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Business Lunch
Navigating Trump’s Tariffs: The Art of Negotiation in a Changing Global Market
00:43:55
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- [00:00]
Roland Fraser
It is a minute by minute broadcast of how negotiation works. And none of the people who are opining on it have any clue how to do it. And none of it is fixed. Their view of it and presentation of it is. I mean, the whole media is skewed. Anti Trump, it appears to me. I mean, unfairly. And certainly he deserves, you know, a lot of criticism on how he does things. But love it or hate it, no one should be armchair quartered back by unskilled people who don't know what the heck they're doing. Hey, everybody. Welcome to take 2 of the business Lunch podcast for today. The interwebs were not cooperating, so we lost the first one and we're trying again. So I'll say again, I am your host, Roland Fraser, and your co host, Ryan Dice is on here also, although in kind of a pixelated early Super Nintendo kind of way on my screen.
- [01:14]
Ryan Dice
Yeah.
- [01:14]
Roland Fraser
How are you doing?
- [01:15]
Ryan Dice
What's funny is I'm the one who's at the beach house. Like, I'm the one who should have the bad Internet connection. You're in Southern California, which should have a good Internet connection, and yet it's your Internet connection that's wonky.
- [01:26]
Roland Fraser
So I'm in, in a very small city called San Diego. You can't expect, you know, that it's rolled out this far yet, you know.
- [01:34]
Ryan Dice
No, yeah, it's that last mile. You'll get it one day. One of these days they'll. They'll get the Internet out to San Diego. Hey, and until then, how's.
- [01:42]
Roland Fraser
How's life?
- [01:43]
Ryan Dice
How are things? What's up? What's new?
- [01:44]
Roland Fraser
They'll get the outlying areas. Things are good. My wife's got stem cells and she's got new knees. So she's. She's feeling risky and happy. It's just great. She's like, I want to play pickleball. I'm like, okay, not yet. But it's really great.
- [01:58]
Ryan Dice
It's really great. Nice.
- [02:01]
Roland Fraser
And now I have. That is good, this room. So I. We got shades installed in this room today, so I finally have something to block out the sunlight. So it is. Everything is good. I got knees, I got no sunlight that's not wanted. And I got a kind of sort of Internet connection. Ish thing going on with you. So I'm loving life.
- [02:23]
Ryan Dice
What more could a modern human being want than stem cells?
- [02:27]
Roland Fraser
They could want shades. I think there's not enough. There's just not enough tariffs in people's lives. And so the government is talking about bringing them to Us And I'm not sure that anybody's really pro it on the non political side, but maybe there are people that are. And so I guess there are because the industries that those protect can, can somewhat benefit from that. So do you have any general tariff thoughts before we talk about maybe some strategies that businesses who are affected by them might want to be thinking about?
- [03:04]
Ryan Dice
Yeah, I mean, so general thoughts on like my feelings on tariffs and from a macroeconomic perspective.
- [03:09]
Roland Fraser
You mean you're kind of pro. You like them, want more of them?
- [03:12]
Ryan Dice
Yeah, yeah. I don't know enough about, you know, 16th century kind of mercantilism to know, like, when they were last effectively, like deployed. Here's what I will say. And again, like, let's set the politics of everything aside. I remember when we were negotiating the sale of tnc and anybody who's ever been a part of any negotiation knows that when there's something that you want, you don't just come out there and offer exactly what you want, right? You come out there and you offer something that is very low or very high in the hopes of meeting somewhere in the middle. And what anybody who's inexperienced says is, no, that's stupid. You shouldn't do that. You should just say what you want. Okay, says everybody who's ever gotten, you know, screwed on a deal, right? That's just not how the game is played. And I think what's, what's. I think what we're witnessing, if I'm going to give the most kind of charitable case, because it does just seem like this whole thing is a giant mess. Like it does. It just feels like this whole thing is a, like just mayhem and it's a mess and the tariffs are on and then the tariffs are off and it's completely uncertain and it doesn't seem like it's good for anybody. And it reminds me exactly of a deal, right? When you're doing a deal, it is just a total colossal mess and everybody hates each other and then it all comes together and everybody loves each other. And I just remember when, when we were doing that sale, you know, I'm, I'm, I'm literally cussing you out on text message, like furious with you that you're about to blow up this deal. And you're like, I got this, I got this. And I think in that moment I was a little bit like the media where you're doing what you're supposed to do. And I'm getting frustrated because I didn't quite know what was going on because it was Kind of my first time, like, being involved in a higher stakes negotiation. The difference is I only talk to you, right. I didn't go on, you know, news stories and talk about how stupid you were and how mean you were and how unfair you were, you know, to the other party and to our, you know, to these people that we still needed to be in business with and all this other stuff. And I think that's a little bit of what's playing out right now. I think a lot of the, you know, we're going to tariff this country this much and it's going to be whatever. It's just deal making, it's negotiation. And I think that's kind of what Trump is doing, is he's, he's doing what he does, which is deal making and negotiation. And it looks really, really messy and it looks really ugly and it pisses people off, and that's kind of how it goes. I don't know. What do you think?
- [05:48]
Roland Fraser
Yeah, I agree with you 100%. It is a minute by minute broadcast of how negotiation works. And none of the people who are opining on it have any clue how to do it. And, and none of it is fixed. Their, their view of it and presentation of it is. I mean, the whole media is skewed anti Trump, it appears to me. I mean, unfairly. And certainly he deserves, you know, a lot of criticism on how he does things. But love it or hate it, no one should be armchair quartered back by unskilled people who don't know what the heck they're doing when this isn't where it's going to end up. Like, none of this is final. This is, if you tax our liquor, we're going to tax you 200% tariff and so on and so forth. And it's all saber rattling to get people to the table that haven't been to the table in something that's been terribly balanced in the favor of everyone except the United States for years. And this is how you make it happen. You actually have to sometimes put up big words and big threats and sometimes you have to follow through with them for a period of time. But when you are the market that we are, the United States is, and you are always giving in to have access to this market, you should be able to extract some cool things for that, just like China does, just like Brazil does, just like India does. So he's not doing anything that anybody else doesn't do. It's just that things here might be too cheap, you know, it at the expense of the country and the economy and, you know, our ability to be viable as makers of chips and other things that are very, very important to us to have as a sovereign country. So I think that, I think that it's all, you know, let's take a look and see what ultimately happens. But I think it's actually smart to get people to the table. And he's using a thing that is smart because he doesn't really need Congress so much to do it either. Right. So, you know, as far as I know, it's. It seems like this is like, hey, this is how I'm going to get everybody the table and I'm going to do what I can do. And the cool thing is he doesn't care about reelection.
- [08:23]
Ryan Dice
Right. He's a lame duck. Yeah, that's a lame duck.
- [08:27]
Roland Fraser
Yeah.
- [08:30]
Ryan Dice
It's negotiating in public, which normally doesn't happen. You know, normally this back and forth is happening between select players and you don't have everybody watching. It's not done in public. This is going to be done in public. This is the most business, like, foreign policy thing that I think countries can do, Tariffing. And so, yeah, I mean, I think he's probably in his lane. Yeah, he should probably give him the benefit of the doubt, even if you don't like him. And I also, I'm struck by the notion that the willingness to be disliked is, I think, something that is ultimately essential for success in business and probably life. If you go around just wanting to please everybody, you're probably going to be. Be pretty miserable, unhappy and unsuccessful. It seems like that's what everybody wants them to.
- [09:19]
Roland Fraser
You could be trillions of dollars in debt with it growing and no end in sight. I mean, the, all the unpopular things that are being done are just unheard of, but they're the things that need to be done. So, you know, it's. It's like the. We are living on borrowed time because we've lived on such a deficit for so long and nobody's been willing to examine and go first principles on do we need a Department of Education? And I'm not saying we do or don't. I'm not saying it's right or wrong. I'm just saying it's a question you should be able to ask, do we need these 2 million jobs? Should we, you know, is it effectively a subsidized welfare program for a bunch of people? I don't know, but at least someone is asking the questions. And I think that that's a positive thing for our country. And and it definitely is going to be painful for a whole lot of people, including. It's been painful for us. The current economy is painful for you and me, you know. Yeah. But I'm not loving it in the end. I, I believe that the things that are being done have to be done, and nobody else had in the history so far has been willing to do them at the level of intensity that these guys are. So love them, hate them. They're definitely not the best PR people in the world, how they present themselves, you know, but, and, and you can disagree with some of the principles and stuff behind. But you can't say that, that the United States is terribly in debt and getting worse and worse and worse and always on the brink of a government shutdown. And, and it's because of the inability of everyone who has come before to take a stand that is severe enough to say, we're going to have to go through some hard times to make things right. And sometimes you do have to do that. So I, I think that's it. But we're not here to talk about politics as much as we are to talk about. So give me the rules and tell me how I'm going to work within them. That's kind of our, you know, our mantra. So, so given generally the fact that it's very possible that either already, as you listen or watch this, tariffs have affected you in some way or are perhaps threatened to become something that's going to affect you in some way, it does make sense that we as business people think about how do we deal with that, and instead of just complaining about it. So that's what we'd kind of like to chat about today. And I kind of wanted to brainstorm with you because I think that there are, there are tariffs on products that will affect pretty much every business. I'm thinking, like, how does it affect a wine distributor? That's easy. If there's a 200% tariff on your wine, it's, you know, it's going to cost a lot more. Fewer people are going to be able to buy. That's going to be tough. But how does it affect a digital marketing agency? And since you're the marketing expert among us, what would you say? Like, how could you see that it would affect a digital marketing agency beyond maybe the clients of the agency are having a hard time?
- [12:35]
Ryan Dice
I mean, and this is where I think what we're seeing in general is the stasis that's being created because of the uncertainty. And so I do think the biggest impact is you know, is the clients. I don't know how it's going to wind up affecting services because, because I'm not seeing that as much show up, you know, on, you know, on the tariffs. Like it seems like most of what's coming across seems to be impacting manufacturing. And so part of what I was going to say is if you're heavy on the manufacturing side or on the importing side, I'd be looking pretty closely at like what does it look like to onshore this stuff? And I know lots of people that that's the conversations that they're having is what does it look like to bring this stuff onshore? Or what does it look like for us to pivot into services related to this thing. Like we've got an existing client base. What does it look like for us to shift from providing the products to providing the services in and around those products because it might not be feasible for us to provide these products anymore.
- [13:37]
Roland Fraser
And it's difficult like diversify your supply chain. I think it's not onshore versus offshore. I think it's how do we diversify. And it might not even be on shoring because the tariff game is played as a puzzle of different countries. So. Right. Could you, could you and should you source from multiple countries and regions? I think the answer is yes. And so I think like that's the very first thing is, is whatever your supply chain looks like, whether it's labor or it's services, whether it's currently being affected or not being affected, if you are using out of country resources, it would be smart for you to have some in country and at least two out of countries, preferably not like aligned in a block. Like I wouldn't have Russia, Brazil and China as my three, you know, sources. I would probably try to bring Mexico in or Canada or something like that. So I think that makes sense to, to just say, okay, I'm not giving up on the place that I've got, but I'm hedging my bet. And I think that's like we should have learned that from the pandemic, right. When there were there was no way to get stuff over on the ships and things. Let's have at least a continental based road access to things. That would make sense. Right. If I'm a manufacturer. What, what are your thoughts on that?
- [15:12]
Ryan Dice
Yeah, I mean, I think the, the challenge with redundancies is they eat margins. Right. And so every business should have a redundancy. I think logically everybody understands that the issue is that having the redundancy is expensive. You know, it is, it is way, it's way less expensive to just have a single source. Especially if you have a single source, you likely pick that source because it's your, your lowest cost provider, you know, and, or the, the combination of lowest cost, highest quality. And so if you're going to a second source, it's probably the other one that you're picking. You're sacrificing in one of those two areas or let's say it's exactly the same. The added complexity is going to, is going to reduce your margins. So I think what the problem that, that you have, if you're the business that decides to be responsible in choosing to be responsible, you now have given up your margin to do that, which means you might not have been competitive in this last cycle because nobody else did. And, and, and so you were just giving up margin and nobody else was. And so you would have lost. What this is forcing is, it's forcing everybody to be responsible. At the same time, everybody is going to have to make this move or everybody's going to get put out of business. Now the downside to that is it means everybody's margins are going to get compressed, which probably means that prices are going to go up or everybody's gonna have to figure out how to get a little bit better, a little bit more efficient or the prices on the other side are gonna have to go down a little bit to make up for that. But it, what, what I think is good about these moments is they impact everyone at the same time. And that's where I always tell people, don't panic. It's not like this is only impacting you. Every single person in your industry is going to have to deal with this. It's going to create a change. Everybody's going to have to respond to it. A lot of people are going to panic and respond poorly. A lot of people are going to go in denial and do nothing. You can beat those two groups easily either way. This is a phenomenal opportunity to grab market share if you just don't panic and if you just don't go into denial.
- [17:16]
Roland Fraser
Yeah, and I would argue it depends on your volume obviously, but, but it, it doesn't have to create increased margins. I think that there can be that, that the other countries that maybe weren't previously lowest cost providers will have incentive to and see that this is a golden opportunity to get business that they weren't able to get before. So they're certainly now, as long as.
- [17:43]
Ryan Dice
They are say that again, certainly now they will.
- [17:47]
Roland Fraser
Yeah, yeah, that's what I'm saying is that. So I think that how you negotiate and present the opportunity to the new people that you're talking to as look, I'm looking for a permanent solution to another provider and this is your opportunity to do that. I think also that there's either in having the conversation or actively proactively putting together a buying group like a co op to go to go to your competitors or your, your friendlies or other people that would be using for non competitive services the same type of manufacturing to go to those places and say here's an opportunity to do this. I think also an examination of trade rules on the tariffs, like it may make sense for you to break previously fully assembled products into component parts and bring the components in and assemble them here. It may make sense for you to have the components shipped to another place that is more friendly than the place that you're getting them from and have them assembled there and brought in here. There may be free trade zones or trade agreements that exist that are favorable that should be looked at. So I think there's a, you know, there's a lot of opportunity there and you should definitely, before the rush, get a supply chain consultant to help you navigate this because, because those opportunities are big, co op, bulk buy. You know, I'm going to refer you additional people when you give me this deal. Assemble, import, assemble, assemble, excuse me, assemble, import or componentize and import and assemble. Here are all opportunities and obviously your opportunities to negotiate within the United States. So there's a lot of things that you can do that might well cause the margin thing to not be such a big deal. Right. And then the group buy is a.
- [19:54]
Ryan Dice
Is a great idea that is, I mean, I remember when I was in college, went on a ski trip and you know, it was probably a couple dozen of us that went on this ski trip. And I don't remember how much it cost, but what I do remember is the guy that organized it, he didn't pay for his ski trip because he was the one that organized it. And so as the organizer of the ski trip, everybody paid a little bit. And just the way that it worked out is what do you know, he didn't have to pay for his, his ski trip because we all kind of, there was enough margin in there where he had, he didn't have to do that. And so if you can be the person in your world who essentially is the ski trip organizer, then not only do you get to just maintain your margins by getting the Group buy, but you might actually get to reduce yours. And the other really nice thing about the, about the group buy scenario is if you can be the coordinator of this, you basically get to see behind the scenes of everybody else's business in your industry. It's like the ultimate due diligence factor. You're going to your competitors and saying how much are you in for? So you're finding out how much people are actually selling, how much they're actually buying. It's a phenomenal way. If you want to do any type of expansion through acquisition, which trust me, this is going to drive a lot of M and A, this is going to drive a lot of roll up opportunities, lot of consolidation. This is a way to get on the front, on the leading edge of that.
- [21:20]
Roland Fraser
I love that. The other thing is, and this is something I had to look up because I was not familiar with it, but I think it's actually really cool is tariff engineering. We talked about a little bit about, kind of touched on it, but basically it's the practice of modifying a product's design components or assembly process to legally reduce the amount of tariffs imposed on it when imported into a country. By strategically adjusting the classification of a product under a country's harmonized tariff schedule to qualify for a lower duty rate. Businesses use tariff engineering to minimize import costs, remain competitive. So this would be a big opportunity for you to do that, that you know, okay, we got the new rules, let's look at them. And we talked about maybe just having the components that come in and assembling here so that, you know, sometimes that's assembled in USA or I don't know if it's made, made in USA anymore. I think it depends on percentages but like it's time to look into that. And so I think that if you, you know, if you have a big enough business, having some attorney that specializes in this would be a really good investment of five or ten thousand bucks to get opinions on how could we do this because you know, what is the harmonized tariff schedule and you know, how does it work with whom? And there's probably some software that's been created and if not some brilliant person is going to do it to calculate all of this stuff. Basically putting in, I'm getting stuff from here and here and here and I need this. But like that, to me that sounds, that actually sounds kind of fun to put that together. Like to have a session of how do we, you know, how do we do that?
- [22:57]
Ryan Dice
Well, here's an example that Converse actually did this I don't know if you saw this, but Converse put felt. They've got a Linus usually put felt on the bottom so that they would be classified as sandals instead of sneakers because apparently sandals don't have the same tariff rate as sneakers did. And everybody's like, why do they, why do they have felt on the bottom? Isn't that just going to wear off? Yeah, they will. They don't really care. But they didn't have to pay as much in taxes on that. So that's that tariff engineering that you're talking about. And it's, it's one of those things where it's stupid.
- [23:27]
Roland Fraser
Right.
- [23:28]
Ryan Dice
It's frustrating that the government gets, you know, imposes this friction that makes it harder for us to do business. It's frustrating and that's one way to look at it. And that's objectively correct. At the same time, friction creates opportunities and so you can be frustrated by it and that's fine. I'll be there frustrated, right alongside you. Cool. Feel better now? Okay, what are we going to do about it? Because it does. At the same time, if we agree that the frustration has been created for everybody in the industry, they did not just target you, they did not just target your business, what are you going to do about it? Because if everybody's got to deal with it, you now have an opportunity if you can deal with it in a way that nobody else thought of.
- [24:11]
Roland Fraser
Yeah, absolutely. I think also there's a thing called product range which the best example I can ever think of was Steve Jobs coming in when Apple was making I think 17 or 16, so different Macs. And he's like, we're doing four. It's for these, you know, it's for consumer and business. Low end, high end, that's it. And it changed the game and brought Apple back. And I think this is a really good opportunity for companies to look at their product range and say, do we have the right product mix and product range now? And you know, do we, what are our 80% sellers that are contributing to profit margin? And maybe we get rid of all the rest and just that alone could create savings that would allow us to be able to weather and maybe even thrive in this, you know, this tariff laden kind of atmosphere. You know what I mean?
- [25:06]
Ryan Dice
Yeah, no, I think, I mean the complexity of it because managing all these tariffs, I mean, I've heard of all these different companies where, you know, they're talking about just the management of figuring out what they owe on all the different items is creating an administrative Burden like let's set aside the actual cost. So many of these costs are going to get passed down to the consumer but the administrative burden that it's going to create is, is just massive. And so what this is going to force a lot of businesses to do is the stuff that they always should have done. And it's what we, what we were talking about before. Right. This is going to force us to get more efficient. It's going to force us to find new opportunities for, to, to, to find margin that wasn't there before. You know, these things of going what you talk a lot about E2P expense to profit. One of the expense to profit models and formulas that you teach and talk about is can we create buying groups that like how. What's the thing that we're already buying that we could get other people in our industry to do a group buy around? I mean that's something that you've talked about that I think a lot of people have ignored. Ignored. I bet it becomes popular again. It's not a new concept. And farmers have had co ops for centuries. I bet this becomes really popular and cool again. If these tariffs get, get put in place and for the ones who get on the leading edge of it, they're going to have bigger, more profitable businesses than they ever would have had before these tariffs happened. So everything is a response to change.
- [26:38]
Roland Fraser
Yeah, agree. And kind of speaking to the EDP strategies too. It's possible for you to become a supplier of the things that you are having manufactured so that you can provide those to other people. Now you might not want to provide them to your competitors, but maybe you do, you know, or maybe you're going to provide the components to other people because they can be used for several different things. It's like depends on what you're making, but if it's not the finished thing that you have intellectual, you know, protection for, then what goes into it and can I sell those to other people? Because they're all having, like Ryan said before, they're all having the same problem that you are at the same time. So they're looking for solutions too. If you can be a solution provider that turns your expense into a profit center, you know, that's pretty cool. And to me this is an opportunity for that to happen. Right?
- [27:31]
Ryan Dice
Yeah, I think that really is the theme of all this. It is just, you know, it's change and it's big change and it's scary change. I will just, I bet when it's all said and done, it's not as big a change as everybody fears it to be. I think everybody's spending way too much time watching the news.
- [27:50]
Roland Fraser
But I think it's actually a great wake up call to show us all, like the pandemic did, how dependent we are and how vulnerable we are at any moment at the whims of the current crazy, you know, people that run the world to do something that's going to damage our business and we should, we're irresponsible not to take notice of that and fix it, you know, and protect and hedge against it. That's, that's, you know, that's a giant missed opportunity. If we don't, if we didn't learn it from the pandemic, we dang sure ought to learn it from this. And if we don't, then you kind of deserve what you get as a business because you're asleep. That's, that's what I think.
- [28:29]
Ryan Dice
I think never let a good crisis go to waste. And so, right. You know, like this is a good crisis, don't let it go to waste. But what everybody's going to do is they're going to panic or they're going to go into denial. If something happens, if it actually happens to the same extent and you're ready for it, then, then you'll, you'll be ready for it. If it doesn't, you'll be better for it. And so whether you're ready or whether you're better, you win if you do something about it.
- [28:54]
Roland Fraser
This is your, and as you just said it, this is your competitive moment. This is when your competitors are going to just go on Facebook and complain and you know, complain to their friends and family and at the bar in the country club and you're going to be the person that did something about it and you're going to win. That's that like this is, this is one of those very defining opportunities. So kind of looking at some other things, I think that we talked about talking to attorneys that specialize in tariff engineering and consultants. We talked about talking to customs brokers and people like that. Looking at the rules, I think if you haven't already adopted supply chain management software, then there's an opportunity to do that. Reducing waste in the business you've got and optimizing, looking at, I think the Japanese have seven kinds of waste. It's like, look at the waste. Optimize your, your processes. Automate what you can automate, Start finally approach AI, which we're going to do a podcast on soon and integrate any kind of rpa the robotic process automation. Like, like what can you do that can cut costs that will allow you to be better able to maintain pricing levels without increasing when everybody else is having to increase. I think that's a giant opportunity. What do you think about like maybe joint ventures for local production? Like something, I guess it would be different than just placing an order. Like how could you go into a joint venture? How could we use the physical world version of Coredge in this case to our advantage?
- [30:41]
Ryan Dice
Well, my guess is there are people who are, you know, whether they're importing or doing. Yeah, they're doing the stuff somewhere else and they don't even realize that there is somebody locally who's already doing it. And, and if you will just look around you'll find that, that it is being done. Now maybe you do know that it's being done but you, they're charging too much. You simply can't afford to do it at those margins. But could you do it if you know, if it were more on a, on a CPA type deal, if you were more paying them if on every sale that you made. Right. And it was that type of thing, you know, more of a floor planning type arrangement. There are going to be lots of opportunities that this is going to create for local providers as well. And I think if you're out there asking the questions that haven't been asked before, you got a shot of getting some of those deals.
- [31:40]
Roland Fraser
Yeah, yeah. I think if you're early, this is an early in game and the people that move are going to win for sure. The other things too would be, it would be potentially opportunities if you're seeing price increases regularly from your suppliers to lock in longer term contracts with guaranteed pricing. That would be one thing you could do. Now the other thing kind of going towards like we were talking about maybe group buys and stuff would be if you find yourself warehousing in new places, maybe co sharing those deals. Like it could be a few opportunities. Perhaps you could buy real estate there and then fill it up with other people's stuff and you've got a, you know, you've got a new investment. But if nothing else maybe you could share the cost of doing your own warehousing with other people again in a co op kind of format so that the typical hold cost or the incapacity to hold that the manufacturers that are new might experience wouldn't be something that costs you money and maybe even saved you money. So that, that'd be something to think about as well. And then in the marketing, Ryan we talked about like bundles and adjusting offerings. I know one of the things that we teach is take digital products and add them to physical products to increase the perceived value. I think this would be a chance to create marketing opportunities to bundle and present things in ways that took non tariff affected items with tariff affected items. But the profit margin that was higher in the non tariff affected items basically made it all come true. You want to say that in a more elegant and comprehensible way than I did. Yeah.
- [33:28]
Ryan Dice
Well, I don't have direct experience in this in a tariff related item because this is fairly new. But I have seen this and have had direct experience in this in items that have license fees associated with them. And so we had a, had a client that, that sold official NFL licensed merchandise, so National Football League. And, and so their margins were pretty, pretty thin on anything that they sold that had a team name and logo on it because the team was getting a license fee, the NFL was getting the license fee. So if they're selling a foam finger of the Cleveland Browns, I mean that was, they weren't going to make a ton off of that foam finger, that football that had it on there. So they were looking at ways, especially as acquisition costs went up, that they could increase their margins. So think license fee, think tariffs. It really is the same thing. How do we expand it? And so bundling was the, you know, really was the answer for this particular client. We said, okay, how can we instead of selling one off items, put together kits? In this case it's, you know, the question that we ask, which same question that you should ask is why, why does somebody buy one of these things? Right? They don't buy it just because they, they want a singular item. Like what is the big thing that they're looking to do? And what they found time and time and time again is they were outfitting a new man cave, right? So somebody just finished out a basement and they were outfitting their man cave. So they're like, okay, let's put together the ultimate man cave, you know, bundle. And so it came with all these different, you know, things. And so just having multiple items, getting the average, average cart value up, the average, you know, client value up, just that is going to help with margins because same acquisition cost, higher value, that's going to help. But the other thing that we added to it were items that went with the bundle that made sense with the bundle, but that didn't have the license fee associated with it. In other words, didn't in this case, didn't have the Tariff associated with it. So for this company, it was actually photographs of the stadium. So they had. And this was before. Now you could probably get this done with AI. I'm sure there's license. They actually had photographers go out there and take beautiful photographs of these stadiums. Now, you could do this with drone photography for nothing, but they had photographs taken of these stadiums. If they couldn't license actual photographs for a flat amount, and that was what they sold in addition to this bundle where they had no additional fee associated with it, but this big image of the stadium they could sell for a couple hundred bucks. So think about if and if it goes to the intent, what is the intent for why somebody's buying these things? How can we add a high margin item to the bundle that isn't tariff associated? You and I, Right. The very first business that we got involved in together was the water filter business. And they sold the filters themselves. But the high margin item was the housing that the filters went into. Well, the guy that we were in business with didn't want to sell the housings because they didn't manufacture the housings. But the reality is we could buy the housings wholesale and we'd make more money reselling somebody else's housing than we would sell in hundreds of filters because they were just so much more expensive. And it was basically the guy down the road that was making the things. So there's almost always, if you understand the greater reason, the greater cause, that somebody is buying your stuff, and if you can build a bundle around it, you will come up with items that can be added to the bundle that are not going to be impacted by those tariffs, including, but not limited to digital products as well as services. And digital products and services are almost certainly not going to be impacted by these, but they will have really, really, really high margins.
- [37:15]
Roland Fraser
Yeah. The other thing too, in terms of, from a marketing standpoint, I know that a lot of people are willing to pay premium pricing for made in the usa, but they're also willing to pay premium pricing for like made locally. So if you have the opportunity to assemble locally or otherwise, you know, in an ethical way, have your things be local to the core part of your market. I know like, we have a lot of businesses where the core market is basically California, Texas, Florida, and then New York is kind of a third, and then after that it's not much. So would it make sense for us to have four assembly centers in those four places to be able to say made there? I don't know. There's a lot of Pride. I don't think there is so much in California, but certainly in Texas and certainly in New York, there's a lot of pride. So maybe it would make sense to have one distribution center, excuse me, in tax free Florida, maybe for shipping in California and Florida. But for sure, adding one in Texas and New York, that could be like the premium that you could get and the loyalty that you could get, the additional sales for being a local product could be worth more than the cost of the tariffs as well. So that, that would be another potential thing to do right in the marketing.
- [38:33]
Ryan Dice
Yeah, I think made in Texas to Texans might have more impact than made in America. Just saying.
- [38:39]
Roland Fraser
Yeah, absolutely.
- [38:41]
Ryan Dice
And I say this as a Texan, so I feel like I can say none.
- [38:45]
Roland Fraser
So that's something to think about. And then all the usual things that they're not particularly innovative. Like if you are dealing with foreign currencies and you're not currently hedging those currencies and things like that, I'd be thinking about that. I'd be careful about the new territories you're going into to know a little bit about currency stuff there and inflation and what's going on governmentally. But I think there's a lot within what we just talked about that can help defray or offset completely or even turn what we've got as a potential negative into a positive in terms of all the opportunity that exists just, just with what we just talked about.
- [39:23]
Ryan Dice
I will also add to this. Now is a great time to get on an airplane because what a lot of your competitors are going to do is they're going to look for all these different opportunities to get away from and stop doing business with their current suppliers overseas. If you will get on an airplane and go and visit them and say, I get that this terror stuff is happening, I want to continue doing business with you. Can you help me out? Can we get better terms? Can we get this? If you show a willingness and a desire to continue working with them in spite of this, and if you do it by going to them, I believe that that will deepen those relationships. Because these tariffs, to the extent that they go into place, and I don't think they will to any degree that they're being talked about right now, I agree. If they do go into place, they're unlikely to last as long as people think, because again, I believe they're more of a negotiating tool than anything else and they likely won't last to the next administration because if the last few have shown us anything, it'll flip flop between Dems and Republicans, because that just seems to be what happens. Again, not a political prognosticator. I'm just looking at the history of it. Your willingness to get an airplane, though, to shake hands and to break bread with those people who are over there when everybody else is no longer taking their calls and they're trying to figure out how to cut them out out of fear. That's going to deepen those relationships, probably get you better rates, almost certainly get you better terms. And sometimes better terms are more valuable than better rates. And if you can lock those in for the long term, especially when the tariffs go away and when stuff comes back, you could have an advantage for many, many, many years to come. So get on an airplane and go visit those valued vendors.
- [41:13]
Roland Fraser
Yeah. So lots and lots of action steps, guys. We don't have to take this laying down. We don't have to say this is the end of our business. We don't have to panic. We don't have to freak out. The opportunities are here. The action steps are clear. You've heard a bunch of them here. You've probably got more. We'd love to hear what else you think of that we haven't thought of. But this, this, like anything, changes opportunity more than anything else. View it as an opportunity, not a threat. Don't bury your head in the sand and just wait for what happens and take it on the chin. Actually go in and be proactive and do some of this stuff and you'll probably find that it puts you ahead of your competition. So that's it for this episode. If you enjoyed it, please share it. Please give it five stars and we will see you next time.
- [42:11]
Hey, Roland Fraser here.
- [42:13]
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- [42:14]
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- [43:18]
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- [43:19]
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