Episode 69: "I Didn’t Look Like Them, But I Could Act Like Them"

Episode 69: “I Didn’t Look Like Them, But I Could Act Like Them”

Introduction:

This week, we introduce a new regular on the 21 Hats Podcast team. Her name is Diana Lee, and she’s the founder of a digital marketing agency. In a conversation with Jay Goltz and Stephanie Stuckey, Diana explains how she got her business off the ground by helping car dealers target diverse communities within their markets, how she bootstrapped her business by convincing those car dealers to prepay 50-percent upfront, and how her first attempt at building a software platform ended with her spending $1 million on a platform that no one wanted to use.

— Loren Feldman

Guests:

Diana Lee is co-founder and CEO of Constellation Agency.

Stephanie Stuckey is CEO of Stuckey’s Corporation.

Jay Goltz is founder and CEO of Artists Frame Service and Jayson Home.

Producer:

Jess Thoubboron is founder of Blank Word Productions.

Full Episode Transcript:

Loren Feldman:
Welcome, Jay, Stephanie, and especially our newest 21 hats podcast regular, Diana Lee. Thanks for joining us, Diana.

Diana Lee:
Thank you so much for having me.

Loren Feldman:
Some of our loyal listeners will remember that you were actually a guest on a very early episode of this podcast when Karen and I interviewed you at EY’s Strategic Growth Forum. That was back in November of 2019. A lot’s happened since then. Remind us, Diana. Tell us what Constellation Agency does.

Diana Lee:
Sure. We are a SaaS ad-tech platform, and we also have what’s called software-enabled services.

Loren Feldman:
We’re gonna have to translate that for Jay. What’s a SaaS ad-tech platform?

Jay Goltz:
How insulting… and true.

Stephanie Stuckey:
It’s a platform that has lots of sassy attitude, right? [Laughter]

Diana Lee:
How Constellation was born is we were actually a digital marketing agency when we first started, but we just did not have the capabilities to scale. So we built SaaS technology—which is software-as-a-service technology—that allows us to run marketing right from our platform and allows us to scale. We do search, social, display advertising, connected TV, digital advertising as software-enabled, where it means that we are running the media. Or we also license the technologies to holding companies and to other brands that have infrastructure of a marketing team in-house.

Loren Feldman:
You got this business off the ground, as you told us in our first conversation, by going after car dealers. Why car dealers, and how did you get your start?

Diana Lee:
I started back in 1989. I’m 52 years old, but I started when I was 18. I was going to college at the time, and I needed a summer job. So I went to a local car dealership to start, and I ended up staying in retail for 15 years and then did automotive consulting for another 15 years before I launched Constellation Agency. At the age of 47, I launched Constellation Agency, and by then I had over 30 years of automotive experience.

I went to car dealerships in order to start, because obviously, I could speak the language. I didn’t look like them, but I could act like them. And I knew that if I could pitch them, I could also sell them. And so when Constellation was first born, in order to scale the business right away, I would drive nine to 15 hours a day in my car, going from dealership to dealership to pitch the idea of digital marketing, and then try to get customers that way. That was the birth of Constellation, which was five years ago, and it really did scale.

Loren Feldman:
You’ve told me that car dealers represent about 70 percent of your business, but you do other businesses as well. Could you kind of walk us through—suppose Jay or Stephanie came to you and wanted your services. How would that conversation go? And what could you do for them?

Diana Lee:
Usually I ask the customer in terms of, “Do you have the infrastructure where you have marketers in-house launching the advertising?” And so that would be one of the questions, because I’m never looking to actually fire anybody or get rid of teams of people. I ask that question because if they do, then I’m going to quickly say, “Here’s the technology that your team can use in order to scale creative and launch hundreds of ad units to Alexia.” I would also ask Jay and Stephanie if they use a digital marketing company already, and do they like that company?

So again, if their answer is, “Yes, I’m very happy with that company,” then all I’m going to do is try to license them the technology for their teams to be able to scale what they’re currently doing now. And by doing that, it drives the efficiencies higher and the cost lower. What I mean by this is, typically, all of these brands are looking to a creative department to make every single ad. And by all of these teams working on the advertising of doing it by hand, it takes too long. That’s one issue. The second issue is it costs too much.

What Alexia does is it’s an automation of creative that’s dynamically generated in real-time without ever going to a creative department. So it allows you to scale the marketing on the creative side through automation and a feeding system that automatically makes creative in real-time. So if they didn’t have an agency of record or an in-house marketing team, or if it was very small, I would ask Stephanie and Jay, “Let me show you what Alexia can do and how it would work for social, search, display, connected TV advertising,” which is the same thing. It’s software-enabled where we could make hundreds of assets within seconds time to do what’s called hyper-localization.

Loren Feldman:
What’s an asset?

Diana Lee:
Oh, assets are creative assets, so they’re ads that you would make creatively. They’re banners, they’re displays. They’re actually just creative. Assets are creative.

Stephanie Stuckey:
Diana, I have a question for you. This is fascinating. Thank you for that really thorough explanation. What’s interesting to me is how you targeted a certain sector for about 70 percent of your business—the car dealerships. The question I have is, it makes sense, in one respect, to me, because you really understand that business, so you can speak their language. But how do you deal with potential conflicts of interest? You may be representing competitors. Is that a concern of some of your clients?

Diana Lee:
Yeah, that’s a great question, Stephanie. The auto market that we represent is like BMW, Porsche, Infinity, Jaguar, Land Rover, Volkswagen. We have 13 OEMs that we have certifications with. We also actually work with agencies of record: Omnicom, WPP, IPG, and they all represent different types of manufacturers as well, which is Nissan, Ford Motor Company, as well as Acura. People have always said to me, “Well, how are you able to get all of them?” But the technology that we invented is so rare that the choice that I give everybody is: “I’m the only one that does it. So if you don’t want to do it with me, then that’s fine. But another platform like this doesn’t exist.”

What it’s able to do, Stephanie, that’s so rare about it—and this is why I’m able to scale outside of auto—is anything with price. I believe that customers don’t buy anything unless they know: How much is it? I’m able to answer that by putting in a feeding system that does hundreds of iterations based on price. And then the second thing is dynamic inventory. Do you have it in stock, and can I get it now? During COVID, when nobody wanted to leave their house and go to a store—and even now—people want it immediately. But there’s warehouses all over the place, and you don’t know if you can ship it that far or if the supply is going to be there. This dynamically generates the inventory of what you currently have in stock and makes it readily available for that customer. So if I’m a customer who lives in Boston, I can attach the inventory of what they’re looking for in Boston with the price and the location: Boston, Massachusetts.

The fourth thing, Stephanie, it does is customer segmentation, which means it knows that I speak different languages. It knows that I’m a Chinese consumer who likes to speak Chinese, and it’s going to make the ad in Chinese as well. And so it does a customer segmentation of who you are, does the price location, as well as inventory, within your local market area. That’s what it did for auto, because there were 17,500 U.S. franchises in this country—dealerships—and that’s what it’s able to do. There are a lot of DTC brands that work the same way. So fast food: you have McDonald’s, you have Burger King, you have Starbucks, you also have industries that actually have rooftops all over the place: Peloton, Tesla, and I can go on and on—the same exact issues as auto. And that’s why we’re able to scale it in and outside of auto.

Jay Goltz:
So, my question now that I understand you’re largely a software company, did you have to take investors in to fund all this development? I mean, is it possible to bootstrap something this significant?

Diana Lee:
Yeah, I bootstrapped the entire thing, all the way to we’re gonna hit close to 45 million, 50 million in sales this year, in five years.

Jay Goltz:
Is that net to you, or is that including what your people are paying you for advertising and you’re paying the bill and you’re taking a percentage of it? Is that gross or net, the 45 million?

Diana Lee:
So if you’re asking me if it actually involves COGS or not, I mean, are you guys familiar with COGS?

Jay Goltz:
I’m talking about, are you paying for their advertising, and then they’re paying you back? And you’re taking your percentage of it like an ad agency? There’s gross billings and net billings.

Diana Lee:
Yes, I understand what you’re saying, Jay. So it depends on the customer. We have customers that it’s net, and we have customers that actually pay gross, and then I pay for the media. It depends on the setup with the customer that basically says, “I’m going to pay for the media, because it’s my ad account, and I want to keep the ad account.” And then I’ve got customers out there that, “I don’t want the ad account to be mine. I want you to start the ad account and then bill me 30 days afterwards.” So it depends on how they want to set it up.

Loren Feldman:
So for some of those customers, where you are handling the advertising dollars, is that included in that revenue figure?

Diana Lee:
Exactly, so I have gross and net. But the 45 is inclusive of everything, yes.

Jay Goltz:
And do you have exposure to—I know this has been a problem in ad agencies for years—where somebody runs up a big bill and then the customer goes bankrupt, and they’re the ones that owe the media? Do you have any exposure to having bad receivables on that?

Diana Lee:
Yeah, Jay, these are great questions. I did not have the money to be able to float all this in the beginning. And people always ask, “How the hell do you bootstrap this if you had to pay for the media in advance?” And so what I did with the car dealerships is, I went there, and I said, “The only way I could take your account is I need you to prepay the media in advance—one month in advance.”

Jay Goltz:
Wow, good for you.

Diana Lee:
Yeah, and so still to this day, 50 percent of my clients will still prepay. And then obviously I have giant clients now, at this stage, that I post after the whole thing is done.

Stephanie Stuckey:
That’s terrific. I wish I could get my clients and customers to prepay.

Jay Goltz:
You do. It’s called selling retail.

Diana Lee:
I won a few awards in the last few years, and one of the female founders who won the award, she said, “I’m gonna get funding right now.” And I was like, “Why?” And she said, “I really need it to make the supply.” And I said, “Do me a favor. Go back, and I want you to ask the retailer if they’re willing to pay 50 percent of it upfront.” And she’s like, “You think they’ll do that?” I said, “What do you have to lose?” She went back, and they paid 50 percent upfront, and these are huge retailers. She didn’t have to get funded at that stage, because she was at 4 million at the time, and she grew it up to 20 million without any funding.

Stephanie Stuckey:
You know, you raised a really good point. I think too often entrepreneurs especially, you’re awed by what you see on TV with The Profit and Shark Tank. You want to get funding: VC funding, private equity dollars. And there’s a lot of money out there right now, so it’s very tempting, but you can bootstrap this—just like what you did, which is so impressive. You can grow more slowly, but deliberately and thoughtfully, in a way that you can manage the growth. I love the idea that you’ve gone out there and said, “Okay, this is a partnership, and I’m growing, and I’m going to help you grow and pay 50 percent down, and I’ll deliver.

Jay Goltz:
Most importantly, you stay in control of your business and your life. I mean, it’s the Small Giants model. You could be three times bigger, but you can get a phone call at nine o’clock at night from some screaming investor. The concept of a silent investor is kind of an oxymoron, there’s no such thing. And unfortunately, what’s happened in the world of entrepreneurship over the last 20 years is people equate entrepreneurship with raising money. And it’s not the same thing. Entrepreneurship is starting a business, period. It’s not about raising money.

Stephanie Stuckey:
And it’s crazy… I get pitched by private equity, and I always take those calls because I see it as a learning experience, if nothing else. And you never know, there might be some amazing fit. But in general, the private equity that has approached Stuckey’s, they’re asking to invest 10 million, 20 million, and we don’t need that kind of money. Honestly, if somebody offered it to us, we wouldn’t want to take it, because we have a growth plan that we can manage right now. This concept—if you have $20 million for your company—I think it’s unrealistic in some cases. It certainly doesn’t fit for us. And we’d rather just either take out loans or manage our projects in a way that we can keep investing in the company.

Loren Feldman:
Diana, what is your attitude toward growth? Do you feel as though you sacrificed growth by not taking investment dollars?

Diana Lee:
Hell no. I mean, I have to say, I grew from 4 million to 10 million to 20 million to close to 50 million this year without taking any funding, right? Exactly what Jay and Stephanie said: I maintain control, which is fantastic. Because you have to stay nimble if you’re going to grow that fast. Deals come through my desk, and the decision is, “How am I gonna put this deal together? And how am I going to be nimble enough to put this deal together?” So if an Omnicom comes to the table—I’m using this as an example—and they’re like, “Look, Diana, I don’t like your fee structure, and I want the fee structure to be based on CPM or I want it to be based on percentages,” I can change the fee structure without having to go to a board of directors, getting an approval, getting other people to do it. I just change it based on whatever works for the client. And at the end of the day, that’s a huge competitive advantage.

And so for me, also being a woman of color, it’s super important for me to break the glass ceiling for everybody else. What that basically means is, if somebody is going to come in for a partnership, I want the company to get an evaluation of hundreds of millions of dollars. If I have a 5 percent stake or 10 percent stake in this, then I’m not going to give that kind of level of support that I need to for my staff members to be able to get that kind of evaluation. That’s what I’m going for. If I’m in this, I’m going to go for as high an evaluation for everybody that’s involved. I can’t get there if I gave up 50 percent of my company right upfront. I’m not going to be able to do that. But to say that there isn’t [any] fast growth by doing it the way I did, there is huge fast growth. And then on top of it, I don’t have debt, because I’m 52. I don’t believe in debt. And so a lot of it was maneuvering deals and figuring things out, but it is doable.

Jay Goltz:
For you, this is doable without debt. For you, for your business model. There are some companies that need to take debt to grow. I mean, that’s the reality of some businesses. You don’t have inventory.

Diana Lee:
I think that I have media buy, right? That’s my inventory at the end of the day. But all I’m trying to basically say out there is, “Don’t look at the model as the traditional way of everybody doing it the same way. Look at it from the perspective of how you want to do it.” So, for example, I never owned a digital media agency before. I never even worked at one before. And what’s interesting to me is when other people come to our organization, and they look at it and they go, “From a creative perspective, it’s so different.”

I’ve had creative agencies come in here, and they say, “I want a partnership.” And they look around. They’re like, “Diana, you’ve never worked at a creative agency before, have you?” And I said, “No.” And they said, “That’s why it looks like this. It’s not the traditional model.” And it’s because I don’t have the boundaries or the blockers that told me that, “It should look like this.” I didn’t have that, which is a huge advantage. Because if you know what it’s supposed to look like, you end up duplicating that. But if you don’t know what it looks like, you build something completely innovative and different, and so that’s what I believe in. It’s almost like starting from a place where you don’t have to know everything, but then you make it the way you envision it.

Stephanie Stuckey:
So I’ve got a question, Diana, and this is a little off-topic, but you referenced being a woman of color. This is something I’ve been researching, is getting certification as a women-owned business. I’m interested if you have gone that route, and if you have any lessons learned. I’ve talked to several women who have gotten that certification. It does enable you to get priority ranking, I guess, and some procurement contracts—especially if you’re dealing with the government. But also, a lot of large corporations will give you benefits, like as a retailer, or as a wholesaler that provides to retail businesses. If you have that certification, they’ll waive slotting fees, for example. So just curious if you’ve gone that route.

Diana Lee:
I also met a female founder who built her business to a billion-dollar valuation, and she went that route. Prior to meeting her, the first couple years, I didn’t have any certifications. After meeting her, realizing what she had done, I did get certified by WBENC.

Stephanie Stuckey:
What was the process like? I’ve heard it’s arduous.

Diana Lee:
It’s arduous, and I also got certified with National Minority Supplier, NMSDC. They’re both very, very similar. You have to answer a ton of questions online and then also certify the fact that you’re at least 51 percent vested interest of stock in the company, and then you also have to certify sometimes that you have more than that percentage of employees who are actually working for your organization as well. They’re not going to certify you if you don’t. You could be a minority owner, but if you don’t have minority employees, or if you’re female-owned, but you don’t have as many female employees, that certification will also be very difficult to get. And then they also come to your office to make sure you’re telling the truth.

Stephanie Stuckey:
Yes, they do a site visit.

Diana Lee:
Yes, so you go through a full interview process. And I asked them why. And they said, “Well, Diana, there are people out there who actually use a front person, but when you arrive, they realize that they don’t actually run the business.” And so that’s when they fail the certifications.

Stephanie Stuckey:
Well, that certification really carries a lot of weight, and it does get you financial benefits, so I definitely respect that process. We actually decided not to go that route, because I don’t think I would pass. I have a male partner and we own the company 50/50. I wouldn’t pass it right at that point. And we even discussed giving me that one percent or giving another female owner that 1 percent. But we thought—for the very reasons you just outlined, Diana—that they would come to the site visit and see, frankly, the majority of our leadership, with the exception of our CFO, are white males. Our CFO is African American woman. But of our leadership, it’s majority white males, so I didn’t think we’d get it. But I do think it’s got tremendous benefits, and kudos to you for securing that.

Jay Goltz:
Can we go back to the bootstrapping? It’s kind of—from the outside—hearing your unbelievable growth, and now that I understand you’re a software company, and I know just from the periphery, it takes a ton of money to write software. So if you didn’t take bank financing, did you just have some personal savings? You had to hire these expensive engineers to write this. I mean, how does that happen?

Diana Lee:
So this is a great question. I originally told you that I started as a digital marketing agency, and I flipped it to a software-enabled digital marketing agency too. So what does that mean?

In the very beginning, because I started as a digital media agency, it was a business first before it went into software. So the first year—remember, I told you I had all our customers prepay?—I put in $22,000 to start the company, and so I didn’t have a float. I didn’t have investors. I didn’t even have family money in it yet. Because my majority thinking is: I needed to make sure that before I even put in family money that this was a business that could actually grow and become something. So I started with $22,000. For the first year and a half, I didn’t put a penny more. I made my clients prepay. Then our first OEM client that came in happened to be Volkswagen. And so at that point, that’s when I actually had to start having receivables, where I didn’t have a prepaid situation, and when the bigger clients came in, it became harder and harder for those receivables to go on.

But what ended up happening, Jay, is because I started it as a business foundation first—not a software foundation first—I used the profitability of the business to start funding the software side. That’s what happened, and that part allowed me to fail several times. Because when I first started development, I wasted a million dollars. A million dollars!

Loren Feldman:
On what?

Diana Lee:
On making a product that nobody wanted. You don’t know that until you launch it, and you try to sell the damn thing. And you realize, you come up with so many issues when it’s software-ready first, which is like, you believe in it. Everybody tells you they’re gonna buy it. They tell you it’s a great idea. You meet with all these people. They’re telling you, “If you did it this way, if you put in these features, if you did this, if you tweak that, if you made this…” You build it based on these people that basically lie to you—not because they want to, but because this is what they really believe. But they’re wrong.

And then you build it, and then you realize, no one comes. So then you start dropping the price of it, and you drop it, drop it, drop it, and then you get to a point where I was like, “It’s $750. I’m breaking my back doing this, and I don’t have the infrastructure to scale this thing.” And so this is what’s super important: If you build a business model first that makes money, then you can supply it to the software side at little to no risk. And you don’t have the investors doing it, therefore they don’t shut you down and think nobody wants it, so you get no more funding. That’s the difference.

Loren Feldman:
Diana, can you tell us, what were those early conversations like with car dealers? When you showed up, you said you didn’t exactly look like them, but you could talk the language. But you’re asking them to prepay for something that they probably never heard of before and possibly didn’t fully understand. How did you get them to buy in?

Diana Lee:
You have to make it about the customer. You never go in and you say, “I’ve got an amazing product. I’m going to show you.” These people have been pitched 30, 40, 50 times in a week, right? You’ve got to not talk about yourself. The first thing I would do is I would do a demo study of their area. And I would go in, and I’d say, “Look, you’ve got a 46 percent Hispanic population here. You’ve got a 12 percent Asian population here. They happen to speak Chinese or Korean. And how are you marketing to these people?” Because if you look at the reality of it, everybody’s marketing in English, but they’re not marketing it in different languages, so I knew that was my way in.

Because think about most of the people who I deal with in auto. Most of the general managers and the owners are non-diverse, and so I know that because there’s little to no diversity on the auto side of things—and I’m not saying the employees, I’m saying the people on top. You have to go in and talk like a business owner. So you’re like, “Hey, I noticed that your demographic data is really high in Spanish. In fact, I ran the household income around here, and in this area, 50 percent of them make over $100,000, so they can afford your product. But I noticed that all your advertising is in English. So look, I think I could change this for you.”

Because I look different—and this is the part that’s shocking to you: I don’t speak Korean. I immigrated here when I was five years old. I speak very little Korean. In fact, I can’t even write in Korean. And so just because I looked the way I looked, they looked at me, and they said, “Hmm, she could do it multiculturally.” It was a shot in the dark. I didn’t know it, but I looked the part, so they gave me a shot. I carried through with what I delivered, because I was able to hire people who could actually deliver that experience. I was able to do it multiculturally first, and then it was so good that I took over all the English ads as well.

Stephanie Stuckey:
That’s so smart. I really love the way you hunkered down on what makes you unique, what’s your differentiator, and you led with that where it really made sense. So kudos to you for doing this.

Diana Lee:
Thank you so much.

Loren Feldman:
What was 2020 like for you?

Diana Lee:
Yeah, it was a beast. March of 2020 was the first month I saw declining revenues. Every month, year over year, I’ve doubled. And so when I didn’t double, when I started to have declining revenues [in] March and April, I didn’t know what I was going to do. I remember I got a phone call from my bank, and they gave me an hour-long conversation. And they said, “Diana, it’s time for you to lay off people and do it quick. Fire 50 percent of your staff.”

Loren Feldman:
Wait. If you have no debt, why is the bank getting into a conversation like that with you?

Diana Lee:
Because I had called them, and I said, “What do you think? Is the economy going to turn around? How are we going to come out of this?” My bankers have become my friends, and so they called me, and they said, “Look, Diana, the reality is this: We’ve seen businesses go under because the CEO was too attached to their employees. At the end of the day, they could not float the note long enough and they ended up losing all their cash flow. And then they ended up going under even when they had to cut the employees in half. It was too late. So do it now while you have the cash flow to do it.” That was an hour-long conversation that I had with them, and I got out of the conversation, and I said, “No, I’m not doing it.” And I didn’t say that to them, because they didn’t really care, because I didn’t have any debt. I had a credit line with them that was unutilized at the time, but you know, banks only give you money when you don’t need them.

Jay Goltz:
Wait, wait, wait, wait. You do have a credit line at the bank now?

Diana Lee:
I do.

Jay Goltz:
Do you use it?

Diana Lee:
I use it every once in a while when I need to—

Jay Goltz:
Well, I’m confused then. You just said you don’t believe in bank debt. You’re not taking bank debt. Now you’re telling us you have a credit line, that you’ve got bank debt.

Diana Lee:
So I take it, Jay, but I pay it off at the end of the month. I hate interest. That’s my thing. So I have it when I need it, and that was just actually in the last year and a half. So prior to that, I never had a credit line. But I pay it off.

Jay Goltz:
Which makes sense that you would have it. I’m not criticizing. I just don’t want anyone to think out there, “Oh, look, there’s somebody who has a business that has absolutely no bank debt.” That’s a really difficult thing to pull off. The fact is, you have a credit line, that’s bank debt. Let’s call it what it is. It’s bank debt, even if you pay it off at the end of the month.

Stephanie Stuckey:
I was thinking the same thing, Jay, but I do think it is different than bank debt, in that you’re servicing it regularly. We have a line of credit, and it is treated differently than your more traditional loan.

Jay Goltz:
Okay. It. Is. Bank. Debt. Call it whatever you want.

Diana Lee:
So let me make sure that I’m super clear on this. I couldn’t get a credit line for the first two years. Nobody gave me anything.

Jay Goltz:
I’m sure. I can understand that.

Diana Lee:
I didn’t have it until very recently—in the last, I would say two years—is when I actually got a credit line, finally, because they don’t like to give you a credit line when there’s any risk whatsoever. And so it took me a couple years to prove the fact that I had a stable business.

But at the time, the bank called me because—not that I had any loans at the time—they didn’t want me to go under. And so they gave me this long talk: cut the staff. I didn’t do it, and the reason I didn’t do it was because I am pretty pigheaded. And I knew that if I could close this big software deal that I had in the pipeline for so long, that that would carry me through. And so there are two things that I did during that time: I ended up getting that account, which was about $1.9 million of all fees, because there’s no media attached. I ended up actually being able to float all the employees with that starting in May.

The other thing I did was, at the time—because I had so many employees who also weren’t really doing much, and I didn’t want to just float them for the sake of just giving them money because it doesn’t make any sense—I started a 501c3 called the Do Good Auto Coalition. The reason I started it was because I had gotten calls from non-profits in the area, because I worked with so many dealerships in the auto industry. They called me, and they said, “Look, Diana, we’ve never needed cars in order to move the food around in Manhattan. But now, because all the restaurants are closed, and the schools are all closed. These restaurants have all this food that’s going bad, and the food supply is broken, and you have warehouses with the food, and they’re all going bad every minute that goes by. But then there are homeless shelters, and their food pantries all across right now basically have lines and hundreds and hundreds of people right now waiting for the food.

So I was like, “Okay, this is something that I can do.” I started to contact all these car dealerships, and I had a cause now. I’m like, “Look, you have cars, they have food. I’m not asking for any money. I need you to show up to these sites, and I need you to help me move the damn food to the areas that actually need it.” And it ended up becoming a big thing. By the end of the year, by November, we had delivered over 700,000 pounds of food.

Loren Feldman:
What did it mean for your business, though, if your employees didn’t have actual work to do? Did you still have revenue coming in at all?

Diana Lee:
We did, Loren. We were about 25 percent up. Because I think by the end of the year, we realized that people still needed vehicles and still needed to advertise.

Loren Feldman:
We are running short on time. Diana, I’m going to let you slip out of the hot seat for a moment and check in on Stephanie and Jay. And Diana, you get to ask some questions too. Stephanie, I think you’re back home. Last time we talked to you, you were visiting the factory you’d bought and figuring out what exactly you had bought. What did you learn?

Stephanie Stuckey:
Well, I learned a lot about production and our different lines. So I just really got an in-depth understanding of the operations, which is critical for me to be able to make some of the high-level decisions. Most importantly, since we last talked, I went to the Sweets & Snacks Expo, which is the trade show if you are in the candy or the snack business. Everyone from Hershey’s and Frito Lay and Doritos and M&Ms and Pez Candy down to Stuckey’s and a lot of small brands where people are working out of ghost kitchens.

Everyone was represented, and it was the launch of our new product line. It’s the same product that we’ve been making, or been selling, since the beginning, since the 1940’s. But my grandfather sold the candy plant, the Stuckey’s original candy plant, in 1964. We had been outsourcing our product ever since then. This is the first time in over 50 years that we’re making our product again, and it’s really delicious. I didn’t know what kind of reaction we’d have at the trade show, and it was overwhelming. Literally, for the three and a half days of the show, it was non-stop people coming by the booth. And the couple of weeks since then, my business partner and I really have done nothing but respond to orders.

Our biggest challenge right now is we’re backlogged on our large retail chains. We’re getting quite a few large chains, and by that I mean 200 units and up. And right now we’re backlogged four to six months on filling some of those orders, so we’re trying to level-set expectations. The good thing is a lot of those large chains usually buy that far in advance or plan their category, product line, that far in advance. It’s not devastating if we tell them what our timeframe is. And then we are able to fill the smaller mom-and-pop small retail customers almost immediately.

Loren Feldman:
What are you struggling with? Is it a labor issue that’s keeping you from filling those orders faster?

Stephanie Stuckey:
Everything. Labor, supply chain, getting new packaging. We’re running through packaging like crazy. We’ve re-upped our packaging orders. We need new display boxes because we’re getting into new channels. We’re getting into more grocery channels and more chain C-store channels, and they want chipboard packaging, which is a lighter-weight box than the thicker corrugated point-of-sale display box that we’ve been using, so we have to come out with some new display options.

Diana Lee:
I have a question to Stephanie and Jay: How much of your business is DTC, direct to consumer?

Stephanie Stuckey:
I probably need a more recent breakdown, but I would say it’s about 40 percent. We have 65 franchised, licensed, branded retail locations. And so, from those locations, we are selling direct at stores that are branded as Stuckey’s locations, and then we also have online sales. Those are direct to consumer. And then we own and operate—not we own—we operate a distribution facility. So we source product and distribute.

Diana Lee:
Got it, and then out of the DTC that you’re doing, how much is it direct through digital, instead of it actually being through a rooftop?

Stephanie Stuckey:
It was about 3 to 5 percent, but lately, it’s getting up to 10 percent—ever since COVID. And we’ve been revamping our website. We’re actually about to switch to the Shopify platform. We’ve been on WordPress, so it’s clunky. We’re upgrading a lot of our software. We’ll have that in place by Q4.

Jay Goltz:
I converted over to Shopify. It’s worked out extremely well. We’re very happy.

Diana Lee:
I think you guys should share that experience. And mainly, I say it because there are a lot of business owners, I think, who are out there who say, “I don’t have the capital in order to actually start the business.” But they don’t realize that they could do it digitally without having a rooftop, right?

Jay Goltz:
The difference between us and everyone else is, she has a legendary name. People know Stuckey’s Candy, and I have a store that’s very popular, so it’s driving business to the website. If I had to start from scratch with only a website, I don’t know that I could have pulled that off. I certainly don’t have the skill-set to pull it off. It’s much harder. So the two of us do have some momentum coming from conventional means.

Stephanie Stuckey:
We have challenges with order fulfillment in a timely fashion because of the Amazon effect—which we’ve discussed in previous episodes of this podcast—there’s an expectation from the consumer of getting their product within 48 hours, within two to three business days. Now, Amazon’s had some backlog, so fortunately, that has pumped the brakes a little bit on those expectations. But customers still want their product pretty quickly, and when you have a smaller operation that does not run on weekends—we have one person on staff at our distribution facility who is tasked with doing order fulfillment. We just have that one person, and if she’s sick, then we have to have the office manager fill the orders.

Jay Goltz:
Well that begs the question: Why don’t you have two people down there? Why don’t you have three people?

Stephanie Stuckey:
We don’t have the volume just yet. But I think for Q4, we may have to ramp it up. And now that we’ve acquired the manufacturing facility, they also have online order fulfillment people on staff. So we’re figuring out those integration of those business issues. The other challenge is, of course, shipping costs, which are just killing us. If you’re in a small town, a rural area—we’re in Eastman, Ga., and Wrens, Ga., for our two facilities—FedEx doesn’t deliver as regularly. UPS comes by once a day. The post office, we have to drive over there. They don’t come pick up our big packages.

Loren Feldman:
Jay, last time we talked you were starting to look for a CFO. How’s that going?

Jay Goltz:
It’s gone exactly as I predicted. We put out the ad. We wrote a really good ad, laid out the whole story of the company, and I said, “We’ll probably get 100 applications, 100 resumes, and there’ll probably be five that’ll be suitable.” And so far, we’re up to about 80-something, and I have what I thought: four or five people who look like they might be the right people. The interesting part that I didn’t predict is they’re almost all in their 50’s, 60’s, even 64.

Loren Feldman:
Are you allowed to know that and talk about that?

Jay Goltz:
Well, I’m talking about it. I’m just saying, it’s a fact. You can look at when they graduated college. I would have thought there’d be more people who were more mid-career. Now, maybe this is a great opportunity for somebody that wants to finish out their career for the last 10 or 15 years and work at a smaller company. Maybe younger people are still shooting to go work for a bigger company. I don’t know what the explanation is, but it’s kind of stunning. Or maybe the job is so complicated that a 44-year-old, most of them don’t have that experience. I don’t know, but I’m confident we’re gonna find somebody out of this group.

Loren Feldman:
Is the issue of working remotely coming up?

Jay Goltz:
It’s going to. My HR person did some phone interviews, and one guy said he wants to work from home. Good luck with that. All I can say. Why in the world would you want to bring a CFO into a company with four different divisions and five, six different people they’ve got to deal with—why would I want to sign off on that on the front end? I won’t even question why someone would do that. I have no interest in that. I also am not going to take a black and white thing of, “No, you can’t work from home ever,” but there’s a big ramp-up stage here. They have to understand the business. And they’ve got to understand what goes on here. That is absolutely an issue that certainly wouldn’t have been on the list 10 years, five years, three years ago. It wouldn’t have been on the list. Now, it’s definitely on the list.

Diana Lee:
I agree with Jay as well.

Loren Feldman:
Is your staff back in the office, Diana?

Diana Lee:
We actually, back in July [2020], I opened the office because I was having mental health issues with some of the employees. And I don’t know if you guys experienced the same thing.

Jay Goltz:
Absolutely.

Diana Lee:
I opened it and made it work-from-home optional, because I felt like they needed to be people who had to walk around and go someplace. And so that was one of the best decisions I think I made for the employees, which is they could come here if they wanted to and just remain distant from each other. And it’s a big enough space that they could, but it allowed them to still leave their homes.

Jay Goltz:
Let’s talk about my hourly search for someone to work in my wood department to cut picture frames.

Loren Feldman:
Please.

Jay Goltz:
My production manager told me yesterday he’s had 24 conversations on the phone, scheduled appointments, and four people showed up, out of 24. Four, and of the four, he said three are just trainwrecks. I don’t know that I can totally diagnose this. I think it’s partially the unemployment.

Loren Feldman:
What kind of job is this?

Jay Goltz:
Making picture frames, cutting on the saw, joining the frames. I never used to have a problem finding people for that. I actually have another aspect I’ve just thought of this morning, listening to the radio. I think part of it is some of them are getting unemployment, and it’s not worth going to work. Some of them have childcare issues, no question. I get that. And here’s another piece. For people at this level, most of them rent apartments, and many of them probably aren’t paying rent, because legally, they’ve been protected from that. We’ll find out in September whether there’s more people out there. I can’t explain why 24 people would say, “I’ll come for an appointment and then not show up.” It makes no sense.

Loren Feldman:
What doesn’t make sense?

Jay Goltz:
The economy’s okay. We’re doing well. But why is there all of a sudden a labor shortage that’s this severe?

Loren Feldman:
It’s a mismatch. We had the pandemic. Things happened. People got sick, people died, people moved, people decided they wanted to do something different with their lives. Some of it’s geographic.

Jay Goltz:
I accept that for hospitality. I accept that some people don’t want to work in the restaurants anymore because of a lot of issues that happened with that. But working in a factory? I don’t know that that person who was working in the factory is going to all of a sudden say, “Oh, I’m not going to work in a factory anymore.”

Loren Feldman:
I don’t know exactly what you’re paying Jay, but that could be a factor.

Jay Goltz:
Well, the minimum wage in Chicago has officially gone to $15. So it’s kind of queued everyone up to the same [thing]. Here’s the other question then: Why did they agree to make an appointment? Why didn’t they just say, “Listen, that’s not enough. Thanks anyway.”

Loren Feldman:
Yeah, I’m not going to explain that.

Stephanie Stuckey:
Yeah, that’s what really surprises me, the no-shows. Well, good riddance. You don’t want those people working for you.

Jay Goltz:
I think one of the [factors in the] mix is—and I’m the last person to do this, and I don’t want to pick on millennials because I’ve got lots of wonderful millennials here—there’s been a mentality change in the marketplace. There is. It’s not the same. I’m not complaining about them. They think a little differently. And like I said, I’ve got wonderful, wonderful millennials working for me, but there’s just lots of stuff that’s going on all at once. And I’m gonna argue, September, let’s see what happens. I’m gonna guess it’s gonna get easier in September.

Loren Feldman:
We’re just about out of time. Last question, Diana, are you having issues? Do you have openings?

Diana Lee:
Yeah, I have about 40 openings.

Loren Feldman:
Wow.

Diana Lee:
It’s because we’re growing so quickly, and so my issues are very similar to you guys. But the bigger issue for me is everybody wants to do digital marketing right now, because they want to go direct-to-consumer through digital. So they are getting job offers left and right that they’ve never gotten before. I’ve lost employees now to Peloton. I’ve lost them to Amazon. I’ve lost them to DoorDash. They’re going after my people like I’ve never seen.

Loren Feldman:
All right, my thanks to Jay Goltz, Diana Lee, and Stephanie Stuckey. Thanks for sharing, guys.

 

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