You’re listening to Business Lunch with Roland Frasier. As for today, we have a very cool episode with entrepreneur, investor and founder of The Sharper Image, Richard Thalheimer.
Roland: (01:17)
Hey everybody, it’s Roland Frasier with this episode of Business Lunch and I’m very excited to have as our guest today, Richard Thalheimer. Richard, welcome to the show… So, you have quite an entrepreneurial career. I know that you had a few different businesses that eventually evolved into The Sharper Image, grew it to two hundred stores, 750 million in sales? That’s crazy.
Richard: (01:47)
Yes. It started for me as pretty much my only job. I’ve worked a few times for other people during college, but I got out. I wanted to start a business on my own. And so I did. I was selling paper and toner to offices in the financial district of San Francisco, when I was 23 years old. I thought, “I have got to figure out a way to make it bigger and grow it into a big business.”
Roland: (02:11)
Now you have in common with me the unfortunate, or fortunate depending on your perspective, thing of being a recovering attorney. So you went to law school, as I did, and then you practice for I think for a year, right? Were you doing the paper thing while you were in law school?
Richard: (02:28)
Yes. I figured I had to learn and get a law degree and pass the bar because I wanted to know how businesses worked. And a lot of businesses have legal conflicts with other. So for example, the first product I ever found was a runner’s watch for runners, so we can talk about that if we want. But the point is, I was putting ads in magazines trying to scale up the business, and that’s what you’ve taught in your lifetime, is you’ve got to have a way to scale your business up. So I thought if I could make a mail order ad that makes money for this runner’s watch, for [inaudible 00:03:01] sales, back when there was no internet. Then I could place more ads and scale it up quickly. And the first thing that happened was I jumped from a $1,000 ad in Runner’s World magazine to a $60,000 ad in Popular Science magazine. And the salesman promised me you’d be in the front fourth of the book, right-hand side, which is where I wanted to be. And when the magazine came out, it’s buried in the back of the book, left-hand side.
Roland: (03:28)
Oh my gosh.
Richard: (03:29)
So I tell him, “No, I’m not paying this.” So before I know it, the editor of the magazine calls me up personally and tells me I better pay the $60,000 invoice. And I said, “Look, I don’t know much. I just got out of law school. But I know it says in the contract front of book, right-hand side. It’s on the purchase order. So go look at it buddy. I’m not paying this.” And so they gave me a free rerun. So that’s the kind of example of how law helped me.
Roland: (03:56)
I agree. My father was also an attorney and that he told me when I was really young, he said if you know accounting and you know law, then you’ll do great with business because you’ll always have an idea of what the facts are. So I did that. I did accounting and then law and boy, I use both of those every single day. Now, I’ve read a couple of different things. So I know you had the paper company, and then you were wearing the watch, and I guess a lot of people asked you because you were running with it, and then that’s what caused you to kind of come up with the idea to run an ad for it. Is that kind of what happened?
Richard: (04:26)
Well, there’s another one of your principles. I had this watch that I found at the Consumer Electronics Show in Las Vegas. Somebody told me I should do that, go to the Consumer Electronics Show and look around. I found this great watch. It competed and replaced the $300 Seiko with a $69 product that I had the exclusive on for the U.S. if I wanted it. So I gave it to the president of our running club, and he was this crusty old guy named Walt Stack. He was crazy. He was covered in tattoos. He’s 70 years old. He’s running every day across the Golden Gate Bridge. Everyone sees him and he’s wearing my watch. So this is like the number one principle; invent a strong story line, right? That’s your idea. So I wrote this ad myself and it said, “Finally, a chronograph that keeps up with the amazing Walt Stack.” I had a picture of him-
Roland: (05:20)
That’s great.
Richard: (05:22)
Yeah, I had a picture of him running with the watch on. I told the story, how he goes 13 miles a day, then he jumps into San Francisco Bay, then he goes to the sauna, and the watch takes all this punishment for far less than half the price of the only competitor, the Seiko. And so all of a sudden at age about 26 I’m a millionaire selling one product; this watch.
Roland: (05:42)
That is crazy. So now let’s talk about that a little bit. So you had the initial discovery. I guess you were looking for something to sell, because that was why you went to the CES. Is that what took you there the first time?
Richard: (05:52)
Yes. I was going to law school and trying to run my business. I was so busy, I decided to try and do it by mail. And so pretty soon before I knew it, I had a tiny mail order business selling my copier supplies. So then I thought if I could find other products, mail order can be scaled up so quickly and that’s your number five principle. Get a business you can scale up, get an ad that makes money, and place the ad a lot more.
Roland: (06:18)
That’s really cool. So now you did the first watch, and the rate card on the ad that you placed that they kind of jerked around a little bit with, did you know to negotiate on that? Because this was way back when. You weren’t really experienced with any of this stuff, right?
Richard: (06:33)
Right? Well I have learned that the key to negotiation is politely, and without insulting people, work to find in the conversation where is the best price or the bottom? Where’s the rock bottom deal? And there’s different ways to ask that question. Often with magazines, they didn’t negotiate too much, but yeah, you always got to ask what the bottom is.
Roland: (06:53)
So, I know negotiation is one of your favorite things to do, as mine, so I’m going to hop around a little bit as we go through here, and I will eventually hit the linear story of being good attorneys and always coming back to that. Right?
Richard: (07:04)
Right.
Roland: (07:04)
So the negotiation-wise, I have heard that you are a very good negotiator. Can you share with us some of your thoughts about how to do that? I love the politely fine, because I think that you get so much farther if you’re polite than if you’re not
Richard: (07:18)
Well, negotiation, for me, has to be a final result that the other side likes also. If it’s a once in a lifetime transaction, like buying a house maybe, you don’t care so much if the other side’s unhappy, but in business we’re going to be dealing with the same suppliers over and over. You want to work to get to that best price. You want to work to get to that bottom. But you also want them to leave the negotiation equally pleased or displeased. Some people always say a good negotiation’s when both parties are not pleased. But let’s make this positive spin. Let’s say we want it to be a win-win. I want to think I got the best deal I could and I want them to think that they’re still satisfied supplying me at that price, because if they’re not, they’re not going to do a good job for me.
Roland: (08:03)
Yeah, and that’s a huge takeaway I think that so many people miss, and I know in my younger negotiating days where I was trying just to get the best deal, best deal, hammer, hammer, hammer, I would find that I get the deal, but that people would commit to things that they either didn’t think was fair, or that they couldn’t even afford to do. They would actually agree to do it, even though they couldn’t afford to, and then it just screws you up because they can’t perform, and you’re putting out kind of that bad karma of having unhappy people out there. So I love that. That’s such an important point.
Richard: (08:33)
It is. Especially if it’s international, like if you’re dealing with a supplier from the Far East, let’s say. Sometimes they’ll agree to a price they can’t quite really afford to do, and even like you say, you’ll either get a bad product, or the quality will slip a little bit, or they’ll be real light and put you at the end of their schedule. So, as you’re saying, there’s different reasons you want the other side to like the deal also.
Roland: (08:53)
Right. And if you could quantify those kind of soft costs of what happens when you get put to the end, as you said, right? Then it can ultimately end up costing you a lot more and you didn’t really negotiate the great deal you thought.
Richard: (09:04)
Right. So, what you’re touching on is, which I strongly agree with, is that treating your suppliers almost as if they’re customers is important. In other words, you want your suppliers to be satisfied working with you, just like you want your customers to be super satisfied. And so to me it’s all the same.
Roland: (09:23)
I agree. Your customers, your employees, and your suppliers are all people who should be treated with the same care that you would treat your best customer, right?
Richard: (09:33)
Right. And you said the word “employee”. Sometimes you’re negotiating the starting salary for an employee. Well, you might be able to twist their arm and get them to come in for less than even what they’re thinking, but you don’t want to do that, because you don’t want them to come in with a chip on their shoulder on day one. It’s you are too cheap.
Roland: (09:50)
Exactly. Yeah, it’s really funny how often that happens. So now you’ve got Walt Stacks, and you’ve run the ad, and I love the copy there. Now, by the way, did you study copy, or did you just come up with that headline, or how did you get into that?
Richard: (10:06)
Well, my mother liked to say everybody’s good at something. So, this is mine; I’m good at copywriting. And my advice to people that want to learn to be good copywriters is read it over to yourself over, and over, and over, and each time reduce it to its simplest terms, or simplest words. Take out unnecessary words. And believe it or not, that is not so different than Steve Jobs at Apple. When he was designing products he would keep going over and over them, and reducing them to their simplest form, because he believed that was better, and I believe that in copy you’re paying for the space, you’re paying for the time for people to read it. You’ve got to make it incredibly efficient and get your thoughts across in less space.
Roland: (10:49)
Now did you test that? Because that headline is pretty strong. Did you do any kind of testing, split test, run different ads with different headlines, that kind of stuff? Or just kind of got it right off the bat?
Richard: (10:59)
Yeah, I’m not much of a fan of testing, but I am a big fan of running things past people, whether it’s a product idea, or a marketing idea, or a copy, show it to five or 10 people, and what you’ll find is after about the third or fourth person the same comments will be coming up, and you’ll quickly figure out the answer is what’s best.
Roland: (11:18)
That’s cool. So you found the one product. Now a lot of folks that are listening might have found a product, or they may have written an ad that has performed well for them, and now they’re either getting into ad fatigue where enough people have seen it, enough of the audience they’re marketing to seen it, or they’re thinking about adding another product, and you went through that as well. Would you share some of your insights or a story on kind of how you approach that and how you would recommend people that are listening do that?
Richard: (11:44)
Right. Well, the guiding principle to this area is put your money on the things that are working. Identify as quickly as you can what’s working and not working. Don’t be afraid to try new things, you have to. But identify the ones that work and then pour more money into what’s working. Don’t make the mistake of sort of coddling every ad, thinking, “Oh, I love them all.” No, just go with the winners.
Roland: (12:07)
Mm-hmm (affirmative). And what about finding those extra products? How did you go about that after you had the watch as a hit?
Richard: (12:13)
Well, that’s the only other thing in life I’m pretty good at. I’m good at finding products. I’m not good at much. But I could tell you right away what products are going to sell or not sell. I remember so well, one of the most rich venture capitalists in Silicon Valley called me up and asked me if they should put a lot of money into the Segway scooter. The Segway, you recall, was the first two-wheeled sort of platform with handles.
Roland: (12:37)
Oh, yeah. Absolutely.
Richard: (12:39)
Everyone knows what a Segway is. So I said to him, “It’s a really cool product. Of course I’ve seen it. I see everything at the electronics show and they come to me, but I’m telling you, it will never ever sell for $4,000,” because, as you pointed out in your own [inaudible 00:12:52], there has to be a benefit to the consumer that’s worth more than what they’re paying for it. The Segway’s the opposite. The benefit is far less than what you’re paying for it. It’s a cool product. I own two of them, but they’re not worth $4,000. So anyway, he went ahead and put his money into it. They lost about $50 million of [inaudible 00:13:09] go.
Roland: (13:11)
I remember that.
Richard: (13:14)
It’s got to be a good product, but it’s also got to have that benefit, what I call cost-benefit relationship, where the cost is less than the benefit to the customer.
Roland: (13:23)
Could you give an example of in your business where you followed that advice and it was amazing and maybe surprising and then a time maybe when you kind of forgot that advice to yourself, and it proved that you’re right about what you’re saying?
Richard: (13:37)
Well, I don’t know that I’ve ever fallen for a product that’s got a wrong cost-benefit relationship. I’m pretty good at seeing that. What I had done though in my lifetime is tried lots of things, and I even sort of used the phrase you have to fail your way to success. In my lifetime at The Sharper Image I was able to sell literally thousands or tens of thousands of different items, and some became really successful, and others flopped right away, and so I just kept putting my money on the winners, and expanding it to new ideas, not being afraid to fail.
Richard: (14:14)
One of my most successful, is it came a time that the company was having a terrible year. The only year we lost money in like the first 20 years. We had one loss year, and so we needed something to really jumpstart the business. And I went to a little expo on the street in San Francisco and I saw a guy selling the blue gel soles to go in your shoes. And Sharper Image had never sold a product for $19.95 cents. Or no, take it back. It’s $14.95, but we had never sold a successful product and made millions on a product at low price.
Richard: (14:49)
But what I did to test it was I set up chairs in The Sharper Image front. I trained the salespeople to be shoe demonstrators and to invite people walking past the mall to sit down and get a massage in their shoe for free. Try it. They’d immediately fall in love with it. And we were selling, literally some days, half of our business door was gel soles. It was crazy. [inaudible 00:15:13]
Roland: (15:14)
Now, so that’s a really good point to talk about a little bit. So how did you assess the cost benefit there? Because there’s not like a financial benefit, and there’s really not like a corrective health benefit, as much as it is just something really great under your feet. How did you calculate the ROI equation there?
Richard: (15:34)
Yeah. So I see the guy selling the gel soles in the expo on the street, and I see he’s selling them regularly $14.95. So I figure it’s already proved right there. He’s got customer, he’s busier than the other booths in this fair. And then I tried for myself with my little gel sole station in The Sharper Image store, and we tried it in three or four stores, and it was phenomenal. People went crazy over this product for that price.
Richard: (16:00)
So I come back, have a company wide meeting, and everybody’s down because we’re having a bad year and we’ve had a few layoffs, and I tell everybody, “I’ve got the long path. I’ve got it right here in my coat pocket. Here it is. It’s going to save the company.” And I pull out this blue gel sole, and I think people practically fainted. They thought I had lost my mind. But I already knew that it was [inaudible 00:16:26] successful because they already tried it. So we rolled it out, and it was very successful, the company was profitable the next year, it saved us, and it was the biggest fad until the Razor scooter came along seven years later. That aluminum kid’s scooter with two wheels.
Roland: (16:41)
Absolutely.
Richard: (16:44)
So just like I had a U.S. exclusive for the gel soles for a couple of years, I negotiated the U.S. exclusive with Razor for that scooter. And for the first couple of years of its existence, it was only in Sharper stores, it brought in a whole new customer base of mom and kids, and it sold literally millions of units.
Roland: (17:03)
That’s so cool. So where, where would you say today people should look for products if they’re looking for that next thing to sell? Where are good places for them to look for that?
Richard: (17:13)
Well, we have to start by realizing you need an original, special product. It can’t be something they can go over on Amazon and find the same thing from five other sellers for the same price or less. Right?
Roland: (17:26)
Yeah.
Richard: (17:27)
The point is it’s got to be original. Like I read an article this week that the woman who invented potpourri… Do you know what that is?
Roland: (17:38)
Oh, I know her. She’s awesome. Yeah.
Richard: (17:40)
So she’s got a net worth now of a couple of hundred million dollars the article said, and she came up with a truly unique product with a unique thing.
Roland: (17:49)
I love it. So as far as like places, are there, if you were going out today and you had to find a product to sell, where would you look? What would the steps be?
Richard: (18:00)
Wow. I honestly think, and I hate to be so blunt, but I’ll just throw it out there.
Roland: (18:05)
Yeah.
Richard: (18:06)
Today, it’s probably harder than ever, because so much of our consumer dollar is spent on products that relate to microchips, digital products. So a lot of that stuff is a lot more challenging to find than it was when I started 30 years ago. On the other hand, there’s new areas to explore. Like who would’ve thought potpourri?
Roland: (18:31)
And there’s no digital in potpourri either, at least not that I know of. Right?
Richard: (18:35)
Right. I’m not quite sure the where of where you go, but I do sort of understand the how, which is to say you’ve got to keep away from the digital probably, you’ve got to keep away from the Amazon commodities probably, and do something that’s special.
Roland: (18:53)
So now, you have your company now is RichardSolo. Is there a Han Solo reference in there?
Richard: (19:02)
Well, we did sell a Han Solo at Sharper Image that was a beautiful sculpture.
Roland: (19:10)
I remember.
Richard: (19:11)
Yeah, it’s funny you say that. Well, RichardSolo is a small hobby that I thought I wanted to do when I left Sharper Image, but as it turns out, I really haven’t developed it into a going concern. It’s more just an ego hobby thing. We sell mostly products that relate to iPhone or iPad, and typically they’re accessories, and typically they’re power solutions often, because there are a lot of backup type battery products on the market that RichardSolo sort of specialized in that niche area. And it’s a good little website. But honestly, I don’t think selling products that you can find similar on Amazon, I don’t think that’s going to make you a couple of hundred million.
Roland: (19:58)
So if you were looking today to kind of build some couple of hundred million dollar business, is there any paths that you would kind of look at and say, “I think that would be an interesting way to go”?
Richard: (20:15)
Well, my entire life, Roland, what I tried to do was look at people’s everyday lives, their activities, their habits, and think of something that might be a solution to a problem. Which at the moment they’re just putting up with the problem, but you could go invent the solution. And that could be something for your car, it can be something for your home, for your office, for your personal accessories. I mean there’s always some little niche thing you can, if you study people and think about what you do with your life every day, you might come up with an idea. And then you could get it made or you can make it yourself, and there’s different approaches depending on what the type of product is.
Richard: (20:57)
Yeah, coming back to potpourri for a second, that’s why that was important. That lady thought, “Here’s the problem, I’m going to solve it, no one else is really solving it,” and then she probably goes to a fragrance maker or a household cleaner maker and comes up with a formula. So you find the problem, then you’ll find the solution.
Roland: (21:15)
So the path that you did basically from the first ads that you ran in the magazines, to then going into your own mail order, and all those catalogs that I used to be excited to get to read when they came, and then the stores. Could you talk a little bit about kind of that path from the small you to starting to hire people? Because I know you did a great job of building an amazing team at Sharper Image and then you also expanded into so many different channels. Can you chat a little bit about how that all evolved?
Richard: (21:53)
So I start with the phrase management by opportunity. And what I mean by that is an opportunity presents itself, and you’re supposed to recognize it when it comes knocking on the door, and then respond to that by managing your way into capturing.
Richard: (22:12)
So for example, I’m running these mail order ads. I’ve got my address on the mail order ads. All of a sudden, people are knocking on the office door in our office looking for that product. So I say, “Gosh, if they’re going to come to the office all day, why don’t I open a little store, put the address of the store in the mail order ad?” And before you knew it, I had a little store in a street that had no foot traffic, and that store was jammed all day. And that’s the perfect example. The opportunity was the fact that people were knocking on my door to buy the product. Talking about knocking on doors again. And the management was to say, “Let’s open a little store.”
Richard: (22:47)
So [inaudible 00:22:49] a lot of mail order ads, why not try other products? So I go to the consumer electronics show again, I find five other products, literally introduced the world’s first cordless telephone, not cellular, the world’s first cordless [inaudible 00:23:04], introducing the first car radar detector for police radar, introducing the first telephone answering machine.
Richard: (23:12)
So, again, management opportunity. Find something that’s working, look at an opportunity, and now take advantage of it. So, opened a second store. And I’ll never forget the realtor taking me to Orange County to the best mall in Los Angeles. They asked me if I want to pay high rent to be in the best mall, and I said, “No, I want to go downtown.” And he said, “There’s no traffic in retail downtown.” And I said, “I don’t care.” Because the realtor doesn’t know my customers are coming in from the address on the mail order ads in the catalogs. So the store was noticeably successful, that was our second store, and we just kept going until it got to the 200 stores.
Roland: (23:53)
Now there was a time, I think, when you had the stores were had about a $2 million net worth and you are trying to make a decision on whether to expand and how much, and you made a $5 million bet. Can you tell us a little bit about that? What you were thinking then, and I know it obviously worked out amazingly well, but that’s, when you’re thinking about an investment that’s two and a half times your current net worth, that’s got to be pretty scary for the folks that were working with you.
Richard: (24:21)
Right. So two thoughts on that; one is the bigger the risk, the bigger the gain. That’s sort of obvious I guess. If you take a chance and go bigger than you really can afford, you also have the chance to succeed bigger than you ever thought you would.
Richard: (24:38)
But the other side of it is if you’re going to invest more than you’ve got, you have to know it’s going to work. If you don’t know it’s going to work, then what I do is advise people, invest as much as you can, but be sure that if it fails, you have enough left to start over.
Richard: (24:56)
In my case, I’m dealing with some stuff, stores, products, Sharper Image products, where I knew as much as one could be certain it was going to succeed. For example, you do a small mailing of a catalog, let’s say, back in the days before there was internet. You do a small mail order catalog and it makes more money than what it costs to mail. And now you know, I could multiply that perhaps by five or 10, and yes, it’s investing more than I’ve got, but I’ve already tested it, so I already know it’s going to work. As long as the next lists are similar, it’s not going to fail.
Richard: (25:34)
So, there’s a difference. Risking more than you got when you know it’s going to work and risking more than you’ve got when you’re not sure. And you have to have a different reserve in each case.
Roland: (25:43)
And when you were looking at expanding the mailing lists and that form of marketing, how did you identify your lists? Where did you go to find more people to buy? Because that’s obviously a big thing. Now you are advertising in magazines and things like that, but you are also marketing by direct mail through the catalogs?
Richard: (26:00)
Yes. Well I think it’s the same whether it’s lists or whether it’s ads on the web. It’s sort of the same. The ones that you’ve already used a little bit of and they worked well, you know you can dump 10 times as much into it. And then ones that you haven’t actually tried yet that you want to try, you stick your toe in the water. Do a small budget and see what the rate of return is on your investment. So we’re just testing with dollars.
Roland: (26:27)
And did you go to like mailing list companies or how did you find the additional folks to mail to?
Richard: (26:33)
Well, in the mailing list business, there are brokers that represent a lot of different mailing lists, and the biggest brokers have access to every list in the world practically. And I’m sure the Internet’s sort of organized in the same way, but you had the option, which people do every day, to test a new place, a new website, a new [inaudible 00:26:50], and see if it works. If it does, put money into it. Management by opportunity.
Roland: (26:58)
I like management by opportunity. Did you expand? Did you move into other print, like remnants, and newspapers, or television, or radio, or any of those kinds of things as you were growing company?
Richard: (27:10)
Well, in my career I had the fun and the opportunity to test pretty much everything from… Before there was real shopping channels, there were startup attempts at shopping channels on television, and so we had our own cable shopping show, which was a lot of fun, but after three months I learned it wasn’t really making any money, so I stopped doing that. Then I tried another catalog, and I tried other catalogs, like furniture catalog, or a spa catalog, or just a exercise and athletic catalog. I tried so many jewelry and colored stones was another catalog. We tried everything. I’m a great believer in trying things, and the trick to trying things is not to spend too much money.
Roland: (27:58)
Did you have kind of a budget that you would say would be ideal when you run a test like that?
Richard: (28:03)
I guess the way I’d approach it is if it doesn’t make any money or if it loses… A good rule of thumb is you might lose half your investment. It’s rare you lose all of it, because when you’re testing marketing ideas, somebody’s going to respond probably to your banner ad, or to your email blast. You’re not going to lose everything, so I [inaudible 00:28:24] what if I lose 50% of my investment in this test? What does that mean to my total budget? And if the answer is, well, it’s bad, but it doesn’t mean a whole lot, I can afford to lose $5,000, then do it.
Roland: (28:37)
I love it. Now, you are also I understand quite the investment trader, and have generated some pretty stellar returns, and I’m wondering if you’d share some of that magic and secret sauce with us?
Richard: (28:54)
Ah, so much fun talking about that subject. Well, The Sharper Image went public on the NASDAQ in 1987, and so as the CEO of a publicly traded company, I saw firsthand what analysts had to say about us, how the stock traded, and how we were actually doing. And what I learned is that the market is just what they say; it’s sort of a herd instinct. Analysts often are sitting in a residential sterile room in New York on the 32nd floor writing about let’s say Tesla, even though they don’t have a Tesla, have been in a Tesla, and don’t even have a friend that has a Tesla, and yet they’re writing the recommendation of whether you should by this stock or not.
Richard: (29:42)
So I guess they can look at numbers, but they can’t necessarily look at the backstory behind the product, and as you talked before, the backstory to the product is often one of the most important things. And it’s certainly true in the case of Tesla, for example. People love the Teslas. They loved the fact that he’s the first electric car to be successful on a big scale. They loved the fact that he’s trying to save the planet. And their allegiance is so strong that it’s a story that’s a little bit different than an analyst sitting on the 32nd floor in a sterile office.
Richard: (30:17)
But to make a long story short, what I’m trying to say this my approach investing is trying to understand the product or the story and see if it’s got real heart to it. And that’s a difference that has enabled me to get returns in my personal investing. It’s more like 40 to 80% a year, which is unbelievable. I hope it continues.
Roland: (30:41)
I hope it does too. So tell me how you approach that. How do you find the heart? What do you do? Like how do you find the story beyond the folks that are just sitting in the little box on the 32nd floor in New York?
Richard: (30:54)
Well, in the case of Tesla, I just really took the plunge, and went to the showroom, took a test drive, bought a Tesla, now I’m on my fourth Tesla, and so I really lived the product. Went to their meetings that they have some invitations now and into their factory, so I really got into it.
Richard: (31:12)
Which Chipotle, there’s another interesting story. Chipotle was a high flying stock four years ago, stock was around 750, they had the food illness bacteria scare, there was a lot of food poisoning, stock goes down to like two or 300. They bring in a new CEO from Taco Bell. Well, I hate to admit it folks, I actually go in Taco Bell, and I eat [inaudible 00:31:37] and I actually like it. It’s junk food sort of, but it’s very well done, it’s very well thought out, and the menu looks very exciting, and it’s changing all the time. So they take the CEO, Brian Nichols, and move him. They hire him away and move him to a Chipotle.
Richard: (31:55)
And so there’s a storyline. There’s the backstory right there. The guy has done a brilliant job at Taco Bell. He’s an innovative marketer, he’s shaking up the menu all the time, and now he’s got to do it for Chipotle. So what happens? The food illnesses go away, they change a few things at Chipotle to make it better, primarily having a much more robust digital ordering platform, add some new menu items, and now the stock is about seven 750 a day I think, back from 200. So I made a fortune in Chipotle by simply understanding the back story.
Roland: (32:32)
That’s great. Do you have any particular places that you look, or things that you read or subscribe to that help you kind of identify the next thing that you might want to do? Or is it strictly opportunity?
Richard: (32:45)
Well, I love Jim Cramer’s show, Mad Money, on CNBC every day at 6:00 Eastern time, and what Jim Cramer always says is, “Do your homework.” And for me, despite the backstory, the homework is simply reading online three or four hours a day.
Roland: (32:59)
What do you read online?
Richard: (33:01)
Oh, I just go through everything from CNBCs website, to even UK Mail Online, Forbes Online. Just pick any. Anything Reuters Online, New York Times. Pick anything. Just read a lot and what you’ll… As long as you’re reading about companies or products, you’ll sort of find yourself falling into stories that leads you to a product investment.
Roland: (33:26)
So I’ve got one more business thing and then I want to ask you a little non-business-y stuff. So you have had tremendous experience kind of going through the full range of owning a business, taking the business public, dealing with a hedge fund, and then exiting out. What would you tell people who are looking at that experience, that have a successful company now like you did, and they’re looking at taking, say, institutional, private equity, hedge fund kind of money to make that next leap to expand?
Richard: (34:02)
And what are we concerned they might fall into?
Roland: (34:05)
So I guess it’s would you say, “I think that’s a great way to go, but here’s some things to look out for”? Or would you say that, “You know, gosh, if I had to do it over again, I probably wouldn’t have gone public,” or, “I probably wouldn’t bring in that extra money. I would’ve done this instead”? Just kind of looking for guidance, because you’ve had such a great range of experience with so many different players.
Richard: (34:28)
You know, The Sharper Image was unusual in that even though we did eventually go public, we never had any venture capital fund money. It was all self-generated, which is rare in today’s world.
Roland: (34:40)
It really is.
Richard: (34:40)
I was able to grow it from like $500 of initial investment literally to eventually a $750 million business. And the only time we ever took additional capital was when we went public about halfway through. But that’s partly also to diversify. You don’t want to have every single part of your net wealth tied up in one stock, so I wanted to diversify some.
Richard: (34:59)
But anyway, back to your question, I think people have no choice, honestly. If they want to get their business to launched, they have no choice but to invite some outside venture capital. And here again, we’re back to the principle negotiation. You’ve got to negotiate as best you can. Some entrepreneurs are very successful and keep the voting shares all to themselves. So that even though sometimes the story doesn’t pan out quite as rosy as they’d expected, they’re still in control of the boat, even though they may have given up half the equity. So that’s always a thought, is to try and negotiate to keep as much control, which could be special voting shares.
Roland: (35:37)
I’m a big fan and have studied quite a bit of the different stories of different people who have done that. One of my favorite comparisons is to read Little Black Stretchy Pants by Chip Wilson from lululemon, and then read Shoe Dog by Phil Knight at the same time, because Phil basically was in the process of going public, and then at the last minute said, “I don’t want to lose control,” so structured it so that there was special classes of stock with additional board election rights. And Chip didn’t really have that advice, and ultimately was forced out, and so it’s interesting to see.
Roland: (36:17)
So I think that’s great. Thank you for sharing that, because it’s such an important thing for people to think about. How do I get the capital that I want and give the finance people the things that they want in terms of return and de-risking, but at the same time not, not put myself in a position where I can get tossed out of my company, because they will do that. And they just don’t know, because they don’t know the soul of the company. Right? You know the soul of the company because you’re the founder. They’re just crunching numbers. And so they could miss out on the whole, like you mentioned Elon Musk, they can miss out on the whole Elon Musk story, and just make decisions based on what the numbers say, and miss a huge opportunity or really in a really great company. Let’s jump in out of the business world into personal; what are you doing for fun these days?
Richard: (37:09)
Well, I’m a toy guy.
Roland: (37:13)
I know that. I’m really curious.
Richard: (37:16)
Sharper Image was often accused to be toys for big boys, and there’s a lot of that in me. And I couldn’t have been successful at picking those products, some of which were quite useful I might point out, but many were just fun. And so my two favorite toys today, and I’m enjoying them so much is, and I just got one of them about six months ago, and that is a Harley Davidson trike. You’ve got one wheel in the front and two wheels in the back. Yeah, it looks like a classic electric, like you think of Harley Davidson with the [inaudible 00:37:47] in the front, but you’ve got two wheels in the back. And I wanted to try one, because I’ve had so many motorcycles in my lifetime, but I’ve never had a trike, so I wanted to try it, and I just adore it. So about every fourth day, we’re still having some good weather up here in San Francisco area, I’m riding 50 miles out to lunch and just enjoying it so much.
Roland: (38:05)
Richard: (38:06)
My other [inaudible 00:38:07] is that four-seater airplane. I like four-seater airplanes. So I’ve had Bonanzas, and I’ve had Vipers, and my current one is a Cessna 182 with four seats about the size of a Toyota Camry inside or a Corolla. But it’s sort of up near the top end of the line of propeller planes.
Roland: (38:28)
That’s great, that’s great. How often do you fly?
Richard: (38:31)
Well, not as often as I’d like, because the airport’s a little far away, but about every week or two I get up for a couple of hours.
Roland: (38:37)
Oh, that’s nice. Just kind of flying around or do you have a favorite place to get away to?
Richard: (38:41)
Well, I’m just buzzing around the pattern and boring holes in the sky, and there are some neat little places to go like Carmel for lunch.
Roland: (38:55)
I love it. Well thanks so much for taking the time to be here today. I understand you’ve got a book that you’re working on?
Richard: (39:03)
Right. I originally wanted to write a book and I put it out in The Sharper Image stores in 2004, but it’s sort of been a little bit eclipsed by a million other books about business. So I thought, “Why don’t I refresh it and nowadays take advantage of the digital opportunities, and make it an Audible book, make it a Kindle book?” Because I think those are so much more fun and I personally am a big fan of Audible.
Roland: (39:27)
Yeah, I’m almost all Audible at this point and I also like the two and a half times speed options.
Richard: (39:35)
Seriously. I just finished, actually about a month ago I finished it, one of my favorites of all times, which I recommend to people, which is Walter Isaacson’s book on Steve Jobs.
Roland: (39:45)
Oh, yes.
Richard: (39:45)
That is a fabulous book.
Richard: (39:49)
You learn so much about entrepreneurship and persistence by reading that book.
Roland: (39:55)
Any others that are particular favorites of yours or that have shaped your career?
Richard: (40:00)
Right now I’m reading Elon Musk’s story called Insane Mode.
Richard: (40:05)
And I like business books.
Roland: (40:09)
I love it.
Richard: (40:10)
People learn so much from other people who’ve already done it, and those stories are out there, whether it’s Sam Walton, or Steve Jobs, or Elon Musk. Those stories are all there. Read them, learn.
Roland: (40:24)
They are. People ask sometimes, “Who are your mentors,” and I say, “Well, this week it was Henry Ford and John Rockefeller because I read their book.” And I love autobiographies, because I feel like if it’s someone who’s had great luck and success in business, and you have the opportunity to read their story in their words, that’s pretty amazing, because it’s what they thought was most important to tell about their story, and I really feel like if you’re doing that, you’re sitting down with Conrad Hilton and he’s telling you how he started the hotel, or whoever you are, or Sam Walton, and I’m looking forward to your book, because I’ll feel like we have an opportunity to sit in and you’re sharing all of your best thoughts about the things that you found most important. What will we learn from the book? What are some of the things we can look forward to?
Richard: (41:33)
Well, just like you’ve taught in your career, I felt in my career I’ve learned certain things, whether they’re in the area of selling or negotiation, or customer centric. I touch on 25 different points like that, and each one of them is good, and each one of them is generally applicable to almost any enterprise. Whether you’re selling insurance or whether you’ve got a new app, you have to persuade people to buy, or sponsor, or invest. You’re persuading people and you’re also managing your income and your expenses. So that’s what makes business in the end, and so I’m just like everybody else that’s been successful trying to share some of those insights.
Roland: (42:24)
For people who would like to reach out to you directly to get a copy or to find out more about you or connect with you, what are the best ways that they could do that?
Richard: (42:42)
Go to RichardSolo.com and send us a message.
Roland: (42:54)
Richard, is there anything that I didn’t ask that you think I should have asked or that would have been a really good question?
Richard: (43:03)
The only thing I’d like to conclude with is the word persistence. That is the single word that probably in my career made the most difference. And when I read a story like Elon Musk or a story like Steve jobs, it is amazing how they have to go to such great lengths to finally succeed. And I use the word persistence to sum it up.
Roland: (43:28)
I love that. Thank you so much for being on the show today. I just really appreciate you taking the time to come on today and share with other entrepreneurs, and thank you for taking the time to write a book, to share everything that’s going to be in there. I’m going to be looking for those 25 points pretty eagerly.
Richard: (43:44)
And for me, I’m thrilled to be on the Roland Frasier Business Lunch podcast.
Roland: (43:47)
Thank you.
