That Would Put Me Out of Business

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Loren Feldman:
Welcome, Mel, Liz, and Jaci. It’s great to have you here. Liz, I want to start with you today because the topic of manufacturing in China has been in the news of late. As president, Donald Trump imposed a tariff of as much as 25 percent on trade from China. He’s now saying, if he’s elected in November, he plans to raise that to 60 percent. I’m wondering, what would that mean for you if that actually happened?

Liz Picarazzi:
Well, 60 percent would put me out of business, and I’m hopeful that that doesn’t happen. And frankly, I’m hopeful that Trump isn’t elected. But regardless of who wins the presidency, the threat of China to Taiwan right now seems to be heating up since the election. And even if Biden wins, if there was tension there, he could raise tariffs again. So it’s been a little bit scary. When I woke up on Monday morning, that’s the first thing I focused on.

We already have the wheels in motion to look into what we’re calling a China-plus-one strategy—so, to probably still have China as our main manufacturer, but now we’re looking as well at Vietnam and Mexico. And then in a tertiary way, I should say, we’re looking again at manufacturing in the U.S.

But as I’ve shared here before, I have never been able to affordably manufacture in the U.S., despite trying many times to reshore my work. Most recently, it was in 2021 when I spent two to three months of my time with an RFP, getting bids from various American factories. And on average, the quotes that I was getting were 67 percent more than I’m paying in China. And that’s even inclusive of the tariffs. So for me, it is a really big deal. The geopolitical risk, regardless of who wins the presidency, is something I need to take seriously. And, you know, we’re waking up to it.

Loren Feldman:
You’ve had a great relationship with the supplier you use in China. Tell us a little bit about how that relationship has evolved.

Liz Picarazzi:
Sure. So I moved my manufacturing over there in 2017, after having produced in the U.S. for about three years, in literally five different states. So you can see how diligent I was about trying to keep my manufacturing here. There’s a huge stigma about producing in China, so I’m always very careful about how I talk about it. And I know that you like to ask me about it, so I do sometimes choose my words carefully.

Loren Feldman:
Tell me about the stigma. I know a lot of brands love to promote the fact that they are made in the USA, but are you saying there’s actually a penalty for manufacturing in China?

Liz Picarazzi:
In the minds of Americans?

Loren Feldman:
Yeah.

Liz Picarazzi:
Oh, absolutely. We all know that. There’s an assumption that I’m manufacturing there because of price. And that’s actually one part of it. I’m actually producing there also because of quality, about the level of trust I’ve built over the years, my relationship with my factory, as well as the middle contract manufacturer that I work with. They’re based in Shanghai. That’s actually partially an American company. And so all of the conversations with the factory, the negotiations, the translation, the tariffs, everything that we go with, we’re not doing that in our office in New York. We have kind of our satellite office in Shanghai that’s doing all of this.

Over the years, I’ve probably gone there like five or six times, most recently in December. And I would say the relationship has been good not just because I’m getting kind of the price and the quality that’s better. But for me as an entrepreneur, I like it when people are excited about my ideas and want to move my ideas forward and want to get creative in the weeds, side by side. When I go to China, we sit for hours and hours, right on the factory floor, looking at things that could be improved, testing things out. For me, the quality control, making sure everything is being done right.

But I think there’s an understanding of the Chinese that they’re kind of just drones or robots, maybe not that creative. And I found exactly the opposite. I mean, it’s such a delight for someone to be excited about what I’m doing. You know, I’m an entrepreneur. I have that ego involved. I didn’t find that level of excitement at any of the three factories I produced at in the U.S.

I hate to say it, but there was a bit of a feeling I had of, “Who is this person with her trash bins? What does she know about this?” Or, “There’s no way this is going to go anywhere. We’re not going to be able to give her the price she wants, because she’s never going to sell many of them.” Okay, whether or not that was in their heads, I don’t know. They certainly wouldn’t have said that. But when I went over to China, and there was the sort of, “I want you to want me,” as in the song, we feel good with that.

We were in the New York Post a couple of years ago with some filthy Citibins in Times Square, where we looked really bad. And a couple of the things we needed to reengineer on the bins, we moved that ahead so fast. And we made adjustments to doors and various hardware that we had air-shipped from the factory, that we were able to get into Times Square and installed within three weeks. Unheard of! Unheard of with anything I had done in the U.S.

So for me—okay, and this is a sample of one, me, American company and my factory; I haven’t worked at other factories—I have had a really good situation. And one could say, it is just the factory. It’s not China as a whole. But whether I’m in the U.S. or China or Vietnam or Mexico, there’s a lot of expense involved with changing your supply chain in any way. And so I’m not going to make any jerky, quick decisions. I’m going to be very methodical about it. And I will be very sad if the tariffs go up to a point where I can’t continue to work with this factory that I have built a very good relationship with, both professionally and personally.

Mel Gravely:
Wow.

Loren Feldman:
Liz, we have talked here previously about your attempts to kind of have a plan B. Nothing has panned out the way you hoped it might. At this point, are you thinking something has to pan out here? You have to have a plan B?

Liz Picarazzi:
I have to. Yeah, this is the very first time. If you’d asked me that even two weeks ago, I wouldn’t have said that. But with what’s going on in the Red Sea, with hijacked cargo ships by pirates, and anything with my supply chain being disrupted. We have a large order that’s being manufactured right now, that’s going to be shipped over here in like three to four weeks. And I know that that could affect it. It’s definitely affecting our shipping rates. So there’s volatility.

And with the tariffs—I did look it up in advance of our taping today—when I first started producing over there, my tariff was 3.4 percent. Then when Trump was in office, it went up to 18 percent. Our tariff bills for 2020 were crazy high to the point that we probably were operating at a loss. And then, since 2021, I’ve been at 11 percent. So if it were to go up more than that, that would have a huge impact on the business. So yeah, I do take it very seriously this time. And you know, I have my list of five or six objectives for 2024, and the China-plus-one strategy was number two on the list.

Loren Feldman:
What happened when the tariffs first went up during the Trump administration? How did you react to that?

Liz Picarazzi:
I just paid them and hoped for them to go away.

Loren Feldman:
Did you change your pricing?

Liz Picarazzi:
We did raise our pricing, probably not proportionate to the amount of increase in the tariff. We appealed it. There was an appeal process. And I think most companies, unless you had a lobbyist or a lawyer or something involved, were not going to get an exclusion, and we didn’t either. So that’s what I did back then. And I’m just glad I wasn’t raised to 25 percent, because that could have happened easily. Our classification on our goods was kind of in a gray zone between the 18 percent and the 25 percent tariff, and we were able to get it to 18.

Loren Feldman:
So it sounds easy to say, “Well, we’re going to check out Vietnam and Mexico.” What is that process like?

Liz Picarazzi:
Well, so on the Vietnam front, it’s actually fairly straightforward for us, because the contract manufacturer we use in China set up an operation in Vietnam in 2020, when all of this tariff nonsense started. So they’ve had four years to establish a presence and to have relationships with factories around Vietnam. So, I reached out to them and said—this is something we’ve briefly discussed in the past—“This is something I’m very serious about.”

So from the time of asking for that quote a couple of weeks ago to now, it was seven working days. I got pricing from Vietnam. I know what it is. I know that it is going to be less. I don’t know by how much less, because we still need to kind of figure out the tariffs and so forth. But that is moving along really fast. And we’re actually having a meeting next week with the head of the whole Vietnam division of my contract manufacturer, who’s in New York. So that’s looking very promising. I would not be surprised if I got on a plane in a month or so and went to Ho Chi Minh. I’ve never been to Vietnam before. For me, I love to travel, so there’s a little bit of excitement about this diversification opportunity.

And then on the Mexico side, we’ve never really looked into it that seriously, but I do have a personal assistant who’s incredible with research. And literally, just yesterday, I assigned him to start looking into Mexico. So, looking for metal fabricators that make similar goods, whether or not they’re trash-related. It could be safes, metal cabinets, any sort of goods related to bent metal manufacturing. So, those are the two countries we’re looking at right now.

And stuff like tooling? I haven’t figured that out yet. You know, we’ve spent a lot of money on tooling for all of our products with our factory in China. Does it mean that I need to retool everything in Vietnam? Or does tooling get moved over? Do we have tooling in both places? Those are the sorts of details that we need to work through. But like I said, changing anything in your supply chain involves a lot of thought and time and work. But we need to do the work now. Before, we were kind of delaying it. But I’ve gotta say, after that Trump 60-percent number, it’s been on the top of my mind.

Mel Gravely:
There is so much to unpack in everything you said, Liz. I’ve got like 72 questions. But I’ve been forced into a moratorium, so I’ll just ask one. [Laughter]

Loren Feldman:
Mel, Mel…

Liz Picarazzi:
Oh my God, I’ve never gotten a moratorium. You’re new to the podcast. How do you have one already?

Mel Gravely:
Bad behavior in a previous podcast episode. [Laughter] It’s a long story. So Liz, I’ve got to ask. This feels like it’s got elements of cost. You mentioned cost and quality, but it also feels a little bit like you’ve been disrespected domestically. Like not appreciated, not—I don’t know what other words to use. Does it feel that way? Did I capture some of that accurately?

Liz Picarazzi:
I don’t want to say it’s disrespect, even though it might be. But I would say, not taken seriously. So the example that I often use is, Sara Blakely, the founder of Spanx, who sold her company for $1 billion because she was 100-percent owner, when she first started her company and she was working with a couple of factories in the U.S., they didn’t really respect her. They didn’t really think cutting up pantyhose and making them into shapewear—like, what is this? She created an entirely new category. And I think she still manufactures in the U.S., but I’ve heard her speak many times about being a woman going into manufacturing, into something that admittedly you don’t know a lot about, which means you’re relying on the factory to help you advance your idea.

So for me, as an entrepreneur, I’m always looking for people to advance what I want to do in any area. But in manufacturing, if someone takes me so seriously that they’re going to create prototypes quickly, and they’re going to iterate, and they’re going to work on pricing to make sure that this product will work in the market, that it’s sellable… So, to answer your question, I don’t want to say it’s disrespect. Because the other thing is, I really liked the people I met with at the factories in the U.S. I don’t think that they were necessarily chauvinists. But I think that they hadn’t really encountered someone like me before.

And I found in China, that was never an issue, because I’m an American. Already, they’re not really going to understand me. So it doesn’t really matter if I’m a man or a woman. If they can do what I need, and I pay them for it, it’s transactional, primarily. The other thing I would say, to the credit of American manufacturers, is they’ve probably seen a lot of people like me who work with them for a bit, advance the design, and then outsource it. And so they’re leery of you taking their work and doing it elsewhere. I didn’t do that, because I was still somewhat of an infant. But in 2021, when I attempted to reshore manufacturing, I could tell in their pricing that there was probably built-in—like, “If we do one production with Liz and it doesn’t work out, well, at least we haven’t lost money on it,” right?

So I guess if you boil it down, it takes a factory. They have to take a risk or chance on you, or on me. So, one, I’m a woman who has an undergraduate degree in Russian. Like, what do I know about manufacturing aluminum trash enclosures? So from their perspective, they probably are like, “What is going on here? Who is this person? And why should we put any effort into something that could likely fail?” In addition to which, if they’re already really successful metal fabricators, and they’re doing stuff for the government or for the military or for elevators in Manhattan skyscrapers, they have a consistent flow of really good orders in business that they might think that they can’t get from me.

Mel Gravely:
Yeah, Loren, maybe there’s a whole other podcast episode on this—but there’s a cultural element of how we do business that is more than the numbers. And I think the combination of small and different often come together in ways that don’t serve certain kinds of businesses. And I’m disappointed that Liz hasn’t found a place in the U.S., because I think that we can get very, very close to closing the gap in pricing in the U.S. on most things, many things, in manufacturing—particularly metal, especially if you consider risk. So if risk is at all a factor, I think we can close the gap. What I don’t know that we are positioned to do is to close that gap at the intersection of smaller than huge and different, presenting differently. And I don’t know that our culture here in the U.S. is ready for it. And so, anyway, I’m just intrigued by what you’re experiencing.

Loren Feldman:
I’m no expert on manufacturing, but I have spoken with other startup manufacturers who have described to me a similar struggle to find a manufacturing operation that would take that chance on them. And you know, it’s a business decision for them like any other business. They’re looking at a new product. Probably the majority of new products that they’re asked to manufacture do end up failing, I suspect. So, under the best of circumstances, it’s easy to imagine that there are a lot of factories that would rather just not deal with something new.

Mel Gravely:
AYeah, and it’s understandable, right? They’ve got to have their own business models. And like Liz said, if they’re flush with very large contracts, why should they take a one-off for something that even at its height is not going to be as big as the things they have?

Liz Picarazzi:
Yep. Well, the other thing is China. If you want to manufacture there, a lot of people before I went there were like, “Oh, you’re never going to meet their MOQ,” minimum order quantity. And I’ve actually found that not to be true. The MOQs were higher in the U.S. than they were in China. And again, I’m a sample size of one. I’ve had a seven-year relationship with them. But they really wanted my business. And so, if I were only ordering 40 in the beginning, there was no huge price increase on that. It was like, “Let’s run these 40, see if it works, see what we need to tweak, and then we’ll extend it out further.”

It wasn’t just about the pricing. It was making sure we get the product right before we mass-manufacture it. And I think most Americans think that the only way you would want to go over to China is if you are ready to mass-manufacture it. Whereas I’ve found that China has helped me innovate my product, so that I feel safer with mass manufacturing. And I just love the process of being side-by-side on the factory floor. We have something we’re working on with our doors and our opening mechanisms that we’re still trying to get right. And when I was there in December, we tried, like, 10 different locks and doors.

And I never had that experience in the U.S. It was more like I told them what I needed, and then I would come up and look at a sample, or when it was all done. I wouldn’t be right there and saying, “Can we try this? Can we try this? Can we get a different lock? Can we try the door a different way? Can we redesign the door?” American factories, they don’t really have a lot of patience for that. Unless, I don’t know, you’re Boeing or something where it’s going to be some huge contract. But I really feel that I’ve been able to innovate and advance my product because of the side-by-side nature that is very similar to Agile software development.

Loren Feldman:
Liz, if we could, I’d like to go back to the discussion about pricing a little bit and what you learned from the experience of having to raise your prices when the tariffs came into effect. I guess, first of all, I’m curious what your philosophy of pricing is. When you think about pricing your trash bins, are you focusing more on covering your costs or on what the market will bear?

Liz Picarazzi:
So, I think it’s mostly what the market will bear. Oftentimes, when we’ve increased prices, it will be at a time that many other products are increasing prices. To say we’re raising prices 12 percent, as we did a couple of years ago, because of difficulties in the supply chain and cost of goods coming up, occasionally, we’ll get some pushback, but we’re not a commodity. We’re a pretty specialized product. So if someone is having a trash-and-rat problem, and the only product out there to really deal with it is Citibin, which is true in a lot of cases, they’re not going to be as sensitive to a 12-percent increase. Because they’re going to be able to solve their trash-and-rat problems and have to pay 12 percent more. Otherwise, they’re still going to be dealing with that.

Loren Feldman:
And was that your experience when you raised your prices?

Liz Picarazzi:
Yes. We did not get a huge amount of pushback. We may lose a little bit of business, but oftentimes, people, let’s say they think it’s too high and they shop around. They still come back in most cases, because they have their requirements of what they need, and they’re not going to find it somewhere else.

We’ve got to be careful with it. We definitely wouldn’t want to gouge. We can’t. We wouldn’t, and we can’t. But I think one thing with philosophy on pricing is, I’m probably a little slow to raise prices. And I know if Jay’s listening to this, he’s not going to like it. [Laughter] But every time I see him or talk to him, he wants to talk to me about my pricing, too.

Loren Feldman:
Well, you learned an interesting lesson. And I wonder if it encouraged you to think about how much further you might be able to push?

Liz Picarazzi:
Meaning with my pricing, how much further I could go up?

Loren Feldman:
Yeah, having had the experience of being forced to do it and finding little pushback.

Liz Picarazzi:
Yeah, well, I think that the place where I have a little more flexibility with pricing is if it’s more of a volume order. So with cities, where they make bigger orders now, it’s not going to be as high of an increase as it’s going to be with a residential client for their brownstone. I’ll probably put the increase on them and not really lower it, because it’s low volume. So, that’s one thing that I’ve noticed that we do with the pricing.

Loren Feldman:
Jaci, I’d like to get you involved here. What’s your philosophy of pricing?

Jaci Russo:
You know, Loren, I’m just sitting over here being real quiet, thankful for professional services that don’t require any manufacturing. [Laughter] The ability to have—

Liz Picarazzi:
I’m so jealous.

Jaci Russo:
—complete control of my costs. I just want to be real quiet and have no one pay attention to me in the corner. I empathize, I do. I can’t even imagine having all of those factors outside of my control, being in the middle of a political battle. I will pray for you daily.

We’ve got some clients in the agricultural space, and they’re singing the same song, but their battlefield is immigration. They need workers, and the thought of ending immigration—and when it was shut down in ‘20, it was crippling to their industry. There are farmers who went out of business because they just couldn’t find enough people to work on their farm. There are a lot of times it feels like the people who are making the rules have never actually done the work of the people that the rules will affect.

Mel Gravely:
That’s always true.

Jaci Russo:
And so, I will sit here quietly grateful for my professional services business that I get to be the king of, or queen. I get to decide a lot. I don’t have nearly the same kind of external factors that affect my business, and I am forever grateful for that.

Mel Gravely:
Jaci, you do have a maybe even a bigger challenge in pricing, though, right? I mean, in Liz’s business, there’s a comparison set. There are some costs on the bottom side. She can navigate to find a space she can justify. Professional services is more difficult. True?

Jaci Russo:
It is both more difficult and more opportunity. So, we look at a lot of factors with pricing. And it’s kind of a complicated situation that I think I’ve tried to make easier. Because I’m not financially-minded. That’s not my background. And we joke all the time that there are a lot of answers that QuickBooks could give us that I don’t know how to understand. So I have an Excel spreadsheet for that. I just live by Excel, because that’s clear. And I understand those columns. And that makes sense to me. And I’ve taken classes on how to read my P&L, and it still feels like Greek. So I just go to my Excel spreadsheet, and at least it’s not pen and paper. I feel like I’m at least one step ahead of that.

But so when it comes to pricing, when we started the agency in 2001, there were 84,000 other ad agencies, and I would say 99 percent of them were hourly. The agencies I had worked in both in Los Angeles and in Lafayette were hourly. And so it really was pretty plain and simple. And I didn’t like that model. And I really wanted to evolve this into a project- and retainer-based model. So then it was an even stickier way to go forward.

So I didn’t understand that there was an established concept called value pricing, but I know now that’s what I was doing. And so we, I think, really kind of perfected our value pricing. And over the years, we realized there are a lot of factors that go into it. Part of it is: who’s going to work on it, how long it’s going to take, the volume of the work. But then we get into some of the trickier things around the value to the client. Because I can do the exact same logo project, and to a brand new startup, it has a very different value than to an established Fortune 500 company.

So we modulate based on that list of factors. So that gives me a lot of freedom, but also a lot of really trying to find that sweet spot. And making sure we’re always checking ourselves and doing the best we can to make the decision of our clients not based on price—that we’ve earned our way in and they appreciate that price may be a consideration. But it’s maybe fourth or fifth on the list when they’re deciding.

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