I get asked a lot about starting and growing a small business, mostly from woodworkers who want to make the leap from corporate life to a diet of hot dogs and crescent rolls. So this post is mostly about business, with a little woodworking thrown in.
Right after I quit my job at Popular Woodworking in 2011, I was making about $10,000 a year from Lost Art Press. To make ends meet, I was teaching, freelancing and hustling. I think I was on the road about 18 weeks that year.
Then John and I got some great news. F&W Media (owner of Popular Woodworking) wanted to carry our entire line of books. And bam – F&W immediately became our largest customer.
Things went great for about a year, but then F&W missed a payment. The company was supposed to pay our invoices within 30 days. So John called F&W’s buyer to see what was up.
“Oooooh. Sorry. Meant to tell you that we switched everyone to 60 days,” the buyer said.
Sorry, but no, John explained. F&W’s buyer relented and said: “We’ll keep you on 30 days because of our close relationship.” Meanwhile, F&W placed another huge order of books.
But F&W hadn’t relented. They’d lied. After 30 more days, F&W was behind on multiple invoices. John called the buyer.
“Oooooooh, sorry. Management decided to put everyone on 120 days. No special treatment. Sorry.”
John demanded payment, and we stopped filling F&W’s orders until we could decide what to do.
In the meantime, trouble was brewing elsewhere.
When we sell our books to our retailers, we ask that they sell them within $3 of our retail price. That $3 wiggle room means that Highland Woodworking can knock $3 off the price and say our books are “on sale.” Lee Valley Tools has some flexibility with the currency transaction to Canadian dollars. And Tools for Working Wood can price our books at $27.68 so it looks like they use a magic pricing formula (maybe they do).
But you cannot sell our books for 50 or 70 percent off. (FYI, if you think this is price fixing, it’s not. It’s called Minimum Advertised Price and was approved by the Supreme Court about 2007.)
But that’s exactly what F&W started to do. They had “blowout” sales where they would knock 50 percent off a book’s price for a week.
We told them to stop. They apologized. Then they did it again.
I got the news of the sale while I was teaching a class at the Marc Adams School of Woodworking. During lunch, I called F&W from Marc’s gravel parking lot. I told them we were done and to send all our unsold books back to us. We would pay the freight.
When I hung up, I thought: This is the phone call that will put us out of business.
I was wrong. Our other retailers noticed the skirmish with F&W and increased their orders with us. Some ordered more books. Others added titles they hadn’t carried before. By the end of the year, we were back in good shape, and I think I took home $20,000 from Lost Art Press that year.
Two lessons: Big business will try to bully you. They will try to decide when to pay you. They will decide how your pricing should work. They will ask for special treatment compared to your smaller customers.
Don’t give in. Once you start treating your customers differently, you are in for a world of drama and deceit. Whenever we get asked for special treatment, I simply remember what Jennie Alexander always said: “’No’ is a complete sentence.”
The second lesson: Pay your vendors on the day you get their invoice. When someone drops off work they did for us, they leave with a check. When an invoice arrives, John pays it the same day.
Vendors remember this. And if you’ve wondered how we kept so many of our products in stock during the pandemic shortages, you now have your answer.
My friends with MBAs roll their eyes when I talk this way. They argue that LAP should use the 30 days between when we get an invoice and have to pay it to invest our cash and make a little extra.
No thanks. I’ll take the goodwill instead.
— Christopher Schwarz
I just can’t echo this advice at the end enough. Work in a corporate setting that the practice was similar to FW. I couldn’t hack it. And vowed when I was in the position to call those shots they would be different. Now having left the corporate scene and woodworking full time my method is simple take really good care of my vendors and they will care for me.
An MBA with that advice has been cheated on whatever they paid for the qualification. How much interest does one earn on a bit of cash held on to for 30 days? Can one put a price on good customer relations? I guess that an MBA is someone who knows the price of everything and the value of nothing.
Well said Bill!!
Very well said Bill !!
This is why I am a LAP customer and am happy to pay full price.
This CPA friend agrees 100%. I’d add to it that having lots of customers/clients provides diversification so that no single one holds too much over you.
Totally agree. We have avoided all exclusive distribution agreements. I’d rather have four small distributors in the EU than one big one.
I find it very difficult so far to price a custom order. Most of the time it is something I have not yet built or done and I don’t have my process figured out entirely. Once someone asked me “can you custom make me this curved piece of trim moulding and install it above this open staircase 20 feet in the air?” I gave them a price. “Oh, I thought I could get it done for fifty dollars or less, we are a struggling web design company,” was the response. I said, “I can’t set up and tear down and clean up for fifty dollars though.” And I forever lost the work on historical house that I had restored the bay window on for a previous owner. Actually felt good about that one. I often feel I am dealing with class dynamics. Have you ever given a price then built something and been like of crap I should have charged more? Good post and very helpful. The topic could be a book.
“Beauty is in the eye of the beholder”…
( & so is the term “fair value”).
Kudos to everyone that strives to conduct their business practices with honesty and integrity.
Great advice. I consult for start-ups in the medical device industry. Nearly every one pays immediately (within reason–they often use contract accounting people who stop in once a week or so to run checks and do books.) When they start asking for something over 30 days I know it’s time to move on. As with your story, extended terms typically means money problems, or in the start-up world it means they’ve left the “get it done” mentality I enjoy and are transforming into a plodding corporate entity.
Our CFO changed policy to 90 day terms for all vendors the retired. It is BS and I tell my suppliers to raise their before sending their invoice. Somebody thinks 90 days is saving big money but it is not… just driving up cost and pinching the mom & pop retailers.
Although I’m not currently running a small business, I agree with your approach.Whether in business or one’s personal life, sometimes what gets you through the day is loyalty – from vendors and customers alike. And, loyalty is bidirectional – that is, it works both ways. Treating everyone “right” builds loyalty, while squeezing every last penny out of relationships builds resentment.The loyalty you built with your vendors allowed you to keep things in stock during the pandemic, because your vendors were inclined to go the extra mile for you. Contrary to what the MBAs advise, that is smart business.
Maybe there were too many MBAs at F&W Media ?!? Disclosure: I have an MS in Technology that is a superset of an MBA, and I know what they teach.
With stories like this, I find it amazing that small businesses actually survive. With mismanagement among their suppliers and customers, with outright graft, with insane government regulations, and with today’s “supply chain” problems, it is amazing that many survive.
CONGRATS to you for sticking to your principles. …and producing GREAT products…
Such a good article. I agree wholeheartedly and use similar principles in my own small business. I love these times when Papa Chris shots us down and ‘splains so clearly and understandably. Thank you!
I took a fairly deep dive into photography a few years back.
A quote that stood out during a talk by Jack Reznicki & Ed Greenberg (commercial photographer & IP lawyer, respectively) was, “It may be the company’s policy to pay after 60 days, but it’s my policy to get paid when I deliver the photos.”
The games played by the “all in it for the money” financial world is endless and disrespectful of small business, hard work and quality products. When I had my own advertising design business large companies would take 120 days to pay and take an 18% discount as if I was a New York advertising agency with billings in the millions. I charged more to cover the cost to me – something you can do in a service business as opposed to a physical product business – and they were completely unaware.
But then I went to work setting up an in-house advertising division for a rare morally-operated corporation (they were a client) that became multi-national. There is a price to be paid for not being your own boss, but that depends on where you are re: the character of the company and where you sit in it. Warning: it can be exceptionally good or exceptionally bad.
I guess the question is “What does your contract say”? If your contract stipulates NET30 then it’s NET30 and they can bugger off with changing the terms. If they say “we’ve decided to pay you in 120 days” you say “No, it’s here in section seven. Pay Me.”
For a small business owner one of the best things you can do is watch a talk given by Mike Monteiro of Mule Design Studio. It was at a conference for freelance artists in 2011 titled “F*ck Pay Me”
. The session discusses the value of contracts, attorneys, and your worth in business. This talk changed my life and how I manage clients, client expectations, and getting paid for my value.
Have observation from corporate world: I used to work for one of the three private, not-for-profit hospitals left in North Carolina. Through mismanagement, after running well since 1933, it had to declare bankruptcy. At that point our invoice payments were in the 14-day range. In the maintenance department, most of our vendors were small, locally-owned businesses that were critical to keep our hospital running and to code day and night. They were our lifeblood. New owners came in and took the invoice payment system went to 120 days and we had difficulty buying lightbulbs for patient rooms. We couldn’t get critical systems repaired in a timely manner. It was at that point I decided to leave. I’m glad I did.
You guys certainly have my admiration and goodwilll as an ardent purchaser of your books.
The horrible part about this is that I saw Bad Company in Boston in 1974. My great shame. Thankfully it was a phase that ended soon.
Did they play”Silver, Blue, and Gold”? For me their best maybe only good song.
Thank you, Peter, for commenting on the headline, which is the best piece of writing I’ve done this week.
I had a commercial photography business for 26 years. Same problems there. Invoices stated 2% discount within 10 days/net 30/1.5 % finance charges. Big hospital chain would pay in 60 days and take the discount saying we can’t possibly pay in 10 days but if a discount is offered we’ll take it.
Ad agency would have rush deadlines because bureaucracy and indecision. Standard agency practice is to get one-third from client to commit to job, one-third upon completion and one-third after 30 days. Standard agency practice is to tell freelancers we don’t pay until we get paid.
Also, it is an almost unassailable truism that those clients with the most money are the most tight-fisted. Conversely, those with the least money were the quickest to pay and the most generous.
Suffice to say making things and problem solving with wood has been much more gratifying.
Thanks for all you do and share, Chris and all.
Carl
I had a friend that ran a small business, he liked to pay COD for the same reason you did. He said he owned everything in the store we saw and if he wanted, he could shut the doors and close the business whenever he wanted because he didn’t owe anybody anything. I’ve learned to be leery of advice from those who majored in finance. I think they get too wrapped up in float. Also, most of them seem to be broke because of a love of debt to leverage. I’d rather be boring and pay up front like you.
If I ever decide to sell furniture (unlikely as a good day job and when I retire in 7ish years or less my retirement savings should be sufficient to support my lifestyle), it will be 50% upfront and 50% upon completion BEFORE delivery. No exceptions.
That sounds like a great reason to sell furniture. You can have total control over the transaction of the product since you don’t have to sell it.
I apologize. This is all my fault. I confess that I let my subscription to Popular Woodworking lapse because the magazine had gotten more and more useless. If I’d just sucked it up and renewed my subscription, maybe F+W would still be able to pay their bills on time. My bad.
Same here, it went to crap when they fired Megan. Articles on welding(?), typos and bad grammar in every article, and the last issue I received had one sentence duplicated.
Everyone was pulling out, not just the readers. The ads started shifting from being 100% woodworking related to other crap. First those scammy sounding special mint gold coin UNBELIEVABLE!! deals, then came the ED medication ads. It had to be a viscious spiral of quality goes down so they lose readership, so the relevant advertisers back off, so the quality goes down, so they lose readership…. It doesn’t look great when your two famous (as woodworkers go) long term editors now freelance for the competition.
The welding article didn’t bother me too much. Those steel bases are trendy right now (though not my style but to each his own) and woodworkers are often the sort of people who want to make, not buy. Mitered square tube welds are not too hard with a cheap HF welder. The bit of welding I have learned has been useful in the shop. I’ve made custom lathe tool rests and a dust collector wall mount.
The article that really irritated me was the concrete table… just no. It also felt like some of the new authors were good amateurs, not experts. An amateur who is only a step or three ahead of you works on YouTube, but it was disappointing in a magazine where you expect expert advice.
I too have some culpability in this regard….
41 years in business and operate as you do. A thousand stories about paying and standing up to my standards of payment.
Needed a product. Waiting to speak to my supplier heard him tell a guy he couldn’t supply a product. I got my turn and said I needed the same product. He said “Order all you need and it will be delivered right away – You pay your bills.”
Another great post. Thanks for providing insight into LAP. I’ve become more of a supporter with every passing day! (Just bought the set of five Hayward books from Lee Valley in Canada). Keep up the great work, and your honesty really shows through in your writing.
I also have the five Hayward books and a few others I might not have bought were it not for Covid, along with additional tools. I am more than happy to support small companies like LAP and Classic Hand Tools, especially in difficult times. Ethics still count!
Interesting peek into the behind the scenes work at LOP. Seems like a reasonable approach to me!
This is how business used to be done before there were MBAs, and I think we were all better off for it.
“No.” is indeed a complete sentence. Sadly though, one that is very hard for some people to understand. Most of all those who are not used to hearing it, a group of people wildly over-represented among the wealthy. Which is rather vexing as a lot of the potential clients for any sort of creative/custom will have that background. If I were to go my lumber, or hardware, or tool supplier, and tell them I’ll pay them substantially less and at some indefinite point in the future, they’ll rightfully tell me that that’s not going to happen, and I see no reason why it’d be any different for a client.
I asked a friend how he was faring during COVID and whether he was experiencing difficulties getting supplies…when he said he wasn’t experiencing an major problems, I asked “how you manage that”?
He remarked; “I pay my invoices as soon as they come in…”
This is good advice I should take more to heart. I’m becoming convinced that a small business is not going to be able to make any meaningful extra money by “investing” the money they owe a supplier for 30 days. This might make more sense if you are constantly operating on the brink, but a small business operating like that is not in a good position.
The two most important (but largely forgotten) principles in business are 1. DO THE RIGHT THING….and 2. THE CLIENT COMES FIRST.
Sadly, the biggest don’t do this….,which is why they will fail.
Your policies have a basis in fundamental ethics. Almost all corporations have no such basis, and do not allow it in their employees, contractors, or vendors either.
Abso-frickin’-lutely.
As a consultant to small medical practices, I see this s*** all the time. Medical/health insurance companies are some of the worst, using “processing time”—even for electronic submissions!—and requests for further documentation, specious denials, “delays due to batch processing”, changes in payment processing, and more to drag payments out, etc. And don’t get me going on the differences between charges, costs, “reasonable fees”, up-billing, downgrading of codes, “lost” documentation and claims, and more.
It may also be interesting to know why I don’t generally work with larger groups, or even small groups/practices that are small bu corporate-owned—they routinely try to cut/delay/deny payment to me, often times in clear violation of the contract agreed upon. Such is rare with small, private practices. When I do agree to consult for a larger group, my fees go up rather significantly—just for the headaches, if nothing else. When they balk, I ask them how much they pay their attorneys, accountants, and senior administrators. Then I suggest they do some simple math, and compare my fees with those they pay others. If they even begin to argue further, I simply cut off negotiations and move on.
I genuinely like helping small medical practices improve their business. In many cases, they are providing better—and certainly more personal—services than the large corporate-owned groups, etc. can ever hope for.
I used to work for a huge global firm. But i work in IT. I would order software and hardware from some of my local vendors. My sales rep would call me a couple months later and say how their billing department was trying to get paid for an invoice and were not getting a response from our finance department. So I always had to become a middleman and try to get these people their money that we owed them. Luckily my salespeople knew it wasn’t my fault, i was just a lowly IT engineer, but I was still put in a really awkward spot.
I think this is a huge uncaptured cost to this way of doing business that many places just don’t see. If you’re a business that takes 90 or 120 days to pay, or accepts payments that way – how much are you paying people to chase invoices? How much personnel time are you wasting trying to find that email from 3 months ago, or trying to get a hold of the accounting department of your vendor or customer?
To take it a step further – how long are you going to keep those employees around if all they are doing all day is placing or taking contentious calls about delayed payments? Perhaps there are people that enjoy that type of role, but I would bet the vast majority very much don’t. Turnover costs money, retaining good employees is a much better financial decision.
I lack certain kinds of firmness, or perhaps toughness. I could never run my own business. I thought about going into nursing way back, but I lack that necessary firmness as well. I was satisfied with punching a clock and getting out as soon as I could.
There are some days I honestly wish I were wired different. I would love to be able to sit on a scenic mountainside and not think about furniture designs, book ideas, EBITA and quarterly estimated taxes.
Love the honesty and no bullshit nature of this stuff. Where else can you read about these things?A lot of us have been there and are so glad to leave it all behind.
I have most of your titles and they are worth every penny I have paid. Yesterday, I sat with a small business owner in Salida, CO who carries axes, books on wood along with apparel. I highly recommended her carrying LAP titles, we went to the site. Perfect synergy. I don’t know how you could find similar small shops, but would love to see LAP titles in a store. BTW, Salida -10k people about half are hippies and half are ranchers all enjoy each other’s company at one of the 4 breweries or the distillery. Two outstanding woodworkers as well….
We have a program for small retailers. They can send an email to meghan@lostartpress.com for details.
That’s good to hear. There are times I dream about buying a building on our downtown “Main Street” and opening a woodworking store. Much like hand crafted candy makers do, my workbench would be in front of one of the main windows for my woodworking. There would be free coffee and places for retired gentlemen to sit and have a cup in the morning and shoot the breeze. I figured I would want to sell some sort of small items that folks who are browsing could purchase. Quality used and new tools (not too many and just the ATC type fundamentals) and books – especially LAP books. It stops at a dream because I enjoy the day job, not that far from retiring, and can happily woodworking making what I want for me and my family in my garage. I will just be one of the old farts getting coffee and the local hardware store or such. Oddly enough, the other thing our downtown needs is a book store. There is a dandy location across the street from the relatively modest movie theater that would be a good location.
You MBA friends haven’t noticed that short term investments have been paying crap since the 2008 financial fiasco?
Invest for 30 days and you will likely lose money. Your broker will love it, though.
That preference for several small vendors also holds for subcontractors. We found we got better service if you paid those guys on time and you didn’t get royally screwed if one of them just is too busy to attend to you in a timely manner. And they appreciate you more the next time when the guy they put you off for goes to 120 days without notice.
It’s not about the return on the cash. It’s about getting the cash out of the business. Lower net working capital means higher return on assets and return on equity. The difference in cash consumed by the business (high vs low net working captial) can be invested in other projects.
Not arguing in favor of stretching payment terms, just illuminating for those who may think its about earning 20 bps on cash.
I’m proud to know you!
I ran several businesses prior to retiring. Vendors that had accurate detailed invoices got paid within a week. If their invoices were unclear, confusing, wrong or just generally trying to screw me over, they got put in a pile. On their due date I would call and ask for an explanation. If it was legit it was paid that day. If the song and dance continued, it went back in the pile for a month. Rinse and repeat. The smart ones learned fast and cleaned up their act, the rest got put on the blacklist.
Sorry but F&W behavior does not surprise me. Aren’t those tactics the same that drove you and Megan and others to resign in the first place I hear they are not doing to well. If you’re building a business you’ll be proud to pass to your children run it as though your vendors are some of your best customers because they are the reason your best customers come back to you.
I worked in IT for a company whose policy was to only pay invoices after the supplier had complained… a lot!
The company was run by an accountant…
I don’t work for them anymore.
Incidently, they went bust. (Karma rules…)
That’s a very telling comment about the “friends with MBAs”.
What sort of degree course is it that drags you away from common human decency? I think that in the long term good will will win out, at least among people who can think for themselves and have a bit of integrity.
Life is easier if you deal with good people like you and John and the rest of LAP. I love buying from Lost Art Press. I get excited when I get one of the books you publish because I know I will love it.
Thanks, Merry Christmas & Happy New Year.
Bill
Menards is notorious for screwing around the little guy vendors until they’re OOB but all big box retailers do it. Cash is king with everything.
If you were a full time investor, you could maybe make money on the on the amount of the withheld payment in 30/60/90 days. But you’re busy running your business & don’t have time for that. If you’re running well, your payments are pretty steady so you have the same amount due each month. So that investment of withheld $$ is going out the door anyways.
People who advocate making $ on interest are using someone else’s money, not their own. As you found, your customer was trying to gamble with the money you spent supplying the product.
Mostly I feel like a full-time DIvester
Goodwill goes a lot further than the amount you’ll make on the same cash invested for 30 days. Not to mention the fact that you can’t put a price on the ability to sleep at night because your bills are paid.
Reading your blog made me proud to have purchased from LAP. Several years ago I had a call from a new customer requesting a quote. I quoted list prices(which I have never charged due to the high markup, I have to sleep at night!).The quote was approved and when I filled out the paperwork to become a vendor there was a 120 day payment clause, I sold the parts (that I paid for when I picked them up, billed at list (which I had not intended before I saw the clause).Received a check in about 90 days. I haven’t sold them anything since and I haven’t lost sleep. Stick to your principles!
John