Recently I got to interview one of my all-time business mentors, Rich Schefren. I’ve been working through Rich’s coaching program since 2006 and ironically we had this podcast interview fixed up for months. Then I ended up, by sheer fluke, going to Florida to work with him just the weekend before this podcast interview happened. In this one, we throw away the agenda, and I just let Rich tell his story and share his wisdom. I really hope you enjoy it as much as I did.
Nicola: Today I’m delighted to welcome a man who has made the biggest difference to not only my business life, but now the rest of my life, too, thanks to his groundbreaking transformation weekend I attended in Delray Beach, Florida. Rich Schefren has completely changed the way I think about everything.
He is an author, entrepreneur, internationally known business consultant, who’s helped thousands of people build the online business of their dreams, including many household names online. A lifelong entrepreneur himself, Rich built his first $7 million business by the age of 23, and he first retired by the age of 25.
Bored only six months later, he got interested in hypnosis and decided to turn that interest into a business. Realizing his love was the startup stages of growth, Rich left the Hypnosis Center when it had grown to 13.5 million annually, and pursued his next passion, the Internet. Since then his Internet strategies have been taught to and used by Google, Microsoft, Yahoo, Agora Publishing, Motley
Fool, thestreet.com, and Boardroom Publishing, not to mention Weiss Research Incorporated.
Wanting to impact the world, he then founded his current business, Strategic Profits. His company’s mission? To improve the lives of entrepreneurs worldwide by helping them to earn more while working less in their businesses. Welcome to the call, Rich.
Rich: Thanks, Nicola.
Nicola: You’re very welcome. What I’d really like to do, Rich, is go right back to the beginning. Now, obviously I know your story inside out, but my listeners won’t, so take us back and tell us how you became the entrepreneur you are today and then we’ll go into your best tips for business, mind, money, and marketing.
Rich: How far back do you want me to go?
Nicola: Well, you know, tell me about your family, where you grew up, and was there any entrepreneurial influences in your life in the early days?
Rich: Oh, yeah, sure. I think I was blessed by that. My dad was an entrepreneur, kind of a ruthless entrepreneur, so I got to see the extremes of business, I’d say. I didn’t want to grow up that way, but it was definitely a lesson, and he wasn’t around very much, but because he wasn’t around very much, I was always eager to be around him whenever I had the opportunity, and so a lot of that time that opened up for me, to be able to spend time with him, was on the weekends to kind of tag along with him on a Saturday when he would go to work or go to meetings, and I would join him.
Sometimes he would be meeting other business owners or doing deals, and I would just sit there and listen, and then on the way home he would describe like why he said what he said on the way there. He would kind of give me a perspective, and so it was always an educational experience for me. He treated me like an entrepreneur.
I remember as a kid I used to wash his car for a dollar. I was like eight years old and one day he made the mistake of having me in the car when he took me to the car wash.
When he took me to the car wash, I saw that he paid eight dollars for the car wash, and I was like, you know, a little bit offended that here he was paying the car wash eight dollars. I was only getting paid a dollar, and so I said, you know, “What gives here?” He’s like, “Well, you know, that’s what we agreed upon.” I said, “Well, from now it’s going to be eight dollars,” and he said, “Well, if it’s eight dollars, then I’m just going to take it to the car wash.”
He’s like, “You might want to charge me seven dollars so I have a reason to use you.” That’s the household I grew up in, and it taught me entrepreneurship, I guess, from an early age. Got involved in my own businesses when I was really young, and seeing the opportunity where other people didn’t see the opportunity and I guess it’s always come pretty natural to me, pretty easy.
I recognize in my work with entrepreneurs for the last God knows how many years, that the way I see things is not usual, and so a lot of my work revolves around helping people see things the way I do see them, and I think a lot of the reason why I’m able to see things the way I do started all the way back then just being exposed at such an early age and that really being such a big part of my influence as a child.
Nicola: It sounds awesome but terrifying. Didn’t you try going down the normal sort of college and big firm kind of route at one point?
Rich: Yes. Yeah, I studied accounting in college, and I won a bunch of scholarships from Arthur Andersen and Andersen Consulting. I was top of my class in accounting. I took actually a year off and worked for them in my junior year, and I worked in every different division of both the Andersen Consulting and Arthur Andersen, and a very special kind of program where they’re trying to recruit you, and they’ll let you join any division, and so you take a year off and you try every division to see what resonates with you. It comes with a lot of training and it was a great experience, and I loved it, and I loved Arthur Andersen and Andersen Consulting, now called Accenture.
I was thinking that I might go down that route, and towards the end of my first semester of my senior year, in a conversation with my father, who owned a business … He owned several businesses, but he owned this one business that was a store that was failing. It was losing a lot of money, and so he was going to close it. It was never his passion, and it was just something that he owned and was useful at a time, and he was going to close it.
Him and I made a deal that I’d drop out of school, not finish my last semester, and take it over. I would take it over, if I turned it around I would get 50% of the business and compensate him for the losses that he incurred from the point I took it over until it was successful.
The lease was running out in a year and a half. That’s when he was going to close it, and so I had about a year by the time I got there to turn it around, and if I did turn it around I’d get 50% ownership and he’d get reimbursed for all the losses. It was no-lose for him and no-lose for me, a win-win, and that’s what I did.
When I got there, the business, the break even was about three million. It was doing about a million and a half, so it was losing about a million and a half, and we turned it around. It became a very well-known store in Manhattan. It was in New York City, and it went back to three million, then four and a half million, and then six million, then seven million, seven and a half million or so, and it was continuing to grow.
We opened a music label. We put a recording studio in the store that turned into a music label, a techno music label where we had worldwide distribution on, and I recognized around that time that this was not really my lifelong pursuit, and so I gave the business back to my dad, went back to school, finished my last semester, and decided to take a year off and figure out what was going to be next for me, or kind of semi-retire.
I kind of knew I was eventually going to do something, but not sure when I would figure out what or when, and that was kind of the first phase.
Nicola: The thing I was most fascinated about by the story of the store, not least because it grabbed my attention, because I was running a house and garage record label in London at the time, was your story about how you identified who were the best sellers, and really analyzed what they did and how many units people sold on average. The maths around that I found completely fascinating, and I think if you could just tell us a bit about what you did on the first day when you walked into that store.
Did you observe for a while and then start making changes, or had you decided that you knew what needed doing? Tell the listeners the kind of analysis you did to help people sell better in that store.
Rich: Well, you know, the first thing I did actually … Well, I saw the store and the store was a mess. I mean, the clothes sucked. It looked a mess. Everything was bad about the store. What I then did was I actually flew to Europe and I flew to Paris and to London and then to LA to see what stores there were doing to get a sense of just what was hot.
Then came back to New York and figured out an overall direction of what I thought we had to do. In the beginning, it was not easy. We wanted to bring Diesel into the United States. They weren’t in the United States at that time, and at first, they declined. They didn’t like the store, and I couldn’t blame them.
We ended up being the first store to bring Diesel into the United States, and we were supposed to be the first store to bring G-Star into the United States and then they decided not to come into the United States for a couple more years.
We really ultimately built a store and I keep saying we because I drafted my roommate in college to come with me, so we did it together. We built a store that we would love because we saw that no store was really catering to our demographic, and everything in retail is really about maximizing your sales per square foot.
Everything that we did was really revolved around that. The way we got into the music business, and now it’s pretty common for stores to sell music, but back then I don’t think there were any clothing stores that sold music. We put a live DJ in the store, and I think … I never saw a store have a live DJ before.
We sold the music that the live DJ was playing, and the rationale for me was that well, if we’re going to maximize the sales per square foot of the floor space, why wouldn’t we try to maximize the sales of the air space?
Nicola: Oh, so you were going up as well as sideways.
Rich: Yeah, so that’s how we got into the music business. Then when that worked so well it was like, well why do we have to buy music from others? Why can’t we make our own music and build a recording studio right here in the middle of the store? Then when it came to our inventory, the goal was, that we eventually got to … It certainly wasn’t that in the beginning. The goal was to turn the store five times a year, turn the inventory five times a year, which meant that we carried about a million and a half dollars worth of inventory, and turning it five times a year meant we sold about seven and a half million dollars.
To turn the store five times a year, you have to sell about 10% of your inventory every week, because then it takes 10 weeks to sell through and there’s 52 weeks in a year, so you would sell through five times in 50 weeks.
With our buying, we looked at … Every week we looked at everything that was on the floor, and anything that was selling more than 10%, we would want to know why, did we need to order more? Was that section of the floor space premium? Did it always sell better? So that we could learn more about which areas of the store sold better. Was there a certain type of display that made it sell better? We were always learning about that kind of stuff, and if it sold worse was it also because of the location?
Eventually we learned where the dead parts of the store were, or was it bad and did we need to get rid of it sooner rather than later so that we could actually make room for stuff that sold better? We managed our inventory based on attempting to always have the right amount of stuff so that stuff sold at 10% through.
If we’re selling more than 10% through we wanted to have more of it, and if we were selling less than 10% through we wanted to have less it, which meant that we might need to move it or put it on sale.
Nicola: That’s what the supermarkets do on a much grander scale isn’t it?
Rich: I would imagine so. I don’t know much about the supermarket business, but and then we managed our staff that way too. We had about 60 sales people. It’s a big store, and they got paid commission 10 times … They got 5% commission over their hourly rate, so the idea there is that in the retail business if you look at your sales as 100%, right? Sales equals 100%. That’s your revenue.
Then your cost of the clothing that you’re selling is going to be some percent. Now we sold used clothing and new clothing, so we had bigger margins. Let’s say on average our margins were about 70% when you combine new and used, so we had 30% of cost to goods, and so now we had left 70%. Our goal was to have the employees be 10% of sales as a cost.
We incentivized our employees that they got commission, 5% commission, once they sold more than 10% of what they got paid.
Rich: If someone was getting paid commission, they were less than what we had budgeted and allocated for them to pay for themselves, and so they were on commission that way. Then at the end of every shift, every salesperson had to write down how much they sold in total, how many units per transaction, the average transaction size, and the … units per transaction, average transaction size, and I think average unit, if I’m remembering correctly. This was a long time ago.
We took the averages of the whole store on those numbers, and anyone that was below average, like someone who … Let’s say the average units per transaction was two. Let’s say somebody was only selling 1.1 units per transaction, but there were some people that were selling three and four units per transaction.
Then we would have one of the people that was selling four units per transaction coach for the day someone who was only selling one unit per transaction, so everybody in the store … Not everybody, but the top performers in each area were coaching fellow employees on how they did what they did.
We were consistently getting better. Everybody was monitoring their numbers, and that just got the store better and better and better, and that’s what we did with numbers. I mean, we looked at numbers in every which way we could, from inventory to sales people to air space.
The other thing that I’d say that we did that was intelligent, outside of making the store a very unique experience from the DJs to the way to the store was lit, to the clothing, everything else, was that we sold people on the store.
In other words, our goal was to create customers. What we did that I think is very different than what most stores did and still do, is that whenever we got clothes from Europe, which a lot of the used clothing I got came from Europe, or even like when Diesel first came to the States and we brought them in, you know people didn’t know anything about them, so we sold them on why the store was special and what we had done to find this brand.
The used clothing that we got from Europe, because they were special pieces for the most part, like we had hang tags that said what made this item special. Then when people came into the store, sales people were required to say hello and ask them had they ever been in the store before, as opposed to can I help you, because can I help you, people say no.
The answer to the question, “Have you ever been in the store before,” if they said no, then the employee was supposed to sell them on the store by telling them what made the store so unique, and that we have a recording studio in here, we make our own music. Everything that you hear was made in the store, that we have buyers all around the whole and every hang tag you’ll see where this item of clothing came from and where the buyer found it, and the story behind it blah blah.
If they had been there before, then they would tell them what was new, the idea being that if we sell people on the store first and then clothing second, we have a much higher likelihood of the person returning, and when they leave and somebody asks them what they’re wearing, they can not only tell them about what they’re wearing, but they can tell them about the store where they bought it, and it worked, and it worked incredibly well, and it was a great experience.
It was a really fun time to be in my early 20s and have a multi-million dollar business, and especially have one of the hottest stores in Manhattan. We had a lot of celebrities that were clients.
It was a really fun time. It just wasn’t my passion in life.