Please enjoy this transcript of my interview with Carey Smith, Founder of Big Ass Fans, about the lessons he learned building a $500M business. Transcripts for other episodes can be found here.
“I think in some ways it's trite, but you really do learn an awful lot from failures. And the other thing you get from a failure — or certainly I did — was the fear of completely wasting my life. That was a much greater fear — to imagine that you wouldn't accomplish much of anything was just more than I could bear and what it moved me to was looking for other opportunities.” – J. Carey Smith
In this episode of Outliers, I catch up with Carey Smith the Founder and former CEO of Big Ass Fans, an industrial, commercial, and residential fan manufacturer. We discuss where the name “Big Ass Fans” came from, how his company evolved and catered to its customers and employees, and his simple but brilliant secrets to finding success.
Carey founded Big Ass Fans in 1999, and over the span of 20 years, he grew the company from $0 to $500 million. During that time, the company was lauded for its stellar treatment of employees, impressive growth without outside investors, and amazing customer service. After selling the company in 2017, Carey moved on to found the business incubator Unorthodox Ventures, where he helps disruptive founders build successful brands and companies.
Daniel Scrivner (00:00:05):
Welcome to another episode of Outliers. I'm your host, Daniel Scrivner. On Outliers, we decode what the top 1% of performers have mastered and what they've learned along the way. In each episode, I dive deep to uncover the tools, habits, and ideas that we can all apply in our lives. Today I'm talking to Carey Smith. Carey is the founder of Big Ass Fans, a business that he built from the ground up and scaled for nearly 20 years before selling for $500 million in 2017. Since then, he's found it Unorthodox Ventures, where he backs extraordinary founders and helps them scale their companies faster, using all of what he learned building Big Ass Fans. We go deep on a bunch of interesting topics, including lessons learned scaling Big Ass Fans, why it's important to deeply understand the people purchasing your product, not just those enjoying it, and building lucrative businesses in unsexy markets.
Daniel Scrivner (00:00:57):
As you'll see, Carey is one of a kind. For quotes, links and notes from this episode, visit outliers.fm. With that, please enjoy my conversation with Carey Smith.
Daniel Scrivner (00:01:10):
Carey, I'm so excited to have you on the show. I've been looking forward to this interview for so long. So, thank you so much for coming on Outliers.
Carey Smith (00:01:17):
Thank you, Daniel. Appreciate it.
Daniel Scrivner (00:01:19):
I want to just start by talking about your early childhood, and if you could just share a little bit about the family you grew up in and some of the jobs you had early on while you were in school.
Carey Smith (00:01:31):
Sure. Well, I was the eldest with three siblings. I think that was important, or at least it was to me. We moved around a lot when I was a kid. I actually, I think I counted it upright, I went to 10 different schools by the time I had graduated high school. We actually moved ... there were some times where we moved within the years. I feel so sorry for my mother, because when you get older, you go, oh my God, I mean, that poor woman had to move every year. Just to pack up a house, it's ridiculous. But the upside of that is that I think that when you, as a child, when you do that, you become self sufficient because you really don't have ... I mean, you have friends, but not any friends past a year or so.
Carey Smith (00:02:25):
The downside is, and there is a downside, actually important downside, is that, because you are self-sufficient, you really don't look for advice. You don't take counsel of other people. I think that, and when you're running a business or starting business, it's probably something that would have helped me an awful lot and I just didn't do. When I was kid, gosh, I think the first job I ever had, or the first thing I did, I was in fourth grade and I started selling Christmas cards door to door, which was interesting. It was very into me. I can remember it because it was sort of exciting. The focus to get your, almost literally get your foot in the door, and you have to think, I mean, if you're in fourth grade, everybody would let you ... I don't know why the hell they didn't, but they didn't.
Carey Smith (00:03:21):
Then to sell a premium pack, it was a big deal. It was sort of cool. Beyond that, for some reason, I didn't work until I was like 14 after that, but I worked in a dry cleaners, which was interesting. Interesting, very sweaty, nasty little job. But what was funny about that was I got this job, I just walked up and down the street until somebody gave me a job. So, it was a nasty job. It was hot. It was in the summer, it was hot. You just sweat through everything. Finally, I was so ... I really was looking forward to school starting because I knew that I have the perfect excuse. I could leave the job. I'd say, that's it, sorry, thank you very much. But the guy that was my supervisor, and he couldn't have been ... he may have been 20 years old.
Carey Smith (00:04:15):
He said, "Well, that's fine, Carey, that's no problem. But you know, you can't quit until you get a replacement in here." Like a dummy, it's like, oh my God. Well, okay. I remember going to school and asking everybody, "I've got this job, you can ..." I've forgotten how much he paid. I found somebody, and I felt sort of happy and sad. It's sort of like a Judas goat. I mean, that terrible. But anyway, after that, I sold shoes after school. Which again, I think that, any time that you're doing something like that as a child or as a young adult, it teaches you a lot about scheduling and about apportioning your time. I think that's important and that's when everybody else is going out goofing off, you're going to work.
Carey Smith (00:05:09):
Of course, you learn a totally different vocabulary and you learn how to deal with adults, and it's fascinating. Then during college, I worked various jobs as janitors and so forth. I can't say that I learned a lot from being a janitor though. One of those jobs, I worked in hospital, a janitorial job, and I did learn how to wash [crosstalk 00:05:29] trans-nighting.
Daniel Scrivner (00:05:29):
What was that like?
Carey Smith (00:05:31):
Well, I want to tell you something, you don't chew gum and wash your bed then. Okay? Because you better keep your mouth shut. It was uninteresting as something like that sounds. The other people that were doing it were intellectually underdeveloped. For them, it was, I mean it took concentration and that was interesting. It was interesting it was, there's no such thing as a bad job. You can do a job poorly, but to be associated or working with people that, that was a high point. Well, I wouldn't say high point. Maybe it wasn't a high point.
Daniel Scrivner (00:06:13):
At that point in time maybe.
Carey Smith (00:06:15):
[inaudible 00:06:15]. It was interesting. It was very interesting.
Daniel Scrivner (00:06:24):
Before starting Big Ass Fans, you had another company that was focused on something similar called Sprinkool. Can you talk a little bit about the insight or idea you had that led to founding that and what you learned along the way?
Carey Smith (00:06:37):
Well, I learned a number of things from that experience. The idea came from the fact that when I was kid, we lived in places that were an air condition. One of the ways that we cooled, and this was in the South, and one of the ways we used to keep the house cool, before we ate, was we sprayed water on the roof. It was always sort of interesting to me that how hot the water was when it came, dripping off the roof. So, you move that 15 years ahead, and I'm thinking I've got to get out of this re-insurance gig because it's driving me crazy, and we're in Dallas at the time and I'm thinking holy, and they were having ... at that particular summer, the temperature got up to 117 degrees in Dallas, which is sort of hot.
Carey Smith (00:07:31):
We hearkened back to that way of doing things and we devised a system, my father and I devised a system, to install on industrial roofs because there's a large exposure to the sun, obviously on a large industrial roof. Most of the facilities were not air conditioned. It seemed like a really inexpensive way, a relatively inexpensive way to mitigate the heat within a large space. There were many problems with that. I learned an awful lot from that, but I did it way too long, which is just another lesson that you got to know when to quit, and it took me a while to learn that lesson in that particular case. But I learned an awful lot about sales, which I'm not, as I said, I'm not ... I may have turned into a salesman at some point, but it was the last thing in the world I ever wanted to do, but I had to.
Carey Smith (00:08:27):
If you're going to do something like that, you have to research it, study it, and then explain it to your potential customers, and that's what I spent my time doing, in addition to writing a lot of articles, because at the time, because this was like in the '80s, there's no internet, but there were an awful lot of trade publications. I got to know a lot of people in trade publications and I could write and I loved research, and so I wrote continually. Anyway, we were able to sell this product, which is really strange. I think back on it, it's like who the hell would ever do that, and who the hell let me ... It had more to do with the people I was selling to than it did my skills, I think because who the hell would ever do that? Buy something?
Carey Smith (00:09:22):
I wouldn't let anybody get on my roof today, on my industrial roof. Anyway, I learned quite a bit about marketing, but I'm afraid that in sales and business, not so much about business, I don't think, but I think I learned about two years worth of interesting things, but I learned them five times over. That's always a mistake, and that's something I think that I always tell people, especially kids. Well, it doesn't have to be a kid. When they're doing something like this, is set a goal and set a time frame, and recognize that if you get there and you haven't accomplished what you set out to, then you should probably get off and do something else, because if you don't, and we see people do it, I've seen people do it all the time, and I did it myself, is you just ... You can't give up on the idea.
Daniel Scrivner (00:10:13):
Carey Smith (00:10:15):
Yes. It's terrible. Well, I don't know if I'd call it momentum. Well, it's like momentum, like you jump off the 30th floor. You've got some momentum there. Not sure it's something you-
Daniel Scrivner (00:10:26):
The momentum in the wrong direction, [crosstalk 00:10:28].
Carey Smith (00:10:28):
That's right. You got it.
Daniel Scrivner (00:10:31):
Clearly, that did not end up being successful, but it sounds like you learned a lot in that experience. In your mind, it was that formative. Do you think that you needed that failure early on to go on and ultimately be successful with Big Ass Fans?
Carey Smith (00:10:45):
Well, I think that I really do. I think, in some ways, it's trite, but you really do learn an awful lot from failures. The other thing you get from a failure, or certainly I did, was the fear of completely wasting my life. That was a much greater fear, to imagine that you wouldn't accomplish much of anything. It was just more than I could bear, and what it moved me to was looking for other opportunities, because by the time that the Sprinkool had failed, or more or less, or was obvious it was going to fail. We never got it over a million and a half dollars a year.
Daniel Scrivner (00:11:30):
Which is still incredible you got it to a million and a half dollars a year.
Carey Smith (00:11:33):
That's ridiculous. I can't ... I don't want to. I didn't even like to think about it. If you hadn't brought it up, I would've never talked about it.
Daniel Scrivner (00:11:39):
Sorry I did that.
Carey Smith (00:11:42):
But it drove me to find something else, and I think it's interesting for other people that find themselves in this situation is the ... What I learned from that was I learned an awful lot about industrial facilities, I learned a lot about the people that run industrial facilities, and what their problems were, because I talked to them all the time, for years, for a decade. I knew what I was looking for, and based on the business and the case that I was forced to make with Sprinkool, which was radiant teat and heat flow and changing of phase of water and yada, yada, yada, I recognized that I needed something much, much simpler that the customers thought they understood anyway.
Carey Smith (00:12:31):
As I said, I wrote a lot of articles for trade magazines, and consequently, I read a lot of them. I, one day, saw an ad for this Big Fan, and I thought, holy cow, that's something pretty cool, and then I promptly lost that ad and didn't know who the people were. Then fortunately, they ran the second ad that they ever ran. That was it. That was all it was. I called them up and we did a deal. Part of the deal was that ... because they ... at the time I met them, they'd been in business, and they were doing other businesses. This was a machine shop, and they'd sold 17 fans and they hadn't gotten paid for like 10 of them. Actually, my first association with them was just trying to get these people to pay them. That didn't work either.
Carey Smith (00:13:24):
But it was obvious to me that it was a very interesting idea because I knew the space. I knew how it could be used. So, we made a deal, and as I said, one of the part of the deal was, that once I sold a certain number of these, that I had the right to buy the IP. Amazingly enough, I did. We were able to sell it, and I bought the IP. Buying the IP, it was obvious that the whole manufacturing process needed to be changed. So, it worked out quite well. I learned an awful lot. Manufacturing's a very interesting business in general.
Daniel Scrivner (00:14:06):
I'm curious, so you have this experience at Sprinkool where you're talking with all of, will initially become some of your early customers, I'm guessing, at Big Ass Fans, and I'm sure, in that process, you're learning a lot, about, clearly you felt like you probably had the wrong solution. There was something easier for them to grasp onto, but what was it when you saw that ad that made you say ... that made you stop and think seriously that there was something interesting there?
Carey Smith (00:14:32):
I'll tell you that I remember the ad, actually I saved it, because I knew immediately that it was the answer. When I called the guys, and they were just a machine shop when I called them up, I said, "If this works, then I'll take care of this for you globally." These guys, they had not been successful. It was so obvious to me what it was. I can remember going to the airport to get on a plane to go see them, and I thought, my God, I've got to remember all of those, because this is like a turning point in my life. It's like, when I met my wife, the wife to be, I knew immediately, and I know this sounds dumb, but I knew right there that I was going to marry this person. I've never seen her before. It was the same sort of thing with the fans. It turned out that, initially, we referred to the fan company as the HVLS fan company, high volume, low speed, because that's what they were. Very small motor, very low power input, but a lot of air motion.
Carey Smith (00:15:41):
After a year or so, we changed the name to Big Ass Fans, and only because our customers, when they would call us, our potential customers calling us, that when we answer the phone with HVLS, there'd be a pause, and they'd say, "Are you those guys that make those big ass fans?" It was something that we changed the name, and we were lucky because one, it appealed to the people that we were selling to, which are maintenance directors. We understood their sense of humor, and secondly, that there were some people, there was a part of the population that really took offense, and that's always great, because they are typically vocal. In this case, they certainly were, and we got a lot of pushback, but pushback is ... that helps marketing.
Carey Smith (00:16:35):
But again, at the end of the day, what drove the company was one, the quality, because we were ... I was fixated on quality and fixated on understanding the problems that we were solving, and additionally, innovating. It got to be a thing because people, our customers, really understood, not only our product, but the way that we went to market, because we were very, very ... obviously we were the first people doing this, and the prices could be ... It cost what it cost, and we sold it for what it cost plus, but we never apologized for a high price, and we used the margins that we made on that to one, on the R&D side, secondly, to take care of marketing and thirdly, to make sure that the people that worked with us were well taken care of.
Carey Smith (00:17:40):
I think that that culture that was built up around those things was very appealing to our customers and potential customers, and I think it's what made us successful.
Daniel Scrivner (00:17:53):
I'm curious, just to know a few things about that founding moment or those early moments in the company, and those are, were fans popular in commercial spaces at that time? Then, it seems like clearly, I don't know, just trying to read between the lines, it seems like the value proposition is ... it takes a very little amount of power, but it does a lot of work for you in terms of cooling your space. Do I have that right, or what was that initial hook that really got people excited and interested in it?
Carey Smith (00:18:22):
Well, there's a couple of things. You're right in the sense that it was a very low power input, but the problem was, in a lot of these facilities, and in the South, especially, is they're huge. They're from like 50,000 square feet, which is a little bit more than an acre up into a million square feet, 20 times that, and in the States, they don't air conditioned those spaces. So, you, and especially in the South, very, very, very uncomfortable on the interior because ventilation ... there wasn't enough ventilation to make a difference to the temperature. They needed some sort of circulation within the space, because it would be much hotter on the inside of the building than it ever was on the outside. They naturally had fans. They had small fans, and I learned that people fight over fans and stuff in those places.
Carey Smith (00:19:26):
Our selling proposition was that we could use one fan, put it out of the way. Nobody could touch it, it's on the ceiling. And we could cover 10,000, 20,000 square feet of space with a breeze. If you've got a million square feet, you need 50 of these things. You don't need 500 or a thousand of these little tiny fans with fractional motors that waste an awful lot of energy, because we replaced a third horsepower motor with a one horsepower or a two horsepower motor. So, they saved a lot of money on that side, but that really wasn't. We thought initially that was a sales pitch, but it wasn't that so much as it was being able to take care of their employees, because there was no way they could air condition the space. It would cost millions and millions of dollars, and the operating costs are ridiculous.
Carey Smith (00:20:22):
So, it was the solution to the problem. Again, I think that's very important from a business perspective, because we see a lot of people that, "Oh my God, I've got a solution." And we always say, "Oh, you got a solution, now you got to find the problem." That really doesn't work very well. I was lucky that having done this with Sprinkool and it failed, that I understood the problem, and I understood the people that had the problems are the people that could solve the problems. I knew what the price point was that was going to work, and now I had solution, so it sort of fell into place.
Daniel Scrivner (00:21:00):
You said something really interesting when you talked about changing the name of the company, and that was one, it sounds like you were hearing that from customers, literally customers were saying, big ass fan, but then the other piece was that you knew that that was part of the humor of your customers, the people that were going to be making the decision, whether to buy these or not. It seems to me fascinating that I would guess, in your space, a lot of people don't use humor, but clearly, it seems very natural to you. It seems like to me that, that's the start of what really became the brand. What was that origin of the humor aspect, and how important do you think it was for a product like this to have a fun, interesting, catchy, funny name wrapped around it, as opposed to something really boring and bland?
Carey Smith (00:21:43):
Well, I think humor is incredibly important, and I think it's important even in industrial sales, and people don't make enough use of it. I think they do more now than they did when we were starting the business, but I think you can look at a lot of businesses. I was just thinking like progressive insurance. Everything, [inaudible 00:22:04] ... what is the other one State Farm does, a lot of the insurance company do it. I don't know, everybody's got that itch, and everybody likes it when it's a scratched or tickled, and it worked very well for us. Again, one of the reasons is that I knew these people. I've worked with them or I tried to work with them for years and years and years, and so I knew who they were and I knew what would appeal to them.
Carey Smith (00:22:37):
We were able to do that. Plus, I think I've got a healthy sense of humor. I was able to bring all of that together, and I think in that sense, I'm very lucky, because we had the product and the sense of humor and the individuals that, on the other side of the equation of who are your buyers, who are very important, and it all fit. It was interesting. I always felt like people bought from us because it was a good product. Part of our culture was taking care of our customers, but the other part of that was taking care of the people that worked with us, that interfaced with these customers, and the customers recognize that. It always amazes me that you could have a company that says, oh, we think our customers, that's all we care about, and then they underpay their employees and they treat them like crap.
Carey Smith (00:23:38):
If you have a company that doesn't treat their employees properly, then that's a company that's not going to treat you as a customer properly. It just doesn't work that way, because that's your interface, and if your interface is faulty, there's going to be nothing of value, in this case, for the customer.
Daniel Scrivner (00:23:56):
You had a product, and it sounds like you were talking about, you know it needed to be ... you wanted to change the manufacturing of it. Was that what you focused on first or was it more how to sell it?
Carey Smith (00:24:05):
No, no, no, no. When we started, we weren't, and this is prior to the owning the IP, we focused on marketing because you have to tell people, you have to tell the market what you've got, and why they need to buy it, and of course, we didn't have ... we just had a couple of people. So, we had to market because we couldn't go out and sell. We didn't have the manpower nor the money to sell, so we basically let the customers come to us. Once we bought the IP, obviously we had to manufacture it, and then that was just exciting. Anything like that, it's very exciting, because you're doing something, from my point of view, I'd never done manufacturing and I was able to bring some people together that had done it. It's amazing when you're doing that sort of thing.
Carey Smith (00:24:56):
It's very possible. The same thing is true about software or anything else, but certainly with manufacturing, where you imagine, you recognize that you can imagine anything and there are people that can make it, actually bring it to life, and it's very exciting. Now, what we did do, and you may or may not know this, but we did all our manufacturing in the States, which I think is very important. Obviously now, more people are bringing it back, but we manufactured in the States because we had to control the quality. We felt like it was very, very important to know every single thing that was going into the product and make sure that the quality was ... because at the end of the day, these things, these fans weigh like 400 pounds, the industrial ones, and you're hanging on 30 feet over somebody's heads, you better be damn sure that everything is perfect.
Carey Smith (00:25:53):
Otherwise, somebody's going to be wearing it. Well, they'd be wearing it for a short period of time. That was very, very important to us, but very exciting.
Daniel Scrivner (00:26:03):
One thing I'm curious about on that manufacturing and design side is, so we have one of the residential fans that you make at our house and we love it. One of the reasons I chose it is it's, I think fans generally aren't, honestly the most visually pleasing things, but the ones you make, I think are beautiful. Even the industrial ones have a certain quality to them and a look and feel that just feels really wonderful. When you see it in a restaurant, it's not like, oh, don't look up, there's this ugly fan, that's here just cooling this, but it's actually something that you want to look at. Was that part of what you saw back when it was being manufactured out of this machine shop, or was that something that you brought to it as you started iterating and figuring out what this would become?
Carey Smith (00:26:45):
A lot of the function, or a lot of the form is dictated by the function and especially in the beginning, it was, but once we started manufacturing ourselves, we wanted to make sure that it was visually pleasing, even the industrial fans. Of course, the commercial fans, we started out industrially, but people, I mean, churches and schools and auditoriums would call us up and ask us about a fan, a big fan, and I always told them, "Well, this is great. I'm sure you need one, but these fans are industrial fans and we have gearboxes," and gearboxes or gears and with a bunch of oil. Though they're not excessively noisy, they're certainly not quiet. There was such insistence, again, listening to the customer, there was such insistence that we decided that we needed to build a commercial fan using a gearless technology, magnets, a permanent magnet technology.
Carey Smith (00:27:51):
The first commercial fan we built was ... We designed the whole thing. It was supposed to be totally different, and I was very, very proud of that and somewhat disappointed that nobody else thought it was that cool. It took us a year and a half to do it. When we got done with it, it was like, nah. The market didn't appreciate it. What was interesting though, was we recognize that, well, we need something like this, but this must not be it. It was just too big and too, I guess, in your face. We sold a lot of them, but not anywhere near enough. We downsized the fan, that was a 14 foot fan, we downsized this fan to 10 feet, and had a much more pedestrian design. The initial fan was very colorful, but a much more pedestrian design, but people, holy cow, they loved that thing.
Carey Smith (00:28:48):
You see them all the time. It's ridiculous. It also drove us, because some people ask me like you have one in your house, and they would say, "Well, Carey, why don't you make residential fans?" I always said, "Oh, I'm never going to do that. That's such a dumb idea," because residential fans look like crap and they're made with cheap material. They're junk. But what happened with this smaller commercial fan is people started calling up and buying it for their houses. Now, this fan was a $3,500 fan, and then to put it in your house, it's not like you hang it on a hook because it weighed a hundred pounds. A lot of people had to ... I mean, they would buy a $3,500 fan and then spend $2,000 on rejiggering their house so that they could actually install this fan in their family room. It's like, somebody's spending $5,500 on a residential fan?
Carey Smith (00:29:44):
People must not like those things. That's when we recognize that, oh my God, maybe we should start thinking about residential fans. We found somebody in Malaysia who was a Kiwi, is a Kiwi, a New Zealander, engineer that won a prize for a motor design and got in contact with him, and together ... well, we bought his company, we bought his designs, but he worked with us for gosh, for 10 years, and designed a residential fan. When we started, it was completely bamboo. Obviously we had steel and copper and aluminum in it, but the foils were bamboo, completely bamboo. Most fans are just made out of cardboard, paperboard and plastic, and most fans ... well, the average ceiling fan for a house cost about 150 bucks, and our fan cost somewhere between $600 and $1,200.
Carey Smith (00:30:53):
Everybody was like, there's no effing way you're going to be able to sell those things. And we sold, well, we got that part of the business from the time that we started, it took a couple of years, but we got it up to $70 million within five years, which is ...
Daniel Scrivner (00:31:12):
Carey Smith (00:31:12):
For a product that, again, totally different price point, and even now, at different price point. Of course, we had a lot of copycats. When we started, I think most ceiling fans, residential ceiling fans had five blades, and I think if you go look at it now, it's amazing, because ours had three blades. How many of them have copied our design? What they didn't copy, because you can't see it because people don't really understand what's going on is the technology because we had more processors in that damn little fan than I probably had in the first computer I ever bought. It checked temperature. It had a brain, it remembered how you programmed it. It knew what the temperature on the floor was, the temperature on the ceiling, knew the humidity.
Carey Smith (00:32:08):
He used all these things to operate, to make sure that the operations were optimized, because we saw this ultimately, as a means to reduce air conditioning. I don't think that people, even when we left, when I sold the business, they certainly didn't understand what was going on there. That was in the IoT era and nobody ever got, or the customers never quite understood IoT, and it didn't come to fruition. I'm sure it will over the next 10 years or so, but it certainly didn't tenure.
Daniel Scrivner (00:32:43):
Yeah. We're definitely not there yet.
Carey Smith (00:32:46):
No, not close.
Daniel Scrivner (00:32:46):
We're hearing you tell those stories, like the commercial fan story is fascinating, because it sounds like all you did was maybe go a little bit more industrial or pedestrian with the design and change the diameter of it by, it sounds like four feet, and then to see it take off, and with the residential fan, it's fascinating to me that you had the conviction to do something really different, because it takes a lot of guts, not only to create something that at that point, it sounds like it's what 5X, 6X your competitor's price point, but you knew that it was going to be better. Was there a secret you derived, or was there an insight you derived from those experiences of what customers were really looking for?
Carey Smith (00:33:23):
Yeah, I guess, that's, again, with the industrial fan, you could buy a small 30 inch fan for 50 bucks for an industrial space, and we're selling our fans for $5,000. I think that the understanding was that if you made the case, that people would understand. If it was fair, and when I say fair, I mean that it solved the problem. We understood the problem, as we did in the house, because the ceiling fans, normalcy, they don't work. They don't even work at all.
Carey Smith (00:34:00):
They don't even know what the hell is going on, because they're just cheap pieces of junk, and they're made ... They cost $19 a piece to make those damn things or less, and they're junky and they barely move any air, and we recognized that. I thought that, if we actually made something that worked, actually moved air in the house and we actually made it very attractive and we made it out of real material, real, not plastic, that there were plenty of people that were going to be interested in that.
Carey Smith (00:34:37):
Even if they weren't, at least it's something you'd be proud of. How could you be proud? Seriously, nobody's proud of making some damn cardboard fan, plastic cardboard fan that doesn't even work. We used ... it's not even close. I think at some point you recognize that people are looking for ... they're looking for value, but they're really looking for something that works. The downside of the economy, this type of economy is you have people like Amazon where people really don't understand, or Walmart. People really, I think, don't understand what that means, because we did everything ... we paid more to make our fans in this country than we would've paid if we made them, if you make them in China, God forbid.
Carey Smith (00:35:35):
People didn't ... Maybe they appreciated that, maybe they didn't because they were always looking for something cheap, and you go, well, it's cheap, but it doesn't work. Yeah, well, it's cheaper. In Amazon and Walmart, there's a continual drive because they're retail, they don't care. They're only interested in margin and they're not interested in quality. If you're going to buy it, then the quality's good enough. I think people don't recognize when you descend to the level of Amazon, the buying from Amazon or Walmart, that you basically screwed the manufacturer and you forced the manufacturer to think in totally different terms. Now, the way we looked at it was, well up here, this is the way we're going to do it. It's going to be top quality. I'm not selling through Amazon or Walmart or anything like that.
Carey Smith (00:36:29):
If you want it, you got to pay for it, and we could make the case. But for a lot of companies, they don't make that case and they get swallowed by Walmart or Amazon, and they're forced to pay attention to pennies, and that's what you get. That's what you get. You get a commodity. If you're buying from a commodity seller, you get a commodity.
Daniel Scrivner (00:36:51):
Yeah. I've heard you, even in the process of talking about, yeah, just how you iterated on those fans and you weren't ... if you tried something and it wasn't as successful as you thought it would be, you didn't scrap it, you just came back to the problem and tried to think about what you missed there. I think there's something fascinating there, and I've heard you describe the company is constantly in motion, and you just always iterating on every part of the business. Was there just a philosophy or insight that drove that, and did you have any big surprises along the way? Clearly, you've talked about some of them, or that commercial fan, you make a small change and things take off, but I'm just curious what drove that and how you brought that to life with the company.
Carey Smith (00:37:32):
I think some of this is, it's not like a big reveal. At some point, I think that a company reflects the entrepreneur or the entrepreneur's personality. I think that's all it is. I remember thinking, if some ... this sounds ridiculous, I suppose, but driving through a town that, if there was somebody that didn't like my product that was in that town, that would be just a bad thing. I wanted everybody to like what we were doing. I wanted everybody to appreciate what we were doing. To that end, we called everybody we sold a fan to, we called them up, and not like, hey, how's it going? Yeah, yeah, fine click. We called them up and ask them what they liked and what they didn't like. The most important part of that is what they didn't like, what is it that we did wrong?
Carey Smith (00:38:32):
We changed all sorts of things over the life of the company, from the bolts, from the ... boy, the bolts were packaged to the instructions. We drove everything so that, typically, when we made that call, and I had a lot of people make and these calls, and it was a big deal that people were happy. They liked it. If they didn't like it, which of course that's golden because now you can actually work on something. It's like looking in a mirror, you can actually see the problem, that we can fix that and we can improve if upon it, because that to me is a big deal because you're asking somebody, I'm giving you a piece of material, a product, and in exchange, you're giving me money and that's a big deal. It's like, you coming to work for me, yeah, I pay you, but I you're giving me this part of your life.
Carey Smith (00:39:26):
That's something that is, I think it has value, and you have to appreciate that. I think the same thing is true. It wasn't a reveal. It's the way things ought to be, and keep in mind that we were successful, and when you're successful or when you're making money, I'm talking successful as a company, you have the wherewithal to do this, and you can either take that money and buy another house or buy a yacht or an airplane or some BS like that, or you can put it back into the company and make sure that you're providing, that everybody will, I hate to say this, but everybody likes you. Everybody appreciates what you're doing. I think that's something that I see a lot of companies, a lot of people that come to us, and they're fixated on their, how many likes they get and if people say wonderful things about them, but they don't fixate, and they don't even listen.
Carey Smith (00:40:28):
As a matter of fact, they try to avoid talking to people, customers that don't appreciate their product. That to me is just a total ... getting a pat on the hiney is no big deal. Somebody telling you how to do your job better, that's a big deal. You should pay attention to that. You shouldn't be taken aback by that. That's something that's valuable.
Daniel Scrivner (00:40:49):
Yeah. No, there's absolutely gold in that. I find it hard though, where I find it's somewhat difficult, because I think for the reason, in my experience, that a lot of people avoid that feedback is, it's just part of human nature is, if you read negative feedback, you inherently try to interpret it as someone saying something negative about you. I know a lot of people just struggle with that. Were you really careful with hiring to just make sure that you brought people on board that thought that way, or how did you get the right people to make that work?
Carey Smith (00:41:19):
Well, I don't think you can hire ... Obviously you can hire the wrong people, but I think that that goes back to the culture and the way you, and it's not ... you can talk about culture, but that doesn't mean anything, and you have to make it obvious. For example, we made mistakes. When we made a mistake, and we made mistakes. We made mistakes that were costly. We had, for example, one time we had a problem with a weld, now because we had a contractor, or a contract to a company to make frames and they welded the frames together. Well, for whatever reason, they missed for a certain batch, they missed the weld. If this means anything to you, they just tacked it. There's just a spot weld where there should have been a full weld, and we didn't know this until it got into the field, and then we found out.
Carey Smith (00:42:25):
We had to find all of those fans. We had to go out and tell the customers that something terrible has happened. It wasn't terrible. Nobody was hurt, because we did this very quickly, but you have to tell the customer who's trusted you, hey, guess what? I screwed up, which is very, very painful, and then get out and take down all these fans. There were hundreds of them. They cost hundreds of thousands of dollars, but you have to let everybody in the company know this is what happened. This is why it happened. This is what we did. This is why it's good. This is why you have to pay for a mistake. Because if you just go, huh, well, maybe nothing will happen. There's more than one weld. That's not the way you do it. You set it up, and when you make a mistake, you advertise it to your ...
Carey Smith (00:43:13):
You have to tell the customers this, of course, but you have to tell all the employees, and you have to tell them, this is what we're going to do. This is how we handle this sort of thing. So, this cost us $300,000 to fix this, but we were dumb. This is how we're going to fix it. This is what we're going to do. We did that on every single thing where we made a mistake, we made a big deal about it. Additionally, when we made a mistake, for example, with a specific customer, I mean, you sell them something that, for whatever reason, doesn't ... it breaks before it's supposed to, it doesn't make warranty, or there's any sort of problem.
Carey Smith (00:43:53):
They don't even like it. They don't like it, whatever reason, it doesn't matter, you make a big deal out of fine, you don't like it, I don't care. You don't need a reason not to like it. We're just going to give you your money back. We'll just call it even. Everybody knew that. Everybody knew that you didn't have to make money, that I wasn't interested in making money on every deal. It didn't matter. Obviously we had to make money on cumulatively or the summation of all the deals, but on the individual, I didn't care if, well, they paid me $5,000 and it was going to cost $6,000. I don't care. It was fine. That's what happens when you make a mistake. But when you make a mistake, after realizing, you have to accept it, you have to pay the consequences.
Carey Smith (00:44:38):
That I think is part of the culture. The other part of the culture's related to people making mistakes and so forth. If you want people to think outside the box, you're going to have to recognize they're going to make mistakes. But that's how I think that that was a big deal. The whole culture of the company was extremely important. As I had mentioned before, I think that the customers recognize that too. The customers, I think, were always imagining, could you imagine working at Big Ass Fans? Because those guys, they're cool and they treat everybody well, and they overpay them and all that happy stuff. I think that that helped us on the, obviously from the employee side and from the customer side as well. If you build something that is valuable, people appreciate it, and it just increases in value. It's like karma, man. You know.
Daniel Scrivner (00:45:40):
I'm guessing that idea probably shows up in your work today at Unorthodox Ventures. Is this something that you talk to the companies that are coming to you, the companies you choose to invest in about?
Carey Smith (00:45:51):
Yeah. Well, I think it's very important because what ... the business we're in right now, and again, we're just feeling it out. We've been doing it for a couple of years now, is what we see in the market right now when people go out to raise money, they give away equity, they give away their equity, and they give it to people, VC firms that are manned by bankers, and bankers, next to lawyers, are the least business-like people that walk the planet. They don't know Jack about business, and they really can't offer much advice. They'd actually offer almost no advice, but they certainly take equity. They're willing to do that, and they pay for it, but if you don't tell the entrepreneur ... if you don't help them use the money, if they don't know how to use the money, and I certainly didn't when I started either business, they're going to waste it and they're going to have to go back for more money.
Carey Smith (00:46:54):
We see a lot of people that are in a situation where they started the business, and after several rounds, they own 10% of their own business, which I think is ...
Daniel Scrivner (00:47:05):
They have nothing.
Carey Smith (00:47:05):
That's like indentured servitude. What we try to do is we say, look, what we do is, if we like the business, and if we like the sector, if we like the business, if we like the individual, and the individual is a big deal. That's a big deal because they have to be able to think, then we say, okay, we evaluate the market and this is how much it's going to cost to enter this market, to do what you want to do to get you to a point where you're breaking even, not where you're going to raise more money, screw that. Who needs to raise more money? That just cost you equity. This is what it is. Then we basically help the company build that business, because we've got ... In the firm, we basically took people from the Fan company, Big Ass Fan company.
Carey Smith (00:47:55):
We've got people that ran the engineering department, that ran marketing, that ran sales. It opened and ran offices in foreign countries, that did the analytics, that did the engineering on designing and the fans and the software and the hardware and the firmware, and all of that happy stuff, is that we can help you build this business. The deal is, I don't any more of your equity. That's how we're paid. We're paid in equity. I don't want to be the majority owner of your business, that would be a mistake for us. So, if we say, okay, this is what we're going to give you, this is the help which typically goes on for the first four to six months, is we actually ... It's a day-to-day on the telephone handholding scenario.
Carey Smith (00:48:51):
If we wind up, if we have 25% or 30%, that's all, that's what we want to get to, and that's so that you own 70%, 75% of your business, and that would be a great thing, because that means one, we're good partners, because now we're in business, now we're making you money. At some point, and we can help you, I mean, we're going to hire all these people that are going to be working for you, but on your payroll ultimately, but then you don't have to worry about ... and you don't have to spend your time trying to raise money worrying about a down round, worrying ... You can get on with running business. Now, it's not like everybody that comes to us is even thinking about actually running a business. Some of them, or actually, maybe a lot of them, are just trying to make money, which I think that's all wrong.
Carey Smith (00:49:43):
You can make money. It's the whole karma thing again. If all you're interested in is making money, I'm pretty sure you're not going to make any. Not real money. You make some money, but not real money, and you won't wind up with a business. I think one of the reasons that, and I don't want to be a sexist here, but one of the reasons that we deal with a lot of women entrepreneurs is because they have a tendency to think that way. So, we think the way they think, which is that, they're interested in building a business, which is what we're interested in. In that fashion, they're much more, typically, much more mature, and they're more interested in actually changing a market, in changing people's lives with what they're doing, which I think is ... that's business. That's the way you should look at these things.
Carey Smith (00:50:41):
It always surprises me when people say, well, there's not many women entrepreneurs. Well, there's plenty of women entrepreneurs, you just have to pay attention. There's a lot, as I would say that, in a lot of respects, they're much, much higher quality, typically. Now, that's not to say that we don't invest in male-owned businesses, but think they have a different approach because we have a different approach to the problem.
Daniel Scrivner (00:51:07):
Yeah. I love that. I love that line of thinking. It sounds like you work with ... a lot of these are businesses that haven't yet launched, that are coming to you for help launching the business. So, how much of it, I guess, or how much of what you're focused on and what you're funding is companies at that super early, early stage, and how much of it is companies that are at a later stage where you're investing at a moment where you think there's a little bit of a trajectory change?
Carey Smith (00:51:34):
I would say that we invest early, but not that early. I think that, from an entrepreneur's perspective, it's very important for them to hit the market. The market tells you what ... if it doesn't like what you want and what you have, then you're not going to make any money.
Daniel Scrivner (00:51:51):
It's pretty vocal.
Carey Smith (00:51:52):
Yeah, no, exactly. You have to get it out and basically run it around the track a couple of times. I would say that most of the time, even though it's early, early to us is a couple of hundred thousand dollars in revenue. Now, having said that, we also invest in companies that have no revenue, and we've invested in a couple of medical device companies. That's a totally different kettle of fish. Normally, when we do that, we're investing in companies where ultimately they're going to ... it's going to be a B2C scenario. We can see it, even though they may not have thought about it that way initially. But I think that it's very difficult. Honestly, I think that if somebody comes to us and they say, "Hey, I've got this great idea. What do you think?" We may think it's a great idea, but I really do think you have to take it to the market because that tells you a lot about the entrepreneur.
Carey Smith (00:52:56):
How did they do that? How did they react to that? Were they successful? How do they think about these things? Because running a business is, I think it's very exciting, I think it's very interesting, but I think you actually have to do it, and investing in just an idea that you shouldn't do that. We don't do that. That's just a crap shoot. I mean that really is.
Daniel Scrivner (00:53:18):
Yeah. There's not enough data there. Yeah, I think to your point, and it's exactly right, as you haven't ... It's not a business yet. And running a business is very challenging. There you have a ton of things that are competing for your attention. You have fires you have to put out, you have to think about long-term strategy, and it's a very difficult multi-dimensional game.
Carey Smith (00:53:38):
Yeah. No, it'd be like just saying, oh, I'm going to run a marathon on Saturday and I haven't practiced all right, I haven't trained, but I'm going to do it. I don't think so. You have to do the work. If you don't do the work ... Do the work, because the businesses that I started, you don't need ... You can do a lot of things without a lot of money. I think, if people can bootstrap it, I think that's the optimal way to do things. I think that ... well, I shouldn't say that. That's the way to do things. The bootstrapping makes it so that it takes a longer time to get a business going. I always tell people that it took me 20 years to go from zero to 500 million. If I'd had the money and I had expertise, maybe that would have only taken ... I mean, when we did the residential fans, it went from zero to 70 in fewer than five years. You can do it faster if you've got money.
Carey Smith (00:54:41):
But you've got to know where to put it. It's like everything else. So, it does compress the timeline, and in the final analysis, all you got is time. You don't live forever. If by helping people with money and with expertise, if we can shorten that journey, and I think that's probably defines the way we look at this type of business, this VC, this investment, that makes us different, because I really don't give a flying flip whether I make more money or not, I just don't care. I think that that's another difference, because it's not a fund, it's just our money. But I also think that you're doing something, helping people.
Daniel Scrivner (00:55:28):
I want to move on and ask a couple of closing questions. One is, so you have, I think a really just singular really refreshing point of view that's very different today on how to build a business, how to think about that, how you should approach it. One thing I'm curious is, is there a book that you love that you give out to entrepreneurs or the people that you work with, or that you point people towards, or maybe even a few books?
Carey Smith (00:55:54):
Well, not business books. I don't suggest reading business books. There is one that I've suggested to people, which is, I think the name of it is Blue Oceans. It's just because all it, basically the point of the book is that, that what you should look for, and what every ... this sounds terrible, I suppose, or maybe, maybe not, that what you're really looking for when you start a business, is you're looking for a monopoly, and that doesn't mean necessarily that you're the only person that's providing your product, but if you can provide a product that nobody provides, even within a commodity space, but you should set your goal to do something different. There's a lot of people, well, especially with software, I swear to gosh, I see so many of these businesses on various campuses, students writing software.
Carey Smith (00:56:53):
You'd imagine that buying snacks is something that only happens at university of Texas or reselling books. There's millions of these things, and it doesn't make any sense. What you need to do, the opportunity is where is the path less that hasn't been trodden. That's what you should look for. That's what that book is about.
Daniel Scrivner (00:57:18):
I want to hear your take on business books. Why don't you recommend those?
Carey Smith (00:57:22):
Because most of the people that write them have never started a business. It's ridiculous. You go to listen to some of these conferences and so forth, and you're sitting listening to a guy or girl, but typically a guy, that's a journalist. So, they've collected, it's a compilation of their experiences with other people that have done this, and there's not a lot to be learned from ... that's like me trying to ... If I was going to write a book about golf, I can tell you right now that I could probably write it, get a book about golf written. I don't know Jack about golf. I wouldn't read it, but that's what these people do, and then it's like, that's ridiculous. There's a couple, but I don't know. I think it's interesting, for example, Bad Blood, that that's an interesting book because you get inside somebody's head that ...
Carey Smith (00:58:20):
I think the way that she imagined that she was going to go to business, she had some very strange ideas about how the market works and how technology works and how engineering work. That poor woman didn't know anything. When you read it, you go, oh my God, how could somebody think this way? But people thought that way and people gave her what? $800 million to [crosstalk 00:58:47] craziness.
Daniel Scrivner (00:58:46):
A lot of money.
Carey Smith (00:58:48):
Then, like a great movie, I'm sure it's a book too, but the fry where they had the Island, they booked the Island to [crosstalk 00:58:57].
Daniel Scrivner (00:58:57):
Oh yeah, yeah, Fyre Festival, I'm guessing.
Carey Smith (00:58:59):
Yeah. Fyre Festival. Yeah, and to watch that, and you imagine this is the way people that have never organized anything, this is the way they think about things being organized, which is all wrong, but it's fascinating, and it tells you ... it runs up a lot of red flags, but if you're watching, you're like, oh my God, yes, you can't do it that way. You can do it that way. In a sense, I think you learn something. I mean, you can't just make fun of them. There are things to be learned from situations like that.
Daniel Scrivner (00:59:31):
One other question we ask all guests, because part of the reason why we founded the show was to try to just help as many people as possible learn from people that have achieved something and have left a lasting positive impact. One of the things I'm curious is just, is there things that you do every single day? It could be things you practice, routines you follow, tools that you use that help you show up as your best self each day, and do you have anything like that that you hold really near and dear and that you pay attention to every day?
Carey Smith (01:00:01):
I think there are two things maybe. One of them is exercise. I think it's important to give yourself goals, just set goals for yourself and actually be able to realize them because that's something in life that you can set all sorts of goals, but you're basically out in the middle of the ocean by yourself. You have to chart your own course. I think that it's interesting, if you do something where you can actually set a goal and attain the goal, I think that's important. I do that every day. I also, I love to hike and I love to walk. The only reason that's really lazy, lazy is because I can think. Because it's very, very relaxing. You're getting some exercise, but that's secondary really. But I think the things that I do, those are two things I think are the most important.
Carey Smith (01:01:02):
Obviously, I have to look at a lot of different things. I read an awful lot, but sometimes I wonder if that's worth it. I get tired of right after. Some of the stuff that you read is ridiculous. Anyway, but I would say that those are two things, and that's something I think is ... anybody can do it, but it's sort of ... I don't know, it's sort of ... I guess if you were into yoga, it would be yoga, but it's something that you can set aside an hour and accomplish something. That's easy to accomplish. It's physical, so you can do it.
Daniel Scrivner (01:01:37):
And exercises those disciplined muscles on a daily basis.
Carey Smith (01:01:40):
Yeah, it's cool.
Daniel Scrivner (01:01:41):
Then last question, just a person or experience that you're really grateful for and why.
Carey Smith (01:01:48):
Well, as I said, we moved around a lot when I was a kid, and I've spent most of my working life working where I've been the boss, and so that's difficult. When I was in high school, as I'd said, I sold shoes. There was a guy that was the manager of this little shoe store at Thom McAn's in Annandale, Virginia. We were paid in cash. This was a national chain, but it was ... this is in the late '60s. We got paid by signing the pay vouchers, and so we saw ... you could see what everybody made, and the manager of the store, this poor guy, he made like $140 a week anyway, but every, and he was a grouchy old fart, but he had a lot of fans of people, kids that worked for him, and every Thanksgiving he would throw a bash, and it wasn't a potluck.
Carey Smith (01:02:54):
He and his wife did everything, and they lived in this little burg of a town, and they would put on this, with the Turkey and the dressing and the pie and the whole thing. This guy made no money. But it just amazed me that he did that, and the kids that had worked for him that were then adults would come ... that's where they came. They came to this shoe store and to partake of this lunch, this Thanksgiving lunch. Even as a kid, you recognize that he was somebody that was doing something ... he couldn't even afford to do. He could not afford to do it. It's ridiculous, and he did it. I don't know. He just gave more than he got. I think that, that was the way he's important to me. At the Fan company, every year, we had a Christmas party, and every year, at the end of the year, everybody got bonuses.
Carey Smith (01:03:53):
When I sold the company, I wrote checks for $50 million for the people that worked for me. I think that probably, in terms of people that made a difference to me, that made me think about what's important, I think that he was a big deal.
Daniel Scrivner (01:04:13):
Yeah. It's an incredible story, and I see a lot of links. It feels like you clearly carried that spirit forward in what you've done and what you continue to do.
Carey Smith (01:04:20):
Let's hope, in some fashion. Yeah.
Daniel Scrivner (01:04:22):
Well, thank you so much for coming on the show. It's been amazing to chat. I really appreciate it, Carey.
Carey Smith (01:04:26):
No, I really appreciate your time, Daniel.
Daniel Scrivner (01:04:32):
Until next time, thank you so much for tuning in. For show notes, including links to anything and everything mentioned in this episode, please go to outliers.fm. If you enjoyed this episode, sign up for my weekly newsletter. You'll be the first to hear about new episodes before they're released and you'll get the best quotes, themes and ideas from each episode in a weekly update I call Inside the Episode. To sign up for that, just go to outliers.fm/newsletter. Just two more things before you take off. Number one, if you enjoyed this episode, please leave a review in iTunes. My amazing team, and I invest countless hours planning, researching, and editing each episode because we want all of them to be amazing, and we hope you enjoyed listening.
Daniel Scrivner (01:05:17):
If you did, please consider taking 30 seconds to leave a short review in Apple Podcasts or iTunes. Reviews are crucial in helping us get the best guests and helping more people find Outliers. If you have 30 seconds, please take a moment and leave a short review. Thank you so much. Number two, if you haven't already, sign up for my Friday Five newsletter. Each Friday, you'll get a short email where I share the coolest things that I've been using, loving and pondering each week. Those include new products I'm trying, supplements I'm experimenting with, people I've been studying, books and articles I've been enjoying and so much more. It's super short, it's filled with awesome and interesting stuff, and it's a great way to get inspired each week as you head into the weekend. To get access, go to fridayfive.email. That's fridayfive.email. Thank you so much.
On Outliers, Daniel Scrivner explores the tactics, routines, and habits of world-class performers working at the edge—in business, investing, entertainment, and more. In each episode, he decodes what they've mastered and what they've learned along the way. Start learning from the world’s best today.
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