The Hidden Cost Of Dead Brands

0:00Hey, everybody. Welcome to the Business Lunch Podcast with your host, myself, Roland Freezer, and the wonderful Ryan Dice. How are you doing today? I'm doing well. You sound like, I don't know, like we're at an auction or something. I am operating on negative sleep. I tell you, I finished that book that I sent to you and that was early morning to 3 a.m., multiple nights in a row, when you get finally into the thing. I find myself somewhat hyper right now. I've noticed in all my meetings. Is it energy trying to fool yourself that I'm not really tired? I think so. I think that's what it is. You know who else does that?

0:41Toddlers. Toddlers do that. My brothers. Yeah. Well, the book is great, by the way. I got a chance to read the first little bit of it. But you basically have written two books in the last little bit? No. No, just that one. The exit ready one that we have been kind of trying to get the last bits of was a while ago. Well, I'm counting on one. Oh, yeah. Well, not in the last couple of days, in the last couple of months. No, I know. That's what I'm saying. In the last little bit. That's why I said the last little bit. Oh, the last little bit. I thought you said the last couple of days. I'm sorry. Yeah, last little bit.

1:21For most human beings who never write a book, and for some that might only write one, the fact that like you've got two that are going to be coming out in the next little bit, uh, I think is, is quite exciting, quite admirable. So yes, we've got exit ready. That's going to be coming out. And then, um, can you give a quick preview of the other book that's coming out before we get into the main topic? Yeah. Cause it's, it's a companion, uh, book. So that that's, what's cool about it is. And that's why I rushed to finish it is the, uh, the, um, exit ready is It's basically the kind of the handbook and the playbook of getting yourself ready to exit and then going on through that process.

2:02And then this one is a fable. So it's a story of somebody who gets an offer and then has to go through all five evolutions that entrepreneurs go through to go from the receipt of the offer and a business where the business really had no value independent of them all the way through proving within 90 days that it did and that they had their act together. So they go through all of the things that we take people through in our scalable program and help them develop their transferable value, their bankable profits, and their leveraged sales and using the scalable operating system. And it's just kind of an easy, friendly way to do that in the spirit of the goal and the e-myth and the five dysfunctions or however many there are in a team.

2:53I think that should be like the X dysfunctions of a team. You can choose your adventure. But, you know, designed to be consumed in an hour or two, depending on how fast you read. But really get the points across and talk about the five different evolutions that every entrepreneur goes through or should be ready to go through as part of the entrepreneurial journey. Well, it's very exciting. Congratulations. I know how hard it is to write a book. Because you just wrote one while you were on vacation. I did. So yeah, so congratulations. And for everybody who's coming out to Get Scalable Live, you may or may not be able to get a copy of it, a pre-copy of it.

3:35So hopefully they'll both be like kind of pre-launched there where people can get both of them. I like it. I like the, I want to have them both together because I really feel like they go together. I think one personalizes, humanizes, you can see yourself in the characters and the other is, you know, okay, it's a, you know, it's a business book. You know, are you going to read that? Most people don't read them even though they buy them. So this one, I think you'll actually read and maybe, just maybe, get interested enough to either talk to us about helping or, you know, or read the other one. Yeah.

4:06Love it. love it love it so um what else is going on what are we what are we talking about over lunch today well i thought that we should talk about the whole uh tai lopez getting sued by the uh sec thing not because it's necessarily fun not because we want to like there's a lot of people who are sort of like dancing around like yay i think that's sort of gross um but uh it's a it's big news in business land it's certainly big news among a lot of people um and and i think it's relevant because for those who don't know, Tai Lopez, his business partner, Alex Mayer, around, I guess it was 2021, they raised a bunch of money to go out there and acquire a number of defunct retail brands.

4:53Some of the brands, I'm trying to think, like Radio Shack, Pier One, Dress Barn. And the whole idea was, let's go and acquire these brands that were traditional offline brands that went out of business and let's bring them online. And unfortunately, this business idea did not work out. And I wanted to push money. And according to the SEC, at least, some investor money was paid out to other investors, which by definition is a Ponzi scheme. And that's why they were sued. And that's why it is now a thing. I should say, people are innocent until proven guilty. In this country, we're not going to sit here and play judge, jury, and executioner.

5:32But, uh, that's, that's the setup. I think it's cool to look at the business model and, you know, what, what was right and where things maybe went wrong, um, without having any real, uh, direct knowledge. But, but the business model, I actually like, I like the idea of these are brands that are household names that pretty much everybody has heard of Radio Shack. Pretty much everybody, you know, has heard of Dress Barn. No, not me. But, you know, but Pier 1, you know, pretty well known. And the idea as I understood it was, let's take these brands that have invested hundreds of millions, if not billions of dollars in marketing over the year and have mindshare in people's brains as being a place to do those things.

6:17and then let's put them online, no retail, no brick and mortar retail. And let's sell the products that are the generic branded products that are being drop shipped under names that you can't pronounce or even know how to pronounce because they're in characters that you don't recognize that are being sold on Alibaba and through Amazon and things like that. And let the brand on that command a premium or at least command attention and get the preference and make the sale. And so like that to me seems like a good solid business model from both a marketing and financial standpoint. Your thoughts on that?

6:55I think the problem is at first glance, yeah, I think the issue is that brand awareness does not equal brand equity. And unfortunately for most of these brands, consumers had already voted with their wallets. I mean, Radio Shack was obliterated by Amazon. You know, Pier One had been decimated by Target and Wayfair. You know, Dress Barn had been killed by fast, you know, fashion. And so generations of consumers had already voted that they were not really interested in these brands. And so I think that... I don't agree. I don't agree. I think that those brands killed themselves by having outdated expansion and modernization strategies and they just got left behind.

7:39But I don't think that people were like, I can go to Target or I can go to Radio Shack. I choose to go to Target to buy my electronics. I think that Target just marketed better and did better. But from a brand recognition standpoint, if I'm looking online and I'm looking at XYZ and Bob's brand and Radio Shack and it's the same thing, I'm probably going to buy it from Radio Shack. Will I pay more for it? Probably a little bit because I feel like I'm actually going to get it. But I could be wrong, but I think it was more that those companies, the reason those companies that you mentioned that ate the lunches of the other companies succeeded was they were just better companies.

8:20They had better management, better vision, better execution, not necessarily that the other companies lost the battle for quality or brand. I grant you that. I just think the underlying advantage that they basically said is we can acquire these brands inexpensively. Okay, fine. But the problem is that inexpensive brands are still, they still cost money. And just because you got the brand, you now still have to stand up and do all the stuff that these brands didn't do. So none of that infrastructure is in place. Well, but, but, but do you, because those brands were, I mean, you do on the electronic side.

9:01So we have to assume that, and this is where to me, it probably fell apart. It's where I understood that it fell apart was that it was all in the selling. And this is obviously the SEC or FTC, those challenges as well. It was all in the, yeah, that sounds like a great idea. Yeah. Let's do that. Now let's go raise a bunch of money and buy those brands, maybe overpay for them, but you know, wait, we got them, but then we don't have the money to build that infrastructure that you're talking about to even get a chance to prove that the model works or doesn't work. Right. Yeah. They never even really, as I understood, got any kind of presence to the level that they would need to have to monetize on the plan.

9:44So either it was just a gross underestimation enough that amount that it took to do that or something. But sadly, I don't know that we know. I mean, we do know that there are companies that buy old candy brands that used to be sold in gas stations and stuff like that and have done quite well. So there are analogs to buy the brand that's recognized and then give it proper support and distribution. I think what you have here is a couple of marketers with no real depth of team or infrastructure to execute on the plan past step one, buy brands, step three, make lots of money. And let's just hope step two works out.

10:25Yeah. So I'll lay out three things that I think really caused this to fail. And you tell me which ones you agree with and disagree with. And I'll get all of them out because they sort of build. And I'll kind of make the case. So the first one, I do think that the underlying business model and idea is flawed. And I think the main reason that it is flawed is that today, consumer brand preference is in decline, just in general. And so the idea that you're going to get a massive, do you get some advantage? Sure. Do you get massive advantage? No. I think if you're going to invest, if you're going to raise money to invest, then you're better off investing in influencer brands to piggyback on onto product brands than you are in investing in old, outdated, faceless brands.

11:17So I think, again, I'm just going to say I don't love the strategy. Of my three things, though, I'll grant you this is the one that wasn't tested and so it's the least. The second one. The one that you're most wrong on. But before, wait, no, I want to talk about them one by one. Because otherwise I'll forget. I don't want to talk about it because they build, they build. Let me, let me do it. And then you can attack them. I'll be quick. I'm not going to remember. I'll go back and reset. So the first one is business model. The second one is the capital structure. Yeah. Way, I think they're way underfunded for what they were trying to do.

11:47Amen. Like you said, they, they gave themselves enough money. They raised enough money to go out and acquire the stuff, but not enough money to actually operate the things. And we see this all the time with business owners who they want to raise money. What do you want to raise money to do? I want to do an acquisition. Cool. You're the dog that caught the car. Now what? And that's the classic case here. And then the third thing, and also their capital stack. Man, their funding stack, I went into a little bit. They had investor capital. They had super high interest rate loans and merchant cash advances.

12:24Yeah, I saw that. I think that was, my guess is those were the desperate measures as it started to fall apart. And a good number of intercompany transfers as well. So just, it was not good. But then the last thing, and I think this is the biggie, and I think this is where you and I both agree, just from an operational perspective, this was going to be high, high, high operational complexity from the beginning. What you had here are multiple brands with fundamentally different customer segments, right? And one thing that I believe to be true is that a company is defined by the people they serve, not the products they sell or how they sell them.

13:03So saying, oh, we're going to be an e-commerce company. Yeah. Amazon gets to say that, right? But I don't think you get to say that if you've acquired these very different brands and you want to have niche companies. So you really need now different brand managers for each one of these. And again, they don't have the people to do that. They don't have the infrastructure to do that. They don't have the funding to pull that off, but they also don't have the expertise to pull this off because they're marketers, not operators. To my knowledge, there wasn't a single marketer. I was there wasn't a single operator or anybody with even e-commerce experience on this executive leadership team.

13:41And that's why if you're going to invest, you've got to look at the leadership team and good marketing is not enough. And I say this as someone who considers himself and who many would consider to be a pretty good marketer. good marketing is not enough you cannot market your way out of any problem and this is evident so those are those are kind of my three things major operational complexity with no operators to speak of insufficient um funding and then the last one just general business model attack uh there's no attack um the i agree with you on the on the two the second two things the the first one, um, you know, I, I, I think that it's, it could have worked had they had the other two together.

14:28So I don't think it got the chance to have, you know, I don't think it got a chance to succeed because it was flawed from the beginning in terms of the operational execution. But if you, so let's say they had the other two figured out, let's say it's not, it's not tie and, and it's, it's not, cause I mean, I will say I probably wouldn't have invested in it cause that's not a dude that I'm going to invest in. But that's neither here nor there. But this opportunity does come along. This isn't something that I would have necessarily invested in because I don't see the faceless brand model as the future of consumer retail.

15:07And so for that reason, I'm not super excited about investing in something that feels like it's from the past. Oh, that's a different question though. That's not, is it a model that works which if you define the model as given the choice between a recognized brand and nameless brands for the exact same fungible product at the same price, which would you buy? I would buy the brand because the brand reputation carries over to, at least in my mind, to I'm probably going to get it and it's going to be okay. And maybe if I return it because it's not okay, I'm going to get my money back. Whereas the others, who knows?

15:46So that's where I'm going from. As an investment, no. I mean, number one, it was a startup or turnaround at best. So that's an instant no for me. And I agree with you on the direction of things. It's just, that's not what we were talking. It was like, would you invest in Apple or would you invest in Tai Lopez? You know, Apple, right? Yeah. I changed the question. So you're put in charge of this. I know you don't want to be, but let's say you're put in charge of this. I just resigned. I quit. That's the right answer. No, how do you think it could? So let's say that the business model, we want to give the business model the best shot, right?

16:26How would you, how does Roland Frazier go about putting together the deal stack? how would you go about negotiating these different acquisitions, making sure that there's adequate funding? How would you go about making this thing actually work? I think that the idea, and I don't know enough about the plan to know what they did or didn't do, but I'm probably looking to test before I commit. So I would consider buying online distribution rights and make them maybe geographically restricted to the markets that I was going to test in to start with as a precursor to any bigger buy. And I think that what happened with us when we tried to buy a higher end version of digital marketer out of bankruptcy was we went in, we made our bid, we knew what we were willing to pay.

17:32it was capped. And when the auction at the courthouse actually exceeded the cap and the two other major buyers that were there bidding surpassed us, you and I were on the phone and I was like, what do you think? You should stick with this? And we were like, I think we should stick with our cap. And we didn't do it. And I think that that discipline when you're acquiring something is really, really important to start to know what can you afford to pay? Not, can I take all the money that I've raised and do that? I don't, again, I don't know what happened with them. I'm just kind of speaking out because you said, how would I do it?

18:09So, so the first thing I would do is have that budget of what is, what is my stake that I'm willing to invest to have the opportunity to do this. Then I would probably restrict my commitment to the minimum necessary to test. Maybe I would have bought, I would have optioned the ability to buy the whole thing or the ability to buy segmented distribution rights like online only, but not brick and mortar. And I would have had a test period to do that so that I could run a test to know. I don't know that that was possible, but I wouldn't do the deal if I couldn't. Then my model wouldn't be stand up a separate e-commerce store with my own distribution and all that stuff from scratch, I would go and probably sign up for some of the streams that list the product everywhere so that I could get on the discovery platforms.

19:05And I would, uh, I would then lean on distribution. Like I would lean on Amazon or other distribution to get the product out. So I didn't have to build infrastructure, learned a lot from web van on that one. Right. And then, um, and then I would test and see, is my fundamental thesis correct or not correct? Is my, you know, my, my, that like, will people do this? And it would be very easy, even with no money at all spent. I, I mean, I might be able, I don't know. I might with a dead brand, maybe I could get away with running ads and saying, you know, Radio Shack product versus this versus this and never sell it, but run the ad and see what's the response and the click-through look like.

19:48Um, but if, But worst case, that'd be dry testing, right? Worst case, I'd get the rights for some period of time to do the test, run the test, and then validate or invalidate the premise. If I'm wrong there, I've saved tens of millions of dollars, if not hundreds, right? And then I would stair-step it in, but it would be on the backs of existing distribution, discovery channels, et cetera. What are your thoughts? Yeah, similar. The first thing that came to my mind is, have these guys never heard of an option? Yeah. Right? I mean, you go out there and you directly acquire all of these brands all at once.

20:26My guess is they were bought out of auction. And as you know, at auction, it's cash only. But what I wanted to get back, and I'm sorry to interrupt because I remember what I wanted to say. The reason I told the story about our bankruptcy conversation when we were there was that then we ended up going to a buyer who spent too much and getting it for basically nothing to try our experiment, which failed, which saved us all of the money that we had set up. And so we were able to actually learn on the backs of somebody else. And that's the way to do that. Like, had they, like, let's say that, you know, they're like, well, but we had to pay all the money for cash or we couldn't have done it.

21:02Did you? I mean, I don't know who are the other buyers, You know, maybe somebody else can make the mistake and then you can step in, or maybe you can go to those people like we did at that, at that auction and say, Hey, we're still interested. I don't know what you want to do. You know, well, we want to do this, this, and this and brick and mortar stores and blah, blah, blah. Awesome. We don't, um, keep us in mind. And then they reached out to us like was a few months later. It was pretty quick, right? Yeah, it was. And so I would, I don't know, you're right. I don't know all the circumstances around this to the extent that they were sold.

21:37Trying to be generous in their constraints. We can be somewhat, but I would look to see, even let's live in a world, so in an ideal world, you're able to option these. So you don't have to do an outright acquisition of the brand, but let's say that you do. Okay, we bought the brand and we've had to spend a lot of money doing that. What I would not do is then go and seek to launch all of them simultaneously. Oh my gosh. And that is absolutely something that they did. And I think that was a huge mistake. But you know why they did it? Uh-uh, why? I mean, what's your guess? Because they probably wanted to look cool and pizzazz.

22:15Look, we did all these at the same time so they can go raise some more money. Exactly. How do you get more investors? You find the thing that you can trade on, which is news of progress. but if you're doing it, in my opinion, the wrong way, your progress is news of more acquisitions, not news of actual performance and proof of the model. And this is one of the problems with raising money. When you decide that you're going to raise money, your customer changes. And your customer changes from the end consumer who's buying your product to the investor who's giving you money. Good point. I didn't think about that, but that's probably exactly what happened here.

22:51I would have said of all these three, what is the one that we could stock the store, the online store, absolutely like the best, like merchandise this thing out the best for the least amount? What are the highest margin items? Because between you got what, Pier 1, Dress Barn, I can tell you which one it wouldn't be, dress barn. Why? You got sizing, you got returns. Seasonality, fickle fashion. I mean, all kinds of stuff wrong with that. It's probably not Radio Shack because what you have there is you've got trends. You've got, I mean, just tons of issues there. I would probably go with Pier One because you're going to have the most, you're going to have the biggest margin on home goods.

23:36So I would start there. Yeah, I guess. Interesting. With that. And I would make sure that we had enough cash to fully launch this store in a way that it was impressive. And I would do a big launch campaign around Pier One is back. And I would say that we're this company that is reviving these amazing cherished brands that consumers loved and that brought great stuff to you, but they were just, their past business model was broken because they had all these investments in retail. We're going to be an online first, a digital first brand. Lean heavy into nostalgia. Correct. And probably be a Wayfair model as opposed to an owned inventory model.

24:18Explain that. A marketplace.

24:23So explain exactly what you mean. For those who don't quite understand what a marketplace is. Yeah. So I would basically, like if I was going to do that, to me, I'd go nostalgia and then lean heavy into maybe even a America first, you know, made in America theme or something like that. where you are not investing in inventory. You have zero inventory carrying costs. You're strictly acting as a conduit for other people's merchandise and you're selling it via your brand. Now then that would change the, could you put that stuff on Amazon as peer one? And I think you could because you can have a peer one store that's on Amazon and eBay and all those other places.

25:09And so you could basically just build a feed and then let all these people and maybe even differentiate a little bit what the peer one is from everything else that's out there, so that you can get nostalgia plus theme equals some sort of loyalty beyond faceless brand, right? Yeah. And that's the other thing that I would look to do for each one of these. I would look to say, can we align it with some sort of relevant influencer and bring them in to help with the launch, even if you've got to cut them in on the equity side. You've got to get Drake and Kim, you know? Clearly. Both, ideally. But let's get this thing launched.

25:45Let's get it to be a success. Let's get it cash flowing. And let's get real live leadership and management under this brand and some proof of concept because once you have one going, you can attract some talent that you can then deploy into the other ones. So that's what I would have done. Money. Yeah. Yeah. And, and it's, you know, like if the allegations are true and, and I can tell you that like the, when you look at a complaint as a recovering attorney and you read either side, you're like, oh my, you read the plaintiff side and you're like, oh my gosh, those, that other side, those guys were terrible.

26:20And then you read the defense side and you're like, oh, well, they weren't that bad, you know? So, you know, you're, you're only getting one side that I have seen of this. Cause I don't think there's, I don't think it's the point where there's pleadings that have been filed for defense. But if they took$16 million of investor money and if they paid out$5 or$6 million of new investors, I mean, of old investors with new investors money, then they just went down from the start. And I don't think that most of that stuff happens because somebody sets out intentionally to be, was it Charles Ponzi? to be the Ponzi scheme architect.