We Are Survivors

Introduction:

This week, two years after the pandemic first hit, Shawn Busse, Jay Goltz, and Liz Picarazzi talk about what they’ve learned, what they’re doing differently, and whether their businesses have gotten weaker or stronger. Leading up to the pandemic, Shawn—still carrying scars from the Great Recession—did a series of workshops on how to prepare for the next recession. “And so in that regard,” he tells us, “we were really well prepared” for the pandemic. Plus: public companies are increasing prices aggressively and then bragging on earnings calls about the extra profits those increases are generating. Is there a lesson in this for privately-owned businesses? Also: Why does Jay seem more invested in his picture frame business than in his home furnishings business?

— Loren Feldman

Guests:

Liz Picarazzi is founder and CEO of Citibin.

Jay Goltz is founder and CEO of Artists Frame Service.

Shawn Busse is co-founder and CEO of Kinesis.

Producer:

Jess Thoubboron is founder of Blank Word Productions.

Full Episode Transcript:

Loren Feldman:
Welcome, Shawn, Jay and Liz. I want to start today by noting we are now recording our 100th episode, and I guess I would emphasize two things. Most importantly, I’m really grateful that the three of you and the rest of our crew agreed to do this. You guys talk about things in public that a lot of business owners won’t talk about in private. So thank you for that.

I would also note, we certainly picked an interesting time to do this. We started right before the pandemic. We got just enough time to get to know each other a little bit before things got interesting. I had been worried before that about whether we’d run out of things to talk about. That hasn’t been a problem.

So it’s our 100th episode. It’s also almost exactly two years since Jay told us that he wasn’t convinced the pandemic was coming to Chicago, and the reality of the whole situation eventually hit us. So I’d like to start by talking about that a little bit. Maybe I’ll start with you, Liz. You weren’t part of the podcast team at that point. Can you go back two years and remember what you were thinking when things got serious?

Liz Picarazzi:
Sure. I was definitely panicked—panicked, partly, because I had just made a gigantic inventory order and was flush with inventory but lost, like, 70 percent of my business in March and April of 2020. So I was very undercapitalized and very much needed PPP.

Loren Feldman:
Which you didn’t know would even exist for quite some time.

Liz Picarazzi:
If we’re going back from the very beginning, yeah. So I was scared for my employees in New York City. At the time, the COVID rate was incredibly high. I had several employees who become sick. And you know, it was, as a business owner, really scary. Because you lose your revenue, you’re worried about your employees, just everything. It was nothing but worry.

Loren Feldman:
How about you, Shawn? Do you remember what you were thinking at the time?

Shawn Busse:
Yeah, I was, in hindsight, fortunate in that I had two things, which was: I had a friend who was Chinese and very connected to what was going on in China. And what she was telling me and what the media was saying were really different. And so it gave me a head start, in terms of my awareness. And then I also had some clients who are engineers, and they’re just very kind of oriented around data and facts. They were like, “This is going to be really bad. We’re closing our office today.” And I was like, “Whoa…” So I think being in a business where we serve other businesses gave us a real advantage, in terms of appreciating how significant it was going to be.

So from there, we took action really quickly. I went through the Great Recession, and didn’t appreciate how bad it was going to be until it was really too late. And so this time, I thought we were going to have another Great Recession. I thought for sure. I was reading papers that were kind of titled things like, “The Economic Ice Age.” So, we went at everything really hard, not only in terms of safety, but also strengthening client relationships, supporting clients, just doing everything we could to really prepare to batten down the hatches, because we didn’t know that PPP would come. We didn’t know that the government was going to print money like there was no tomorrow, so we went at it really seriously.

Loren Feldman:
When you started cutting costs, did you have to lay people off?

Shawn Busse:
No, the one thing we said to the team was, “The very last thing we are going to do is impact people’s jobs.” So we were willing to walk away from leases. We were willing to pretty much do anything other than that. And we made that really clear, because we felt it was really important to provide a sense of safety and dependability—just because it was a) the right thing to do and b) I just think that that’s what leaders need to do when times are hard, to really convey that they’re here for their people.

Loren Feldman:
Jay, I apologize for taking a cheap shot at you once again.

Jay Goltz:
I guess I’m used to it.

Loren Feldman:
I know you are. Do you remember when—

Jay Goltz:
No, absolutely. You’ll notice, I didn’t jump in. That was an actual portrayal. I wasn’t sure it was coming here. It was too hard to even fathom. And, yeah, it came. I would also say, there were six other things over the last 40 years that didn’t happen. It’s just, I’d kind of gotten numb to getting all anxious about stuff because five out of six times, whatever you think is going to happen doesn’t happen. So in this case, it did happen. And I’m the first to admit, thank God for PPP.

Loren Feldman:
So, next question: I’d like to ask each of you: Is your business stronger or weaker today than it was before the pandemic hit?

Jay Goltz:
I’m the first to say, Nietzsche’s “Whatever doesn’t kill you will make you stronger.” My company’s definitely stronger. We got through one more thing, and my staff is fine-tuned, and I think we’re better off.

Loren Feldman:
You know, it wouldn’t have been obvious two years ago that that would happen.

Jay Goltz:
I had some people who had done a good job for many years and, for whatever reason, it was just time to move on to something else, and they were worn out, or whatever. And it just was a little bit of The Great Resignation isn’t necessarily unhealthy. I mean, it forced people to take action that they should have taken. And in my case, it just fine-tuned the organization. I’ve hired, I don’t know, probably seven or eight great new people who are bringing new perspectives, who are excited to be here, who are reenergizing the company.

Loren Feldman:
Liz, how about you? Do you think your business is in a stronger or weaker position today?

Liz Picarazzi:
In a much stronger position, thankfully. Last year, we doubled revenue, and this year, we’re on track to do the same. I think a lot of that has to do with the economy improving and having a stronger staff. But I do think a lot of it has to do with the lessons that we learned in the pandemic, particularly around cash flow and supply chain issues. So with cash flow, as I mentioned earlier, we really found ourselves undercapitalized in those early spring months.

Loren Feldman:
What did you do?

Liz Picarazzi:
Well, we had PPP. That was a big part of it. We negotiated extensions on bills with suppliers, whether it be the warehouse or factory, our landlord, extending it out a couple of months. And luckily, all those debts we were able to pay off, but at the time that we asked for them, we didn’t know if we were gonna pay it off. And that was really terrifying to be on the hook for all that inventory that I had just purchased. I have trade terms with my factory.

And then the other thing I would say about being better is everything having to do with supply chain. We used to order every two to three months, and we were on that sort of a cadence. Well, during the pandemic, when there are those supply chain blockages, as there still are, we need to order much larger quantities because we kept selling out. So every bit of the supply chain, we’ve come to understand a lot better. Even at the very end of it, when trucks at the port were not showing up, drivers not showing up to bring our product to the warehouse, that was something that my staff, for months, was always negotiating. Things were changing, the price was changing, the timing was changing.

So we really had a greater appreciation for how supply chain issues can affect everything. They can really affect customers with the timeline we get them product, but it also ties up resources of the team. I can’t tell you how many times I felt like the whole team was tied up dealing with containers, trucks, FedEx, shipping, tariffs, you name it. It was really time consuming, and we’re in a much better place with that. We’ve really smoothed out our operations. Our cadence for buying is we’re buying a lot more at a time. And we’ve changed some of our vendors who weren’t very good at supply chain management. And that was a big, “Aha!”

We used to work with a company that I’m sure everyone’s heard of called Flexport, that is kind of like the Uber of ocean freight shipping. And we found that they really didn’t have the visibility into the containers that we thought they would have. And so we recently shifted to a smaller freight forwarder and freight carrier that we can just call on the phone, and we can find out where everything is at every step of the supply chain. So that’s one big change we made. We thought we were going with the big name brand company, but they ended up really not having the information we needed. So shifts with vendors, generally speaking. We made some very smart shifts with vendors and with processes, and that has put us in a really good position.

Loren Feldman:
How about you, Shawn? Same question.

Shawn Busse:
I think this is such a great question. I’m reflecting on it. If I were to break it down into four pieces, the areas of the company I think about: marketing, operations, clients, and culture. And sort of working backwards from there, the culture has actually, I think, in many ways grown stronger and kind of more connected. I think, to Jay’s point, stresses can either drive people apart or bring them together. So I think the culture has actually done really well through this. With one asterisk, which is: We’ve been remote for so long, I think it’s really difficult for newer employees. So I’m trying really hard to make them feel more welcome and to bring them into the culture.

But those who’ve been with us a long time, I mean, largely, it’s been mostly good. There are some pretty big asterisks, though. Clients, I would say, they really stuck by us, and we also really stuck by them. And then I think the two that have been hardest hit would be operations, which is, being a virtual company is really nice on paper, but missing that collaboration in person and seeing each other and being delighted by somebody coming into the office—I think that that’s our form of operations. And then lastly, marketing. That’s the area where we were most harmed by this. Our marketing strategy before the pandemic was speaking, workshops, and events. Overnight, our entire marketing strategy was rendered pretty ineffective.

Loren Feldman:
Have you found something to replace that?

Shawn Busse:
Yeah, going on the 21 Hats Podcast. [Laughter] We found imperfect replacements. Virtual events, they’re okay. We hosted our Catalyst Summit this year—both of them were virtual, and I think they were really good events. They’re just not as impactful as when you’re in person. So we’re still working on it.

Jay Goltz:
There will be some companies that are severely hurt by this, though, that have taken that approach, because they don’t have the stomach to tell their employees, “Yeah, you know what? We hired you to be in the office, and we need you to be in the office.”

Shawn Busse:
Yeah, I’ve been thinking about this a lot, too, in terms of how the folks in our company, where they work in tight-knit teams and they collaborate a lot, they actually are doing pretty well through this. But it’s the folks who are more in a silo type of a role—I would put myself in that—like, it was really hard for me. Emotionally, it was very difficult these last couple years because I’m generally not working on a team in the same way, and I think that’s really hard. The remote thing, if you’re in isolation, plus the added stress—childcare and all that stuff—yeah, that’s hard.

Loren Feldman:
So Shawn, that was all really interesting, but you didn’t quite answer the question. Do you think you’re in a stronger or weaker position today?

Shawn Busse:
Well, I mean, I think the question’s flawed, because—

Loren Feldman:
You said it was a great question!

Jay Goltz:
There you go. I didn’t think I could like you any more, Shawn.

Shawn Busse:
Yeah, I mean, that’s a typical journalist, you know, “Five Things You Need to Do” or “10 Ways This Company Has Been Successful.”

Loren Feldman:
Oh, oh! I’m in pain.

Jay Goltz:
Ouch!

Liz Picarazzi:
Oh, Loren, is not one of those list-maker journalists.

Shawn Busse:
I know, I know. I just think that running a business is so complex and to really try to understand if you’re stronger or weaker, I think you’ve got to look at it through at least those four dimensions that I talked about. Because we lived through a recession before, we had actually been doing a whole bunch of workshops on how to prepare for a recession, leading up to the pandemic, and preparing for a recession and a pandemic is the same thing.

You can’t affect a recession. You can’t affect a pandemic. What you can do is you can affect how you prepare for them and how you behave in them. And so in that regard, we were really well prepared. We were well capitalized. We had a really good business model. We had no debt. We had high levels of engagement. We had great customers. So we did as good as we could have, I think, to go through it.

Loren Feldman:
So here’s why I asked this terrible question. It strikes me that everybody on this podcast, pretty much, can make an argument that they are in a better position today than they were two years ago. And I’m curious what you think about that. Do you think that’s representative of businesses around the country? Do you think this is just a self-selecting group?

Shawn Busse:
It’s survivor bias, Loren.

Jay Goltz:
The ones that aren’t in better shape aren’t on this podcast because they’re out of business.

Loren Feldman:
Nobody went out of business.

Shawn Busse:
Well, here. That’s what I mean. It’s survivor bias. You’re talking to survivors, right?

Jay Goltz:
I’ve gotta tell you, I’m not delusional. The PPP thing was a major game-changer, and without it, I don’t know if I’d be here. I mean, the PPP artificially kept some of us in business that maybe didn’t have enough depth to stay through it.

Liz Picarazzi:
Well, I have a theory.

Loren Feldman:
Please.

Shawn Busse:
Bring it, Liz.

Liz Picarazzi:
Everybody who is in the podcast has either been a listener or a panelist. So we’re a group of people who are connected to 21 Hats. We’re inquisitive, we’re curious, we like to learn from each other. I think that those sorts of people are probably going to survive.

Loren Feldman:
I thought you were going to say it was 21 Hats that got all of you through it.

Liz Picarazzi:
Well, that is what I was saying. But I’m saying, there’s a certain type of person who is drawn to 21 Hats, and we are survivors.

Jay Goltz:
Yeah, they’re showing up, and they’re trying to improve themselves. No question about it.

Shawn Busse:
Yeah, I think that’s a great theory. Liz.

Jay Goltz:
I just read a great quote. Howard Tullman—I get his emails every other day—and I don’t know that he made this up or whether this is his …

Loren Feldman:
He’s an entrepreneur in Chicago.

Jay Goltz:
Yes, and he writes for Inc. magazine frequently. And he used the phrase, “Entrepreneurs are hope dealers.” I don’t know if he made that up. I don’t think he did, but that’s an interesting phrase. They’re “hope dealers.” Most people who I know who are successful in business, have a positive, hopeful attitude. Because I don’t know how you could survive long-term without it. But so my point is, maybe we’re all delusional and we’re just telling you what we want to believe.

Loren Feldman:
Liz, I’m curious, were you listening to the podcast when the pandemic hit? Had you found it at that point?

Liz Picarazzi:
I think I had, and I do believe it was an invitation from Paul, who I’ve known for several years. I came in probably right at my crisis point, where I was having literal meltdowns—like emotional meltdowns—being scared and worried about PPP. And for me, the podcast was very comforting. I know that there was one episode when I think one of the participants got a PPP and the other one didn’t. And there was a discussion about it, and that was really helpful because I was one of those who did not get the PPP in the first tranche, and I was really pissed and angry. I was so angry. It was awful.

That was one of the meltdowns. It was the Saturday after the first tranche was announced, and Shake Shack, Ruth’s Chris Steakhouse, and a couple other publicly traded companies received the money. And I had one of the biggest meltdowns of my life. I don’t have that many meltdowns, but it was that bad.

I was so emotional about it. I felt so cheated. But I’m so glad it turned around. Like, it kind of restored my faith that government can help small businesses. But it was a very desperate feeling. And at the time, I was also spending a lot of time with other small business owners who also didn’t get the loan. So we would get on these Zoom calls and just bash everything, bash the government, bash the Treasury secretary. We really went to town on him. But for me, to answer your question, I was a listener at the time, and it was very therapeutic. It was very instructional. And I ended up getting my way through it.

Jay Goltz:
Dana didn’t get it, and Laura and I got it. And we had some guilt that we got it and she didn’t. And we discussed giving her some money.

Loren Feldman:
That was emotional. It was difficult

Jay Goltz:
Yeah. That was a difficult period.

Shawn Busse:
Liz, if you don’t mind me asking, what was the reason you didn’t get it in the beginning?

Liz Picarazzi:
Oh, it was just the very first tranche, and very few small businesses got it.

Shawn Busse:
Oh, okay. You got it eventually.

Liz Picarazzi:
I got it in the next wave, which is when most small businesses were funded. But very few—unless you had really good connections with banks—very few businesses got it in the first tranche.

Jay Goltz:
Or if you just happened to be at the wrong bank. That was a lottery of: What bank do you happen to be at? I mean, that was sad.

Loren Feldman:
Yeah, not every bank was eager.

Liz Picarazzi:
I’m no longer at Chase because of the way they handled it.

Shawn Busse:
Jay has harped on this a lot, but I will just pile on with him, which is: If you are a small business, it is absolutely not in your self-interest to be with a large bank. They do not care about you.

Jay Goltz:
Amen. It’s not what they do.

Shawn Busse:
And that’s the thing. When you need them, they will not be there for you. And so to find a community bank, to find a credit union. Anyone who cares about your business is better than a large bank.

Jay Goltz:
Because they need to. Because that’s their bread and butter. Chase does not need you. That’s the bottom line.

Liz Picarazzi:
That was very clear. I’m with a community bank now, and it was very deliberate.

Loren Feldman:
Jay, one of the things I remember is, before the pandemic hit, you were talking about your struggles with managing your inventory. And you were concerned that you had bought way too much. In fact, I think at one point said to me, not on the podcast, “If I didn’t own the business, I would be fired right now.” Then the pandemic hit, and you were very glad to have that inventory.

Jay Goltz:
I had inventory up the yin yan. And then all of a sudden, I’m the only guy who has inventory. So it turned out to be a blessing. And yeah, that worked out just fine. Sometimes luck is okay.

Loren Feldman:
Have you changed the way you manage your inventory?

Jay Goltz:
You know what, there are three gauges on our dashboard, or there should be. When you start out, you think it’s all about growth. And then you think it’s all about profit. No, the first gauge is cash. That’s the first gauge. That’s the one that’s going to kill you. So there’s the cash, there’s profit, and there’s growth. And I’ve learned lately, especially, I just have a backup of I’m okay financially. Because as I’ve discussed many times, I took out a mortgage on the property. Not too much, it’s a very conservative loan, and I made sure that I got enough cash. So the fact is, if I have too much inventory, it’s okay. I can afford to have too much inventory. It’s fine. It’s not going stale or something.

Shawn Busse:
You know, for years, you had these consultants running around talking about “lean,” and “just-in-time,” and “you’re such a loser if you have inventory.” And really, what they were arguing against was creating any kind of resiliency in the business. And I think what the pandemic has shown is that just focusing on growth and reducing costs exposes you in a massive way. And so what cash is and what inventory is and what investing in culture is, these are all resilience tools that help you get through unexpected things. And I just think the pandemic highlighted how many businesses were just sort of living on this hair-thin line between death and continuing operation.

Jay Goltz:
There’s nothing inherently wrong with inventory—if it doesn’t go bad, if it’s solid inventory. Interest rates are so cheap right now. It’s almost the same as inflation. It’s okay if you can afford to have too much inventory. It’s not a big sin. It’s when you can’t afford to have too much inventory that it’s a big sin—if it sucks up your cash for other purposes, and you don’t have the money to pay your bills.

Liz Picarazzi:
Well, Jay, you also have the privilege of owning your warehouse. So having a lot of inventory like I do and paying a 3PL to house it, those supply costs, those storage costs, are massive. So I think your inventory perspective has got to be informed by your real estate.

Jay Goltz:
There’s no question that’s part of the formula. You’re right. But I have to tell you, I made what looked like a bold move in 2008. My accountant didn’t recommend it. I bought the big cheap building at a super cheap price because real estate was just… Nobody was buying anything.

The realtor literally said to me, “You’re the only person interested in this building. You need to do something,” and I actually said, “Well, I can’t get a loan for it right now. If you want, I’ll buy it—if we close in two years,” and they said, “Okay.” So that wasn’t just luck. I pushed it, and I’ve got a big cheap factory/warehouse space now, but you’re right. That’s absolutely part of the formula. I can afford to sit on the inventory. I’m not really paying any overhead for it.

Liz Picarazzi:
Yeah, like for me, I’ve started to include storage, 3PL costs, in my COGS. Because if I don’t look at that, it really distorts the actual cost of goods sold.

Loren Feldman:
What did you call it, Liz? 3PL? What’s that?

Liz Picarazzi:
Third-party logistics. So that’s the warehouse out in New Jersey that does all of the inventory management and also the shipping of our online purchases.

Jay Goltz:
I’d say to you, I’d be thinking about—I don’t know what the exact situation is—I can only tell you PPP is, for sure, the greatest thing the government’s ever done. The next one is the SBA loans. Buy a building for 10 percent down. I can tell you, it made a huge difference in my business.

Liz Picarazzi:
Well, Jay, the last time you said that, in one of these episodes, my husband, Frank, who’s the COO, heard it. And he kept talking to me about buying a warehouse, which we’re just not in the position to do at all. I wish we could. Our storage costs are so high. I wish we could, but you’ve definitely planted it with him. It’s a really smart investment. It really is.

Shawn Busse:
Well, especially with the cost of capital. We’re at this weird moment where the cost of capital is really low, but inflation is just ratcheting up. So if you can get fixed assets, I think that’s to your advantage.

Jay Goltz:
If I can put my accounting hat on, I’ve gotta tell you, your return on investment, when you only put 10 percent down on a building, is phenomenal. You’ve only got 10 percent down versus putting 30 percent down, which is a conventional loan. So if it works, and you pull it off, you could never have as good an investment as they have. So keep it in mind.

Loren Feldman:
Liz, you mentioned before that you have ongoing supply chain issues. You’ve talked to us in previous episodes about your efforts to start manufacturing some of your products here in the U.S. Have you made any progress with that?

Liz Picarazzi:
So we are going to be moving ahead with a small production of one of our trash enclosures with a metal fabricator in New Jersey, not too far from us. We began talking to them kind of in early fall, but then kind of put things on hold. The pricing on it is higher than we want to pay, as I’ve discussed before. But we want to do this as a test to at least have a U.S. factory or two as options—as well as, maybe we are going to have certain products that we would produce there that would be at the higher price—the USA price. It’s definitely something we’re striving for. And we also have a couple of government contracts in the works, and if those require “Made in the USA,” then I’m going to be very glad to have that vendor. But my bids are going to be about 30 percent higher than they would be on product that’s manufactured in China.

Jay Goltz:
Now, when you say you have to bid it 30 percent higher, have you tried to keep the margin the same? Or do you just take the margin down because you’re still making the same dollars, if you know what I mean? Just because you pay 30 percent more for the product doesn’t mean you have to sell it for 30 percent more. Can you change your markup when you’re paying more?

Liz Picarazzi:
I think we could. I wouldn’t want to do an across-the-board thing, which is why I’m trying to kind of keep it segregated to something that’s product-based. So let’s say we might use that factory to produce in steel, and we normally produce in aluminum. So I could see that being something where then the premium there is because it’s steel, not aluminum—even though aluminum is more expensive. That has to do with the application of it. The steel ones are used for bear-proof enclosures.

Jay Goltz:
I think people are getting more and more sensitive to the Made in America thing. I don’t know what the number is, but there’s clearly a point of no return where they won’t buy it. But I’m pretty confident people will pay more to get “Made in the USA.” The question is, “How much more?” And I don’t have an answer to that.

Loren Feldman:
Well, it’s also an issue, though, of now we have a war going on in Europe. The likelihood of all of our supply chain issues going away anytime soon just seems pretty remote.

Liz Picarazzi:
I’m looking to diversify. I see that this year, I’m probably going to start producing in China and in the U.S., and I’m actually also looking into Mexico. Because of the supply chain problems, I need to have the flexibility to place orders wherever I want. If I have a great order, and they don’t want my four-month lead time, they demand two—then I want to be able to produce in the U.S. and not charge a ton more. But right now, I don’t have any options because it’s all in China.

So for me, it’s not about totally getting it out of China, because as I’ve discussed here before, I have a very good relationship with my factory, and I really don’t want to disrupt that. But I want to have the option to produce in other places and also to appeal to certain clients that would require the “Made in the USA.”

Loren Feldman:
All right, I want to bring up a topic that Shawn suggested, which is how easy it seems to be for big companies to raise their prices. But let’s just take a quick break to hear from our sponsor.

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Loren Feldman:
And we’re back. As we recently highlighted in the Morning Report, public companies are not only raising their prices, but they’re bragging about the extra profits those price increases are generating on their earning calls, which seems like a pretty bold move to me. Shawn, is there a lesson in that for small businesses? What are we to take from that?

Shawn Busse:
Oh, man. Well, that’s probably the reason I wanted to hear some other opinions on this. I think for these large corporations, there’s really no penalty for them talking like that. I just don’t think it influences buyer behavior, really, in any significant way. And I think it influences the stock price, which means it influences the bonus plans for the executives. It’s just a self-fulfilling cycle of crap that hurts us all.

Anyway, I’m just sort of curious, though, how inelastic or elastic it is in the small business space. I know if I were to go to my customers, “Yeah, inflation, we’re gonna raise your prices by 25 percent,” I would lose customers. Not only that, but they’d be really upset with me.

Loren Feldman:
Especially if you told them that it’s going to greatly increase your profits.

Shawn Busse:
Yeah, right.

Jay Goltz:
Well, you know what? It gets back to the price elasticity thing, which is simple. So the question is: If you raise your prices 10 percent, are you going to lose 10 percent of your customers? If you do, you’re making more money, because your costs have gone down by 10 percent. Now, the question is: Are you going to lose 20 percent of your customers? And the problem with entrepreneurship is, most people are worried about, “Oh my God, I’m gonna lose all my customers.” And that’s simply not the case. If you’ve got to raise your prices, you’ve got to raise your prices.

Liz Picarazzi:
I’m not surprised that public companies are raising prices and bragging about their profits to shareholders, because that is what corporations do. I don’t want to say I don’t fault them, but I’m not really surprised. But the biggest difference, I would say, with small business, is that if we raise our prices—and I have twice. My second price raise during the pandemic is actually happening this week. The reason isn’t to increase our profits. The reason we need to do it is to recapture margin, which is the obvious one, but it’s also to be able to invest in growth. It’s to be able to have a salary for both my husband and myself.

Our entire income is tied to this business. So while I wouldn’t tell my customers, I’m raising prices so my husband and I can both be paid, that actually is the reason. I would never say that. I’m only saying that here, among small business owners, but a public corporation would never have that as an explanation. It’s going to be the benefit to shareholders. That’s the message.

Jay Goltz:
But you just said this is the second time, while the pandemic’s been going on for two years, which means you’ve raised your prices once a year. That’s what’s normal. I mean, that’s what we’re supposed to do.

Liz Picarazzi:
It is. But it’s taken a while for us to come around to that, Jay. We’ve had, like a lot of businesses, a little bit of guilt for raising them. But this one was really important to do, and we were able to really recalibrate our pricing across everything, which has been important, too, because it really helps us with our margin analysis if it doesn’t fluctuate as much.

Loren Feldman:
Are you raising your prices for products across the board by the same percentage?

Liz Picarazzi:
No, actually it depends on margin and volume.

Jay Goltz:
Let me tell you an entrepreneur story about raising prices that is the most tragic story I can think of, being in Chicago. The greatest thin pizza in Chicago was right near me here, and his rent went up. This is a real story. So he goes ahead and he decides he needs to own a building. So he buys a building two or three miles away, opens up there, left his market, and then went broke. And I’m talking to him now a couple of years after the fact. And I said, “Why didn’t you just raise your prices to cover the extra?” “Oh, I couldn’t do that. People complained when I raised it 75 cents.” And I said to myself, “You just put yourself out of business, because you listened to that one jerk out of 10 who complained about the price—who probably paid it anyway. All he needed to do was raise his pizza price $2, and he’d be around today.”

And I’m still mourning the loss, because this was the pizza of the gods. And everyone that works with me still mourns. I’m telling you, I don’t know how he did it. It was magical. I’m still mourning this. And I realized that all someone had to do was convince him, “Stop. We always have a customer complaining about price. It’s not the majority. It’s the one-off and get over it.” Yeah, so as lunch comes around, I’m mourning it again now.

Shawn Busse:
Two things have been brought up here. One, which is: Many, many businesses fail to build their financial structure around paying the owner a market-based wage. So, Liz, you’re like, “Well, we need to make a living.” It’s like, “Yeah, actually, the business needs a CEO. And the business needs a COO, right? Those are costs.” And most—myself included, I was guilty of this for many years—we underpay ourselves. And we’re driven by emotion to do that. So that’s problem number one.

And then problem number two is what Jay talks about, which is, we’re scared to raise prices. Or we’re scared to charge enough in order to make the business really a viable, going concern. And then we kind of excuse it away with, “Well, I get to pick my own hours,” or blah, blah, blah. Yeah, but there’s also a ton of risk in what you’re doing. So you actually really need to make some money here, because you don’t get unemployment if you go out of business.

Jay Goltz:
The number one mistake I’ve made in business—there’s no question about it—I was growing like crazy, doubling, and I had a very small bottom line. And I should have raised my prices 5 percent. It was the simplest thing in the world. And my accountant didn’t tell me, and the banker didn’t tell me. I just kept banging my head against the wall, and it was stupid. I should have raised my prices 5 percent. It would have slowed my growth down a little bit and would have doubled my bottom line or tripled my bottom line. That is a rookie mistake in business. You need to get paid.

Loren Feldman:
So Liz, how concerned are you about this week’s price increase and whether it will be accepted or not?

Liz Picarazzi:
I’m not super worried about it. We are a premium product. We’re an expensive product. Most people who we sell to are buying expensive things. And expensive things during the pandemic have been price increased as well. So I think that people are used to having prices raised on premium products.

The ones that we need to be careful about are our customers who have outstanding estimates. So we did a little bit of a splitting of the list. The messaging is different for each one. Because we do want to give people who have outstanding estimates an opportunity to pay. I think we gave them until April 1st. But that’s also a mechanism for us to encourage them to pay because then they do know that it’s going to increase. And you know, we’re looking forward to seeing how our sales are in March, because I think it’s gonna stimulate a lot of those people to move ahead.

Jay Goltz:
No, that is smart and responsible. And I’m sure they appreciate getting your last shot to get it on it. But Loren, your question is a little false, in that it’s not—

Loren Feldman:
Oh, here we go again.

Jay Goltz:
Yes, this is a good one. You said, “Will it be accepted?” The answer is: Some will accept it and some won’t. And the problem is, the person who goes, “Oh my God, that’s too much money.” You’re gonna think, “Oh, it’s because I raised prices.” No, they would have said that at your old price, too. So there’s no exact way of knowing, but there’ll certainly be some business loss. But it’ll be made up by the fact that everyone else is paying the right price.

Loren Feldman:
Well, Liz, you do have an advantage, in that you’re not selling to repeat customers who are acutely aware of what the price used to be and offended that it’s going up. You’re looking for new customers, mostly, right?

Liz Picarazzi:
No, actually, that’s not right. About 30 to 40 percent of our customers are repeat customers.

Shawn Busse:
Wow.

Jay Goltz:
Well, that makes sense.

Loren Feldman:
These are the property managers?

Liz Picarazzi:
Yes, I mean, in the B2B space. For B2C, yes, it’s one and done. But for property managers, architects, developers, government—that whole class, they are repeat business. And we’ll see. We haven’t had a lot of pushback.

Jay Goltz:
Here’s the opposite question: How would they not expect there to be a price increase, for God’s sake? Who’s gonna think you’re going to be keeping the prices? That doesn’t make any sense. Everyone knows it’s going up. They’re waiting to see whether it’s 4 percent, or whether it’s 11 percent—that’s all. And do you know what the percentage is going to be?

Liz Picarazzi:
Well, on some products it’s gonna be 5 percent. On another, it’s going to be 25 percent, where we’ve been underpricing it for a while.

Jay Goltz:
And I’ll presume that the 25 percent is because raw materials went up a lot, which we hear about every single day in the news. So I don’t think anybody should be shocked.

Loren Feldman:
All right, we’ve got just a little bit of time left. And I have just one more foolish question to ask, which is for you, Jay. I’ve been thinking about this for some time, and it just never quite coalesced. But I’m curious, you almost always answer questions and discuss your business in terms of your picture framing business. You rarely mention Jayson Home, your home furnishings business. Do you not feel as invested in that?

Jay Goltz:
This is simple. I started the framing business. I’m fully involved with the frame business, and I have much less to do with the home store. I’m not the buyer there. It wasn’t my concept. I mean, it was my idea to open a furniture store, but I have some very talented people who have been running it since the beginning. And I’m far less involved with it, so it’s not the first thing that comes to mind. There’s no comparison. I’m 10 percent involved with that business and 90 percent involved with the framing business. So it’s just not my area of expertise.

Loren Feldman:
Could you describe what your role is? How involved you do you get?

Jay Goltz:
All of my employees would like to know that, too. My involvement is, occasionally, I’ll talk about the bigger picture stuff. I am the proverbial, “I’m working on the business not in the business.” I might talk about margins or inventory levels, but I’ve learned to stay out of the day-to-day stuff. They buy some stuff—and I used to say it out loud. I don’t say it anymore. I go, “Who’s gonna buy this?” And then 30 seconds later, someone comes in, “Oh my God, look!”

I’ve just learned, it’s not my expertise. So I oversee a little bit, but not much. And in framing, I’m not that involved there either, like I used to be. But I’ve been involved from the framing thing from cutting the frames myself to putting them together to the whole thing. And in the furniture store, if I had to jump in and replace somebody, I couldn’t do it. It’s not my thing.

Loren Feldman:
Which is the bigger business?

Jay Goltz:
Actually, well, the furniture store is bigger than the retail framing, though if you take the retail framing and add the wholesale frames I sell nationally, it’s about the same size. So the furniture is a major piece of the puzzle.

I’m the first to tell you, in a million years, I wouldn’t have predicted where I would have ended up 40 years ago. No one’s more surprised than I am. I can’t tell you I had some master plan. I just think I’m fairly good at seeing an opportunity and leveraging what I know. And the fact is, all of my businesses are connected by design—little double meaning there. Did you get it? They’re all related. They’ve all got customers who want nicer stuff and better, authentic customer service. They’re in home furnishing, so they are connected, but they also have a design element. So it was a natural progression.

Loren Feldman:
Was it your idea?

Jay Goltz:
Yeah, yeah. I remember very few things from college, but one of them was, if the railroads understood that they weren’t in the railroad business, and they figured out they were in the transportation business, they would own all the airlines. And I realized, I’m in the home furnishing business. So when I was really busy in framing, and I had some extra space on the first floor, I thought, “Gee, I ought to sell something else to the customers who are waiting.” And I started selling home furnishings. And that’s how I got into it.

That’s called horizontal integration—selling different things to the same people. But it was not my expertise to actually execute it. One of my prouder things is, I have a guy who’s a key player in that business who has a theater degree and was making $12 an hour when I hired him, and now he’s the major guy running the thing—one of the major people. So I think I’m good at two things: leveraging what I have, and two is finding diamonds in the rough and developing them and keeping them and making them happy. And that pretty much describes my whole business.

So you’re not wrong. I’m far less involved with the home store, though—which frustrates all my framing people—when you meet someone and you tell them, “I work for Artists Frame Service,” someone will go, “Oh, I know it.” But then when you say, “Oh, I’m also at Jayson Home.” “Oh, my God! Jayson Home. I love Jayson home. I take all my friends there!” And it goes into this whole thing. It’s like the people in framing feel like we’re the stepchild and Jayson Home is the star. I mean, Jayson Home has a national presence. We’re selling nationally, on the website.

Shawn Busse:
I think, honestly, this could be a whole ‘nother show, which is specialization versus horizontal integration. And for a long time the message was, “Go in a niche. Do one thing. Do it really well.”

Jay Goltz:
“Stick to your knitting.”

Shawn Busse:
Right, that’s the whole Good to Great message, etc. And you’ve gone the opposite direction. I think we’re starting to see now, especially with bigger companies like Apple, where they’re both vertically integrated and horizontally integrated, they’re the ones who are winning.

Jay Goltz:
No, and so am I. I sell wholesale to other frame shops, so I have done both. But what I didn’t want to do is start opening frame stores around the country, because like I have no interest in doing that.

Shawn Busse:
Right! Yeah, yeah. All right, there’s your next show, or some show down the road, Loren.

Jay Goltz:
Good job, Loren, excellent 100. Congratulations to you for pulling this off.

Liz Picarazzi:
Congratulations, Loren.

Shawn Busse:
And good question to end it with. That was a great question.

Loren Feldman:
Oh, thank you, Shawn. [Laughter] All right, my thanks to Shawn Busse, Jay Goltz, and Liz Picarazzi. As always, thanks for sharing.