Are tariffs good or bad for founders?

Summary

Podcast Summary: "Are Tariffs Good or Bad for Founders?"

Podcast: My First Million
Host/Author: HubSpot Media
Episode Title: Are Tariffs Good or Bad for Founders?
Release Date: April 11, 2025

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Introduction

In this episode of My First Million, hosts Sean and Ben delve into the contentious issue of tariffs and their profound impact on founders and entrepreneurs, particularly within the e-commerce sector. They explore the real-world challenges faced by business owners navigating the turbulent waters of international trade policies and offer insights into coping strategies amidst escalating trade tensions.

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Personal Experiences and Initial Impact

The conversation kicks off with Sean sharing a personal anecdote that sets the tone for the discussion:

Sean (00:24): "All right, Sean, mahalo. My first question is, what's it feel like to be an extra on the set of White Lotus?"

While the initial exchange touches on celebrity experiences, Sean quickly transitions to more relevant topics, recounting his own financial setbacks:

Sean (02:07): "I landed, and the same day I landed Crypto had the biggest crash. Like Luna basically went broke and it brought down Bitcoin with it. I lost a million dollars."

This experience underscores the volatility that founders often face, not just from market fluctuations but also from broader economic policies like tariffs.

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Understanding the Tariff Landscape

Sean and Ben dissect the recent tariff impositions initiated by former President Donald Trump, highlighting the rapid escalation of trade barriers and their immediate repercussions on businesses:

Sean (05:18): "Donald Trump has created a new holiday. Liberation Day... China, you're getting tariffed. Vietnam, you're getting tariffed."

The hosts explain the severity of these tariffs, detailing how they have compounded over time:

Sean (05:31): "It's as simple as that. So basically, if you buy $10,000 worth of goods from China, you're going to pay $20,000."

They emphasize that the tariffs are not just stepping stones but are escalating into a full-blown trade war with retaliatory measures from China:

Sean (05:50): "China retaliated with its own escalating retaliate retaliation, 80 something percent tariff. So we're in a trade war."

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Impact on E-commerce and Small Businesses

The discussion zeroes in on the e-commerce sector, where tariffs have a particularly destructive effect due to tight profit margins and global supply chains:

Sean (07:17): "China has a lot of the best machinery to do this work. There's only, like, so many machines that do this right now."

He elaborates on the cascading effects of tariffs on operational costs:

Sean (11:35): "Your COGS was 25% of the... you have to raise the price to five to make up for that. So all your goods are going to go up by 25 to 30%. So that's inflationary."

The hosts discuss how these increased costs force businesses to either absorb the expenses, thereby slashing profit margins, or pass them onto consumers, risking reduced demand.

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Real-World Consequences for Founders

Sean provides a grim scenario faced by many founders:

Sean (09:43): "It's gonna put some people out of business because... your COGS go up by 100% is not going to work. They're going to go broke."

He cites a friend's dilemma where a sudden tariff hike meant an unsustainable leap in costs:

Sean (09:09): "He has to pay a million dollars in tariff. He doesn't have a million dollars. So he's like, 'What am I going to do?'"

This highlights the existential threats posed by aggressive tariff policies, especially for small to mid-sized enterprises operating on thin margins.

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Strategic Responses and Coping Mechanisms

To mitigate the adverse effects of tariffs, Sean outlines a multi-faceted strategic approach:

1. Pricing Adjustments: Introducing tariff surcharges to offset increased costs.

   Sean (11:35): "You have to pass that to the customer. So now you have to tell the customer, 'Hey, what this means to the customer.'"

2. Diversifying Supply Chains: Sourcing from alternative countries with lower or no tariffs.

   Sean (11:39): "We think it could be in this range that'll offset some, but not all of the amount because we can't pass 100% of it to the customer."

3. Cost Reduction: Negotiating with suppliers to share the burden of increased tariffs.

   Sean (12:47): "You have to look up the... talk to the lawyers and see what's going on with the stuff that's already in flight."

4. Financial Planning: Securing additional debt or lines of credit to manage cash flow disruptions.

Sean emphasizes the urgency and intensity required to implement these strategies effectively:

Sean (17:20): "You have to create like an immediate SWAT team... We're meeting every day... This is your priority now."

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Political and Economic Analysis

Sean references Molson Hart's insightful post on the complexities of reviving American manufacturing:

Sean (13:07): "Molson Hart wrote a great post... 'America underestimates the difficulty of bringing Manufacturing Back.'"

He critiques the simplistic notion that imposing tariffs will naturally bolster domestic production, pointing out the logistical and economic hurdles involved:

Sean (15:32): "Even if you take the generous side of this policy, moving manufacturing back to America takes a long time... It's a multi-year period before they get it all online."

Sean argues that instead of revitalizing domestic manufacturing, tariffs are more likely to drive businesses to relocate to other low-tariff countries, undermining the intended economic benefits.

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Operational Challenges and Business Survival

The hosts discuss the operational strains tariffs impose, particularly on cash flow and inventory management:

Sean (10:20): "My cash flow that I had in the business went down, and maybe down to a point where I'm needing to borrow money in order to just pay the tariff bills."

They explore how businesses must become more agile and proactive in their operations to survive:

Sean (17:20): "Raise the level of intensity is very key in a situation like this or people will go out of business."

Sean shares his own team's disciplined approach to crisis management, highlighting the importance of prioritizing and reallocating resources swiftly.

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Broader Economic Implications

Beyond individual businesses, the hosts touch upon the macroeconomic repercussions of widespread tariff impositions:

Sean (12:47): "This is going to very inflationary... If you thought inflation was bad before... wait till Christmas season comes and nobody could buy a toy because all the toys are made in China."

They illustrate how tariffs contribute to inflationary pressures, affecting consumer prices and overall economic stability.

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Conclusion

Throughout the episode, Sean and Ben present a compelling argument against the imposition of tariffs on founders and small businesses. By intertwining personal anecdotes with in-depth analysis, they shed light on the multifaceted challenges tariffs introduce, from increased operational costs and strained cash flows to disrupted supply chains and diminished profit margins. The episode serves as a cautionary tale for entrepreneurs navigating the precarious landscape of international trade policies, advocating for strategic agility and proactive problem-solving to weather economic storms.

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Notable Quotes

• Sean (07:17): "China has a lot of the best machinery to do this work. There's only, like, so many machines that do this right now."

• Sean (11:35): "Your COGS was 25% of the... you have to raise the price to five to make up for that. So all your goods are going to go up by 25 to 30%. So that's inflationary."

• Sean (17:20): "You have to create like an immediate SWAT team... This is your priority now."

• Sean (13:07): "Molson Hart wrote a great post... 'America underestimates the difficulty of bringing Manufacturing Back.'"

• Sean (12:47): "This is going to very inflationary... If you thought inflation was bad before... wait till Christmas season comes and nobody could buy a toy because all the toys are made in China."

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This detailed summary encapsulates the critical discussions and insights shared by Sean and Ben, providing listeners with a comprehensive understanding of the detrimental effects tariffs can have on founders and small businesses.

Transcript

[Sean]

For all my friends, this is their only business. This is literally their lifeline. And so I find it very not cool, is my official diagnosis. Super uncool by the orange guy.

[C]

I feel like I can rule the world. I know I could be what I want to. I put my all in it. Like, no days off on a road. Let's travel. Never looking back.

[Ben]

All right, Sean, mahalo. My first question is, what's it feel like to be an extra on the set of White Lotus?

[Sean]

As long as I'm not the guy who dies, I'm good. All right, so that's my. That's my White Lotus game plan. I thought I'd be festive for you.

[Ben]

I think you look good, dude.

[Sean]

I was so, as you know, I don't leave my house and took the family on vacation. So we're in Hawaii, and I texted Ben. I go, dude, I'm getting recognized left and right. And he goes, really? That's awesome. Like, how many times? Like, 10, 11? And I go, no, dude, two left and right. Like, it happened twice just now. And I had to text you right away. This is amazing.

[Ben]

Where did you get recognized? At the airport, dude.

[Sean]

Someone voice recognized me. I was, like, coming around the corner somewhere. I'm talking to my kids, and some guy just runs around the corner. He goes, hey, are you Sean? Are you Sean? I go, did you just recognize my voice? He goes, yeah. I listen to, like, I listen to the podcast a bunch, dude.

[Ben]

There's been so many times where, like, I've met someone, and I'm like, we should hang out. And then they text me, you want.

[Sean]

To get on this flight?

[Ben]

Yeah.

[Sean]

Do you have a ticket?

[Ben]

Well, like, if I'm, like, flying home and, like, someone's sitting near me, I'm like, do you want to, like, be friends and, like, get together sometimes? And then they'll message me a week later? I'm like, what was I doing? It's like going to the grocery store hungry. Like, I'm just, like, making bad choices. Can we talk about tariffs really quick? First of all, I want to let people know I don't know anything about this. Like, I'm not, like, an economist, which everyone is all of a sudden. But I want to know, did you go to Hawaii because you were sweating and you're like, I need to find peace or what?

[Sean]

Dude, the last time I came to Hawaii, I don't know if you remember, this, was in 2022.

[Ben]

Wasn't it? Like, some crypto thing? Like, you crashed.

[Sean]

I landed. And the same day I landed Crypto had the biggest crash. Like Luna basically went broke and it brought down bitcoin with it. And I basically landed and then lost a million dollars. And it was just trying to hang out with my wife and just be like, okay, cool, I'm just not going to mention this, like how expensive this vacation has got. And the worst part was because I was on vacation, I didn't have any of my normal computer hardware or anything I couldn't sell.

[Ben]

I could do anything.

[Sean]

Yeah, this cold storage is working out great. So I was basically stuck. And then this time, same thing, went on vacation.

[Ben]

Oh.

[Sean]

The S&P 500 has had the worst 3 day losses since the bubonic plague. And I was like, oh, great, here we go again. I'm not coming to Hawaii anymore.

[Ben]

When I've been going through this, as everyone knows, I'm, I'm heavy on index. And when I have been going through this, my, I've just, I just don't look. I just refuse.

[Sean]

I just don't look.

[Ben]

I don't look. I just, I pretend it doesn't exist and I don't look. Although I did. I invested a little bit more than normally I do every month and I went a little bit heavier, but I just didn't look. I just, I can't log in. It makes me too anxious and it really ruins my day.

[Sean]

Yeah, well, I asked a simple question. Am I going to do anything? Is my plan. Do I have some trade I'm trying to make right now? Is there some, some genius move? Am I just trying to panic, sell? No. Okay. If not, then there's really no point in even looking. It's just going to ruin my vacation. So I don't look. But when I landed, there was something I had to look at, which is these tariffs. So not only did the stock market crash, or maybe because of this, the stock market has been crashing, which is that Donald Trump has created a new holiday. Sam. Liberation Day.

[Ben]

Yeah. Happy libs.

[Sean]

Happy lips Day.

[Ben]

Somebody was like, maybe he meant Liberation Day in the sense of liberation like the Buddhists think, where we are being liberated of all of our possessions and we just aren't going to own anything anymore.

[Sean]

I don't have any material goods anymore.

[Ben]

Thank you.

[Sean]

Thank you. Hey, quick message from our sponsor, HubSpot. You know, marketing in 2025 is wild. Customers can spot fake messages instantly. Privacy changes are making ad targeting a nightmare. And everybody needs more content than ever. That's why HubSpot has a new marketing trends report. It doesn't just show you what's changing. It shows you exactly how to deal with it. Everything is backed by research and it's about marketing plays that you can use tomorrow. So if you're ready to turn your marketing challenges into Results, go to HubSpot.com marketing to download the report for free. So he came out and he has this giant poster board, slam to every country. That's basically like his slam board where he's like, China, you're getting tariffed. Vietnam, you're getting, everybody's getting tariffed. And, and then since then, so he came out with like a 50% or whatever. It was like a 35% plus a 20% tariff on China. So it's like, wow, 54%, that's going to be crazy. And then since then he added another 50% on top. So now we're at 104. And I suppose there's just no upper limit as to how hard, how high this could go. Because this morning, as of this morning, China retaliated with its own escalating retaliate retaliation, 80 something percent tariff. So we're in a trade war.

[Ben]

And does that mean for you as an E comm owner, when you buy $10,000 worth of goods from China, if you do buy them from China, that now you're, you're going to pay $20,000?

[Sean]

Yes, exactly.

[Ben]

Okay, so it's as simple as that. Got it.

[Sean]

It's as simple as that. So basically, and, and the, the reason to talk about this is not because I'm a tariff expert, which I'm not, but because I have an E Commerce store and I have a lot of friends at E Commerce as well. And for all of them, I mean, this is like D day basically. So most of us manufacture in China not because we're like, oh, I really want to have the lowest cost goods from China. That wasn't really the impetus. In fact, when I started our company, we first looked at manufacturing in the U.S. we were like, oh, that'd be great. It'd be great to manufacture in the US It'd be a great story to tell to customers. Also, maybe we'll be faster lead times because we're not having to put every item on a boat and sail it across the sea. So I called all the manufacturers I could find in the US And I was like, hey, like, do you think you could do this? And most of them were just like, no. And one guy in LA was like, oh yeah, we could do this. Do you want it for double the price? Half the speed at half as good? Is that your Sales pitch?

[Ben]

Yeah.

[Sean]

He's like, look, I'm just being honest with you. He's like, because if you're comparing factors, you're going to find this. He's like. I was like, how could it be half the speed? There's no boat. There's no sitting on a boat for a month. And when he explained was, he was like, number one, all of the inputs to anything you're going to make. So even if we make it, we're going to import all the parts so we still have the parts on a boat for a long period of time. Secondly, we don't have the labor that's skilled at doing this. Third, we don't have the machines. He was like, actually, it's the machines, not the labor that's the problem. He's like, basically, when we kind of de. Industrialized, all of the best machinery to do this work went to China. There's only, like, so many machines that do this right now. To get a new machine takes like a year and blah, blah, blah. It costs a bunch of money. And so we don't even have the machines. And I was like, okay, so then.

[Ben]

Dude, how does this guy answer the phone? Is he like, f you? This is Derek. You know what I mean? Like, I don't want your business. How are you?

[Sean]

Is there anything I cannot get for you?

[Ben]

Yeah, like, all right, have a good day. Bye. Bye. Now. Go F yourself. Like that. Just how. That's just how they do. They answer the phones.

[Sean]

Honestly, a great deal as far as I'm concerned. Like, maybe he's like a retired guy. Just wanted to keep that going. My dad would like to do that in retirement.

[Ben]

And so what are your friends thinking in the industry? Because it seems, dude, you guys just get beat up constantly. You know what I mean? Just get punched all the time. Yeah.

[Sean]

It's like, okay, make America great again. Where's the great part? What's happening? All we're doing is putting all these small businesses out of business and raising the price on consumers, right? So here's what's happening. So just to give you a scenario, I have a friend who is doing really well with his business, and the business has been growing. And so prior to Trump taking office, he was growing the business. Trump takes office, he says he's gonna have a tariff. He says it's gonna be a 20% tariff. So we're like, okay, mentally prepared for 20% tariff. So he places an order now, just to give you a sense, like, orders have like a Forget about moving your manufacturing, which is A multi year process that may not even work, by the way. Just like changing your, like sourcing from one place to another is, you know, six months to a year to get it up to scale. This guy, you know, he's operating on a four month lead time, meaning from the day he knows he needs an, he needs a, an order, he has to place it four months in advance. So he placed it four months ago. Now, four months ago is basically, you know, before Trump even took office.

[Ben]

Right?

[Sean]

So he placed that order. And now as that order is, he's got five containers out at sea about.

[Ben]

To claim it's like on this ship. And they're like, yeah, it's 100% tariff now.

[Sean]

So he has to pay a million dollars in tariff. He doesn't have a million dollars. So he's like, he's like, dude, I literally don't know what I'm going to do. I, I don't have a million extra dollars lying around in my business that I could just pay this tariff. I also have five containers. I have thousands of units just sitting there. They can't be rerouted. I can't tell them to go back to China. I can't, I can't. He's like, what do I do? Shut down my business? He's basically like, totally screwed. And so, and this is common, there's a lot of people are dealing with this.

[Ben]

You and I have a mutual friend, he said the same thing. He was like, he's like, my container, you know, the price per container got screwed during a bunch of stuff in the last two or three years. There were so many different things. There was the Panama Canal or Suez Canal. I forget whatever there was, the ship got stuck. Yeah, ship got stuck. Then there was this and there's that. And then now he's like this thing, he's like, I don't have enough money to buy the goods that I have coming in because I placed the order like a month ago, like all like, it was like in transit. It changed the price. It's sort of, it's like when a parent is like, you say another word. Five more minutes of time out. Oh, there's five. What, what did you. Yeah, five more. Five more. You just got yourself five more.

[Sean]

Totally. In fact, I want to start, start calling it tariffs with my kids. I'm just going to start using that lingo. Maybe, maybe it'll be fun to be on the other side of the tariff for once. And there's a little bit of. So now people are trying to find, you know, whether it's workarounds or, you know, try to figure out, hey, does this apply? Because it's kind of unclear even how this applies. You know, does it matter if I got my goods on the boat beforehand either way, whether, whether this shipment gets tariffed a million dollars or not. Point is, it's very hard to survive as a business when you're, you operated, let's say an E commerce business that has 10 to 15% profit margin if you're doing things right. You know, 20, if you're really kicking ass and you've been business and been in business for a long time and you have economies of scale and you have a large returning customer base but like 10 to 15% profit margins and then your COGS go up by 100% is not going to work. Like they're going to go broke. And so the only alternative is you have to pass that to the customer. So now you have to tell the customer, hey, what this means to the customer. The math is if a normal, let's say a unit of your thing cost a dollar and now it's going to cost $2, well before you sold that $1 thing for let's say $3 or $4, let's say $4. A 4x markup.

[Ben]

Right.

[Sean]

So your COGS was 25% of the.

[Ben]

4X is I would imagine is very normal.

[Sean]

Yeah, a standard markup, let's say. And that, that sounds like greedy. Oh, you're already marking it up Forex. Well, no, because you have to pay for marketing and advertising and your staff and the fulfillment and all, all this other stuff. You end up with a 10 to 10%, 15% profit margin by the end of it, which is like restaurant territory. And so, you know, it's not some, we're not some fat cats over here in the E Comm land. Go look at E Comm. You just see a bunch of tired scraggly fools who like are just playing the wrong game. And so you, you take that dollar item, now it's two dollars. Well, that means you have to raise the price instead of being, instead of a big four originally, now you got to raise it to five to make up for that, right? So you're all your goods are going to go up by 25 to 30%. So that's inflationary, right? So if you thought, you know, inflation was bad before the price of eggs and all this stuff, well, wait till Christmas season comes and nobody could buy a toy because all the toys are made in China, right? Like this is things. All the shirts are made in China. All the toys are made in China. And if they're not made in China, they're made in Vietnam, which also got tariffed. And so it's like, you know, there's a few countries that make all the stuff. And this plan really doesn't make a lot of sense to me now maybe I'm just being sensitive because I have a business in this space.

[Ben]

Yeah, yeah.

[Sean]

So. Well, less so for me because I have a lot of businesses. But for all my friends, this is their only business. This is literally their lifeline. And so I find it very not cool. Is my official diagnosis super uncool by the orange guy.

[Ben]

I think you need to create like a Sean's homey private chat lobby and you guys could spend literally thousands of dollars to lobby the government to change their opinion.

[Sean]

Dude, I'm gonna go to the lobby of this hotel and just see if I can get someone to change their mind.

[Ben]

Is that what lobbying means? And you'll declare bankruptcy down there by yelling it and declaring it ex.

[Sean]

So by the way, I don't know if you've read Molson, who? I don't know if you know Molson, Molson, Hart. He wrote a great post on X that I think is worth reading and it's basically called the America underestimates the difficulty of bringing Manufacturing Back. And he gives 14 reasons about like why even if you took the generous side of this like policy and you're like, oh, you know what, short term pain for long term gain, right? Because I think we could all agree there's short term pain, right? The business owners have short term pain. The consumers who are going to have their prices raised, short term pain. The factories on the other side have short term pain. The stock market is crashing. That's short term pain. The 401ks are going down. So that part's pretty unambiguous. The short term pain. The question is, is there even long term gain? And he wrote a post that basically outlines very thoughtfully why there's some problems with this. And he's basically like, you know, one, one argument after another. It's sort of like not only does moving a manufacturing plant back to America take a long time, like by the time somebody, by the time a business owner who today is getting hit by these tariffs, assuming they could somehow survive, spend millions of extra dollars opening up manufacturing in the United States, which is not going to happen and it's a multi year period before they get it all online and then they magically find the labor to do this because we don't really even train people in America to do this type of work anymore. There's going to be a new president and you don't even know what the tariff situation is going to be by then. It might be a total fool's errand to do it by then. So nobody's really going to be able to make that move. Most likely what's actually going to happen is he's like, we tried to do this in Trump's first term and all we did was make Vietnam great again. Basically, this manufacturer just shifts to one of the other low cost Asian countries that has lower tariffs is what's going to actually happen. There's not going to, like, magically bring jobs back. Oh, and by the way, you don't want to sit there and knit T shirts either. Like, this is not a job you want. These are jobs China doesn't even want. Yeah, Dave Chappelle, you want it?

[Ben]

Dave Chappelle was like, I want to wear Jordans. I don't want to make them shits.

[Sean]

Exactly. Perfectly said. Like, there's these memes going around of like, you know, it'll be like chamath, like out of like a sewing machine trying to make a shirt. It's so true. It's like, is this what you think is going to happen? Is this America being great again? I'm not sure. And so, you know, political stuff aside, I think that the, the tariff situation is really crazy right now. As a business owner, it is very.

[Ben]

Very tricky how to navigate this amongst your friend group. Is it going to put anyone out of business or is it just going to destroy their margins? Like, is this like complete, huge risk or is it like, you've just made my life more challenging?

[Sean]

It's gonna for sure put some people out of business because you had to. Like I was telling my, my friend with the stuff already at sea, or who's trying to scale their business, they might not be able to sell their product for an extra, let's say they were $100 product before and now they're $140 product in order to maintain, you know, still some profit. So on one hand, demand is gonna go down, right? I'm gonna have less customers because I had to raise my price. My cost went up, my cash flow that I had in the business went down, and maybe down to a point where I'm needing to borrow money in order to just pay the tariff bills that I have of stuff that already in flight. It's a very, very tricky situation. All right, let's Take a quick break, because as you know, we are on the HubSpot podcast network, but we're not the only ones. There's other podcasts on this network too, and maybe you like them. Maybe you should check them out. One of them that I want to draw your attention to is called Nudge by Phil Agnew. And whether you're a marketer or a salesperson and you're looking for the small changes you can make, the new habits you could do, the small decisions you could make, that will make a big difference, that's what that podcast is all about.

[Ben]

Check it out.

[Sean]

It's called Nudge. And you can get it wherever you get your podcast. You know, what we did in our business was I was like, okay, here's how you deal with situations like this. You have to create like a immediate SWAT team and let's open up a Google Doc. Let's make six bullet points. It's like, what are the six levers we could pull? Okay, so pricing. We're gonna have to create some sort of tariff surcharge. And we think it could be in this range. That'll offset some, but not all of the amount because we can't pass 100% of it to the customer. It'll kill demand. And so we're gonna pass a few bucks to the customer. This way, the next thing we could do, we're trying to source from another country. Okay, it looks like, you know, maybe it's Mexico or it's India or it's one of these lower tariff countries. Okay, you're, you're working on that. You over here, you're going to work on, you know, figuring out how we're going to lower our cost of goods. You're going to have to go negotiate with the factory, ask them to share some of the burden with you. You're going to have to look up the, talk to the lawyers and see what's going on with the stuff that's already in flight. Hey, we're going to have to bring down the purchase orders because we have to be way more conservative. Hey, you're going to have to go secure more debt because we're going to need a line of credit to make sure we can withstand the storm here. And so we created this plan. I was like, we're meeting every day these five people, like the five core people in the company. Whatever other priorities you had, they're gone. This is your priority now. We're going to meet every day and we're going to work on this plan for the next you know, n number of days until this plan is executed. And I think it's going to take that level of. Of intensity. I think a mistake I made in the past is when things like this happen and you sort of take a little bit of a wait and see approach. I think that could be very. Every day that you don't act can be very costly as a business owner. And so I think one of the key things to do and like, in our business, we have a CEO, we have a full exec team. But when I heard how they were planning to approach this, it was like, yeah, this is like, really important. Just like these other four really important things we have. And I go, no, no, no. You need to like, have a public, you know, PSA that this is the most important thing you could do. We're gonna wait. Every morning there was. There's a name for this team and this, this is the most important thing we're doing. And this is your top priority. You need to cut off some other shit. Right? Like, I think just raising the level of intensity is very key in a situation like this or people will go out of business.

[Ben]

So you gotta go snorkeling.

[Sean]

Yeah. I'm on the call talking about how we have to like, you know, raise the intensity. And there's literally just like, although this like calming like Hawaiian music behind me and like clearly like palm trees. And I'm like, guys, guys, this is life or death. And I like, I like, I go down a water slide on the Google Meet. I didn't plan it this way.

[Ben]

All right, you, you stop like mid talk to like, get your drink that has the umbrella on it and you're like looking for the straw with your mouth. That's awesome. Well, that sucks. Is there a world where. Is there any type. You know how, like, what are they? What. What did George.

[Sean]

It's just like, is there anything I could do? No, there's nothing you can do, dude.

[Ben]

I. I met with a guy the other day and I thought I was like, why do you want to. I never take phone calls with people. But he wanted to talk and I thought he was going to end the conversation with like, look, like, you know, I've loved watching you get big and be on the pod and you know, is there anything I can do? And I thought he was just like, could do to help. And he said, is there anything I could do to be a guest on the podcast? And I was like, wait, what? I thought you were going to ask me how you could help me. And then he just Ended it with, is there anything I could do to be on your podcast and to have you promote me? I was like, no, there's nothing that you could do.

[Sean]

Wow, hell of an ask.

[Ben]

Yeah, it was a bold ask. Um, do you want to talk about something more fun, Please? All right, let's talk about something more fun. I think this is actually going to be really fun. I'm going to try and take your mind away from the fact that the company that you've spent decades trying to build, which are. I'm going to try and take you, take your mind off of that. It just, you know, four decades you spent building this company, not going to vanish.

[Sean]

Never since Sam. To, like, the cancer ward, the bedside manner.

[Ben]

We don't have time much. We don't have a lot of time left, so let's get to it. Sorry, I meant you don't have a lot of time left, so let's hurry up and get to it. All right. But I did, I did I read something interesting that I. When I read it, I was shocked by it. And the reason I read this thing was because my company, Hampton, it's basically like an events company. We host hundreds of events a year. And so I'm trying to learn how other, like, event based businesses operate. And I found one that I totally didn't realize how amazing it was and I just forgot about it. Have you ever heard of the Medieval Times, generally?

[Sean]

Yeah, yeah, sure.

[Ben]

No, the restaurant series, like the restaurant franchise?

[Sean]

No.

[Ben]

You've never heard? Oh, my God. You are going to love this.

[Sean]

Okay, Google, is it like Rainforest Cafe, but for like, more. Oh, there's like, basically it looks like a small castle, like the Excalibur Hotel in Vegas. And then inside there's like people on horses jousting. Dude.

[Ben]

Dude. I always thought this was just like a joke. I thought this was a joke in like 90s movies, like, for where people were going for dinner. I didn't realize it was a real thing. So let me tell you this story. So Medieval Times, it's basically dinner theater. And so they do a two hour show where you go with you, your wife and your two kids, and you spend something like $80 a head. And you see people host a medieval show. There's like 200 actors and they like do jousting. They do like some type of theater stuff. It's almost like Circus Soleil, but it's medieval stuff. And it's like, it's like WWF or something, like wrestling. Like, it's all like acting. I did not realize how big this was. So let me tell you the story. So the guy who started it, his name was Jose. He was a Spanish guy. He had a small restaurant in Spain where he would like, have like medieval, like circus performers, like, doing juggling and just really small stuff inside of a barbecue joint in Spain in the 80s. For some reason, he decides to move to America. And he's like, I want to create what I did in Spain, which was a really small thing. I'm going to do it in America. And he convinces a couple bankers to invest $8 million into his first restaurant. And that first restaurant was in Florida. And he creates what is now Medieval Times. And he creates this thing where the idea is we're going to host something like 20 to 40 shows per month. I'm going to hire 200 actors. He spent a year training these guys how to sword fight, how to joust, how to like, be like legit actors. And he's like, we're going to serve you turkey legs and other medieval food, like, whatever, like the stereotype, like stereotypical medieval food is. And we're going to create this dinner experience. And that's what he launches in 1983. Well, fast forward almost 40 years now, or 40 plus years. His son has taken it over. And they were recently sued because a bunch of their performers tried to unionize. And apparently they were preventing them from unionizing. And so there was a ton of articles written about this company, and a lot of people were talking about their financials. They're enormous. So this company does. So basically they have, it's estimated around 2 to 2.5 million people a year coming to the restaurants, and they make something like 150 to 200 million dollars a year in 10 locations hosting these dinner theater shows. It's amazing. I had no idea this was this big. And since 1983, they've hosted close to 80 million people at these events.

[Sean]

Have you ever been to one of these?

[Ben]

No. So there's 10 locations, and I haven't lived in any of the places. Dallas, Myrtle Beach, Scottsdale, like, places that I, you know, haven't really lived in. So I've never been to one. Have you?

[Sean]

No, I've never been to one. Say the numbers again. So how big is this? Just on 10. 10 locations.

[Ben]

On 10 locations. During the union lawsuit and things like that, reporters were doing back of the envelope math and they were like, we think the company does between 150 and 200 million dollars a year in revenue. And there's 10 locations and each location host something like depending on the, the how popular it is, but the lowest one does something like 20, 20 performances a month, all the way up to 60 performances a month. So two a day for 30 days. It's insane how much demand there is. And it was estimated that it was around 2 million people a year attending. And on their official website they say something like 80, I think they say 76 million people have ever attended a Medieval Times restaurant for one of their performances. Is that insane?

[Sean]

So, you know, 10 to $20 million per location and they might be making, you know, 1 to $2 million of profit per location, something like that.

[Ben]

So that's my guess or more. So the way it works is it's not a normal restaurant. And so you don't order the food. It's all pre selected. And so it's like it's like an assembly line at the Same time, all 1,000 guests get the exact same food. So like there's a lot of like, maybe potentially significantly more efficiencies than a normal restaurant because there's not like, you know, a whole menu of stuff to do. And get this, their performances, they only change the performances every five to seven years. So they spend a lot of time like making the performance and then everyone else just goes and learns it and they perfect it over the course of five to seven years. So they don't even change it that often. And it takes like 200 performers for every show.

[Sean]

Yeah, it's pretty rough for, you know, night performers. Right, because you have like to step down between Game of Thrones and the Medieval Times restaurant is so vast. Like the second place is pretty rough out there.

[Ben]

Knight's got to do what Knight's got to do.

[Sean]

So this is hilarious because you were like looking this up as an analog for Hampton. Are you thinking about getting in the turkey leg business? What's going on?

[Ben]

Well, the way that we are going to grow is through launching cities. And I'm like trying to study how launches work. How do you have like general managers of each city of each region? Do you? I'm just trying to understand like the logistics of it. And I'm looking at a variety of unrelated but still in the event space just to figure out how do they do it? How do people do it? And so I'm just looking at a ton of different ways. And I was just curious about, for some reason I came across these guys and I started thinking about it. I'm like, oh, they have 10 locations. Are they franchises? How do they work? And it just caught my eye and I was shocked at how big they were.

[Sean]

Can I tell you a goofy story that's kind of similar to what you just described? So I've been writing this book, like on the side. I'm not sure if I'm going to actually publish it or not, but I kind of got. I went down a rabbit hole, I got interested in it and it was around how creativity works. So how to be a more creative person and ultimately make hits. So, like, where do the hits come from?

[Ben]

What's the title?

[Sean]

Bad art.

[Ben]

Bad art. Okay.

[Sean]

Yeah. So it's like, because there's one of the key, like, obvious. Sounds obvious in hindsight, but like, when you go look at the creative process of the world's most successful creative people, you would think, oh, wow. The ones who make the hits, the things that we all love, the high quality stuff, they just nail quality. And if you listen to any of their interviews, you watch the process. They don't give two shits about quality directly. What they do is they focus on quantity. And their belief is basically the quantity is the only way to get to quality. So they play a volume game and they're like, we produce a lot of bad art. And that's where the one or two things that are real gold come from. If you just sit down and try to make gold, it doesn't work. You actually end up not creating at all. And so one of the things I've been looking at is how some of the big breakthroughs came from doing what you're talking about, which is like, you learn from an adjacent space. So you go and you, you know the Wright brothers who ended up creating.

[Ben]

The first airplane Dude, George, I read their book and they're amazing. But George Mack summarized their book amazingly in his high agency blog post.

[Sean]

Yeah, yeah, exactly. So they, you know, they were, they were not funded. They had no education, they had no team, they had no, no specialty, no experience doing this, no nothing. And like, meanwhile, there was a guy over there, funded by the Smithsonian, had $2 million in funding, had tons of engineers and scientists on his team, had all the press and the fanfare. It was clear that he was gonna be the win. He was the favorite. So how did the underdog win? Why did the underdog have the creative breakthrough? And one of the reasons why is the two brothers, the Wright brothers, they owned a bike shop. And so they. Because they had no money, they did like 200 prototypes in the time that the other guy did two. And their 200 prototypes were basically like, they weren't even. Didn't even look like Planes, they were just testing, like, individual parts of a plane. Like, they'd make a glider or a wing, and then they would make the wheels, and they would try to find different ways to test these things out. And even Kitty Hawk, even the selection of where to go, they were like, thought from first principles, like, where should we launch this thing? Like, oh, maybe we should launch it from this spot where we're gonna have the best way in that, et cetera. Right. So they weren't, like, tied to anything that was like. They were not tied to anything. Everything was first principles. Thinking similarly, I don't know if you've heard the story about the Yankees bats. Have you seen this?

[Ben]

You'll have to enlighten me. But basically, the bats are heavier in the area where the ball mostly hits. Is that right?

[Sean]

Yeah. Like the story. I mean, take the physics of it aside. Like, the story is just kind of interesting because here you have baseball, this game that's been around for, like, I don't know, 100 plus years or whatever. And then, you know, just kind of in a bit of a high agency way, the Yankees were like, hey, can we just make a better bat? Like, within the rules of the bat? Like, you know, we're not gonna make a heavier bat. We're not gonna cheat. And they hired this MIT guy to think about it, and he was like, oh, yeah, you could just, like, move more of the barrel to this one sweet spot. And if you hit that, it's gonna go way further, way harder, and you. You'll have less misses, less near misses, because you're gonna have the thicker part of the bat right there, and you'll have more barrels. And sure enough, the Yankees start the season off with, like, way more home runs than anybody else this year.

[Ben]

I don't know anything about baseball, but is it statistically significant or do they just have ballers on their team this year? Is it like, it is the bat?

[Sean]

I think it's the bat, but I don't know if it's statistically significant. I can't. I don't know if you could say that, right, because it was like they started talking about this when. When they jumped out to a big lead in home runs, like 14 home runs already. And it was like, nobody else was even close. Like, so we'll see, you know, we'll see if this. This lands. But the important part, because, like, who gives a shit about baseball? The important part was like, dude, if. If baseball, this, like, 100-year-old sport that, like, you know, people spend the team Spend hundreds of millions of dollars a year trying to like find any edge they can. If there's still like an edge like this to be found. It just proves how like so much of the world is like unoptimized and underthought about. And like, if you actually just took a lot of focus and intensity to any one problem and you don't assume that people have already figured it out, that's one of the key things you need to have a breakthrough. And so the way you're talking about studying these other models, I think it's so important to do that. I remember when we did our restaurant. This is my first startup, but we did pretty much everything wrong. Now that I look back, I'm like, oh my God, so embarrassing. The way we did our business plan. We wrote a 300 page business plan. It's like, dude, nowadays I write one page if that. We literally printed it out in a binder. We were so proud of it. And we thought that that was like mark of our brilliance when actually it was just a mark of our stupidity, our marketing. You know, I used to just go door to door knocking on doors, trying to sell sushi like an idiot. Like, I didn't know anything about Facebook ads or Google Ads. I didn't know anything about anything. But one smart thing we did was we were like, we were a delivery only restaurant. So today they call that cloud kitchens. Back then that didn't exist.

[Ben]

Door to door sushi, I think is the worst idea I've ever heard. Right.

[Sean]

But I was like, oh, let's try it. Actually, by the way, who doesn't want.

[Ben]

To eat this at 10:30 and when it's 90 to 5 degrees in Dallas?

[Sean]

No, what we, I did was I went door to door. I went floor to floor. Really? I went into a skyscraper. I went, I just went in the elevator, pushed a button, 1, 2, 3, 4. I'd get out and I would just talk to the office manager of each floor and if I could get her to cater the lunch, it was like getting 50 orders and it actually, actually worked pretty well. So that was kind of like a bit of, a bit of example of this, of ignorance is bliss. So the, the other thing that we did was we looked at delivery. So traditional food delivery, like you were talking about city to city expansion. We looked at how all the, all the big restaurant chains did the delivery. And what they did was they would basically have a delivery driver at the restaurant kind of waiting and waiting for a batch of orders. So you would order, but they wouldn't just take your one order. They wait till there's like five or six orders to go, right? Because if I leave then with one order, that's inefficient. So they would first wait for five or six orders, then they would drive out. They'd go one place at a time trying to deliver these things, and then they would drive back. And what I was so confused about, I was like, how is this restaurant that's one mile away? Why does delivery take 40 minutes? It just didn't make any sense. Like, the route is like two minutes. So, like, how is it possible that it takes 40 minutes for the order? And so I watched them and I studied them, and we had our buddy Dan become one of them. And it was like, dan, you work for Noodles and Company now. You gotta figure this out.

[Ben]

You were doing the deal move before deal did it.

[Sean]

You had a. Yeah, we sent it. A spy.

[Ben]

Yeah, Espionage.

[Sean]

All he came back with was just like, dude, don't eat the food at Noodles. There's so much salt. And we're like, but what about the delivery? He's like, oh, I didn't even get delivery. I got assigned soup sign to making tomato soup. He's like, so much salt in his soup, it's insane. So, but we. We figured out a breakthrough. The breakthrough was basically, we realized that it was the slowest part of the delivery, was not the drive. It was the driver doing that last kind of. Not even last mile, like the last 200ft to your door. So, like, finding the exact house or apartment. And you go there and you knock and you wait, and then they come out and then whatever. That was where the slow part was. And so what we did was in downtown Denver, we created something called the drop zone. So in between a whole bunch of skyscrapers, we just had one guy stand there. He was our delivery guy on the ground. And then the driver just kept going back and forth, dropping off orders to him nonstop. And this sped up delivery like crazy. And suddenly our delivery times were like 15 minutes, 16 minutes, 18 minutes. And we were just crushing everybody on delivery. And, like, the restaurant failed. But the learning of, like, you can't really take for granted that, like, everything's just figured out. And if you just do the first principles, thinking of, like, you watch, you look for the slowest part, then you think, okay, what can we do? Even if it sounds a little weird, that we're going to have a. We're just going to put a dude there at the bottom, and he's going to stand there holding the Orders, the delivery guy is just a stationary dude. But that would eliminate all of the lag of the driver having to wait for that last, you know, to do all those last mile deliveries. That was the key for us.

[Ben]

New York City founders. If you've listened to my first million before, you know I've got this company called Hampton and Hampton is a community for founders and CEOs. A lot of the stories and ideas that I get for this podcast, I actually got it from people who I met in Hampton. We have this big community of a thousand plus people and it's amazing. But the main part is this eight person core group that becomes your board of advisors for your life and for your business. And it's life changing. Now to the folks in New York City, I'm building a in real life core group in New York City. And so if you meet one of the following criteria, your business either does 3 million in revenue or you've raised 3 million in funding, or you've started and sold a company for at least $10 million, then you are eligible to apply. So go to joinhampton.com and apply. I'm going to be reviewing all of the applications myself, so put that you heard about this on mfm, so I know to give you a little extra love. Now back to the show. I found when doing this there's a few hard parts, like just doing the exercise. The hard part one is knowing what things to question and what things to accept. For example, let's say you're creating Tesla and you're like, well, an electric battery that probably can go long enough. Like if I look at this, the math behind it. But they didn't like change the shape of the wheel. That's a very obvious one. But when you're running a company, it's very hard to decide what to question and what not to question. It's also incredibly challenging to get yourself into that mindset of first principles, thinking and more challenging to convince your staff or your co workers, whatever, to just like come with like an open mind and actually get on board and being open minded to trying this exercise, I found that to be hard.

[Sean]

What's hard about it? And then how did you try to tackle that?

[Ben]

For example, just like the people saying like, well, it has to be this way for these reasons. And it's like you have to say to them, I know, but just like, I know you think that, but just try to get beyond that just for a few minutes and let's just have a conversation where it doesn't happen that way. What would happen? There's this book called the Six Ways of Thinking for Design. I forget. Exactly. Do you know what I'm talking about? That book?

[Sean]

No, I haven't read that.

[Ben]

Basically, it's like an exercise where there's six different colored hats and you're like, all right, your green hat. When you put your green hat on, that means you're just thinking of profit. When you put your red hat on, that means you're going to come and be very pessimistic and poke holes in everything. Your black hat means you're open minded. And so it's this way of saying, right now I'm going to put this hat on, which means I'm going to. By default, I'm not going to hate on anything because a lot of people default to. This is why you can't do it to. I'm going to figure out all the reasons why this could work. Yes.

[Sean]

Yeah. And so you did that. You tried that?

[Ben]

Yeah, and it helps, but it's still. I guess what I'm saying is you're.

[Sean]

Like, no, I didn't have any hats.

[Ben]

No, it helps. But there's still, like, it's still a challenge to get into that mindset, at least for me, and also to like convey that to teammates. Having an open mind and questioning everything is actually way harder to do than it sounds. You know what I mean?

[Sean]

Yeah, yeah, yeah, yeah. I found that people like it. Like, so once you give people permission to do it, they actually get excited about it. You're right that you have to sort of like frame it the right way. If you just go into a meeting and your hope and expectation is that people are going to be like, open minded and creative and come up with a novel solution, it's like not going to happen at all. Like, you have to either tell a story at the beginning that gets them in the mindset. So I've done that before, which is.

[Ben]

Basically the Yankee bat thing. I mean, that was pretty good.

[Sean]

Yeah, it'll be one like that or it'll be like, I remember back in the day I watched this thing on YouTube that was really inspiring to me. I don't know if you've ever seen it. It's the IDO grocery cart challenge. So ideo, which is this design thinking lab, there's this group, so companies go and pay them lots of money to come up with like novel, innovative solutions and designs. So I think 60 Minutes or somebody went to them, some TV show and they were like, hey, we want to understand how you guys think. And so we have a challenge for you guys as part of the show. And they were like, we want you to redesign reimagine the grocery cart in a day. You have 24 hours, 48 hours to do this. And so they break up into two teams and they show their process of how they do it right? So there's like a process of like fact gathering. So they first they go get a grocery cart or they go watch it in a grocery store. They want to see how the customer uses it. They don't want to take anything for granted. So they're like, oh, like certain set of customers actually use this as like a kid babysitter. It's like their kid sits inside it. They need a thing to play. And that's like a key part of this. Like if you lost the kid seat, you would lose that mom as a customer. But other people are loading up and they need the two racks. And then so you're seeing how people use it. Then they were like, cool. And you state those observations. They put them on index cards, you start throwing them on the wall. And the guy sets the tone. He's like, we're in the diverge phase. And basically he draws this little cone. I don't know if you ever seen it. It's like a cone going out. And he's basically, during the diverge phase, it's like, whatever. A predetermined set of time. Our team knows how to do this, which is when you're super crazy, wacky ideas, free play what if mode. And you don't judge the ideas during this phase. You're just trying to riff as many ideas as you can. And then we're going to switch modes, switch hats and going to go to Converge, where we're basically ruthlessly narrowing down the set of possibilities of where we might go with this. But we distinctly have two phases. Because you don't want in the one phase, the one brave person to be courageous and throw out a half baked idea. And then somebody immediately, smart guy, slam them and be like, why? That wouldn't work. And now nobody wants to suggest ideas at the end for the rest of that hour. So you have to like really explicitly be like, what you're allowed to say during this hour is only, you know, yes, hands. And then during this one, it's a no, but. And then they end up with this redesigned grocery cart where it's like, it was basically like, I don't know, you could look up the image of it online, but it was like a thing that was designed for a New type of grocery cart. And I thought about that. I was kind of inspired by that because a. I just thought, wow, what a cool job. These guys get to be creative for a living.

[Ben]

The top. This video is 15 years old and it says the top comment is they're still making us watch this for school, by the way, in 2024.

[Sean]

Yeah, I actually think there should be a Netflix show of this. Like, you know, that you have chopped where they give them a random basket of ingredients. You got to make a meal out of it. I would love to see, like two teams that are like, you know, engineer designer types, and you basically give them like a challenge like redesign the grocery cart, make the inside of an elevator more entertaining and just see what they do. Like, I would find that super fascinating as like a TV show. And I think it would inspire a lot of people to become like, engineers or designers if you watch that the same way. Like Shark Tank. Although it's like, totally, like, bogus in terms of, like, the entrepreneurship that they show. It's super accessible and it gets people excited about the idea of entrepreneurship.

[Ben]

This book sounds pretty great. Bad art. It sounds like a pretty good idea.

[Sean]

It's a great book. I'm excited about it. My. My only hesitation I had on it was like, I feel like I already got a shit ton of value out of it. Doing the, like, research and the kind of. The prep, like, of outlining, oh, here's the big ideas and crystallizing them in my mind.

[Ben]

So you're going to be like, Derek from la and you're going to just say, f you reader. I don't care about you. It's already. Exactly.

[Sean]

Do I need to go the extra mile of publishing it for other people to benefit? I'm not sure that I care about that. Like, I'm not going to. I'm not going to make any money off this. I'm not trying to get famous off a book. Why do I need to do that? So I might publish it. The other problem is, like, I'm not sure how many other people nerd out about this idea of making great art. Making. Making great products, just insanely great things. And caring about being the. Like, wanting to learn the creative process. Because you know what I, what I figured out?

[Ben]

I mean, that's obviously foolish. What about that guy? Like, that's a foolish fishing. Yeah, yeah, yeah. You. You got. You caught. You got me on the hook. You got the compliments on the hook. Because what about that Austin guy? Like, you know, artist. What was it called?

[Sean]

Great Artist Steel Do I want to just be that Austin guy? You didn't even know this guy's last name.

[Ben]

I know the book cover. What's. Isn't it, like. What's it called?

[Sean]

Great Artist steal.

[Ben]

Yeah. Like, I know that a lot of smart people whose books I read, they always say that. That, like, we had Jack Carr on the podcast. He wrote all these amazing fiction books I love, and he talked about it. Ryan Holiday talked about it. Mark Manson, who I know you like, talked about that book. Everyone likes that.

[Sean]

That's the thing. It's a lot of authors. Like, I wrote this. I wrote this thing. Cause I was studying how to do this. Cause I wanted to write a book. I didn't want to write the book about this. But that. That's just where I landed. It's for sure super important for anybody who's, like, an author, screenwriter type of person. It's just that's such a small percentage of population that I'm not sure it's worth the pain of publishing. But, dude, I don't know if the comments on YouTube persuade me enough, I might be open to publishing this.

[Ben]

If Sahil Bloom can convince everyone on Twitter to share his book, you can too.

[Sean]

What? He's hilarious about Sahil because Sahil's great. And Sahil is such an achiever.

[Ben]

He brought the PE Energy to totally.

[Sean]

PE he bought the Ivy League energy, right? He achievered his way into Stanford. Achievered his way to being a good athlete, like a D1 athlete. Achievered his way into private equity, successfully achievered his way into a six pack. Achievered his. Just basically, he's like, all right, give me a target and show me a ladder, and I shall climb. And it was like when we were like, yo, you should Twitter, dude. Like, your posts are kind of interesting. I think you could do this. He's like, cool. Monday through Friday, 6am, get up. Cold plunge. Write thread, publish thread every day for the next 900 days straight. And he did. He got, like, a million followers. He achievered the shit out of Twitter, too. It's amazing.

[Ben]

Yeah. And now you're gonna have to do the same with bad art.

[Sean]

As Elon once said, when they asked him, are you afraid of failure? He said, it is not in my nature. That's how I feel about achievering. It is not in my nature to do this.

[Ben]

Is that gonna be. That should be the reply to everything. Now, as the great Elon Musk has once said, this is not in my nature.

[Sean]

Dude, how sick is that phrase? How. How, like, timeless and alpha is that phrase.

[Ben]

All right. Is that it? Are you gonna go and enjoy the. Enjoy the sand or doing whatever you do? Do you even leave your apartment when you're in Hawaii?

[Sean]

Yeah, dude, I'm in the ocean. I mean, I'm at the beach. I got kids, dude. They want to do everything.

[Ben]

Are you gonna wear a tweety brace?

[Sean]

We're just doing the same pool every day for six days straight. Like, it's the same day, but they love it so much that I. I can't help but love it, too.

[Ben]

All right, that's it. That's the pod.

[C]

I feel like I could rule the world? I know I could be what I want to? I put my all in it? Like no days off on a road? Let's travel? Never looking back.