Rich: I’m here today with my good friend Scott McQuade at Outdoor Retailer and I just heard his story. For all you Zigzagers you’ve just got to hear this. Scott, would you mind sharing with us how your wife got into the wholesale off-price business please?
Scott: Absolutely. I’d be thrilled to. I was a third generation retailer and president of a family chain in the northeast. My wife wanted her own business so I bought all the off-price goods from the company. When I began a factory I’d be using a small portion of the off-price goods so I said to her, “Why don’t you see if you can find a buyer for the goods and then you can purchase the goods and just flip the deal and not even touch the goods?”
So she said great and I told her about a deal, it actually was in Manchester, New Hampshire and they had a flannel line and denim skirts for L.L. Bean and her first customer was Sierra Trading Goods and her first order was 10,000 pieces. She called Sierra and found out who the buyer was, talked to the buyer, negotiated the price, and went back and bought the goods. Now the hard part for her was that we had no capital at the time. We were newly married, we had kids, and we had no savings so she had to go into a bank to get a loan. We were from a small town of about 100,000 people. She spoke to the banker and presented her purchase order and told them that if she could borrow the money from them then she could make the deal happen and make $20,000 profit off this deal. The banker knew our family and told her he would loan her the money. So she bought the deal and that was the beginning of her career.
Rich: Ok. Now a couple of really fun, key things you left out of there was, I don’t think you had a bank account at the time and they said “Show us your PL” when there was no P&L. So frequently we think you have to have a whole bunch of money to create money. When Scott told me this story I couldn’t help but chuckle, would you like to tell us how value was created?
Scott: Yes actually, that’s true, Rich. We didn’t have a P&L, we didn’t even have a business. She actually had to call me during her meeting with the banker to ask me what our business name was. I told her, “Tell him it’s White Mountain Dry Goods,” because we lived in the northeast where the White Mountains were and he said, “Yeah that name sounds familiar, that name has been around.”
Rich: And that was the vendor, so in real time you made up the name of the supplier and they checked it, gave their approval and got it in their system which, had you done it any other way, would have taken five or ten years.
Scott: That’s correct. That came to factor as we were taking the loan. The banker said, “That sounds familiar. I just can’t find the file but I’ll approve it.”
Rich: Needless to say this went on to become a very successful company and has done really well.
Scott: Yes. For sixteen years.
Rich: Sixteen years!
Scott: And we started with zero capital.
Rich: Started with zero capital. So how did that work? What is that all about? Did you need a whole bunch of money to start out? No. The answer is simply this. You start with intellectual capital, or being smart. In this case it was Scott having the connections and understanding how the wholesale market connected plus relationship capital. The vendors knew them, the bankers knew them, and there was a level of trust. If you do that in the form of a business it always ends up making financial capital. From $0 to $20,000 in profit you can launch a business in really one simple transaction.
Don’t tell me it can’t be done. You can zigzag and go do it. You can create your business and quit getting all hung up on having a bunch of money.