How To Screw Yourself Out Of 10 Million Dollars… Without Even Knowing It

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happy-sadIn the first clothing company that Gary and I owned back in 1991, we decided to take a huge gamble and use a fabric that we had seen in the ski market, and attempt to bring it into the urban market where it had never been seen before.

We decided to premiere it at the biggest fashion tradeshow in the world, the Magic International Tradeshow in Las Vegas. It was a big gamble for us since this was very early on in our business to be taking such a risk, however, we figured we would give it a shot…

Step 1: Success! … almost

As it turned out, it was a hundred times the hit that we expected. We wrote so many orders we could barely bring the orders physically home. When we got back to the office, we counted up all the orders, which came to a little under a half million dollars. At the time, this was by far the most amount of business we had ever written.

Though we were extremely excited, it did represent quite a task for us, as it was only Gary, myself and two other people in a small warehouse in downtown Los Angeles and we didn’t have time to get a bigger warehouse or hire more people in such a short amount of time.

We also had an extremely hard time convincing our suppliers to give us that much product as it far surpassed our credit lines. So we begged, borrowed, pleaded, scratched and scraped every last dime and squeezed every ounce of credit we could and managed to miraculously get all of the product made in time for the season… All we needed to do was pack it for the stores.

When the product came in, there was so much we couldn’t fit it all in the warehouse so half of the product was stacked outside and we spent two days and two nights in the office packing everything… and praying it wouldn’t rain! Fortunately, we were able to get everything done until every last box was out of the warehouse.

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Step 2: Success! … Or So I Thought

About a week later, the phones started to ring off the hook. So much so, that we added new lines to take the calls. Stores were re-ordering like crazy… every company’s wet dream!!! The reorders were coming in like wildfire so much so it was literally insane at the office.

BUT… There was one small problem… we hadn’t planned for re-orders.

We immediately thought about calling back our suppliers but it was useless, as it was Christmas season, and there was absolutely no chance of getting more product before the season ended.

One account with multiple stores in the Midwest actually called us and told us to ship whatever we had in the warehouse. No discount, just anything and everything we had at full price. We had nothing. Not one single garment left.

That season, our company rejected millions of dollars in orders because we simply weren’t ready.

Step 3: Too Little… Too Late

By the next show we were ready. We went to the show ready for anyone and anything. When we got to the show however, we realized something horrible. Every single booth had our product… and it was better and less expensive than ours was. We were suddenly a zero-factor. A non-issue. The big boys had caught on and were ready for the kill.

Over the next few short years, hundreds of millions of dollars were spent on this fabrication thanks to the people who handed them the keys to the kingdom… Us.

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The Lesson

This is a classic story of supply and demand. If you have something that someone else wants but nobody else can get, you will get the sale every time, regardless of price. If you’re not ready to fill the demand, someone else will, if not now, then later. The key is to reap the most profits as you can until the competition catches on… and they will catch on.

The truth is, we could’ve probably shipped ten million dollars if we had the inventory. I made a big mistake. I spent all my time on making sure that somehow, some way, the product would be a smashing hit.

What I didn’t do was figure out what to do once that smashing hit took place.

Have a great day!

 

MJ

How To Lose A Business in 24 Hours

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Losing a business in less than 24 hours is easier than you may think. Just to clarify, I’m not talking about a business that is defined by simply printing up business cards with a company name and a fancy, impressive (albeit fake) title. I’m talking about a living, breathing, revenue-generating business with actual sales receipts at the end of every day.

 The second business I had (just like the first), was a fashion brand in the urban contemporary market. One year, in preparation of the holiday shipping season, I decided to double down on my advertising to increase my exposure in the market. I borrowed $100,000 in cash from my finance company (the company that was financing my orders) to pay some of the advertising money up front. The balance of the advertising dollars the magazines gave me a line of credit for… about another $200,000. So, altogether, I had scheduled four months of advertising at about 75,000 per month (300k in total) in anticipation of delivering the product to the stores.

 As it turned out, everything paid off. Or so I thought… I wrote a ton of business, opened up several hundred more locations than I expected and it looked like holiday was going to treat me very well.

Taking My Eye Off The Ball

 That season we were shipping a lot of denim. Back in those days we had to make jean jackets to match every pair of jeans because that’s how everyone wore denim back then. We had some factories in China, and some in Korea that were making all of our products for the season. The vice-president of my finance company was overseeing the production of our tops and bottoms as he had relationships with the factories for many years.

To make a long story short, the jean tops arrived first and they looked great. My partner and I had ordered about 15,000 pieces of the tops that we sold for 40$ to stores (who then retailed them for 80$) so this represented $600,000 in revenue for our company for the season on that category of denim.

When the ‘matching’ denim bottoms came in however, the leg opening on the bottom of the jeans (where you put your feet through) were so small not even a kid could fit their feet through them. Some way, some how, there was a major screw-up.

Vested Interest in Both Success & Failure

The problem was that the vice-president had approved the production, so there was no recourse with the factory as he has signed off on it.

Here’s the key point… the vice-president of our finance company worked for the finance company, not our company. While he wouldn’t make money on a screwed up order, he wouldn’t lose any money either. Truth was, he had caught the mistake but did not want to get in trouble with the finance company for picking a bad factory since he worked for them not us… so he tried to dump the problem on us. And he did.

Double Damage

So here we were with 15,000 jeans that we could not use. These jeans were also 40$ wholesale so they had also a value of $600,000 just like the tops… But we were not only out $600,000 because now that the jean bottoms were of no use, the jean tops had no value either. The result? A 1.2 million dollar hit. My margins at the end of the day were around 30% so I was expecting to make $360,000 out of that $1.2 Million. I was planning to use that money to pay the $200,000 balance to the magazines and I would still have money left over to pay my other expenses and still take a nice profit at the end of the season. But that is not how things went down…

What went down was that lawsuits came flying, and the vice president of the finance company did not come clean with the President about the mistake and the finance company dropped us like a hot potato… and I was out of business in a day.

The Moral Of The Story

Only give decision-making power to someone who has a vested interest in both your success and failure. If their interest is with some other company other than your own, then that is the side where they will be making their decision from, not yours.

Have A Great Day!

MJ

 

How To Look For Investors The Wrong Way

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When looking for investors, one of the most important things I have learned is that the talkers never walk and the walkers never talk.  From my experience, the best investors that I have come across have come through with what they did, rather than what they said they were going to do. Big difference. Unfortunately, I learned that lesson as I did the rest, through a painful experience of my own.

Looking For Investors The Wrong Way

In my second company with Gary, The president of our finance company mentioned that she was going to introduce us to a gentleman who apparently had the financial means to give us the capital we were seeking, as she knew we were looking for investors to help us through our growing pains. After speaking with her, however, the vice-president pulled me into his office to warn me about the person that we were about to speak with. He said the man loved to talk about himself and seemed to promise the world to everyone, yet he had never seem him once carry though with an investment in a single company in all the years he had known him. He wanted me to know this up front, because I would never know this when meeting him because he was extremely articulate, well educated and impressive, and easily fooled and deceived whoever was in his company. I appreciated his advice, but figured I had nothing to lose.

The Meet & Greet

The investor’s name was Jack and he was a middle aged, very distinguished looking man who owned a liquor distribution company in California. When speaking with him at first, I was a bit taken aback by his extreme downplaying of money needed, as he assured us a million dollars was hardly an issue. He mentioned that one of his partners was an Arab Sheik, another owned a bank, and both were normally involved in capital infusions of twenty million dollars and higher. He was even sharper and more articulate than anticipated and I could see how easy it was to fall for his line of sh?t…because I had fallen deep already.

After a few talks back and forth, we sent him our business prospectus for him to review with his partners. Upon speaking with him next, he told me he agreed to give me the money that I was looking for, and he would have a bank check available for me the following week.

The Man With  A Million Bucks

The following week, he called our showroom and one of our sales people answered the phone. He asked to speak to me and, when our salesperson asked who was calling, he replied, “the man that’s giving your company a million bucks”.

I found it a bit out of place and tactless to say such a thing, being that it was nobody’s business that such a deal was taking place. I decided, however, to let it go so as not to bite the hand before it fed me.

Weeks went by and I hadn’t received either a check or a phone call from Jack. After repeatedly trying him on the phone and receiving no response, I went to speak with the president of our financing company again, to ask her if she had heard any word from Jack. She replied that she had heard from him and that he had decided to pass on the investment.

He never even called to tell me. We never spoke again.

The Hard Lesson Learned

There are certain flashbulbs that should light up over your head anytime you come into contact with someone that promises you the moon and the stars.

A good rule of thumb is the more a hard-working entrepreneur earns (as opposed to inherits- big difference), the more careful they are to let go of the money they have worked so hard to make. The same rule applies to their approach to investing, especially when they are considering making an investment in an area that they are unfamiliar with, which was the case here, as the man and his partners were not familiar with our business (fashion). When an investor not familiar with your market is looking to invest, they are usually extremely slow moving, ask a lot of questions, and typically request a ton of information on the industry as well as any and all other relevant information so as to educate them on that particular market.

Truth be told, in most cases, investors like to stick to what they are good at, however this is not always the case. I had previously never witnessed such a person make a quick, hasty decision to spend such a large amount of money. Even if I had, I sincerely doubt such a person would shout it to the world, as such information is often even more private to that person than anyone, and they would not wish any outside person to know such personal information.

I had been warned, witnessed the distress signals, but still was blinded by the sight of a million-dollar check glaring in my face, though I never witnessed such a sight… at least not that time.

There is one addition to the rule…not only do the walkers never talk and the talkers never walk, but after the talkers don’t walk, they invariably hide and/or disappear…a la Jack.

Have a great day!

MJ

The following is an excerpt from How To Ruin A Business Without Really Trying… To receive complimentary chapters, sign in below to get a download link. For more information about the book, Click Here

How I Helped My Competition Without Even Knowing It

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When Gary and I had our fashion brands, our company strengths lay in our ability to create innovative and unique strategies both in design and marketing.

Since our showroom was connected to the offices of our finance company, there were constantly clients and competitors in our office, and we had to be careful about what was lying around or in open view. Continue reading “How I Helped My Competition Without Even Knowing It”

7 Powerful Reasons Why Learning What NOT to Do is the Best Way to Teach Entrepreneurs

14. 7 Powerful Reasons Why Learning What NOT to Do is the Best Way to Teach Entrepreneurs

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When individuals of some mythical entrepreneurial standing reach a certain point in their careers, they seem to graduate and cross some invisible line where they suddenly seem to possess the authority to tell other aspiring and existing entrepreneurs what to do and how to do run their businesses.

So what exactly is it that gives them this self-appointed credibility to tell other business owners what to do? I think the easiest answer is that telling entrepreneurs what to do has been Continue reading “7 Powerful Reasons Why Learning What NOT to Do is the Best Way to Teach Entrepreneurs”

How to Spend 10 Years Losing Money Without Even Knowing It

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By 2001, I had lost my second business. It was ten years from the date that I started the first. Throughout those ten years, millions of dollars had run through my company bank accounts. Each and every season, hundreds of thousands of dollars were being paid out to our creditors, more inventory and equipment were bought, and every penny we had left over was consistently being reinvested into the company.

As the roller-coaster peaked and valleyed, my focus stayed steady and strong (or so I thought) as I plowed the profits back into the company to continue feeding its growth. Continue reading “How to Spend 10 Years Losing Money Without Even Knowing It”

How Hiding Behind Your Phone Will Destroy Your Business

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During our first business, there were times when Gary and I hit financial walls and had to pay our creditors late.

I had a person who was handling our payables at the time and, he was so flustered by the dozens and dozens of calls from vendors demanding past due amounts owed, he put them all through to his voice mail to avoid the calls. He would then proceed to conveniently call them back after six in the evening when he knew they had left for the evening and would not pick up the phone. Continue reading “How Hiding Behind Your Phone Will Destroy Your Business”

What NOT To Do When Raising Capital: The Jack of All Trades … Is a Jackass

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When pursuing an investment for one of my fashion brands, Gary and I met with a gentleman who represented a group of investors.

The man was recommended by a friend in the financial world who knew of several companies the man had successfully completed securing investments for over that past year. We were happy to know that the man was on a roll, and had credibility as far as raising money. Continue reading “What NOT To Do When Raising Capital: The Jack of All Trades … Is a Jackass”

The Difference Between Working Hard vs. Working Smart

51. What Entrepreneurs Should NOT Do In Business Rule 23  Working Hard vs. Working Smart

Before I started my business I was a very athletic and healthy young college man who rarely missed a day on the basketball court. When I started my first business at twenty years old, I worked seven days a week, and a minimum of fifteen hours a day. If I was lucky, I would get in at seven in the morning and work till ten.

The result? In the first six months of business, I had gained fifty pounds, was smoking a pack of cigarettes a day, hadn’t done five minutes of physical activity, and couldn’t make it up a flight of stairs without stopping a few times to catch my breath. Continue reading “The Difference Between Working Hard vs. Working Smart”

What Entrepreneurs Should NOT Do In Business Rule 18: Never Go On a Suicide Mission

57. What Entrepreneurs Should NOT Do In Business Rule 18 Never Go On a Suicide Mission

The beginning of my first business was a truly remarkable and exciting time. One of the largest chains in America with nearly a thousand stores had just taken the first urban inspired young men’s clothing company in history from twenty thousand dollars to over one hundred million dollars in revenue, and suddenly it was our turn as they were giving us the same opportunity.

The opportunity came about after becoming an ‘overnight success’ when a a ten-store test with that retailer literally blew out of the stores in a matter of days. Suddenly, we (Gary and I) were receiving orders for hundreds of stores at a time and couldn’t produce the product quick enough. Continue reading “What Entrepreneurs Should NOT Do In Business Rule 18: Never Go On a Suicide Mission”

How My Ego Destroyed My Business

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In the waning hours (literally hours) of losing my first business, I sat down with the two gentlemen that were financing my business up until that point. They expressed regret that they could not continue our business any longer.

I was literally crushed. For the past six years I had devoted my life to something that was truly disappearing before my eyes. Continue reading “How My Ego Destroyed My Business”

What NOT To Do In Business – Rule 6: Never Ever Hire a Friend as Your Attorney

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If you understand the grunts of a new start up business, you certainly understand the need to cut some corners, and cut expenses wherever and whenever possible. I was fortunate enough to have a friend of mine who was an attorney who agreed to handle the legal matters of my company free of charge until I had the money to pay him.

Having a growing business, I constantly needed contracts for various things. After hiring my friend, I noticed that contracts were being drafted at a snails pace and it seemed the longer and longer I used his help, the longer and longer it was taking him to get anything done. Continue reading “What NOT To Do In Business – Rule 6: Never Ever Hire a Friend as Your Attorney”