New Year’s Resolution? Make. Some. Money.

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Podcast Transcript

Loren Feldman:
Welcome Shawn, Paul, and Laura. It’s great to have you here for our first conversation of 2024. I want to start today by asking you some basic questions, just to get a sense of where your heads are at as we head into the new year. For starters, did any of you make resolutions?

Laura Zander:
Hmm, no.

Paul Downs:
I did.

Loren Feldman:
What did you resolve, Paul?

Paul Downs:
I want to make a lot more money this year. [Laughter]

Laura Zander:
Seriously. Can I piggyback on yours?

Paul Downs:
Yeah, but the context was, last year was a year when I knew I was going to be making a bunch of investments and didn’t expect to show much or any of a profit. And I absolutely nailed that goal. Laughter] And this year, I want to see some payback on that. So I’m going to be concentrating more on cost-cutting and efficiency and making sure that we’re profitable all the way through.

Loren Feldman:
Are you thinking about achieving that more by efficiency and cost-cutting or by growth?

Paul Downs:
Growth. And the thing is that we did a bunch of expensive projects and had one change to our basic fixed costs in 2023. The change was just that my rent went up, because we renewed our lease and then took over another 15,000 square feet. So my rent bill went from about 11 grand a month to 23 grand a month. And that’s a significant jump, but it’s still much, much cheaper than trying to move into a different facility.

So whatever the difference is there, let’s call that 130,000 bucks. And then we bought a new spray booth and put it into service. And that was about a $140,000 project. And then all the marketing and the new website I did, let’s call that 100 grand. So whatever that is, almost $400,000. Now, we’re gonna show an accrued loss of about 100 grand. So we would have been in pretty good shape if I hadn’t done those things. But those are the things I needed to do to get to the next level in the next few years.

Laura Zander:
How much space do you have, Paul?

Paul Downs:
Right now, about 45,000 square feet.

Laura Zander:
What did you say, $23,000 a month?

Paul Downs:
Yeah, it’s still cheap.

Shawn Busse:
Paul, I’m curious, because I was listening to Loren’s recap episode, and one of those shows was you talking about your two salespeople—the one who was drastically outperforming the other one, and the other one who you were not sure about his future.

Paul Downs:
Well, in September, I believe, I brought the underperforming one into my office and gave him a formal write-up, saying, “What you’re doing is not acceptable and your job is in danger.” And I told him that I actually didn’t want to fire him. But I would, and neither of us will be better off the day I do that. So get your shit together, more or less. And he agreed to do that. And he did. And he turned it around. And the last three months of the year, he was selling at a pretty good pace. And then yesterday, he came into my office and told me he was leaving.

Laura Zander:
[Laughter] You’re kidding.

Paul Downs:
Everybody is a winner in this scenario, I guess.

Loren Feldman:
Sorry to hear that, Paul.

Paul Downs:
Well, it’s forced me to confront something that I should have confronted a long time ago, which is that, of all the different types of employees we have—and we have shopfloor people, we have finishers, we have logistics guys, we have engineers, we have project managers—I’ve been able to successfully hire when I needed to for all those positions. And I’ve never even tried to replace either of my two sales guys. And I knew I needed to supplement them sometime this year, because we do anticipate more inquiries coming in and just need more horsepower to do it. So the thing I’ve been putting off and dreading and avoiding has now been dumped in my lap. And it’s just time to put on my big boy pants and figure out how to hire a salesperson.

Loren Feldman:
The other reason you did not want to have to fire him, you told us when we spoke about this over the summer, I think, was that you were acutely aware that if he was gone, you would have to take on his responsibilities until you did find somebody. Is that what’s happening?

Paul Downs:
Yup. I’ve still got him for another six weeks or so. And he’s leaving to open up a tree-care franchise, which is sort of a risky move in my mind, but everybody’s business idea sounds like a risky move to me. So he’s a good guy. And he’s done a difficult job for 11 years, and it’s fairly easy to get burned out on sales. And so I don’t fault him, and I just wish him the best. And yeah, I’m gonna have to jump in and do his job. But that will certainly incentivize me to figure out a way to replace him as quickly as possible.

Loren Feldman:
How about you, Shawn? Any resolutions?

Shawn Busse:
Yeah, I’ve never been a big resolution guy. I mean, the data shows it’s not a very good strategy. But like Paul, I would like to make some frickin’ money this year. That would be great. Last year was just the worst year on record for us. And so, outperforming that? I should be able to do it.

Laura Zander:
Wow.

Shawn Busse:
It was tough. Yeah, it was really tough. I mean, I think the Fed’s push on interest rates has had this sort of wet-blanket effect on everything. And we felt it. Just a lot of slow decision-making in the buying process. A lot of folks hemming and hawing, hemming and hawing, and dragging their feet. So I think they’re done jacking up interest rates. I think they’re going to start to go down. But yeah, I would like to see more opportunities. I mean, one thing that has changed is our marketing and business development strategy is just totally different now.

Loren Feldman:
I was going to ask you about that, Shawn. In the fall, the last time we talked about this, you told us about your 100-day-march strategy of getting your people out of the office and making connections and trying to drive business that way. Has the 100 days passed? And how’s it going?

Shawn Busse:
Let’s see, we have four days left. It’s going great. It’s been a wildly successful effort. I couldn’t be more delighted.

Loren Feldman:
What worked? Tell us.

Shawn Busse:
Well, so, prior to this initiative—for folks who don’t listen to every show—most of business development was on my shoulders. And then, I had a person about a year ago who, like Paul, left. They were kind of like one of my key salespeople, and replacing her was very difficult. I really wasn’t able to do it.

So we just re-examined how we did business development. And we realized that we can’t just have it on the shoulders of one or two people in the company, that we need to really have multiple people in the company active out in the community. So yeah, we’ve just really activated the team, and folks are doing different things: participating in nonprofits, volunteering, going to networking events, just being far more active.

Laura Zander:
Hey, Shawn, can I ask you: What metrics do you kind of put on your people? Like, do they report to you weekly? Do they report monthly, quarterly? I really struggle with how to manage and assess people who have discrete roles, like creative and marketing.

Shawn Busse:
I mean, this initiative of getting people active in the community is newer. And so I don’t have, at this point, individual metrics for folks to hit, but we do have a collective metric. So we were trying to have 100 meaningful conversations in 100 days, essentially asking for referrals. And you know, we’re really close to hitting that number.

And I think my quote-unquote mistake was, I set this initiative right smack dab in the holiday season. So it’s really tough to get people’s attention. But nevertheless, we did. And with those, we hit about 75 conversations that yielded 42 referrals that yielded four new clients. I’m just looking at my dashboard here. And then that resulted in probably $400,000 in new revenue in the coming year.

Laura Zander:
Wow.

Shawn Busse:
Yeah, so for a company of our size—you know, we’re just a little under 2 million—that’s huge. And then we had a meeting yesterday that could be another $150,000. So, I think we’ll get at least a half a million dollars in new business as a result of this effort.

Laura Zander:
God, it’s too bad you didn’t do it earlier. Just kidding! [Laughter]

Loren Feldman:
What happens when the 100 days end?

Shawn Busse:
We’ve got to keep going. And I think, to Laura’s point, I think we need to start to have individual goals. You know, not everybody needs to do the kind of level that I’m doing or some other people in my organization, especially since some of these folks are servicing clients. So, we’ll find the right balance there.

Laura Zander:
Or a cadence. Is it five conversations a month or 10 conversations a month?

Shawn Busse:
I think the real challenge, Laura, in a business like ours—and I can’t really speak to yours—but you talked about these intangible roles of measuring people’s performance.

Laura Zander:
Yeah.

Shawn Busse:
So much of the success of a business like ours is a collaborative effect. It’s not just one person. It’s multiple inputs and variables. So I’ve found, at least in my business, activating people around a shared goal tends to be more effective than one to one. It’s more like, you can take a basketball team and look at one star and go, “I need you to score 50 baskets in the next game.” Or you can look at the whole team and be like, “We’re going to win.” And I tend to think the latter’s a little more effective for our team and the culture we’ve built.

Laura Zander:
Yeah, that’s super interesting. My team does really well with a super hard goal like that. But they don’t do as well as I would like with higher-level goals that aren’t quite as discrete. If we say, “Okay, I need you to go make $200,000,” or whatever, then the whole team comes together. They know their part. They know they’re going to battle. They figure it out. They work it out together.

But then as soon as that goal is over—and if we’re like, “Okay, for the year, this is the goal,” they can’t really figure out how to get there on the sales and marketing side. Jay, and I have had so many conversations about this, and that’s my struggle. And do you get frustrated? Like, before you set this 100-day goal, or 100-conversations goal, is there a moment of frustration where you were like, “Why do I have to figure this out? Why can’t you guys just figure this out yourself?” Like, it’s not that complicated. Have meaningful conversations.

Shawn Busse:
I don’t know. I mean, I just try to give people the benefit of the doubt that everybody has good intentions. And not everybody is a business development expert. So I have to have a little bit of grace and kind of see how it goes. And some people clearly are not good at it. And so, part of our reset in the coming year is to identify, “Okay, how can you contribute to this effort if you’re an introvert?” And so, that gets us thinking about things like content. Like, “Oh, you’re a writer, so let’s get you creating content,” or other ways you can contribute to empower those who are having those business development conversations.

Laura Zander:
Yeah, totally.

Loren Feldman:
All right, before we get to Laura’s big news, I just want to run through a couple other quick questions with you guys. We know Paul’s hiring a salesperson. Are any of you making other hires?

Laura Zander:
Yeah, I think I am. I mean, if you want to recap last year, it sounds like I had a very similar experience to Shawn and to Paul. This was one of the worst years that we’ve had. On the Reno/ Jimmy Beans side, we didn’t hit our sales—we did end up hitting our sales goals, but we hit them in very low margin areas. And so we ended up losing money. So the team drove toward the goals—so, yes, they did a great job, and they drove toward the goals, but you know, it’s easy to sell stuff at half off, right?

Loren Feldman:
I’m a little surprised to hear that, because you had told us that you had kind of altered your business model to try to improve your margins by focusing on selling stuff with higher margins.

Laura Zander:
Yup.

Loren Feldman:
Why didn’t that work out the way you hoped?

Laura Zander:
Yep. That’s a great question, Loren. That’s a really great question. And that’s where I’ve been struggling this year. You know, in Q1, our sales were way down. And on the manufacturing side, we figured out why. It was because we had a person who was tasked with reaching out to every one of our customers and checking in and making sure they were doing okay, and blah, blah, blah. And they didn’t do it. And we didn’t know. They kept telling us that they were doing it, and they were doing it, and they didn’t. So we solved that. And we fixed it. We found out what was going on.

But then on the Jimmy Beans side, our sales were down. And that team collapsed, and I think just kind of froze. And we had a lot of emotional issues. A lot of crying from a lot of different people over a period of six months. So we hired somebody really high-level to come in and to help. And it turned out that this person was a thinker and a strategist and not as much of a doer. And it just caused a lot of friction. And so I mean, this year has just been a mess. I mean, it was just a mess—the most emotionally exhausting year that we’ve had since 2016.

So back to: Why didn’t we get the margin that we had thought? Well, when our sales were down hundreds and hundreds and hundreds of thousands, obviously, that affected our cash flow. And this is my fault. I mean, I had forecasted and budgeted and everything based on sales goals that we had all committed to in high-margin areas. And when we found out that some things weren’t being done to drive those sales goals, the team pivoted. We needed cash. So I don’t know if you guys are familiar, but section 174 of the tax law wasn’t revoked or went back into effect. And so our tax bill ended up being double. We needed to put a ton, like hundreds of thousands, into our tax bill unexpectedly.

Shawn Busse:
Is this the R&D provision?

Laura Zander:
It is.

Shawn Busse:
Oh, man. Maybe you could explain that a little bit more.

Laura Zander:
If I understood it better, I probably could. I mean, in essence, for the last five years, or eight years, or something like that, we get an R&D credit. We’re a manufacturer, right? And we’re a software company. So we’re developing our own software. So we have hundreds of thousands of dollars each year—there’s a percentage of that that we spend on R&D. So it’s salaries, it’s testing, it’s sampling, all these things. So hundreds of thousands of dollars that are eligible for this R&D credit. And then there’s, I guess, a percentage of that we get an actual tax credit each year.

Shawn Busse:
It’s really hard, because it’s a credit. A lot of people don’t understand a credit is like dollar for dollar, as opposed to a deduction. It’s like all of a sudden, you get this massive tax bill that you didn’t see coming. Who’s your tax advisor? Because I mean, this has been known for a while.

Laura Zander:
So we had a bit of a heads up, but we didn’t realize it was that big. And there were always fingers crossed and hope that it was going to go away, and it was not going to be a problem. But fair point. It would have been great to have more notice.

So we needed cash. So the team put together, “Let’s do $200,000 in sales this weekend,” or whatever it was, and put a bunch of stuff on and get rid of some inventory at really low margin, or no margin at all. So that was one big hit. And then the other way that we still hit our sales goal was to hold these retreats. So we do two annual retreats right now. We’ve got 300 people who come and visit us between the two retreats. They pay thousands of dollars, but we basically make no money on them. In a good year, if we’re doing well, we’ll make maybe 10 or 20 percent on it, after the cost of food and the travel and all that kind of stuff.

But this year, the contract that we had signed with the hotel for the food and beverage, we made the mistake, apparently, of not locking in those prices. And so the estimate and the figure that we were charging our customers was based on the previous year’s food and beverage costs. And they went up like 30 percent. That was a big number. I mean, that’s a $50,000 to $100,000 difference. So you’re talking about in the retreats, I mean, we could do $400,000 or $500,000 worth of sales, and we made no money on it at the end of the day, or very, very little. It certainly wasn’t the high-margin stuff that we’re looking for by doing manufacturing.

So we had a couple big hits where, again, we hit our sales goal, but at the end of the day, our cost of goods and our gross margin was just significantly different than it was the last two years. And then, kind of what happened is, as the shit’s hitting the fan, and I’m seeing that we’re not hitting our sales goals in Q1 and Q2, I start to dig. And it turns out that our sales coming from our social media channels are down about $300,000, and our marketing manager didn’t tell us. And she knew.

Loren Feldman:
Do you know why that happened, Laura?

Laura Zander:
No, I do not. Yeah, it’s a sensitive subject right now. So, I’m digging into that. I’m digging into looking at our traffic, compared to our competitors’ traffic. And we have a competitor that’s only been around for maybe five or eight years, and their traffic is starting to exceed ours. And I’m just like, “Nobody’s watching this.” And it is somebody’s job to watch that. And it wasn’t being watched. And I didn’t realize. I mean, I’m not looking at that information. And so, Shawn, that’s where I was kind of asking, like, metrics-wise, how much do you look at that?

Shawn Busse:
It seems like you would want—because you’re so heavy with direct sales and so forth—to have a dashboard with just a few key numbers on it that your manager is responsible for and talking to you about on at least a monthly basis.

Laura Zander:
Great point. So we have basically the two companies. We’ve got the one in Texas, and we have the one in Nevada. In Texas, I have a team of four people who report to me, and so we meet every other week. I have one-on-ones once a month. I’ve got a pretty clean dashboard that I look at.

But in Nevada, I have one person who reports to me. I have a general manager. And her job is to manage all of these teams. And they do have these dashboards, and she sees all these dashboards, but I’ve been so focused on the Texas business for the last four years that I’ve just been hands-off. So it’s just turned into this kind of mess because I’ve been hands-off. But then all of a sudden, I go over and I’m like, “What the #@$! are you guys doing?” You know, like, “Oh my God. This is down, and this is down, and this is down.” And then, that doesn’t go over really well. [Laughter]

Shawn Busse:
Sounds like good management to me.

Laura Zander:
Yeah. Yeah.

Paul Downs:
They weren’t inspired by that?

Laura Zander:
Yeah, I tried the Sopranos approach.

Shawn Busse:
Flip some tables over.

Laura Zander:
Yeah, exactly. I’m watching Slow Horses, right now, and I’m just like, “That’s who I want to be.” You know, “You guys are idiots!” Like, “You’re so dumb!” You know, but then they rally behind him. It works for him.

Shawn Busse:
Oh, no, I’ve seen the outcome of that show. [Laughter]

Laura Zander:
I’m just kidding! I’m totally kidding!

Paul Downs:
Yeah, I read all the books. You don’t want to be there.

Laura Zander:
No.

Loren Feldman:
So Laura, all of that makes your news of the day a little more surprising, I think. Given that background, you have chosen to address it by going out and buying another business. Correct?

Laura Zander:
We bought two. [Laughter] Yeah. Let’s go shopping. Let’s go shopping. You know? I’m not gonna do drugs. I’m not drinking anymore. So, let’s just go shop and gamble.

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