Have You Considered Not Taking Investors?

Introduction:

This week, Jay Goltz, Liz Picarazzi, and Dana White talk about the advantages and disadvantages of bringing in outside capital and expertise—something both Liz and Dana have considered recently. “I have a background in Russian literature and credit card marketing,” says Liz. “I’m now a manufacturer, so if I could have an outside investor who either brought that to the table or could help me with it, that would be really valuable.” But of course, there are trade-offs. Plus: We also talk about Dana’s looming franchise sales, why it’s so hard to hire lawyers and accountants, and whether there’s an opportunity for Jay in framing NFT art.

— Loren Feldman

Guests:

Dana White is founder and CEO of Paralee Boyd hair salons.

Liz Picarazzi is founder and CEO of Citibin.

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, Liz, and Dana. Great to have you all here. Dana, this is the first time we’ve had you here in a while. How are you doing? Bring us up to date. What’s going on?

Dana White:
I’m hanging in there, Loren. Hi, guys. Glad to be back. I’m a busy girl.

Loren Feldman:
Tell us!

Dana White:
So the Fort Bragg contract has officially been awarded to me, and so we go into our pre-performance—

Loren Feldman:
In writing? Signed, sealed, delivered?

Dana White:
Signed, sealed, delivered, in writing. I think a little bit of blood, too. It’s done, and so we go on to our pre-performance conference next week, where they just go over the contract we’ve agreed upon and what we’re agreeing to and we put a timeline. The military is very excited. They’ve already set up a list of bases globally, which is exciting. And I’ve been speaking to my bank about what our relationship is going to look like going forward as these bases roll out.

Loren Feldman:
Do you have a timeline, specifically for Fort Bragg, when you want to be open?

Dana White:
No, I’m saying just by the end of the year. I’m not pushing it. Just by the end of the year. The priority is franchising and getting that off the ground. Plus, there’s a lot of administrative work that has to go on with drawings and permitting and contracting and all that stuff. So we’re going to do all of that before we get hired. It shouldn’t take to the end of the year, but I’m not like, “Oh, we gotta be open by June.” No, we’re not doing that.

Loren Feldman:
But you said the priority is franchising. Tell us about that.

Dana White:
It is. So we’re starting to sell franchises next month. We have over 90 inquiries in our inbox, so I’m really hoping that three of those are viable. Yeah, there’s that.

Jay Goltz:
And how did you generate those 90 leads?

Dana White:
Those came from press. We’ve received a lot of press, and we still have press inquiries that we’re talking to.

Loren Feldman:
Meaning you haven’t done any outreach? No marketing of this opportunity? People are just coming to you?

Dana White:
Yep, the Franchise Times article, the CNN article, the Black Enterprise article. A lot of articles have come out, and people have read it and want to be early adopters. I had a gentleman reach out to me who owns three Starbucks and 10 Denny’s, and his people reached out, and he’s interested.

Jay Goltz:
You know, that was the missing link when you first started with this. I asked you, “Do you have enough money to get out there and market this?” And that was the missing link. The fact is, if they’re coming to you, then that was the big hurdle to get over, so congratulations. That sounds reasonable that, out of 90, you should be able to get a few.

Dana White:
Three. That’s what I’m hoping, and we’re still gonna market. We’re still gonna market into the areas where I think we’ll go.

Loren Feldman:
Have you set a price?

Dana White:
Yes, I have, but we’re not there yet. I can’t tell you what my franchise fee is yet until we’re ready to truly make the financial disclosure documents public. We haven’t done that yet. Once we do, we’ll be able to sell.

Loren Feldman:
And that’s what you’re waiting for? That’s why this happens next month?

Dana White:
Yep, and so then there’s that and still plodding along here in Michigan with Midtown. I’ve always said it’s been time to leave, so I have been looking at a location in Dallas Texas, and I hope to open a salon there by June or July.

Loren Feldman:
Why Dallas?

Dana White:
Because the market is just right for it. And the market research I’ve done shows, we’ve got someone who’s got a salon similar to mine. She opened in 2020. She’s opening her second location this month, in February. So it’s like, wow, there’s just nothing like it down there, and so people are right for it. So I’ll be on a completely different side of Texas than her.

I flew down there, saw the location. The cost to open is minimal, because it was already a salon. It was a corporate salon. It was a Great Clips. They left, paid their rent for two years, and so the landlords are interested in putting another salon there. They’re being very generous with tenant improvement, so my cost to getting in is going to be significantly less than it was in Midtown. So I can refocus my marketing. I’m just not interested in putting any more money in Detroit. It’s just not here. Primarily, it’s staffing. It’s just time to go to another market and really try it out, and we’ll see what happens with Midtown. But with staffing the way it is—I’m not saying it’s not that way anywhere else in the world—I think it’s just really bad here.

Loren Feldman:
Did you sign a contract in Dallas? Is that a done deal, too?

Dana White:
No, we have four more locations to look at. I have the top one that I’m interested in. Again, it’s the one I spoke of with the former Great Clips. That’s my top one. But the other ones I still have yet to look at. And then, that’s going to be it. I’m hoping to sign a lease or a letter of intent by the end of February.

Loren Feldman:
So what does this mean in terms of financing these opportunities? You mentioned that you’re talking to a bank about the military contracts, but you’ve got a lot going on.

Dana White:
Yeah, so for the Dallas location, the barrier to entry is so low, that’ll come from me. But the franchising is already paid for. That’s done, except for the marketing piece. There’s money set aside for that.

In regards to the military option, we’re going to go to the SBA, and the military strongly recommends it. The DOD and the SBA kind of work hand-in-hand. I’ve spoken with several banks, and they said, “When you walk a military contract into our bank, there’s a strong likelihood of getting approved.” And I said, “Well, I need that to be a guarantee. What do you all need to see from me in order to make that so?” And they let me know what that is. They did say that me being a minority woman—and not many minority women walking in with multi-base contracts—is going to work in your favor. One bank flat out said, “We don’t want to be the bank to tell you, ‘No.’ We don’t want to be the one to tell you, ‘No.’”

Jay Goltz:
They actually said it out loud.

Dana White:
They said it out loud. But they also said, “You’re not asking for a lot of money. You’re not asking for $4 million. You’re asking for like $100,000. You’re asking for $200,000. And you’re not asking for it all at once. You’re giving us a contract. We’re reviewing the contract and giving it to our underwriters. Your credit is good. This is a separate company.” And they said, “Even if it wasn’t, your Midtown location is showing growth from 2019. Down 2020, up in 2021, up in 2022 so far. So we’re not seeing anything bad.”

Loren Feldman:
The $100,000 or $200,000 that you mentioned, is that what you’re thinking per location?

Dana White:
Yes, and we’re having that call, the pre-performance conference, next week to hit home what that number is. There’s a lot of things that need to go on concurrently, and it’s like, we need to know that money amount. But once we know the money amount, we need to start construction.

Jay Goltz:
So what’s the magic number there? Do you think you can do $60,000 a month?

Dana White:
Yes, I’m looking to do $50,000 to $60,000 a month there, because their average, when they were barely doing anything back in 2018, was $40,000 a month.

Jay Goltz:
Okay. In retail, these days, no matter where you’re at, it’s getting harder and harder for the typical retailer who does $20,000 a month to stay in business—just with the rents, utilities, and stuff. The tiny little stores are getting harder and harder to stay in business.

Dana White:
And on a military base that’s larger than the size of Detroit, I’ll be the only salon. They haven’t had a salon in four years.

Loren Feldman:
Wait, didn’t you just say that they were already doing a certain amount of business?

Dana White:
That was the average before that salon closed—$40,000 a month.

Loren Feldman:
Before it closed four years ago?

Dana White:
Yes.

Liz Picarazzi:
I’ve got a question, Dana, about the pace of things with working with the government. So I actually just found out yesterday that we won a government contract that we have been working on for a while. It’s going to be a pilot that then could turn into a much more expanded footprint of our trash enclosures all over New York City. But now that this is happening, I have to think about how I’m going to finance that and how long is it going to take. I know when I start meeting with them in the next couple of weeks, that will become clear. But the initial communication made it sound like they only pay upon delivery, which is completely not going to work for me. So I’m curious, with you, when you kind of found out that this was moving ahead, how soon were those questions answered or clarified for you?

Dana White:
Almost immediately. I have people I’m working with who used to work in the Pentagon with AAFXS directly, and so they—

Loren Feldman:
Tell us what that is.

Dana White:
AAFXS is the Air Force and Army Exchange. So when you are on base, they have—

Loren Feldman:
That’s like the mall owner.

Dana White:
Yep, the mall owner, so they are on behalf of the military. It was an urgent request for them, and so they’re responding urgently. In regards to funding, it was, “We can’t help you get funding, but we can give you everything you need that makes funding compelling.” And so even the gentlemen who are working with me who are retired Pentagon officials who have worked with AAFXS before have said they’re moving very quickly, considering AAFXS and the military. They don’t work quickly at all, and they’ve done this within a couple of months. You’ve got product, and I’m offering services, and I’m going to be a brick-and-mortar in their mall, in their exchange. So I think it’s a little different, and I don’t think you’re working with AAFXS. I think you may be working with a different division of the military.

Liz Picarazzi:
Oh, ours isn’t military. Ours is actually New York City.

Dana White:
Oh, New York City contract. Yeah, I don’t know.

Liz Picarazzi:
Yeah, I mean, we’re a subcontractor as well. We’re not a prime contractor, so there’s that level in between.

Jay Goltz:
So you’re saying they’ll pay you upon delivery. Is that how it is?

Liz Picarazzi:
Apparently, that’s what it is. But we would have to finance a lot of product, so I would want it to be done in installments. But I just don’t know how much leverage I have on it. Should I just be thankful that I got this and make it work?

Jay Goltz:
No, I think if you have a signed P.O. from the city of New York, I would think that a bank would easily lend you the money.

Dana White:
And that’s a huge distinction you made between being a primary contractor, and that’s what’s so exciting about the opportunity on base, is that I’m coming in like Starbucks. A lot of small businesses don’t. They come in, and they say, “Okay, we’ll try you out.” No. And so when you come in as a primary contractor with AAFXS, they take care of your marketing. All you have to do is give them the content. So that’s exciting, and it’s something that’s never been done before, especially with a minority woman. A global multi-base contract is huge.

Loren Feldman:
What do you mean, they take care of your marketing? They actually do your marketing for you?

Dana White:
Mhmm. They put it out on their television, their radio, their social media, and you don’t have to pay for air time.

Loren Feldman:
Do you have any control over the message that goes out?

Dana White:
Mhmm. I devise the content. They look at it, and they say, “Yep, that’s great.” And they put it out, just as long as it’s something that’s tasteful, right? It’s not something crazy, and it’s not promoting products or services that aren’t in line with—you know, I can’t promote a strip club on base, right? Like, you can’t do that. But they already know who I am and what I do. They’ve seen some commercials or some marketing stuff we’ve done before, and they’re fine with it.

Loren Feldman:
Have you thought through how much money, with all this opportunity, that you’re comfortable borrowing?

Dana White:
Yes, and so it’s a matter of per base. That’s why it’s important to start at the big ones, because what I don’t want to do is borrow for a salon that’s gonna only make $5,000 a month. That’s going to slow it down. If I borrow $100,000 for Fort Bragg, or let’s say $150,000 or $200,000, and the average is $40,000 a month, you pay your fees. That’s a pretty aggressive payback, right? It’s not something that’s going to take me 20-30 years to do. And so that’s what I’m looking for.

And also that’s why the timeline is very important. I’m not looking to open one and then a couple months later, open the next one. No, we need to give ourselves time to make sure it’s working. And then, let’s say, “Okay, now where do we go to next?” So the rollout for this—even though they want it to be aggressive—slow and steady is the pace for me. Same thing with franchising—slow and steady is the pace for me. Just so we’re consistent, and we’re around for the long-term. I’ve seen franchises just roll them out like sausages. and next thing you know, you don’t hear anything about them in five years. And that’s not what I want. I want to be a 30-year business, a business that’s been around in franchising and on bases with corporate locations for 30, 40, 50 years.

Jay Goltz:
Does the franchise actually create positive cash flow with the money they give you upfront? I’m sure that covers the expense of starting them up. Is there actually profit built into that?

Dana White:
There is, on my pro forma, yep. And the franchise consultants, once we went through that number, they were very happy with the profit off of the franchise fee.

Jay Goltz:
So that will self-fund, basically.

Dana White:
Yep, and there are franchisors who take their profit and go do things with it that they shouldn’t for themselves. We’ve put in my salary. We’ve put in my staff salary, and we still have a large profit. So for me, it’s about putting that money aside to help with the franchisees. It’s not about, “Let me take a profit and go buy a car.” No, I’m very cautious because I’ve been in a business that doesn’t make money, and so I want to make sure that there’s money on hand. And that was very important to me when we were building out the pro forma for the franchise.

Loren Feldman:
Liz, I want to ask you a little bit about your financing plans for your growth. But let’s take a quick break to hear from our sponsor.

[Message from our sponsor, Work Better Now]

Loren Feldman:
And we’re back. Liz, you’ve already told us in a previous podcast that you’re hoping to double your sales this year. What are you thinking, in terms of financing that growth?

Liz Picarazzi:
So I have an EIDL loan that I was able to get and that is actually kind of sitting in an account, waiting to spend more on marketing and sales, as well as to finance growth from large orders. So I feel pretty good with where I’m at. I shifted away from an SBA. I had had an SBA for I think five years and I had three more years on it at a higher percentage rate. At the time, I thought 6 percent was good, but when you can get something for 3.75, you’re going to take that.

So I’m in the EIDL, and with something like this government contract, I probably will need to go and get more from a bank. We’ll see. But those are my financing plans. In terms of equity, last year, Loren, as you know, I thought a lot about that. And I met with a couple of potential investors. And in both cases, I realized it wasn’t a good fit. I think it could be a fit in the future.

But I want to grow more. I want to have more established, let’s say, government contracts, which I think would be very valuable to an investor. And I also really want to get some of the kinks worked out in supply chain issues we’ve been facing. And so I don’t know if I’m ready for an investor right now. But I am going to primp to be ready for next year—definitely double sales again, get some of these strategic contracts. And I think that could be really attractive with a couple of investors.

If you want to know what went wrong, in one case, I was really excited about the venture investor, because his firm comes from the manufacturing industry. And for me, I thought it very attractive that I could get financing, but that they would also bring the subject matter expertise to the table as a past American manufacturer. There was a stylistic difference.

Loren Feldman:
What do you mean?

Liz Picarazzi:
So this potential investor is incredibly successful. He sold his business a few years ago for a lot of money, and he put it into an investment fund, and now he’s investing in other businesses. So the principle of it is really great. It just turns out that I felt like he had an abrasive personality. Some of the feedback was really delivered in a way that I didn’t like, but I will say I did take.

Loren Feldman:
Feedback about the way you run your business?

Liz Picarazzi:
Yeah, feedback about that, or kind of making assumptions that were wrong, and that he would have found out were wrong had he spoken to us more. But I think the ultimate thing for me was that in the last meeting that we had, I was doing employee reviews that day, and I had an employee review with an excellent employee. And at the end of the review, I asked him if he had any questions or concerns, and he only had one. And it was, “What’s going on with that investor? It doesn’t sound good.” And I really listened to that, because he’s really valuable to me. I don’t really know if the investor would or wouldn’t be valuable to me, but I know that that employee is. So that was something that was really telling.

Jay Goltz:
I have two questions. First of all, just out of curiosity, this person who was the investor, you said he was extremely successful. Did he actually start the business?

Liz Picarazzi:
Yes.

Jay Goltz:
Okay, so he sold it, and now he’s got money to invest. My other question is: Have you considered just not taking on an investor and funding your own growth and not having to answer to anybody? Because that’s what I did. And in looking back, I have to tell you, I’m very glad I did it my way. Because I’ve got nobody to answer to, and I’m just in good shape. And I see lots of people who took in investor money and it didn’t go well. And if you have to, you have to. There’s no argument some people have to take in investor money, because what they’re doing is so capital-intensive. I don’t see your business being that capital-intensive that you couldn’t self-fund it. Have you thought about that?

Liz Picarazzi:
I have, and I don’t like the idea of having a boss above me, especially if she or he really can’t give great advice. So if it’s like a VC who’s coming from the software industry, they’re really not going to know my business, unless they’ve been a manufacturer in the past, and they really get the sense of the cash flow and what’s needed. So I think it would have to be an investor who fit, from a subject-matter expertise perspective. But my husband and I own the business. We really like our life right now. We can walk to work. It’s like 15 blocks away. We don’t have to answer to anyone. Our business is growing. We have a wonderful team. And the specter of an investor coming in and disturbing that harmony that we have is something I need to look at.

Jay Goltz:
You know, everybody thinks you’ve got to get investors now, and that’s just simply not the case. Most businesses do not have investors, and the people who I know who are just happy campers out there, making good money and having nice lives, they don’t have investors. I’m afraid that people start to think that, “Well, if you want to be a big shot, you have to have some investor money.” And I don’t believe that’s the case. That’s not the case at all, and I don’t know that your business needs that.

Dana White
It depends on how fast you want to grow. I’ve had people come to me and say, “Dana”—even on this show—“Why don’t you just take on an investor who can put a lump sum of cash in, and you can build these sites across bases out, boom, boom, boom?” But me? Since I was last on this show, I’ve had people approach me: “Oh, what a great opportunity. Would you consider taking on an investor?” And my answer is, “No.”

And I’m with Liz. Unless you’ve walked in the shoes, you’re not going to understand. Unless you’ve been a hair traffic controller, and you’ve worked the desk, and you’ve answered that phone when a stylist has called off, and you know the staffing concerns we have… A lot of investors who have approached me see the financial gain that I’m interested in selling down the road, and they want a piece of what I sell, but they could care less about the problem I’m solving for and what it’s actually like to be a part of this business.

And so I want a partner. Money would be great, but I want a partner. Even if that partner isn’t in the industry, I want somebody who respects the years in that I have enough to sit in the backseat and ask questions—not side-seat drive. And so that’s why, right now, yeah, I have a great opportunity. I mean, they just sent me the Grafenwoehr contract for Germany the other day. But no, they had taken on an investor. “What are you spending it on? And what are you doing? Well, why isn’t it making more money? Well, staffing?” Yeah, no, I’m not interested. Right now, slow and steady is safe. And if it takes me 10-15 years to grow it, oh, well.

Jay Goltz:
I can tell you, the math is simple. Most businesses, many businesses, I’m just gonna throw out a number that I believe to be pretty close: My guess is most businesses can grow 20 percent a year—which is tremendous growth—and self-fund if you’re profitable enough, which you should be. Twenty percent a year growth is going to really get you where you want to go very quickly. In 10 years, you’re going to go from $1 million to $10 million.

So I don’t think that’s a bad option. But there are clearly some companies that need to get investor money, because they’re in an exploding market, and they’ve got to get out there with it. I’ve seen plenty of businesses grow 10 to 20 percent a year and turn into big companies—big enough companies, I should say. The key is big enough. Like, if you could get to $10 million, you’re making a lot of money, and life is grand.

Liz Picarazzi:
Well, I’m open to it. But for me, it’s not just the cash. It’s the subject-matter expertise. So I’m an accidental manufacturer. I have a background in Russian literature, and credit card marketing. I’m now a manufacturer, so if I could have an outside investor who either brought that to the table or could help me with it, that would be really valuable. That would be really differentiating. But the other thing, often with investors, particularly if they’re VCs, is that a huge chunk of the pitches that they get are for software and technology companies. And I guess if that’s their forte, I don’t really like them evaluating me according to that yardstick. It’s a totally different business. So there’s a bit of me that’s like, “Maybe I would be unattractive to them.”

Jay Goltz:
Absolutely. They’re looking for grand slams. They’re looking for something that’s gonna turn into a $300 million business.

Loren Feldman:
But there are other kinds of investors who would be interested.

Jay Goltz:
Yes. They’re not going to be—

Loren Feldman:
It’s not VC.

Jay Goltz:
No, it’s private equity.

Loren Feldman:
Just to play devil’s advocate, one of the reasons a lot of companies consider taking on private equity is they’re concerned about competition. They have a product, and they want to establish themselves as quickly as possible before someone else steals market share. Are you at all concerned about that?

Liz Picarazzi:
So I may be naive, but I actually still feel like I’m in a fairly blue ocean by being so differentiated, as the premier, go-to trash enclosure. We’re totally different than anything out there. And when people want us, they want us.

Loren Feldman:
But someone else could do that, too. Right?

Liz Picarazzi:
They could. And there have been attempts. I mean, I’ve had a couple of patent infringements, including, very disappointingly, of a client who had completely knocked off my bin. So you know, that was a situation.

Dana White
I’ve heard that as well. I’ve heard, “Dana, aren’t you worried about it?” And with my business model being really new, I have nine years ahead of anybody who’s starting. Even if they started two years ago, I’ve got seven years ahead of you, so I’m not really worried about it. And that’s another reason why I’m franchising. I think that the growth of franchising helps. That establishes it without me having to take on an investor.

I think my hurdle with an investor and establishing myself in the market is that, again, you’re dealing with a problem that the people with money don’t really see as a problem, because they can’t relate. They don’t understand. They don’t know what it’s like to grow up sitting in a salon all day. And it’s one of those things that, once there are 100 across the country, and they’re established on military bases, they’re gonna go, “Oh, why didn’t I think of that?” But I’ve had even people who have worked for me, they go and they open their own. And they don’t last, because it’s a lot more than just letting people walk in and doing it. There’s a lot of moving parts, and you have to get practiced in doing it before you’re ready to scale. Even if the money is readily available, you have to know how the salon operates. And that takes time.

Loren Feldman:
Liz, you told us that because of the supply chain chaos, you had placed a much larger order than usual for your products from China and that you were expecting that to be delivered. Has that actually arrived?

Liz Picarazzi:
Yes, so we actually have two waves. One wave was on product that we ordered nine and a half months ago, and it arrived. And we actually got an additional warehouse in Brooklyn to store all of those, and then we continue to have the warehouse in New Jersey. But the next delivery that we get, which will be in February, that’s actually the one that’s three times larger than any order we’ve ever made. And so our supply chain is growing. It’s growing more complex. Some of the difficulties with the blockages in the chain are no longer issues. Now our issue is just that our sales are growing, our operations are becoming more complex.

Those containers have come over, and it’s kind of exciting because I haven’t felt like I had control over my inventory really ever since I started mass production. It’s always been in a warehouse. So I love the idea that it’s near us in Brooklyn. Our inventory is our most valuable asset, and we’re really excited for our installers to be able to come straight to the Brooklyn weigh station, pick up product, and go in and install it.

Loren Feldman:
What do you mean you didn’t feel like you had control? What was it that you weren’t able to do?

Liz Picarazzi:
I have dealt with a couple of warehouses that behave in an extortionate way, to put it nicely. And they do things like they try to change the price on you when you have stuff coming from the port about to go into the warehouse. One guy would not let me put my product in his warehouse that I had been in for over a year until I agreed to the terms—new terms of pricing—which were over double what we were paying at that time.

That happened in April of 2020 at the height of the pandemic. So then that sent me out shopping for new warehouses, which was the most ridiculous thing in the world. We were in lockdown, and I was literally trying to find a warehouse. So it was that sort of thing where I felt like there was a power play. Interestingly enough, we’re still at that warehouse. We worked through the issues. But that was such a horrible feeling that this thing that, for me and my family—that inventory—that’s huge. That’s cash. Our house is up against that inventory. So if someone behaves in that way, I’m going to view it as a threat, and I’m going to find other options.

Jay Goltz:
It’s funny that you say that, because some guy who I knew growing up gave me some really insightful advice about 20 years ago. He said to me, “In business, you ultimately have three potential enemies: partners, landlords, and banks.” And I never forgot that. And you know what? I never had a partner, but I got rid of the bank, and I don’t have a landlord. So here’s the case of, you have a landlord problem.

So I’m suggesting to anybody that, if you could structure your business to where you own the property, and you don’t have to borrow from the bank anymore, and you don’t have a partner, you’re in a happy place. That’s all I can say. Because there’s not much else that can go that wrong in your business, if you don’t have one of those three things going at you. Because a landlord can put you out of business.

Loren Feldman:
Finding warehouse space right now is exceedingly difficult.

Liz Picarazzi:
Well, the thing that we’re preparing to do within the year is to consolidate everything in one place, so I’m sending one rent check a month instead of three. Right now, we pay the warehouse, we pay our office rent, and we pay for a woodshop that we have off-site. So that all adds up. My business is at Industry City. They would have spaces that could accommodate all three of those needs at the same time. But we just didn’t want to sign on to a five- or 10-year lease yet, because of all the uncertainty. Now that things are smoothing out, we’re really excited to be able to do that again. But we wanted to transition to it.

Jay Goltz:
Loren, when you say “warehouse space,” you’re reading a lot of publications. There’s a lot of demand for these gigantic warehouses for the Amazons of the world. There’s still plenty of buildings out there for sale that are 20, 30, 40, 50,000 feet. You can go online at any second, and there’s plenty of buildings that are out there that are empty on the smaller side. I don’t think there’s a shortage of those. And with SBA loans, you can buy a building with 10 percent down, which is a beautiful thing.

Liz Picarazzi:
Then I would worry, though, that I would be in the warehouse business.

Jay Goltz:
Why? Owning one warehouse to—

Liz Picarazzi:
If we didn’t fill it out, I would feel the need to sublease. And that would be a distraction.

Jay Goltz:
Well, but that’s another way of making money and having room to grow into it. Because if you want to grow your business, that’s going to be an ongoing problem of outgrowing your space. I mean, I started at 2,000 feet, and now I’ve got 140,000 feet. And if you’re growing, you need more and more space. And the reason I was able to do it, is luckily I was in a building that was in an abandoned factory district. And for 20 years, I just kept taking up the space of the people who were going out of business. And then I started buying buildings, and that is going to be an issue going forward. So it’s a question of: Do you control your own destiny or not? And one way or the other, you’re going to have a real estate issue. I’d rather control it than not control it.

Loren Feldman:
You had points in time where you were leasing space out to other businesses, weren’t you, Jay?

Jay Goltz:
Yeah, when I bought my building that I’ve been in for 20 years, I probably had 10 people renting office space. And slowly but surely, I didn’t renew the leases, and I’ve taken over the whole building.

Loren Feldman:
Was it difficult to manage?

Jay Goltz:
No, not at all. It’s way better than having to continually move your business because you are through the space. I mean, not that big of a deal to find somebody who needs to rent. So you buy a 40,000-foot warehouse, and you’ve got 10,000 feet left over. There are plenty of people looking for a 10,000-foot space. And the point is, you might think, “Oh, I don’t want to be a landlord.” Okay, well, that’s fine. But if you don’t do that, you’re still gonna have a problem. So now, you’re the tenants. You’ve got a bigger problem. I’d rather be the landlord. If I’ve learned anything in business, better to be the landlord than be the tenant. That’s all I can tell you.

I’ve seen so many people get into big squeezes because their landlord—what happened to landlords—many times, they eventually die, because they’re older to begin with. And then the kids take over and the kids just want to sell the building, or they want to fight with each other. When I was in my building, and it got handed over to the kids, my lawyer said to me, “Oh, that’s going to go on for years.” He was exactly right. The adult children were fighting with each other for three years trying to figure out what to do with the building. And luckily, I was able to move out because it became a big mess. Ask any lawyer. These transitions with real estate with kids and stuff, they’re frequently all messed up, and you’re the tenant. It turns into your problem. And that’s why I say, “Own your own building, you control your destiny.” And I think that that’s generally—not always, most of the time—a good thing.

Loren Feldman:
Liz, you have that big shipment arriving this month, you said. How long do you think that product will last? How long are you good for?

Liz Picarazzi:
So, we have three containers coming over. One of them is already sold out. As of yesterday, we ran out of our most popular color, which means no one can have that color until we make another order and hopefully get it in four months.

Loren Feldman:
And you haven’t placed that order yet. Is that for financing reasons?

Liz Picarazzi:
No, it’s because we sold a lot last week, literally. So I told Frank—

Loren Feldman:
Your husband.

Liz Picarazzi:
Yeah. I can’t believe we ordered three times more than he was comfortable with, and yet we’ve still sold out by a third and we have a color running out. And I mean, I know that we’re figuring it all out, but there was a little bit of, “I told you so.” I remember at one point over the summer, we were having a fight in our backyard, about shipping containers, literally. We were having a fight about the size of our order.

Loren Feldman:
You wanted to order more. He wanted order less?

Liz Picarazzi:
Yes, I basically said, “Whatever number that you come to me with, I’m going to triple.” And I did. And it’s because he’s new to the business. It’s very risky for him. He doesn’t look at cash coming in over time, that flow. He only looks at what the bank account is at that moment. And it is terrifying to place a commitment for three times what you’ve normally done, when the bank account doesn’t look like you can pay for it all at that moment. So the idea of financing future sales, he was getting used to.

Loren Feldman:
Is this partially the result of your having more experience as an entrepreneur than he does?

Liz Picarazzi:
Yeah, I think it’s definitely partly that. And I feel like I had a greater appreciation of how bad the supply chain issues were, because I understood that if we can’t get bamboo, then that’s going to affect the factory, which is going to affect the paint thing. And so I understood, even before we really knew how long it would take to get over, that it was going to take way longer than we thought. So I realized that if we didn’t place a big order that we would be perpetually sold out. And so we were sold out for about four months—like literally, of everything on our website. It said, “Lead time: 14 to 18 months.” On some products, we still have that.

Loren Feldman:
That must have cost you a lot of sales, I would think.

Liz Picarazzi:
It did. I said, “Imagine how many sales we could have had if that 14- to 18-week message wasn’t on there.” So you know, he gets it now. He had to go through it during a pandemic to really understand that, but—

Loren Feldman:
So how big is your next order going to be?

Liz Picarazzi:
I don’t know yet. I’ll tell you in a couple of weeks.

Jay Goltz:
I don’t know your husband at all, so this isn’t about your husband, but I can tell you, part of this is DNA. Loren and I know someone that we’ve talked to who says, “Well, he would expand, but his wife won’t let him borrow money.” I mean, there are just some people who can’t handle it. Period. End of the story. There’s some people who can’t handle the risk of being in business, and I don’t know that you can change that. And I’m not saying anything about your husband. I’m not saying that that’s the case.

But in some cases, there are some people who—there’s a reason why most people don’t own their own business. There is a reason. The biggest reason probably is people can’t handle risk. I take risks on stuff I don’t think anything of, and other people would be horrified. And it took me a long time to understand that I’m the odd one—not them. I did a speech one time. The guy goes, “Jay, how can you grow your business without borrowing against your house?” And I just laughed. I go, “Well, when you figure that out, could you please call me and tell me how to do that?” Most entrepreneurs I know have done what they had to do to finance their business. And that’s the way it goes.

Liz Picarazzi:
Yeah, and the financial literacy. I mean, I’ve had 11 years to work in my two businesses and understand cash flow and whatnot. But he doesn’t yet know that. And so tomorrow, we’re actually going to sit down for two hours in the afternoon and watch some videos about cash flow statements, balance sheets, and P&Ls, and understand how things flow between them. Because if you’re looking at cash flow in that way, you understand that you are going to pay a ton to get inventory, but it’s going to be cash. It’s going to be an asset, and then you sell that down, and it turns into cash again.

That is a cycle that I understand now, but I think most people wouldn’t understand, and Frank is still kind of getting around to. So like I said, he’s going to look at the checking account balance, and then he’s going to look at how much the next 3X order is going to be, and that’s going to be a freakout. Unless we look at the cash flow statement and plan it out and see how the revenue coming in is going to pay for easily that huge inventory that we’re purchasing.

Jay Goltz:
From my experience talking to entrepreneurs, they frequently don’t know the difference between profit and cash flow. People go, “Oh, I’m having a cash flow problem.” No, you’re having a profit problem.” You’re losing a lot of money. It’s not the same thing. A cash flow problem, by definition, truly should be that you’re profitable, but the cash is getting sucked up into either inventory or receivables or equipment. And so if you’re not making money, that’s a profit problem. It’s not a cash flow problem.

And what you’re describing is truly cash flow. So that’s smart to walk through that, because most people do not understand that. They do what your husband did. They look at the checking account, and it’s not that simple. And the bank will probably lend you 75 percent against your receivables—if you have receivables, maybe you don’t, which would be best yet. And usually, from what I’ve seen, banks will probably give you 50 percent on inventory, which could help. Or maybe less. They don’t love inventory, because inventory disappears. That’s what they tell me.

Loren Feldman:
All right, well, Liz, please tell Frank that if he wants equal time, we’ll figure out an opportunity for him to join us and make his case.

Liz Picarazzi:
He’d like that, and he’d be very good at it.

Loren Feldman:
I bet he would. We’re running short of time. I want to hit a couple other things before we move on. One is, I’ve been hearing complaints lately from a number of people about just how hard it is dealing with professional services you have to hire as a business owner, especially lawyers and accountants. And I’m wondering if any of you have struggled with that.

Jay Goltz:
It’s a problem. My brother-in-law was always my lawyer. I never had to deal with outside lawyers. And at the end of the day, most lawyers are not looking for entrepreneurs’ business. They’re trying to do business with Allstate or something and get $100,000 legal bills. I found it difficult to find a lawyer who will give their full attention to what’s a small business.

The accounting firms, I’m looking at what they’re charging. I’ve been with the same firm for 23 years, and we were paying for reviewed statements for 23 years. And it wasn’t until my kid got in the business. He goes, “Dad, why are we getting reviewed statements?” And I said, “Well, it’s for the credit line at the bank.” And he said, “You know we’re paying $20,000 a year more for those?” “Really?” So I asked my accountant. I said, “I’m going to get rid of the bank line soon. Why would I want reviewed statements?” “Well, in case you want to sell the business.” I go, “Yeah, I’m not selling the business.” Not bad for him, though, getting over $20,000 a year. Not happy about that. Not happy about that at all.

So yeah, I’m not saying that they’re all like that, but I think it is a challenge finding professionals who—I don’t know what the word would be—play fair? Reasonable? Conscientious? Dedicated to your business? I don’t know. There are certainly plenty of good ones out there.

Loren Feldman:
Have you figured out how to identify them?

Jay Goltz:
Maybe by talking to other business owners and asking for recommendations, perhaps. I can tell you this: Here’s how not to do it, because I’ve done it: They all take care of each other. That’s the nature of the beast. The banks send business to the accountants, the accountants send business to the banks, and lots of times it’s really looking out for themselves. “Oh, I’ve got to give this guy a lead because he gave me one.” I hate to sound cynical. It’s not cynical, it’s experience. I’m sorry, but you’ve got to look out for yourself because: Commerce before conscience. If an accounting firm gave a really big account to the bank, I can assure you the bank is looking for somebody to send to that accounting firm, whether it’s the right fit or not. Sorry, that’s what I’ve seen.

Liz Picarazzi:
Jay, it’s very time consuming to try to find an alternative. So I’ve had three accountants in 10 years, which I kind of feel ashamed of, but I don’t think I should be.

Jay Goltz:
No, shame on them. Shame on them!

Liz Picarazzi:
I know. That’s what I need you guys to tell me, but I’m the common denominator. But the thing that happened most recently was we knew we wanted to change accountants. I had my operations manager call around to a bunch. We had a bunch of interviews. I think there were eight interviews, and we could tell that seven of the eight accountants seemed to be more focused on service than product businesses. And that makes a big deal with the accounting, and it was very apparent. So what we decided to do was stay with the accountant we were with, and tell them the things that we were seeing that we didn’t think were right. And you know, COGS were completely messed up, because they were expensing inventory, instead of putting it on the balance sheet.

Jay Goltz:
Wow.

Liz Picarazzi:
We had these waves of huge expenses hitting like three or four times a year, and that was the payment to our supplier. So we’ve turned it around, but I guess I bring this up because it’s been very stressful to me. But then I also had someone working for like a month or so on this, and she became very frustrated with it. So if you tie up a resource to shop around for a new accountant or lawyer or insurance agent, you’ve got to really know what you want and have a good filter. I don’t think I’ve always had a good filter. But I do think now I will, because finding an accountant who can be great at product and knows inventory is a very different thing than someone who does services.

Loren Feldman:
Jay, does that surprise you that an accounting firm would struggle with product versus services?

Jay Goltz:
I am flabbergasted that they would expense what she said—COGS, cost of goods sold. I am flabbergasted that they would just go take an invoice from a supplier and write it off as an expense versus understanding inventory and taking inventory. And I have an accounting degree, which I’ve never practiced. That’s like basic, first class in accounting, for God’s sake.

I think the lesson is, you said having a filter. The first lesson is—and I had to learn it myself—Stop assuming that all accountants or lawyers know what they’re doing and they’re great at what they do for your small business. That is a natural thing. People think, “Oh, he or she must know what they’re—” That’s not the case. I mean, it’s shocking, but that’s simply not the case. I’m sure you were shocked when you found out that they were expensing your inventory, for God’s sake.

Liz Picarazzi:
Well, just to not completely badmouth them, they would then correct it, but they would only correct it like every few months. And that was annoying to have to ask them to do that.

Jay Goltz:
Well, clearly you shouldn’t be having to ask them to do that.

Loren Feldman:
That’s amazing.

Jay Goltz:
Well, there’s a difference between… Most of these accounting firms really do tax returns, and then there’s running the business internally. And the fact is, like in that case, I use a plug number for my cost of goods sold, meaning we bring in the shipments. Whatever the sales are, we figure X percent is for material, and then we cue it up when we take physical inventory to get it right. But at least it’s running at about the right number. And get something you do internally. It would take a smart accounting firm to understand that to help you with that, and I’m sure they do exist. You just have to go looking for one.

Loren Feldman:
All right, we’re almost out of time. Last thing today: Jay, I’ve got to bring this up. Today in The Morning Report, I quoted from a story about how buyers of NFTs, who are buying digital artwork, are frustrated because they can only show it on their iPhone or their laptop, and they want a way to frame it and hang it on the wall. And let me just quote, “Collectors spent $21 billion trading digital art and collectibles last year, up from $67 million in 2020.” Um, Jay?

Jay Goltz:
This just illustrates we’re at the beginning of the end of civilization. As soon as picture framing goes away, it’s just…

Loren Feldman:
Wait, wait, wait, picture framing going away? Isn’t this an opportunity for you?

Jay Goltz:
They’re putting it on a screen, a monitor, so they want a frame. But if you change the picture on the monitor, the frame’s not going to match. So they want to do a digital frame on it. I’m not so sure in 10 years that that’s going to be taking over the art world, because I still believe in art and texture and paper and canvas.

Loren Feldman:
Well that may not go away, but people who spend $20 billion on digital art are going to want to do something with it.

Jay Goltz:
Yeah, they need a digital answer to it, because what I have is picture frames. So I could say, “Oh, I’ll put a picture frame on your video display.” But that frame’s not going to go with all the pictures unless you just put a generic frame on there, which, okay, now you’re in the trim business.

Loren Feldman:
I don’t know, Jay, this may be your way to take on a little venture capital.

Jay Goltz:
I don’t think so. You’ve gotten very creative with… I know you work hard on trying to irritate me at every podcast [episode].

Loren Feldman:
Is it that obvious?

Jay Goltz:
Yes, it is. I’m watching what’s going on with that. It’s clearly fascinating, but I don’t believe that it’s taking over the art world. And I don’t find any solution that I have for them to take my beautiful moldings that make the picture look 10 times better and make a package to go stick in under a video screen and they’re going to change pictures every 15 minutes. I haven’t it figured out—nor am I spending any energy on it.

Loren Feldman:
All right, I give up. My thanks to Jay Goltz, Liz Picarazzi, and Dana White. As always, thanks for sharing.