Brock Blake: [music] My name is Brock Blake, CEO of FundingUniverse.com. At Funding Universe, we connect entrepreneurs with angel investors. We’d like to introduce to you The FundingUniverse.com Podcast series. What we like to do is get successful entrepreneurs and hear experiences from them on building companies and raising money. We thank Shawn Nelson, CEO and founder of LoveSac for our first interview.
[music] The Oxford English Dictionary recently named “podcasting” the word of the year for 2005. To learn more about how the phenomenon of podcasting can help your business better reach its marketing and communications goals, contact bigideacommunications@bigideapr
Shaw Nelson: [music] I had this thing called the miracle list. I keep, literally, a list of at least a dozen events that I would look you in the eye and tell you that they are miracles. I guess, it depends on how you look at life, but, that’s how I look at life. And one of them is as all of this is going on, while we’re running this company; we’re trying to keep it as our bread and butter. And then I get found to be on this reality TV show. That’s weird. I mean, you can count them on your hand. On one hand, remember of people that had ever won a million dollars on national TV. I don’t even watch TV and I didn’t even enlist to be part of the show. In fact, they found me. The casting crew who came to Salt Lake just on their way out of L.A., they were one of their stops here on donation and their ads for the open cast didn’t take yet. And so, they killed two days in Salt Lake and they just decided to at least look for some pure water here. Because they have been in New York with an open call and have twenty-five thousand people show up. Everyone wants to be in TV, but here, they’re ads did not hit. So, they went to the U and said, who are you they love? This is the show. This is Richard Branson and he’s from Virgin, he’s this billionaire, he’s going to be like The Apprentice only Richard likes to do stunts. So, we’re also going to make him walk between hot air balloons and do crazy stuffs. Who are your local, young, crazy entrepreneurs? In the University of Utah, I had just spoken up there -- I speak at different events and things -- and they said, “You ought to call the LoveSac guy. He’s perfect for that.” And so, they called my store and I just happened to be in town. I’m never in town, I travel all the time. Actually, I just got back that very day from Mexico visiting a factory where we were just down there and doing some stuff in the factory. I just happened to come back to keep a commitment to my sister to tend her kids. So, I was just in town and I actually had those kids over at The Gateway Mall watching this BMX event that LoveSac was sponsoring. And when they call my store and say, “Hey, is this Shawn guy there?” and the store said, “Yeah, I think he’s actually here.” And I mean, yes -- I’ve got seventy stores around. So they called the sixtieth time. So when they were told that, they came down from the U, this casting crew, and found me in the stands of this BMX dirt bike event, in the parking lot of The Gateway Mall. And they came up and said, everybody said, “Hey! This guy here, from Fox’s, want to talk to you.” And someone talked to him and sure enough they were from Fox’s and they were recruiting for this Rebel Billionaire show. I thought they were crazy. They gave me a seventy-paged application, because in these reality TV show, they want to know everything. And so, I was like… Yeah, right! We’ve got briefings going. I went home that night and because I was tending to these kids I just had this sort of spare time. Normally, I’d be out doing something with everybody but I had this time at home and thought, “What the heck!” So I filled it up just that and I emailed it back to them. They called in the next day to come to a video interview and I did. Anyway, three months later I got chosen, out of fifty-thousand people, to be on the show. Then there was sixteen people that were chosen to be on the show; out of fifty thousand applicants. And then… And we won! That’s weird, right?
And so, I won a million dollars and then I was made President of Virgin worldwide, for a few months. I traveled around the world and met with all the different CEOs at forty Virgin companies. I gained a lot from that. One, I got to participate. I spent a lot of the time in Virgin Mega Stores. My background in retail helped them re-merchandise their stores because, of course, CD sells have changed and the Virgin Mega Stores need to sell other merchandise. They also really started selling LoveSac products and things. And I got to really participate in that. More than anything, I really got to see from inside out, a company like Virgin, a multi-billion dollar company. And to see at the end of the day they’ve got… There she is just like LoveSac days. But of course, you take comfort in the fact that it isn’t every company in the world. It is all different. Everyone’s got their own set of trash to take out with They’ve also, of course, got their act together in a thousand ways that I was able to learn from and glean from.
[music]
It was always sort of fund as you go. For two years, we were making these things out of my mom’s basement as a hobby. We never made a dime. Every time we made a dime the machine that we were using would shred, the phone and break. But, then we got an order from the Limited 2. The Limited 2 ordered twelve thousand units having not seen who had sewn that and having no idea that it was just me and my two buddies. I’m on the other end of the phone I can be what I want. So, I said, “Of course, we’ll do it.” And we did it! We found the fabric and then we got a deposit from the Unlimited to manufacture this batch of twelve thousand LoveSacs. Then I have to start to build a factory because I just stuff them myself because no one did know what we did. So, then I built the factory on credit card and use farm equipment to get it on. But, It was all on credit cards.
Then after that, one of those Shawnisms that I always preach when I speak is this idea of embracing economic pressure and I loved it. So many people run from economic pressure and they spend their whole life trying to get out from under economic pressure which is in itself is, sort of, the whole point out there in my mind. See, economic pressure will force more raw ingenuity and creativity in a matter of time because you have to. You have got to make it work or you would die. I mean you get in, you get bankrupt, you get sued, and you get your life destroyed or something. And so, by spending sixty-thousand dollars of The Limited’s money, I had to finish that deal. I had to. And then when I finished it and when I built the factory, we had some bad luck. The biggest farm factory in the country burned down; price of farm doubled; 911 happened and made a run; price of transportation doubled; and boom! I made no money. I made no money which was fine – I broke even except for the fact that I bought a fifty-five thousand dollar-factory on credit cards and I had no customers. You have got to sell to someone and then these economic pressures were knocking on the door. So, we went to our RC Willie and they told us it was really a dumb idea. Ours would never work. too big, too heavy and too expensive; no one wants your brand, go away. We went to Mega Furniture Warehouse and just told us the same thing - too big, too expensive, and too heavy; no one wants your brand and leave here and go away.
Big furniture professionals were telling us that it wouldn’t work. Frankly, they were right - it wouldn’t work. It wouldn’t work in their stores because it would sit in a corner and it would go flat. No one’s going to pay four hundred bucks for a flat big blob. So, they were right except for the fact that we could make it. So, my cousin said, “Let’s open a store.” I said, “Are you crazy?” We may try in these malls. The malls laughed at us. Finally, one called back at us and said, “We’ll let you in for four months temporarily because we have empty spaces. But, we’re kicking you out at Christmas.” I said, “We rather would take it. We got to do something to pay-off this factory that we were in debt with even though our eyeballs....” We decided that if we’re going to open a store, let’s do it right. So, this time we maxed out my cousin’s credit card. Bought a neon sign, the carpet, the paint, the big screen TV, the random shelves, etcetera, and set up the store that was cool and it was nice. But we were just hoping they wouldn’t laugh at us.
So, we opened the store and again, we’re just putting one foot in front of the other. We had no idea. All I knew was that I had run the numbers, done the math and if we could sell one supersac a day with this special rate we had through Christmas, we could pay the rent and pay ourselves five bucks an hour. But we didn’t figure out at farm work. We had a hundred-twenty gran the first five weeks. The store just blew up this Christmas. People were buying; we were out of product on Christmas eve; people went in line. Ten days into it, this guy comes in and say this is cool store. What would you say if I got this out in California? Who do I talk to about a franchise? And so my cousin gave him my card and said, “Call him. He’s the head chief.” So, I ran outside the door and answer my cell phone outside, “LoveSac corporate headquarters… Of course we sell franchises.” And we started selling franchises. Two weeks later, we got the proper documentations. One foot in front of the other, man. I mean, why not sell franchises? Geez! I need around twenty-thousand bucks to pay down the credit cards. Then we took out money, we invested in another store that worked. Then we invested in another store and we sold another franchise. It was one foot in front of the other for two years.
It was all kinds of different deals. We’ve got strange debt deals where people believe in it and take equity. In exchange, they’ll rent us their land and then we borrow money against their land. Then after that we got different bank deals. It’s funny! The funniest one is we find financing everywhere. I mean, we’ve got SPA loan for seventy-thousand dollars when we were doing a few hundred thousand of revenue a month. So, the banks were always worthless. Absolutely worthless! I mean, it was like one container of goods. We’re bringing in a container every three weeks or two weeks and one container costs a hundred-twenty gran and the biggest SPA loan we ever got was seventy. The banks are just worthless. Still are absolutely worthless to us. Banks just don’t like lending to businesses like us. So, our financing came from a local business family group that finds in need, young companies like us, and puts their property up as collateral for us to get collateralized loans on. That was the first major millions of dollars in financing we received. Before that, it was all credit cards and in vendor terms. Vendors sell products that would have to pay forth within sixty days.
First investor - that was my buddy Gerry Herbert. When I told him I need to start a business, he’s just.. Being Herbert, he’s a risk-taker. He jumps up cliffs, he actually jumps off helicopters for a living. He works with the Coast Guards and saves people. And so, when I told him I was getting in to this company, he said, “Can I invest?” Then he gave me fifty he’d saved. He was the only one of my friends working full-time when we are on school and he’d saved fifty hundred dollars and he gave it to me. Then I brought fabric. And then the shredder broke and my friend’s mom, Annie J, gave me five hundred bucks to fix the shredder. At that point, it was nothing - It was thank you. When I actually turned in to a corporation, I gave them some shares. That happened three years later. How did he secure his fifty hundred dollars? He didn’t. I was just one of his best friends.
I’ve been so grateful, so lucky. I mean, from my parents… My parents never have any money. But, when I needed eight-thousand dollars to buy a forklift, they take loan out on themselves and helped me do it. You know, I’d paid them. I paid them back and I always pay them back. They helped and my friends helped me, Richard Branson helped me and I’ve always been very blessed. The hard part for me is taking enough time to be grateful, because, not that I’m not grateful; it’s that I’m so driven to make this work, frankly, for them because it’s their money that I’m playing with. That I sometimes may steamroll right over people or around people because I’m just trying to get the job done. It’s hard but I love it. I loved it! Often I feel like Iccarus. I mean, because the thing that LoveSac is so different in so many companies is it is a high-flying, man. I mean, it’s on TV, it is in malls, in people’s house. It is not like, “Have you heard of my company? Some tack or something?” Then you would explain to them what you do, and, “Oh! That’s really neat and we’ve got this patent technology…” It is not like that. It is like, “Hey! We’re on TV. Sweet dogs lean on our sacs.” But, meanwhile, everyone is watching Few to Fail. I feel like I’m just another person and I just happen to be the one underneath on this mat trying to keep it up there. Meanwhile, you know you feel like Iccarus. You get two close to the sun and you’re just trying to keep your wings from melting. But it’s fun! That’s what I love. It’s awesome!
Brock Blake: Stay tuned to FundingUniverse.com for more interviews from other entrepreneurs and angel investors nationwide.