's book.

Dr Gentles: 19:35
Yeah. So we decided we're gonna do this. This sounds ... because like you said, we're the founders, we're passionate about this. How do get that passion? What is that passion? How do we get it on paper and how do we get it into other people? And part of that is hiring the right people, first of all. Because if we're not hiring the right people, I mean I can teach somebody to draw blood. I can teach somebody to give a neb treatment or do the mechanics of medicine. I can't teach values. Something about that has to be in the person that we hire. So we have to hire to those values, we have to fire to those values, so they have to be written down. They have to be reproducible where you can ask about them at a job performance or a job interview.

Dr Gentles: 20:25
So that's when we got together. We got a committee together, actually, that that committee's job was to figure out what the values of our company is and then to get them implanted in the life of the company.

Alexis: 20:39
Who was on the committee?

Dr Gentles: 20:41
We put the word out there and said, “Who wants to be on this committee?” And of all our employees, so we got those people together. I headed up the committee to start with, and we actually sent out emails and asked all the employees what values, what do you value about being in medicine, about being in this company? And then I asked my business partners, “What do you value?” And then we put them all up on the board and we made categories, and we came up with ten values.

Alexis: 21:10
Right on.

Dr Gentles: 21:11
And those ten values are still our ten values. Our committee's still our committee and we use that committee to kind of roll out different programs to learn the values and re-learn them, and live them.

Alexis: 21:24
And it is a constant, you feel like a broken record.

Dr Gentles: 21:26
Constant.

Alexis: 21:27
It's shocking how much you have to repeat them, but you really do. What's your favorite value of the ten?

Dr Gentles: 21:35
I like number one, because I feel like everything else comes after that. It's “We develop people and build up lives.” So if we can get people that are about people and not just about I'm coming to work to get a paycheck, I'm coming to work, I'm about people. Who am I impacting today, not how much money am I making today.

Dr Gentles: 21:55
The second one is “We do the best.” And then “We celebrate diversity and embrace originality” is number three. Number four is “We can do it, nothing is impossible.” So you see some of our faith is mixed up in there. So “We can do it, nothing is impossible.” “We practice joy instead of medicine” is one of our values. So we -

Alexis: 22:17
Why is that important?

Dr Gentles: 22:18
That is incredibly important. [crosstalk 00:22:20]

Alexis: 22:20
You do practice medicine, just to be clear?

Dr Gentles: 22:20
No we practice joy.

Zawadi: 22:23
We do it with joy.

Dr Gentles: 22:25
We do it with joy. You're coming here to practice medicine, but you have got to be joyful. If you're not happy with yourself... if you're not happy being here we don't want you to be here. Not that we don't like you, but we want you to be happy. So why are you here if you're not happy? Because we can tell you're not happy because you're complaining.

Alexis: 22:43
You've got parents coming in here worried, maybe it's their first kid, maybe it's their fifth, but they're still worried. They want answers. And this is the thing. You're not fixing their car, you're not repairing their laptop, you're taking care of their child. The most important thing in their lives. So what's the difference that practicing joy makes versus just practicing medicine?

Dr Gentles: 23:07
Because if you can't do anything for somebody, you can give them a smile. You can change their day in that way, you know? You might not be able to change a virus. You come to me, a lot of times your child has a virus, and I can't make that better in the sense of the physical sense all the time, but I can ease your heart about it. I can ease your mind about it. I can make you feel about that and what you're doing for that child. Something where, you can have joy again. You can go through this, but you can do it with joy.

Alexis: 23:46
Hiring the right people with the right values and instilling in them that creed of joy was only part of the plan. Zawadi had a business brain and the eye of an engineer. What I want to know is, how is she able to systematize what makes the NightLight experience so special. Bringing it from clinic to clinic, to a franchise model of urgent care.

Zawadi: 24:07
We've always, I've been pushing the team, everything we do needs to be like a franchise. Literally, the NightLight in the box concept. I want the front desk people to be trained the same, so all of our training is the same. The back office, the training's the same. The supplies are the same. So that's where that concept came from, that anybody could pick up this NightLight in a box, and how to locate the best facility, how to hire, how to train, what services we provide, what the layout of the facility looks like.

Zawadi: 24:50
Everything is this franchise model. If any business wants to scale, I think especially as a multi-location kind of business, kinda need to think like a franchise, even if you don't want to franchise ... just for efficiency and standardization and again, we want people to have the same experience. One mom told me she had been to NightLight at Webster, and she'd been to one at Sugar Land. Both great experiences. That's what you want to hear. You don't want to hear people say "I only go to the in Sugar Land 'cause that's the only one that has good service."

Alexis: 25:30
Right.

Zawadi: 25:30
And you've heard that at other businesses. It's like "Don't go that other location, go to this one." We don't ever want that to happen, and so with that model ... then that gives us the flexibility as well as the mindset that we could open other places, 'cause without all that standardization, it's just overwhelming.

Alexis: 26:27
Instead of having the keep tabs on every single thing happening in the NightLight clinic, even down to literally changing out the light bulbs, the founders can now concentrate on their proper roles. Dr. Gentles heading the medical team, and Zawadi growing, growing and growing the business.

Zawadi: 27:25
We like to be on shopping centers with something with a lot of foot traffic. This one has a child learning center, a dentist. Things that are family-friendly. Because, urgent care, you don't schedule to come to urgent care.

Alexis: 27:49
Right.

Zawadi: 27:49
So you need to see us in your daily lives, when you're doing other things, and remember us when you need us. So, we have to be in very high-visible places. That's a key factor. So these things ... right now, we're also looking at other mixes besides urban settings, and suburban, where else would this model work?

Zawadi: 28:18
We're playing around with the numbers there, because we really want to see children, and figure out the best way to do that, whether they're urban, suburban, or rural. We're looking at other models to see what could another type of urgent care for pediatrics fit.

Alexis: 28:39
This has been a real journey. When Dr. Gentles and Zawadi started NightLight, they were juggling jobs elsewhere. Their co-founder, and clinical assistant Connie Kazaras was the first to take the leap, and start working full-time. Now, they have eight locations dotted across the Houston area. Each one has a different child-focused décor.

Zawadi: 28:59
This one they chose pirate. At our Garden Oaks location is a space, astronaut theme.

Alexis: 29:06
Cool.

Zawadi: 29:08
Tanglewood, it's carnival, circus.

Alexis: 29:13
Their success in scaling up is both a testament to the Gentle MD’s ethos and Zawadi's NightLight in a box thinking.

Zawadi: 29:20
There's just three of us in 2007, now there's 140 employees. That's a lot of growth there, from one location to eight. Right now, we're seeing about 65,000 patients a year, which is amazing. We have some clinics that are seeing 15,000-18,000 patients a year.

Alexis: 29:55
They say that they've built eight NightLights, but in fairness to them, it's more like nine.

Dr Gentles: 30:00
We learned how to run a business in the middle of a hurricane.

Alexis: 30:07
What was that experience like last year?

Dr Gentles: 30:07
It was crazy. We had these cameras, so we were watching the water rise, and we're like "Oh, it's not that bad, it's just the floor." Then an hour later, it was up to the chairs, and almost up to the handles of the doors. Chairs are floating down the hallway. [crosstalk 00:30:25] That's the underwater themed [crosstalk 00:30:33] But we built it up again. It's up and running again.

Alexis: 30:37
It was inspiring to spend time with Zawadi and Anastasia. With Connie, these founders turned their church friendship into a solid business team. They shared the risks and burdens, but also respect what the others brought to the table.

Dr Gentles: 30:51
For me, I just love this women to death. I really want to just emphasize, when you're starting a business, don't be limited by what you don't know. If I would have done that, I would never have started. Instead, I was like "I gotta find somebody that does." Find somebody that you trust that does. To her credit, she's doing what she does best. Me and Connie would have been sitting in Sugar Land, one location still. We would have been happy as a clam, but we wouldn't have grown. She's like ... okay, we got six. What's number sever? Where's number seven? We got seven, where's number eight?

Dr Gentles: 31:31
She's really pushing us to scale. When I started this scale, it was something that's on a fish.

Alexis: 31:42
And here in lies another Business Schooled lesson. Growing something, scaling it, isn't all about hard work, it's about smart work. The NightLight founders made the mistake of thinking thy could fill in all the gaps for their staff by playing too many roles. By being totally indispensable to the daily operation of one clinic, they made it impossible to expand, and bring care, and joy, to more children. They had to stop doing, stop leading by example, and actually write down the values they wanted NightLight to stand for. By co-defying their culture, they created the conditions for each and every employee at NightLight, to deliver a consistent, quality care, that was true to the brand that they had built.

Alexis: 32:23
So the next time we encounter a problem, we can take two approaches. Take matters into our own hands, carry the problem on our shoulders, and take on tasks that others around us could and should be doing. Or, put trust in others. Invest in them. Inspire them to be as accountable as we are, and find ways to leverage the collective strength of the team. Sure, letting go can be scary, but when Zawadi and Dr. Gentles took that leap, they empowered their staff, and got time and space to focus on the next big thing. I'm Alexis Ohanian of Initialized Capital, and you've been listening to Business Schooled. A podcast by Synchrony. Please rate and review this show and spread the word.

AVO:
If you’re in need of some tender love and care, the CareCredit credit card, a Synchrony solution, is here to help. CareCredit helps make the health, wellness and personal care you want, and need, possible - without having to delay treatment or appointments due to cost. You can use CareCredit for co-pays, deductibles or to pay for procedures not covered by insurance. Like NightLight founders Zawadi Bryant and Dr. Gentles said, good care should never wait. Visit us at carecredit.com, where we’re making care possible...today.

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LESSON 3: Scaling in perfect harmony

Fort Wayne, Indiana

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AVO:
This is Business Schooled, a podcast by Synchrony. We’re here to help people and businesses grow into their future.

Alexis: 00:02
I'm Alexis Ohanian, co-founder and managing partner of Initialized Capital, and before that I co-founded Reddit. These days people tend to think that all the innovation is happening by founders under 40. But while we millennials are grabbing all the headlines, baby boomers and Gen Xers have been busy building twice as many businesses. So I'm traveling the country to meet these OG entrepreneurs and soak up some essential business and life lessons. Hopefully you'll learn a few things too. This is Business Schooled.

Alexis: 00:40
It's hard to find any stage in Chuck Surack's life when he didn't see a tough challenge right through to success. You'd have to go way, way back to when the founder of Sweetwater was on the cusp of joining the elite ranks of the Eagle Scouts.

Chuck: 00:53
I was really into it deep and lots and lots, all the merit badges that are required. I was down to one little project.

Alexis: 00:59
Stop it. You made it to the Eagle project?

Chuck: 01:01
Yeah, I needed to do my Eagle project.

Alexis: 01:02
How did you not get the service project done?

Chuck: 01:04
I had my first girlfriend.

Alexis: 01:06
Oh, wow. Okay, but you know ... Priorities I guess. I mean first girlfriend, I can't fault you. And there is no merit badge for that.

Chuck: 01:15
There is not a merit badge for girlfriends.

Alexis: 01:18
Aside from missing that one goal decades ago, Chuck has stayed true to his mantra that failure's simply not an option. Even when he set his business on a seemingly impossible path. Traditionally when people buy musical instruments they want to try them out. They want to hammer the keys, strum the strings, smash the cymbals. But Chuck decided that he could sell to musicians without having them ever visit a shop. How did he get customers and his own organization to rally around this totally new way of buying gear? We're about to find out. It's time to get schooled.

Alexis: 01:54
My fellow life scout. I was ...

Alexis: 01:57
I meet Chuck at Sweetwater's HQ in Fort Wayne, Indiana, which has been Chuck's home since childhood.

Chuck: 02:03
I'd been an entrepreneur my whole life. My first job when I was five years old was making potholders where you put the little loops in the frame and you go back and forth and across and around. And I sold thousands and thousands, literally, of potholders. To the point that I got my brothers and sisters to help me make them. Because I was really good at selling them. I had a paper route where most of my friends had 40 papers. I had 330 papers. If I'm going to do something, I'm going to do it all in.

Chuck: 02:25
Well if I go all the way back to being a little guy, Cub Scouts really set me up. Lots of arrow points. They went off my shirt and down into my pants.

Alexis: 02:32
Good lord. So you were a very good scout?

Chuck: 02:35
In some ways I would say it was an escape from maybe not the prettiest home life. And I had a brother that got into drugs and sisters that had other issues and my issue was to escape by doing things really, really well and scouting helped me do that. I talk all the time with new employees, with friends about the principles of scouting. And as you know a boy scout is trustworthy, loyal, helpful, friendly, courteous, kind, obedient, cheerful, thrifty, clean, brave, and reverent.

Alexis: 03:02
The clean one, I felt like that was a personal slight at me whenever I'd be doing that one at the end of a long a camping weekend where it's like okay, I get it. Like the whole point of camping is I don't have the shower for three days. Let me live.

Chuck: 03:13
But those are great principles to live by personally and they've been great principles to run the company by and that's how I run my life every day.

Alexis: 03:20
Those boy scout values of helping others nearly set Chuck off on the path to practicing medicine. But rock and roll got in the way.

Chuck: 03:28
Immediately after high school I went on the road as a musician. And thought I'd do that for a year and come back and go to college and be a doctor. But once the music is bubbling in your blood it's pretty hard to stop that.

Alexis: 03:40
What year was this when you were on the road?

Chuck: 03:42
'75 through about '79.

Alexis: 03:45
Right on. And real quick, from '75 to '79 what kind of music were you making?

Chuck: 03:49
Top 40 music. And back then it was a lot of disco.

Alexis: 03:51
Disco. Oh yeah, in the '70s. What?

Chuck: 03:53
Yeah. I'm a saxophone player so I would go on the road and I played with a trumpet and a trombone player. And we played all the popular music of KC and The Sunshine Band and those sort of artists. So I came back in 1979 and I had this VW Bus that was a pretty beat up ... It was a very beat up VW Bus that my mom and dad had given me. My mom had wrecked it. And I started a little recording studio with my VW Bus. And I would pull upside the night club or the church or the school and I would run 100 feet or 200 feet of microphone cables in and I would sit in the bus with headphones and a reel to reel tape recorder, back in those days, and I would record whatever was going on in the building. It might be a choir or a band or the preacher or the president of General Motors. And I would take those recordings from my VW Bus to the very modest living room of my 12 by 55 mobile home. And I would edit them and put compression on them and try and make them better. I always wanted to give them extra value. So they got extra copies. They got a little extra time. It was just a way for me to give back to the customers.

Chuck: 04:53
And that was always what drove me, is Boy Scouts, leave the place a little better than you found it and do unto others the way you want to be treated and just all that kind of stuff.

Alexis: 05:03
When you call an adult a boy scout it's often meant to criticize them for being idealistic and naïve. But Chuck's never been very concerned with popular perception. He's always been focused on turning his love of music into a living.

Chuck: 05:17
I just have always been driven and I've always said that failure is not an option. There's always a way. And I worked harder about it. It was Fort Wayne, Indiana. To think about opening a recording studio in Fort Wayne, that really defied the odds. It defied the professional friends, the bankers, the lawyers, attorneys. They said why not Nashville? Why not LA? Why not New York? And I said why not Fort Wayne?

Alexis: 05:40
It's not like Nashville, a city where plenty of artists are going to be passing through and have the potential for clients. So what was it about Fort Wayne?

Chuck: 05:50
That was my home. And anything's possible. I knew I could find enough musician clients. I could find enough business clients and I made my business based around doing bands at night and occasionally in the daytime. But in the daytime I would do a lot of advertising jingles. I would do a lot of corporate work.

Alexis: 06:07
So Chuck was working day and night to drum up a client base broad enough to keep his Sweetwater recording studio alive when he stumbled across the latest creation of one of America's greatest modern inventors. It changed everything for Chuck.

Chuck: 06:22
1984 I went to Chicago and I saw a prototype of a music instrument called the Kurzweil K250. And it was the first synthesizer that played back digital recordings of other instruments. Up until then we had synthesizers, we had electric pianos, we had organs, but this was the first one that played back digital recordings of other instruments. It was designed by Ray Kurzweil as a challenge by Stevie Wonder and all that.

Alexis: 06:46
Oh, that Ray Kurzweil.

Chuck: 06:48
That Ray Kurzweil. That was one of his projects and he had made the Kurzweil Reading Machine that blind people had and a lot of libraries had them around the country and Stevie Wonder happened to be a customer and that's how the challenge to make a music instrument. So anyway I see this at the Chicago music dealer show that a friend of mine took me to in 1984 and I thought man that's really cool. I could use that Kurzweil in my own studio. At the end of a recording session I could tell my customers would you like to hear your music with a 50 voice choir? Or with a 45 piece string section? Or an upright base? Again, digital recordings of other instruments. And I could add more value to their recording sessions. I could make them sound better because I could add these extra instruments and frankly I'd book another hour or two of studio time as I played extra parts for them.

Alexis: 07:32
Right. And at this point most studios, I presume, didn't have it?

Chuck: 07:34
No. I bought serial number 32. So it was pretty early on.

Alexis: 07:37
You still have it?

Chuck: 07:38
I do have it.

Alexis: 07:38
I love it.

Chuck: 07:39
Yeah. And it was a very expensive instrument in 1984. It was about $20,000. But what was unique about it is it had three screws and you could pull those screws out and open a back panel and a drawer would slide out and you could add more options to it. And there were about another $20,000 of options. So if you loaded it all up you'd have about 40 grand. In 1985-6 that was a lot of money. Especially for a studio like me. But I rationalized it because I sold my grand piano. This thing had a grand piano recording in it plus 39 other instruments. So it made sense to me.

Chuck: 08:10
Once I bought it I reverse engineered how it worked and so I made my own sounds for it because I'd been a recording engineer for many years. I wrote software for it. I made all kinds of accessories and I became friends with other Kurzweil owners around the country.

Alexis: 08:25
Chuck saw the Kurzweil as added value for his studio hire business. It was an incentive for people to come record at Sweetwater rather than go elsewhere. This is the formula that would serve him so well in creating an online retail empire. Unparalleled expertise and a desire to share it. Chuck became the go to guy.

Chuck: 08:45
I did reach out to Stevie Wonder and Kenny Rogers and Dolly Parton and Bob James and Lyle Mays and all these old famous artists. And other recording studios, a few of them, and some big universities had these instruments and I quickly got the reputation of being the guy that knew more about this Kurzweil K250 than anyone else. And I don't mean that at all arrogantly but it's pretty amazing how it happened. And soon these famous artists were flying me all around the world to help fix their machine, put the new sounds in, new upgrades. And those same friends then started calling me and asking if they could buy an additional Kurzweil from me. And I go "Well, I'm not a dealer. I just help with parts." And it didn't take me too long to realize that I ought to become a dealer.

Chuck: 09:26
So I became a dealer and those same musicians were buying second and third and fourth machines to put in their green rooms, to put in their buses, to put in their lake homes, and those customers, those friends of mine then started calling and going "I understand you can do music on the computer." And I said "Well I know how to do that." So I started selling my friends software. And next thing you know I've got hundreds of friends and I can't keep up with all my friends.

Alexis: 09:48
To keep up with growing demand, Chuck transformed Sweetwater into a music equipment retailer. He bought two acres of land, built a real headquarters, and started selling more products, more lines, and more brands.

Chuck: 10:01
We went from five employees when we moved in to the next year we had 20 and then we had 60.

Alexis: 10:06
Sweetwater was growing rapidly. But Chuck still faced a big problem. He had to convince musicians accustomed to visiting a music store to try out a drum kit, synth, or base, that they'd be better off buying from Sweetwater.

Chuck: 10:20
A lot of the traditional guitar manufacturers and even customers would say "Oh, no you can't sell a guitar over the internet or through the mail because it's such a personal instrument. You need to touch it. You need to feel it." And I thought about that and I thought there was a better way because there is always a way. And I thought about things like if you build a new home you don't know what your home's going to be like until it's built. You may know the builder. You may even see another thing. But you don't know what it is until it's really built. If you do a custom car you might see what a stock car looks like but if you buy something really nice and you have it customized you don't know what's it's like until you get it.

Chuck: 10:54
So my theory was that we would take every guitar that we sold ... And we started with higher technology guitars, again, that fit our customer base better. So they were guitars that could plug in to synthesizers and really technology oriented stuff. But eventually we rolled it to all the guitars but decided that the idea would be when we'd bring guitars in we would absolutely check the guitar. And we wrote a thing called a 55 point inspection. A little bit of marketing but it was real. We would look at the guitars and make sure they really were to the quality that I wanted and that I personally would want to use.

Chuck: 11:28
And you'd think well why aren't they all that quality but they're hand made and some are made on Friday or some are made on Monday by Mary and you've heard the stories. And believe it or not when we first started doing this about 17% of the guitars weren't to the quality that I would want to sell and so we would send them back. But my goal was we were going to check the guitars and absolutely positively make sure the guitar was perfect. Then we were going to take high quality pictures of the guitar. So we took pictures of the wood grain, the serial number, all the really unique details about the guitar, and we put those online.

Chuck: 12:00
So the customer now can see a guitar at 3:00 in the morning in their pajamas. They can hopefully find the one they want. They can compare them based on the different wood grain, on the different weight, because they're all really different. Even if they're kind of the same, they're ultimately different. And they order the guitar online and the next day the sales engineer calls them and says thank you for the guitar and by the way you want some extra strings, do you want a stand, do you want a case, and all those sorts of things. And we went from not selling guitars to today we're either number one or number two in every brand of guitars we sell. Last year we sold 108,000 guitars, which blows me away. Right now we're looking at about 500 guitars a day, every day, where we're QCing them. I don't know where they're all going. Blows me away.

Chuck: 12:42
If you contrast that to the other way you buy guitars, and I don't want to pick on the other stores, but most of the other stores the guitars have been hanging on the wall for a while. People have come in and played them. They've got belt buckle scratches on the back. They were never set up. They were never QCed the way we do it. Versus ours have been in a humidity controlled warehouse from day one. They've only been touched by the person who made it and the person who QCed it and took the pictures and doesn't have those belt buckle scratches. It's hard to tell in a local store what the guitar really sounds like because it's a cacophony of noise as all the other guitar players are jamming and practicing and whatever they do in music stores.

Chuck: 13:18
So the experience of buying a guitar over the phone or over the internet, having it delivered to your home in the next day or two in a pristine condition and the ability to return it is just a fabulous experience. And we sell really, really expensive guitars and we sell inexpensive guitars. But we sell a lot of guitars today.

Alexis: 13:34
That's impressive. And there is this constant process of training and re-training all of your employees. You talked about the onboarding experience but it doesn't stop there.

Chuck: 13:48
I believe every employee is either adding credibility or taking credibility away from the company. So whether it's a receptionist or someone in the warehouse they all have the ability to add credibility or take credibility away. So we're constantly training our folks. If you're a sales engineer you go through 13 weeks of training that's eight hours a day, 300 classes, taught by 80 different teachers. Once you're through that, for the rest of your career here every Tuesday and every Thursday you have another hour and a half training. And then there's sometimes lunch and learns and things in the evenings but it's a continual improvement because we need to stay ahead of our customers and the products are changing and getting better all the time. And we truly want to be the experts. When we talk to the customer we can't bluff or fake it because if we do it only takes about a nanosecond and the customer Googles and they figure out that we're a liar and not only is that salesperson a liar, they just assume everybody at Sweetwater is a liar.

Chuck: 14:40
So we go back to you're either adding credibility or taking credibility away. So we're all working all the time to sharpen our tools.

Alexis: 14:47
So that brand obviously helps with customers. It also helps with recruiting.

Chuck: 14:53
You know, as our brand has gotten more and more nationally recognized it does become easier. And there aren't many places in our industry where you can go and have a true career. And I say career, I mean I've got folks that are going on 30 years with me now and we've had many retire. So it's truly a career. But we're advertising all the time to our own customers. Most of our best sales engineers were customers first and they saw what we did and they saw the values and they said I want to come work there. We go to universities every month. Probably twice a month we're at various universities around the country and showing the students there's an opportunity besides just playing or doing something they can come work in music retail.

Alexis: 15:35
Sweetwater may be a long way from California but in building an environment to attract and retain the expert talent the company needs, Chuck's learned a little from Silicon Valley.

Chuck: 15:46
I want it to be comfortable for my employees. I want it to be comfortable for the guests whether they're guests in our recording studio or guests in our music store. So you can get a massage, you can get your nails done, hair done. We've got an indoor racquetball court. We have a full-time doctor and nurse that's completely free to our employees and their family members. We've got a gaming area with a pool table and ping pong and foosball and all of that. An amazing cafeteria. We cook fresh from scratch food every day for the employees, for guests, that sort of thing. Kind of goes on and on. We have a slide. Slide's a lot of fun. Go from the second floor to the first floor.

Alexis: 16:23
I saw that. I worried it was not load bearing. I'm a big fella. I don't want to break your slide. Has it been tested?

Chuck: 16:30
It's been tested. In fact when we were doing it I told the architect that I wanted to do this slide and they gave me a lot of ... This Fort Wayne, this isn't Google. And I said "No, I want to do a slide." And I got a lot of crap from the architect and finally he acquiesced and we hired a specialist believe it or not. There's a company out west somewhere that does slides all around the world.

Alexis: 16:48
Go figure.

Chuck: 16:49
And my attorney says "Oh, we can't do the slide." I said "Yes, we're going to do the slide." And he said "Well, then everyone's going to sign a release." And I said "No. We're not going to have people sign a release." I just drew the line in the sand. I said "This should be a fun business and if kindergartners can go down slides, adults can go down slides." And I've had a lot of fun with the slide over the last couple of years. I've watched nuns go down in habits. I've had a couple governors go down, vice presidents go down. It's been a lot of fun.

Alexis: 17:13
Slides are cool. But Chuck has invested in something even more impressive.

Chuck: 17:18
We have a custom information system that we've designed completely in house and we have all of the customer's history back to 1990 online. And you're right, we're all about relationships. It goes back to me being in Boy Scouts, it goes back to my relationship with Stevie Wonder and Kenny Rogers, and we really teach our sales engineers how to develop relationships. That is our differentiator that really none of our competitors have. We're tracking everything about the customers, not in a big brother sort of way but in a helpful sort of way. We are keeping track of potentially birth dates and children's names and what their dreams and aspirations are, what equipment they're using, what the band is, songs, all that sort of thing. So when the customers calls in or we call them we can be brought up to speed right away and make good recommendations.

Chuck: 18:04
My whole goal is not just to sell the customer. In fact as awful as it sounds to a business person, I don't really care if we make money on the transaction. I teach all my employees do the right thing for the customer. If you always do the right thing, one you can lay your head on the pillow at night, but B, the money will follow. So they are taught don't sell the most expensive, don't sell the least expensive, sell what the right thing is for the customer and always treat the customer the way you would want to be treated.

Alexis: 18:31
Boy Scout values right there.

Chuck: 18:34
Absolutely.

Alexis: 18:35
In thinking about what I learned from Chuck and seeing this incredible business that he's built, something he said really stuck with me.

Chuck: 18:42
We're helping our friends with their equipment.

Alexis: 18:45
It's such a simple, honest idea that's as true today as it was when he started out in the back of his bus. And there's something in it that applies to any business.

Chuck: 18:56
We happen to sell music instruments but our people business would work selling golf clubs and cooking equipment and all those sorts of things.

Alexis: 19:06
How did he take that desire to help friends with their equipment and scale it into a business that now has hundreds of employees and does hundreds of millions in revenue? Chuck figured out a way to make every Sweetwater employee as good at helping their friends with their equipment as he was. That sounds pretty obvious but the way he accomplished that feat was far from it. This is a case study on how to invest in your employees and reap major dividends. We always hear about the perks of working at a big tech company in the valley. From the luxurious company cafes to the 20% rule, which is where employees get to spend 20% of their time on something not work related, to the lavish parties. I've heard it all. Sure, Chuck has taken care of every want and need on campus with a company gym, an infirmary, and all the fresh food anyone could need.

Alexis: 19:56
But Chuck's gone further. He's provided a fulfilling life for his employees. Not just a living. He's enriched their minds with rigorous technical training programs. He's fueled their passion for music by creating a state of the art outdoor concert venue with free parking that hosts artists from all over the country. He's made Fort Wayne an attractive and enriching place to live and raise a family. Contributing his time and money to education, to music, and building one of the finest minor league baseball stadiums in the country. His motto of go all in, failure is not an option, never give up, is a path to success in life and business. But the moral of the story isn't out of the Boy Scout manual. Whether you're doing millions in revenue or you're just getting started, Sweetwater's story is living proof that the more you give, to your employees, to your community, to your customers, the more you get.

Alexis: 20:54
I'm Alexis Ohanian of Initialized Capital and you've been listening to Business Schooled. A podcast by Synchrony. Please rate and review this show and spread the word.

AVO:
Whether or not music is your jam, if you’re as driven as Chuck, you want to build revenue while providing your customers with the best experience. Synchrony is here to grow with you and your business. Our financial solutions, payment technologies and data insights are music to any business’ ears. Meet us at synchrony.com.

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LESSON 4: Carrying on with conviction

Brooklyn, New York

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AVO:
This is Business Schooled, a podcast by Synchrony. We’re here to help people and businesses grow into their future.

Alexis: 00:03
I'm Alexis Ohanan, co-founder and managing partner of Initialized Capital, and before that I co-founded Reddit. These days people tend to think that all the innovation is happening by founders under 40. But, while we millennials are grabbing all the headlines, baby boomers and Gen-Xers have been busy building twice as many businesses. So I'm traveling the country to meet these OG entrepreneurs and soak up some essential business and life lessons. Hopefully you'll learn a few things, too. This is Business Schooled.

Alexis: 00:40
At an age when most other people are retiring, Helen Lo set up her first business to sell a unique kind of travel bag. She had no retail experience, no design qualifications, no MBA. But she had spent more than six decades moving from country to country, city to city. Her wandering life and its many challenges and adventures gave her an inner steel, a confidence.

Helen: 01:05
So you can see, if I could do all of that, then I could do this, too.

Jan: 01:10
Yeah, making bags is pretty simple.

Alexis: 01:13
Helen has made it look simple, but it really wasn't. She's become an innovator in direct to consumer retailing and created a multi-million dollar company. I'm about to find out how she did it. It's time to get schooled.

Helen: 01:30
I'm Helen Chen Lo and I'm the founder and CEO of Lo & Sons.

Alexis: 01:35
I meet Helen at the New York headquarters of her travel bag company.

Derek: 01:39
I'm Derek Lo, the youngest of the Lo sons, but also the tallest and the best looking.

Helen: 01:47
Geez.

Jan: 01:51
Jan Lo, the other son.

Alexis: 01:53
Derek ditched a career in advertising to work for his mom. Jan was a full time product design researcher and a part-time DJ. The four of us meet in their office in Brooklyn. Near the waterfront of the East River and nestled between the Brooklyn and Manhattan bridges, there is place for everything, and everything is in its place. The office is exactly the same attention to form and function that Helen brings to her bag designs.

Jan: 02:19
So this bottom compartment, people love this because you can put your-

Derek: 02:24
Dirty shoes or dirty clothes.

Jan: 02:24
Dirty shoes, clothes.

Alexis: 02:26
Yeah. Clever.

Alexis: 02:28
Sitting across from Helen she certainly doesn't look 73. But when she became an entrepreneur a decade ago, she’d already lived a rich life.

Helen: 02:36
I was educated by nuns. So I grew up a Catholic.

Derek: 02:40
She tried to become a nun, actually.

Helen: 02:42
Oh, geez.

Alexis: 02:43
This is gold. This is podcast gold right here.

Jan: 02:47
She went on the nun test.

Helen: 02:51
A retreat.

Derek: 02:51
She went on the nun retreat.

Helen: 02:54
Three days of silence, and that told me that I wasn't meant to be a nun.

Alexis: 03:01
Silence isn't for Helen. She's all about communicating, meeting people and really getting to know them. Her husband, Fred, was a respected astronomer, and she moved with him from one university town to another, growing and learning each time she packed and unpacked.

Helen: 03:18
It's the flexibility, the toughness, the willingness to take risks. You know, I'm a risk taker even though I didn't have a business. But it was the kind of life I led. You know, moving with my husband we had to move from Boston to Pasadena, Pasadena to Berkeley, Berkeley back to Pasadena and then to Champaign, Illinois. Champaign, Illinois, to Taiwan. I did some consulting work for a semiconductor company, and I had to drive from Taipei City to the south, Hsinchu, which was an hour and a half drive. I drove without a license.

Jan: 04:02
And she couldn't read Chinese.

Alexis: 04:04
I love it.

Helen: 04:05
And I couldn't read Chinese.

Alexis: 04:05
I love it.

Helen: 04:05
One time I got lost, and I didn't know where I was-

Derek: 04:09
No Google maps back then.

Helen: 04:09
And I called my husband and he says, "Where are you?" I says, "I don't know." He says, "I can't help you if you don't know where you are."

Alexis: 04:16
How did you make it back home?

Helen: 04:20
I just stopped and asked people for direction with my limited Chinese.

Alexis: 04:26
Yeah.

Helen: 04:26
Yeah.

Alexis: 04:27
Helen found her real calling in social work. She set up a community health center in Boston.

Helen: 04:32
Even in all the Chinatowns in the US, that was the first one. Yeah.

Alexis: 04:36
In the country, that was the first one? Wow.

Alexis: 04:38
Social work played to Helen's strengths, and set her up for the challenges of founding a baggage empire.

Helen: 04:44
My background in social work really helps me practice empathy. If you have no empathy, you cannot really do social work. That's part of the nature of the job. Having empathy really helps in relating to my sons and also to the staff and to customers.

Alexis: 05:01
But Helen's journey into designing, manufacturing and selling bags for travelers sprang very much from a personal need. As she circled the globe with her husband, attending his lectures and conferences, Helen become an expert in packing and unpacking and an expert critic of the shortcomings of travel bags as they then existed.

Helen: 05:21
After 9/11, we were only allowed to have one carryon, a roller, and a companion bag.

Alexis: 05:29
Mm-hmm (affirmative). Yeah.

Helen: 05:33
And then oftentimes, luggages get lost.

Alexis: 05:36
Yup.

Helen: 05:36
So the reason I got involved was my husband was traveling a lot, and I had just retried, and I wanted to travel with him.

Alexis: 05:45
Mm-hmm (affirmative)

Helen: 05:45
But he would not check baggage.

Alexis: 05:50
Man after my own heart.

Helen: 05:50
So even we were going for three weeks-

Alexis: 05:53
Yeah.

Helen: 05:54
Only carry-on.

Alexis: 05:55
Yeah. Right on.

Helen: 05:56
And that was a real challenge for me as a woman to just have carry-on for three weeks.

Alexis: 06:01
No kidding.

Helen: 06:02
So I had to figure out how I could manage to put everything in one roller and a companion bag. So if you carry a purse, that would be considered a companion bag, and that's definitely not enough.

Alexis: 06:18
That's not gonna cut it.

Helen: 06:18
And if you go to a luggage store and you get a companion bag, that's luggage.

Jan: 06:21
And it looks-

Helen: 06:22
It looks like luggage.

Jan: 06:23
It looks like luggage.

Alexis: 06:25
Right.

Helen: 06:25
So I'm thinking of that companion bag that you can carry as a purse.

Alexis: 06:32
Yeah, and it's a little swaggy.

Helen: 06:32
Yeah.

Alexis: 06:32
It's nice. It looks good.

Helen: 06:32
Yeah, yeah.

Alexis: 06:32
It solves a problem.

Helen: 06:33
So there was a little vanity involved.

Alexis: 06:37
Yeah. I get it.

Helen: 06:37
I wanted it to be functional and stylish, and there wasn't such a bag.

Alexis: 06:41
But, okay. So there's a clear need. The market has shifted, and for travelers who want to be that efficient, and believe me I'm right there. I love not having to check a bag. But want items that are both functional and good looking, there just wasn't anything there, because the luggage folks didn't have any taste.

Helen: 07:00
Right.

Alexis: 07:00
And the people who had taste weren't making items that you could actually travel with that were functional.

Helen: 07:06
Exactly. Right.

Jan: 07:06
Well, I mean I actually had the same exact thought. So my mom was like, "I can't find this bag. I like this bag for this, and that bag for that." And she actually took us to Bloomingdale's.

Alexis: 07:21
Mm-hmm (affirmative)

Jan: 07:21
Because I'm like, "There's gotta be a bag. What are you talking about?"

Alexis: 07:22
Right.

Jan: 07:23
She's like, "There's gotta be a better ... not that ... it's not rocket science." And then she dragged us into the luggage section. Yeah, so, she had to take us to the store, and we're like, "Wow, there actually isn't a bag that you're describing."

Alexis: 07:37
Right.

Alexis: 07:38
Helen and her boys sensed a big opportunity. If they could research this white space, they might come up with the perfect bag to meet travelers' needs. Jan was working for a design consultancy in China, so he put his skills to work for the family.

Jan: 07:52
So I actually went to like, airports, commuter areas, like in Hong Kong or New York midtown, and I also interviewed both men and women that traveled a lot for work.

Helen: 08:04
And I was very amazed that after his interviews with people that his results were very much in line with what my needs were. So this was a verification that my need was beyond my very own. And I think that, that gave us some confidence that there was white space there.

Alexis: 08:24
Right.

Helen: 08:24
Because you can't just start a business with your own need. Just because I need something, what if nobody else needs it. Then you don't have a market.

Alexis: 08:34
To deepen their understanding of the problems travelers like Helen faced, the boys filmed her actually struggling with her subpar luggage. Naturally, I asked if I could see the video.

Alexis: 08:45
Alright, so she's got the roller bag and she's got a backpack on top of that roller bag.

Jan: 08:49
Yes, so that's what she was using at the time.

Derek: 08:51
Yeah, you can sort of see that struggles that she has during this process.

Alexis: 08:56
Mm-hmm (affirmative). Gotta get the passport out with the ticket, digging through the pockets on the outside.

Jan: 09:02
Like, where’s the stuff.

Alexis: 09:05
You do not look like you're having a good time.

Derek: 09:05
That mic drop right there.

Alexis: 09:08
Armed with these insights and with the help of an industrial designer, Helen drew up the blueprints for her first bag. It was elegant and practical. It had discreet pockets and sleeves for laptops, books, pens, and passports, even a place to stow damp umbrellas. And it could be securely attached to your carry-on roller case. If you're imagining a military style ruck sack, forget it. This bag satisfied Helen's demand that it should be chic as well as functional.

Alexis: 09:37
What was the original? What was the first bag? What was it called? The OG bag, right?

Helen: 09:43
The OG, right.

Alexis: 09:43
And what does that stand for? I mean I know what it stands for.

Helen: 09:46
Overnight Gym.

Alexis: 09:51
That's not what I thought it stood for.

Derek: 09:51
The real, yeah ... it really stands for the Overnight and Gym bag, but when she came up with that name, Jan and I were both secretly cheering inside.

Alexis: 09:58
Oh, that's so good. That's so delightful. You know Original Gangster now, right? Yeah.

Helen: 10:04
Now I do.

Alexis: 10:07
I love it.

Derek: 10:08
And we actually ... so when we decided to make a smaller size of it, we named it OMG for Overnight and Medium Gym bag.

Jan: 10:15
I don't think that Mom knew what OMG stood for.

Derek: 10:17
She didn't know what OMG meant either.

Helen: 10:17
I didn't know.

Alexis: 10:17
Oh, that's so good. Okay, so you have this OG bag. You needed or you were able to get this professional design that was credible to a manufacturer. You needed to find a manufacturer, which is no small feat. And it's hard, because you just get thrown into an email conversation with a manufacturer you don't really know, and no one is really able to take the other side very credibly because you're both essentially just strangers. How did you narrow down that process and find someone to work for, for that prototype?

Jan: 10:47
It was crazy. I would just go to these random places in China, and once you got there you're like, "Maybe this is not the right fit." It didn't seem like we were getting any promising leads. And my mom talked to our dad ... Mom do you wanna tell the story?

Helen: 11:03
He was at MIT, and he had a fraternity brother who was the chairman of Li & Fung in Hong Kong. They're the big supply chain management company. "Ask Victor. Ask him if he can refer a factory to us." So he was kind of hesitant to, because he was not comfortable. I mean he's an astronomer, but you know he did. And Victor asked him, "Well, what kind of travel bag do you wanna make? A hard side, a soft side?"

Helen: 11:35
"I don't know," he said.

Alexis: 11:39
This was definitely your business.

Helen: 11:41
Right.

Alexis: 11:42
He was very focused on the astronomer work. But he connected you.

Helen: 11:46
He connected us to a factory owned by three Singaporeans. So they gave us the name, and I called up one of the owners. He spent about an hour trying to talk me out of doing it. And I tried to talk him out, that we knew what we were doing.

Alexis: 12:06
What was the argument that he was making to talk you out of it?

Helen: 12:08
Because none of us had any experience. We were not in the industry. And then the other thing, he says, "Luggage was good business for us, you know, ten years ago, but not now. So," he says, "It costs us to do R&D. And if it doesn't work out, you can't sell, then we wasted, you know, our resources."

Helen: 12:28
But somehow I told him we knew how to market. You know, things have changed and there's social media, that we knew what to do even though I didn't at that time.

 

Alexis: 12:39
You were hustling.

Derek: 12:39
Social media expert.

Helen: 12:41
But I said, "My sons do." And I talked him into allowing us to visit.

Alexis: 12:52
You figured if you could get there, meet him face to face-

Helen: 12:54
Right, and also with the specs.

Alexis: 12:57
With the spec. You don't want to just email it over? You really wanted to get there, face to face because you were so unsure.

Helen: 13:01
Face to face, right.

Derek: 13:05
I think that's like, for people who want to make a physical product internationally, like that an underestimated thing that people forget. You have to show up. If you want people to roll the dice on you, you have to kind of make the effort to show your face and build that personal relationship. In Asian culture, it's particularly valuable.

Alexis: 13:29
So Helen went to China. Anyone would be daunted by the challenges she was facing. She was entering an industry she knew next to nothing about. Just when economies around the world were tanking. Her first hurdle was trying to convince the reluctant manufacturers to even take her idea seriously.

Alexis: 13:46
So you all show up there. You got the specs in hand. They look great, or not?

Helen: 13:50
No, they didn't look great to them.

Jan: 13:53
They were used to making fashion handbags.

Alexis: 13:55
What did they say when you showed it to them?

Helen: 13:56
He says, "Gee, that looks so ugly."

Alexis: 14:01
Wow, that's how the meeting started?

Helen: 14:03
But they didn't say it to us. They said it to each other and in Cantonese. They didn't know that Jan can understand Cantonese.

Alexis: 14:11
Mm-hmm (affirmative). Wait, so did you call them out on it? What're you talking about, ugly.

Helen: 14:17
No.

Alexis: 14:17
Okay. It was better to keep that close to the chest, not let them know.

Helen: 14:19
One of the owners also design handbags. So he worked with us.

Alexis: 14:25
Oh, okay.

Helen: 14:26
He worked with us to make the change from that design, from the original design to what we have now. And what we have now is really the outcome of all three of us being at the factory.

Alexis: 14:39
So this was 2009, you said?

Derek: 14:41
Yeah. Keep in mind, too that, after 2008, it was kind of crazy to try and start a business in this industry.

Alexis: 14:48
Oh, that's right, because now we've got massive recession. Yeah.

Helen: 14:52
Right. So it really worked to our advantage. The recession worked to our advantage because the factories were not busy. In fact, this factory had closed another one. That means their business were going down. If it was during the boom era, they wouldn't talk to us.

Derek: 15:14
Right.

Alexis: 15:14
Right. Too small fish to deal with. Yeah.

Helen: 15:14
You know, who are these people, yeah too small fish. These people don't know what they're doing. In fact, the owner asked us, "What do you three do?" And I said, "Jan makes the bag, Derek sells it, and I manage the two of them."

Alexis: 15:36
Wow, did you have to make any assurances in terms of future orders and order for them to-

Helen: 15:42
Yeah, there were minimums.

Alexis: 15:43
Okay.

Helen: 15:44
There was minimums.

Alexis: 15:45
Helen, Jan, and Derek couldn't just dip their toe in by having a few dozen bags made or even a few hundred. They had to pony up for thousands of the things, and it's not like they had a shop or a warehouse in which to store them.

Jan: 15:58
We actually got the blueprints to the house in Charlottesville, and we're trying to like, will all the bags fit into the basement, in the garage-

Alexis: 16:06
It's a good volume math exercise.

Helen: 16:09
And my husband said no. No way.

Alexis: 16:13
It was a big, big gamble. But the Lo's threw themselves into it. As well as money, the family invested time and emotion into the project, learning, refining, and working long, long hours. To make the gamble work, they needed to make a return on all this money and toil. Helen decided to follow an old school route, selling to wholesalers who would retail her bags on her behalf and take a cut of any profits.

Derek: 16:41
We launched in December 2010, and then every year there's a travel goods trade show. So we were really focused on that. That's our chance to like-

Helen: 16:52
To get to the wholesaler.

Derek: 16:54
To start really selling the bags.

Alexis: 16:55
Got it. If you could get in front of them, then you could really start selling massive volumes and be like, "Hey, factory, we actually need ten thousand bags and they're already basically paid for." Okay, but that means you just have to convince, not your end customer, you’ve gotta convince a retailer.

Helen: 17:13
The buyers.

Alexis: 17:13
Yeah, these buyers. And they're probably, I don't know, pretty risk averse.

Helen: 17:18
That's what we learned from the trade show.

Alexis: 17:21
The people came by the booth though.

Jan: 17:23
People walked by the booth.

Derek: 17:24
We got stuck in the very back-

Jan: 17:27
Corner, we didn't have really great-

Alexis: 17:28
So terrible location.

Jan: 17:29
We had a huge pillar in the middle of our space.

Derek: 17:32
How do you sell this trade show booth where people can't see the booth?

Alexis: 17:37
Yeah, with a giant pillar in the middle. That's BS. Okay.

Derek: 17:39
So yeah, we walked away from that trade show with maybe one retailer.

Jan: 17:44
Another family owned business, a retailer in Chicago called Caylor, and they were interested on consignment. And so-

Alexis: 17:53
What does that mean?

Jan: 17:54
So they won't actually pay for it up front.

Derek: 17:58
You give them the bags and then if they sell it, they pay you after they sell it. And then if they can't sell it, they just send them back and you have to pay to send them back.

Alexis: 18:05
Right, that's not great. Were you there? Did you go to the-

Helen: 18:08
Of course, yes.

Alexis: 18:08
How did it feel coming back from that?

Helen: 18:11
Well, the lesson was, we can't expect retailers to promote our bags.

Alexis: 18:17
Mm-hmm (affirmative)

Helen: 18:18
They will only buy brands that are established. They're not gonna ...they're not interested in our brand that nobody knows about. We learned that, that was not the business model that we were gonna go.

Alexis: 18:37
No matter what doubting factory owners or wholesaler buyers said, Helen knew that there were travelers out there desperate for the OG. She's seen them struggling through departure lounges around the world, but Helen's business plan of how to get her bags to market had hit a brick wall. Lo & Sons needed to pivot and fast. So they did something completely unheard of at the time. With Jan and Derek's help, Helen set up a website to sell her bags direct to her target market. But how would Lo & Sons let them know the company even existed?

Derek: 19:09
My mom was like "These professional woman that are going to buy this bag, they don't read blogs. They're busy. They have other things doing. They're working. And so as we started to sell more and more she was like, "Wait." It kind of changed our perspective on the lifestyle of the woman that we're targeting, and what I realized is that, the modern woman, they're not just professionals, right? They're interested in fashion, they're interested in design, they're interested in food. And so I was reaching out to food bloggers and saying, "Hey we have these travel bags. Do you wanna do a give-away?" It completely didn't fit the content, but it fit their audience.

Alexis: 19:48
What Derek is describing has a name. It's called influencer marketing, and it's a billion dollar industry. Today it's become the new celebrity endorsement. But the Lo's thought of influence differently. They understood their audience so well, the modern woman, that they were able to identify and hand pick influential women they knew would love their product. There wasn't a playbook for what they did back then. The Lo's wrote it themselves.

Jan: 20:14
When you're trying to get people to your party, there are some people that are gonna bring ten friends.

Alexis: 20:18
Yes.

Jan: 20:19
And you're one person, like they're not going unless someone else is going.

Derek: 20:24
It all came from DJ-ing.

Alexis: 20:24
It explains the marketing world. You gotta get the people dancing.

Derek: 20:27
There's that core group of dancers and they get everybody else dancing, so you gotta target those people first.

Alexis: 20:32
Right.

Derek: 20:33
And a lot of times it doesn't take a lot of people, it just takes one person. We ended up working with one particular blogger who at the time was kind of the queen of lifestyle bloggers. She has a really dedicated, engaged readership.

Jan: 20:45
Derek actually, he sent her a bag and really encouraged her to use it.

Derek: 20:49
And write about it.

Jan: 20:50
And then after she used it ... and I think she was like, oh it clicked. And then she actually wrote a very thoughtful description about it.

Derek: 20:57
We basically sold out of our top sellers within that month, and then we were like uh-oh. This is like a thing. This might be a thing, and we had to then figure out how do we make more bags.

Alexis: 21:10
Now with this next order, you're taking on some real risks, because you're gonna have to spend money, big money to get a big order.

Helen: 21:16
And we didn't have money.

Alexis: 21:17
You aren't collecting the pre orders ahead of time. You don't have the money, so you run the credit cards. You go into the bank. What's the move.

Helen: 21:24
My husband.

Alexis: 21:25
Hey, coming through.

Helen: 21:28
He was the big supporter.

Alexis: 21:30
Right on.

Helen: 21:31
But we still ... I mean, we did something that we would not recommend other people doing at our age. We refinanced our house.

Alexis: 21:39
Wow.

Derek: 21:40
Put the house on the line.

Alexis: 21:40
Big move.

Helen: 21:43
That was his support. I mean he was ready to do that. And I really do not recommend others to do that. Especially at our age.

Derek: 21:52
That's a high risk.

Alexis: 21:53
Big move.

Helen: 21:54
That just shows how much confidence he had.

Alexis: 21:56
Yeah that's great. Wow. Okay.

Helen: 21:59
So that's how we did it.

Derek: 22:00
I think also, too, for his background he's not only an academic, but he's in a field where you're literally searching in space for something. So you have to constantly have some sense of curiosity, and the willingness to search for things that you don't know are there. I think that instilled the same mindset for us.

Jan: 22:22
He discovered what people think is a black hole in the center of our galaxy. That's his claim to fame.

Derek: 22:29
No big deal.

Alexis: 22:31
Helen's husband was right to see something important at the center of her idea and to have faith in the business she and their sons were building. With the help of social influencers acting as brand ambassadors, Lo & Sons has scaled up, adding new product lines and accessories and catering to the male traveler too.

Jan: 22:52
After the OG and the TT, all of the bags are non-acronyms, are based on places that my parents lived at or traveled to that have special meaning to us.

Alexis: 23:02
Oh, great.

Helen: 23:04
So Claremont was the name of the street. Yeah.

Alexis: 23:06
That's in Claremont.

Helen: 23:07
When we started, we only had two styles. Eight years later, we now have 17 styles. We've grown much bigger, and we have hired people. We have like 15 full time equivalent staff. We started out with just the three of us. We would all go to the factories and we checked every single bag that was made to make sure quality was okay. Now we have hired other people to do it. So, we've come a long way.

Alexis: 23:42
Talk to me about the mission of Lo & Sons.

Jan: 23:45
Our mission is to inspire and empower people to go places while striving to leave a positive impact. I think that's another difference of having a woman and a mom leading the company is, as she said, empathy is a big part of what we do with the design. If you really think about who's using our products. Both Derek and I are guys, but in the beginning we just had women's products but really trying to understand it's not just about us. I think that just infuses our culture and how we try to approach things.

Alexis: 24:17
It definitely helps I think make up for blind spots that other companies seem to clearly have in the space, maybe because they lack that empathy, because they've just gone away from a place where they can even take risks. And then even if they had more of a risk taking culture, they're probably so far from their users. I'm sure the founders of these companies are not talking to their customers every day.

Jan: 24:41
One of our friends is the librarian at the Met Museum Fashion Library. And so we went up there and I was reading these books and just looking that the pictures. And you just see it's crazy through 2018. It started off like woman as objects. You're designing this object to put on an object. That's how they thought of woman. Its just purely aesthetic. And then its like, but women work, women carry laptops. Women go to the gym, play sports, and it seems like that hasn't really caught up to a lot of the approach in how you design stuff. For us, it's like, but wait, we're designing for a modern woman.

Alexis: 25:19
Lo & Sons all sprang from Helen walking a mile in her customers' shoes, struggling with ugly luggage and losing her passport in the black hole of an out-sized tote bag. Yes, she wanted to solve her own problems, but more important, she realized that her need for something better was a feeling shared by many others. And she hopes her OG, OMG, Hanover Rucksack or Waverley Fanny Pack are out there doing something to help people enjoy travel more. And in the process learn the skills of understanding.

Helen: 25:52
Empathy is really the key. Practicing empathy, you know. And it's not the same as sympathy. We really need to get into each other's shoes, because when you travel you step out of your own comfort zone, and you get to learn about other people. And a lot of times because people don't interact with other people. They're in their own comfort zone so much that they don't understand others. There's no empathy. There's no engagement with other people. So this is what I wanna see ultimately.

Alexis: 26:29
Right on.

Alexis: 26:31
Here's the lesson from Helen and Lo & Sons. Empathy isn't just something that's important for customer service. It's the life blood of business, embedded in the DNA of great companies through everything from product design to mission. After getting to know Helen, I'm amazed by her humility, her persistence, her energy, and her profound ability to adapt to change and reinvent herself. She didn't always know the answer, but she was so convinced that her idea was right. Helen showed me that every business should empathize more. Our lives are hectic and full of challenges, but by stopping for a minute to see the world from someone else's perspective, she's sure that we too can both win over those who doubt or criticize us and find exciting maybe even life changing opportunities.

Alexis: 27:23
I'm Alexis Ohanian of Initialized Capital, and you've been listening to Business Schooled. A podcast by Synchrony. Please rate and review this show and spread the word.

AVO:
Are you like Helen, building a company based off a need or whitespace in the market? Synchrony’s financial solutions, payment technologies and data insights can help. If this sounds like your bag, meet us at synchrony.com.

episode_thumbnails_jeromes

LESSON 5: Pricing it right

San Diego, California

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AVO:
This is Business Schooled. A podcast by Synchrony. We're here to help people and businesses grow into their future.

Alexis:00:11
I'm Alexis Ohanian, co-founder and managing partner of Initialized Capital, and before that I co-founded Reddit. These days people tend to think that all the innovation is happening by founders under 40. But while we millennials are grabbing all the headlines, baby boomers and Gen Xers have been busy building twice as many businesses. So I'm traveling the country to meet these OG entrepreneurs and soak up some essential business and life lessons. Hopefully you'll learn a few things too. This is Business Schooled.

Alexis: 00:48
Jerry Navarra, founder and chairman of Jerome's Furniture is average height with salt and pepper hair, loafers, wearing blue oxford shirt. He's southern California casual but has the polish of a Chairman. He's next to Brian Woods, CEO of Jerome's, who's tall, lean, wearing a black polo shirt, sneakers, and slim fit jeans. But the way they talk sometimes you'd think they'd run a bakery.

Brian: 01:12
First thing you do when you walk in the store is you're hit with this smell of chocolate chip cookies.

Alexis: 01:17
It's not a café either.

Brian: 01:19
We've got Jerry's Java. We call Jerry's Java in each of the stores and it's a little-

Alexis: 01:25
You got your own coffee?

Brian: 01:25
Yeah, he does. It's amazing. I can't resist. I've eaten more cookies in the last couple years than-

Jerry: 01:32
Really?

Brian: 01:33
Yeah.

Alexis: 01:33
Together they actually run Jerome's Furniture. It's an inviting family chain of stores. But the secret of its success doesn't have much to do with the inviting smells. Facing stiff competition in the early 2000s and pressure to discount their products through sales events, the company found a bold way to edge out the competition. So bold in fact that it meant years and years of declining sales before the strategy would pay off. How did Jerome's Furniture become one of the best known brands in southern California and redefine the traditional industry model? I'm about to find out. It's time to get schooled.

Alexis: 02:12
I meet Jerry Navarra at the company's corporate headquarters in San Diego. It's the nerve center of a multimillion dollar retail chain with 18 locations across this corner of southern California. In the boom years after World War II, Jim and Esther Navarra opened a single warehouse style store promising big name brands at low, low prices. They named it after their son, Jerome.

Jerry: 02:36
My father started in 1954 and that decade is when discount was the fad. We're going to give you the same brands that you desire, because it was all about brands in those days surprisingly, at a lower price. Or more convenience. And he liked that concept and he started. So it was everyday low prices at a discount and trying to show the brands that we had. That's why there's a grand opening photo of the building and the brands were plastered all over the front of the building. And in those days they carried electronics and appliances, when they started. So it was very successful as a start because discount was the big wave at that time.

Alexis: 03:26
And that photo is quite something. The crowd is at least 10 deep across the sidewalk. The store's just covered in signs. Spelling out in letters three feet high, brand name after brand name and the promise of cut prices on them. San Diegans were building new homes at a dizzying rate back then. And though Jim and Esther needed help seizing the opportunity, Jerry was reluctant to lend a hand.

Jerry: 03:49
I had told my dad I'm not going to get involved. In college my thing was marketing, advertising. Something that I really liked at the time. And I was going to USC, did one semester of graduate work there, came home, asked my dad if I could just relieve him so he could get out of town for 10 days and accounting was always one of my strong points, so I took a look at the books and I said, "Dad", when he got back, "You either close it or I'll come and help you for six months." His health wasn't great at the time. So I said "I'm going to go get my stuff and I'm coming back home. I'll skip a semester. I'll help you out. You've got to decide what you're going to do. Give you six months and then whatever." But I got hooked.

Alexis: 04:43
Never looked back.

Jerry: 04:45
I was a little older, knew the business, little more educated, but got into the exciting part of the business, which is the advertising, the marketing, the buying, the managing wasn't something I was ever enthusiastic about. And of course the warehouse is detail. It's laborious and detail. All arms and legs getting it right. So I just kind of fell in love with it. Never went back to USC. The company transitioned. We had one store, I think I was the 13th employee at the time, so it was tiny. And as I received more and more responsibility and my dad was one to pass it off quickly. He was that way. He would push you as hard as you could ... He would give you a little more than you thought you could take. You learned by doing.

Jerry: 05:41
And in those days with one store, you have to do everything. The merchandising needed to be improved and we needed to get a stable advertising program going. That was what I focused on at first. Got involved in buying more and more and more.

Alexis: 06:00
Building the brand was important. Not just to make a name for customers but to make a name for the furniture brands who were selective about the retailers they'd supply.

Jerry: 06:09
We started to be a minimal player but gaining importance. You just couldn't buy anything that you wanted. Not everything you wanted. We had to compete for brands.

Brian: 06:19
The brands had all the leverage with retailers.

Jerry: 06:21
The brands had all the leverage.

Alexis: 06:23
Okay.

Jerry: 06:23
I remember being with my day, going to our trade shows and having a salesman with whom he had friendly terms or whatever say "Jim, I'm sorry. I can't sell you. Stuff's taken in San Diego." That kind of thing. So we had extremely humble beginnings. So it was kind of ... I'd say the first five years, first 10 years for me, were just trying to build the name.

Alexis: 06:52
Since it was his name on the storefront and he was the young advertising expert fresh from USC, Jerry became the face of the business.

Recording: 07:00
For five days Jerome's is having a sensational sofa sale. Right now new sofas made to sell for $600 to $800 are only $395. Or choose from these ...

Alexis: 07:10
These ads have run for decades around San Diego making Jerry a local celebrity. He can't even go to the grocery store without getting recognized.

Jerry: 07:18
My family doesn't like the invasion of privacy. My wife never did. The kids probably were a little embarrassed by me because their schoolmates would say "Oh yeah, your dad's on TV." And we've probably done some goofy things over the last 40 years. But it has differentiated our business because it's we to you.

Alexis: 07:44
If you can hear the reluctance in Jerry's voice, it's because back in 1973 he'd assumed his dad Jim would be front and center of the campaign.

Jerry: 07:53
We had this argument for a couple of years and he said "You need to do the commercials. Because you can be honest, transparent, tell people you'll take care of them. You give them good service. You give them good prices. You give them good furniture. Hey, we'll take care of you." He said "That's all you got to do." And my reaction was "Yeah, you're the owner. You're the adult here. I'll help you do it." And we argued that for two years and then finally he kind of snookered me, set me up into doing it. Yeah, he tricked me. Called the talent, said we're not working tonight, then walked out on the set and I had to do it. And then after that he goes "See, you did great."

Jerry: 08:32
But it has worked out. I still didn't agree with him. I think he should have done it. But he wasn't going to do it. Just wasn't going to do it. And all those years it's been good.

Recording: 08:45
Today, tonight, with Jerome's same day delivery.

Alexis: 08:49
I mean you've done literally thousands of these now. And it's impressive. I actually found a couple of you speaking Spanish.

Jerry: 08:54
Yes. My accent is probably okay.

Alexis: 09:01
But at least it's okay.

Jerry: 09:01
Yeah, it's okay. I studied Spanish in school. I spent some time in Mexico. Had a house in Mexico.

Alexis: 09:08
Oh, right on.

Jerry: 09:08
I have an ear for it. And we're still doing Spanish ads. They're going to phase me out eventually.

Alexis: 09:18
The ads ran year after year as Jerry gradually added new stores to the chain. Furniture purchases are something consumers put off when economic times are hard. So, Jerome's had to develop strategies to weather local downturns, nationwide recessions, and full blown global collapses.

Jerry: 09:36
And most of these were bounces. There would be a difficult drop off and then a hard return fueled by housing growth or whatever. The most serious one was 1990. So, in '91 we started to slide and for the country '90 was not terrible. But for San Diego we were in a bad spot because we were really relying on the defense industry. I can tell you I remember that '91 was the peak and sales in San Diego County in home furnishings did not return to that peak until '97.

Alexis: 10:23
Wow. Yeah, that's a long trough.

Jerry: 10:24
So it was difficult.

Alexis: 10:26
Okay. How'd you adapt?

Jerry: 10:28
We hunkered down. At that time the family owned all the properties. It turned out to be an advantage. We had no debt and we just hunkered down. And they were difficult years for several years. Obviously we didn't make any money for a couple of years.

Alexis: 10:47
The 1991 crisis was just the beginning. As with so many other stories we're covering in Business Schooled the worldwide financial collapse of 2008 drove Jerome's Furniture to the brink. And how it adapted to that is why it's a business story worth learning from.

Recording: 11:04
My dad always said "If you're going to have a sale, make it exciting." We're celebrating Jerome's 41st anniversary and we're making it the most exciting anniversary sale ever. You'll find double reclining sofas with dropdown trays, only $441. And leather rocker recliners, only $341. Fully upholstered swivel bar stools, only $41 each while they last. And if these prices sound incredible, they are. And we've got hundreds more. Don't miss Jerome's 41st anniversary sale. You won't find a better deal anywhere.

Alexis: 11:33
Blowout sales weren't always the norm in the furniture industry or at Jerome's. To compete, Jerry eventually succumbed to the industry standard of big sales promotions. He set a regular price, slashed it during a sale on Memorial Day weekend or Black Friday, and marketed the big discount in his TV spots, hoping that shoppers would rush into his stores for the deal. Only for Jerry, that strategy just stopped making sense.

Jerry: 12:00
The sale model has built-in expenses because you're spending a lot of effort running those sales.

Alexis: 12:08
Right. There's promotion and time.

Jerry: 12:09
It's time and money. Yeah. Signs. Salesperson's time. Changing the stores around. Buying sale product, which is not good. And the advertising and then the starting and stopping as far as your business volume. It's up and down, up and down. Anyway, it's inherently more expensive.

Alexis: 12:32
So Jerry and the rest of the family reached back to Jerome's roots. Back in 1954 Jim and Esther didn't promise cut prices for just a weekend or a week or a month. They painted their pledge on the wall of their store year-round so you could see it a mile away. Low prices each and every day.

Jerry: 12:50
I think the family business really goes along with our model which is best price every day. So that's a family value, to be honest. And you think you're doing a better service for the community by being as efficient as you can and being in stock and providing convenience and providing good prices and trying to do it in a way that people are going to enjoy the experience. That's important.

Alexis: 13:20
Of course the marketer had a name for his pricing formula.

Jerry: 13:23
Jerry's price.

Alexis: 13:25
Jerome's is still a family company. Jerry's children run HR, real estate, and other functions. But the current CEO is not a Navarra. Brian Woods is a retail veteran who was impressed with Jerry's long term vision and wanted to help take the thriving business to the next level.

Brian: 13:42
The business model, the principles of the business, starts with Jerry's price. And what that means is that while a lot of other things are important to a consumer, whether that be guaranteed in stocks, or fast delivery, or an experience, and all those we recognized as hey, they're drivers of a purchase decision but before all of those it always starts with price. And as part of Jerry's price the business model's all about transparency. It's not trying to fool customers by raising something up to run a sale to bring it down and confusing. It's about just being transparent and saying look, this is what we have, we've bought the best product that we think is the best quality at absolutely the best price we can sell it at. And in lots of ways there's many times that we say look, here's my business card. Sales associate will say "Here's my business card. Go shop the competition and see me when you get back." Because we're that confident in what it is we do.

Alexis: 14:44
It seems like a no brainer right? Go to a store where the prices fluctuate or opt for a retailer that offers a good, consistent deal. Surprisingly breaking free of the big sales proved a tough proposition. Jerome's entered a tricky phase Brian explains as the “dark tunnel.”

Brian: 15:02
When you've been a promotional retailer in a very, very promotional industry, furniture. To your point earlier, kind of screaming from the mountain top every weekend this is the biggest sale in the universe, you train customers that you're going to have the best deals when they see those sales. So when-

Alexis: 15:22
You're almost telling them not to come in the store the rest of the time.

Brian: 15:25
Absolutely. So when you turn that dial off and you say okay, we're going to be everyday low price and we're not going to speak about a sale again, you lose some of your customer base. Because they're just waiting for okay, when's it coming? And you have to rebuild through what I call doing the right thing. So it's a slower build and for a retailer a 10% drop in sales is significant, incredibly significant. And so as we flipped the switch from a promotionally run business to everyday low price we knew that it was the right thing to do for the brand and the community and for our customers. But there was a very painful couple of years of kind of a big drop in sales and then rebuilding as customers learned that hey, Jerome's is looking out for my best interest and so that's kind of the context of that dark tunnel.

Alexis: 16:22
The mechanics of Jerry's price are just as interesting as the philosophy behind it. Jerome's made another bold move to enable them to pass on savings to its customers and offer products you can't find anywhere else. It ripped up that part of the 1950s playbook and just stopped offering brand name goods altogether.

Brian: 16:41
The furniture industry as a whole has kind of evolved to where ... Back in the day it was brands and the retailer was just a box to sell the brands. That's evolved now to where, for the most part, brands are pretty blind to consumers.

Alexis: 17:00
So when you buy at Jerome's now, you buy a sofa or a table, the company has sourced direct from the manufacturer. In some cases it's a piece of furniture Jerry has even had a hand in designing.

Brian: 17:11
Dream seating and our mattress line. I mean, Jerry designed these from growing up in the furniture business and saying look, there's got to be a better way and to give customers a better product. I mean why don't you ...

Jerry: 17:26
When the customer's happy or unhappy they call us. They don't call the factories. The factories don't get firsthand information. But we do. And in mattresses we're able to change the way these things are manufactured to make them more durable or more comfortable. Because both of those are to our advantage. So we do things that you're not going to find on the street. Not even in the major brands. You're not going to find those. So it has been an advantage for us.

Brian: 18:22
Yeah, I said it earlier but that advantage started because Jerry wanted to design something that wasn't out there. That really satisfied a need. And that's where Dream Seating and our mattresses came from. They've got a patent now but I mean that's part of the reason that at least my perspective, my opinion, as to why he is so authentic on camera, is because he's talking about things that he believes in. He's talking about things that he designed because he felt like there was something missing.

Alexis: 18:58
So that's the formula. And it's working. 25% of all mattresses in San Diego County now come from Jerome's. You can go to a Jerome's store any time of year and buy a product the company stands behind for the lowest price around. It doesn't sound revolutionary but it kind of is in this sector. A key ingredient is Jerry. His name and his face are synonymous with the brand. But like all founders, and I know this myself, there comes a time to make room for other minds.

Alexis: 19:32
You all seem to have a very good working relationship but surely there are disagreements. You got some good stories to tell?

Brian: 19:41
Well there's one this morning.

Jerry: 19:46
We don't have shouting matches.

Alexis: 19:48
It's civilized.

Jerry: 19:50
Well no ...

Alexis: 19:50
No it's not civilized.

Jerry: 19:52
Listen, one of the things that I live by is ... I think I learned from my dad, is if you don't like it, then you're going to have to do it. You're going to have to take responsibility or whatever. And I'm not doing that. So my role is to be supportive and to try to find where I can add value for me. I'm not the boss here. He is. So I really work for him. Even though that may sound funny but I work for Brian. So if I can add ... So it's for me to make a couple comments here and there and then he's the guy. He's got to make the decision and our future rests on his shoulders. I think that's the way it has to be.

Jerry: 20:44
So we're not on a collision course. I'm going to back up. If he says no we're going this way. I'll go okay. I'm going to back up every time.

Brian: 20:52
This is something about Jerry, he said early on that he had to kind of do everything by himself in the beginning and you know, 13th employee and there probably weren't a whole lot of other employees at that time. So he was doing the buying and he was doing the selling and he was doing the merchandising and he was running in the warehouse and he was doing the accounting, et cetera. And what's just very unique about the Jerome's culture and the family is Jerry, when I say he does everything himself I mean including fixing things. It's funny a few months back we're looking at lighting in our stores and we've got these skylights and I mean 30 years in retail, you call somebody up and you say hey, let's look at the different shades of the skylights. It's too light, we need to darken it up a bit. And here comes Jerry a week later with plexiglass and spray paint and a light meter. I'm thinking okay, Jerry we got this.

Alexis: 22:08
Isn't there a specialist for this?

Jerry: 22:11
He was hearing the Twilight Zone music at that time I think.

Alexis: 22:14
Man you were all in on that.

Alexis: 22:16
Jerry Navarra, TV celebrity and company chairman, trying to fix his own skylights. In a world where you can manufacture just about anything you can't manufacture authenticity. What you see is exactly what you get and that's permeated every aspect of the business. Like when he and Brian talked about sales events. They helped me see it a little bit differently. If you think about it sales prevent the customer from understanding what something really costs. For them playing with prices simply isn't transparent. And when you look back on the big decisions Jerome's has made over the last few decades each one enables the company to be more transparent. Manufacturing the furniture they sell. Opting for a steady low price instead of sales events. Even creating the self-deprecating Jerry's bloopers section where he sells heavily discounted items that are slightly damaged or flawed. It's all in the name of offering a clear and consistent customer experience.

Alexis: 23:16
When you strip away all the marketing speak there's a really simple and valuable principle behind it all. Just be honest. With your coworkers, customers, family, and friends. It might be hard in the short term like it was for Jerome's but when your building something to last you can't always make the decision that'll ring the register tomorrow. It takes courage to be honest and transparent. And it might not be what everyone else is doing and it probably won't be the easiest route, but it is always the right call.

Alexis: 23:47
I'm Alexis Ohanian of Initialized Capital and you've been listening to Business Schooled, a podcast by Synchrony. Please rate and review this show and spread the word.

Speaker 1: 24:08
Trying to turn your dream home into a real home? With the Synchrony home credit card you can buy the things you want from your favorite home retailers. With over 20,000 participating retailer locations nationwide the Synchrony home credit card can help you create the perfect kitchen, master retreat, or outdoor oasis. Find out more about promotional financing at mysynchrony.com/welcomehome.

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LESSON 6: Restarting your engines

West Palm Beach, Florida

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AVO:
This is Business Schooled, a podcast by Synchrony. We’re here to help people and businesses grow into their future.

Alexis: 00:03
I'm Alexis Ohanian, cofounder and managing partner of Initialized Capital, and before that I cofounded Reddit. These days people tend to think that all the innovation is happening by founders under 40. But, while we millennials are grabbing all the headlines, baby boomers and Gen Xers have been busy building twice as many businesses. So, I'm traveling the country to meet these OG entrepreneurs, and soak up some essential business and life lessons. Hopefully you'll learn a few things too. This is Business Schooled.

Vinnie: 00:33
This car started out as a total. It had a major front end wreck, the roof was buckled up, it was just completely totaled out.

Alexis: 00:49
Vinnie DeVito loves this Chevy Camaro and its brilliant Daytona Yellow paint job.

Vinnie: 00:54
That's why I bought it, because it was so rare, and it turns out they only made five of these with white stripes and a white vinyl top.

Alexis: 01:02
The time, energy, and parts needed to bring this sixties muscle car rarity back to its former glory made no financial sense. It was a pure labor of love. Until Vinnie's friend saw it.

Vinnie: 01:15
And he's like "How much for this car", I'm like "Nah this is mine I wanna keep this car", he's like "Oh yeah you know I get it, but like you know, so how much would you sell something like this for if you wanted to sell it", and I'm like "Oh I'd have to get, and I threw a number out there" and he turned around with his cell phone in his hand, asked me my bank account number, and he bought it there on the spot.

Alexis: 01:36
The friend didn't just ask Vinnie to restore the car, he wanted to modernize it. Souping up the engine, and adding state-of-the-art tech, everywhere.

Vinnie: 01:44
He brought it up to another level, that even I wasn't prepared to do it at.

Alexis: 01:50
And with that sale, Vinnie had a new business model for Resurrection Muscle Cars. While his competitors lowered their prices to bring in customers, and took any project that came their way, Vinnie had to find a different way to get ahead. He didn't wanna just restore cars like everyone else, he wanted to reinvent them. How did he supercharge his high end business and take pole position in the muscle car industry? I'm about to find out. It's time to get schooled.

Alexis: 02:19
I'm meeting Vinnie at his is auto shop in West Palm Beach Florida. I've known about his operation for a while. In fact, Vinnie rescued me when a '66 Mustang that I bought for my dad had a few mechanical issues.

Alexis: 02:31
It was the first little ride, started smoking up pretty bad, and I was like "This is not good", pulled over. Thankfully was able to grab an extinguisher, and put out what was already starting to burn. And I got on a truck, and then, just went on Yelp and searched, and y'all were the top result, and I loved the name. I was like I need a specialist because this is like a unique car, and I think right now it could use a resurrection, yeah, and viola.

Alexis: 03:04
Vinnie's company is certainly well named. He brings cars back from the dead, sure. But this business has also been the salvation of Vinnie himself. He's faced some pretty extraordinary challenges in his career, and as I sit across from him in this gearhead's paradise it's clear that Vinnie has finally found his place.

Vinnie: 03:22
My employees say "Vinnie, you know we really like cars, but you love cars." They really emphasize that, "you love cars".

Alexis: 03:29
Where did that start?

Vinnie: 03:31
My childhood, I grew up, I was born very late in my family. My mother was 42 years old when I was born, my dad was 46, and I was the youngest of six.

Alexis: 03:42
The baby.

Vinnie: 03:43
Yeah, so my next oldest brother was 10 years older than me, and as soon as I could get around and I was in kindergarten let's say, I was with him a lot of times.

Alexis: 03:52
Mm-hmm (affirmative)

Vinnie: 03:54
And, muscle cars were just the cars of the day that's what they had that's what they bought, that's what they drove, that was what you would get.

Alexis: 04:00
Yeah.

Vinnie: 04:01
Back then the cars were two, three, four years old, some of them were brand new, some of his buddies could afford new cars. I just hung around with them and they all hot rodded them up, and they all drag raced them on the weekends. I would be at the drag races with them. I was driving cars at 12 years old.

Alexis: 04:14
Yeah.

Vinnie: 04:15
Yeah, I could drive myself anywhere at 14.

Alexis: 04:18
I love it, and I'm sure a manual transmission as well.

Vinnie: 04:20
Yeah, oh yeah-

Alexis: 04:21
It's the only way to drive.

Vinnie: 04:22
I can remember when I first learned to drive a manual I was getting yelled at by brothers, "Let the clutch out! Let the clutch out!" [crosstalk 00:04:27]

Alexis: 04:28
So cars were always like a passion.

Vinnie: 04:30
I always had nice cars, I worked hard so I could have nice cars.

Alexis: 04:33
I feel ya.

Alexis: 04:34
Vinnie started out as a master carpenter, he was a proud and highly skilled craftsman. But an eye for opportunity saw him become a property developer.

Vinnie: 04:43
I'm partners with a guy, we were buying and flipping houses. What we would do is we would buy a house, I'd remodel the master suite, move into the house and I would model the whole house while I would live there, inside and outside, the whole nine yards. He would buy all the materials, I would do all the labor and then we'd sell the house and split the profits, and we just used the profits to buy the next house.

Alexis: 05:02
Right.

Alexis: 05:02
His career in real estate had some serious ups and downs.

Vinnie: 05:06
I was penniless and homeless and I had lost-

Alexis: 05:08
What?

Vinnie: 05:08
Everything in my life, okay? I lost everything I had my van, all my carpentry tools, and that was it.

Alexis: 05:15
From that low with just 700 dollars in his pocket, he started over. Homeless for one night and in need of an apartment, a real estate agent and a landlord he'd never met took a chance on Vinnie. Lowering their rate significantly so that he could afford a place. With a new lease and a fresh start, he rebuilt his real estate and carpentry business.

Vinnie: 05:36
By 2005 I was worth $2.3 million...

Alexis: 05:37
Wow.

Vinnie: 05:40
Okay.

Alexis: 05:41
It was around this time that Vinnie started the beta version of Resurrection. With some financial stability, Vinnie indulged his boyhood love of muscle cars.

Vinnie: 05:50
So I started building two or three cars at a time. I had a nice little shop, I had an employee, then I had two employees. I was building cars for myself. I had a couple friends come to me and one guy came, "Hey can you build a motor for my car", "Yeah sure I'll build a motor", so I built a motor. Another guy came, "Hey can you paint this car for me", "Yeah okay", "Can you fix the rot"? It kinda just grew very lightly at first, but around my hobby.

Alexis: 06:16
Vinnie hit his stride, his real estate business had reached a peak, and Resurrection was starting to grow too, but, this is 2008.

Vinnie: 06:24
It was the last economic crash, I had millions in contracts, we were doing fantastic. I had 37 homes of my own for sale, and the switch turned off.

Alexis: 06:33
Wow.

Vinnie: 06:34
I literally used to go in and check my phone, I thought my phone broke.

Alexis: 06:37
And yet again Vinnie was facing an uphill battle. His saving grace, Resurrection Muscle Cars, was right in front of him, but, he needed some help from an employee to see the bigger opportunity.

Vinnie: 06:49
He just turned to me, he said "Why don't we just do this full-time." But we just blew up. As soon as I told people I'm not doing construction anymore I'm just doing the cars now-

Alexis: 06:56
Wow.

Vinnie: 06:56
The shop just blew up.

Alexis: 06:59
And with this momentum, Vinnie saw an opportunity to do more than just rebuild cars. He wanted to rebuild lives.

Vinnie: 07:06
I'm Christian, and I have a big heart-

Alexis: 07:09
Mm-hmm (affirmative)

Vinnie: 07:09
That was something I got from my mom, and I've always wanted to help people and I still do.

Alexis: 07:14
Mm-hmm (affirmative)

Vinnie: 07:14
And I took my business and as we grew, I started hiring a lot of guys that the world shunned because of their failures and their mistakes and stuff like that. I started bringing them in and I started helping them get their finances in order, helping them get sober, get into their programs, get back with their kids, their families. I really poured into a lot of people, and it really became a detriment to the company. We were about 18 people strong, and twice as many square feet, and we were just doing a lot of repair work, a lot of rust work. I just had a ton of work here, the place was just jam packed with cars. It would take us 40 minutes to take the cars out in the morning, and put them back at night.

Alexis: 07:56
Because there were so many.

Vinnie: 07:58
There were so many. But I wasn't making any money. I was turning over huge sums of money every month but nothing was staying, and it was just getting further and further behind. And Bruce, the oldest guy out there, he came to me and he said "Vinnie, I appreciate your heart for people" he said, "but you've got a business here, and it's a good business", and he goes "I think you need to separate helping people from your business."

Alexis: 08:25
Mm-hmm (affirmative)

Alexis: 08:26
Operations, however, weren't his only problem. He had put the business in his ex-wife’s name.

Vinnie: 08:29
So right about that time, during this little turmoil change my ex-wife files bankruptcy, and she gave my business to the bankruptcy courts as collateral.

Alexis: 08:40
Wow.

Vinnie: 08:40
So now I'm really at a turning point where like, I'm having turmoil, I'm losing money, not getting anything with these guys, and now the government’s here to take my business.

Alexis: 08:50
Take your business, yeah.

Vinnie: 08:52
You know, what do I do? And I just, I prayed and I'm like "Hey, should I just shut the place down and give up"?

Alexis: 08:59
Founders like Vinnie thrive in moments like these, when the choice is give up, or, find the way out of a seemingly impossible situation, he found a way to hang on to Resurrection. And do you remember that Yellow Daytona Camaro from earlier? It would soon become the template for Vinnie's new business. He wouldn't clutter his shop with minor repair jobs, he'd commit his mechanics to ground up nut and bolt rebuilds. He'd concentrate on the thing that he'd been obsessed with since the age of 12: working on muscle cars. And with that obsessive focus he'd chase a vision for the future of the muscle car that merged past with present.

Vinnie: 09:34
People would bring me you know a great old Camaro, and say "Hey I wanna do a full restoration on this car, I want it to be exactly the way it was when it was brand new." I'd say "Okay that's great." I said "it's gonna cost you about 100 to 125 thousand dollars to restore it, and when you're done it's gonna be worth about 65 thousand dollars"

Alexis: 09:49
(laughing)

Vinnie: 09:50
Okay, "At the most." He'd go "Wow, that doesn't make any sense", I said "But, I could put a late model drive train on it, big brakes, better suspension, air conditioning, I put all these upgrades in it, you're gonna spend about 165 thousand dollars, but it will be worth every penny of it the day you roll out of here, if not more." And it's just the market. It wasn't so much that I'd created a new market, it's that I'm responding to a new market.

Vinnie: 10:19
So many cars came into our shop that needed repairs and you could just tell that the owners were just, they were disgusted. And they had badass, really cool cars you know what I mean?

Alexis: 10:27
Yeah.

Vinnie: 10:27
It's like "This thing'll never run it always overheats" – everything, they're mad about it, and it's all the old technology. It's just like with computers you know, and old technology is dead slow.

Alexis: 10:40
Sluggish and bad, yeah.

Vinnie: 10:41
Right, compared to the new. So we take that same car, we'd rip out all the original drive train, put it into a box if it was valuable, crate it up really nice for the guy, tell him hey "put this in the corner of your garage, and now drive your car". "Oh my god I can't believe it!" The clientele wants a car that looks like a restored muscle car, but they want it to work the same way their daily driver works.

Alexis: 11:05
Right.

Vinnie: 11:06
They want to be able to go in, it's gonna start, it's gonna run, the air conditioning is gonna work, everything's gonna be great, and that's how they're gonna-

Alexis: 11:13
They wanna be comfortable.

Vinnie: 11:14
They wanna use it. Even though this car is $350 thousand, and that's about the average cost of a muscle car of ours. If you wanna drive a Ferrari, they're $550 thousand, or $600 thousand dollars, and three years later, they're $90 thousand dollars.

Alexis: 11:32
Right.

Vinnie: 11:33
Because nobody wants them because they have miles on them. So if you're gonna have a super car, why not have a super car that's gonna appreciate, if not stabilize.

Alexis: 11:41
Get one that maintains, yeah.

Alexis: 11:43
With a classic American muscle car, the general rule of thumb is: The bigger the better. But for his business Vinnie did the exact opposite, slim his operation down in order to move forward.

Vinnie: 11:55
Well we went from taking on you know probably eighty projects at all times, now we're down to six cars, and eight men. So I wanna have at least two super cars, maybe a couple of restorations, and the rest repairs or upgrades that come through.

Alexis: 12:15
Mm-hmm (affirmative)

Vinnie: 12:16
So if the shop’s not crowded, because space was one of my challenges, I can space more people out when they want what they want from us, and it keeps the cash flow going. There's two really important parts of this industry, one is that the people that have the cash want the car now, the people that don't have the cash, you have to slow the project down. They might have an annuity or they have a fund or whatever and they can afford a certain amount per month.

Alexis: 12:41
Mm-hmm (affirmative)

Vinnie: 12:41
And we'll do that. We'll space cars out, we'll speed cars up, and move them back and forth. So we could have a car that could take, like this car, that took just about 12 months to build. While we have another car that's been here for three years. How do we decide what cars to take in?

Alexis: 12:57
Mm-hmm (affirmative)

Vinnie: 12:58
It's the customer.

Alexis: 13:01
Really. And so it may seem counter intuitive but it is important to sort of fire, or preemptively fire a bad customer, to turn down business-

Vinnie: 13:09
Oh yeah I learned that in construction.

Alexis: 13:10
Yeah.

Vinnie: 13:10
Yeah.

Alexis: 13:11
So what does that look like?

Vinnie: 13:12
We used to have a declination letter for construction, that I would say "Hey thank you for allowing us the opportunity to be on your project, as Kingdom Construction is not for every customer, every customer is not for Kingdom Construction.”

Alexis: 13:24
Oh you'd tell them straight up?

Vinnie: 13:25
Yeah we'd just tell them, "this is not the right place for you."

Alexis: 13:30
What is the behavior, or, how do you know a red flag customer? I wanna make sure I'm not-

Vinnie: 13:35
Someone who comes in, first red flag is "My car's been sitting in another shop, and hasn't gotten done." So the first red flag is "Okay, well have you been paying", because there's a reason why it's sitting there.

Alexis: 13:46
Yeah.

Vinnie: 13:47
So there's a lot of bad shops out there, there's more bad shops than bad payers.

Alexis: 13:52
Okay.

Vinnie: 13:52
So the second red flag is, does the customer speak to us like he knows exactly what's going on, and yet the words you're saying make no sense whatsoever in building a car. Which is the worst person because you can't teach them. You can't say "Hey we have to do this because of that."

Alexis: 14:08
Yeah, it is a hard thing but an important thing to learn early in business about declining customers. Because it seems like the last thing you wanna do when you're just trying to get off the ground, but it is so important, so so important.

Vinnie: 14:22
When you're getting of the ground, when you're a fledgling business you wanna get as many customers as you possibly can.

Alexis: 14:26
Mm-hmm (affirmative)

Vinnie: 14:29
So, my advice in that area is, stick to what you know. Don't get customers that want you to build a whole car, when you're just a really good welder, and you know how to put panels on.

Alexis: 14:41
Yeah.

Vinnie: 14:41
Get customers that need panels put on.

Alexis: 14:43
Mm-hmm (affirmative)

Vinnie: 14:44
Okay? And get as many customers as you can and put on as many panels as you can.

Alexis: 14:47
Yeah.

Vinnie: 14:48
And as you learn more and more about the rest of the car, then expand.

Alexis: 14:53
This leaner business model meant big changes around the shop.

Vinnie: 14:56
I had a few people that I just... that won my heart, that I had to let go. They understood, they knew. I just explained to them that this is what we're doing, this is what we do, and for most of the better skilled employees we gave them the opportunity. We said "Hey listen here's the list, this is what you have to do"-

Alexis: 15:24
Mm-hmm (affirmative)

Vinnie: 15:24
"This is what we're looking for out of your position."

Alexis: 15:26
Mm-hmm (affirmative)

Vinnie: 15:27
"If you can fulfill this then you can move forward with us." I would say the last guy that I let go, was a guy that I really tried to help for many many many years, and he made some great leaps forward but some people are just stuck, and he was just stuck. And he just couldn't get out of his bad routines. He was a great tech, great mechanic, great attitude, great with customers. But he just couldn't get to work on time, he was on the phone, it was just drama all day long, and his girlfriend would steal his car, smash his windows, it was just, a non-stop barrage. And everybody tried to help him.

Alexis: 16:12
Right.

Vinnie: 16:13
He just couldn't get past it, and that was the hardest guy that we had to let go. After that, I think my business mind has taken hold, and now leads my emotional loving mind.

Alexis: 16:33
Wow.

Vinnie: 16:34
So I just look at my guys and say, "Okay this isn't working out, this is what we needed from you and it's not happening."

Alexis: 16:41
Yeah.

Vinnie: 16:41
"We appreciate your time with us but we're gonna let you go." Then what we started doing was as we were replacing people we were very very very picky. Everybody has to have a resume. I know it's all cars, I know you're a mechanic, gotta have a resume. You did something your entire life, or you went to school somewhere, you know, so you can't get an interview without a resume. I look for people that are stable when they come for an interview.

Alexis: 17:06
How would you describe the personality type of mechanics? Of car guys?

Vinnie: 17:11
Okay so there is two kinds of mechanics, there's know how's and blow how's.

Alexis: 17:17
Okay.

Vinnie: 17:17
The blow how's are the guy that try, and they accomplish some things because they're mechanically inclined, and then there's the know how's that actually got educated, and they took courses. And to get educated in mechanics if you're mechanically inclined is very very simple. You can take simple courses and get your certifications in individual sections of a car.

Alexis: 17:38
Mm-hmm (affirmative)

Vinnie: 17:39
And start to learn the whole process. Building cars from scratch is the same thing as building a house from scratch. You start a construction project, you put the people, the carpenters there, and the masons there, and you put everybody there and you give them a sheet of paper that has a bunch of lines on it, you know? They gotta see, in the dirt, what that house is gonna look like when it's done.

Alexis: 18:01
Mm-hmm (affirmative)

Vinnie: 18:02
It's the same thing with cars. So when I get a mechanic that really knows, we know within five questions, when we get a guy in for an interview, whether he's the real deal or not.

Alexis: 18:13
And that's a know how.

Vinnie: 18:14
Yeah that's a know how.

Alexis: 18:15
You want know how's and not blow how's.

Vinnie: 18:15
Know how's, yeah.

Alexis: 18:17
(laughing) I love it.

Vinnie: 18:19
Unfortunately in our industry, you know I grew up with chop rods. My high school had, you know we built, every freshman class that came in built a race car, and you built the whole entire race car your Freshman year, your Sophomore year, your Junior year and then your Senior year you campaigned it. You took it out racing and the teacher would drive it

Alexis: 18:39
Wow, I'm jealous.

Vinnie: 18:40
And it was a great shop, we had metal shops with lathes, and bridge ports and everything. Wood shops, they took all of that out of schools, so the kids aren't learning.

Alexis: 18:49
Yeah.

Vinnie: 18:50
But a lot of the kids out there still have, what did I say, they're mechanically inclined.

Alexis: 18:54
Yeah. I mean you see it at a young age too, little kids wanna take stuff apart and put it back together, and understand why why why. There was nothing like getting your hands on something.

Vinnie: 19:05
We have two young kids in here, that are my friends sons, and one of them came to me and goes "Yeah you know my dad really never lets me work on the cars, so I just took other stuff apart", and I'm like "What?", he's like "I don't know, a toaster", and I'm like "Well what'd you do with the toaster?", and he's like "Ah it just stopped working, so I took it apart and I figured it out, and I found what was wrong, and I fixed it, and it was awesome!" That's the kind of guy I wanna teach. Everybody wants to work on cool cars, you know what I mean? It's not hard to find somebody that wants to work here.

Alexis: 19:35
Mm-hmm (affirmative)

Vinnie: 19:36
But somebody that can, is very very difficult.

Alexis: 19:39
So there's a clear trend here about your own obsessiveness with quality and reputation, I suspect it's had a big impact on the success of Resurrection.

Vinnie: 19:49
Quality is important to everybody here, and it's important to them not as employees or mechanics or painters, it's important to them as men. They put their personality into these cars.

Alexis: 20:03
Mm-hmm (affirmative)

Vinnie: 20:04
You know, my lead mechanic Bruce. When we can't take a car out and get highway time on it, and get driving time on it, he's really mad that we're delivering the car. He's like "We haven't gone taken it out through its paces and made sure everything is right", even if it's a repair, an upgrade you know what I mean. So that's the type of heart that we have, and that's where the quality come from.

Vinnie: 20:29
Where does my joy come from, what I feel my reputation is? Putting my car in front of people. My reputation, what I care about, is when other builders come and see my car, and then they crowd around my car, and then they start pointing to the things we made in my car, and they appreciate what we've done. That's my, that's what feeds me. That does it you know, to say out there "oh yeah, go use Resurrection Muscle Cars." The reputation I understand that we have is that we're expensive, but if you want it done right, take it to us. And we have another car out here, guy came to us to build it, found a cheaper guy in Miami. Now we're tearing it down to nothing and rebuilding it again.

Alexis: 21:14
Doing it right.

Vinnie: 21:14
And doing it right.

Alexis: 21:16
Doing it right. Let's unpack that. He doesn't just mean doing the job well, because any business would claim that. He steadfastly believes in doing what he, as a muscle car expert and insider, thinks is right, without compromising. That might sound headstrong, but it's actually not. It's one of the most important lessons a founder can learn. It takes an extraordinary amount of discipline to say you're only going to do what you do best. Because that means sometimes you have to say no. And that's a lesson we usually learn the hard way, by doing too much. Saying yes when the right answer is no.

Alexis: 21:52
Vinnie took on every project, had way too many cars in his garage, and prioritized his personal mission to the detriment of his fledgling business. And when Resurrection faced imminent demise, Vinnie had a realization that anyone in business can benefit from. You can do anything, but you can't do everything.

Alexis: 22:12
Are we investing our time, energy and skills into things that we know better than anyone else? And more importantly, are we doing work that we are unequivocally proud of? If the answers to those questions are no, then empower yourself to get back to yes.

Alexis: 22:30
I'm Alexis of Initialized Capital, and you've been listening to Business Schooled. A podcast by Synchrony, please rate and review this show, and spread the word.

AVO:
Whether you’re a vintage car enthusiast like Vinnie, or your customers are simply looking to lift it, lower it, repair it or restore it, Synchrony Car Care is here to help. Offer 6 or 12 month promotional financing on purchases of $199 or more when you enroll with Synchrony Car Care at synchronybusiness.com/auto. Get started today!

episode_thumbnails_pc_richard

LESSON 7: Raising a unicorn

Farmingdale, New York

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AVO:
This is Business Schooled, a podcast by Synchrony. We’re here to help people and businesses grow into their future.

Alexis: 00:03
I'm Alexis Ohanian, co-founder and managing partner of Initialized Capital, and before that I co-founded Reddit. These days, people tend to think that all the innovation is happening by founders under 40, but while we millennials are grabbing all the headlines, baby boomers and Gen Xers have been busy building twice as many businesses. So I'm traveling the country to meet these OG entrepreneurs and soak up some essential business and life lessons. Hopefully you'll learn a few things too.

Alexis: 00:32
This is Business Schooled.

Alexis: 00:39
You're a first time CEO. You're only a few years into your tenure, and you're the fourth generation running your family's business. Your job is to steer a storied company into the future in an industry that's rapidly transforming. You see an appealing but risky opportunity to offer your customers a service that your suppliers and competitors have deemed too expensive and intensive to provide. Do you take the leap knowing it could be a major differentiator?

Alexis: 01:11
The answer is yes if you're Gregg Richard, president and CEO of P.C. Richard & Son. To understand why he was willing to roll the dice, you have to go all the way back to the beginning to 1909 when Gregg's great grandfather came to this country with a few cents, a big dream, and a set of values that have helped the company not just endure over the long term, but thrive. Even though it might sound like a fairy tale, it hasn't been easy. How did he help P.C. Richard & Son become a billion dollar business? I'm about to find out. It's time to get schooled.

Alexis: 01:51
Gregg is the great grandson of the founder Pieter Christian Richard, the P.C. of P.C. Richard & Son. I meet him in a vast warehouse on Long Island, New York. There's another equally huge facility across the road, but even here there are reminders that this giant firm started modestly in a tiny New York City hardware store.

Gregg: 02:14
Now we're in the service center, so you can see some of what-

Alexis: 02:18
It's old school. This one was-

Gregg: 02:19
-we use to sell.

Alexis: 02:20
-some vintage equipment here. Purchased at a P.C. Richard & Son Ozone Park 1949. Wow, that is an old TV.

Gregg: 02:29
That is [crosstalk 00:02:30].

Alexis: 02:29
That's got to be one of the originals. That's rad.

Alexis: 02:33
P.C. Richard was a Dutch immigrant.

Gregg: 02:35
Landing in Brooklyn from Holland, 50 cents in his pocket and doing odd jobs: delivering milk by horse and buggy, digging ditches, fixing bicycles.

Alexis: 02:47
In 1909, P.C. had a pretty busy year. He opened his hardware store and had a baby boy.

Gregg: 02:53
His son, AJ, second generation, worked in the business at a very young age, never graduated high school, dropped out in the ninth grade, and really took the business to another level. Started selling the first irons, the first refrigerators, and first of everything. Started with the radio, the black and white television, and AJ would have the black and white television playing in a window, and people would be lined up on the streets of Brooklyn watching the Friday night fights and hoping that somebody would come in and buy one.

Alexis: 03:31
Mass production was making such appliances more affordable to the average consumer, but still not exactly cheap.

Gregg: 03:38
My grandfather really started credit, right? So back in the 30s when somebody didn't want a refrigerator they had an ice box, right? He would say, "I know you don't want that. I know you can't afford it, but take it. Come back at the end of the month, pay me 50 cents." I say he truly started the credit business in our industry. We even have cards where we would write Mr. Smith, 50 cents this week. Mr. Smith, 25 cents still owes me $18. We say our business is wants and needs. Everybody wants a big TV. Everybody needs a refrigerator. And sometimes your need of a refrigerator might come at not a great time for you, right, financially, so you're not expecting to spend $700 next week to get a refrigerator.

Gregg: 04:34
You know, you're saving 50 cents at a time, a dollar a week, until you get this in your home, and you're thrilled. We offer credit. We offer credit through Synchrony. We have over a million cardholders, but I like to say my grandfather actually invented credit in our industry. Now it's a sophisticated business of course, but-

Alexis: 04:57
Wait, so he was not even charging interest?

Gregg: 04:59
He was not even charging interest.

Alexis: 05:01
Wow.

Alexis: 05:02
AJ's decision to cut his customers the best deal possible has seeped into this retailer's cultural DNA.

Gregg: 05:08
The only rule we ever have is make sure the customer is the winner.

Alexis: 05:18
For those who don't live in the northeast, P.C. Richard and Son has the feel and personality of a local business, but it's become ubiquitous in the New York metropolitan area with 66 show rooms, sponsorships of almost every major professional sports team, and that famous jingle at the end of every commercial. Though it was still as connected to the community as ever under Gregg's dad, it had grown enough to catch Wall Street's attention.

Gregg: 05:44
There was a time in the 90s that my dad, third generation, we were very close as a company to going public, and literally the day before at nine o'clock at night we were going public on the markets ringing the bell in Wall Street. He called me and said, "We're not doing it. We're done. We're not doing it. I'm not selling the company. It's not about the money." One of the best decisions we ever made, right?

Alexis: 06:16
Shareholders, quarterly earnings, and dividends aren't just another set of worries. They're competing interests with the purpose of the business, helping local families and customers with their needs. P.C. Richard & Son was where Gregg grew up. Selling shares would have been like putting the family home on the market.

Gregg: 06:34
My dad used to work Saturdays and he would bring me and my older sister to work and cousins would probably be running around too, and we were four, five, six years old and do different things, and we'd be in somebody's office dialing my sister in the next office playing office and kind of just imitating what my dad was doing, and my grandfather. Then, you know, growing up older maybe I'd be pushing a broom. I'll never forget my father grabbed the broom. He said, "No, that's not the right way to sweep. This is the way to sweep." Now looking back I could say, "Dad, I'm eight years old. I don't know how ... All right. Now I know how to sweep properly," you know?

Alexis: 07:17
Having mastered sweeping, Gregg learned the rest of the business, eventually becoming president and CEO. He painstakingly planned and funded a growth strategy that saw P.C. Richard & Son navigate a rapidly changing retail landscape.

Gregg: 07:31
Here's P.C. Richard & Son 109 years young, four generations, in the fifth. We deliver, we install, we have all the major brands. We have finance, 12 month, 24 month, 36 months. We have the best sales people, best displays, best selection, and oh wait, we guarantee we'll always have the lowest price. If you ever find it lower, we'll match the price.

Gregg: 08:00
Now, why would somebody not want to buy from this family owned, unbelievable American success story, keep it local, keep it family? You know, we reinvest back into the communities, and that's what we're all about.

Alexis: 08:16
To stay ahead in an on demand world, Gregg has created a finely tuned infrastructure of warehouses, delivery vehicles, and installation teams that offer his customers a seamless and seemingly unrivaled buying experience.

Gregg: 08:29
Our customers care about having their refrigerator delivered tomorrow. You know, having their dryer installed tomorrow, the same day we deliver it. Our customers expect that if they have a problem we're going to take care of it.

Alexis: 08:46
This sounds simple. You buy a washing machine or a tv, and if I breaks, you expect it to get fixed, but who actually fixes it? For a long time, the manufacturer would come to repair that machine until the manufacturers stopped employing their own trained repair technicians and started outsourcing that service.

Gregg: 09:06
One by one they decided it's not a profitable business. We don't want to be part of this business. Let's back out of it, and let this independent network of servicers handle it.

Alexis: 09:20
So the quality suffered.

Gregg: 09:21
Exactly.

Alexis: 09:22
So instead of just relying on my manufacturer's warranty and service, you know, I could still make that call, but the odds of when someone was going to show up varies, and the quality of the work was going to vary, and-

Gregg: 09:33
Couldn't have said it better.

Alexis: 09:34
Okay.

Gregg: 09:35
Exactly right. They wouldn't show up, they didn't have the part, they didn't know how to fix it. They didn't show up at all.

Alexis: 09:41
The bar has never been higher for amazing user experience. Software and apps have trained us as consumers to expect simplicity, immediacy, and seamlessness. Early on in his tenure as CEO, Gregg spotted a critical flaw in his industry's user experience.

Gregg: 09:57
Then, we made a pretty bold decision in 2006 to get into the appliance service business. It was a very difficult decision, lots of hours and days and months thinking about it.

Alexis: 10:14
P.C. Richard & Son had decided to fix every device they sold in house. From the customer’s perspective, that's common sense, but for Gregg, this was an expensive and complicated endeavor. It involved a skilled workforce, processes, pricing models, and logistics. He had to start somewhere, and sought out the highly trained workers who had just been let go by the manufacturers.

Gregg: 10:38
They put 80 something talented technicians on the street and out of work. So we had no idea what we were doing. We were never in the service business. We talked to some people, some of the managers, some of the technicians, and we wound up hiring 13 the first day. We wanted to hire 12, but we hired 13. He still works here today. He's actually one of our supervisors over there. I always kid with him. He's lucky number 13. That's how we got in the service business, and we slowly grew it, built out our own systems, own programing, and it was one of the best decisions we ever made.

Alexis: 11:21
But remember, the massive appliance manufacturers found servicing an unprofitable business. Gregg stood zero chance of making it into a cash cow.

Gregg: 11:30
So financially it's not viable, right, but we are in a lot of businesses because we know long term for our survival and to take care of our customers we have to be. Listen, at the end of the day, we're in the business to sell refrigerators and washers, appliances, mattresses, and televisions, all electronics. We're in this for the long term. It's not a ... Yeah, service we lose money on, but if it gives our customer a better experience and if we can earn the right to have the customer walk in our door, then it is a win.

Alexis: 12:10
Mm-hmm (affirmative).

Gregg: 12:12
Listen, in my mind I think manufacturers should have thought that way too. If I'm buying a washing machine and I'm not getting great service I might not buy that brand again.

Alexis: 12:23
Especially if it's a fairly infrequent purchase, right? You're not going to buy a washing machine every six weeks hopefully.

Gregg: 12:30
That's correct.

Alexis: 12:32
So you'd think you really want to make it a great experience.

Gregg: 12:36
And for everything else in your kitchen. I might have bought a washer, but now I need a dishwasher, refrigerator, stove. You know, and of course people tell friends and relatives and neighbors. With the way the world is now with social media and the internet of course it's not telling somebody over dinner you had a bad service experience. Now they literally tell the whole world.

Alexis: 12:59
This is a brutally hard business, and the competition is cutthroat. What Gregg had realized was that being there for the customer, especially when they had a broken laundry machine full of dirty clothes, was worth all the money and hassle of being a delivery service, an installation service, and a repair service on top of being a retailer.

Gregg: 13:18
It's one of our sayings...while you're standing in front of your purchase, P.C. Richard & Son is standing behind it.

Alexis: 13:27
Doing something unprofitable in the short term in order to thrive in the long term is the type of decision that the CEO of a public company would have been very hard pressed to make.

Gregg: 13:37
Truly if it were not for that moment none of this would mean anything, because we wouldn't be here, you know? Then, you're forced to grow. You're forced to do certain things shorter term that wouldn't have been right for our business. Maybe the service was not right for our business, right? Here we are. We make decisions for one thing, long term, take care of the customers, our employees, and our manufacturers.

Alexis: 14:03
Gregg especially frowns on the idea of upselling, where unscrupulous sales teams push customers into making more expensive purchases that they don't need.

Gregg: 14:12
We have never chastised one of our employees for taking care of a customer ever. They ever make a decision and the customer is the winner, then we're good with the decision. You know, I say it's common sense. Customers don't have to come to us to buy. I don't really care what they buy as long as it works for their family. You need a big washer, you need a small washer. You need extra speeds, you need low speeds. You need a big refrigerator, it really doesn't matter to us, right? We're only there to create the relationship, understand what their home life is like, how they're using the product they're going to buy to guide them in the right direction.

Alexis: 14:53
Gregg's a modest guy. He talks a lot about his grandfather and great grandfather lacking a formal education.

Gregg: 15:00
We are a bunch of people. I kid and say if we were ever smart we'd be dangerous. If we ever knew what we were doing, we'd really be dangerous, right? We think of it as common sense. Sometimes I think an MBA, it might complicate things. You might analyze things too much. We don't have to analyze it. Does the customer win or do they not? Period.

Alexis: 15:25
Over the last 109 years, Gregg's family has mastered the art of maximizing lifetime value. All right, I'm nerding out here, but bear with me. This business term has become so important these days that it even has a nice little acronym, LTV. It pretty means what it sounds like, the net profit accrued over the lifetime of a relationship with the customer. It hinges on how you plan to keep the customer coming back again and again.

Alexis: 15:52
As the managing partner of Initialized, I sit through a lot of pitches and see countless slides of predictions of LTV from tech founders, but it's Gregg and P.C., who have written this playbook without even realizing it. They did it intuitively putting the customer first even when it hurt the bottom line. They were accountable, honest, and always incentivized their employees to take care of the customer before worrying about a sale. It's committing to these simple values over time that have made P.C. Richard & Son a unicorn on Main street.

Alexis: 16:32
It's also what makes them brilliant at what they do even without that MBA that Gregg likes to joke about. If there's one thing we should take away from this story, it's this: It doesn't matter what kind of business we run. If we want to be around for a long time, never compromise the values that made us successful in the first place.

Alexis: 16:54
I'm Alexis Ohanian of Initialized Capital, and you've been listening to Business Schooled, a podcast by Synchrony. Please rate and review the show and spread the word.

AVO:
If you run a business like Gregg Richard, you know how important it is to meet customers’ needs. And when it comes to helping your customers pay for whatever they want and need in life, Synchrony helps make that part a lot easier. Our financial solutions, payment technologies and data insights can help build customer relationships that last generations. Meet us at synchrony.com.

episode_thumbnails_alexis_chris

LESSON 8: Minding your dad’s business

Baltimore, Maryland

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AVO:
This is Business Schooled, a podcast by Synchrony. We’re here to help people and businesses grow into their future.

Alexis:
I'm Alexis Ohanian, co-founder and managing partner of Initialized Capital, and before that I co-founded Reddit. These days people tend to think that all the innovation is happening by founders under 40. But while we millennials are grabbing all the headlines, baby boomers and Gen Xers have been busy building twice as many businesses. So I'm traveling the country to meet these OG entrepreneurs and soak up some essential business and life lessons. Hopefully you'll learn a few things too. This is Business Schooled.

Alexis: 00:00
Over the course of the past seven episodes I've traveled the country to meet these brilliant. But there is one baby boomer entrepreneur I have not talked with yet. One who I probably should have talked with a long time ago back when I was starting my first business. When I was just a kid. His name is Chris Ohanian. And if the last name sounds familiar that's because he's my dad. I'm sitting down with him today to talk about some things that we have never talked about before. It’s time to get schooled.

Alexis: 00:35
All right. Well I'm here with my father, the OG of OG entrepreneurs in my life. Chris is the founder and CEO of Infinity Global Travel. It's a travel agency. In 2018. Still going strong.

Chris: 00:50
Absolutely.

Alexis: 00:51
Congrats dad.

Chris: 00:51
Thank you.

Alexis: 00:52
Tell me a little bit about the business.

Chris: 00:54
Infinity Global Travel, I like to say the small travel agency with a big name. And we service a variety of corporate and leisure vacation clients. Very traditional. With the backdrop of competing with the big online travel agencies. But we've got a niche that works very well for us. Very service oriented.

Alexis: 01:19
How long's this business been going for?

Chris: 01:21
We just recently celebrated our 20th anniversary.

Alexis: 01:25
20th anniversary.

Chris: 01:26
Yes.

Alexis: 01:27
Wow. And you started this in the middle of the dot com boom.

Alexis: 01:57
Clearly this is still a part of the travel business that has strong demand because for business travelers and probably a select type of leisure travelers, they don't have the time or the interest to go through all the searching themselves.

Chris: 02:15
Yes. The time that it takes or the expertise or they perhaps just can't be bothered and prefer turning it over to someone like myself to handle all the minutiae, all the details.

Alexis: 02:29
And I even still ... I mean I obviously love searching for flights on the internet. But there are still routes where ... I mean going to Armenia for 24 hours and flying into Yerevan is not the simplest proposition. And there's a lot of airlines that fly there that I've never seen before that I'm a little skeptical of. And you actually just helped us out back last April when we were trying to get there.

Chris: 02:54
Right. Yes I recall that.

Alexis: 02:56
And there’s a comfort that comes with being able to trust someone who just knows better. But when I come calling for help on a flight, does some part of you kind of laugh to yourself and say ha, ha, ha, still need me?

Chris: 03:16
No. That's not the case. And there's clients like that that we don't hear from necessarily a lot but then there's occasions when they're in need. And it's always a feel good because say what you will about the changes in my industry, people like myself, and I'm going on almost 40 years of experience now, there's acquired knowledge as well as staying abreast of ongoing changes. In any business there's always ongoing changes. So having the history plus the experiences you have from taking care of other clients, reading stuff in the trades, getting emails from vendors, et cetera.

Alexis: 04:00
Mm-hmm (affirmative). So 40 years you've been doing this, been in travel.

Chris: 04:03
Almost. Well, 38. But yes.

Alexis: 04:04
We'll round up. But now majority of that time, more than half the time you've spent as an entrepreneur.

Chris: 04:10
True.

Alexis: 04:10
So for the first couple of decades though when you were working for the man, was your dream to be in travel?

Chris: 04:18
Not initially. No.

Alexis: 04:20
How'd you get that job?

Chris: 04:21
When I got out of college I didn't necessarily have a lot of clear direction of what I wanted to do. I got a job as a draftsmen in a naval architecture firm in lower Manhattan, the financial district. I did that for two years and I was incredibly bored. And I realized this is not a future for me. So I took it upon myself to write an introductory letter and I attached a news clipping from a newspaper in Albany that mom and I had been written about. About our travel experiences.

Alexis: 04:52
Wait, a newspaper in Albany wrote about your travel experiences?

Chris: 04:56
Yes. I submitted an intro letter. A random mailing to 50 travel agencies in Manhattan. And I got one lady who was genuinely interested. I interviewed. Hired me.

Alexis: 05:09
But why did you send this letter to 50 travel agencies? Because you were like I like travel, so I would like being a travel agent?

Chris: 05:16
Yes. And back then most cases one went to a "travel school" for perhaps six months, 12 months to learn how to use an OAG, official airline guide, and all these other techniques to schedule and book. And what I was looking for was someone to directly hire and train me in being a travel agent.

Alexis: 05:37
Why do you think she took a chance on you to train you and go through all the trouble?

Chris: 05:42
Who knows? Personalities click at interviews and basically she was a two person operation. Luckily she had the patience to train me. This was before computers were involved pretty much in agencies. So you're on the phone. You were taking notes and these OAGs, the official airline guides looked like New York City phone books of fine tissue paper with airline schedules for North America and one edition for the world.

Alexis: 06:12
So if someone wanted to book a flight from New York to London you'd have to get out the phone book, so to speak, and flip through the pages and-

Chris: 06:18
And make notes and call each carrier to confirm and then hand write airline tickets.

Alexis: 06:24
Wait. If you wanted to go to Vegas you could hand write yourself a ticket? Take it down to LaGuardia and be like "Here you go."

Chris: 06:33
You had these airline plates that you would validate the ticket on. It was tedious. It was time consuming no doubt. The whole process was time consuming. The phone work, the writing.

Alexis: 06:45
That sounds terrible.

Chris: 06:47
It was a pain. Yes.

Alexis: 06:48
Okay. So was there some part of you that thought if you were a travel agent you just get to travel all the time?

Chris: 06:55
I knew that I'd always loved traveling so try to find a job that you enjoy doing, as people often say.

Alexis: 07:11
And I remember those familiarization trips. Fam trips.

Chris: 07:15
Fam trips. Yes.

Alexis: 07:16
And they seemed really cool because I was a little kid and I went on a couple I think. There was a boat one down Bahamas?

Chris: 07:25
Yes. The ship we went on, it was a three day down to Nassau. And they had the actual Disney characters on board.

Alexis: 07:35
Oh, cool. So I got to hang out with Mickey and Pluto?

Chris: 07:36
Oh gosh. And you were four, five perhaps, that age. So it was outstanding. We hardly saw you during ... We saw you mealtime and then you were gone.

Alexis: 07:46
Sounds like the perfect vacation.

Chris: 07:54
There used to be a lot of that.

Alexis: 07:57
In the glory days.

Chris: 07:59
Yeah. And those have kind of gone by the wayside. The industry's changed a lot and so be it.

Alexis: 08:05
So the industry was ... Things were probably going well and then at some point you all are looking at public school options in Brooklyn and you start thinking about why not live in Queens and then start thinking about eventually moving here outside of Baltimore.

Chris: 08:22
Correct. This was the fall of '86. We packed up a moving truck. I had no job waiting down here. We moved into an apartment and then I just started going through the classifieds and getting interviews lined up.

Alexis: 08:39
Did you have that article from the Albany newspaper that you were attaching to your resume?

Chris: 08:42
Probably not at that point.

Alexis: 08:44
And then you got a gig. It was downtown Baltimore wasn't it?

Chris: 08:47
Yes. And during this time I was the lead agent on this corporate account.

Alexis: 08:56
Evapco.

Chris: 09:05
They're a manufacturer industrial cooling equipment and refrigeration. I was the lead agent on this account for years and you develop a rapport, a relationship. Then I changed agencies, they followed me. And then a past president of the company approached me about this thought of going into business for myself and opening an agency within their corporate headquarters building. So going out and being an entrepreneur and starting my own business was not something that I had sought out.

Alexis: 09:39
You risked a good bit too. I mean just to say that right there. Main client of yours, you know there's revenue coming in.

Chris: 09:45
Yes. There was a foundation of business. And the fortunate thing, because I've never been one to make decisions of that magnitude quickly. And he gave me about three or four weeks. We met late December, maybe just before Christmas, and we agreed I could wait until after the Super Bowl to give him my answer of yes or no. A month or so. And I went back home and spoke to mom. And her attitude was always like "Yeah Chris, what have you got to lose? If it doesn't work you'll get another job as a travel agent doing corporate travel." Which was my niche. So I accepted and went with it.

Alexis: 10:23
That's great. And these were also different times right? Because back then you could make money as a travel agent on a commission. Because the airlines would actually pay you a percentage of the ticket. Is that right?

Chris: 10:33
Correct. And we received commissions from cruise lines, hotels, but the airline stream was critical because that peaked at 10% commission for most carriers and then slowly they started diminishing the percentage to nine, eight, seven, and that revenue stream started to slowly dry up.

Alexis: 10:56
And this is the same time of these online travel agencies and they're basically trying to cut out the middle man. I mean this is a cornerstone of revenue that you've come to expect. You've known it for a couple decades as like this is how the industry works. Now in the span of a few years that is shifting drastically right at the time when you're starting your own business. How did that feel?

Chris: 12:19
So we had to start charging service fees, which was uncharted territory for travel agents.

Alexis: 12:33
And I remember one story in particular, which I hope you'll let me ask you.

Chris: 12:37
Yes.

Alexis: 12:39
Where you came home from work one night, I think this was right after the first airline took commissions to zero.

Chris: 12:45
Okay.

Alexis: 12:46
And you sent them a fax.

Chris: 12:47
Well, I'll tell you what the story was. We had carriers finally going to zero and that was like the final ouch. And one day I was at work ... I'm trying to think when this was. Maybe a couple years in. Perhaps around 2000, where we were getting to this point. And I received a fax and-

Chris: 13:00
It was this long drawn-out, full-page statement about why they had to do this. As opposed to just put it out there. Just say what you're doing.

Chris: 13:16
So I took the fax, and I took a black Magic Marker. I wrote in words FU on it, and I faxed it back. Incredibly silly and just upset. The second part of that was that the fax was sitting on my desk. And one of the founders of EVAPCO came in to book a trip. And he looks at the fax with these big scrawled, these two words, and he goes, "Chris." I said, "I know. I know." I gave him the back story.

Chris: 13:50
This is a gentleman, 20, 25 years older than me. Very serious, kind of conservative attitude, and he just said, "Okay, I get it." I talked about it like somebody would about their business. You do what you do.

Alexis: 14:08
I loved hearing that story as a kid, and it also really for me, it crystallized what I was doing for fun at the time, building websites and spending a lot of time on the internet, it crystallized for me that this was a pretty transformative technology, and that this thing I was doing for fun, I think I could do professionally. I always want to make sure that like -- I don't want to ever hopefully be on the receiving end of one of those faxes as a business person.

Alexis: 15:21
One of the things that I really appreciated was that as an entrepreneur, I never once heard you say like, "This is unfair." Even though you could make a case that it is. It wasn't about complaining about the circumstances. It was about adapting the business and moving forward. I feel like there are lots of people in lots of industries that get paralyzed in trying to keep things the way they were, so they can preserve their business.

Alexis: 15:49
Then there's the alternative, which is, look, the world is changing. We need to adapt and this sucks, but that's what I signed up for as an entrepreneur. That's why I got into business is because that's what this is about.

Alexis: 16:02
I'm curious though. It must have been hard. You were, Mom was working at the time, but I assume a majority of the money that was putting food on the table like is coming from you and the long hours.

Chris: 16:17
Yes, those first few years were challenging in business. But it's well put, what you had previously just said about the things that can occur in business that impact you, and you need to rise above. You need to adapt, and you need to do your best. My business, service, over and over again is the key word. If you do it well enough, then referrals that come by word-of-mouth will come your way.

Alexis: 16:55
Were there moments though when you worried about keeping the business open?

Chris: 16:58
Yes. A significant challenge for us, as was true with most travel agencies, was post-9/11. We started seeing during that balance that year into '02 the closure of a lot of travel agencies because people were not flying for probably a good year. There was a tremendous drop.

Alexis: 17:20
It's funny. I actually remember flying out of principle because I felt like, one, this is probably statistically the safest time to be getting on an airplane, and two, because I didn't want them to mess with my way of life. But I hear you, like coming on the heels of the dot-com explosion and then crash, where most of these agencies are probably already teetering.

Chris: 17:42
Right.

Alexis: 17:42
I had a certain cushion of capital within the business checking. That was really fortunate, and so we could coast. We coasted for about 12 to 18 months probably and lived off of that. Just tightened up everything that we were doing.

Chris: 18:08
We rode through that, thank goodness. It could have been a real significant problem. There was a lot of consolidation. Travel agents went home-based to eliminate the overhead of a storefront, and people got out of the business. When that occurs in an industry, the survivors can benefit from the folks that just have had enough and walk away from the business.

Alexis: 18:32
Do you have advice for other risk-adverse people who want to start a business, probably a few of them listening to the podcast?

Chris: 18:37
Yes.

Chris: 18:43
I was very fortunate because a daunting thing is overhead considerations of costs. Now as I see, a lot of businesses can be home-based, dwelling-based, online, or to start small, where you don't put yourself in a hole financially early. A lot of what I learned during these 20 years was through trial and error. I knew the travel business, but not how to run a small business. Whether it's how to find the right accountant to service your needs, et cetera.

Chris: 19:19
But you see some businesses where people from the get-go will have these large capital investments into what they're going to do. For me personally, that would be uncomfortable.

Alexis: 19:33
Too much risk and uncertainty there on the line to start?

Chris: 19:36
Yes, early. Everybody does it a little differently. What is your comfort level? When you go to bed at night, are you at ease? You don't want to be thinking about those things.

Alexis: 19:47
We definitely see in early stage investing. We see the companies get fat off of raising a lot of money early, and then even the nature of the business, the culture of the business, reflects that. A lot of money is spent on really nice offices and on other perks and things that it wouldn't necessarily stop you from being successful. You can be successful and do those things, but when you start out that way, it also starts to set a culture in motion that is hard to wind back that isn't around thriftiness. That isn't around focusing and obsessing on cost savings, and plenty of startups fall into that trap because they get a little bit of money through investment. You've kept this a small business.

Chris: 20:29
Yeah, very much so. [00:20:30] Yes.

Alexis: 20:30
Has there ever been interest in franchising it or scaling it.

Chris: 20:35
No. It's not what ...

Alexis: 20:36
Or growing it or having a thousand employees?

Chris: 20:37
No, and I'm very comfortable. It's a two-person operation, myself and my one employee, Carolyn, and that has felt very comfortable.

Alexis: 21:40
Is there one thing you'd attribute in particular to the success you've had as an entrepreneur, and what is it? Especially in the face of all this competition?

Chris: 21:47
Yeah. There's one word. Relationships. In business, relationships become critical. There's different types of relationships. We have a client base that comes back over and over again. Well, if you didn't have good relationships, if you weren't proactive about issues or stay communicating all the time, whether it's a corporate client or, yes, there's more repetitive interaction, or a leisure client that you maybe only do a trip for once a year, relationships are so important in business. I wouldn't have my business today if it wasn't for the relationship that I had where they'd known me well enough to say this was a worthwhile endeavor on their part.

Alexis: 22:39
Do you think that it's helpful that because so much commerce now happens on the internet and because it is devoid of relationship, do you think that actually makes it more valuable because it is more rare?

Chris: 22:54
Yeah. You have these large OTAs, online travel agencies. God forbid if you'd want to call them. Call who? I hear stories, and I'll read things, and someone has purchased some travel arrangements online, and then things don't quite go the way they had hoped. They're looking for satisfaction, for a resolution, and they're not always getting it. They're making a purchase based on bottom line cost without a consideration of what kind of support they might get when things are not always going well. When they're overseas and suddenly they need to make a change in arrangements because something's going on back home, and they need to cut their plans short. Who are they going to speak with, and how are they going to speak to that person?

Chris: 23:45
You know, relationships are huge on every level. It's a point that you brought that's well taken that no matter what your business is, if you don't maintain those good relationships, you're going to have a weak foundation for your business.

Alexis: 24:05
Did we talk a little bit before I founded Reddit? I feel like we talked about ... I knew y'all were very supportive of My Mobile Menu, or MMM, which was going to let people order food from their phones. They wouldn't have to wait in line. I remember telling you I was going to do that. I remember we were at Strapazza in Columbia when I told you I didn't want to go to law school, when I wanted to start a company. Do you remember this?

Chris: 24:32
Vaguely.

Alexis: 24:32
I'll never forget it.

Chris: 24:33
Okay.

Alexis: 24:34
I pitched you both on it. You kind of looked at me. You paused, and without missing a beat, Mom was like, "Oh, yeah, that's wonderful."

Chris: 24:40
Yes, yes, I can see that.

Alexis: 24:42
But then you chimed in supportively, but yeah. That was a pretty big leap because law school was a good fairly safe thing to get into. I wanted to be an immigration lawyer and all this stuff, but decided I want to be an entrepreneur. Pitched you all on it. You were very supportive.

Chris: 25:21
Mom was very encouraging.

Alexis: 25:23
Blindly supportive.

Chris: 25:24
Yes, and I pretty much felt the same way because at your age, 21 going on 22, it was that same sort of thing of what do you have to lose? You're at a point in life where if you feel that desire, then you should go for it because you've got a window of time to recover or do something else if that is not successful. You were a single, young guy. Why not?

Alexis: 26:10
Lots of female entrepreneurs get asked how they balance family and work.

Chris: 26:15
Mm-hmm (affirmative)

Alexis: 26:17
It's something ... Now that I'm a dad and a pretty public dad, I've gotten asked it a couple times, and I like when I get asked it. I think I get asked it almost pointedly because people want to show that we should be asking men this too. But how did you find entrepreneurship as a balance to family life, and how were you able to balance those things? Obviously, still working long hours but making time for football on Sundays.

Chris: 26:45
Sure. You probably had just started high school when I launched it, and I knew going in that this would take a lot of my time. I did not take a day off for a little more than two years, and I remember our first vacation was December of 2000 and we went to New Orleans for about four or five days between Christmas and New Years.

Alexis: 27:11
Oh, yeah.

Chris: 27:13
It was great, and that was the reward for having really focused and kept my nose to the grindstone to get things up and going with the business.

Alexis: 27:22
Yeah, and I know for me, it's the only life I've known since college is that of an entrepreneur, which is a blessing, certainly when it comes to being your own boss and having control over one's schedule. In 2005, a few months after I graduated college, I start Reddit. Mom gets diagnosed with this terminal brain cancer, and I know how valuable it was for me to be able to come down from Boston and spend time. As long as I had my laptop, I could basically still work. But also for you, Carolyn really stepped up in the agency-

Chris: 28:03
Yes.

Alexis: 28:03
And you were able to be there as an advocate for every single hospital trip, every chemo, every surgery. Everything, you were always there.

Chris: 28:13
Sure.

Alexis: 28:14
That's I think one side of entrepreneurship that is hopefully for most people nothing they ever have to endure, but it is I think one of the blessings of it. Can you talk about that dynamic?

Chris: 28:26
Yes. I

Alexis: 29:08
Mom got diagnosed September '05.

Chris: 29:31
I was able to devote many hours to taking Mom to visits and hospitalizations, et cetera, et cetera. That was something that I was extremely fortunate .... because otherwise, I don't quite know how I would have handled that period. But because I had my own business and I was an entrepreneur, as you say, I was fortunate that I could devote time, and support her, and be with her throughout that, and that's invaluable. That's something that you can't put a value on but is huge.

Alexis: 30:14
Mm-hmm (affirmative)

Chris: 30:14
Yeah, very much so.

Alexis: 30:16
We are both dads now.

Chris: 30:18
Yes.

Alexis: 30:19
And you're a grandfather now. What advice do you have about balancing life and business?

Chris: 30:26
Yeah, that can be tricky. From what I see, that people of your generation seem to be pretty aware of the benefits of not sacrificing the family relationships, and it's huge. I'm thinking about that show Mad Men that was set in the '60s where these men, predominantly, would work these long hours-

Alexis: 30:54
They weren't always working.

Chris: 30:55
This is true, and particularly in that program, and not devote a lot of time to their families, which is not a good thing. A relationship, obviously, is a very important aspect of one's life, but then when you have a child and/or children, those years can go by pretty quickly. You don't have a lot of time, per se, to build on those relationships. And then the children grow up, and then they start their own lives.

Alexis: 31:34
What is the most important piece of advice that you'd give me about Olympia?

Chris: 31:39
Oh, gosh. As far as I can tell, you're doing all the right things. Yeah. It's just the spending the time together, whether it's cooking breakfast on a Sunday morning, and I used to enjoy those weekend breakfasts.

Alexis: 31:54
That was a dad tradition.

Chris: 31:55
Yeah, and it's kind of a stereotype, but it's great. I love it, the dad doing breakfast on the weekends. Whatever it is, it's just time spent together: playing, talking, reading, et cetera, et cetera. Just keeping that as part of your focus, so I think you're doing a great job. That's evident. Yes.

Alexis: 32:21
Thanks, Dad.

Chris: 32:22
Yes.

Alexis: 32:24
I thought you did a great job, too. I'd say nine out of ten.

Chris: 32:28
Yeah? Well, I don't know.

Alexis: 32:30
You got to keep room to grow, but-

Chris: 32:32
Maybe a seven or eight.

Alexis: 32:34
Wow, really? Why only a seven or eight, Dad?

Chris: 32:38
Oh, you always can be better.

Alexis: 32:39
I'm in a very competitive household, so-

Chris: 32:41
Oh gosh.

Alexis: 32:42
Ten out of ten is what we're striving for, so I feel like nine out of ten is still-

Chris: 32:44
Yeah, yeah. That's pretty great.

Alexis: 32:47
Still pretty good.

Chris: 32:48
Yes.

Alexis: 32:49
Like any person ever, sometimes it's hard to admit that your parents or people your parents' age might know a thing or two that we don't. But here's why I spent time with Dad and other founders his age: Millennials are actually the least entrepreneurial generation in modern history when it comes to starting businesses, and I want to change that. I'm constantly looking for ways to help the entrepreneurs I invest in as well as inspire other people to get started.

Alexis: 33:16
But without knowing it, I did adapt to my dad's playbook. Even though I've never spoken with him about business per se, I learned things from him that I carried into the way I do business and the way I see the world. For instance, adapting the business no matter what, but also not complaining about the fact that, yeah, the free market is brutal and it's going to change. And if you don't change with it, you're going to be left behind, and that's something I've always tried to do in all the businesses that I've started.

Alexis: 33:44
Similarly, he looks at relationships as being things that he can add value to always, and over the long term, build really human, genuine connections with people that I've found pay tremendous dividends in the long-term.

Alexis: 33:58
My dad didn't build a billion-dollar company. He's not labeled as a management guru. He's actually really risk-averse, but that's because there isn't one-size-fits-all when it comes to being an entrepreneur.

Alexis: 34:10
If you look back on what's made these founders successful, you can see how my generation has been busy adapting and adopting their moves, like with Gregg and P.C. Richard & Son. I've got young founders pitching me on their startup’s ability to generate lifetime value, and this buzz-y metric has become a really core part of almost every deck. Really though, it's common sense, and it came naturally to Gregg and his grandfather, who never graduated high school.

Alexis: 34:38
Or with Jenny Doan. She figured out an ingenious way of creating a feedback loop between content, community, and commerce that you see now in every modern direct-to-consumer retail brand. They're all trying to emulate it, but they probably don't realize Jenny started it.

Alexis: 34:54
Or look at Chuck. He's managed to be more and more profitable for 35 years in a row, yet think about how much he's spent investing in his employees, training them, and really deliberately trying to build a culture around music in order to create a customer experience that's unmatched anywhere, by any eCommerce titan. Now, that's a lot of overhead for a privately-owned regional business, but it's a model that's really paying dividends. It sounds a lot like big public tech companies when it comes to how he treats his employees, but he's doing it from Fort Wayne, Indiana.

Alexis: 35:30
It's funny, these lessons are as much about life as they are about business. The values and principles you live by are the exact same ones you should do business by. So if you're like my dad, go start something. Take all of that experience, patience, maybe some of those savings, and do it. And if you're just getting started in your career, I hope some of these principles will help. This playbook is being written right now and each entrepreneur brings something different to it, so go and write your own chapter.

Alexis: 36:01
I'm Alexis Ohanian, signing off.

AVO:
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