Shownotes
David Wolf is the founder and executive producer of Podcast and Radio Networks. For more than 32 years, he has been the creative director, music composer, or producer of content for radio, TV, film, podcasts, audiobooks and multimedia. He has been hosting the Smallbiz America Podcast since 2005, which is now syndicated coast to coast in the US on BizTalk Radio Network and on Smallbiz America Radio.
Today, David applies his experience along with the skills of his virtual creative team to help companies, organizations, entrepreneurs and thought leaders grow their brands and businesses through podcasting, audiobook production and internet radio.
“But as you know from hearing these stories, we get emotionally connected to the idea that we can save the idea we thought was the right one”
David Wolf
Worst investment ever
David, his wife and their two boys were living in Dallas, having moved there from Chicago in 1985 after their marriage. They had successfully built together a successful business producing music for big name brands such as McDonald’s, Southwest Airlines, Chuck E. Cheese restaurants, Exxon Mobil through advertising agencies as primary clients. They also produced work for children’s programming such as the Barney the Dinosaur shows.
Music production operation builds to more than half million in annual revenue
Upon arriving in Dallas, the keen 25-year-old David worked hard at building his music business, spending 85% of his time driving sales, meeting new people and getting them his music reel. The rest of the time was spent in the studio. With his wife Phyllis, a virtual team, and a collection of musicians and singers, David built up to a peak top-line revenue of around US$650,000 a year.
Move to New Mexico proves financially imprudent
Around the time he turned 36, he and his family decided to move to Santa Fe, New Mexico, physically moving from the market that was supplying revenue for his business. He admitted failing to fully appreciate the amount of money the business was generating through the creative work and overlooked considerations of capital preservation. Riding the wave of past success, they moved but eventually the reality of being removed from their market dawned on them, so they decided to move back to Dallas to try to regenerate what they had started around a decade earlier.
Return to Dallas fails to recreate past wins
Back in Dallas, they could not generate the kind of success they had seen before. There was new competition in the market, David and his wife were older, nearly 40, which in that business is considered a little bit old because the decision makers in ad agencies are in their 20s or 30s. So the move back failed to take. So they found themselves asking the question: “What are we going to do?”
Brother calls with idea to take over cousin’s bankrupt bagel business
Then, possible light shines from the dark. David’s brother in Albuquerque, New Mexico invites him to get involved in a popular retail and wholesale bagel bakery brand in Albuquerque and Santa Fe that had been run by their cousin but had gone bankrupt after attempting to grow too fast. David’s brother understood the physical side of the business whereas David knew nothing about it. He did however know how to market products and was drawn to the idea of something completely new in distributing an edible commodity.
Buying an operation for $75,000 that had made $3.2m at its peak seemed smart
So he and his family moved back to New Mexico and negotiated to buy with his considerable savings the assets of out of bankruptcy for around $75,000. He also was attracted to the business as it had been generating $3.2 million at its peak, so it felt like a good idea. But it was a very complex business that required knowing a lot more than he realized, with 30 employees, wholesale purchasing, and retail came far more complex accounting, than his experience of getting a creative fee and then paying musicians. But, David learned a lot and was excited to do so. The media picked it up as it had been a very popular brand, had seven retail stores, and they were selling to businesses such as Cisco, Shamrock, Whole Foods, and Wild.
Walks in blind to complexity and risk of business type
So he walked into an infrastructure set up to make the product and he was blind to the complexity and the risk that he was undertaking. That said, the recipe was great and there were a lot of underserved people in the Jewish community. Even so, the massive chain, Einstein Bros. Bagels had entered the market and had tried to buy out the cousin. It is a large publicly traded company began to do better than his cousins company, mostly because they really know how to run a chain of stores.
Operators inherit unnecessarily massive warehouse
After the bankruptcy proceedings, they found ourselves with 12,500 square foot warehouse, far bigger than the company would ever need. They tried to get around their competitor Einstein through wholesaling while learning how to do so and bleeding money in paying rent and utilities for the massive building they occupied. They raised loans, David used his own retirement savings, they brought in an investor but after eight or nine years he had to give up. Even though it was the worst investment I made he is very grateful and believes he’s a much better business person now because of this adventure.
Family management either works well or fails dismally
His brother and his wife, David and his wife formed the top management team, in what David admits was a clearly flawed model for many reasons. Some of it he put down to personal chemistry, but in many cases he blames the idea that you have people doing jobs that are inappropriate to their skill sets simply because they are family members. David was technically the CEO, had strong marketing and communications skills, picked up the financial side, raised the money and organized the banking. His brother and wife were bakery people, but they wanted to be equity partners without having capital to put in. This created many problems because they were employees were owners at the same time. There were emotional drivers as well as he truly desired to help his brother who had had mixed fortune.
Death knell as company loses last of its big wholesale customers
David was feeding his losses with his retirement funds, all the money he had made amassed from his music business, when he was doing what he loved and had knowledge and experience with. He fed the flailing business in the belief that he could save it and in doing so, help his brother as well. It was a painful ending. When David and the business lose one or two of their large wholesale customers, he decided around when the 2008 crash was happening that he had had enough. He was depleted and exhausted. He filed for Chapter 7 bankruptcy and with his family has to a complete restart to life. He admits being emotionally connected to the idea that he could save the idea he thought was the right one.
“I really learned a lot in that very painful 10-year period about business.”
David Wolf
Some lessons
Stay with what you know. Don’t chase the money, don’t chase the deal. Be really sure that you are rooted in something that you can live and breathe in a very full way. David was really successful as a music composer and a creative professional, but he is still not entirely sure why he veered and walked away from what he was renowned for and what he was skilled good at. He explains that he failed to fully understand the destructive nature of walking away from what I already had experience and success in.
“And so that’s one lesson, to really ask the question:‘Do I know enough about this other thing?’”
David Wolf
But he had his reasons: He was 40, burned out and quite tired of creating on demand. It also seemed sufficient a reason to just try something new.
Really evaluate and probe the idea of bringing family in to a business. Make sure that the right people are doing the right jobs. David himself on his own podcast has over the years interviewed experts in family business dynamics that say involving family either works extremely well or it is a complete disaster. So in his case, it was the latter category.
“I underestimated the risk of bringing family in, even though it sounded like a beautifully euphoric idea.”
David Wolf
Never underestimate the complexity of a business you are investing in. David threw himself into a business he knew very little about and then relied on his brother for the knowledge about baking.
Examine the fixed expense base thoroughly. David said he was foolishly optimistic that he and his family team could grow the business and underestimated many of the costs involved, especially plant rental and warehousing costs.
Andrew’s takeaways
Hold cash flow as sacred once you have it. Coddle, cradle, nurture, hold as on to and keeping building it. It is so hard to create cash flow in the first place that, when you have it, make sure you take care of it, build it and protect it. Most of all, don’t walk away from it for any reason.
Complexity is risk. Andrew says he and his coffee business partner and are always discussing ways to reduce complexity. He said he witnesses risk building up in areas of their business when complexity is growing.
If you feel costs getting too high, cut immediately and massively.
The Andrew cites Gary Sutton’s The Six-Month Fix for this takeaway. In the front of this book about turning businesses around.
“If you’re the CEO of a struggling business, let’s hope we never meet. I’m Gary Sutton, a turnaround guy. When I arrive you leave. Results usually get better and fast.”
Andrew Sutton, quoting Gary Sutton
You have to focus on right person, right job.
Andrew says this is critical for family and business in general. Bear this idea in mind constantly. Another way to think about this, and it’s very important, is to ask yourself the question:
“If somebody bought out our business, and they were going to run it, would they put us in charge? …Or would they go out and put a different person?
Andrew Stotz
Actionable advice
Peel back the layers of your emotional onion to really understand why you’re making a decision, whether that decision is to buy a business, turn a business around, start a new business, get into a franchise, or start a hobby and develop a business model from it. Really understand the why behind the direction you are about to take. Because, if you’re not emotionally connected to the purpose of the business, it could really hurt you down the road.
Understand and do not underestimate the power of complexity and the power of risk. Risk shows up in a lot of insidious ways so try to determine what you don’t know about the path you’re about to take.
No. 1 goal for next the 12 months
To quantify his objective. David is building a virtual team while building his business and he’s received advice to do this.
“I’d love to see it hit the quarter of a million dollar top-line mark, because our gross margins are looking really good.”
Andrew on goals in general
“I highly recommend for yourself as well as listeners, and I try to keep myself to this”
- Write down your number one goal.
- Identify the top three obstacles to achieving that goal.
- Write down the next few steps that you need to take to get to that goal. And especially for David after listening to his story, and thinking about all of the podcasts Andrew has done …
- Write down the risks.
Parting words
“I’m grateful for the opportunity to tell this story becauseit helps me really internalize it and point to the future, as you suggested. So thanks for having me.”
David Wolf
You can also check out Andrew’s books
- How to Start Building Your Wealth Investing in the Stock Market
- My Worst Investment Ever
- 9 Valuation Mistakes and How to Avoid Them
- Transform Your Business with Dr.Deming’s 14 Points
Connect with David Wolf
Connect with Andrew Stotz
Further reading mentioned
Gary Sutton (2001) The Six-Month Fix: Adventures in Rescuing Failing Companies 1st Edition