[EO San Francisco] Building a Purpose-Driven eCommerce Business After Burnout With Chris Farkas
John Corcoran: 12:24
And oftentimes compile the different pieces together to build the thing that you’re selling to the person.
Chris Farkas: 12:29
That’s right. And at Gap, one of the new sort of twists for me. And that was this notion of seasonality. Right. Like a bathing suit doesn’t really.
Nobody really wants to buy a bathing suit in January, right? And so there’s a lot that goes into not just forecasting sales, but actually being able to manipulate sales through price reductions and things like that. And this all came into the work that I was involved in.
John Corcoran: 12:56
Yeah. So you do this for a couple of years and then eventually you found E alchemy. I might be skipping over a couple of different experiences here as well. But tell me about this transition, this leap into entrepreneurship and how that started.
Chris Farkas: 13:12
Yeah, I had always known.
Chris Farkas: 13:13
That I wanted to have my own thing. In fact, when I was at HP, I convened this small little council of people who I had a lot of respect for at the time. And we we met a couple of times for dinner and drinks to talk about potential passion projects, things that we could all work on together. But it took me another 10 or 12 years before I decided to strike out on my own. I was leaving a small electronics company and and had this idea maybe I would go out on my own again, and I kind of spread the word out amongst my past colleagues.
And I was really lucky. I had an opportunity for a project that was going to keep me busy full time, or just about full time for six months. And round about the same time, I had a job opportunity and my wife and I had to make the decision about whether or not, you know, I was going to take this job opportunity or whether I was going to try to strike out on my own. And ultimately, the calculus was, here’s this opportunity of six months of runway. If I’m not going to do it now, I’m never going to do it.
This is the chance, you know. And so I went on to do that project. I took on some other projects along the way and operated as as a solopreneur essentially for a couple of years. I had a little employment stint in the midst of that, but got back to entrepreneurship and built that business very slowly over several years by just doing good work and getting more opportunities to do additional work.
John Corcoran: 14:46
And what sorts of opportunities were you doing? What were you building for people? Was it more supply chain type of software?
Chris Farkas: 14:51
Yeah.
Chris Farkas: 14:52
So, you know, essentially the work of alchemy was that work that we did at our inception and that was taking data from the systems of these large companies, pulling them into specialized tools that were that were made for making micro decisions, but at scale. Right. So if you think about GAAP, they have tons of different styles of jeans and tons of different sizes, sometimes in different colors. And every month they’re going through this process of trying to decide, how many do I buy? What do I do?
I mark these things down because I’m going to get stuck with too much inventory. What? And so you have all of these very small decisions, but all of whom in in total really impact very significantly the bottom line of the company. And so I was building tools that automated the collection of all of that data, making recommendations and presenting those recommendations to the decision maker and making it really easy for them to either accept those recommendations or make different decisions. So all of that could happen at large scale.
John Corcoran: 16:06
And the consequences could be it could be rather large, right. Like at that scale. Right. You could purchase too many of the wrong type of gene, and there’s suddenly tens of million dollars sunk into something that’s not going to sell. Or is it going to sell?
May not sell forever, or may not sell for nine months until it gets warm again or or cold again?
Chris Farkas: 16:24
Yeah, 100%. I mean, I think at some point for a marketing effort, right. I did some exercise to figure out that we over time it had like $2 billion worth of inventory under management on the tools that we had built for for various customers.
John Corcoran: 16:39
Wow. That’s incredible. Looking back on your time with the alchemy, I want and I want to get to some of your other stints as well, but but looking back on it now, it was a long period of time. Almost 20 years. Any regrets on how you ran that company or anything you would do differently?
Chris Farkas: 16:56
100%. One of the best things about my approach in the early years was that I’m I’m very much an opportunist. And so I was really open to chasing down different opportunities that came my way. And that was a great recipe for success in the early years. I think that in the end, that very same thing ended up being my downfall with the company, and that was that.
I stayed an opportunist rather than really starting to hone a very clear plan about what I wanted the company to be and how I wanted it to run, and the kinds of work that we were going to do and the kinds of work that we were not going to do. And so as things evolved, I didn’t have a clear enough plan about how I was going to evolve and grow the company. And so I think in some respects, you know, I lost focus. And then as times got really tough, we were, I guess, out of position to be able to adjust to some of the the market changes, particularly, you know, around Covid and, and things like that.
John Corcoran: 18:05
And what was so what was that like for you when Covid hit and you’re running E alchemy?
Chris Farkas: 18:11
Well, as it happens.
Chris Farkas: 18:14
My company really started to struggle a little bit right before Covid. We had a massive contract with one of our clients that ended up being terminated, led to me having to lay off several people on my team. I was really in the doldrums. You know, I built this team that grew to 13 from scratch. I had hand-picked everybody.
I had developed several people on that team to be, you know, the folks that they were, the professionals that they were. And and I take it very personally. You know, I heard this saying one time. Some people will say it’s not personal, it’s business. And the response to that is, well, all that means is that it’s not personal to you.
I think, you know, it’s all personal depending on the perspective that you come from. And I take that really to heart. The people that I hired and that were on my team were kind of like family to me. And so having to go in and and tell people that, you know, I’m going to lay off 5 or 6 people was really tough for me. I took it very, very personally.
It was, you know, the hardest thing I’ve ever had to do. At the time, for sure.
John Corcoran: 19:24
And how far into Covid did you do that? Because I’ve interviewed many founders who sometimes feel like they waited too long, or they tried to postpone the inevitable.
Chris Farkas: 19:35
I definitely waited too long, and it was actually prior to Covid, starting in a roundabout sort of way for my own mental health. Covid ended up being a little bit of a blessing, in the sense that all of a sudden I went from being on the outside of this peer group where I had been on the inside and doing really well and everything. All of a sudden I was the one struggling and most of my peers were doing really well. I did wait too long. It made it harder to make choices later on.
But then when Covid came in, all of a sudden I had a ton of peers who were struggling very similarly, and I didn’t feel so alone anymore. And I know a lot of people during Covid waited too long, you know, And the challenge is, is that when you wait too long to make difficult decisions, the course correction has to be far more dramatic or typically does. Right, because you’re aiming in this particular direction and you need to be over here. Well, if you change course way back here, the course correction is much more slight, right? But when you change direction way up here, all of a sudden the course correction is much more dramatic.
And and so fortunately, you know, I was able to take advantage of some of the programs, you know, around Covid to, to keep some of my team going and, and whatnot. But eventually, you know, I came to a kind of a decision point, which was, am I going to am I going to, you know, really throw myself back into this business and turn it around, or am I going to do something different. And after having worked on that business for, you know, about 17 years, I had lost a little bit of the passion for the work. And I didn’t know. I didn’t know for sure that I could turn the business around.
Of course, I think I could have turned it around very objectively or whatnot, but. Or in theory, right. But did I have what was needed within me to actually make that happen? To to throw myself into it and to invest myself in it? I don’t think I did.
And and so e alchemy still exists and we still do small projects here and there. But but really I’ve I’ve moved on.
John Corcoran: 22:10
I want to take a step back because there’s another story. This company bricks mark that you were involved in. This is a number of years earlier, but I’m a bit fascinated by people who have a skill set like you. In this case, you had a software development company, and so you have this ability to develop things and you’re doing it for clients. And you see, oh, maybe you see some success that they experience.
And so a lot of times the temptation is, well, we should just build these things for ourselves. And so you got involved in this project, but you say in retrospect that it was a hard lesson on market fit. So talk about the lessons from that experience.
Chris Farkas: 22:45
Yeah.
Chris Farkas: 22:46
Two big lessons from that experience. Lesson number one is I had partnered in that business with somebody who had deep experience in the wine industry. He had identified a particular problem. And as we talked about it, I was like, oh, this is something I know, I know how to address. I know how to fix this problem or build tools that will help to fix this problem.
And him being the industry expert, I sort of took it on his expertise that there was a market for this product and we we went about building the product. His company actually did what we call dogfooding the product where they actually used the product themselves. So we were able to to test it out, make sure it worked well and everything. The challenge was, is that when we went out to actually take the product to market, other folks who might be using the product had a different perspective on that business process that we had built this tool to address, and there really turned out to be just not quite the market that we thought there was for, for that application. It turns out, you know, fool me once.
Shame on you. Fool me twice. Shame on me. Right. I had another endeavor down the road later where I.
I made the same mistake in the construction business. A team had identified an opportunity, and and it looked fantastic. It was a really successful construction company that had ended up building this software for themselves. But it turned out again that there really wasn’t the same kind of market externally. And so that ended up being a challenge.
Lesson number two was has created a tenant for me in business. And that is don’t hire anybody that you can’t fire. I ended up partnering with someone who was the spouse of one of my wife’s best friends, and had that circumstance arisen with a different kind of relationship, I would have, you know, I would have terminated that relationship. But because of the complexities involved, where I didn’t think I could, I could fire, you know, my wife’s best friend’s spouse, it just ended up creating a lot of complexity, and we ended up shutting the company down instead.
John Corcoran: 25:11
Oof! Ouch! Getting back to the point about validating market demand in retrospect? What would you do differently in order to figure out if there is market demand? How would you test that theory?
Chris Farkas: 25:23
You know, I used my partner’s experience as a proxy for the thing that you would typically do if you read just about any startup book. What they talk about is doing customer development, right? You go out and you talk to the there you go, startup.
John Corcoran: 25:38
Startup Eric Ries. Yeah.
Chris Farkas: 25:39
Classic, right. So Eric talks a lot about customer development. And in that book, I believe, and the whole notion is before you build a dang thing, you go out and talk to all the people who would be potential customers and talk to them about the problems that they have and how they think about those problems and what they’re looking for in terms of the solution for those problems. And when you build a product, you build the product that they want, right? Not the product that you think they need, but the product that they want.
The other real advantage out of that methodology is that in hearing their problems and the way they talk about their problems, you automatically have the marketing material that you need to speak to those people because you’re using their language to tell them, you know, the problem that you’re trying to solve, which is their problem.
John Corcoran: 26:33
Right, exactly. Let’s let’s get to present day or on our way towards it, because you and I had a number of conversations while you were searching. So you decide you’re going to acquire a new business, talk about what that process was like, and also how you figured out what type of business you wanted to run for this next chapter in your life. And I’m a bit fascinated by people that the company that they acquire next or that they run next. How it’s a reaction to the challenges or the problems that they didn’t enjoy dealing with on a day to day basis on the previous company.
Chris Farkas: 27:11
Yeah, I think that’s 100% true.
Chris Farkas: 27:15
So when I decided that I was going to, you know, walk away from alchemy, I had always known that, in my opinion, if you could run a business buying another business, an existing business is dollar for dollar, the best investment that you can possibly make anywhere. It’s better than the stock market. Of course, the most important tenet of that is like, can you run a business? Right? So experienced entrepreneurs generally know that they can do that already.
And so I wanted to do this. I had been thinking about doing it before I decided to walk away from alchemy, when the alchemy was actually very successful. I did a little bit of looking. There’s lots of different websites that you can go like Best Buy, sell to, to look at businesses for sale. But, you know, there’s a fair amount of intricacies involved in the process.
And so I wanted to accelerate my learning. There’s a guy named Walker Deibel who who wrote a book called Buy Then Build.
John Corcoran: 28:17
I think I have it behind me here. He’s been on the a guest on the show. I might have it behind me.
Chris Farkas: 28:20
Yeah, yeah.
Chris Farkas: 28:22
Walker is a great guy. Super friendly. He actually started sort of like a an incubator or an accelerator for people who want to, to buy a business. It’s called the acquisition lab. And I decided after, you know, vetting a couple of different opportunities that that was the program that I wanted to go through.
It’s a fairly short 6 to 8 week program, and I learned lots. And one of the things that I learned was how to market myself, right, as a potential buyer, because when you start to look at businesses, you know, it’s kind of like when you’re looking for a job, when you start out, you know, in looking for a job, you’re marketing yourself to the company. But at some point it turns a little bit where the company is marketing themselves to you. right? Buying a business is somewhat similar.
You’re out there looking at companies and their marketing to potential buyers. They’re trying to convince you that that there’s a good opportunity there. But then when you reach out to the brokers, you actually have to persuade the broker that you’re somebody serious, somebody that they should be taking seriously. Right. And so you really have to have yourself polished up pretty well to be able to position.
Part of the exercise of going through the acquisition lab is figuring out what kind of business you want to buy. You know what? You know, in a lot of different industries, you did this thing called, you know, you define the box, right? And that is lots of different characteristics that you that you determine are important qualities. What’s inside the box?
What’s outside the box? I knew for me, one of the most important things is that whatever business I bought, I wanted it to be something that I felt good about putting my name on. I didn’t want to be selling something or be in a business that was a little bit sketchy or untoward. And so that was that’s my number one qualifier. My number two qualifier.
John Corcoran: 30:20
Let me ask, was there some opportunity that came across your desk that that there were.
Chris Farkas: 30:24
Lots of opportunities out there where I think the businesses are a little bit sheisty. I guess I’ll say.
John Corcoran: 30:31
Nothing in particular you can share.
Chris Farkas: 30:33
You know, I well, I’ll give you maybe not one that’s sheisty right but but still fits the bill of is it one that fits me in my personality right there. There was a business that was like kind of built around female menstruation products, right? It seemed like a great product opportunity. Yeah. Is it was it something that I wanted to do and that I felt like I would be the, the best face of that kind of product?
Yeah. Not really. Right. So it wasn’t a great fit in that regard. There probably was some other businesses that I would consider to be a little shady or whatnot, but but I can’t think of anything off the top of my head.
John Corcoran: 31:13
Okay. So but you end up acquiring, first of all, did you get close with any other acquisitions that you really wanted?
Chris Farkas: 31:20
Yeah. It’s funny. So being the opportunist that I am, right, I was open to a lot of different things. I had certain characteristics that were required certain size, certain profitability. I live in in Sonoma County, and so I wanted something that was going to be relatively close.
A food company came up that was really close to me. I’m a five minute drive from my house on the way to my kid’s school. Yeah. Had been in the in the area for a while and seemed like it could be a fun opportunity. My wife and I love to cook.
We love to eat. Seemed like we could travel and and check out food in different places and use that as.
John Corcoran: 31:59
A oh, man.
Chris Farkas: 32:00
You’re sold.
John Corcoran: 32:00
You’re sold. Yeah.
Chris Farkas: 32:03
In the end, it didn’t work out. You know, I thought it was going to work out. It fell apart on Christmas Eve 2023. I guess so it was a big disappointment and it was a letdown. It took me a while, you know, a little while to bounce back from, to get back on the horse and start looking at again aggressively.
John Corcoran: 32:20
Why did that one fall apart?
Chris Farkas: 32:22
We just couldn’t get to terms that particular business. Had a high customer concentration. They sold into supermarket chains, and there was one chain in particular that represented, I think, almost 40% of their business. Typically when you have that kind of customer concentration, you build some stuff into the terms of the agreement to ensure that if that customer leaves for one reason or another, that your exposure is somewhat limited. The owners just couldn’t quite get around, or, you know, their heads around that term and the way it would be structured, and we just couldn’t get to an agreement, unfortunately.
John Corcoran: 33:01
And in retrospect, do you think are you glad that that didn’t come to fruition or you are?
Chris Farkas: 33:06
I am. I think it would have been a more challenging business in many respects. I actually don’t know where that business is today. You know, I haven’t gone back to check in on it. Funny enough, the broker called, contacted me.
I think it was two weeks before the close of my of my eventual close and and had reached out and and I told him, you know, that I was in the middle of this transaction. And he said, okay, I’ll get back to you. And I never heard from him. So I have a feeling he was reaching out to see if I might still be interested.
John Corcoran: 33:39
Yeah.
Chris Farkas: 33:40
But I am glad that I missed out on that opportunity.
John Corcoran: 33:43
So you end up acquiring emergency kits. Com which first of all, talk about what you do and then we’ll talk about the the business model behind it, the types of customers you sell to.
Chris Farkas: 33:54
Yeah.
Chris Farkas: 33:54
So we sell emergency preparedness kits. Pretty straightforward you know that you would expect Fact you might buy at Costco sells some of these in a different businesses. Sell emergency kits. But the idea here is essentially right. FEMA tells US citizens that almost no matter what happens within 72 hours of an event, they will be on site to support communities.
Right? So most emergency kits are built around this notion of we all have to be able to stand on our own two feet for, for 72 hours until FEMA arrives. And so our emergency kits. Many of them come in backpacks or duffel bags. Some of them come in like five gallon drums, but essentially they have food, water, ponchos, those aluminum sort of space blankets, right?
To help you keep people warm. All of the essentials that you would need to be able to survive those 42 hours. And we have some that are more straightforward and basic and then some that are, you know, pretty comprehensive, including a lot of first aid gear and things like that.
John Corcoran: 35:04
It’s exactly what I need right now, because I’ve literally had a reminder on my calendar for the last like three months to revise. We’ve had an emergency box since before I had children. I have four kids now, and so as you can imagine, it doesn’t really fit my current family size. So emergency kits is where people should go. But but why?
So you have this background in supply chain management previously. So there’s some relevance there. So talk about what you saw in terms of the challenges and the opportunities and why. Why this company. Why you why why did you want to acquire it.
Chris Farkas: 35:38
Yeah man. There’s so many different components to that. The first thing is, is that one of the key characteristics that put a business in my box is that it? It had a simple and straightforward business model. Right.
And e-commerce oftentimes is like it is the gold standard for that. Right. Somebody comes to your website, they put something in their cart and they check out. Right. And it doesn’t get a whole lot more simple than that.
And as it turns out, because our products are relatively simple, you know, the business overall is fairly simple. I can explain it to somebody in, you know, 30s what we do. Right. That wasn’t the case with e alchemy. One of the other things you know, that I love about emergency kits, comm that is so different from E alchemy in in our best year at E alchemy, we might have 30 sales opportunities.
You know, we did projects that ranged in size from $20,000 to a few hundred thousand dollars. Right. We were building custom software for for teams. And so if we had a really good year, we might have 30 calls, you know, where people are wanting to talk to us about potential projects. When you have 30 opportunities, it doesn’t leave a lot of room for experimentation and data collection and whatever.
And like I am a data geek, right? I love numbers, I love being able to to tease out stories from from data. That’s why one of the reasons that I got into the the work that I did, one of the great things about emergency kits comm is we have so many opportunities that we get the opportunity to experiment, to test right to a B test. If we change the color of a button on our website, what does that do? Does it increase sales?
Does it decrease sales? Right. We actually in February had previously had never offered free shipping. The founder had found it kind of complicated. We have some products that are really heavy.
We sell water for instance, right. Low cost, high cost to ship. Very complicated from a free shipping standpoint. Also very different in price to ship to Florida versus to ship to LA, which is, you know, 30 miles from our office or not even that, really. And so I did a lot of analysis and figured out, you know, how can we offer free shipping for our customers, what’s the right way to do it?
And so we started that process in February. It was an experiment. Originally we were like, hey, we’ll run this through Valentine’s Day and we’ll see how it goes. And then it was going fairly well. Okay.
We’re going to extend it to the end of February and, you know, see if we can collect some more data. And actually, at the end of February, I made the decision to go ahead and continue that indefinitely. So for right now we’re offering free shipping on most of our products. Not everything.
John Corcoran: 38:35
Yeah.
Chris Farkas: 38:36
So I love that aspect of being able to experiment and test and and really figure out what’s the right way to do things.
John Corcoran: 38:45
And how do you create like a massive list of all these different things you’re going to test? Because this can take a lot of time running all these different tests. You don’t want to like run out and do them all at once.
Chris Farkas: 38:53
Yes, in some cases, I believe that it was just the right thing to do, and I did it without testing. So as an example, the founder of the company had not enabled Apple Pay on the website or Apple Pay, Android Pay PayPal. So that was literally the very first thing I did when I bought the company was to or very first new thing that I did when I bought the company was to turn on those payment methodologies, and it increased our conversion rate on the website. You know, a tick. But the thing that’s great about businesses like this is, you know, you increase your conversion rate from, from 1.5% to 1.7% like that.
That’s a substantial amount of revenue and a substantial amount of profit. On the other side.
John Corcoran: 39:39
One of the things that’s I think a bit fascinating about acquisition entrepreneurship is that you’re looking for a company that has a set of problems, but not too many problems. You want it to be a bit messed up, but not too messed up. How did you look at this opportunity? And did you have, like a punch list like, oh good, they’re not accepting Apple Pay. That’s an easy one I could fix.
Oh good. They’ve never done free shipping. I could do that. Did you get like, excited about like ways in which you could come in and add value?
Chris Farkas: 40:09
Yeah, it’s a very interesting process. Right. Because to the extent that there are opportunities that the previous owner did not pursue, it means that there’s unrecognized value or potential value. Right. And so effectively what that means is, is that you get to underpay for the business if you can actually realize those opportunities.
So as I went through the evaluation process several times, I bumped up against things. Right. And the interesting sort of arc of that process is you bump into this thing that you find, and it’s scary at first, right? You oh my gosh.
Chris Farkas: 40:48
No, they’re not doing.
John Corcoran: 40:49
This thing.
Chris Farkas: 40:50
Or better example in our case was like traffic was on the decline a little bit. Right. And so then the question is, well what’s causing it. Is it precipitous. Can you recover from it, etc..
Right. And so you go through this arc of it’s scary. I need to understand it better. Is it an opportunity or a problem? Right.
And what I found was that in most cases, the things that looked like problems in the beginning actually turned out to be opportunities. Things like they don’t accept Apple Pay. Things like they’re not doing free shipping. Things like my expertise in inventory management was a weakness on the part of the founder. And so while under his leadership, it required X amount of inventory to be tied up in our dollars, to be tied up in inventory, to be able to support the sales.
I knew that I could come in and actually lower that because of my background and expertise. So all of these things contribute to this notion that, like, man, I can buy the business at this value based on the current, you know, revenue and profitability. But I know that I can come in and make these changes and that should shift that up. And so it’s opportunity for me to recognize value that I don’t have to pay for.
John Corcoran: 42:13
You mentioned earlier that you had 30 sales opportunities with E alchemy and now it’s hundreds per day. And also emergency kits. Com has a diversified buyer base. So you have a B2B component and a B2C component which is good for diversification. And it’s not overly concentrated on on any one particular e-commerce channel like Amazon.
Let’s reflect a little bit on on that decision and how you thought about that going into it.
Chris Farkas: 42:42
Yeah. You know, so the few things that I was looking for in a business, right? Something that had a simple business model. Something that had a strong and stable revenue. Something that had good gross margins, something that didn’t have a lot of customer concentration.
Right. And one of the things that’s interesting about our business is that you come to the website and, you know, you can’t necessarily tell right out of the gate that that we tailor not just to consumers, but to businesses too. In fact, a pretty substantial part of our revenue is, is businesses, schools, what we call institutions. Right. Folks that are that are not just putting an item in their cart and checking out, but instead they excuse me, they come to our website, they fill out a request for a quote form, and then that lands on the desk of our sales person, who gives them a quote based on their circumstances.
We do custom kits, so people want to add things or subtract things from their kits. You know, we’ll do that for anybody who’s buying in volume. And so there was a lot to figure out there about the customer base, about, you know, how how strong that was transparently. One of the things that I will say, there was a, a risk that I did not identify so well during the process. And that’s the fact that a lot of our sales come from schools.
And, you know, with the change of the administration, Department of Education potentially going away or certainly being cut very dramatically, a lot of the funds that were making their way to schools that help to fund those purchases, you know, are going by the wayside. And so we are seeing fewer inquiries from schools and whatnot. Similarly, grants you know, we a lot of the the business that we do is funded by grants. Many of its many of those grants are private grants, but some of those grants are government grants. And some of those are, you know, federal either directly or indirectly.
And so, you know, so we’re seeing some changes in the market for sure. But again, one of the things that I love about this is that there are so many opportunities for me to be able to chase down, you know, when I ran The alchemy, one of the challenges was we were selling to operations teams. Operations people, by their very nature, are heads down and don’t want to pay attention to anything that’s like not on their desk for right now. This is a very different kind of business. And, you know, everybody wants to take care of their families or their employees or their students.
And so there’s a lot of ability to to appeal, you know, to people and, and to sell with a little bit of marketing.
John Corcoran: 45:35
So we hear a lot of stories about people selling their business and what it was like when they sold it. But what was it like for you when you acquired this business? I imagine it was quiet beforehand. Usually it is. And so maybe you’d met some key people.
Maybe you hadn’t met anyone. What was it like when you were announced? Because they have a physical. You have a physical location. It’s in Los Angeles, so it’s not five minutes from your house.
So you’ve been spending more time in Los Angeles. But what was that day like when they brought you in? You’ve just signed the papers, so it’s just become finalized. What was that like?
Chris Farkas: 46:08
Yeah, it was like.
Chris Farkas: 46:10
In my head anyway, it was chaos. I’m not exactly sure what it looked like from the outside. And when I say chaos, it’s because man, in the process of purchasing a business, there are so many things that have to happen. And the crazy part about it is that, like 80% of those things can’t happen until the day of the transaction, right? So of course, I set up my legal entity.
I went and got a bank account. You know, you do all of these things ahead of time to be ready to go. But in addition to that first day of like. Meeting the team and all of that stuff, you are transferring Southern California Edison from the owner to yourself. You’re transferring the internet.
You’re trying to figure out how to start communicating to new customers about where they should be sending the payments. I want them to come to me instead of the old owner. There are innumerable things that have to happen with that transaction, right? And in addition to it, you really have to maintain focus in coming in and meeting a team and telling them about yourself and reassuring them.
John Corcoran: 47:21
Yeah, reassuring them who are like, who is this new guy?
Chris Farkas: 47:24
Exactly.
Chris Farkas: 47:25
So I.
Chris Farkas: 47:26
Had had the.
Chris Farkas: 47:26
Opportunity to meet one of the key employees, the operations manager prior, and and talk to her. And I think I gave her some reassurance that she could feel comfortable, you know, And with me coming in. But yeah, it was a it was a big difference, you know, and and while my cellar was a really high character guy and, and I appreciated that about him and his employees loved him for that. We’re still different in our styles and everything. Right.
And so it was different for me to come in and to talk to people and to introduce myself. And I think the other thing I will say about it is when you found a company like I did, like you did the company takes on a lot of your character, right? Like you build it up over time. If you want to change something about the character of that company, it’s like steering a ship, you know, it doesn’t happen overnight. And one of the things that I was mindful of is, hey, I’ve got this fresh start, right?
Who do I want to show up as?
Chris Farkas: 48:35
What do what?
Chris Farkas: 48:35
What do I want to do differently from what I did in the past? Because this is my opportunity to, like, start fresh and start anew. And so I spent a fair amount of time ahead of time thinking about that. And then a good part of the morning was scripted. You know, we had a pretty clear script with the seller about time, you know, he was going to tell everybody that he was selling the company, and then he was going to meet with people one on one.
And then I was going to come in and meet with everybody. And then I was going to meet with everybody one on one and and all of this stuff. It was an interesting experience for sure. And it still is, you know, still working through that process. But we’ve only only one person has left the company.
And it was they were going back to school. It had nothing to do with anything to do with the business. Everybody else is still at the company. And I really appreciate all the people on the team. We’ve promoted one person that was great and we just hired a new person.
I’ve also brought somebody in from alchemy to help out with some stuff. Who’s, you know, a trusted team member. I’ll say on the whole, it was a really fantastic experience. My cellar was was really phenomenal in the transition. You know, he was very involved, hung out, hung in there for quite a while.
We actually stretched the transition out longer than planned. He’s still very available to me when I have questions and stuff like that. He’s a really nice guy and I feel like I got really lucky. There are a lot of horrible business brokers out there. I got really lucky.
The person who I bought the company from had found a really high quality broker that I worked with, who I really liked. Did you.
John Corcoran: 50:23
Have.
Chris Farkas: 50:23
A.
John Corcoran: 50:23
Broker on your side or just just the one broker?
Chris Farkas: 50:26
No.
Chris Farkas: 50:27
It’s fairly typical that there isn’t a sell side broker. It’s a little bit different from real estate in that respect. I did have, you know, I hired an attorney to help out with contracts and things like that. You know, I was I worked with a bank for for the loan. We did an SBA loan to purchase the business.
But but, you know, different people will tell you different things. I think as a general rule, it’s better practice to not have a buy side broker. You know, you’ll pay a points for that. And I’m not sure that they necessarily add a lot of value.
John Corcoran: 51:03
I yeah, my wife and I just got finished binge watching Ted Lasso. And when you were describing changing the culture, I pictured Ted Lasso walking into the new locker room of this British football team that he takes over as coach, and he puts the sign that says, believe this yellow sign over the doorway. It’s slightly crooked. Did you do anything like that or anything like it? Like kind of intentional where you came in and you said that this is what we stand for.
Chris Farkas: 51:33
We know Ted Lasso.
John Corcoran: 51:35
No, I mean that I’m putting you a bit on, putting you a bit on the spot to come up with something as iconic as that. Right.
Chris Farkas: 51:41
But I think what I would say is I still really brought my heart centered leadership. Like, that’s like who I am, like, at my core. I care about people. And so, you know, I came in and I was I was really, really transparent. You know, the first thing I tell people is like, hey, look, nobody’s going anywhere.
Like, I want you all to feel good and comfortable that I’m not making any big changes. Right? You all are staying here. I care about my team. I want to be a good boss.
I really believe that as an employer. And different entrepreneurs have really different philosophies about this stuff. In most employment situations, There’s a real information disparity, right? As the owner, I have a ton of information about what I’m doing and what I’m planning to do and everything. And sure, I don’t want to create anxiety, so I don’t give line of sight to everything that I’m thinking about or planning on doing right.
But I do believe that if you’re planning to make a change where you’re going to let employees go, you’re going to move a business like whatever it is that you’re thinking about doing that it’s really only fair to give those employees some line of sight about that, right? They’ve got lives and families that they’re trying to provide for, and I don’t feel like it’s right to to keep that information back and then just drop it on them, you know, the day of or a week before, I guess maybe if you’re going to offer some kind of real incentives or, or, you know, compensation to, to shelter them from some of the, you know, the implications of those decisions. But I think my philosophy is that in general, it’s only fair to let them make good decisions about what’s good for them and their families just as well. And if that impacts me negatively, well, I got to kind of roll with that. You know, we all we have to make the best decision for, you know, that works for us and for our families.
John Corcoran: 53:44
I know you’re just a couple of months, I think a couple of months into it. When when was the when did the final deal go through? Bless you.
Chris Farkas: 53:51
Yeah, I bought the business officially on October 12th. So we’re coming up on six months here.
John Corcoran: 53:57
What’s been the biggest surprise in that time?
Chris Farkas: 54:01
Oh, boy. How much there is to do? I mean, I mentioned the transition. You know, it sounds silly, but one of the things that snuck up on me, part of our, our transaction was that I bought all of the business. And what I mean by that is like, you know, the lease for the business.
I bought the inventory. That’s not surprising, right? But I also bought the accounts payable. And you know, I bought or. Excuse me, I bought the accounts receivable, but I also bought the accounts payable.
Right. Right.
John Corcoran: 54:35
And so that’s a risk when you take those things on for sure.
Chris Farkas: 54:38
We have a couple of accounts on our accounts receivable where we have one company that is trying to get a third round. I think it’s a C round of funding. And it hasn’t paid us. And we’ve got another company that declared bankruptcy. Fortunately, those numbers are relatively small for us.
And so it’s not that big of a deal. Although one of the companies, the company in bankruptcy, actually like, asked for a quote for something the other day. And we’re like, we’re not extending you credit terms. Are you kidding? But what did sneak up on me was, you know, some of our vendors, like we have a with a less than load trucking company that does local deliveries for us.
Right. Their payment terms are like ten days or actually, not even that. And so I bought these, these payables and all of a sudden I’m like hitting my second week and I’m getting a call that’s like, hey, you’re past due on this bill. Oh holy cow. I wasn’t even, like thinking about that.
I was thinking about the bills that we were, the expenses that we were incurring. Right?
John Corcoran: 55:41
Yeah.
Chris Farkas: 55:42
So many things to do. That I was unfamiliar with, that you just kind of have to, like, go through that experience, and. And then you start to get it dialed, you know? And of course, now we got it wired really well.
John Corcoran: 55:57
Do you in retrospect, do you think you you would have given yourself more working capital because of those things.
Chris Farkas: 56:03
Working the capital itself was not at all the issue. I had plenty of money to pay those bills. The problem was, is they were just like, not in my consciousness of all of the things that I needed to do. In fact, I had lunch with the broker shortly after, and one of the things I told him was, hey, I would recommend you think about on on. He does a lot of bigger transactions.
You got accounting departments and all this stuff to handle all this, right? For smaller transactions, I told him I think maybe it’d be better to to not be transferring the accounts payable, you know, just because it’s just so much to get up to speed on in the first couple of weeks.
John Corcoran: 56:37
It’s just a lot more complexity than the previous business you’d run. Is that fair to say? There’s a lot more moving parts.
Chris Farkas: 56:43
That’s exactly what I was going to say. In some ways, the business is actually much more straightforward and simple, but there are a lot more moving parts, there’s no doubt. I mean, one of the things I actually really like about my business is that I was always the guy building tools for people making decisions about how to buy stuff and whatever, right? I’m not the guy making the tools for other people anymore, right? I’m the guy making those decisions, and now I’m making tools for myself.
John Corcoran: 57:10
Yeah. Yeah. For sure. I want to ask you also, you mentioned that, by the way, you okay on time if we have a couple of more questions here. Yeah.
Chris Farkas: 57:16
Totally.
John Corcoran: 57:17
Good. So you mentioned model UN. You you’re involved in that you also we didn’t talk about it, but you spent some time in Washington DC working on the Hill. So you’ve got this interest in public policy which intertwines with business. California and the United States has experienced devastating fires, hurricanes, earthquakes, stuff like that.
So there’s more need for this business that you have than ever. And it also intertwines with public policy. So did that play into did an awareness of that interest of your own personally, which is going back 30 years now? Did that play into your decision to buy this business?
Chris Farkas: 57:55
I think, you know, I was I am still very interested in politics and public policy and things of that nature. I pay attention to that stuff quite, you know, quite avidly. Now, even I will say that my understanding of some of that stuff did inform the decision making process. Right. Like one of the things that put a business in my box was that I wanted something that wasn’t super recession sensitive.
And so looking at this and the history of the company, one of the things that was pretty clear is that in some regards, this business is actually opportunistic from a, you know, a disaster type of scenario. Right. And so like even during Covid turned out that one of our customers, our business customers, wanted masks, N95 masks. And because those go into our kits, we had a supply line for those. And the founder spent a good part of Covid chasing down masks and ended up doing very, very well during Covid, doing nothing but selling masks to this one customer.
But as you say, fires. ET cetera. Right. I would say the one thing that I actually anticipated a little bit. I don’t know that I necessarily anticipated the extent to which it might be problematic.
It is with all of the the shift with tariffs and the magnitude of the tariffs and all the tariffs on or the tariffs off and all that stuff, and then and then seeing the consequential decline in the stock market. I’ve, I’ve seen very clearly it’s affecting us, you know, the, the, the, the cancellation of grants has affected us through some of the opportunities that we have with schools and non-profits and things like that. But the other thing that seems very clear to me is the the effect that those all of these changes had on the stock market is, is paralyzing people in terms of purchasing. You know, getting out and shopping. I think that what we’re going to find here pretty quickly is that a lot of the consumer data that’s going to come back over the next couple of months is not going to be very good, because I think it All of this uncertainty is causing people to get a little more tight fisted with their money.
John Corcoran: 1:00:19
And are you being affected by tariffs, or because you are the products that are being imported that are affecting you?
Chris Farkas: 1:00:26
Yeah, 100%. I mean, I guess I guess we’re lucky that we’re not buying very much stuff from Canada and Mexico because the volatility of whether those tariffs are happening or not, we have not really been subject to. But but we do buy a lot of products from China. You know I think whether people understand it or not, you know, to be able to produce a lot of the products that we have in our kits here in the United States, the cost of those goods would go up two and three fold to be able to make them here in the States. And, and it’s just not really feasible to do that cost effectively.
And so we do buy a lot of our products from China. And we are seeing, you know, the cost increase. Our our vendors are absorbing a little bit of the cost increase of the of those tariffs. Right. But most of that cost increase is being passed on to us.
And we don’t have the luxury to to absorb that ourselves. You know we’re not making so much money that that we can just decide to eat that price increase on our side and keep our prices to our customers the same. And so what our customers are going to experience is also an increasing cost to them.
John Corcoran: 1:01:38
Yeah. You acquired the business about six months ago in October 2024. January 7th of 2025. The LA fires happened. You’re located in LA.
Do you? Did that affect the business? And also, have you noticed in the time that you owned the business that natural disasters lead to a spike in in business for you?
Chris Farkas: 1:02:02
Yeah. So that’s a really good question. The first thing is that it didn’t actually affect us very much. We happen to be located in Simi Valley, which was pretty well sheltered from the fire, in fact, air quality throughout Southern California was really bad. And I fly out of Burbank Airport when I come home, which is in the San Fernando Valley.
And and I was looking at one point that the air quality index in San Fernando Valley was in the four hundreds at one point, which is just totally insane in Simi Valley. It was very normal. And so we were pretty lucky in that regard. We did have one power shut down as a consequence of the wind, which is pretty heavy in Simi Valley, and they’re trying to prevent fires. But other than that, we weren’t impacted in that way.
With respect to your question about how these natural disasters affect our business, you know, there’s a lot of folks who are selling the kinds of products that we sell. So I think that the impact ends up being distributed throughout the industry. I have this plan, Marketing plan that involves us being able to take advantage of those, those disasters and, and use people’s awareness to, to prompt them to prepare more effectively. Right. I don’t want to be predatory in our marketing practices, but I want to be opportunistic.
At the end of the day, people see all of these disasters and stuff and it creates anxiety for them. And my attitude about it is, is like, well, we can provide products that help to quell that anxiety and also help, you know, to do a good thing. It’s preparing people.
John Corcoran: 1:03:41
And frankly, save lives, right? Or at least help them. Disaster. Yeah. So it’s doing a good thing.
Yeah. Well, this has been really fascinating, Chris, as you can tell, I could probably ask a bunch more questions around this, but I want to leave it with, you know, I’m a big fan of practicing gratitude, and I’m a big fan of giving our guests a little bit of space and opportunity at the end here to recognize, acknowledge people that have helped them in their journey. And so I’d love to hear, you know, obviously a lot of times people will mention their family or their team or something like that, but I’d love to hear if there are any peers, contemporaries or mentors that have been there in the journey for you and helped you as you gone along in your career and your story.
Chris Farkas: 1:04:23
That’s I yeah. I mean, look, my wife has been incredibly supportive. She is not the kind of person that that weathers storms easily. You know, the tumult of being an entrepreneur is something that I absorb pretty well. And she has been nothing short of fantastic of being along on that journey and being really supportive.
And so naturally, I have to to thank her and, and my kids for being supportive. Very. I’ll try to be very brief about it. But, you know, when I left HP and I was very ambitious and and hard working and I think I was at a stage of my life where maybe I could have gone in a direction where I was less sensitive and caring in my managerial style, and going to work at handspring and being within the organization led by Jeff Hawkins and Donna Dubinsky. I think it was formative for me.
You know, I see people who who went to Uber or whatever, and it affected their character and the kind of leader that they decided to be. And and I just feel really grateful to have worked for a company that was so, so cared about people and really imprinted that upon me. And then, you know, there are innumerable people in my day to day life that I really appreciate supporting me throughout my, my journey. But the other thing is, John, you and I have both been really lucky to have met each other through the entrepreneur’s organization. You know, it’s this peer to peer group of entrepreneurs sharing the journey of entrepreneurship, the good, the bad.
And I’m just eternally grateful for the opportunity to connect with, you know, these really fantastic people who who get really vulnerable and share of themselves, share their learning, help me to be a better person and entrepreneur, and also to just weather the storm. You know that that often comes in entrepreneurship. So I encourage every entrepreneur to check out the entrepreneurs organization because I think it’s an incredible organization.
John Corcoran: 1:06:44
Yes. And I also have to salute you because you were the chair of the accelerator program one of the years that I was in that program, which I was in for three and a half years, and I don’t know whether I would be I definitely wouldn’t be where I am today. And if it weren’t for that program and that program has is phenomenal. So anyone who is A has a newer business that wants to grow. It’s a great foundational program, so go check it out.
Chris, this has been wonderful. Where can people go to learn more about you and check out emergency kits?
Chris Farkas: 1:07:16
Yeah. So the best way to contact me is through my LinkedIn profile. I am what is it slash in slash Chris Farkas I believe. And and you can check out our products at emergencykits.com. We have, you know a pretty wide variety of products.
And if you have any questions, don’t hesitate to give us a call. Ourphone number is on our website. And if you call that number, you will reach a real live person.
John Corcoran: 1:07:42
Oh, excellent. Wow. All right Chris, thanks so much.
Chris Farkas: 1:07:46
Thank you John.
Outro: 1:07:47
Thanks for listening to the Rising Entrepreneurs Podcast. This episode is powered by Rise25. Please subscribe and check out future episodes.