My guest on this episode is Chase Murdock. Chase started his career as a venture-style entrepreneur with a custom suit business after spending time working in the Philippines and Southeast Asia. After the business didn’t go as planned, Chase and his business partner Adam Malmborg decided to pursue smaller, creative, more high end businesses. Today they have two businesses, Tailor Cooperative, a local custom suit business, and Workshop SLC, a fine arts studio, both located in their hometown of Salt Lake City.
This episode was a fascinating dive into boring vs creative businesses, gathering customer feedback and NPS scores, pricing, and designing a high end client experience. I loved this episode and learned a ton and I hope you do as well.
Live Oak Bank – Live Oak Bank is a seasoned SMB lender providing SBA and conventional financing for search funds, independent sponsors, private equity firms, and individuals looking to acquire lower middle market companies. Live Oak has closed billions of dollars in SBA financing and is actively looking to help more small company investors across the country. If you are in the process of acquiring a company or thinking about starting a search, contact Lisa Forrest or Heather Endresen directly to start a conversation or go to www.liveoakbank.com/think.
Hood & Strong, LLP – Hood & Strong is a CPA firm with a long history of working with search funds and private equity firms on diligence, assurance, tax services, and more. Hood & Strong is highly skilled in working with search funds, providing quality of earnings and due diligence services during the search, along with assurance and tax services post-acquisition. They offer a unique way to approach acquisition diligence and manage costs effectively. To learn more about how Hood & Strong can help your search, acquisition, and beyond, please email one of their partners Jerry Zhou at [email protected].
Oberle Risk Strategies– Oberle is the leading specialty insurance brokerage catering to search funds and the broader ETA community, providing complimentary due diligence assessments of the target company’s commercial insurance and Employee benefits programs. Over the past decade, August Felker and his team have engaged with hundreds of searchers to provide due diligence and ultimately place the most competitive insurance program at closing. Given August’s experience as a searcher himself, he and his team understand all that goes into buying a business and pride themselves on making the insurance portion of closing seamless and hassle-free.
My guest on this episode is Chase Murdock. Chase started his career as a venture style entrepreneur with a custom suit business after spending time working in the Philippines and Southeast Asia. After the business didn’t go as planned, Chase and his business partner Adam Malmborg decided to pursue smaller, creative, more high-end businesses. Today, they have two businesses Tailor Cooperative, a local custom suit business, and Workshop SLC, a fine art studio, both located in their hometown of Salt Lake City.
This episode was a fascinating dive into boring versus creative businesses, gathering customer feedback and NPS scores, pricing and designing a high-end client experience. I love this episode and learned a ton, and I hope you do as well. Thank you, Chase, for joining the podcast. It’s really exciting to chat with you. I want to hear all about the different topics we’ve talked about before on buying not boring businesses and all these different companies you’re a part of, but I’d love to start with your background and just go from there.
Well, Alex, thanks for the invite on the show. Thanks for having me. It’s been awesome getting to know you. I’m a big fan of the podcast. I’ve listened to many of them. I hope I do your listeners justice, because we’re very early on in our permanent hold strategy, and I’m looking forward to unpacking some thoughts as we’re going through it. My background, I tell people I’m a recovering VC or bust entrepreneur. My background is a lot of VC-backed attempts to really build something big, and whether it’s technology or… I got my start…
Actually, when I was 19 years old, I had the opportunity to relocate for a market research company I was working for out to the Philippines, so I had this opportunity because I was young and naive and also cheap and easy to relocate. They took full advantage of that, and I was happy to do it, so I spent a little less than a year out in the Philippines when I was 19 years old, hiring back office, support, project managers, and helping develop out an early back office. I was out there to work long hours, and proved my worth to the company.
I was having the time of my life. I remember landing in the airport on my first day, and it was that classic we’re not in Kansas anymore moment of just, “What the hell am I doing with my life, and why am I here? Shouldn’t I be in school like the rest of my friends? What am I doing?” I had a few months of just really long hours. I was working through the nights because that’s U.S. timezone hours, so we would start our day about 8:00 PM, local time, and working true 60, 70, 80-hour weeks and just stressed out of my mind trying to really acclimate both to the culture, into the working environment.
Like I said, I was young and naïve, and so I was just having the time in my life. It was the experience of a lifetime. The seed of entrepreneurship was born while I was living out in the Philippines, because three or four months in, I started getting a little burnt out. I hadn’t traveled much. I didn’t have a lot of friends still. I was just a classic workaholic, thrown myself into the work every day, and realized I had this rare opportunity I wouldn’t have forever, which was being an $80 flight from cities like Shanghai and Tokyo and Ho Chi Minh City.
I started to try to ward off the burnout by every Friday to Sunday night, I’d be in a different city, so I’d hop on a plane and go to Bangkok, hop on a plane the next week, go to Tokyo. It was this true luxury. I mean, how often can you travel to Tokyo for two days for $80? I was on a tight budget. I was young, and I was getting paid very limited amounts, but I accumulated two hobbies while I was out there. One was mask collecting. I grew a fondness for finding unique finds, unique masks that were reflective of the culture. The second was custom suits.
I had my first custom suit made in 24 hours in Bangkok, Thailand, and it was falling apart due to poor construction on the plane ride home, and so I went up to Hong Kong, and I got a better one. By the end of the trip, I had probably bought 15 to 20 custom suits, because I’m a slimmer frame. Historically, I hadn’t enjoyed wearing suits. They look baggy on me. They look like I was wearing my dad’s coat every time I was wearing a suit. The first custom suit experience I had was this romantic James Bond moment, where it’s like you gotta pick fabrics that line to the walls of the shop.
You get measured, and you come back in the next day, and it’s made. Wa-lah, there it is for under $200 bucks. It was just a hobby. It was just something I got into, and the curiosity of supply chain and what makes a quality suit better than a low quality suit, and how do you know the difference. Anyway, I ended up coming back to the United States and continuing my work for the company. I think I was 20 at the time. I had another unique experience. It was a great company. They let me start traveling out to Europe. I was out in Europe once or twice a month trying to open up a European office.
I was getting sales for them and account management, and bought some custom suits out there too. They were very different from the construction I was getting out in the Far East. Unfortunately for me and my reputation, I became known as the suit guy. I’d have friends and friends of friends texting me like, “Hey, did I hear you have a hookup to a $200 custom suit that could get made in a couple weeks?” I kept saying yes. I kept helping them, guiding them through the measuring process. I had a buddy, Prem, over in Thailand, this was probably 12 years ago now, who would receive these orders, and make the suit and ship it back.
I had a friend of mine up in Park City who was an angel investor. He had to grab me by the shoulders, and tell me, “Chase, you’ve got a business here. This is uncommon, this kind of demand, and you should actually be making a margin, and you should be treating this as a business. Maybe this is a great learning experience for you.” He ended up writing us a small check. I think it was $20,000 to get us an office and get off the ground. It was me and a buddy. We spent months and months and months at 20 years old in a coffee shop, writing up a business plan and trying to figure out how to create a business out of that.
A couple years later, we have raised almost $2 million in venture capital. We’d grown the company up to 50 employees. We expanded into a variety of geographies, and I had no idea what I was doing. By the time my board of directors fired me at 24, I was at the end of my capacity. I was growing a business that every week, I was facing new challenges and stressed out of my mind. We had hit capacity issues in our supply chain. Long story short, it was a lesson of a lifetime. It was just an opportunity to be at the helm of what felt like a rocket ship at the time, and got me familiar with raising venture money, and ended up licking my wounds with a friend of mine who was my VP of marketing, and we went down to Argentina for two months to really pause our lives and figure out what we were going to do next.
I couldn’t really fathom doing anything other than entrepreneurship, and so I’ve been doing it ever since. We pursued a B2B SaaS product that had a social business spin to it. It was about five years ago that we ended up starting a lifestyle business, a small, tiny company. I was a brick and mortar retail company. The intention was to have a small passive income opportunity. We didn’t want to be doing it full time, but what we never wanted to face again in our careers was the inability to pursue a great idea because we ran out of money, or maybe even worse, the requirement to go and give away half the company to go raise funds to pursue a great idea.
Our philosophy at the time was, “Maybe we could just build a small lifestyle business that brought in a little bit of passive income so that we could always have the ability to pursue these large, big ideas, and maybe delay the date that we would need to go raise venture capital.” It turns out, we were completely wrong that it would be passive, and it would be something that we maybe wouldn’t be passionate about, and really grew a love for small, medium-sized businesses, grew a love for really what comes with building teams and small business, how you streamline operations, how you grow it.
We’ve been really focused on small, medium-sized businesses ever since. It’s a bit of a long winded meandering story. There’s a lot I didn’t go into, and maybe some I went into in a lot more detail than necessary, but that’s how I got my start, and so the past 12 years, I’ve been doing a variety different startups, and now, run Decada Group. It’s our permanent holding company. We have two businesses and a little bit of real estate, and we’re out looking for our third acquisition.
That’s fantastic. I appreciate the detail. I’m curious in your time in the Philippines when you said you arrived, and there was that, “We’re not in Kansas anymore,” moment. What did that first day look like? I can tell you from experience going to study abroad in Tokyo, where you’ve obviously been, my flight arrived pretty close to rush hour, and so you would take the subway to your hotel. I remember standing in the middle of a station, and there’s Japanese businessmen and women running around almost like a flow of an ocean and a river.
I was trying to go in the wrong way at a turnstile. A very polite gentleman actually pulled me aside, a Japanese man, he said, “Go this way. This way,” and so I went into the correct one that time. That was a very head spinning moment, but I’d love to hear about what was your first day like in the Philippines.
Head spinning is the right word. I remember touching down. It was late at night. I think we landed 9:00 or 10:00. I said we. It was just me, 19 years old landing in Lapu-Lapu in Cebu in the Philippines. I traveled a little bit, but nothing like this experience. It was late at night. There were probably two million taxi cab drivers shouting for their fare, and trying to get me to jump into their taxi cab. I was supposed to be meeting someone from the company there, who was going to pick me up and take me to the apartment that they had rented for me. I had so much trouble finding…
There’s this wonderful phenomenon in the Philippines called jeepneys. They’re essentially these modified trucks that act as a low key smaller bus service. The way entrepreneurial Filipinos might start a business is by getting a truck, and modifying it to hold passengers and running a route. You can get to pretty much anywhere around town in these jeepneys. But anyway, just tons of motorbikes, tons of taxis, tons of jeepneys, trying to find the person who was supposed to take me to my apartment, and late at night, completely overwhelmed. But after a couple of weeks, I finally got my feet underneath me.
I was fortunate to have a company car, an old Toyota. I had an apartment that was a couple blocks from the office. The interesting thing about the Philippines is it’s like 7,400 some odd islands, and so to get to work, I had to cross a bridge from one island to the next every day. If you want to go somewhere in town, you’re stuck in traffic trying to navigate on these roads and this infrastructure that’s just impossible to keep productive, because you’re moving literally from island to island to get to where you need to get to. A fun experience, I learned so much, and it was just a whirlwind of a couple of weeks trying to acclimate.
That’s awesome. Also, speaking of learning, I’d love to hear about how you took some of the lessons you’ve pulled from your venture experience trying to grow that business. What did that change about the way you approached your second business?
I think about this a lot, because I think there’s a lot of fun and excitement and accolades that come with raising venture capital. You rarely see an SMB operator on the front of Forbes magazine. There’s this excitement and appeal and draw, especially if you’re young and in your 20s, to this big idea, raising millions of dollars to go and either be a billion dollar success story or fail as the majority of venture-backed startups do. There’s a lot of good that comes with venture capital, though. I think there’s this excitement behind being able to fund opportunity and fund hires and fund projects.
Whether they’ve been proven or not yet, you know where you’re trying to skate as a VC-backed startup. The goal is not to manage profitability in a reasonable way as you get there. The goal is to prove out that you can scale, to prove out product market fit and to get to the next round of funding. It’s good and it’s bad at the same time. I think I’ve had to really relearn a lot of lessons as I’ve gotten into SMB, where you can’t just spend like a drunken sailor. You can’t invest in things that aren’t yet proven, and you have to be a lot more disciplined. Sometimes, almost always, actually, it’s a lot more slow moving.
In VC, the second you raise funding, you’re on the clock to return value to shareholders. Most of these funds are raised from LPs who expect to get their capital returned in five to 10 years. A good exit should be five to seven years, and a good exit should be 100X of what they put in. You have this stopwatch metaphorically that starts its timer the second you raise venture capital. You cannot exit. You cannot push for an exit after you’ve taken on venture capital, and so you’re beholden not to your customers. You’re not beholden to a set of values or a culture.
You can definitely optimize for that, but you are beholden to the shareholders who were writing the checks in the early days to fund the dream. It’s not for everyone. I think one of the things I spend a lot of time evangelizing is the venture capital. It has a role, but it’s not for most businesses. It’s for big ideas. It’s for products that need mass adoption. It’s for something that can truly shift a marketplace, but for 95% of businesses out there, it’s truly a negative impact if you tried to put that stress and that capital into the business. It really would force a lot of unnatural things, and would likely translate to failure down the road, I would think.
Absolutely. I’m curious in your second business then. Is there something that you started doing almost at a muscle memory from your venture company that you had to pause and think, “Oh, wait, I shouldn’t be doing it this way.” You mentioned spending a lot, but is there more detail there perhaps or a different story that comes to mind?
Speed is definitely something I’ve had to re acclimate to. I think that I take a lot more pride today in my ability to sit back and pause and reflect for sometimes a few weeks or a few months on an opportunity or a new area we can take a business into. Whereas before in VC, you’re having to make quick decisions. You’re having to operate at a speed that a small business doesn’t need to operate at. I think also, hiring, one of the things I miss about VC is you have the capital to go and build a great team out of the gates before you have the revenue levels or the profits that would otherwise justify those hires.
That’s one thing I miss is the ability to go and assemble a great management team, the ability to go out and find good hires whether you’ve got the capital reserves or not. Now with SMB, you have to really think about a five, 10-year roadmap, and plot when those hires are going to be appropriate to plug in. I’ll have to say my partner does a phenomenal job of balancing me, and I like to think I do a good job of balancing him. His experience is only in small business. I’m the spendy, “Let’s go get them. Let’s move faster.”
He’s the real and chase, “Let’s slow down. Let’s think about it.” It’s a muscle I’ve had to really develop, and I have a lot of respect for operators and investors who can really get reflective and not get sucked into the hype or the excitement of the moment, and take a step back and objectively look at certain opportunities before acting.
Would you walk us through the different businesses within Decada Group?
A couple years after I walked away from the VC-backed custom suit company, I was on a long backpacking trip with Adam, my now partner, down in southern Utah. We’re based out of Salt Lake City. It was a multi-day grinder. It was a 15, 20 mile a day hike. There’s nothing to do but pass the time by talking and kicking around ideas. On one of the days, Adam was really challenging me on what didn’t work with this first custom suit company. It seems like such a great business on paper. It has negative working capital. Gross margins are high. It’s a product that’s easy to position from sales and marketing standpoint.
He’s like, “Chase, really, just break it down for me. What wasn’t working, and would you ever do it again?” I was like, “No, I’d never touched a custom suit again, actually, Adam. I’d rather die than go back into the custom suit business.” He just kept poking at it like, “Well, why weren’t you doing this, and what were your thoughts on that? Help me understand, why did you raise VC? Why didn’t you just… It seems like it could be such a beautiful business if you just opened a few locations and just ran it right.”
I think the conversation started with me with my heels in the ground, and really pushing back on these ideas. By the end of a long backpacking trip, we had decided to open up this lifestyle business. We spent not much time, two or three months, really working on the concept. Then we found some retail space, this charming, old building in downtown Salt Lake City. It’s about 2,000 square feet today, exposed brick, lofted ceilings. We felt like it was the perfect space to create a men’s wear brand, a luxury custom suit shop. We opened it without any outside capital.
We were actually profitable from day one, because of the advantages of the negative working capital where you don’t have inventory on hand. You’re actually just ordering on demand from your fabric suppliers as customers come in. The challenge is more of a creative artistic pursuit than really a business financial pursuit. We weren’t in it to go and exit, or chase down a great IRR. We were in it because we wanted to create something special, something we were proud to own in the community and a lifestyle business. Our hope was maybe we’d do 50K a month in sales, and we’d have a GM right out of the gates who’d be running the day to day.
If we could siphon off a few $1,000 a month, we’d be happy campers, and we’d go and work on the next thing. 18 months later, we were doing about a million bucks a year in sales. Gross profits were continuing to improve. We had a full team of five or six people. It was being managed largely, independently over time, and every year got a little bit better financially. That’s one of the beauties of a small business is every year, it just feels like you’re walking in with more experience. You’ve got a better foundation laid.
You’ve got better standards and processes in place. You can really start to optimize the business from a product, from an operations and from a financial standpoint. That was very true with Tailor Cooperative. If you look up Tailor Cooperative today, we’re one of the top rated custom clothiers in the nation. We’re definitely the top rated in the Rocky Mountain West, where we operate, but we’re a teeny business, really profitable, and we had the opportunity to start thinking about what our next move was.
Prior to COVID, we were thinking our next move was to go and open two or three more locations, and continue to be in the suit business. We had the opportunity to make an acquisition that was in a very different space. During COVID, we had a friend of a friend who was running this fine art academy called Workshop SLC, and very similar clientele. In a certain sense, it was a little bit more affluent, but very different products from suits to fine art. It was an opportunity to purchase the real estate. It was a 3,700-square-foot building in a fast appreciating neighborhood in Salt Lake, as well as the business that had been around for two or three years, and hadn’t done anything remarkable financially, but it was really building a special community of fine art enthusiasts in Salt Lake.
We took interest to it right out of the gates, because we felt like we had built an operating rhythm. We felt like we had built a set of philosophies that really could really handle more revenue, more challenges, more businesses. We spent a lot of time during COVID trying to really think about where we want it to be five to 10 years from now, and the idea of spending our time deeply entrenched in acquiring and operating small businesses that we love started to become really appealing to us. We figured we would make this acquisition, and test our philosophy.
Do we have a set of advantages or a set of skills that we can bring into an SMB that’s doing well, and get it to sync, get it to really scale and streamline and hit repeat and continue to do it over and over again? We made the acquisition. We ended up buying the real estate and the business, which is great. If you buy real estate on an SBA 7(a), and it comprises more than 51% of the total size, you can put the full debt on a 25-year amortization schedule. It was great from a cash management standpoint, and it was our first opportunity really to navigate an SMB acquisition.
We knew we were coming in with certain similarities that were very similar to Tailor Cooperative, and we knew we were coming into a business that had a lot of differences. The kind of thesis we had coming into it was we would continue to do to this business what we’ve been doing for Tailor Cooperative, measure and grow, net promoter scores and customer satisfaction. It’s an experienced business. That was number one. Number two was to invest in sales marketing. The first 30 days, we spent more on marketing in those 30 days than the company had spent in the whole history of operations.
We just got it online. We updated the website, implemented Facebook advertising, Google AdWords, and that’s something we’ve gotten pretty good at over the past few years. We did 300%. We 3Xed the business in the first month, and we’re going to close out the first quarter here soon. I think in this first quarter, we have a shot of in a 90-day period doing more in sales than the company had done in a one-year period historically. It’s just this opportunity to really come in and breathe energy to this business that desperately needed it. Right now, we’re a little operationally hamstrung. We’re trying to really structure this holding company structure.
We just expanded our office space. We’re making a couple of hires at the Decada Group entity. My partner and I are just laser focused on empowering our operators and giving them the support and the infrastructure they need to continue to grow, continue to streamline. I think we’ll be in a position to make our third acquisition in six to 12 months from now. Unique businesses, they’re not boring, HVAC, sprinkler companies. That’s the craze on SMB acquisitions right now or at least on Twitter. Maybe one day, we’ll get into that, but right now, we’re having a hell of a lot of fun in these high margin, high NPS businesses that are really focused on experience and brand, and turning them into the best brand they can possibly be.
Can you dive into that philosophy a little more? I found that fascinating that you’re looking to purposefully avoid boring businesses for a little while at least.
Here’s one thing we’ve come to really love in the luxury or if not luxury, the upmarket space, high concept space. It really comes down to a philosophy I have on just gross margins and how to operate a business financially. That’s really continuing to push the envelope on pricing strategy, on how you price your product. One of the things we do all the time is survey our customers, both businesses, “How do you feel about the pricing of our products for the value that we deliver on?” Give them a couple of options much too high for the product or service, a bit too high what I would expect, a bit too low, much too low.
The idea is want to think of your pricing and your net promoter score or your C stat measure, however you measure it as kind of the gas in the clutch of the vehicle. You want to always have that imbalance. If you’ve got raging high NPS scores, your customers are loving the product and service, you’re probably in a really good position to start inching your pricing up, and continue to carve out more margin so that you can take that margin and invest in R&D, invest in the team and invest in building a better business. I see way too often when we’re looking at deals to acquire that pricing is probably way too low.
They’re not measuring where CSAT is. One of the things I liked about upmarket luxury or brand or product-driven companies is that you can really… If you are investing in product, investing in experience, you can continue to ratchet up price points, and get into higher and higher end markets. With Tailor Cooperative, for example, when we started the business, our average sale price was about $700 back in 2016. Today, we’re sitting at $1,850. The average customer comes in and spends $1,850 bucks on a couple of custom suits. We measure our net promoter score every quarter. We’re really proud to sit between about 85 and 95 on a net promoter scale.
If you’ve owned a couple of businesses like I have, and you’ve measured NPs, you know that that’s a number that’s really hard to hit. You have to over achieve on customer expectations. You have to deliver on a quality product. Again, thinking of that analogy of the gas and the clutch of the vehicle, you really have this opportunity in these kinds of businesses to carve out better margins, and elbow out the competition by providing a better and better service. We like sitting at the upper end of the marketplace. We like over investing in sales and marketing compared to other industry peers we have that we’re competing against, because one thing that’s interesting is we have a known average sale price in the custom suit business, $1,800.
What that means is we can afford to spend a portion of that on sales marketing to go and acquire the next customer. I’ve had the opportunity to look at acquiring some of our competitors around the state or around the region, and lift the hood on their financials. We know our ASP is probably much higher than some of the local competitors. What that means is we can really invest a lot more in our Google AdWords, invest a lot more in our digital ad spend, creating this flywheel effect where because we can spend more, we’re able to carve out a larger market position, because we know they’re going to come in, have a great experience and spend at the levels that we’re seeing.
It just creates this virtuous cycle that is hard to build, I would imagine in businesses that aren’t in a similar space, very similar level of market.
Certainly. Can you talk a little bit more about some of your learnings from tracking NPS scores over a decent period of time?
We’ve been tracking NPS probably for three or four years at Tailor Cooperative. We started from day one at Workshop SLC. It can be accused of being a vanity metric. It’s like, “What does NPS tell you?” If you do one NPS survey, and take that measure, that could be a vanity metric that the thing you’ve got to do when you’re measuring CSAT is do it continually, longitudinal, so you can start to track it over time, especially in SMB, where we’re not sending a survey up to 50,000 customers. You’ve gotta do it on a regular basis. We’ve decided the right frequency for us is quarterly.
Then we have many questions that are not NPS after the key NPS question, which is, “From a scale of zero to 10, how likely are you to recommend our service to a friend or a family member, and then why?” There’s an open-ended why. Those are the two questions we’ve gotta ask and not really manipulate too much for it to be a true NPS measure. That’s what the NPs Institute will say, but then you can add questions beyond that. Over time, we’ve really fine tune what we ask, but the purpose of a survey is you’re in the middle of the forest, and you have a hard time seeing that forest through the trees at some point.
You’re a couple years into the business. You have your own philosophy of what you’re doing well and what you’re not doing well. Sometimes, you just need that outside customer feedback to help illuminate dark corners of your business that maybe aren’t going as well as you would think. Especially important as you start to get into this holding company model, where Adam and I aren’t in our portfolio companies day in day out, our general managers are. These general managers are as talented or more talented than we are at looking for those areas of where we need to level up our service or level up our product.
But inevitably, there’s blind spots, and so crafting the right questions, sitting down with someone who’s got a market research background or at least being thoughtful about the kinds of questions you’re asking to help get at data that you wouldn’t have otherwise gotten. You don’t want to ask leading questions. You want to ask questions that are holistic across the whole customer journey, and every quarter. We identify areas that have either slipped, or we see opportunity to invest in and improve. It can be a really good baseline for trying to decide what to work on.
Any particular questions you’ve come across that really get a lot of insight out of customers that you found pretty helpful over time?
There’s not like silver bullet that comes to mind, but one of my favorite questions to look at is I always ask, “What’s your favorite thing about the business?” Then I forced an answer, “What’s your least favorite thing about the business?” Really forcing to tease out things that aren’t optimal. What would you do if this were your business, or what changes would you make if this were your business? Sometimes, depending on the survey audience, that can be helpful. But lately, I’ve just been a big fan of the quantitative questions, dragging the scale and measuring it over time, so you can see what things are slipping.
But you’ll be shocked that some customers are just happy to sit for 40 minutes on a 10-minute survey and just give you these long winded thoughtful responses on parts of their experience, so we set a goal every quarter for our GMs to hit from a net promoter score standpoint. Then we work in the quarter to go and hopefully attain that goal. When we do, we celebrate. When we don’t, we look at what the data said we weren’t doing well, and look for opportunities to iterate and innovate. No silver bullet questions to get back to what you’re asking, but I always stress the good data comes out of doing it over time, and asking questions that will hopefully illuminate something that you wouldn’t have otherwise been thinking about.
I want to dive into pricing a little bit more, too. With this business being pretty high end, luxury priced, can you talk through some of the pros and cons of being at the high-end price point?
Some of the cons are it’s not for everyone. I think that that’s an important flag to put in the ground for any business is, “Who do we serve? Who are we, and who do we not serve?” We try not to be pretentious about it. I think folks who look at our marketing and advertising and folks who have been into our shop can definitely attest to the fact that it’s not a pretentious experience. Most guys and gals don’t feel like they are in their element walking into a custom suit shop. They can feel a little daunting, or they’re going to judge me on what I’m wearing, or they’re going to critique my choices on what I select.
We spent a lot of time trying to overcome that challenge of pretense or of not being for everyone by just being really accessible, being smarter about who we hire and how we greet clients as they walk in the door, but that’s one disadvantage is you’re not going to service the whole market. You need to carve out a niche, and you need to execute on that niche really, really well. From an advantage standpoint, coming back to what I was talking about is you can really charge a price premium when you’re delivering a better product, when you’re delivering a better experience.
When it’s the kind of product like a custom suit that you’re not buying multiples a year, you’re maybe buying one or two a year if you’re a business traveler, or you’re buying one a decade if you’re pinching pennies, and saving up to go get that one really good suit to have in your wardrobe. Folks are willing to spend that premium to know that they’re getting the quality product, and so you’ve got to be on your A game from a product delivery standpoint. For us, it comes down to craftsmanship. It comes down to raw materials. It comes down to fit accuracy. It comes down to experience.
One of the things we train our staff all the time is customers, just like Disneyland, they’re expecting this magical moment as they walk in, and they’ve been saving money waiting for this experience. Maybe like me, they’ve grown up watching James Bond flicks and thinking about, “One day, I’ll get a custom suit.” We’ve got to meet that customer where they’re at. We do the same thing day in day out, and yet for the customer, they’re coming in and expecting a Disneyland experience. Our job is not just to meet that expectation, but to also over deliver on it.
It also opens up angles to do some really fun, customer centric things, like when a customer comes in and spends a lot of money with us, they’re getting a handwritten note from a general manager. We have an account with Hickory Farms where we can go and send them an Omaha steak, or send them flowers or send them a little gift just to let them know we appreciate their business, and we’re thinking about them, and offer that personalized service. If it’s a wedding, and we’re down to the wire, we’ll oftentimes complimentary drive out to where they’re at and give them a fitting on site.
It really allows you to challenge and flex your creative muscles, where it’s, “How do we deliver this magical artistic client experience as opposed to the other side, which is really, how do we streamline operations? How do we reduce the time that we’re in front of customers by implementing software automation? What do we do to cut cost?” I always tell my team like, “We’re trying to increase the number of time we’re spending in a fitting with customers, because we know that as we invest that time that they’re likely to return more often. They’re likely to spend a little bit more.”
It just allows you to think a little bit differently. We take a lot of pride in the process of how you build that business. I liken it to an artistic pursuit all the time, because I think it’s a little bit artistic of how do you delight the customer on all five senses and really give them that above and beyond experience.
Can you walk through some of that thinking with the art studio? How do you design that client experience with the art business?
There’s this unhelpful reputation that there’s the starving artist who can’t afford to attend a workshop or class, or if they have studio space, it’s going to be in this rundown part of town. Workshop SLC, just like Tailor Cooperative, we’re an upscale offering. You walk into the building, and you can tell it’s been designed by artists. You walk in, and just the whole design and the way that the building was laid out, it’s just beautiful. It’s bright white, really good lighting, a lot of natural light. Our artists and residents who are the tenants in the back who have private studios, they’ve told us many times that they walk in, and they feel that creative juice start to kick in., and that’s a really important piece of that.
We spent a lot of time thinking about those five senses. What does it smell like when you walk in? What does it look like when you walk in? What do you hear? What kind of music is playing, and how do you just ensure that all that is dialed in appropriately? The business model just taking a step back and explaining it at a high level, it’s like a WeWork, but instead of entrepreneurs and business travelers, it’s artists. We have artists and residents who occupy studios in the back, and they pay monthly rent to us. Then we have studio members. They come, and for a monthly fee, they get access to the building.
24/7, they can come in. They can paint. They can sketch. We have easels. We have amenities, great place to meet fellow artists. Then the true bread and butter of how we make our money is by putting on programming, classes and workshops. This is anything from a $40 drop in sketch night, where there’s a model on the stand or some still life item that folks are sketching or painting to a $750, four-day workshop with one artist. She’s flying down later this summer from Washington, and another is flying out from the east coast. They’re doing a really exclusive 12-person intensive, intimate workshop where folks who are maybe a little further than being a hobbyist, they’re maybe a career artist, or they’re just someone who takes their art really seriously and want to hone their craft.
They’ll sign up for this months in advance, and we’ll do a revenue share with the fine artists who were flying out, and we’ll try to create just a really magical high touch intimate class or workshop experience. From a class and programming standpoint, we’re learning right now tough lesson being only a couple months in acquisition is we put our brand, and we put our customer experience in the hands of an instructor. It’s not fully in our control like it is for our other business, and so a lot of lessons to be learned. We’re learning that there’s a vetting process, allowing artists to instruct.
We’re learning that just because you’re a good artist, it may not mean you’re a good instructor, and that folks are paying money to have good instruction not to be in the vicinity of a good artist. They’re there to really learn and be challenged, and a lot of lessons learned, but from a NPS or at least an experience standpoint, it’s actually very similar. We’re asking a lot of the same questions. We often explain it as like we’re private investigators walking up to a crime scene. It’s like, “What can we improve? What’s this objective view of how customers feel when they walk in, how they feel when they walk out and everything in between that experience?”
What do you feel still needs to improve at one or both businesses?
For Tailor Cooperative, we need to go from one to two, from brick and mortar number of shops. Right before COVID, we were weeks away. I was traveling down to Phoenix a couple times a month. We were weeks away from signing a long-term lease agreement and expanding down into Phoenix. I’m glad we didn’t. We would have been locked into a lease agreement during the worst of COVID, but we will be opening up a second location later this year, and a third location will follow the next year. Again, a lot of process engineering SOPs, some of the boring stuff that comes with scaling, the boring but important stuff that comes with scaling.
Migrating our CRM technology is a really big focus area for our company right now, inventory management, so some of the back-end plumbing. For Workshop SLC, I think right now, we’re really focused on continuing to scale and figuring out where that high watermark is where at least we’ll sit for a couple of months, and then focus on operations and experience, where there’s still just a lot of growth in front of us for that business. It’s never going to be a two $3 million a year business. It’s probably going to plateau at about $1 million a year, and it’ll be a really profitable million bucks a year.
It’ll be a community staple if we do it right, and it will be just a treasured business, hopefully, if we do our jobs right. It’s not this venture where we’re trying to scale it out to 40 locations, and get it to $50 million a year and then sell it. It’s how do we build this for the long term on a 10-year time horizon, so really figuring out where that growth that we want to take our foot off the gas pedal a little bit and start working on operations of delivery and bringing some instructors in house as opposed to doing revenue share or pay by the hour like we’re doing today.
We could go on. There’s a million things we’re working on, but those are some of the things that first come to mind.
Are there other business models you’ve come across to have this same artistic, creative venture to them that you would be excited to be a part of at some point in the future?
When we were forming Decada Group, we were spending a lot of time trying to think, “Who are we and what are we good at? What are we not good at? What does portfolio construction look like in an ideal world? Do we really embrace this kind of niche of high NPS, high gross margin, upscale, dynamic? In 20 years, are we going to have 15 businesses that all look like Tailor Cooperative and Workshop SLC?” I don’t know the answer to that, first of all, but second, the one thing we said we wouldn’t do is food and beverage. There’s a lot of restaurant concepts and bars that we might get attracted to that we probably ought to steer clear from.
Yet, the thing we’re working on right now is a high concept, third wave coffee shop that we’re looking at launching maybe early next year, but I think there’s a lot of analogies similar to this in coffee. There’s a lot of breweries. I liken what we do all the time to the craft brewing movement. You had the Budweisers of the world that we’re trying to make the cheapest, most consistent beer, and then all of a sudden, almost in response to Amazon and to the commodity of beer, you had about 10, 15 years ago, these craft breweries popping up, talking about tasting the notes of beer and pouring it in the right glass, and walking into a brewery that really embraces the making process of beer.
That’s the closest known analogy is Tailor Cooperative, we’re the craft brewery of suits. Workshop SLC, we’re the craft brewery of fine art. There’s analogies like that in every industry, I’m sure, but I think we’re looking at a lot of businesses right now. I look at three to five businesses a week. We’ve got relationships with brokers up and down the Wasatch Front here in Utah. When the right opportunity gets in front of us, we’re in a capital position where we can make the move. But operationally, I think we still got six to 12 months of catch up in front of us before we’re ready to really sink our teeth into the next thing.
But I’m looking at everything from… We looked at an auto mechanic shop pretty seriously a couple months ago. There’s a lot of businesses that we looked at pretty seriously that didn’t really fit this pattern we’re starting to develop. Come back in a couple years, and we’ll see where we land. We’re still very thoughtful and reflective about where we can have the most fun, first of all, and then second of all, where we can add the most value and provide a really good return.
Moving into some closing questions, what class would you teach in college if you could teach about any subject you wanted?
You sent me this before, and this is the one that really stumped me because, first of all, I spent a year and a half in college before moving out to the Philippines, and then started my first VC-backed startup. I’ve always said I’d love to return back into the university. I feel like there was a chapter of my life that I missed from just meeting other students, staying up late. I just never had that part of my life, but also the formal education of business school. I think what I was fortunate to stumble into very early in life was finding both my passion and what I was good at. To me, that was entrepreneurial pursuit.
As I’m mentoring younger students really trying to decide where they want to go in life and where to spend their time, one, I see that as a huge fortunate advantage I had is I happen to stumble into it at 19 of knowing what I wanted to do and really falling into that, so I had a head start that most folks just don’t have that same privilege. In college, I see there’s so much value in attending a great college program. I’ll tell my son, Liam, that he’s got to go to college, or he’s grounded, and it’s important for him to do what I didn’t do, because I think it’s great to meet people, but I think most importantly, it’s great to be exposed to a million different ideas, and take a variety of classes and see a bunch of different career opportunities so that you can find that Venn diagram of what you’re passionate about and what can make you money.
If I were to teach a class, I couldn’t really come up with a curriculum necessarily, but at a high level, it would be really focused on getting out of the classroom and getting experience in a whole diverse set of things so that you can stumble into something you’re passionate about, whether it’s engineering, or entrepreneurship, or something completely different that you might not have known was a passion. I think when you can combine passion with capitalism, you can really do something meaningful, find purpose, and it can be a great thing, but spending $50,000 to go find your passion is also it’s a tough pill to swallow.
But if you find it and it helps you find the right thing, it’s worth its weight in gold. I’d come up with some clever way to get folks out in a whole variety of career experiences to see firsthand what really appeals to them and where they want to head with their career so that they don’t close any doors that they shouldn’t be closing early on in their lives.
I love it. Is there any class that you wish you could have taken in college if you knew that it wasn’t going to have any effect on your future earnings power, and you could spend this time, and it wouldn’t take away from any of your other learning? What would you try to pursue?
I’d network with more SMB operators in our little niche that’s been carved out on Twitter and beyond in large part. Thanks to your podcast too, Alex. I think there’s two different types of SMB operators. It’s hard to bucket into two different types, but there’s folks who like me are coming from the more entrepreneurial background. This isn’t their first rodeo running and operating a company. Then there’s folks who come at this from a private equity or investment banking, consulting experience, where they come with this huge advantage of understanding capital structures of a business, how to finance a deal strategically.
That was something I really had to learn sometimes through error and sometimes through just putting my tail between my legs and sheepishly asking for advice from people smarter than me, and really starting to get a head on my shoulders for capital allocation deal structure. I think there’s something really powerful to be said about learning that early on, knowing how the capitalism side of business works, the capital structure side, the equity side, debt and leverage, what that does for a business long term. Maybe starting in a personal finance side, I think just being in control of money and understanding assets, expenses and really gaining a strong understanding of just how money works, first of all, and then second getting into markets and economics, and then third, getting into deal structure and capital structure.
Huge advantage if you have that. It can be learned, but it’s a painful thing to learn when you’re Trying to fly a million miles an hour and acquire a company, and do a million other things at the same time.
It certainly can’t be. What belief do you think you’ve changed your mind on the most that you used to hold strongly?
When I think back to my early 20s, my idols at the time were the Steve Jobs of the world, the CEO tycoons who were running these large tens of thousands of employees, and had really gotten their career to a point where they could lead an organization of that size. At the time, naively, I felt like that was the ultimate, that was the thing that I wanted out of life is to get my experience and my competency to a level where I could ultimately see myself stepping into a role like that. I had a couple of experiences. There’s one in particular. I was at this venture-backed suit company I started back when I was 19 or 20.
I was about three or four years in. We had some supply chain problems in our manufacturing facility out in Shanghai, and we were in between fundraising. We have just raised our Series A, and we were already out pursuing our Series B. We’re stressed out of our minds, and the supply chain issue hit where orders were coming in inaccurate, and just all of a sudden, everything went sideways in our supply chain. I had to hop on a flight the next day out to China and spend a couple of days out there. Picture this 24-year-old kid who’s just completely in over his skis and just stressed, and I did not have a lot of the competency to really go in and solve certain problems.
We had built this module on top of Salesforce that was pushing data into our AutoCAD system that would cut the patterns of the suits, and something had gone sideways in the connection between the API. I had to jump out and help solve the problem, and bring folks in to really correct this because we were losing tens of thousands of dollars at the time because orders were coming in inaccurate. Anyway, zooming out a bit, we solved the problem. A couple days later, I was flying back out, jet lagged and exhausted from a busy week. I had a board meeting the next day that I wasn’t looking forward to.
I remember walking into the SeaTac, the Sky Club lounge. I probably drank a little too much wine on the overnight flight coming in to try to help me sleep. I was a little delirious and jet lagged anyway. I had this moment that I walked into the lounge, and it felt like this out of body experience. I was walking in, and it seemed like all I saw in this Sky Club were these middle-aged white dudes barking into their phones, screaming at someone for something, dressed in suits, in between meetings, going out to attend another meeting. I realized in that moment, it’s like, “That is not where I want to be in 34 years. I don’t want to have the stress of having to travel all the time and to have the kind of responsibility that comes with that.”
There’s this book that I have my team members read that I think about a lot. It’s called Small Giants: Companies that Used to be Great Instead of Big. I didn’t find that book until recently, but it was really a turning point in my life of what I wanted out of life. I didn’t want to be on that treadmill of continuing to chase down bigger companies and try to pursue ventures that required that big of attacks on your personal life. A few decades ago, Donald Trump was asked this real estate tycoon at the time in New York much, much earlier on, “Do you consider yourself a good father?” He responded, “I consider myself a good provider.”
That’s a freaky thing to think about if you’re a dad like I am. Is that the kind of role I want to have in my child’s life? At the time, I was on a plane at least once a week, oftentimes overseas at the drop of a hat. A lot of my values have shifted a ton over the past five to seven years. I think I have my outlook on small business to thank for that is we have come to learn that there’s something really purposeful and really special about building a small business that plays a role in the community. Two Christmases ago, before COVID, we had all our employees come over to our house for our holiday party.
It was just a really special moment of just we get along as a group. We get to make a meaningful difference in the lives of our employees. We get to have great work-life balance, and solve creative challenges. It doesn’t come with the Forbes magazine covers, and it doesn’t come with $10 million checks being written at a Series B round. But if done right, I think being an SMB operator and pursuing a long sighted holding company model like Decada Group, it allows you to really get into these fun businesses, hire and empower talented operators, spend a lot of time working on fun, creative challenges, and focus on what matters most in life.
Keep a good fitness and wellness regime. Be home at 5:00, 6:00 at night, spend quality time with your family and your kids. I think to answer the question, the belief I’ve changed the most on is probably what I want out of my career and what we’re optimizing for Decada Group versus what I was optimizing for when I was a clueless rookie at 21 years old.
I love that answer. It’s also interesting how going through this podcast and interviewing so many SMB owners and investors and operators, and it seems that each business that they own or the portfolio of companies they own or the single company they run is such a reflection on their personality, and so it’s really interesting to hear how your personality has shaped what you’ve ended up buying and running. I love hearing that answer. What’s the best business you’ve ever seen?
We’re a rookie when it comes to acquisitions and doing due diligence on deals. I’m not the kind of guy where I’ve looked at 500 businesses over a five-year period. I’ve only gotten into SMB acquisitions, really earnest over the past 12 months. We stumbled into Workshop SLC because it was a friend of a friend, and it wasn’t by building relationships with brokers and doing outbound to try to get in front of soon to be retiring business owners. I don’t feel like I have a ton of [inaudible 00:50:27], but there was a business that really struck me, we came across six or seven months ago, that was unique and really aligned to Decada thinking, or at least our thinking today in a tasteful way.
It was a concierge business. It was a subscription revenue business for folks who have second homes in Park City or taco. This business was doing a few million bucks a year, subscription revenue for really varied set of services, anything from weekly home checks, sending you photos of your home, make sure it’s good, upkeep, so coming in, cleaning the house, sprinklers, turning them on in the spring, turning them off in the fall to a whole host of services, really interesting, hot tub maintenance, landscaping, sprinklers, dinner reservations when they’re coming into town, making hotel reservations for your family if you have a bunch of family coming up.
Just this really unique market, very upscale as your folks who spent a lot of money on a second or third home, and they want to make sure that it’s managed well. They want to make sure that when a windstorm comes into town that it didn’t wreck the front yard or that their security wasn’t jeopardized, and a business that really has an opportunity to step in and play a really trusted role in their lives and also offer a really unique set of services that can be bundled and offered on a subscription basis.
The thinking we had at the time is maybe we could come in and really bundle these services a little bit better, and look for ways to introduce certain levels of subscription revenue that can really get the business to sing from a financial standpoint a little bit better, and maybe introduce a little bit of technology, and maybe a little bit of a mobile app where you can order things on demand, see your home in real time. There were some really fun ideas we’re kicking around at the time. Probably not the best business in the world, but it was one where it was just like, “Huh, there’s a lot of commonalities with what we’re doing currently at Decada Group,” and love the subscription revenue side, love the role it plays in the lives of the customers, and there’s so much opportunity to go and really do a great job in that kind of business.
Why didn’t you end up buying it?
The seller ended up changing their mind midway through. They still own the business today. It was in the middle of COVID that they were looking to sell. I think as the world started recovering… Utah has done a really good job from a recovery standpoint. As it started recovering, I think they started to see a light at the end of the tunnel and room to really grow it. I think it’ll hit the market again in the next couple of years, and we want to be there when it does, but the seller had a change a heart is the short end of it.
All right, that’s too bad. Well, thank you, Chase, so much for being on the podcast. It’s been really, really fun to get to chat with you today. I love hearing about the creative side of some of these businesses. I think it’s absolutely fascinating, so thank you for sharing that. I loved having you on.
This was fun. Thanks for the invite, and happy to come on later down the road. Thanks again for doing what you’re doing. A great podcast, and thanks for letting me be a part of it.