January 6, 2025 • 32 mins
In this episode, I'm talking about my first major business, an iPhone parts business called LCD Cycle, that I ran for seven years. I'll discuss how it started from a small iPhone repair business and grew to a multi-million dollar e-commerce operation. I'll share some key business frameworks I learned along the way, such as the importance of location, recognizing good ideas, and the fact that it's never too late to start a business. I also talk about the importance of product market fit and that businesses don't always fail, sometimes founders just run out of energy. Finally, I discuss my decision to turn down a million dollars in investment.
Timestamps below. Enjoy!
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00:00 Introduction and Overview
00:37 The Beginnings: iPhone Repair Business
04:18 Launching the iPhone Parts Business
07:28 Scaling and Success
10:21 Frameworks and Lessons Learned
15:46 Navigating Market Saturation
16:02 The Rocket Ship Growth of LCD Cycle
16:44 Innovative Business Strategies
18:38 The Power of Customer Feedback
19:10 Strategic Relocation to Dallas
20:47 Expanding Distribution Centers
21:13 Financial Challenges and Solutions
23:11 The Turning Point: Seeking Investment
24:39 The Unexpected Answer
25:54 Winding Down the Business
27:34 Reflecting on the Journey
30:22 Final Thoughts and Advice
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
OK. After 10 days of wandering the
West Coast with my family, I am ready to get back at it and talk
some business with you guys. So what you see for me today is
launching business after business and partnering with
operators and talking about ideas.
But I actually launched a business in 2013 that I ran for
seven years and that was one of the biggest, most quote
sophisticated businesses I ever had.
(00:20):
And so I want to talk exactly about what went into starting
and running and exiting that business and what important
frameworks I picked up along theway that you could apply to
anything you might be be doing in business.
I plan to be short and to the point, packed with high value.
I don't want to be more verbose than I have to be so you can get
on your merry little way. So I can't talk about this
(00:41):
business without talking about the business that came before it
because they kind of played intoeach other.
And once again, if you've heard my Every Business I Ever started
videos, you'll hear a little overlap here, but not a lot.
So when it was 2010, I was a senior at the University of
Alabama. Long story short, I learned
about iPhone repairs as a business.
And I learned about these guys in Baton Rouge, LA that opened a
(01:02):
store called iPhone MD and they were fixing iPhones making 20 to
30 grand a month from one store on Airport Rd. in Baton Rouge.
And I thought, that's my business, that's the one I'm
going to do. And so one of my classmates gave
me a broken iPhone for free. Around the same time I saw a
flyer on campus that said, I'll fix your broken iPhone.
I remember he lived in the Houndstooth apartments on 15th
(01:23):
St. I pulled up into the apartments.
I remember exactly where he lived.
I went in his apartment with my broken iPhone.
He had pre-ordered the part fromeBay and I was just fascinated
about everything he was doing. What is this part?
What's it called? And I wasn't asking him these
questions because I had planned to compete with him.
I'm just a business nerd. I love learning this stuff.
So wow, what's that? A sexual?
(01:43):
Where did you learn how to do this?
Why did you do this? How many of these do you fix a
week? Do you like it, is it hard,
yadda yadda yadda. I peppered in with questions.
By the time I was out of his apt, I had paid him 60 bucks.
I had a fixed iPhone and I knew that I wanted to start this
business. So I did and I went to the SBDC
Small Business Development Center.
I made a formal business plan and I said I want to start this
(02:04):
business. I want to launch it on 15th St.
coincidentally the same St. thatthis guy's apartment was on.
I found a 2200 square foot space.
It was a four unit strip mall and it's still there.
You could look it up. It was 15 O 5 15th St. and there
was a Subway, a Batteries Plus and then two vacancies and I
wanted to rent the vacancy rightnext to Batteries Plus.
(02:26):
It was an amazing retail location and I was fairly
convinced that I would do well because I had learned that in
retail it comes down to location, location, location.
So I figured I'm not going to have to do much marketing if I
can find a good location. So there's a framework for you.
If you're opening a retail business, do not save money on
location, period, end of story. And that's coming from a
(02:47):
lifetime cheapo. If you want to save on location,
you're going to pay more than what you saved in marketing to
get people to hear about you. There's also McDonald's next
door. And one good framework for
retail is piggyback on McDonald's research.
If you're close to McDonald's, it's probably a good location.
So I was laughed out of this small business development
center by this boomer business owner that said this is a
(03:10):
terrible idea, I needed to open in the ghetto, yadda yadda
yadda. 2500 a month or 2200 a month is way too much.
And I just ignored him and he put a chip on my shoulder and I
launched and it was slow. Business was slow.
And I'm like, wow, was this guy right?
And I remember sitting in my MISManagement Information Systems
Class 1 evening on the computer,Googling how to declare
(03:32):
bankruptcy. How do you know if you know?
I didn't even have anything to declare.
It's kind of like Michael Scott in the office.
I declare bankruptcy. That was me.
I just knew that things were notgoing well until I got the mayor
involved. Walt Maddox and I had a grand
opening with a big red ribbon. I got the Crimson and white
there, the school newspaper, andI just generated some buzz.
(03:54):
And so you could say that when Iopened, it was kind of a soft
opening because no one really knew about it.
And then I had a grand opening acouple months later and things
got a lot better from then on out.
We opened a second store. I say we it was me and my
partner Andrew. We were 5050 partners.
I ended up buying him out. He moved to another state, took
another job, and so I ended up owning that business entirely.
(04:15):
Long story short, we opened fourlocations.
I opened four locations over thenext two years.
I had a wandering eye and one day I was manning the store or I
got a phone call from someone that said, hey, I want to buy
your broken iPhone screens. And that made no sense to me.
And I said, well, why? What do you want from my broken
iPhone screens? And he said, well, we can
recycle them in China and then we get them shipped back and
(04:36):
then we can sell them as remanufactured units.
And it's just, you know, sometimes you hear an idea and
just immediately you're like, that is a good idea.
And it's also kind of a skill. It's kind of an art and science,
but the more you hear ideas, themore you're able to immediately
recognize, for whatever reason, this is a good idea.
And I was able to recognize it so immediately because I knew
(04:59):
this business so intimately and I just couldn't sleep.
I couldn't stop thinking about this idea.
So I started reaching out to manufacturers in in China, which
sounds a lot more sophisticated than it really is.
I went to alibaba.com. I typed in iPhone screen.
I got hundreds of results. I typed out a message that said
hey I own an iPhone store. Also I want to open an iPhone
(05:22):
parts main supplier. Also I want to start buying back
and selling broken iPhone screens.
Can you give me quotes for all of the above?
And I copy and pasted that same message to dozens if not
hundreds of suppliers in Shenzhen and Guangzhou China,
which is in southeast China. And those are like the two
electronics manufacturing cities.
(05:42):
So I sent that to tons of them. A bunch of them responded.
I got free samples from a bunch of them.
They would send me two to four iPhone screens and some home
buttons. If you remember those earpieces
and batteries, those are the big, the big four.
And I was supposed to see how the quality was.
And I guess I knew how iPhone parts quality looked because I
(06:04):
had been fixing iPhone screens for two years in my business,
but I didn't really know. It's like, Oh yeah, this feels
kind of solid. This didn't fall apart in my
hands. This must be good.
So I found this guy named David,David Sue.
For whatever reason, I liked himand we hit it off and I had sold
my business. And that's another story for
another day. My called phone restore my
(06:25):
iPhone parts stores sold it to acouple guys and I had like
$20,000 in disposable income, but I still owned 1/3 of the
iPhone parts business or the iPhone repair business.
And I was expecting it to provide me some mailbox money,
but that's another story. Well, actually that's it's all
the same story. So I'll get into that just a
little bit. And so I took $17,000 and I
(06:45):
wired it to David Sue in China. And that was one of the biggest
risks I've ever taken because David, you know, he were a short
term thinker. He could have thought 17 grand
free and clear, he'd never find me.
He'd never tracked me down. But he didn't.
He was a long term thinker and he thought if I don't screw this
guy, which he probably never even considered it because I
later learned he's a great guy, if I don't steal this guy's
(07:06):
money, then he'll pay me millions of dollars over the
next few years. And that's exactly what I ended
up doing. So David and I are friends to
this day and it's been 13 years now since I first wired him the
money this month, 12 years. And so that was my first initial
parts order because my whole thesis was let's get our foot in
the door by calling up repair shops and offering to give them
(07:27):
money, right? It's much easier sale of here's
some money. I want to buy this from you that
you were previously throwing away versus let me take your
money and sell you parts. But then once we had their
trust, then we would turn aroundand sell them parts.
That was the thesis. And so I put a spreadsheet
together in Google Sheets. I probably still have that
original 1 and I was just kind of guesstimating my starting
(07:50):
inventory and I knew what marketprices were because I've been
buying prices, man. What were they called?
Like I cheap, I think it was called I cheap.
And it was like this ugly Shopify store that sold iPhone
parts wholesale out of Phoenix. And they were pretty garbage.
Their customer service is crap. And there just were not a lot of
iPhone parts suppliers out there.
So I knew that there was a big hole in that market as well.
(08:11):
And it's funny because this is aframework, like if you're in an
industry, let's say you own a house painting business, you
look at that industry 1000% differently than anyone else
because you're so biased. It's called proximity bias.
You're biased to what you're seeing and hearing all day,
every day. And so it would have been really
easy for me to say, oh, I'm not launching another business that
(08:34):
sells iPhone parts to iPhone repair shops because there's so
many of those. I get hit up all the time.
Or I could have thought I'm too late.
I'm too late. The iPhone came out in 2007,
it's 2013 now. It's been 6 years.
We're over saturated at this point.
This is the peak, yadda, yadda, yadda.
And that is a framework that I love, OK?
(08:57):
And that is the fact that basically nothing is over
saturated and it's basically never too late to do or start
anything. We're always early, right?
You heard the phrase in crypto or investing or whatever, like
we're so early, We're so early and it's kind of like a meme at
this point, but it's like if youexpand your time horizon, which
(09:18):
I'm always a fan of doing, zooming out even further, which
I love doing, we're still early.We're early for e-commerce.
Amazon has been around since 1995.
Thirty years, which is crazy. And e-commerce still accounts
for like $0.15 out of every dollar we spend. e-commerce is
(09:38):
still early Crypto. Been around for 17 years. 15
years depending on you count it from the white paper or from
whatever. It's still early AI.
Oh my gosh, we're a newborn infant with AI.
The Internet. We're still early with the
Internet. It's been 40 years.
I don't care. We're early.
We're always early. So if you really think you're
(09:58):
late at starting something, justbe sure.
That's not a defense mechanism against being scared to start
something because we're probablyearly.
There are, of course, of course,there are exceptions.
Are we early with selling laser discs?
No, we're pretty late and there are other examples, but there's
always a way to put a twist on something that seems over
(10:19):
saturated on the surface. So don't sell yourself short by
saying this is over saturated orI'm too late.
I missed the boat Bitcoins 100,000.
I missed the boat stop. We're early in all these things.
OK? Life is really long.
There's always time and life is long.
OK, so I get this first batch ofiPhone parts from David.
(10:39):
I put them up on an ugly shop ofI site.
You can go to the web archive, type in LCD cycleoneword.com.
Look at the web archive from 2013 and you'll see what my site
look like. And then I used, what was that
software called? I don't think it's around, but
it was the only software I couldfind that would scrape Google
Maps. And I scraped every single
iPhone repair shop in the UnitedStates by every MSA Metropolitan
(11:04):
Statistical area from New York City to Carson City, NV.
There was like 242 of them at the time and it took days.
And I put them all in the spreadsheet.
I had like 242 different spreadsheets because I had to
export them one at a time and then I had to combine them all
with a macro and it was just, itwas a little hairy.
But long before AI there was Google and YouTube and you could
(11:26):
figure anything out that you need to figure out.
So I put all these in the spreadsheet, 20,000 iPhone
repair shops and I went to odesk.com which is now Upwork
and I hired 3 virtual assistantsfor 555 a piece because odesk
took a 10% fee and they wanted to net $5.00 an hour.
And they were experienced telemarketers.
And I opened Microsoft Word and I typed out an ugly script and
(11:50):
then I went to Zoho which was like ACRM still is.
And I uploaded all 20,000 leads.And then I said OK, I want you
to call these repair shops and say I'll pay you $3 a unit for
your broken iPhone screens and we'll send a prepaid shipping
label and we'll pay you via check or PayPal.
And so they did. And guess what?
(12:12):
These ugly cardboard boxes started showing up at my house
in Harvest, AL and there were these boxes that always look
beat to heck and they had never packaged them well.
And so you would just pick it upand shake it and it just sounded
like broken glass because that'sexactly what was in it, broken
glass. Sometimes the glass shards would
literally be falling out of the corners of the cardboard boxes.
(12:35):
And we later learned to educate them on packaging them better.
And I would set them down on my kitchen table.
I'd stack them high. I still have pictures of all
these. And we would buy these testing
units for like $15 from China. That was like a little
electronic box. And you would attach the iPhone
screen to the unit, and it wouldbasically mimic what it would
(12:58):
look like if it were plugged into an iPhone.
And you would make sure that there were no dead pixels.
And if there were dead pixels, then it was worth significantly
less, maybe 25 or $0.50, still worth shipping.
And if there were no dead pixels, it was worth about 6 or
$7.00. And we were paying 2 to $3.00
for them. So we would just make a margin.
We test them all and we notate in a spreadsheet how many were
(13:20):
dead pixels? How many had a dead digitizer?
How many were perfect, great ABC?
And then we'd get a bubble wrap and we'd get a long strip of
bubble wrap and we'd lay them all out and we'd roll them all
up with bubble wrap in between each broken iPhone screen.
And then we'd get these massive foam boxes.
And I had to figure out how to work customs and we would ship
(13:40):
these 40 LB boxes of broken iPhone screens to Shenzhen,
China. And I kid you not, we would
actually ship them to Hong Kong because the tariffs were crazy.
If you ship directly into China mainland, we'd ship them to Hong
Kong. And someone told me this once.
I don't know that it was true, but I believe it.
And some dude would put these boxes, these foam boxes covered
(14:02):
in cardboard, covered in yellow tape and put them on like a
literal rowboat and row them across the Hong Kong Bay.
And that was like the most cost efficient way of them getting
across. I don't know if it was shady.
I don't know if that was business as usual over there.
I don't know. But someone told me that once
and it blew my mind. And then I went to China and I
saw how things operated. And that actually sounds quite
(14:25):
believable from what I witnessedover there.
So this business just was gangbusters and it was the
perfect example of product market fit.
Starting a business usually feels like pushing a boulder up
a hill and you make progress. But if you rest, then the
boulder rose rolls back down on you.
But sometimes when you have product market fit, if you
should be so lucky, the boulder is chasing you and you're
(14:47):
sprinting down the hill and you can't even sleep because you're
just cashing checks and breakingeggs, baby.
And people are beating down yourdoors to buy whatever product or
service that you might be selling.
And that's what I had here. And it I don't normally get
product market fit and you don'thave to have it to launch, but
sometimes you do. Sometimes you get it even though
it was six years quote too late,even though it quote seemed too
(15:11):
over saturated. So that is the framework of all
frameworks for today's podcast is don't be sold into thinking
that something's over saturated.And if you really think that,
then at least get the research to back it up.
For instance, in our tree trimming business, we know that
the baseline is 1 tree trimming business in any given city for
10,000 residents. So if we want to open in a city
(15:33):
and it's one in 5000, then we know it's twice as saturated as
what we're used to as what the baseline is.
So we might be hesitant to open in that city.
We might be able to go one city over and see it's one in 20,000.
All right, if you were watching this clip right now, you are
watching this on YouTube. And if you are a fan of podcast,
please check on my podcast whileyou're at it because sometimes I
have podcasts that aren't on YouTube and sometimes I have
(15:53):
Youtubes that aren't on podcast.So check out the Kerner Office
on any podcast platform or you can go to tkopod.com.
Also my newsletter will throw that in there.
There are no ads, it's weekly. It's different content than my
podcast and YouTube newsletter.chrisjkerner.com.
You'll see the link and we'll see you there.
So things can be over saturated in relation to something else, a
different market. But generally speaking, even if
(16:16):
we open in the market where it'sone in 5000, those guys are
probably sucking in a lot of things and we can probably do
things a little more uniquely ora little better and win over
there. So this business LCD cycle, it
took off like a rocket ship and we did 28,000 month, 156
thousand month 2 and 150,000 month 3, which would have been
March of 2013. And e-commerce is hard.
(16:41):
And in one sense, this was import export.
In another sense, it was e-commerce because most of our
money was made from selling parts.
That's what we did. We would send someone money for
their broken screens and then wewould come back and say, hey, we
also sell parts on our website, lcdcycle.com.
And it was a beautiful business because it was 93 ish percent
recurring. If an iPhone parts store bought
(17:03):
from us, they were likely to buyfrom us every single month.
And we kind of changed the industry in a couple ways.
We were the first company to institute a lifetime return
policy, which no one had ever done before.
And that's another framework foryou.
Like it was just marketing. Like if someone three years
after buying a screen wanted to return it, yeah, we would take
(17:24):
it back. But guess what?
They didn't. That didn't happen.
That's just not how the industryworked.
So when you offer a lifetime return policy or a no brainer
offer, as Alex Harmozzi likes tosay, sometimes it's much better.
On the surface, it's a, it's a better sales pitch than it is an
amazing offer because it's just framed in a different way.
I know mathematically speaking that most people will never take
(17:47):
me up in the lifetime return policy.
And the ones that do, I just work that into the price.
And so it took us a couple yearsto institute that, but that was
a game changer. But the biggest thing we did was
free shipping over $200 because our average order value was
about 170. And so we knew that if shipping
was $15, then we could encouragethem to increase their average
(18:08):
order value, AKA buy more from us and they could get free
shipping. And then the biggest unlock ever
of this whole business was I just looked at a map one day and
we were in Huntsville, AL and I said, OK, where are all my
customers? Chattanooga.
Where are all my big customers? Chattanooga, TN, Nashville, TN,
Birmingham, AL, Atlanta, Atlanta, Atlanta.
(18:30):
We were all over the southeast in this little pocket.
It's like, OK, in a way this makes sense because I'm in
Alabama, but in a way it doesn'tmake sense because most humans
in America live in the Northeast, right?
There's 30 million people in Florida, There's 3540.
In California, there's 30 million.
And Florida's actually more like20.
I think it's 30 something million in Texas.
(18:52):
And then in the Northeast, there's like along the West
Coast, there's 150 million people or East Coast, and we're
calling all of them. My VA's don't care who they call
on. So I started asking my
customers, and that's another good framework.
Talk to your freaking customers.Get them on the phone regularly,
block out spots on your calendar.
They will tell you things that you never knew.
(19:12):
Oh yeah. I don't buy from you because of
your lifetime return policy. I buy from you because your
shipping is free and I'm within a one day shipping radius.
So that means I get it the day after ordering.
Which means it's like paying $50.00 for overnight FedEx when
I'm just getting it next day because I'm close to you.
That's what I was learning and it was a game changer.
(19:33):
So I immediately I remember where I was at the time and I
thought, why are we in Huntsville, AL again?
Oh, because I happened to live here when I launched this
business. OK, well this is blowing up.
We're going to do 5,000,000 bucks.
Our second year we did 2.1. Our first year we were
profitable. Why am I still in Huntsville?
So I went to my wife and I said,hey, what do you think about
moving? She's like, I'm down.
(19:53):
So we're well I opened up fedex.com.
I went to their FedEx Ground mapand I went to ups.com, looked at
their ground map. They have a little calculator
you can put in a zip code and itwill show you that you know the
overnight shipping radius map. So I looked at La, Chicago hit a
bunch of big cities, New York. I'm not moving to New York.
OK, Orlando, I grew up there. We could ship to all of Florida
(20:14):
and most of Georgia and Orlando,but that's only a small pocket
of people. I don't want to live there.
And then I looked at Dallas and it's like Dallas 7 million
people, San Antonio, 6 million people, Houston, 6 million
people, Austin, 2 million people.
Greater, you know, greater Austin, greater Houston, Little
Rock, Shreveport, Oklahoma City,all of these cities, all of
(20:35):
Texas were within a one day shipping radius.
It was a no brainer to me. It's like, oh, oh, I need to
move to Dallas, OK, I need to leave Huntsville open, keep
someone here to manage the shop and I need to move my family to
Dallas because you know what, I wouldn't mind moving there
anyway. And so 10 years ago, almost 11
out, 10 1/2 years ago, we moved to Dallas and we bought a house
(20:57):
and we've been here ever since. And that was the thesis.
I can acquire more customers in Texas because I'll be able to
ship ground, but they'll be ableto receive overnight.
And that thesis worked. So that caused us to open a
third distribution center in Orlando where one of my business
partners ended up living or one of my friends who ended up
(21:19):
becoming my business partner wasalready living.
And then we opened up in Michigan because Michigan hit a
bunch of those northeastern cities within one or two days.
So we had four distribution centers around the country and
and we were cranking out close to $10 million a year
profitably. Now e-commerce slash wholesale
is a hard, hard business becauseif you're growing let's say your
(21:42):
net margins when in a high growth phase or 10%, but you're
growing 20% a month, that means you are profitable but you're
cash flow negative. Cash flow and profit are not the
same thing, OK? Cash flow is what's leftover in
your bank account at the end of the day.
Profit is are you able to sell something for $2.00 that you
(22:02):
bought for $1.00? Hopefully you have both
profitability and cash flow. Sometimes you don't, especially
if you're growing fast. So we were profitable, but cash
flow negative. And so thank you.
John Nolan, he was a guy that I went to church with.
He had started and sold very successful consulting business
and he was a great guy and he wanted to support young
(22:22):
entrepreneurs. And so I went to him and said,
hey John, do you invest in businesses?
And he said, well, I own a smallpercentage of a bank and what I
like to do is I will Co sign on a line of credit with you and
then you can use that line of credit to grow your business.
And if you ever go belly up, then I've got to come out of
pocket to pay that off to the bank.
(22:43):
But if you don't, then it's kindof nice because I don't have to
come out of pocket to make this investment.
And he just preferred that structure.
And so we did that. I took out a quarter million
dollar line of credit with this bank in Alabama and it was great
partnership. I used them for a few years.
I kept the line of credit as lowas possible and that enabled us
to run and grow the business. And he didn't want any equity.
(23:03):
The only thing he asked for was for me to donate to his
nonprofit, which was a nonprofitthat helped like single moms,
mostly people that were down on their luck, help them earn an
education or a skill so they could be self-sufficient.
And so I did. It was just a handshake.
There were no papers signed. I donated a percentage of our
revenue every single month to his nonprofit.
(23:24):
And then when I sold the business, I donated a percentage
of that as well. And it was a great, beautiful
partnership that I'm very grateful for.
But there was also a time that came when I needed more money.
I thought I needed $1,000,000. And this is kind of an
interesting turning point in my life.
I was living in Allen, TX at thetime and we were growing really,
really fast. And the line of credit just
(23:45):
wasn't enough and we could keep going without any more money.
But I wanted to grow faster. I wanted to grow more and I just
started cold emailing venture capital firms in Utah and
Alabama, Alabama, because that'swhere our company was
headquartered, even though I wasliving in Texas at the time, and
in Utah, because I have ties there through the church that
I'm a member of, the Church of Jesus Christ, the Latter Day
(24:05):
Saints, I thought it might be easier to raise money there.
So I flew out to Utah. I had some meetings with
Peterson Partners, Peak Ventures, few different
companies, and it went OK, but nothing really ever came of it.
And then I found this company inBirmingham and they were great
and I drove out there and I met with them and they love me.
I love them. And they and we had talked about
(24:28):
them investing $1,000,000 for 25% equity and we shook hands on
that. I met the team, we verbally
agreed to it. And then they just dug their
feet or they they drugged their feet forever and ever and ever.
And it took like 6 months from the actually produce a term
sheet, which is basically a letter of intent with the terms
of the deal on it. And so maybe it wasn't six
(24:50):
months, maybe it was 3, I don't know.
But it seemed to take forever. And it was a no brainer.
We were still growing fast. We still needed the money.
And but as a member of my church, I wanted to pray about
this. And so I prayed about this with
my wife and something weird happened.
I started to pray and I forgot what I was praying about
(25:10):
entirely. And that was very abnormal for
me. That never happened.
And in our church, we teach thatif you're praying about
something and the answer is no, you're going to have what we
call a stupor of thought, which means like, you have a stupor of
thought. How else do you explain it?
But if the answer is a yes, thenyou're going to feel good about
it, right? You're just going to, you're
just going to feel good. It's going to feel right.
(25:31):
I had never experienced, I had experienced a lot of, you know,
no answers to prayers, but I hadgotten some yeses and I'd never
gotten a no. I'd never gotten a clear stupor
of thought until this moment. And so the answer was no.
And that made no sense to me because in my head it was a yes.
This was a no brainer. And so I went back to them and I
said no. I don't know why it's no.
I just, this doesn't feel right.I think I can get by without it.
(25:53):
I'm not going to go raise it from someone else.
I'm just going to try to make itwork.
And so I did. I made it work.
We kept growing. We did 5 million, we did 10
million. But 3-4, five years in, we've
been very profitable. I built this awesome house.
I made more money than I'd ever made in my life in my 20s.
And I didn't have any debt. You know, the line of credit I
kept at 0 after that second yearor so and it was just a cash
flowing machine. But then we started shrinking
(26:16):
and I couldn't really turn around and there was a lot of
competition. The market had kind of changed a
little bit. And a lot of times in business
you get this, you know, you get to the 10 million mark and it's
really hard to breakthrough froma revenue perspective, from a
people perspective. And I was managing 23 people
across four different states, not doing a super great job at
it, not visiting them enough. Of course I was distracted.
(26:38):
I was testing other businesses and concepts.
If you listen to my Every business I ever started
episodes, which are episodes see14/21/88 and then I forget which
the last one is. Anyway, the 75 businesses I
talked about was happened duringthese seven years of running LCD
cycle and so the business started shrinking every year we
(27:01):
got to 10 million and then it was 8 and then it was 6 and then
I had a falling out with a business partner and a friend
and that was terrible. This was 2017, 2018-2019 and
then finally I ended up just selling off the customer list
for pennies on a dollar so to speak, based on what it used to
be worth. But it was interesting because a
(27:21):
lot of times people think of a business failing and they think
of everyone losing or declaring bankruptcy.
But it doesn't always go like that.
Sometimes you just wind stuff down and you're profitable the
entire way from start to finish.You're profitable the whole
time. And that's how I was.
We, you know, we were banking profits every month up until
near the end. And I just saw the writing on
the wall. So we had to keep laying off
(27:43):
people and shrinking and gettingmore lean, more agile, more
nimble. And then we just kind of sold it
to a competitor and we locked the doors and walked away, so to
speak. But I don't really know what I
would have done differently. You know, they say businesses
don't really ever fail. The founders just run out of
energy. And I can definitely see that
happening here. I could have made it work.
I could have raised the money and gotten over that hump.
(28:06):
So in retrospective, in looking back on that, why did I turn
down that $1,000,000? I thought I had the answer.
And then a couple years ago I got the real answer.
And so I thought the answer was,well, because, you know, I was
going to those investors would have lost money or I could have
said, you know, if I would have raised the money, then I could
have used it to grow the business and gotten over that
hump and we could have been a $50 million business.
(28:27):
I don't really think I could have done that even with
$1,000,000. And so I used to think the
answer that I said no was because investors would have
lost money and I would have feltterrible about that.
But then years later, I went back to those same investors to
raise money for my third party logistics company, Sandy Eats.
He flew out to Dallas from Birmingham.
He met with me, we had lunch. He loved the business.
(28:47):
He gave me a term sheet again and I looked at the term sheet
and I looked at it more closely.And then I went back to the old
term sheet and I looked at that one and they were about the
exact same. And then I did more research and
I learned that their term sheet looked about like every other
VC's term sheet. And it has what's called
liquidation preferences, which means if they invest $1,000,000
for 25% equity and we exit for let's say $10 million, they need
(29:12):
to get their $1,000,000 back First off the top.
And then we split everything else pro rata, right?
That also means if they invest $1,000,000 at a $5,000,000
valuation for 20% equity, and then we sell for $100,000, which
is a terrible outcome, we just sell for pennies on the dollar,
then they're going to get all ofthat 100,000.
Or if we sell for a million, they're going to get all of that
(29:34):
million because they have liquidation preferences.
They get their million back first.
And that's not like a vulture clause.
That's not unethical. That is standard.
That's very standard. Sometimes they have to act
liquidation clauses where they need to get $2,000,000 back
first. And then we split at 8020 or
7525. And so I realized at that
(29:55):
moment, oh, that's why the answer was to say no to that
money because had I said yes, then the winding down of that
business, I truly don't believe the $1,000,000 were to fix this.
I couldn't have just put it in my personal checking account and
lived on it. That would have been unethical.
But had I wound down the business with their $1,000,000
with that term sheet signed or with the contract signed, I
(30:18):
would have been able to have to just live off the profits as I
wound it down. I wouldn't have been able to
build and buy this house we've lived in for 8 1/2 years.
I wouldn't have been able to have the life that I've had.
I'm sure my life still would have been fine, but it would
have been different and I don't know what it would have been.
And I think the life that I haveis a life that I'm supposed to
have. And so I'm grateful that I got
(30:38):
that. No answer because I wasn't
supposed to raise it. So there's another framework for
you. Seek out experts when making
these big decisions. Maybe that expert is your dad
friend. Maybe it's God, as it was in
this case. But that is the story of LCD
cycle. It made me millions of dollars.
It provided A launchpad for me to do other things.
And it's interesting because I preach all the time, you know,
(31:00):
chase all the shiny objects, chase all the things, do all the
things, say yes to everything. But you kind of have to get to
that point, right? I also preach that you should
follow your passion, but not in the beginning. iPhone parts was
not my passion. It still isn't. iPhone repairs
were not my passion. The vast majority of the 75
businesses I've started have notbeen my passion.
(31:22):
But my passion is business. So in a way, all of those things
are my passion. But not following your passion
is not scalable nor sustainable.But we should also do hard
things. We should also be willing to eat
crap for years at a time. So do things that are hard and
that suck until we have the luxury of being able to chase
our passion and to chase all theshiny objects.
(31:42):
But if you're still working in 95, that's fine.
You could still chase shiny objects on the nights and
weekends. Launch a bunch of small things,
see what really takes off, and see which thing reaches product
market fit. Which thing keeps you up at
night because you have so much demand?
That's when you really know you have something special.
You don't have to have product market fit, but it really helps
to have it. Hope you enjoy this story.
(32:04):
Thank you so much for listening.I would love it if you shared
this with a friend. Gave me a five star review.
I don't have very many of those,but I'm looking forward to an
awesome 2025 with you all on theKerner office.
OK. After 10 days of wandering the
West Coast with my family, I am ready to get back at it and talk
some business with you guys. So what you see for me today is
launching business after business and partnering with
operators and talking about ideas.
But I actually launched a business in 2013 that I ran for
seven years and that was one of the biggest, most quote
sophisticated businesses I ever had.
(00:20):
And so I want to talk exactly about what went into starting
and running and exiting that business and what important
frameworks I picked up along theway that you could apply to
anything you might be be doing in business.
I plan to be short and to the point, packed with high value.
I don't want to be more verbose than I have to be so you can get
on your merry little way. So I can't talk about this
(00:41):
business without talking about the business that came before it
because they kind of played intoeach other.
And once again, if you've heard my Every Business I Ever started
videos, you'll hear a little overlap here, but not a lot.
So when it was 2010, I was a senior at the University of
Alabama. Long story short, I learned
about iPhone repairs as a business.
And I learned about these guys in Baton Rouge, LA that opened a
(01:02):
store called iPhone MD and they were fixing iPhones making 20 to
30 grand a month from one store on Airport Rd. in Baton Rouge.
And I thought, that's my business, that's the one I'm
going to do. And so one of my classmates gave
me a broken iPhone for free. Around the same time I saw a
flyer on campus that said, I'll fix your broken iPhone.
I remember he lived in the Houndstooth apartments on 15th
(01:23):
St. I pulled up into the apartments.
I remember exactly where he lived.
I went in his apartment with my broken iPhone.
He had pre-ordered the part fromeBay and I was just fascinated
about everything he was doing. What is this part?
What's it called? And I wasn't asking him these
questions because I had planned to compete with him.
I'm just a business nerd. I love learning this stuff.
So wow, what's that? A sexual?
(01:43):
Where did you learn how to do this?
Why did you do this? How many of these do you fix a
week? Do you like it, is it hard,
yadda yadda yadda. I peppered in with questions.
By the time I was out of his apt, I had paid him 60 bucks.
I had a fixed iPhone and I knew that I wanted to start this
business. So I did and I went to the SBDC
Small Business Development Center.
I made a formal business plan and I said I want to start this
(02:04):
business. I want to launch it on 15th St.
coincidentally the same St. thatthis guy's apartment was on.
I found a 2200 square foot space.
It was a four unit strip mall and it's still there.
You could look it up. It was 15 O 5 15th St. and there
was a Subway, a Batteries Plus and then two vacancies and I
wanted to rent the vacancy rightnext to Batteries Plus.
(02:26):
It was an amazing retail location and I was fairly
convinced that I would do well because I had learned that in
retail it comes down to location, location, location.
So I figured I'm not going to have to do much marketing if I
can find a good location. So there's a framework for you.
If you're opening a retail business, do not save money on
location, period, end of story. And that's coming from a
(02:47):
lifetime cheapo. If you want to save on location,
you're going to pay more than what you saved in marketing to
get people to hear about you. There's also McDonald's next
door. And one good framework for
retail is piggyback on McDonald's research.
If you're close to McDonald's, it's probably a good location.
So I was laughed out of this small business development
center by this boomer business owner that said this is a
(03:10):
terrible idea, I needed to open in the ghetto, yadda yadda
yadda. 2500 a month or 2200 a month is way too much.
And I just ignored him and he put a chip on my shoulder and I
launched and it was slow. Business was slow.
And I'm like, wow, was this guy right?
And I remember sitting in my MISManagement Information Systems
Class 1 evening on the computer,Googling how to declare
(03:32):
bankruptcy. How do you know if you know?
I didn't even have anything to declare.
It's kind of like Michael Scott in the office.
I declare bankruptcy. That was me.
I just knew that things were notgoing well until I got the mayor
involved. Walt Maddox and I had a grand
opening with a big red ribbon. I got the Crimson and white
there, the school newspaper, andI just generated some buzz.
(03:54):
And so you could say that when Iopened, it was kind of a soft
opening because no one really knew about it.
And then I had a grand opening acouple months later and things
got a lot better from then on out.
We opened a second store. I say we it was me and my
partner Andrew. We were 5050 partners.
I ended up buying him out. He moved to another state, took
another job, and so I ended up owning that business entirely.
(04:15):
Long story short, we opened fourlocations.
I opened four locations over thenext two years.
I had a wandering eye and one day I was manning the store or I
got a phone call from someone that said, hey, I want to buy
your broken iPhone screens. And that made no sense to me.
And I said, well, why? What do you want from my broken
iPhone screens? And he said, well, we can
recycle them in China and then we get them shipped back and
(04:36):
then we can sell them as remanufactured units.
And it's just, you know, sometimes you hear an idea and
just immediately you're like, that is a good idea.
And it's also kind of a skill. It's kind of an art and science,
but the more you hear ideas, themore you're able to immediately
recognize, for whatever reason, this is a good idea.
And I was able to recognize it so immediately because I knew
(04:59):
this business so intimately and I just couldn't sleep.
I couldn't stop thinking about this idea.
So I started reaching out to manufacturers in in China, which
sounds a lot more sophisticated than it really is.
I went to alibaba.com. I typed in iPhone screen.
I got hundreds of results. I typed out a message that said
hey I own an iPhone store. Also I want to open an iPhone
(05:22):
parts main supplier. Also I want to start buying back
and selling broken iPhone screens.
Can you give me quotes for all of the above?
And I copy and pasted that same message to dozens if not
hundreds of suppliers in Shenzhen and Guangzhou China,
which is in southeast China. And those are like the two
electronics manufacturing cities.
(05:42):
So I sent that to tons of them. A bunch of them responded.
I got free samples from a bunch of them.
They would send me two to four iPhone screens and some home
buttons. If you remember those earpieces
and batteries, those are the big, the big four.
And I was supposed to see how the quality was.
And I guess I knew how iPhone parts quality looked because I
(06:04):
had been fixing iPhone screens for two years in my business,
but I didn't really know. It's like, Oh yeah, this feels
kind of solid. This didn't fall apart in my
hands. This must be good.
So I found this guy named David,David Sue.
For whatever reason, I liked himand we hit it off and I had sold
my business. And that's another story for
another day. My called phone restore my
(06:25):
iPhone parts stores sold it to acouple guys and I had like
$20,000 in disposable income, but I still owned 1/3 of the
iPhone parts business or the iPhone repair business.
And I was expecting it to provide me some mailbox money,
but that's another story. Well, actually that's it's all
the same story. So I'll get into that just a
little bit. And so I took $17,000 and I
(06:45):
wired it to David Sue in China. And that was one of the biggest
risks I've ever taken because David, you know, he were a short
term thinker. He could have thought 17 grand
free and clear, he'd never find me.
He'd never tracked me down. But he didn't.
He was a long term thinker and he thought if I don't screw this
guy, which he probably never even considered it because I
later learned he's a great guy, if I don't steal this guy's
(07:06):
money, then he'll pay me millions of dollars over the
next few years. And that's exactly what I ended
up doing. So David and I are friends to
this day and it's been 13 years now since I first wired him the
money this month, 12 years. And so that was my first initial
parts order because my whole thesis was let's get our foot in
the door by calling up repair shops and offering to give them
(07:27):
money, right? It's much easier sale of here's
some money. I want to buy this from you that
you were previously throwing away versus let me take your
money and sell you parts. But then once we had their
trust, then we would turn aroundand sell them parts.
That was the thesis. And so I put a spreadsheet
together in Google Sheets. I probably still have that
original 1 and I was just kind of guesstimating my starting
(07:50):
inventory and I knew what marketprices were because I've been
buying prices, man. What were they called?
Like I cheap, I think it was called I cheap.
And it was like this ugly Shopify store that sold iPhone
parts wholesale out of Phoenix. And they were pretty garbage.
Their customer service is crap. And there just were not a lot of
iPhone parts suppliers out there.
So I knew that there was a big hole in that market as well.
(08:11):
And it's funny because this is aframework, like if you're in an
industry, let's say you own a house painting business, you
look at that industry 1000% differently than anyone else
because you're so biased. It's called proximity bias.
You're biased to what you're seeing and hearing all day,
every day. And so it would have been really
easy for me to say, oh, I'm not launching another business that
(08:34):
sells iPhone parts to iPhone repair shops because there's so
many of those. I get hit up all the time.
Or I could have thought I'm too late.
I'm too late. The iPhone came out in 2007,
it's 2013 now. It's been 6 years.
We're over saturated at this point.
This is the peak, yadda, yadda, yadda.
And that is a framework that I love, OK?
(08:57):
And that is the fact that basically nothing is over
saturated and it's basically never too late to do or start
anything. We're always early, right?
You heard the phrase in crypto or investing or whatever, like
we're so early, We're so early and it's kind of like a meme at
this point, but it's like if youexpand your time horizon, which
(09:18):
I'm always a fan of doing, zooming out even further, which
I love doing, we're still early.We're early for e-commerce.
Amazon has been around since 1995.
Thirty years, which is crazy. And e-commerce still accounts
for like $0.15 out of every dollar we spend. e-commerce is
(09:38):
still early Crypto. Been around for 17 years. 15
years depending on you count it from the white paper or from
whatever. It's still early AI.
Oh my gosh, we're a newborn infant with AI.
The Internet. We're still early with the
Internet. It's been 40 years.
I don't care. We're early.
We're always early. So if you really think you're
(09:58):
late at starting something, justbe sure.
That's not a defense mechanism against being scared to start
something because we're probablyearly.
There are, of course, of course,there are exceptions.
Are we early with selling laser discs?
No, we're pretty late and there are other examples, but there's
always a way to put a twist on something that seems over
(10:19):
saturated on the surface. So don't sell yourself short by
saying this is over saturated orI'm too late.
I missed the boat Bitcoins 100,000.
I missed the boat stop. We're early in all these things.
OK? Life is really long.
There's always time and life is long.
OK, so I get this first batch ofiPhone parts from David.
(10:39):
I put them up on an ugly shop ofI site.
You can go to the web archive, type in LCD cycleoneword.com.
Look at the web archive from 2013 and you'll see what my site
look like. And then I used, what was that
software called? I don't think it's around, but
it was the only software I couldfind that would scrape Google
Maps. And I scraped every single
iPhone repair shop in the UnitedStates by every MSA Metropolitan
(11:04):
Statistical area from New York City to Carson City, NV.
There was like 242 of them at the time and it took days.
And I put them all in the spreadsheet.
I had like 242 different spreadsheets because I had to
export them one at a time and then I had to combine them all
with a macro and it was just, itwas a little hairy.
But long before AI there was Google and YouTube and you could
(11:26):
figure anything out that you need to figure out.
So I put all these in the spreadsheet, 20,000 iPhone
repair shops and I went to odesk.com which is now Upwork
and I hired 3 virtual assistantsfor 555 a piece because odesk
took a 10% fee and they wanted to net $5.00 an hour.
And they were experienced telemarketers.
And I opened Microsoft Word and I typed out an ugly script and
(11:50):
then I went to Zoho which was like ACRM still is.
And I uploaded all 20,000 leads.And then I said OK, I want you
to call these repair shops and say I'll pay you $3 a unit for
your broken iPhone screens and we'll send a prepaid shipping
label and we'll pay you via check or PayPal.
And so they did. And guess what?
(12:12):
These ugly cardboard boxes started showing up at my house
in Harvest, AL and there were these boxes that always look
beat to heck and they had never packaged them well.
And so you would just pick it upand shake it and it just sounded
like broken glass because that'sexactly what was in it, broken
glass. Sometimes the glass shards would
literally be falling out of the corners of the cardboard boxes.
(12:35):
And we later learned to educate them on packaging them better.
And I would set them down on my kitchen table.
I'd stack them high. I still have pictures of all
these. And we would buy these testing
units for like $15 from China. That was like a little
electronic box. And you would attach the iPhone
screen to the unit, and it wouldbasically mimic what it would
(12:58):
look like if it were plugged into an iPhone.
And you would make sure that there were no dead pixels.
And if there were dead pixels, then it was worth significantly
less, maybe 25 or $0.50, still worth shipping.
And if there were no dead pixels, it was worth about 6 or
$7.00. And we were paying 2 to $3.00
for them. So we would just make a margin.
We test them all and we notate in a spreadsheet how many were
(13:20):
dead pixels? How many had a dead digitizer?
How many were perfect, great ABC?
And then we'd get a bubble wrap and we'd get a long strip of
bubble wrap and we'd lay them all out and we'd roll them all
up with bubble wrap in between each broken iPhone screen.
And then we'd get these massive foam boxes.
And I had to figure out how to work customs and we would ship
(13:40):
these 40 LB boxes of broken iPhone screens to Shenzhen,
China. And I kid you not, we would
actually ship them to Hong Kong because the tariffs were crazy.
If you ship directly into China mainland, we'd ship them to Hong
Kong. And someone told me this once.
I don't know that it was true, but I believe it.
And some dude would put these boxes, these foam boxes covered
(14:02):
in cardboard, covered in yellow tape and put them on like a
literal rowboat and row them across the Hong Kong Bay.
And that was like the most cost efficient way of them getting
across. I don't know if it was shady.
I don't know if that was business as usual over there.
I don't know. But someone told me that once
and it blew my mind. And then I went to China and I
saw how things operated. And that actually sounds quite
(14:25):
believable from what I witnessedover there.
So this business just was gangbusters and it was the
perfect example of product market fit.
Starting a business usually feels like pushing a boulder up
a hill and you make progress. But if you rest, then the
boulder rose rolls back down on you.
But sometimes when you have product market fit, if you
should be so lucky, the boulder is chasing you and you're
(14:47):
sprinting down the hill and you can't even sleep because you're
just cashing checks and breakingeggs, baby.
And people are beating down yourdoors to buy whatever product or
service that you might be selling.
And that's what I had here. And it I don't normally get
product market fit and you don'thave to have it to launch, but
sometimes you do. Sometimes you get it even though
it was six years quote too late,even though it quote seemed too
(15:11):
over saturated. So that is the framework of all
frameworks for today's podcast is don't be sold into thinking
that something's over saturated.And if you really think that,
then at least get the research to back it up.
For instance, in our tree trimming business, we know that
the baseline is 1 tree trimming business in any given city for
10,000 residents. So if we want to open in a city
(15:33):
and it's one in 5000, then we know it's twice as saturated as
what we're used to as what the baseline is.
So we might be hesitant to open in that city.
We might be able to go one city over and see it's one in 20,000.
All right, if you were watching this clip right now, you are
watching this on YouTube. And if you are a fan of podcast,
please check on my podcast whileyou're at it because sometimes I
have podcasts that aren't on YouTube and sometimes I have
(15:53):
Youtubes that aren't on podcast.So check out the Kerner Office
on any podcast platform or you can go to tkopod.com.
Also my newsletter will throw that in there.
There are no ads, it's weekly. It's different content than my
podcast and YouTube newsletter.chrisjkerner.com.
You'll see the link and we'll see you there.
So things can be over saturated in relation to something else, a
different market. But generally speaking, even if
(16:16):
we open in the market where it'sone in 5000, those guys are
probably sucking in a lot of things and we can probably do
things a little more uniquely ora little better and win over
there. So this business LCD cycle, it
took off like a rocket ship and we did 28,000 month, 156
thousand month 2 and 150,000 month 3, which would have been
March of 2013. And e-commerce is hard.
(16:41):
And in one sense, this was import export.
In another sense, it was e-commerce because most of our
money was made from selling parts.
That's what we did. We would send someone money for
their broken screens and then wewould come back and say, hey, we
also sell parts on our website, lcdcycle.com.
And it was a beautiful business because it was 93 ish percent
recurring. If an iPhone parts store bought
(17:03):
from us, they were likely to buyfrom us every single month.
And we kind of changed the industry in a couple ways.
We were the first company to institute a lifetime return
policy, which no one had ever done before.
And that's another framework foryou.
Like it was just marketing. Like if someone three years
after buying a screen wanted to return it, yeah, we would take
(17:24):
it back. But guess what?
They didn't. That didn't happen.
That's just not how the industryworked.
So when you offer a lifetime return policy or a no brainer
offer, as Alex Harmozzi likes tosay, sometimes it's much better.
On the surface, it's a, it's a better sales pitch than it is an
amazing offer because it's just framed in a different way.
I know mathematically speaking that most people will never take
(17:47):
me up in the lifetime return policy.
And the ones that do, I just work that into the price.
And so it took us a couple yearsto institute that, but that was
a game changer. But the biggest thing we did was
free shipping over $200 because our average order value was
about 170. And so we knew that if shipping
was $15, then we could encouragethem to increase their average
(18:08):
order value, AKA buy more from us and they could get free
shipping. And then the biggest unlock ever
of this whole business was I just looked at a map one day and
we were in Huntsville, AL and I said, OK, where are all my
customers? Chattanooga.
Where are all my big customers? Chattanooga, TN, Nashville, TN,
Birmingham, AL, Atlanta, Atlanta, Atlanta.
(18:30):
We were all over the southeast in this little pocket.
It's like, OK, in a way this makes sense because I'm in
Alabama, but in a way it doesn'tmake sense because most humans
in America live in the Northeast, right?
There's 30 million people in Florida, There's 3540.
In California, there's 30 million.
And Florida's actually more like20.
I think it's 30 something million in Texas.
(18:52):
And then in the Northeast, there's like along the West
Coast, there's 150 million people or East Coast, and we're
calling all of them. My VA's don't care who they call
on. So I started asking my
customers, and that's another good framework.
Talk to your freaking customers.Get them on the phone regularly,
block out spots on your calendar.
They will tell you things that you never knew.
(19:12):
Oh yeah. I don't buy from you because of
your lifetime return policy. I buy from you because your
shipping is free and I'm within a one day shipping radius.
So that means I get it the day after ordering.
Which means it's like paying $50.00 for overnight FedEx when
I'm just getting it next day because I'm close to you.
That's what I was learning and it was a game changer.
(19:33):
So I immediately I remember where I was at the time and I
thought, why are we in Huntsville, AL again?
Oh, because I happened to live here when I launched this
business. OK, well this is blowing up.
We're going to do 5,000,000 bucks.
Our second year we did 2.1. Our first year we were
profitable. Why am I still in Huntsville?
So I went to my wife and I said,hey, what do you think about
moving? She's like, I'm down.
(19:53):
So we're well I opened up fedex.com.
I went to their FedEx Ground mapand I went to ups.com, looked at
their ground map. They have a little calculator
you can put in a zip code and itwill show you that you know the
overnight shipping radius map. So I looked at La, Chicago hit a
bunch of big cities, New York. I'm not moving to New York.
OK, Orlando, I grew up there. We could ship to all of Florida
(20:14):
and most of Georgia and Orlando,but that's only a small pocket
of people. I don't want to live there.
And then I looked at Dallas and it's like Dallas 7 million
people, San Antonio, 6 million people, Houston, 6 million
people, Austin, 2 million people.
Greater, you know, greater Austin, greater Houston, Little
Rock, Shreveport, Oklahoma City,all of these cities, all of
(20:35):
Texas were within a one day shipping radius.
It was a no brainer to me. It's like, oh, oh, I need to
move to Dallas, OK, I need to leave Huntsville open, keep
someone here to manage the shop and I need to move my family to
Dallas because you know what, I wouldn't mind moving there
anyway. And so 10 years ago, almost 11
out, 10 1/2 years ago, we moved to Dallas and we bought a house
(20:57):
and we've been here ever since. And that was the thesis.
I can acquire more customers in Texas because I'll be able to
ship ground, but they'll be ableto receive overnight.
And that thesis worked. So that caused us to open a
third distribution center in Orlando where one of my business
partners ended up living or one of my friends who ended up
(21:19):
becoming my business partner wasalready living.
And then we opened up in Michigan because Michigan hit a
bunch of those northeastern cities within one or two days.
So we had four distribution centers around the country and
and we were cranking out close to $10 million a year
profitably. Now e-commerce slash wholesale
is a hard, hard business becauseif you're growing let's say your
(21:42):
net margins when in a high growth phase or 10%, but you're
growing 20% a month, that means you are profitable but you're
cash flow negative. Cash flow and profit are not the
same thing, OK? Cash flow is what's leftover in
your bank account at the end of the day.
Profit is are you able to sell something for $2.00 that you
(22:02):
bought for $1.00? Hopefully you have both
profitability and cash flow. Sometimes you don't, especially
if you're growing fast. So we were profitable, but cash
flow negative. And so thank you.
John Nolan, he was a guy that I went to church with.
He had started and sold very successful consulting business
and he was a great guy and he wanted to support young
(22:22):
entrepreneurs. And so I went to him and said,
hey John, do you invest in businesses?
And he said, well, I own a smallpercentage of a bank and what I
like to do is I will Co sign on a line of credit with you and
then you can use that line of credit to grow your business.
And if you ever go belly up, then I've got to come out of
pocket to pay that off to the bank.
(22:43):
But if you don't, then it's kindof nice because I don't have to
come out of pocket to make this investment.
And he just preferred that structure.
And so we did that. I took out a quarter million
dollar line of credit with this bank in Alabama and it was great
partnership. I used them for a few years.
I kept the line of credit as lowas possible and that enabled us
to run and grow the business. And he didn't want any equity.
(23:03):
The only thing he asked for was for me to donate to his
nonprofit, which was a nonprofitthat helped like single moms,
mostly people that were down on their luck, help them earn an
education or a skill so they could be self-sufficient.
And so I did. It was just a handshake.
There were no papers signed. I donated a percentage of our
revenue every single month to his nonprofit.
(23:24):
And then when I sold the business, I donated a percentage
of that as well. And it was a great, beautiful
partnership that I'm very grateful for.
But there was also a time that came when I needed more money.
I thought I needed $1,000,000. And this is kind of an
interesting turning point in my life.
I was living in Allen, TX at thetime and we were growing really,
really fast. And the line of credit just
(23:45):
wasn't enough and we could keep going without any more money.
But I wanted to grow faster. I wanted to grow more and I just
started cold emailing venture capital firms in Utah and
Alabama, Alabama, because that'swhere our company was
headquartered, even though I wasliving in Texas at the time, and
in Utah, because I have ties there through the church that
I'm a member of, the Church of Jesus Christ, the Latter Day
(24:05):
Saints, I thought it might be easier to raise money there.
So I flew out to Utah. I had some meetings with
Peterson Partners, Peak Ventures, few different
companies, and it went OK, but nothing really ever came of it.
And then I found this company inBirmingham and they were great
and I drove out there and I met with them and they love me.
I love them. And they and we had talked about
(24:28):
them investing $1,000,000 for 25% equity and we shook hands on
that. I met the team, we verbally
agreed to it. And then they just dug their
feet or they they drugged their feet forever and ever and ever.
And it took like 6 months from the actually produce a term
sheet, which is basically a letter of intent with the terms
of the deal on it. And so maybe it wasn't six
(24:50):
months, maybe it was 3, I don't know.
But it seemed to take forever. And it was a no brainer.
We were still growing fast. We still needed the money.
And but as a member of my church, I wanted to pray about
this. And so I prayed about this with
my wife and something weird happened.
I started to pray and I forgot what I was praying about
(25:10):
entirely. And that was very abnormal for
me. That never happened.
And in our church, we teach thatif you're praying about
something and the answer is no, you're going to have what we
call a stupor of thought, which means like, you have a stupor of
thought. How else do you explain it?
But if the answer is a yes, thenyou're going to feel good about
it, right? You're just going to, you're
just going to feel good. It's going to feel right.
(25:31):
I had never experienced, I had experienced a lot of, you know,
no answers to prayers, but I hadgotten some yeses and I'd never
gotten a no. I'd never gotten a clear stupor
of thought until this moment. And so the answer was no.
And that made no sense to me because in my head it was a yes.
This was a no brainer. And so I went back to them and I
said no. I don't know why it's no.
I just, this doesn't feel right.I think I can get by without it.
(25:53):
I'm not going to go raise it from someone else.
I'm just going to try to make itwork.
And so I did. I made it work.
We kept growing. We did 5 million, we did 10
million. But 3-4, five years in, we've
been very profitable. I built this awesome house.
I made more money than I'd ever made in my life in my 20s.
And I didn't have any debt. You know, the line of credit I
kept at 0 after that second yearor so and it was just a cash
flowing machine. But then we started shrinking
(26:16):
and I couldn't really turn around and there was a lot of
competition. The market had kind of changed a
little bit. And a lot of times in business
you get this, you know, you get to the 10 million mark and it's
really hard to breakthrough froma revenue perspective, from a
people perspective. And I was managing 23 people
across four different states, not doing a super great job at
it, not visiting them enough. Of course I was distracted.
(26:38):
I was testing other businesses and concepts.
If you listen to my Every business I ever started
episodes, which are episodes see14/21/88 and then I forget which
the last one is. Anyway, the 75 businesses I
talked about was happened duringthese seven years of running LCD
cycle and so the business started shrinking every year we
(27:01):
got to 10 million and then it was 8 and then it was 6 and then
I had a falling out with a business partner and a friend
and that was terrible. This was 2017, 2018-2019 and
then finally I ended up just selling off the customer list
for pennies on a dollar so to speak, based on what it used to
be worth. But it was interesting because a
(27:21):
lot of times people think of a business failing and they think
of everyone losing or declaring bankruptcy.
But it doesn't always go like that.
Sometimes you just wind stuff down and you're profitable the
entire way from start to finish.You're profitable the whole
time. And that's how I was.
We, you know, we were banking profits every month up until
near the end. And I just saw the writing on
the wall. So we had to keep laying off
(27:43):
people and shrinking and gettingmore lean, more agile, more
nimble. And then we just kind of sold it
to a competitor and we locked the doors and walked away, so to
speak. But I don't really know what I
would have done differently. You know, they say businesses
don't really ever fail. The founders just run out of
energy. And I can definitely see that
happening here. I could have made it work.
I could have raised the money and gotten over that hump.
(28:06):
So in retrospective, in looking back on that, why did I turn
down that $1,000,000? I thought I had the answer.
And then a couple years ago I got the real answer.
And so I thought the answer was,well, because, you know, I was
going to those investors would have lost money or I could have
said, you know, if I would have raised the money, then I could
have used it to grow the business and gotten over that
hump and we could have been a $50 million business.
(28:27):
I don't really think I could have done that even with
$1,000,000. And so I used to think the
answer that I said no was because investors would have
lost money and I would have feltterrible about that.
But then years later, I went back to those same investors to
raise money for my third party logistics company, Sandy Eats.
He flew out to Dallas from Birmingham.
He met with me, we had lunch. He loved the business.
(28:47):
He gave me a term sheet again and I looked at the term sheet
and I looked at it more closely.And then I went back to the old
term sheet and I looked at that one and they were about the
exact same. And then I did more research and
I learned that their term sheet looked about like every other
VC's term sheet. And it has what's called
liquidation preferences, which means if they invest $1,000,000
for 25% equity and we exit for let's say $10 million, they need
(29:12):
to get their $1,000,000 back First off the top.
And then we split everything else pro rata, right?
That also means if they invest $1,000,000 at a $5,000,000
valuation for 20% equity, and then we sell for $100,000, which
is a terrible outcome, we just sell for pennies on the dollar,
then they're going to get all ofthat 100,000.
Or if we sell for a million, they're going to get all of that
(29:34):
million because they have liquidation preferences.
They get their million back first.
And that's not like a vulture clause.
That's not unethical. That is standard.
That's very standard. Sometimes they have to act
liquidation clauses where they need to get $2,000,000 back
first. And then we split at 8020 or
7525. And so I realized at that
(29:55):
moment, oh, that's why the answer was to say no to that
money because had I said yes, then the winding down of that
business, I truly don't believe the $1,000,000 were to fix this.
I couldn't have just put it in my personal checking account and
lived on it. That would have been unethical.
But had I wound down the business with their $1,000,000
with that term sheet signed or with the contract signed, I
(30:18):
would have been able to have to just live off the profits as I
wound it down. I wouldn't have been able to
build and buy this house we've lived in for 8 1/2 years.
I wouldn't have been able to have the life that I've had.
I'm sure my life still would have been fine, but it would
have been different and I don't know what it would have been.
And I think the life that I haveis a life that I'm supposed to
have. And so I'm grateful that I got
(30:38):
that. No answer because I wasn't
supposed to raise it. So there's another framework for
you. Seek out experts when making
these big decisions. Maybe that expert is your dad
friend. Maybe it's God, as it was in
this case. But that is the story of LCD
cycle. It made me millions of dollars.
It provided A launchpad for me to do other things.
And it's interesting because I preach all the time, you know,
(31:00):
chase all the shiny objects, chase all the things, do all the
things, say yes to everything. But you kind of have to get to
that point, right? I also preach that you should
follow your passion, but not in the beginning. iPhone parts was
not my passion. It still isn't. iPhone repairs
were not my passion. The vast majority of the 75
businesses I've started have notbeen my passion.
(31:22):
But my passion is business. So in a way, all of those things
are my passion. But not following your passion
is not scalable nor sustainable.But we should also do hard
things. We should also be willing to eat
crap for years at a time. So do things that are hard and
that suck until we have the luxury of being able to chase
our passion and to chase all theshiny objects.
(31:42):
But if you're still working in 95, that's fine.
You could still chase shiny objects on the nights and
weekends. Launch a bunch of small things,
see what really takes off, and see which thing reaches product
market fit. Which thing keeps you up at
night because you have so much demand?
That's when you really know you have something special.
You don't have to have product market fit, but it really helps
to have it. Hope you enjoy this story.
(32:04):
Thank you so much for listening.I would love it if you shared
this with a friend. Gave me a five star review.
I don't have very many of those,but I'm looking forward to an
awesome 2025 with you all on theKerner office.
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