If you listen to the first few minutes of this program you’ll notice that I felt out of my comfort zone. The company Ed Richman launched offers chemical sourcing services. What do I know about the chemical business?
But if you keep listening, you’ll see that Ed’s story is one that any entrepreneur (or aspiring entrepreneur) can relate to and learn from. He spent most of his life working for other people and felt “boxed in.” His wife was tired of hearing him complain about it and pushed him to start a business.
At first, it was a lean operation. All he needed was a phone and the patience to develop relationships. His plan was to match companies that needed chemicals with manufacturing facilities that could produce those chemicals. In time, his sales grew to $5 – $10 million per year. I bet you’re wondering HOW he made those sales. Don’t worry. I asked him. Listen to the full program to get the details.
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Ed Richman, Richman Chemical
Ed Richman started Richman Chemical in 1998, based on a unique business model utilizing independent outsourcing to bring value to both emerging and established pharmaceutical and chemical companies. Ed started his career in synthetic fibers R&D with Celanese and Rohm & Haas, and worked at National Starch for ten years, eventually serving as Director, Chemical Business. He completed his undergraduate work at Brown University and earned M.S. and Ph.D. degrees in Chemistry from the University of Chicago for work with molecular beams.
This interview is sponsored by Grasshopper, the virtual phone system that entrepreneurs love because you can use your own phones, and manage it on the web, check out grasshopper.com, it’s also sponsored by wufu, where you can go right now, to get embeddable forms and surveys that you can add to your website for free, go to wufu.com, and it’s sponsored by shopify, when you go to shopify.com you can create a store within minutes and have all the support and features that you need to make that store grow, check out shopify.com, here’s your programming…
Andrew Warner: Hey everyone it’s Andrew Warner, founder of Mixergy.com, home of the ambitious upstar, and guys I’ve got a new kind of interview for me, I’m interviewing Ed Richman today, he is the founder or Richman Chemical, Richman Chemical provides sourcing services to chemical and pharmaceutical companies, I’m reading that completely off of my notes here…and I don’t know Ed very much about your industry, I don’t, in fact I’m going to say I don’t know anything about your industry, I decided to do this interview because, I said, sometimes I’ve got to try different kinds of interviews, and I got an e-mail from someone at your company that said, listen I’m a fan, I know the kind of interviews you like to do and I’ve got this entrepreneur here that’s different from your usual group but, also encouraging and inspiring enough to have them on mixergy, so Ed welcome to Mixergy, and I’m looking forward to getting to know you.
Ed Richman: Yes, thank you very much Andrew
Andrew Warner: Well, we’re going to, you’re going to have to do a lot of work here, because you’re going to have to explain a lot of things to me that might seem too basic for you but, actually why don’t we start with this, what does it mean to provides sourcing services to chemical and pharmeceu.., actually before I even get to that… because a lot of people are going to be…before I even get to that, let me get to what was great about this, this is what I love about this story, started the company in his forties, a lot of entrepreneurs are waiting for me to talk more entrepreneurs who started later in life, keeps working in his eighties, started as a one man start-up..
Ed Richman: No, I’m in my sixties now..
Andrew Warner: Oh, then what are they saying, he’ll.. oh, they’re saying you will keep working into your eighties, is what they said
Ed Richman: Yes, yes
Andrew Warner: Okay, alright, so you’re not your eighties yet, he’s in his sixties, that’s, that’s, that’s still very impressive, one.. we’re you a one man start-up with no inventory when you got started?
Ed Richman: Yes, exactly
Andrew Warner: Okay, and now you have eight people, and are outsourcing your business model?
Ed Richman: Yes
Andrew Warner: and eight people with a outsourcing based business model…okay
Ed Richman: Yes, that’s right
Andrew Warner: Alright so, so there it is, let’s find out what it means to provide sourcing services to chemical and pharmeceutical companies, what does that mean?
Ed Richman: Well, both chemical and pharmecuetical companies, don’t manufacture all the chemicals, in many cases, they use chemicals that those chemicals are made from other chemicals, so there’s a lot of complexities in chemicals, and every new project needs chemical sourcing, and companies develop their own sources, but it’s a little bit of a difficult process, and my..my idea for a business model was based on helping chemicals outsource various manufacturing and sourcing operations, finding the right manufacturing partners and delivering chemicals and products to the industry.
Andrew Warner: Do you have an example of the kind of company that you work with, that someone like me, who’s on the outside, might know, and be able to relate to?
Ed Richman: Well…well sure, we work from the very largest chemical companies to start-up companies, a lot of the projects we work on are on secrecy agreement but, they include big companies like 3M and DuPont, small companies that maybe developing a new pharmeceutical skin care applications, personal care.
Andrew Warner: So, what kind of chemicals, does DuPont need that they can’t get on their own?
Ed Richman: Well they probably buy more chemicals than they actually manufacture in house. A company like DuPont is trying to sell very high value added products, and they’re very sophisticated products they put a lot of time into application development and R and D, and then when it comes time to, even at the beginning, when they’re doing initial work, they may source the intermediates and make it in the lab, or they may have an outside company do some of the initial synthesis in the lab.
Andrew Warner: Let’s bring it to the consumer so that we can, we can relate, so that we can understand. What consumer based products do your chemicals end up in?
Ed Richman: Anything from medical devices, pharmeceuticals, personal care… I can give you one example, we did a very long running successful project with a medical device company…
ANDREW: Let’s bring it to the consumer so that we can relate and we can understand. What consumer based products does your chemicals end up in?
INTERVIEWEE: Anything from medical devices, pharmaceuticals, personal care… I can give you one example. We did a very long running successful project with a medical device company that the main product was drug eluting stents. The stents are the devices they insert in arteries to fight heart disease and you know about ten years ago they were going from straight mechanical stents to drug eluting stents which were an improvement. While the drug elution required a polymer coating that controlled the release of the drug in the body. Our customer developed the polymer chemistry on their own, but when it came time to make some initial quantity still well back in the development cycle, they didn’t really have the in-house capability and they came to us, we developed a manufacturing partner. We worked with them on their chemistry, their formulation, but it had to be transferred to somebody who could do it on initially a small scale then later on a commercial scale. We wound up supplying this product for about six or seven years and it was a very intense project with the customer because of all the FDA regulations involved. The customer was very much involved in the manufacturing process, and there were a lot of project management issues. We were dealing with the customers in the R & D department, we were dealing with the customersÖ
ANDREW: Let’s go through the biography of this business. What inspired you to launch Richman chemical?
INTERVIEWEE: Well, I had worked at large chemical companies for about twentyÖ
ANDREW: For how long sorry? The videoÖ. Twenty years.
INTERVIEWEE: And it had kind of run its course, I felt a little boxed-in as many let’s say middle-level managers mid-aged might feel, and I always had a little bit of entrepreneurial ambition so I tried a couple of things before and this was kind of an opportunity where I had a business model that I thought I could launch on, without outside investorsÖ without borrowing money. So I went with it.
ANDREW: When you were saying you were feeling boxed-in, do you have an example of what would make you feel boxed-in?
INTERVIEWEE: Yeah I have a few million examples of that. I was managing several businesses that were considered non-core businesses for a larger company. They didn’t really care about these businesses. It was very hard to get remunerated for what I was contributing, and working in a large corporation there was a lot of staff support required, none of that staff support was really effective for the non-core businesses. So I was doing a lot of jobs, I was working about three times as hard as I really should have, without the benefits! And then really when you are working for a large corporation especially now and even twenty-five years ago, you know there was no equity, they could decide they were not going to be in that business any more, or get rid of you or put you in a business you don’t want to be in. So it was the fact that I had no control over my destiny, that there was no correlation between my rewards and my accomplishments and then even on a micro level day by day it was extremely frustrating because you were swimming upstream, you were fighting what the big company wants to do but didn’t make sense for your small business management.
ANDREW: I see. And when you said you tried a few things before, what kind of business ideas did you try before?
INTERVIEWEE: I had a start-up about ten years before that involved using lasers in the early days of using laser technology. We were drilling plastic printing screens with lasers to replace electro-plates screens and it was a cost-effective hi-tech solution to some problems and we launched the company and ran for about a year and we had some investors but the mid-seventies recession hit the textile industry very very hard and people just stopped buying screens for a couple of years so the business timing wasn’t there.
Interviewee: And people just stopped buying screens for a couple years, so that the business timing wasn’t there. I had two other partners, and we eventually came to a partnership issue as to where the business should go, and how it should go. And that was a good learning experience for me because when I did start this business, I started it without partners.
Andrew: [Laughs] Well, what was the difference of opinion on the direction?
Interviewee: Well, we were three technical guys, and we started a technical business. And then somebody had to go out and try to sell. And somehow, that fell to me. [Laughs] And I was dealing with the customers, and then we were running into these economic issues. And we needed to start lowering prices to get started. And my partners felt that the technology was so valuable that lowering prices was a bad strategy, and was somehow, you know, a personal affront. And that was the main difference. They’d said, “You know, I’d rather take this technology off the market for awhile than, you know, than sell like we’re in a fish market”. Quote, unquote. And when I heard that, I knew that this wasn’t going to work. [Laughs] Because, you know, one thing I can do after, you know, 25 years of running my own business, is you have to be a realist. You come in with some principles. You come in with some plans. But when the world turns out to be a little different, you’ve got to deal with it. And at that point, they weren’t ready to deal with it. And in fact, they took the technology. It just remained to them. We all moved on.
Andrew: Looking back, was there a way that you could have made them realists back then, that you could have persuaded them, now that you’ve got some distance from the experience?
Interviewee: I don’t think so. I think with people, you know, you can go so far. But you know, we deal with scores of customers with problems a year, in all different industries, all different sizes. And you know, people have to want to be helped, in order for you to help them. And at some point, you get to a level where it becomes, if it’s a person’s poor personality, I’m not effective enough to change that. I mean, maybe somebody else is. But, I think we got to the point where I feel like I did all I could at the time, and we each pursued, I pursued buying the business out in fact, and that wasn’t really an option. So, you know, you try things. Is this a problem solvable by money? Is it solvable by just discussion? Is it solvable by bringing in other people? And in that case, it wasn’t. It became a real emotional issue, and those are difficult problems.
Andrew: How did you separate yourselves? How did you break up the business?
Interviewee: Well, one of the three continued the business. There was no longer any money to pay anybody or do anything. And one of the three, who was the original idea for the business, that the other partners said, ‘it’s John’s idea, so if he wants to do this, I’m going to…’ Even though we were equal partners, he said ‘I’m giving my shares to John’. And John just basically came to me and said ‘It’s a fait accompli, this is what I’m going to do, good bye, Ed.’
Andrew: And he was able to push you out, just because he had the other two-thirds, the other two partners? Really?
Andrew: And did he take any of the assets with him? It sounds like he did.
Interviewee: Yeah, but it was patents and intellectual property. There were a few physical assets that were worth a thousand dollars, but I did keep watching to see, is anything was going to happen? Can I do anything with this? And after a couple years, the technology and the industry were gone. There were some other companies that developed some very similar laser technology and went on with it. And I kind of looked at it and said ‘gee, that could have been us.’ But, it wasn’t, so you just move on and look for other opportunities. So, I went back to the corporate world, and I thought I might, if I showed I could run businesses profitably, I could grow them…
Interviewee: ..profitably I could grow them, that I could have some fun in advance, and, you know, when i ran into the frustrations that we talked about, i was encouraged very strongly by my family to say, you know, you’ve been successful in everything you’ve done, you’ve worked in different technologies, different industries, it’s time for you to do it on your own, so that you can really hold on to your success.
Andrew: I’m sure many people who are listening to us now will eventually go and create a partnership of some kind. What advice do you have for them based on your experience with that partnership that you just talked about?
Interviewee: Well, I just think there should be a reason for everybody in the business, and contributing to the business, so you have not just a friendship, but you have a business reason to be partners. You really have to lay things out in front. You probably should lay out a buyout plan if you get to the point where you want to go your separate ways, some kind of buy-sell, because these handshake deals that start with friends and deteriorate as time moves on… and then it’s effective if the partners have their different spheres, and, again, we do actually, this is my business, but every project we do is a partnership with a manufacturer… we don’t own the manufacturing facilities or equipment as a rule. we do partnerships all the time, and, we may have a contract or an agreement or something, and a lot of it in the industry is… the best partnerships are based on a handshake and maybe backed up by an agreement, but again you don’t want to call in the lawyers because people already fail. So we try to put the critical things up front, as in the who’s doing what, how you’re going to get paid, how you are going to handle problems, how are you are going to decide various things. And if people know these things up front, nobody likes surprises, nobody likes to feel like you’re doing something wrong. IT’s information disclosure, honesty, handling things in a business way.
Andrew: How long do you think people should know each other and feel out their personality before becoming partners?
Interviewee: I don’t think there’s a time limit, even if you think it’s a marriage; it’s a business relationship. You can do it in a month. I know people who knew each other for 10 or 20 years, and it didn’t work out, either, once they started doing business. The key is to start with the business arrangement, why does this make sense, business-wise. Then you get to know the potential partner, you certainly don’t want any surprisesÖ you’re going to Google them, you’re going to speak to people, you’re going to find out a little, there are some people that I might do a business people, but I won’t want to spend an afternoon golfing with them, but there’s a reason for doing business with them. You can be in a business relationship without loving them, and vice versa.
Andrew: Your family says, why don’t you start a business, take it on your own, you’re not being respected, you’re being boxed in by the business that you’re working forÖ what kind of hesitation do you have after that first partnership experience?
Interviewee: My main concern wasÖ if I go and start this business, I don’t want to ever have to go and ask a job from anyone.
Andrew: You mean you don’t want to fail and have to go back into the corporate world?
Interviewee: Right, right. That was my main concern. I wasn’t concerned with the lack of partners or with my ability to stay functioned in the industry that this business was.
Andrew: And why is that? I’m sorry. Go ahead. I’ll come back to my question.
Interviewee: Yeah, let me frame it a little because in the, you know, you and a lot of the listeners may not be that familiar with the chemical industry, where I started. The chemical industry, it’s very large. It’s very diverse. And there are, you know, a lot of segments of the industry. And they differ in their characteristics. So my first 10 or 15 years in the industry, I was working for large companies that were making products that required large plants. And they were all big things. And there were no entrepreneurial opportunities in that. I mean you needed 500 million to go off and build your own plant. And there wasn’t a private equity group industry, or venture capital, or anything. And new technology was very difficult. So there weren’t a lot of opportunities. Then I got involved, in the last few years, with custom manufacturing. All this is, is really the industries that are outsourcing, where people would get projects from another company to make them a product. And I said, “Ah, here’s a business that, you know, you could set up your own kind of business. Either buy a small manufacturing facility, which I had tried to do, when that didn’t work out, just go on your own as independent-type agent because there are plenty of people doing manufacturing. Now my particular problem in starting the business was that I was mostly an inside business manager. I would deal with a few customers, but I had sales people and sales managers reporting to me. And I had technical people doing the lab and synthesis work. So I wasn’t coming in as a guy who knew a particular branch of chemistry, or had a particular branch of customers in a segment of the industry. I was a generalist, who knew a little bit about processes, and how to do business. So it was, you know, where do I start this business? So that was my main concern in starting out, is it takes some time to build relationships, and get projects, and get them to the stage where you can start to ear
n some money from them. The thing was, how many months or years is it going to take me to get to some kind of profitability and confirm that this is going to work, this business?
Andrew: Before we get into how you did it, how you built those relationships, you said earlier that you found a business model that allowed you to start this business on your own. What was that business model? What did you see?
Interviewee: Then again, that customers need a chemical operation or a certain specific chemical that they can’t supply internally and they’re going to go outside to find it. And this is now kind of an opaque market, let’s say. It’s not like buying ethylene glycol and you look up and there are three manufacturers, and salesmen come and talk to you. So, here’s a place where customers don’t know always where to go for manufacturers and manufacturers don’t know where to go for customers. So, somebody who has some credibility and reputation in the industry can act as an independent agent. Find projects, go to manufacturers and say ‘I’ve got a project. I’d like to work with you on this project. Will you be free to work with me?’ And then build from there. And that was basically the core of the business model. I called it ‘independent outsourcing’ because there were people who were working as say, manufacturers reps. The traditional manufacturers rep, in any industry, has maybe 5 or 10 manufacturers that they represent, call on likely customers, and they find projects for those people. I did not have any official representation from the manufacturers. I was looking for projects without manufacturers, and I’d take the project to the manufacturers I thought would be appropriate.
Andrew: So, the business basically took relationships and a phone but not much more than that, right?
Interviewee: Yes, yes.
Andrew: OK, I see. So, what kind of commissions do you get?
Interviewee: Well, actually, the other thing we done differently here is, we’re not working on commission. We’re buying the manufacturing time or we’re buying the product, and we’re selling it to the customers.
Andrew: I see.
Interviewee: So, the advantages here…
Interviewee: I called it independent outsourcing because there were people who were working as, say, manufacturers reps. The traditional manufacturers rep in any industry has maybe five or ten manufactures that they represent, all unlikely customers and they find projects for those people. I did not have any official representation with manufacturers. I was looking for projects without manufacturers. Then I’d take the project to the manufactures I thought would be appropriate.
Andrew: So the business basically took relationships and a phone, but not much more than that, right?
Interviewee: Yes, yes.
Andrew: Okay. I see. And what kind of commissions do you get?
Interviewee: Well, actually, the other thing we’ve done differently here is we’re not working on commission. We’re buying the manufacturing time or we’re buying the product and then we’re selling it to the customer.
Andrew: I see.
Interviewee: So, the advantages here, and one of the reasons we did this is – I can’t even remember quite historically – is some people didn’t want to give us commissions, or the commissions weren’t going to be high enough. But the main reason is that this gives us control of the project. And a lot of times, you have a customer who’s dealing with a manufacturer, and in many cases they’ve never dealt with each other. And you have all these, let’s say, mix of culture issues. So, a lot of projects don’t get off the ground, not for technical reasons, but these cultural reasons. The customer and the manufacturer never hit it off. So, one of the values we provide is, we’re gonna help smooth things over. We’re gonna be an interface. We’re gonna be the honest broker. And also we found that we were much more effective in negotiating contract terms that worked for both parties, by buying the service and selling it. Now, it wasn’t always about keeping a margin for ourselves, which of course is necessary to stay in business, but in some cases it was as simple as: the manufacturer is selling his time by the hour, and the customer is paying by the pound of product. So, we’re buying something and we’re selling it differently. And, you know, the customer and manufacturer could argue for years, “no, give me a price per pound,” “no, we only work per hour.” So there were a lot of issues that led us to: let’s go out, buy the service, re-sell it to the customer. That way the manufacturer is never really unhappy with the price they’re getting for it, and the customer is frequently getting other quotes from other people, from direct manufacturers.
Andrew: How could you afford to buy that? To buy the time, to sit on the cash. Did you get paid up front?
Interviewee: No. In the early days we would get credit from manufacturers and we used most of our initial earnings to build up our working capital.
Andrew: How did you get credit from manufacturers when you were brand new?
Interviewee: Well, a lot of them were people I knew going into this business. And they would – I might have to tell them who the customers were, and that they would say “well, yeah, the customer is, we know you’ll get paid so, you know, you pay us when you get paid”-type of thing. And then in some of the projects, the manufacturer is just offering his equipment time, which, you know, is like an empty airline seat. So, he’s not like putting up his own money. Sure, he’s got a payroll and utility bills, but it’s not a lot of out-of-pocket for him. So his risk is not that great and he’s willing to take the risk in hopes of developing business and developing relationships. So we were able to, like, bootstrap the business on that basis.
Andrew: What about the raw material? Who would pay for that?
Interviewee: It varies. Frequently the customer would send in raw. Some of our early projects were called tolling, where the customer owns the material. Sometimes the manufacturer would supply it and they would, you know, take the working capital. Or, in other projects we started to supply raw materials as well. It depends on the particular needs of a project how that works out.
Andrew: How much money did you fund the business with?
Interviewee: Probably a few hundred dollars in a checking account and some cash flow from remaining. The company I worked for gave me a consulting contract so I continued to get some income from them. And you know, the main thing in those days was airline bills and travel bills, and developing the business and stuff like that, were the main cost. But, again, I didn’t go and get investors or bank loans.
Ed Richment : We are not. You Know I am not a motivated seller and our company does not have physical assets. So, in ordering the streak there are a lot of chemical companies executive who are looking to get their own business and they wanted to buy the business on the business assets. So a chemical company has reinstating equipment and things like that we have a lot of goodwill and I concluded that the business is worth more to me than than to most of its buyer. If there is you know some strategic buyer in the middle east who wants to over pay for my relations in this industry and offers me an unbelievable numbers perhaps for considerations but that has not happen.
Interviewer : what is the Market Price ? What is the price on the paper of the business ?
Ed Richment : CashFlow is probably 5 or 6 times.
Interviewer : I see !…… If you gonna pay for the business I will send you Ed Richment ‘s Email address and you can email him…….you said…….when you starting out that relationships that was one of the hardest thing to build.
How did you grow those relationships then.
Ed Richment : Well….when I had a little bit of involvement and trust in this field before I started the business than my last voyeur. I had relationships with manufactures and they were very good and I just needed to go out and find the customers I knew I could go to various manufactures and lively I thought I had a lot of people encouraging me to do this on my own. And somebody years before had said beware if you start……..and there were a lot of people who encourage to start your own business and especially people you work with at ground competition. Those are gonna be people who help once you gonna start business they gonna be your friend either out of jealousy or fear for job security or what. The ones who encourage you the most are gonna be the least helpful. And that was kind of true and the other people outside. So, its kind of like a drug getting in for the first six months you have all these people saying then you through that see there is no businesses but somehow you met new people around the way now see you as your new business and they don’t see you as a guy left somewhere. So that’s an important transition. Yes you have to be seen as a head of this new business not as a guy you use to work somewhere.
Interviewer : I see…. so to transform you from seemingly like a wanna be someone you who they see the old you to new you. You gotta move to new people.
Ed Richment : And……You know a variety of people who were in between their jobs go out of control so they can help……so you had also you know get through that barrier I made it very clear to the people that I actually resigned my job. And I also made it clear that I had not only resigned but they didn’t want me to leave and are retain me as a consultant you know for the next six months but you know this is my business though I think that might help. People ask me…………….
Interviewer : Sorry, lets give the video the video the chance to catch up the audiu too we lost you for a moment but we are back….
Ed Richment : ……….when some outsourced a custom project its usually mush more painful to the company and that persons job they just find a project in a commercial market. Though its a small company it may be the entire company depends on that sensible project. Even in a War shed company the guy’s job may depend on getting this. And because they are outsourcing its difficult they aren’t going to be places to buy. So the relationship is going to be more important. You know somebody its trust important their personal future the company’s value to outsider to help them source this product. So it was very important to build my pro habitation that was part of my ……………….
Interviewee: — naming the company with my surname is that saying, you know, I’m putting my reputation out here. This is me, my company, you know, you can trust me, I’ve been working in this industry for a while. So, that was very important in developing these relationships and it’s also with the turnover in many industries, in the chemical industry 20 years ago, there were still a lot of turnover in this part of buying chemicals and custom, and people would switch companies but they would maintain the relationships. So, somebody might move companies and the guy, instead of giving his business to the old company, he’d call his friend because his friend, he trusted him. So, if this was the business where, you know, the equity I build up was based on relationships, not necessarily by —
Andrew: Let’s — I’ll give the camera another chance to catch it. We lost — the camera was — we lost the video and the audio for a bit. But my audience, I know, is going to want me to get more specific. You start a business without any relationships, a business that depends on relationships and within six months or so, you start to have the relationships that you need to build up the company that eventually became a five to ten million dollar a year business. More specifically, how did you build those relationships? Give me an example of somebody who you went after and you were able to build the relationship with them that then transferred into business?
Interviewee: Well, the first ones were with, let’s say, manufacturers that I knew but I knew from, you know, when I was a boy. So, I would go visit their site, talk to them, you know, what kind of business, and I bring you the <36:55>. So now, helping them fill a need and I also need to convince them that I’m going to select projects that are appropriate for them. I’m not going to waste their time with all the projects I see. So, I become a, you know, a valuable accessory to them and also I’m not costing them any money. They’re not paying any upfront fees, they’re not paying travel cost or any ñ I’m just —
Andrew: And that’s the easier side of the business. What about the other side, the people who are going to be paying you? How did you build those relationships?
Interviewee: All right. Well. The customers, you know, calling people, asking for business was always tough and it was tough in my line. Probably, the best way they were dealt ñ well, let me start with the answer, then you’ll have some questions, how did you get there. I build the relationships by helping them solve their problems.
Interviewee: So, some customers would be, you know, they have a problem, they’re calling a lot of people. So, it’s not like, they’re giving me a piece of business that they’re withholding from anybody else, they’re talking to five, six people or whatever. And if I come with an attractive solution, then they give me a chance and then they give me another chance. And also, it was very much a intricate networking thing. Manufacturers who had customers contact them and they couldn’t help them, they eventually would say call Ed Richman. I can’t help you but he maybe able to find you a solution. So, those people came, like, prepared to deal with me professionally because I was legitimized by the referral. So then, I looked at it and said, you know, this is better than cold calling because you know, somebody cold calls very hard to even get you appointment with pharmaceutical company, buyers and things like that. So, I said, let’s, you know, let’s work on the referral, let’s work on something when people have a problem how can they find us. And this was before the web and Google and all of that. So again, I networked out, I went to industry functions, trade shows, other manufacturers, let people know that, you know, if you got anything that doesn’t fit, let me know, I’ll help, you know, you’ll be a hero with your customer and I was even at the beginning offering people referral fees. It turned out nobody wanted them and it wasn’t necessary, it wasn’t professional, so I said fine. You know, just, you know, I’ll work hard on anybody you referred to me and it was — it took, maybe, about three/four years to figure out that I was getting ñ well, certainly getting —
Interviewee: reasons for naming the company with my surname is that saying, you know I’m putting my reputation out here. This is me and my company. You know you can trust me, I’ve been working in this a while. So that was very important in developing these relationships. And, it’s also with the turnover in many industries and the chemical industry twenty years ago there was still a lot of turnover in this part of buying chemicals and custom. And people would switch companies but they would maintain the relationships. So, someone might move companies, and the guy, instead of giving his business to the old company, he’d call his friend, because his friend, he trusted him. So if this was a business where, you know, the equity I build up was based on relationships, not necessarily my…
Andrew: Well lets give the camera another chance to catch up, we lost the video and the audio for a bit. But my audience I know is going to want me to get more specific, you start a business without any relationships. A business depends on relationships, and within six months or so you started to have the relationships you needed to build up the company, and it eventually became a five to ten million dollar a year business. More specifically, how did you build those relationships? Do you have an example of someone you went after and you were able to build a relationship with them and that transferred into business?
Interviewee: Well, the first ones were with, lets say manufacturers that I knew. But I knew from another… and you know I was… So I would go, visit their site, talk to them, you know, what kind of business can I bring you, that you’re gonna want? So now, helping them fill a need. And I also need to convince some that I’m going to select projects that are appropriate for them, I’m not going to waste their time with older projects I see. So I become a, you know, a valuable accessory to them and also I’m not costing them any money. They’re not paying any upfront fees, they’re not probable costs or anything.
Andrew: And that’s the easier side of the business. What about the other side? The people who are going to be paying you. How did you build those relationships?
Interviewee: Alright well the customers, you know, calling people, asking for business was always tough… tough in my line. Probably the best way they, well let me start with the answer, you’ll have some questions, how did you get there? I built the relationships by helping them solve their problems.
Interviewee: Some customers would be… you know, they have a problem calling a lot of people, though its not like they’re giving me a piece of business that they’re withholding from anybody else, they’re talking, five, six, hate or.. whatever, and if I come with an attractive solution, then they give me a chance! And then they give me another chance. And also, it was also a intricate networking thing. Manufacturers, who had customers contact them and they couldn’t help them. They would eventually say, call Ed Richman, I can’t help you but he may be able to find you a solution. So those people came prepared to deal with me professionally. Because I was legitimize by the referral.
Andrew: I see.
Interviewee: So then I looked at them and said, no this is better than cold pollen, cause you know, its very hard to even get the appointment with pharmaceutical company buyers and things like that. So I said, lets work on referral. Lets work on something when people have a problem, how can they find us?And this was before the web, and google and all that. So again I net worked out, I went to all the industry functions, rate shows, other manufacturers and people know, you know, you got anything that doesn’t fit, let me know. I’ll help, you know. You’ll be a hero with your customer and I was even at the beginning offering people referral fees, it turned out, nobody wanted them, and it was necessary, it wasn’t professional, so I said fine, you know, just, you know, I’ll work very hard on anybody who referred to me and it took maybe three, four years to figure out that I was getting…
Interviewee: — very good internal marketing department, we’re sending out emails to the appropriate people saying we’re going to be at this trade show, it’s on our website, if you want to meet with us, please call or contact to schedule a meeting. So, we’re out in San Francisco, we get some San Francisco, some Bay area clients arranged to meet us there.
Andrew: How do you — how do you —
Interviewee: It’s really cost-effective.
Andrew: You said earlier that you seem bigger than you are that people see your name often. How do you get your name out there? You said press releases, I understand that, articles, what else? What’s been the best? What’s been the most effective?
Interviewee: Well, if we get mentioned in one of the big circulation <45:46> the magazines of the industry. So, we talk to reporters. I always have time for the press. I try to say something interesting or humorous or useful so that they will put something in and quote me. And, you know, everybody sees it and, you know, it can be three or four months later that somebody says, oh I saw you were mentioned in such and such. So, it’s not necessarily direct business but it’s, you know, credibility and we joined several organizations, like, participate in their events, and we’re always looking to keep our name out there and make sure people know what we do and when they need us.
Andrew: Okay. In the early period when you weren’t making sales, when you didn’t have the reputation, when there wasn’t a lot of money coming in, how did you sustain yourself? I get that question a lot, by the way, from the audience. They’re always angry at me for not asking what happen in the early days when there wasn’t revenue.
Interviewee: Right. Well, the thing was, my wife had a good job at the time and she was growing impatient as well. Though she said, I can’t do this much longer, you’ve been talking about doing something, though it was like, you either man up and do it now or I’m going to quit. I’ll give you two years to do it. And, you know, don’t come home and whine and say, oh, your boss doesn’t understand and everything, you know, just, you know, now is your time and, you know, we had — my two daughters were in college, it was not a convenient time. We spoke to them and said, look, dad is going to do this thing, you know, we don’t know where things are going to do. And my girls were great. They said, you know, we don’t care. We’ll work, we’ll take loans, just go for it, dad, you can do it, you can do it. So, at that point, I could not and sure enough, my wife kept working for whether it was two or three years and then she joined my company as my first employee and after a couple of months she said, why are you doing this? Why are you doing that? And when she didn’t like my answers, we changed and she really added a lot of value into — she wasn’t a chemist but, you know, in the early days we upgraded a lot of our suppliers, I was working with some friends who were, let’s say, marginal chemical producers and she was dealing with them in terms of schedules and deliveries, and she’s saying, you know, you can’t build a business based on these kind of suppliers, you know, why aren’t you dealing with companies like Eastman and DuPont, you know, reputable companies. And I said, I don’t know, I’m not sure they’d want to work with me. So, it was, you know, it was, like, a few months later, by coincidence, Eastman called me and said, you know, we think we’re missing something because we’re not working with brokers and independent agency in the industry and we’d like you to visit our plants and become familiar with what we do. So, I said, where are the plants, and they said,
don’t worry, we’ll pay for your airfare, we’ll pay for your hotel. We just want you to come down and see what we do. So, I said, great. And then, I, based on my wife and <49:30> and I said, you know, there is really no reason I can’t approach the best manufacturers in the world with this business, and that’s been true ever since. So —
Andrew: Go ahead.
Interviewee: Yeah, I would just say, a lesson there is, you know, for people, don’t underestimate yourself, you know, don’t sell yourself down, you know, I’m just a little guy, you know, I can only work with other little guys.
Interviewee: If you got a valid idea, if you know, a valid business opportunity, you know. You’re better off starting at the top with the best people. It’s not necessarily the biggest company, but start with the best and keep upgrading.
Andrew: Okay, so that’s an example of a company that came to you. How did you get one of the big guys when you had to go after them?
Interviewee: Well usually, through our network…I was on some committees before and after I started the business. I knew most of the people in the custom manufacturing area and if I didn’t I would call somebody and try to get a referral, you know, for credibility. And then at some point we started just making like phone calls to manufacturers. We’d explain our model, we’d explain the business opportunity, and it was you know, generally good. I mean there’s very little…When you call somebody and tell them I have a great business opportunity I want to bring you, it’s not going to cost you anything unless you decide you want to do it under your terms. You know, I mean, how many people say no?
Andrew: [laughs] Alright, you said earlier that when you’re in business you need to be a realist. How at Richman Chemical did you have to be a realist? What are some of the hard decisions that you had to make as a realist?
Interviewee: Well, some of theÖI wasn’t gonna get first call on big pharma projects. I mean I could practically walk to Merck offices and Glaxo offices [unintelligible] in our neighborhood, and you know, I wasn’t gonna get their good projects. So, you know, I decided I wasn’t gonna really chase that business. I was going toÖAnd at some point the inquires, the opportunities were coming in through this informal networking and referral machine. And I’m working on them, and then I’m building on them, because maybe I need a raw material for a project I’m working onÖAnd I’m talking to companies with those raw materials, and I’m making new contacts and new relationships, and I’m speaking to a couple manufacturers… Every time I went to a manufacturing facilityÖNow anybody in the chemical industry listening, just close your ears for a minute. You get a plant tour, you readÖYou look at the labels and you read the labels. What kind of products are they buying? What kind of products are they shipping? And there other opportunities there. So you, you know you just build on what you see in front of you. And the realism was not taking aÖBecause I didn’t have investors, I didn’t do a five year business plan and said, ëYou know, I need a million dollars of new business next quarter I have to go after these three or four companies to get it’. I would take some projects that didn’t look that promisingÖAnd the other thing I learned is you can’t always tell a book by its cover. Some of the projects that come in, the people don’t seem that credible, their business idea doesn’t seem that good. A couple of those turned out to be good business. Some of the projects that come in that look like I’m gonna retire next year on this project and you know, it just never happens.
So, I think it’s being realistic means in part you can’t control events. You know, you have to be to a certain degree a counterpuncher when you’re a small guy in a big industry. You have to look for your opportunities and take advantage. You Once you get a project even when you can’t control events, you can control communication. So that was always a core value thatÖAnd when we know we’re running into problems we might wait twenty-four hours to see if it can be worked out. But we’re gonna tell the customer, “We’ve got a problem, here’s how we’re gonna try to deal with it but we want you to know in case you have to start doing something’. And for the most part the projects where we had serious problems generated our most loyal customers. Even when we delivered late or short, we were so much better than other people who had screwed up that they became extremely loyal. And it was, You know the first few times it was a total surprise to us that we said “Oh my God, we’re never going to see them again’, and then we’d get the new business and we’d be afraid to ask and then after awhile we’d ask and say, ëYou know, that was a pretty rough time we went through’ and they said ëYou know, we understand’.
Interviewee: …projects, when you scale up, you don’t know what kind of problems you’re gonna run into, and you were very good at communication. You kept us in the loop; you helped resolve the problems, and we’re really very happy the way it worked out.
Andrew: One of my concerns here as I talk to successful entrepreneurs is we toss around millions all the time. It’s like 5 million to 10 million a year, a zillion dollars here, a zillion…It becomes unreal and hard for people to even conceptualize. Do you think we could go a little smaller and talk about that first million? The first million that you had in the bank — what did that feel like?
Interviewee: I didn’t really focus on that. Again, my primary objective was security. So as I was building that up and it mostly stayed in the business working capital it felt like more security. But I always, almost daily, I would look at the financials and say, “If I never get another order, how long is that gonna last?” So, I always started from the most pessimistic case possible as saying “where am I?” and anything better is great. So it was mostly about financial and personal and family security. I got this, and then I tried to line up some good long-term projects, ’cause we’re in a business where you can get a one-time order and never get a repeat, so you never really know. So I tried to build — what’re things that you can go home, have a drink, and relax afterwords, and you feel comfortable that the business will still be there. So it was never really a numbers game. It was just “Is that gonna take a little stress off me?” Eventually, it got to the point where I could, let’s say, fire customers because I don’t need that business, and I don’t want to do it, so I just don’t have to do it any more. And I could stick with my principals when I was negotiating because I did not need that one business. Maybe a manufacturer comes to me and says, “The customer called and, now that we’re making the product for him and everybody’s happy, what do we need Richman for anymore? What do I need you for anymore?” I said, “I bought you this business, we have a contract, and you need to tell the customer that. And not only that, but this is one product you’ll get from that customer. You’ll never get another piece of business. He’s not in your industry. You may get 5 a year from us.” And he said, “Good point. Thank you.” So now, if I didn’t have money in the bank, I might say, “Oh my God. What kind of commission are you willing to give me?” So that was the issue. A lot of people today entrepreneuring are starting out younger and they’re not as worried about it. They don’t have
families to support, for example. They could take other risks. But again, what do you want personally out of it, what’s your risk profile? You have to operate with this.
Andrew: I think that’s everything. How about one last piece of advice for entrepreneurs who are getting going?
Interviewee: One thing I learned that meant a lot is get going and do things, because the business that develops may not be your initial idea, but you’ll never get there if you don’t start. And second, don’t let perfect be the enemy of good. Don’t spend too much time perfecting it like you want a hundred on your paper. If you’ve got something good, get started. If it starts, you’ll always have time to improve.
Andrew: I’ve heard that before. Perfect is the enemy of the good. Don’t wait for it to be perfect. I think it becomes more real when we hear your personal experience attached to that statement. Did you at any one point try to make something perfect and realize that your were just working against yourself?
Interviewee: Yes. My PhD adviser was a perfectionist, so I was forced to make things perfect, and it was very frustrating. I eventually met the standards, whether it was perfect or not is up to somebody else. I felt like, some people who look at perfection are off on tangents. Perfect is great, but a lot of what people think is perfect, turns out to be irrelevant.
Questions based on this interview:
I’m trying to use Mixergy’s new community site, Founders Mix to continue this conversation:
– You heard why Ed launched his business. Why did you launch your business? answer
– What are some good bootstrapping techniques? answer
– What are some good resources for learning sales? answer
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[This interview was suggested by Tam Cao, a Mixergy fan who works for Ed. Thanks Tam!]