Episode 54: Should Small Businesses Have Boards?
Guests:
Paul Downs is founder of Paul Downs Cabinetmakers.
Jay Goltz is founder and CEO of Artists Frame Service and Jayson Home.
Stephanie Stuckey is CEO of Stuckey’s Corporation.
Producer:
Jess Thoubboron is founder of Blank Word Productions.
Episode Highlights:
Stephanie Stuckey: “We need guidance on how to run this company, and so I think it’s really important to have some outsiders brought in who can give a different perspective.”
Stephanie Stuckey: “He said, ‘Well, you do know you can’t just get a board member thinking that that’s free labor.’ And I paused, and I said, ‘I can’t?’”
Jay Goltz: “First I’m going to find out what cyber insurance is, and then I’ll see if I have it. And then I’ll see how much I’m paying for it.”
Paul Downs: “I’m in Vistage, and it serves the purpose of a board. I have people who know me well, and they’re not shy about telling me all the stupid things I’m doing.”
Full Episode Transcript:
Loren Feldman:
Welcome Jay, Paul, and Stephanie. Thanks for joining me today. We haven’t spoken with you in a few weeks, Paul. How’s it been going?
Paul Downs:
Well, I had a little surprise on Monday. I’m sitting in my office, and I get a phone call from a bank in Texas: A very nice lady on the phone who tells me that she thinks that my company is being used for PPP fraud. And she’s the fraud reduction officer, and she’s watching her client’s account get emptied bit by bit by scammers.
The client’s an elderly lady, and she has just seen two payments come in this morning—ACH deposits—that have my name on them. One’s for $118,000 and the other one’s for $22,500. And she thought she would just pick up the phone and see whether I knew anything about this. We went back and forth about the PPP thing, and since I’ve already gotten two loans, I thought that was unlikely. But she told me the name of the company she thought was the fraudsters who had initiated the transactions and said the name of them, and I was like, “uh oh, that’s one of my big clients.” Then I double check the amounts she gave me against payments we’ve been expecting—these were two invoices we’d sent to this client a couple of weeks ago—and so clearly, these payments had been diverted into an old lady’s account in Texas somewhere.
We looked into it further, and the payments had never passed through our hands. These are ACH deposits, so there’s information in the payment ticket about the initiating bank and the target bank. The initiating bank is my client’s bank, the target bank is in Texas. This stuff never never got to us, so it didn’t look like we were the source of the fraud. Long story short: $140,000. Now what do I do? So I called the owner of the client company that should have been paying us and told her all about it, and she kind of blew me off. She didn’t want to hear it. She was sure that it was us. She didn’t even seem to understand that we got paid by ACH, and she talked about having cut us a check already, and so that was bad.
One of the payments, the bank officer in Texas was able to reverse. The other one had landed in the old lady’s account, and she’d already cut a cashier’s check to cash for $52,000 and given it to somebody. Apparently you cannot reverse a partial ACH payment, so that money is more or less gone. Now I’m wondering how to get the owner of this company, who was supposed to be paying me, to own up to the fact that her accounting department is breached and that she still owes me money. So that’s how my week’s been going.
Loren Feldman:
That’s quite a story.
Jay Goltz:
Wow.
Loren Feldman:
So you have no idea what’s happening with the old woman’s account?
Paul Downs:
Well, it’s fairly likely that somebody compromised my client’s email account somewhere and was monitoring invoices going in, and then made a request—probably spoofing one of our emails—to change the routing number of the outgoing payment to this Texas account. I would guess that the scammers who are working the old lady are connected to other scammers so that they were able to identify particular payments and say, “Oh, please send them this place instead of that place.”
The whole thing violates about 10 million protocols about how you are supposed to deal with these things, and we’ve recently been going through a sustained effort on our end to upgrade our cyber security protocols, because we got notice from the Department of Defense last fall that every company that wants to get a federal contract is going to have to pass a pretty strict set of tests about how they’re prepared to deal with this kind of thing. As a matter of fact, we just got awarded a large contract from an extremely high level government buyer.
Loren Feldman:
Who was that, Paul?
Paul Downs:
I can’t say, sorry.
Loren Feldman:
We won’t tell anyone.
Paul Downs:
Yeah, no, sorry.
Jay Goltz:
Nice try, Loren.
Paul Downs:
But a big part of the qualification process was this examination of our cyber security procedures. But it just shows how much of this kind of fraud there is going on. I had a very interesting conversation with the fraud officer at the Texas bank, and she said she sees three or four of these every day.
Loren Feldman:
Do you have any sense of where the legal liability lies on this? What should happen?
Paul Downs:
Well, the question is: Where did the money get stolen, and the Texas bank lady sent me an article that covered recent court cases for these scenarios. It seems to come down to: Who had possession of the money when it was sent to the wrong place? But it’s not entirely cut and dried. If somebody had hacked our email and sent a request from us to make this change in the target bank, I think that my client would have a much stronger case. But we’ve been unable to identify anything that looked like that.
Our protocol is that if we ever got a request for someone to change a long-established banking relationship, we would of course make a phone call to follow up and get a second verification. It doesn’t appear that they did this, because if they had said, “Hey, do you want us to send your money to the place we’re using, or to an old lady in Texas?” we probably would have said, “I think that we’d rather have it just the way it was.” So there you go. I don’t really know how this is gonna play out.
Loren Feldman:
Do you have any idea what you could do differently to make sure this doesn’t happen again?
Paul Downs:
Honestly, I think it’s harder to do this kind of thing with a good old paper check. Although someone could steal it in the mail.
Jay Goltz:
Except if you use Positive Pay—which I have for years—they can’t cash the check because every time we do a pay run, we do this Positive Pay, and it tells the bank, “Here’s all the checks we sent out, here’s where they’re going to, here’s how much they are,” so somebody can’t go ahead and swipe the check. I don’t know how you do that electronically.
Paul Downs:
Well, I just talked to the cyber security firm I’ve engaged about this, and it is a real problem. When people email around ACH information, there’s always a chance it gets compromised. We include that information on invoices we send out in the text of a PDF because we want our clients to be able to pay us. A lot of the clients are sort of one-and-done transactions where we just want them to send the money. We’re always happy to get money by ACH, because then I don’t have to pay a credit card fee on it: two and a half, three percent. I’m also always happy to get paper checks. Same reason: It saves me a lot of money. But I’ve been told that there really isn’t a good way to secure ACH information that’s passing viay email and that the only thing you could do is to always make sure that you’re verifying.
Stephanie Stuckey:
Paul, can’t you implement a password-protected system to open those PDFs? And having said that, we use ACH PDF forms routinely at Stuckey’s, and so I’m taking notes as you’re talking about what we need to be doing to make sure this doesn’t happen to us.
Paul Downs:
I suppose you could. I don’t know. This is the first time it’s ever happened to me.
Stephanie Stuckey:
That’s what our bank does when we send any information to our banks via PDF. We have one main bank that we work with, and we have to give them a code that’s texted to me before I can access any documents that contain bank account numbers.
Paul Downs:
Okay, that sounds good. We should do that. Yeah, great. I just learned something.
Jay Goltz:
What pretense was the woman taking the money out in a cashier’s check for?
Paul Downs:
Oh, who knows? I know very little about her, other than that the fraud expert told me that she was elderly and that the scammers had convinced her that she was in a romantic relationship. Just the usual, ugly human frailty at work.
Loren Feldman:
Paul, if you can’t get your client to work with you on this, what’s the next step? Do you have to sue them?
Paul Downs:
I could, but I’ve worked years to get the kind of relationship with a furniture dealer like this, and we’ve had a nice ongoing relationship for the last couple of years. We have a lot of upcoming projects with different clients coming through her, so if I pull that, it’s shooting her and my own self at the same time. It’s not gonna be good. I’m just hoping that she’ll own up to that she actually has a problem and deal with it.
Jay Goltz:
It’s possible her insurance—maybe her insurance will cover this?
Paul Downs:
It’s possible. Have you ever tried to get cyber insurance?
Jay Goltz:
I think I have it.
Paul Downs:
I applied a couple of years ago, and before they would even sell me a policy, they gave me a list of requirements that, at the time I looked at, and I was like, “Hell no,” and didn’t do it. I’ve since changed my mind about that because of these Department of Defense requirements that we were given, which are even more onerous.
Jay Goltz:
I’m not even sure it goes under the category of cyber insurance. She was stolen from, basically. So that’s an interesting question, whether her insurance company’s gonna step up. She was stolen from. It’s like someone came in and took the money out.
Paul Downs:
It’s not like someone came into the cash register.
Jay Goltz:
Why?
Paul Downs:
It’s like someone persuaded one of her employees to empty the cash register and throw it out the window, and that’s the difference. The cyber insurance is asking me, when I applied, “What policies do I have in place to train my own people to monitor what they’re up to and to respond if there seems to be a problem?” And so it’s not exactly like getting robbed by a stranger.
Loren Feldman:
Paul, if you had cyber insurance, do you think it would cover you in this instance?
Paul Downs:
Possibly.
Jay Goltz:
I have a hard time believing that, since he had absolutely nothing to do with this. They took their money and sent it to the wrong person. I can’t imagine that if he had a policy that they would say, “Okay, let’s pay you for that.”
Loren Feldman:
And yeah, it seems like that would be a pretty open-and-shut court case if you sued them for non-payment. I understand why you don’t want to do that, but…
Paul Downs:
Yeah.
Jay Goltz:
Okay. Well, we’ll be hanging on for the next episode of this drama.
Loren Feldman:
Jay, have you ever had anything like this at all?
Jay Goltz:
Well, 25 years ago, I had a scammer come in and work in my payables department. But he did it old school and he took a check off the bottom of the pile and wrote it to a phony account that he had set up. Back in the day, it was completely not my problem. The bank came up with the money. This is what people don’t understand—you could write Mickey Mouse on that check and that check’s going through. They’re not checking signatures. They get nailed every day for phony signatures, but that was eons ago. That was before September 11th, which changed things dramatically. This was before the Positive Pay thing, so they couldn’t really do that same thing today. But apparently the crooks are finding new ways of stealing money, so something to look out for.
Loren Feldman:
Are you going to check and see if you have cyber insurance?
Jay Goltz:
First I’m going to find out what cyber insurance is, and then I’ll see if I have it. And then I’ll see how much I’m paying for it. When I was at the City of Atlanta as head of sustainability, we had a major cyber attack on the city, and I learned a lot of lessons from that that I’ve taken over to Stuckey’s with me. And part of it was that they did intense training of all the employees on how to recognize phish, or spam emails, and our whole team at Stuckey’s is very vigilant about reviewing emails and making sure they’re accurate and they’re legit.
But having said that, you really have to do your research. Because the other week, I got an email that, upon first blush, appeared to be spam. It was from a foreign country, which often is a trigger, but you don’t want to close yourself off to opportunities. This turned out to be a legit business. It’s a Mexican company that’s right on the border with Texas, and they want to buy a bunch of our products to sell in their stores. It’s a major chain that could be a very big account for us, and they’ve got a distribution center in Laredo, Texas, so we can handle the distribution pretty easily. We’re working through the details. It’s a challenge for small businesses to make sure that you’re really being vigilant, but at the same time, not closing yourself off to opportunities.
Jay Goltz:
How would you like to be doing business in Nigeria now that anyone you call: “Yeah, right, sure”?
Paul Downs:
Well, I’ve done business in Nigeria.
Jay Goltz:
There you go.
Paul Downs:
I mean, we’ve got more tables in Nigeria than in Korea. My old partner, a guy from New Jersey, actually spent 15 years in Nigeria in the 80’s and 90’s doing business, and so he knew what the deal was with Nigerian business. And the thing is, everybody in Nigeria knows that they want to buy stuff, and they have this problem. And so first of all, you have to know who you’re dealing with, like just an email over the transit, forget it. But in my case, we had some jobs that were brought to me by my partner, and he knew the other guys. But even those guys who we’ve done business with for years, he said, “The rule is, you get all the payment upfront. And if you don’t do that, and you ship the thing, then they’re just like, ‘Oh, you’re an idiot. Too bad.’ And that’s just how it goes.”
Loren Feldman:
All right, next topic. Stephanie, I understand you’re interested in talking about the best way to find board members and retain board members. Tell us about that. What are you thinking?
Stephanie Stuckey:
Well, we’re building a board because we’re rebuilding the company, and we just merged actually five companies into one. We’ve got to deal with the culture, which we talked about in an earlier podcast [episode], and we need to build a board. And so what we’ve had was a board that we purely put on paper, when we did the initial merger, to give us time to get our teams together, and start looking at where we have gaps in skill-sets. Now we are starting to thoughtfully reach out, and we’ve added a couple of board members, but we’re looking for more. Certainly, a consideration is making sure we have diversity of race and gender, ethnicity. We want to be mindful that we are representing the diversity of our customers and our other business partners. So, it’s a process.
We did get one board member who I recommended, who I’m so delighted he said yes. He’s in marketing. His name’s Ted Wright, and he’s written a book called Fizz, and his company’s called Fizz Marketing. He’s actually teaching me a lot about what you want in a board member, and the first thing he said to me when I asked him if he would consider board membership, he said, “Well, you do know you can’t just get a board member thinking that that’s free labor.” And I paused, and I said, “I can’t? Because I’m totally counting on you to give some insights into marketing. That’s the skill-set we need brought to the table.” And he said, “Yes, but you’ve got to know your board members are giving up their time and their energy, and so you’ve got to get a balance there and provide something—like what’s in it for them?” Because if you want a really good board member, they’re probably already in demand, and so you’ve got to be able to offer them a rewarding experience and be mindful of their time.
Jay Goltz:
Twenty pounds of chocolate every three weeks?
Stephanie Stuckey:
Right, actually I don’t know if I’m at liberty to say. I did offer—he is getting some compensation for his board service. I don’t know if I’m where I can publicly disclose that, but it’s what I think is something very reasonable.
Loren Feldman:
Stephanie, did you think about or look into what’s typical for businesses of your size? Do you think it’s common for businesses of your size to have a board?
Stephanie Stuckey:
Well, we are shooting for $10 million in sales this year, so I think that a business that size should have a board. We need guidance on how to run this company, and so I think it’s really important to have some outsiders brought in who can give a different perspective. Those of us who work for the company, my partner and I, we are so embedded every day in this. To have that perspective from someone who’s not working for the company, I think is really important.
Jay Goltz:
Loren, to answer your question, I’ve been in—I don’t know—five business groups over the years between Vistage, Presidents Forum, Young Presidents Organization. I’ve seen about 60 businesses up close, and I can’t think of any of them that have a board. Now you could argue, “Well, that’s why they’re in the business group—maybe instead of a board.” But I don’t think it’s a common thing that a $10 million business has a board. I’m not saying it’s right or wrong. I don’t think that’s common.
Loren Feldman:
Jay, you’re bigger than that. Do you have a board?
Jay Goltz:
No.
Loren Feldman:
Paul?
Paul Downs:
I do not have a board. I’m $4 million, I hope. But I’m in Vistage, and it serves the purpose of a board. I have people who know me well, and they’re not shy about telling me all the stupid things I’m doing.
Stephanie Stuckey:
Wow, well, might be worth further research. But Stuckey’s has had a board since the 1950’s, and so part of it is just how we’ve done business. But part of it is I think they’re very useful if you get the right people.
Jay Goltz:
My question—which there’s no answer to—is: I’ll be curious to see how you find these people, who they are, and how much you’re paying them to be worth their while.
Loren Feldman:
What are you asking of them, Stephanie? Do you expect to meet in person once that’s easier to do? How much of a time commitment is it?
Stephanie Stuckey:
Initially, we’re having regular weekly meetings or bi-weekly meetings. We’ve actually gone every other week for the first two months, because we’re doing strategic planning. That’s a couple of hours during that time frame when we have our meetings. It’s been very productive. But after that we’re looking at quarterly meetings. Probably one to two hours.
Part of my background is also I’ve run non-profits, and non-profits always have boards, and so I’m used to that model. I’m very comfortable with that style of leadership. It gives you additional capacity without bringing on additional staffing. I think it is important to have people who don’t work for the company every day to bring not only their viewpoints, but their networks. Ted has an incredible network, and he and I have been talking about some of the accounts we’d love to land, and he’s got great contacts at Delta, for example. We would love to have Stuckey’s pecans as a snack when you take a Delta flight. It’s advocates in your court who can be ambassadors for your brand. I think it’s helpful to us, but we’ve only had a couple board meetings, so maybe to be continued. Let’s see how it goes.
Loren Feldman:
Paul, do you think your Vistage group serves the same purpose Stephanie is describing?
Paul Downs:
I know what purpose they serve for me, but what would be different from the Vistage group would be we have in our group a rotating host review. There’s 16 members, and every meeting, one of the companies really gets drilled down into. So that means that it’s only every year and a half they take a very, very close look at me. Whereas in Stephanie’s situation, a board is drilling down every meeting, and so that’s different. And the Vistage group just has recommendation power. When you’re putting together a board, Stephanie, for this, do you intend to hand them decision-making power or recommendation power?
Stephanie Stuckey:
It’s recommendation power, and that’s spelled out in our bylaws. Even though we’re an 80-year-old brand, I joke that we’re an 80-year-old startup, because we are really building this company in a new direction, and the addition of the manufacturing capacity and a mail-order business, there’s a lot of new things happening with this company and we’re moving it in a different direction. So we’re at a critical juncture where we need additional capacity and support, and so that’s what a board brings to the table.
Jay Goltz:
I’m concerned that you’re looking for expertise, as your marketing guy said. I don’t know that one can put a board together with people with some background and expertise and think they’re going to give you the same input as if you went and hired a firm to do that.
Stephanie Stuckey:
Well, it’s different, right? I mean, if you want someone to really do a specific project or a job for you, then absolutely you’re going to hire that support. A board is an advisory capacity, and so they’re giving you higher-level strategic advice, and they’ve got real skin in the game when they’re on your board and a part of your team. It’s also that external ambassador piece that I think is so critical, especially for Stuckey’s, as we’re trying to amplify that we’re back.
Jay Goltz:
I would only push back on one phrase you said. You said the board advisors have “skin in the game”? No, they don’t. They don’t have skin in the game. Your place blows up? They’re not losing a dime.
Stephanie Stuckey:
It depends on how you structure the relationship and how you structure the compensation. It certainly can be done in a way where they do indeed have skin in the game.
Jay Goltz:
One of the advantages to belonging to a business group is not just that they’re helping you with your business. You get to see the insides of 15 other businesses, and that’s extremely eye-opening. You can learn more from that, sometimes, than having someone look at your business. You can see what things are people doing, what they’re doing right, what they’re doing wrong.
As far as paying a board member to come, I question if they’re so successful, and good at what they do, they’re making a lot of money. Which means the next question would be: How much money do you have to pay them to be on your board to be worth their while? That’s why I’d be interested to hear what the number is settled on, because to go pay someone who’s very successful—I don’t know, $300 for a meeting—I would not think it’s going to cut it unless they’re doing it just because they want to “give back” or they’re interested in the product, which is possible, certainly.
Stephanie Stuckey:
Well, to be continued. I don’t want to disclose that amount.
Loren Feldman:
Fair enough.
Paul Downs:
You could give us a sense of what you budgeted for the entire board, just so we get some kind of bottom line. Are you devoting 50 grand to board compensation? Or 10 grand? Or 600 grand? Give us a sense of it.
Stephanie Stuckey:
It’s in the 20 grand range total.
Paul Downs:
As a point of comparison, my Vistage membership costs me about 18 grand a year, and so it’s in the ballpark for that. You’re getting a smaller group with a narrower focus on you, so pick your poison, right? It sounds like not an unreasonable way to make sure you’re getting some decent advice.
Jay Goltz:
No, in theory, it sounds great. I just said I’ll be interested to see who gets recruited and how that all works.
Loren Feldman:
Okay, next topic.
Stephanie Stuckey:
Yeah, to be continued.
Loren Feldman:
This comes back to you again, Stephanie. We got an interesting question that came in this week in response to last week’s podcast [episode] from Jim Kalb, founder of Triad Components Group, who’s wondering about you and Laura being both retailers and wholesalers at the same time. He called it a fool’s errand. He thinks in order to succeed, you need to pick one or the other. But Jim’s a good guy, a smart guy. He qualified his comment by saying, “I know I’m not living in their world. And while this seems simple to me, it may not be as simple as it seems.”
What’s your reaction to that Stephanie?
Stephanie Stuckey:
He actually raises some good points, and I’ll preface my response by saying I bought Stuckey’s a year and a half ago as is. I have to deal with a company that I didn’t build from scratch, and changed dramatically from the company that my grandfather built because it was out of family hands for decades. I’m putting together a strategic plan for building this company back, but it was purchased caveat emptor, as is. What I bought was a company that was doing wholesale and retail.
Actually, to further complicate matters, now that we bought a manufacturing facility, we are a manufacturer, we have a distribution center—so we’re a distributor—we have wholesale clients—so we’re wholesaler—and we are a retailer through our online store. We do not own or operate any of our Stuckey’s store locations, so we do not retail through the Stuckey’s stores. Our only B2C component is that online retail store. Having said that, this is the model largely that I came into when I bought the company.
We are looking at our books, and we’re realizing what is really driving our profit is that wholesale component. That’s what we’re focused on, and by manufacturing, we are able to improve our margins for our wholesale customers. We’re also able to guarantee our quality, and the most important factor for us was that there are certain certifications that you need to play in the world of big box retail. It’s called SQF certification. We’re able now to be a better wholesale operation because we own this manufacturing facility and we’ve got the quality that those big clients demand.
The pushback from me on this retail piece, I think it’s important for us to have an online retail store for branding and marketing, and also it’s an opportunity for us to test product. For example, there was a t-shirt that said “Eat Here and Get Gas.” And our team said, “Well, that might be a little too scatological for Stuckey’s. We’re not sure if that will sell.” And I said, “You know what? Let’s order 288, sell them online, and we’ll see how they do.” We sold out in two weeks. So it enables you to test the market, which we couldn’t have done. If you’re trying to wholesale, we routinely buy 10,000 and up in quantity for the wholesale business, and so that’s a pretty heavy investment.
Loren Feldman:
Jay, you do both retailing and wholesaling. What do you think is the issue?
Jay Goltz:
I have a little more insight on this because I talked to Jim about the email, actually—if that doesn’t violate any rules of this podcast. I said, “Jim, do you like to shop?” And he goes, “No.” I go, “I guessed that,” because the fact of the matter is, having a retail store with a brand is the new way of doing business. It’s been new for about 20 years. 40 years ago, you never went to a store with a name brand and then they also wholesale through other stores. Now, everything from Ralph Lauren to Kiehl’s skin care to Tumi luggage… There are 50 stores out there that also sell to department stores—Nike—and it helps getting their brand out there. His point was, he thinks it’s hard to control the pricing from the discounters. I said, “Okay, that’s a different subject.” So, on that side, it gets back to: Can you control the pricing if you’re selling wholesale as well as selling retail, and the whole fair trade thing? I don’t know that you can command a wholesale customer, “You must sell at our retail price.”
Loren Feldman:
That’s why they call it a manufacturer’s suggested retail price.
Jay Goltz:
Exactly. The point is, basically I’m saying, I couldn’t disagree more with him. I think having retail and having wholesale makes perfect sense, and one feeds the other. I don’t see why you have to pick one over the other unless you realize that you’re just making a lot more money on the retail, but it all depends on: If you just stick with the retail, you’re gonna lose a tremendous opportunity in distribution. If you just stick with the distribution and don’t do the retail, you’re missing the opportunity to get your brand out there and catch people who… You know how it is these days. Most people will just go on the computer and just expect that they’re going to find a website called Stuckey’s and they can go buy direct. That’s the way most products are these days, so I think it’s very much the way the world has gone, and I don’t think it’s a fool’s errand.
Stephanie Stuckey:
We’re doing a complete analysis of our web sales right now, and what we’ve discovered is, 80 percent of our sales are generated from 20 percent of our product. There’s a lot of product that we’re taking off our website. We’re removing those SKUs and we’re going to focus on a small number of items that are bestsellers and really push those out. That saves us on inventory.
Jay Goltz:
You’ve got to be a little careful with that because sometimes having a bigger selection is what gets people to come to your business. This is the world I live in. There are the accountants on one side, and there are the artists on the other. And if the artists do what they want, they do everything that feels good, and you go broke. And if you did everything the accountants want, you go broke, because you don’t have a very cool sexy business. There’s a balancing act there of figuring out how to have a enough selection to make it interesting but not too much that you have horrendous inventory turnover. You know, it’s tricky. It’s art and science.
Stephanie Stuckey:
But that’s the beauty of web sales, is that you don’t have to have large quantities in order to put an item up on the web. I can get 100 Drinking Birds, which we put in our road trip box around Christmas time, to test whether people are still interested in nostalgic souvenirs. We sold out almost immediately and had to re-up our order. It’s a test opportunity to see what works.
But you touched on something really important with the branding, and I think people really need to realize: If you have a web presence, it’s only as successful as your marketing. And if you don’t invest in marketing dollars to let people know to go to your website, you’re not going to generate the sales that you need to justify all the costs associated with running a Shopify—or in our case, we have WooCommerce—and all the shipping costs that are involved. It’s really a lot of work to put together a website, and it took us trial and error to figure out how to price, how we factor in our labor costs, what box sizes we should be using, and how we can standardize the product that we put out there for the web. We were getting them in small boxes that cost us less with UPS. All of that is a lot of work to really get your costs as fixed as possible. It’s been an incredible learning experience.
Loren Feldman:
Paul, obviously, this is a very different world from you. You’re B2B, and you make custom-made furniture. But I’m curious, have you ever tried to set up a relationship where you were making tables and selling them to an entity that would then sell it to the end user?
Paul Downs:
Oh, years and years and years ago, but the furniture world is really bizarre, in that the product is never branded. You never walk into somebody’s living room and you see Bassett all over the front of the sofa or something.
Jay Goltz:
You know what, I think you’ve conflated two words. There’s certainly branding and furniture— they’re not labeled. That’s different. But people do know certain furniture lines.
Paul Downs:
It would be as if no shoe manufacturers ever had the swoop or the stripes or anything actually on the product. If they just talked about their brand in the advertising, in the catalog, and in the store, and then as soon as you walked out, you couldn’t tell whose shoes were whose—which is true for a lot of shoes. But companies that decided to put their brand on the product are in a different world.
Jay Goltz:
There’s no question, no question. I’m not arguing that. I’m just saying there are some furniture lines that are quite rare that are quite recognizable to people.
Loren Feldman:
Herman Miller office chairs.
Jay Goltz:
Yeah, for a good example.
Stephanie Stuckey:
Well, I’ll add one. La-Z-Boy recliners. Now, I can walk into a room and say that’s a La-Z-Boy.
Paul Downs:
You would be wrong half the time because there’s nothing to prevent someone from knocking off a La-Z-Boy, having it built in Bangladesh, and selling it for a 10th of the price. You would not be able to tell. You wouldn’t be able to tell without expert examination of the interior of that thing.
Stephanie Stuckey:
Bam!
Paul Downs:
And that’s one of the things about the furniture industry that’s weird. There are thousands of producers, and none of them have really been able to establish a dominant brand. The sort of snooty design market where you recognize a particular piece because it was designed by Corbusier or whatever—that’s a tiny segment of the overall world.
Jay Goltz:
That’s true. No, that’s true.
Stephanie Stuckey:
All right, I’ve been schooled on furniture-making. I do have one point on furniture being online, is the incredible cost, right? It’s not like shipping a pecan log roll. Shipping a sofa…
Jay Goltz:
Which I do, which I do.
Stephanie Stuckey:
I had my sofa shipped to me from Wayfair, but it’s expensive, and it’s a different model. I think I’m correct that Wayfair’s largely built a model of shipping online, which is different than a lot of furniture stores.
Paul Downs:
It has, but it’s a nightmare, and nobody has actually solved the problem. Just imagine trying to wrestle a sofa into somebody’s house, and you receive it. That’s actually the first moment that an online buyer has put their eyes on it and sat on the thing. And then, some percentage—let’s say, probably 10 to 15 percent of the people—are going to be unhappy with it right at that moment.
Loren Feldman:
You have the same thing, Paul, right? You ship furniture that has to be assembled.
Paul Downs:
Yeah, well, we deal with it a whole different way. But we can charge $100,000 per table, so it’s not at all the same thing. But it’s a huge, huge problem. As soon as it has to go by truck, it’s an entirely different ballgame. If you’re making something small that you can send by UPS without any trouble, great. You’re in a happy world.
Jay Goltz:
Since COVID started—this is one of those small side things that happened to me—I’m signing every check again. I haven’t done that in 20 years. I’m signing about 80 checks every single Friday—80 to 100 checks—and I am taken aback as to the huge check that I’m sending to this particular company that does white glove service. They deliver this stuff. I’m sending them tens of thousands of dollars. But there are companies out there doing it and doing it okay.
Paul Downs:
They’re not doing it okay. This is another thing, is the damage rate—even white glove—for something large, is going to be in the 10-to-15-percent range. I’ve never heard of a high-end residential furniture manufacturer that has really solved this problem. The better solution was to have a local furniture store receive the delivery from the factory and then act as sort of a local agent with a local truck. That person—that distribution point—brought that damage rate down and increased the satisfaction, but the online model has destroyed the local furniture stores, and so now it’s furniture coming from the factory or the distribution center on the back of a 53-foot truck and trying to get into a residential neighborhood and make the delivery.
Jay Goltz:
Except white glove delivery, by definition, is not a 53-foot truck showing up there. I mean, there are people who are doing that stuff.
Paul Downs:
What are you delivering? Picture frames?
Jay Goltz:
No, we sell sofas, we sell chairs—you know, I own Jayson Home. I mean, we sell furniture. I’m in the furniture business.
Paul Downs:
Does it come from your warehouse to—you’re still a furniture store that’s servicing a local area, right?
Jay Goltz:
Much of it’s coming from my own warehouse and our own trucks, but we do drop ship from suppliers. And believe me, I’m not arguing with you that it’s not easy. But I’m telling you, I’m writing big checks every week to this white glove company, and to some level it works. Though, you’re absolutely right. It’s not easy, and it’s certainly one of the more difficult things to be doing online. One of the issues we have in today’s environment is some of these companies you see online are losing money on these things, and they just keep losing money. So one of these days, maybe they won’t be around, some of them.
Paul Downs:
Customers hate paying freight costs. Our freight costs actually run about 12 percent of the overall cost—12 percent of the costs we incur—and we find that we cannot get people to just pay that. And so what we do is we fold a large amount of it into the price of the table.
Jay Goltz:
Yeah, thank Jeff Bezos for that.
Paul Downs:
Because we can do that. But we’re not selling something where someone can go online and check the price of it against some other merchant, so they’re giving away shipping and they’re losing boatloads of money on it.
Loren Feldman:
Guys, I want to be conscious of your time, but I haven’t been able to get a word in here.
Jay Goltz:
Loren, are you still here?
Paul Downs:
You pushed my button. Now we’re talking my world.
Loren Feldman:
Apparently. We will come back to this. But for now, my thanks to Paul Downs, Jay Goltz, and Stephanie Stuckey. As always, thanks for sharing everyone.
