E-Commerce secrets to scale

058 - The Main Obstacles New Entrepreneurs Face with Henry Daas

058 – The Main Obstacles New Entrepreneurs Face with Henry Daas

E-Commerce Secrets To Scale is a marketing and entrepreneurship podcast that revolves around hearing the stories and strategies of successful entrepreneurs and e-commerce professionals to uncover scaling secrets that will impact your online store.

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Tanner:

This week on the show, serial entrepreneur and business coach Henry Daas joins me to talk about the main obstacles that new entrepreneurs face and how that has changed over the years. We also talk about what it was like for him starting his own business as a side hustle. I really enjoyed this conversation with Henry and I’m sure you will too.

Welcome to the show Henry. I’m really excited to have you go ahead and introduce yourself to the audience.

Henry:

Okay. I’m Henry Daas. I am a serial entrepreneur for the last 30 years. I’ve spent the last 10 as a business coach. I coach I would say early to mid stage businesses, probably the lowest would be a few hundred thousand approaching a million and up to 10 million. Although I have at least one client now who’s over 10 million. I’m agnostic as far as the industry you’re in, although I’ve done a lot of folks, obviously in the tech business. A lot of my clients are location independent otherwise known as digital nomads. So I often say I’ve coached people on every continent except Antarctica. Not a lot of entrepreneurs down there. That’s me kind of in 30 words or maybe slightly more.

Tanner:

Thank you, Henry. So how did your career get started? What’s your story?

Henry:

Well, let’s see, I graduated college in 1981 with a bachelor’s degree in electrical engineering. I worked for a fortune 50 company as an engineer for the first four years. I learned how to program a mini computer at that time. That was my first introduction to programming, even though we’d done a little bit of that in college this is, you know, very early stage if you consider that the IBM PC was introduced in 1981. Then I worked for a subsidiary of the New York stock exchange as a programmer for eight years, I guess, something like that. I was in my early thirties when I started my first business. It was a side hustle that I turned into you know, kind of a full-time gig and the rest, as they say is history.

Tanner:

Well, that’s a really good story. And I’d like to talk about side hustles for a minute. Cause I feel like that doesn’t really get talked about a whole lot. What was that like for you? Cause I had a side hustle and I know what it’s like, but I’d love to hear your thoughts.

And after 18 months I’d done about $600,000 in business. And I said to my wife, Hey, you know what, this is a real business and I’m going to quit my $60,000 a year job and I’m going to start my own business.

Henry:

So the origin story is I had a college friend who was working for a leasing company and they were leasing equipment and office furniture and all sorts of stuff to, you know, large you know, billion-dollar companies. One of his clients was timing corporated. He was having trouble getting access to some new Mac computers that they used in their art department, which is really where Macs were relegated to kind of corporate backwaters 30 years ago. And I said, you know what, let me take a crack at it. And I went out and I got a bunch of computers. I really bought them from a gray market here in New York city. I upgraded them because they wanted they wanted a little different configuration of what apple was offering. And I made a couple of bucks and I helped him out by him being able to satisfy his client.

And I put a little bit of coin in my pocket and then he started feeding me deals. And after 18 months I’d done about $600,000 in business. And I said to my wife, Hey, you know what, this is a real business and I’m going to quit my $60,000 a year job and I’m going to start my own business. And that’s really what it was just kind of bootstrapped it, worked it out of cashflow. Chief cook and bottle washer as I like to say, I was doing everything, sales support, you know, operations, you name it, finance. I handled it myself. And then that partner two months later joined me and he started handling you know, sales and marketing and we were off to the races.

Tanner:

So what was it like trying to strike a balance between your full-time day job and your side hustle?

Henry:

Well, what happened was the side hustle just overwhelmed my day job. I’m not proud to say this, but I’d say for the last six months of it, I was pretty much phoning it in on the day job. I just was to the point where, you know, my boss called me out on it and I said, you know what? I kind of told him what I was doing. When my review came I got a 1% bump in salary and he told me that he had to fight his boss just to give me that. They didn’t even want to give me anything. I can’t say I blame him.

Tanner:

No, definitely not. I mean, especially now that you’ve been in those shoes having, you know, someone under you doing that definitely wouldn’t make me very happy, but you know, you do what you have to do, right. And I’ve been in that situation for where you just, you can’t get away from the side hustle and then you just become overwhelmed. You’re work in over a hundred hours a week and you just have to make the decision to quit.

Henry:

A lot of entrepreneurs will never cut the cord. That’s why we call them entrepreneurs. I spoke to a guy I don’t know about a year or so ago who found me and scheduled a call. And I said, so how long have you been running a side hustle, five years. He said, and I thought, you know, am I going to have to hire a proctologist to come over there and, and extra K the fence posts out of your, out of your ass? I mean, what do you need to see before you turn this into a real thing?

Tanner:

Yeah, it’s crazy, man. Everyone’s just really scared to just make that leap, but you just got to do it. You got to have faith in what you’re doing.

Henry:

Well, you have to have a plan, right?

Tanner:

I mean, it’s gotta be a calculated risk for sure.

But at some point you got to ask yourself how much do I want this?

Henry:

You know, I had I had spent 18 months. I probably spent six months longer than I needed to. That six month period at the end where I got called out probably should have cut the cord at a year, but it was my first venture. I was fairly newly married, had a, you know, a two year old at home living in New York city, which is very, very expensive. And I got a wife who I have to account to. So there’s a lot of pressures on you. But at some point you got to ask yourself how much do I want this? And you’re going to have some soul searching moments where you’re going to have to, you know, put your big boy knickers on and say, okay, I’m going to do this. What’s the worst case scenario. Right. I crash and burn. And then I go out and I get a job. I thought I have skills, right?

Tanner:

Yeah. I think it’s less risky than most people realize, you know, as long as you have some cash put away and you can make it six months to a year and you really don’t have any other options, if you kind of treat it like there’s no plan B, then I feel like it’s kind of hard not to find success with it. You know, you kind of have that, have to have that survivalist mentality for sure.

So setting a bar that says, I’ve got to have this much banked right before I can get started. Well for most people that will never be attainable.

Henry:

If, you know, there was, I remember reading advice at the time that if you’re going to start your own business you should have a year or two years worth of you know, money put away. Right. I wrote a book a couple of years ago on finance. It’s called FQ financial intelligence, which is another aspect of stuff that I do financial coaching. And if you’ve got 10 bucks in your pocket, you’ve got more assets than 25% of Americans. So setting a bar that says, I’ve got to have this much banked right before I can get started. Well for most people that will never be attainable. You might as well just stop dreaming about it, right. That an insurmountable obstacle for most people.

Tanner:

Yeah. I would agree with that. And I think it definitely comes down to personal risk. And you know, you’ve got that risk reward kind of have to figure out what kind of risk you’re able to manage. And, you know, if it’s really important to you to have six months to a year or two years to savings, I think that if you’re disciplined, you can definitely get to that point. So Henry, what advice would you give to your younger self?

The only irreplaceable asset that we have as human beings is time, you know, don’t squander it.

Henry:

I would say I probably actually could have taken on more risk than I did. I’d look back at it. And I say even though, you know, quitting a perfectly good well-paying job with, with gold-plated benefits to start a company, the first year in business, I made $12,000. It took me three solid years before I made the salary that I was making before. I could have taken, I could have actually taken more risks with it. I could have leveraged it a bit more. Again, that’s 20, 20 hindsight. I’m still happy with what it is that I did, but I had the benefit of, you know, I was barely 30 years old then. I just turned 62 now. So I would have a reasonable excuse for being conservative now, even though I don’t think I am. And I certainly had the greatest asset of them all at that moment, which was time, right. The only irreplaceable asset that we have as human beings is time, you know, don’t squander it.

Tanner:

Yeah. You’re absolutely right. So when you were starting that first business, what were some obstacles that you faced while you were trying to grow it?

These days the cost of entry to a lot of businesses is minuscule.

Henry:

Well, the first obstacle we had was capital, securing capital. So we were running a business out of credit cards at the time. It’s a very cumbersome and expensive way to do business, especially if you can’t make the payment in full because the interest rates are usurious. So fortunately we were able to, we approached my business partner who joined me at the time we approached his dad who was very, very wealthy New York lawyer. And he said, look, I’m not going to loan you any money, but I will loan you my credit worthiness. And so he parked some treasury bills at a bank and we were able to borrow against that and get letters of credit and get lines of credit. That was huge. Without that it would have really been a struggle.

Now, it wasn’t giving us any money. It was just giving us the opportunity to borrow money so that we could run the business out of cashflow. Right? Eventually we, within a few short years, we got our $500,000 what’s called a flooring line. Without his father’s participation, we were able to retire those letters of credit that he had written for us. And we were on our own. But it was, you know, it was it was a tough slog getting through that. So finance in a capital intensive business can be tough. These days the cost of entry to a lot of businesses is minuscule. If you want to start an FBA business for the uninitiated, that means fulfilled by Amazon. You can do that for very little capital. And there are SAAS products out there in almost any arena that you can think of that you can pay, you know, a couple bucks a month for, to make your business much easier. We didn’t have the advantage of that because our business was born before the internet. So we were doing stuff, the old fashioned way.

Tanner:

Yeah. So do you think that it’s easier for new entrepreneurs these days?

Henry:

Well, it is, but remember if it’s easy for you, it’s easy for everybody else also, right? Like I’m a coach, anybody tomorrow, any listener you or you know, somebody’s cousin can decide one day, I want to be a coach, very few barriers to entry. If any, you just announce it to the world, put up a website and go out and get, you know, patient zero, that first client. Cost almost no money to run a business like that. That’s peanuts, but that means anybody else can do it too. So what’s the differentiating factor. You want some barriers to entry in your business, but you don’t want so many that are so onerous that it makes it really difficult, but if you can overcome those that represents an obstacle to everybody else, who’s trying to take your lunch away from you. And let’s face it. You are in competition with everybody else whether you care to admit it or not.

Tanner:

Yeah. I think there’s a lot of truth to that because the barriers to entry are so low with online businesses, or like you said, coaching the obstacle really has morphed into how do you stand out, right.

How do you stand out in a world of seven and a half billion people, all screaming look at me, look at me, look at me all at the same time, right?

Henry:

Right. How do you stand out in a world of seven and a half billion people, all screaming look at me, look at me, look at me all at the same time, right? The internet, which may be a great equalizer to some degree, but it’s also, you know, a giant morass. So how do you differentiate yourself from everybody else without spending a fortune, right? Our capital requirements when we started, we’re more in sourcing equipment, even though we were doing just-in-time inventory. If you decided to start a SAAS business, your number one costs might be your marketing expenses, right? General rule of thumb is 10 to 20% should go to marketing. A company like, a monolithic company like Nike actually spends a third of their budget on marketing. But if you’re a, you know, a SAAS business trying to compete in the Amazon or some other internet ecosystem, it’s not unusual for people to spend 60 to 70% of their money on Facebook ads, Google ads, and alike.

Tanner:

Yeah, no question. I mean, and it’s because SAAS businesses like that have really, really high margins because the majority of their business is completely automated. But, you’re exactly right. I mean, trying to break through the noise is probably the number one challenge right now, I would say.

Henry:

It really is. I think it is.

Tanner:

So what are some other main obstacles that new entrepreneurs face right now?

The single most difficult obstacle to overcome is bandwidth, your personal bandwidth.

Henry:

The, biggest, I think the single most difficult obstacle to overcome is bandwidth, your personal bandwidth. Like I said, when you first start your company, your chief cook and bottle washer, right. And a lot of times people will say, well, you know what, I’ll just do it myself, because it’s cheaper than hiring someone else. And the question I ask is it really cheaper? You know, are you working for free or are you just working and not getting paid? Right. I know folks who’ve run, you know, very successful businesses, at least when you’re looking at them as an outside observer, but when you lift the hood the owner’s not making any money and their vision is, well, you know what, I’m going to build this thing up. And then I’m going to sell it for a big pile of cheddar at the end of the rainbow. And that might work out. But then again, it might not because if you’re doing due diligence on a business, as someone who wants to purchase it, and I’ve done it on numerous companies, I’m looking for an owner who’s making money. Right. I mean, if I’m going to buy this asset, I’m going to buy it to make money.

Tanner:

Right? Yeah. I mean, if you’re going to buy a company and you’re going to become the new owner you’re going to want to know how much the previous owner is making, because if they’re not making anything, then why would you make anything after buying it?

Did I just create a business that makes no money for me and that I can’t quit…?

Henry:

Right now, they’ll come back and say, well, we, you know, we we’re putting everything back into the company. It’s like, well, never heard of the concept of pay yourself first. I mean, you know, you should pay yourself something. And it’s funny when I started that first business 30 years ago, and that thousand dollars a month, I didn’t even want to take that out. I wanted to keep that in the company, but my partner insisted on it. Cause he was in a very different financial situation than I was in, which is kind of ironic considering his, how wealthy his family was, he wasn’t. Really interesting. So there was a real paradox there. So we had a real, there was a real impetus for us to get our salaries up to the previous level as quickly as we could. And we did, we could’ve put that money back into the company and hired a whole bunch of people and done this, that, and the other thing. But I think it’s important. It’s really important psychologically to think, am I just, did I just create a business that makes no money for me and that I can’t quit and there’ve been a lot, a lot of entrepreneurs might even include myself in that next who have done that. Right?

Tanner:

Yeah. I think when you do that, it’s kind of like putting in effort constantly kind of working yourself to death for no reward. I mean, you’ve got to reward yourself for sure. And I think a major problem for entrepreneurs when they’re first starting out is trying to find that balance between, okay, what should I be doing? What should I be outsourcing? Because in the beginning you can’t outsource anything because you don’t have any money. It almost comes to a point where you just have to spend the money and hope for the best, because you need to enable yourself to work on what’s most important for the business.

Henry:

Yeah. Hiring good people. Again, another paradox says, well, I want to get somebody for a little money as possible, but generally, if you’re lucky you get what you pay for, right. If you’re lucky. It’s sort of this, you know, this concept of people who they want, you know, they want champagne service at beer prices. Well, you’re not going to get it right in most, unless an operation is just so efficient. In most cases you’re just not going to. So when you buy something from a local purveyor, it’s going to cost you more. It should cost you more. In return for that, you should be, you should get a level of service that is greater than you would get if you went to the low price competitor on the internet. You know, when I ran my, I had an audio video company that we built like stupid home theaters that were very expensive, you know, six, seven figure kind of stuff.

And we’d have clients come because I believe in giving, you know, itemized detailed estimates to people. And back then, you know, 20 years ago when plasma TVs and these flat-screen TVs were first coming out, they were thousands of dollars. And I can’t tell you how many clients said, well, I want to source the TVs myself because I can buy them from Abe’s of Maine and save like 10 bucks or whatever it was. They felt good about it. And I used to say have at it because you’re, that’s the lowest margin piece of the deal that I’m doing here. So you just ramped my margins up by taking that off, but don’t screw it up, make sure you buy the right thing. And I had at least one or two clients who bought the wrong thing. I said, well, that’s on you, right? I mean, wise and pound foolish. It was very, very, very interesting. So the psychology of it is extremely important. Whether it be the psychology of you as an entrepreneur, your financial psychology and your clients and your customers psychology and those things all have to sort of work together.

Tanner:

Yeah. I couldn’t agree more with that. So do you view obstacles as a good thing or a bad thing?

You think you’ve invented something that doesn’t exist. Well, if it doesn’t exist, there’s a reason.

Henry:

Oh, they’re absolutely a mixed bag, right? There should be obstacles. One of the things that comes up, I’ve had people pitch me all sorts of business ideas. You know, over the years. And one of the first questions I ask them is, okay, who’s doing what you’re doing. In fact, if somebody signs on as a client, one of the first assignments I give them is to give me a competitive analysis. And I’ve had more than one person come back to me and say, well, nobody’s doing this, right. It’s a unique idea. And you should sign an NDA and blah, blah, blah. And I say, well, that’s a huge red flag. The reason really simple, you ain’t that smart. Right? You think you’ve invented something that doesn’t exist. Well, if it doesn’t exist, there’s a reason. You got to find out either a whole bunch of people tried and failed, or there’s no margin in this business. There’s no, there, there, right. In the immortal words of Gertrude Stein. You got to know, right. That’s a huge, huge deal-breaker for me. You gotta go out and find half a dozen other companies that are doing something either exactly the same or similar. You should take comfort in that, that means other people thought this was a good idea.

Tanner:

Yeah. And you can learn from their successes. Right?

Do this competitive analysis and cherry pick out the things that speak to you and the things that you think are value and throw away the stuff that isn’t.

Henry:

Hell Yeah. Just, my wife was in the clothing business for years and years and years, very successful. And she called herself a knockoff artist. Right. Because that’s all these labels, these Calvin Klein, Donna Karen, bah, bah, bah, they’re all just knocking each other off. That’s all they do. They take something from Coco Chanel’s collection in the 1940s, and they reinterpret it for a modern audience. That’s kind of how things work. So you should go out there, do this competitive analysis and cherry pick out the things that speak to you and the things that you think are value and throw away the stuff that isn’t. I mean, when I did my year of coaching training that’s exactly what I did. I grabbed the stuff that I really liked out of what they were teaching me from coaching and all the stuff that didn’t work for me. I threw it away and I created sort of my own imprimatur. I called myself a coach approach, strategic advisor. Half a coach, half an advisor, you know, a hybrid because that’s what works. That’s what works for me. And that’s what works for my clients.

Tanner:

Yeah. And there’s absolutely nothing wrong with taking someone else’s idea or someone else’s product or service and putting your own, spin on it and making it better, you know, inventing a better mouse trap as it’s commonly referred to. And, you know, everyone’s just searching for this new billion dollar idea. But the truth is if you have that idea, someone else has thought of it too. My ideas aren’t worth anything. Of course, it’s all about execution. And you know, everyone’s just trying to get to that billion dollar idea, but why not just do something someone else is already doing and they’re finding success with it. It’s proof in the pudding.

Executing a crummy idea. Even if you’re the greatest executer in the world is a fool’s errand.

Henry:

Yeah. Executing a crummy idea. Even if you’re the greatest executer in the world is a fool’s errand. I have a little thing on my website. I call it five reasons, small businesses fail. And the number one reason small businesses fail is because your idea sucks, right? It just, as simple as that, you know, I say trillions of dollars, including my own have been saved by not executing dumb ideas. And when I say dumb, it doesn’t mean that the idea isn’t valid, it isn’t a better mouse trap. But if you have a better mouse trap and you’re selling it on a part of the planet where there ain’t no mice, or there’s very few mice, then it may be a beautiful work of engineering art, but it has no practical value in the market that you’re trying to sell.

Tanner:

Yeah. I mean, it really does come down to product market fit and you gotta be able to validate that idea and know whether or not you should pursue it. Which, you know, I think a lot of people don’t do of course. And that’s why there’s a lot of failed businesses, but you know, it is what it is. Henry, what would you say your secrets to scale are?

Get a credit facility in place as quickly as possible for your business. Even if you don’t need it, preferably when you don’t need it.

Henry:

Well, one of the things I advise everybody is get a credit facility in place as quickly as possible for your business. Even if you don’t need it, preferably when you don’t need it. Right. Nothing can kill a business quicker than a cash crunch. Whether it be from a lack of sales or too much sales. Right. And very, very often too much sales can be just as big a burden as having too few.

Tanner:

Yep. That’s very true.

Henry:

Right. So that’s number one. Number two is don’t neglect marketing, right. It’s amazing when I see when the tide goes out for some businesses, what’s the first thing they cut after they cut the business coach.

Tanner:

Yeah. I’m glad there’s someone that gets cut before me.

Henry:

Yeah. Oh yeah. I’ve told my clients flat out. It’s I’m easy to hire. I’m even easier to fire. It’s just a nature of the beast. You’ll miss me when I’m gone is all I have to say. But don’t cut your marketing budget when you need more customers. Think about it. It’s counter intuitive. Right. So if you got to cut, you got to look for some other areas where you need to cut. And they’re there, you’re going to have to find them.

Tanner:

Well, that’s great advice, Henry. I want to thank you for taking the time to do this interview. Is there anything that I did not ask you that you think might benefit the audience?

Henry:

There’s probably a million things, but we’ve got the time that we’ve got, but I think you covered some pretty good basis there, hopefully that will help folks, you know, gain some clarity, especially with entrepreneurs out there because we need more entrepreneurs in this world. You know, all of the innovations, all the great things that have happened in society have been created by entrepreneurs. That’s where the innovation comes from. iPhone, Tesla automobiles. I mean, you name it. They’ve come from the imagination and the hard work of entrepreneurs and they’re all risk takers right. So if you’re not a risk taker, either become one or find a way to work around it.

Tanner:

Yeah. That’s good advice. I’m really excited to see what kind of startups come out of this pandemic though. You know, people had a ton of time. I actually saw a crazy stat that more businesses filed for an EIN in 2020 than ever before. So I think there’s some crazy things coming ahead.

Henry:

Yeah. And you combine that with the fact that we printed about $5 trillion? So the world is a wash with money. Everybody’s got, I mean, look at the price of housing, the price of the baseball cards. I mean it’s, ow there’s a crunch in automobiles, you know, speaking of the DMV, I may sell one of my cars cause I think it’s worth more than I paid for it. Why not get rid of it?

Tanner:

Yeah. I mean, pretty much anything you can look around your office and you could probably find something that’s worth more than you paid for it these days. Maybe this pen, it might be worth something. So Henry what’s a good way for anyone listening to get in contact with you.

Henry:

It’s best to go with just Henry Daas, H E N R Y D A A S.com. It’s kind of like my personal site. You can download my FQ book for free there. You can see links to all the, you know, the business end, not on business stuff that I do. And if anybody wants to chat, they can you know, they can just go on my website and schedule a call. I’m happy to talk to people. That’s it.

Tanner:

Awesome, man. Well, we’ll make sure to link up your website in the show notes and thank you again, Henry.

Henry:

You’re welcome. Thanks for having me.

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