Neil Balter: How a Teenage Carpenter Created an Entire Industry

In 1978, Neil Balter was a 17-year-old carpenter with a knack for building things, but what he would end up building was an entirely new industry. As the founder of California Closets, Neil transformed the way we think about organizing spaces, pioneering an industry that didn’t even exist when he started. But while his story begins with some shelves in a neighbor’s closet, what truly set him apart was how he grew the business. 

Neil made a pivotal strategic decision early on: shifting from advertising to public relations to reduce customer acquisition costs. This decision wasn’t just a money-saving move; it became the driving force behind the company’s rapid growth. By focusing on PR, Neil got his business featured in the Wall Street Journal, talk shows, and even Oprah, catapulting California Closets into the mainstream with a fraction of the cost of traditional marketing. 

We see this pattern over and over again. A company that outscales the competition makes an uncommon promotion choice that results in a lower customer acquisition cost than the industry. It costs them less to get a new customer. And with each new customer, their lead compounds. You will see this principle at the core of the success for Netflix, Telegram, Amazon, and others.  

Now, this is not the only smart strategic choice Neil makes. In today’s conversation, we dive into how Neil identified what his brand stood for—quality and knowledge—and how he consistently delivered on that promise. It’s a lesson every entrepreneur should take to heart: knowing what your brand uniquely excels at and finding cost-effective ways to bring that value to your customers. 

Neil will also share how franchising allowed California Closets to scale rapidly, making closet organization a household concept worldwide. Whether you’re thinking about how to reduce your own customer acquisition costs, or what your brand’s promise really is, there’s plenty to learn from his journey. 

Today, we cover: 

• How Neil recognized a common problem (lack of closet space) and turned it into a business that solved a universal issue. 
• Why franchising was the key to scaling California Closets, and how Neil structured the business for growth. 
• How a chance encounter with a Wall Street Journal reporter transformed their go-to-market strategy from advertising to PR. 
• The brand's promise, earning customers’ trust, from design to installation. 
• Lessons on linking customer acquisition costs to customer lifetime value 

Ladies and gentlemen, Neil Balter. 

Thanks for listening! This episode is brought to you by Kaihan Krippendorff of Outthinker Networks.

Transcript

Welcome to the Strategy at Scale podcast brought to you by scaling up Outthinker and Growth Institute. Our mission is to cut through a sea of contradictory business advice and get to what actually works, we interview entrepreneurs and business builders who have successfully scaled companies across industries to extract proven high impact strategies to scale the value of whatever you are building in this world. Let's dive into this week's episode. In 19 78, Neil Balter was a 17 year old carpenter with a knack for building things. But what he would end up building was an entirely new industry.

As the founder of California Closets, Neil transformed the way we think about organizing spaces, pioneering an industry that didn't even exist when he started. While his story begins with some shelves in the Neighbourhood closet, what truly sets him apart. Is how he grew the business. Neil made a pivotal strategic decision early on shifting from advertising to public relations to reduce customer acquisition cost. This decision wasn't just a money saving move.

It became the driving force behind the company's rapid growth. By focusing on PR, Neil got his business featured in The Wall Street Journal, talk shows, and even Oprah multiple times, catapulting California clauses into the mainstream with a fraction of the cost of traditional marketing. We see this pattern over and over again. A company that outscales the competition makes an uncommon promotional choice that results in a lower customer acquisition cost than the industry. It costs them less to get a new customer.

And with each new customer, they get their lead compounds. You'll see this principle at the core of the success of Netflix, Telegram, Amazon, and others. Now this is not the only smart strategic choice that Neil makes. In today's conversation, we dive into how Neil identified what his brand stood for, quality and knowledge, and how he consistently delivered on that promise. It's a lesson every entrepreneur should take to heart knowing what your brand uniquely excels at and finding cost effective ways to bring that value to your customers.

Neil will also share how franchising allowed California Closets to scale rapidly making closet organization a household concept worldwide. Whether you're thinking about how to reduce your own customer acquisition costs or what your brand promise really is, there's plenty to learn from his journey. Today, we cover how Neil recognized a common problem, lack of closet space, and turned it into a business that solved the universal issue. Why franchising was the key to scaling California closets and how Neil structured the business for growth? How a chance encounter with a Wall Street Journal reporter on a plane transformed their go to market strategy from advertising to PR.

The brands promise burning customers trust from design to installation. Lessons on linking customer acquisition costs to customer lifetime value. Ladies and gentlemen, Neil Balter.

I guess it sort of starts with am I understanding recognizing that there was this new market? And before you started California Closets, you were in high school, I think? Correct. And maybe just give a little context on that. What was going on in your life when you started California class?

Yeah. I mean, I never had, per se, the lightning bolt. Right? And thought, oh my god. This was, you know, this was it. The origins of really how it started is I was going to pick up a friend of mine. We were gonna go out that night to some clubs or whatnot. Father asked me to build some shelves in his closet. I was carpenter at the time, and I built some shelves in the closet. Right?

Did the neighbor did the neighbors that their friends, and then, you know, Marvin was his name. And Marvin thought it was a really good idea, and he thought that his son, Steven, and I should start a company doing this. Stephen thought it was a dumb idea. He didn't wanna do it. After a couple months, I eventually talked his dad into doing it would mean we left Steven out of it.

And, you know, his dad at a a closet person or something like that. I owned a commercial collection agency, but, you know, saw how the the product affected them and affected their lives and and whatnot. You know, as we go through this whole thing, the fundamental issue that you get down to is it was a good idea. Wasn't you know, is about as low tech of an idea as you get. But it was a good idea, and it it stumbled upon something that is a common denominator for everyone.

The everybody looks at the before and after picture, 9 out of 10 people say, how'd you get a picture of my closet? Right there. That's that's it because you're now having them reflect back to their own problem of how you can solve it. And over the 40 years, even if people couldn't afford it or didn't wanna buy it, they always agreed it was a good idea. Right?

So Marvin gave me a van. He owned a commercial collection agency at 2000 dollars and off we went. Right? And this was in 19 78. I was 18, and Marvin was doing it just to help me and whatnot. And, you know, we did some flyers and we whatever. You know, we just what did what did those flyers say? What was the problem that you were...

Well, the difference is just, came down back in the first 10 or 15 years to the before and after picture. Right? Here's your closet. It's a nightmare. This is what we can do for it. Right? And so That was the fundamental because, again, when you can get someone to associate your solution with their problem, you're on the right track. So if they look at that picture, that's their closet. Here's what we can do for it. Fantastic.

Yes. Let's go.

And how were people looking to solve that problem before?

They well, they before because people were doing closets before me, but they would do just what I did. They would hire a carpenter, and they would sit in front of their closet and say add some shelves here. Nobody ever per se commercialized it or tried to make it a business. It was always hire the handyman, have him come over, build some of a few shelves in my closet and off we go.

Got it. Got it. Okay. And so what you were offering was an alternative to hiring a handyman to build something bespoke for you. Correct.

I guess, maybe some people would just buy pre made stuff that didn't quite fit.

Sure. The whole people route.

Yeah. Right? Yep.

And that and that was always there. But the with us, like I said, we went out and marketed the product and made a market for it. It was always there, again, in a in a weird kind of way, but nobody specialized in it, nobody marketed, nobody tried to set a strategy to create a an industry for it. You know, in this year, I, you know, I was I know you were looking at it. But, you know, Cal this year, I think they're gonna be up in the 800000000 range.

Amazing. And it sounds believable. That's amazing. It sounds believable.

You know,

the industry itself is probably a couple billion. You know, if they're gonna do 800000000000, it doesn't it's not hard for me to get there. No. It is crazy.

Yeah. So let me see if I'm if I'm I'm not gonna get this right probably, but I'm kinda thinking before that your concept, there were kinda cheap options. Let me buy something off the shelf. Maybe make it myself, and it doesn't quite line up to the dollar store. Or I could hire someone to do something bespoke, which is much more expensive.

And there's probably, like, this really upper high end

Right.

Here I can kind of get the the the performance of a high end, but because I'm buying it from a specialist and your processes, we'll go into the processes and product and design of the product and how you did that. But I can kind of get the bespoke high end, but at a slightly lower lower environment.

You're you're correct. On the low end, there is always stuff at home home depot lows. And on the high end, there was always the finished car unders that might do, you know, 20, 30000 dollar, you know, or a 5000000 dollar kind of house. But there was never anything in the middle. Right?

And that's the market we went in capture was the middle.

Great. Alright. So we're talking about this. We've got this positioning. We've identified and I understand that you didn't predict it. You kind of, like, just followed the market.

I kind of followed the market. It it it led me by Alej. But but 1 thing over the the 40 year business, it was always good. Right? You know, the flyers work and whatnot.

And then you you you know, there there's times in business where critical things happen, right, that change the nature of the business. So, you know, I was going along for the first couple years with Marvin. Right? I owned 80 percent. He owned 20 percent.

I did all the work. He gave me a little office in his office to use. Right? And we just kinda went along. By the end of the first couple years, Marvin had had enough of it.

I bought him out. Right? You know, he he was just there to help me. So I had thought about and kind of moved on to the next level. Because 1 of the things with my career, there has been identifiable mentors that have helped me get over the finish line at certain points.

Right? Marvin was the first mentor. Right? Got me all got me going and whatnot. So it was right about then that I had went back and took a college course at peers at the community college.

Right? And I met the professor there. You know, I took 2 courses, sales and work, whatever. I met the professor there. This guy gave Segal.

And he was unbelievable. He had invented the convertible sofa. Right? And and had a company called Livingstone the Rivera and Castro convertible. Anyway, So David had sold the company, started teaching at the university to keep himself busy.

David took me under his weight. He was my second mentor. And and what what we the difference with David, what he brought to the table per se was to expand the marketing. Right? 

Start, so you go from flyers to advertising?

Yeah. Up until then, we never advertise. It was all flyers, word-of-mouth, just that's it. And by then, you know, I probably had, I don't know, 4 or 5 employees. You know, things were good.

I had a couple guy you know, guys installed now. I wasn't doing that anymore. I was just doing the sales. But I met David, and David, his deal was he was he loved the idea. Right?

Because kind of what he did with the convertible sofa saves space. Right? Turn the turn the room into right. And, you know, we weren't there until the living room
and back. Kind of in that same ZIP code. Anyway, but David got me to clean up my act. You know, up until then, I had hair halfway my down my back. I whatever.

You know, I And he said, hey. Listen. If I'm gonna help you, you gotta clean it up. But David then brought me to the LA Times. Okay.

Now in his day, he was a huge appetizer. I mean, huge. You know, double trucks. I mean, you know, probably top 15 advertisers. So when he brought me there, I had lunch with the, you know, senior VP of marketing and you know, the director of marketing and advertising, all the top people in the private dining room.

You know, where I was it's a little tiny guy. If I call the times, I, you know, I would've been hard to get somebody to come out and see me. So he introduced me to that group, and those guys took care of me. They, you know, got their art department to create some ads. They you know, we started advertising the times.

All of a sudden, I was on page 3 on their upper right hand corner. They had got the magazine, their weekly magazine to do an article on us. Right? It it was it was game changer.

But but let me be clear, though. At this point, are you advertising the product? Are you advertising franchise?

No. We're advertising the product. Okay.

You you haven't you haven't started franchise.

Yeah. This would have been, you know, 19 80. Right? Ish. And we were strictly advertising the product.

And it was good. I mean, when we started advertising it, things got better, better, and we, you know, voice growing and and whatnot. I mean, you know, it worked. There was no question about it. It it worked.

So, you know, David David, you know, got me to start advertising. Right? Now, you know, in you know, now I've got I've run-in 3 or 4 vans. I've got a couple salespeople working for me. You know, the business is building.

There there is no question about it. And it was right about then that David gave me the idea to franchise.

Okay? Tell me but tell me what was that like. Oh, dude. Do you remember the moment or or how it came up?

Well, yeah. You know, didn't even you know, he was in the franchise business with Rivera and cashier and whatnot. You know? So that was his wheelhouse. And and he always, you know, was always a big believer in the product.

Big believer that we could do it, and he said, you know, Neil, the way to expand this thing is, why don't we franchise it? You know, franchising to start up is fairly expensive and whatnot. I didn't really have the money for it. But I a friend of mine introduced me to this lawyer, and I got him to do it on contingency with their agreement that I would stay with him for at least the next 2 or 3 years so that he could recruiter's investment, which I that I I'm still with him 40 years later, but that's not here or there. So we started the franchise.

Now so, let me go back first. What was the rationale for deciding to franchise? Because that's an important business model decision.

And, well, be trying to because I didn't have the money or the wherewithal to go ahead and go into other cities and open up other locations. Right? And and and the thing was taken off at the time. I mean, we were doing great. We were making money.

Everything you know, we're things were good. Right? And we were expanding and and whatnot. But, you know, Los Angeles, you know, we started in the San Fernando Valley, and, you know, it's very difficult to go to to Long Beach to do an estimate from the Valley for Watson.

So a demand is sort of pulling you. You probably can't keep up with demand under if you were doing yourself. Yeah.

Well and it's just you know, you're it's the geographical aspects of it. You can only drive so far. Right? So, you know, as we were you know, I was getting all these calls from these areas that were way too far, is that's what kind of started to percolate the idea that we needed additional locations but we didn't have the money for him, but maybe we would go ahead, and David said, why don't we franchise? Now having said that, his kids bought the first 3 franchises.

Oh, great. K? LA, Orange County, Thousand Oaks, you know, and and he had put up the money for the kids, but but that's how much David was a believer in the product and what we were doing. And so now we were kind of you know, this is probably 19 81, 82. And, you know, we were off, and we started selling franchises.

And you know, again, things were good. We were, you know, we were running our local operation. We started selling franchises. And then the next game changing thing happened. And I can't tell you what a game changer was.

It fundamentally changed the strategy and the way we went to market. So what happened? I was flying home from Sacramento, California. I had just went and visited 1 of our you know, at this point, we had, like, 10 franchises, 10 or 12, you know, all of the LA area, Fresno, you know, saw whatever in Southern California. Anyway, I was flying home from Sacramento.

And, you know, for once, I got I was sit sat next to this attractive woman. Right? And we're flying home, and I'm giving her the whole pitch and, you know, blah blah blah. We're talking and and whatnot. And towards the end of the flight, I asked her out on a date.

And she said, no. But she said, you know, I'm a reporter, and I'd like to do a story on the company, you know, because I gave her the whole big say. And she handed me your card, and she worked for The Wall Street Journal.

Oh my gosh.

K? And about 3 months later, front page, second section of the Wall Street. You know on the second section, 1 day was real estate, 1 day was high-tech, 1 day was small business. So about 2 months later, big article came out on the front page of the second section. It was March fourteenth of 84.

Can you remember the day? Changed everything.

What do you what what started happening? Well, certain phone calls, let's say we were getting 1 or 2 calls a week from prospective franchises. Let's say we had, you know, 10 or 12 at the time. That article came out within 2 to 3 weeks, we probably got 200 calls. It was unbelievable. We got ran over.

Quite frankly, it almost put us out of business because with franchising, you have to register with the federal government And then with individual states. Right? It it not all states, 13 states, or registration states. But you gotta go through the process, and we weren't really registered in all the states because we're only selling in California and whatnot. But but it was a game changer.

And it gave us instant credibility that we had so desperately needed. So think about this. Think about a 20 year old or 21 year old walking into a bank that is trying to sort a closet company and saying, like, funny. They're like, really, really good. You know, just literally laughing.

Yeah. But the and that was all pre Wall Street Journal. Once the Wall Street Journal came out, you had credibility. Right. And we had got, you know again, we got calls from everywhere.

Now what did that do? Strategy wise. Completely change our strategy from that inkboard on how to sell franchises. Prior to the Wall Street Journal, we were advertising in Fortune and Inc and Entrepreneur. You know, that

Yes. Yes. To get, yeah, franchise owners. 

To get franchise after the Wall Street Journal, we stopped advertising. Completely. We went out and hired a PR company. Right? And put all the money into generating positive PR instead of advertising. Tell us a little bit of what the story lines are. They get you the PR because I I imagine it's not it's it's not the story of the product. It's the story of you and the company. Right?

Well, it was yeah. It was 2 things. Okay. Number 1, I had moved out when I was 17. After I had moved out about 2 or 3 years later, 4 years later, my parents started working for me.

So they kicked me out. Now they're working for me. So PRSut, kid gets kicked out at 17. By 21 or 22, their parents are working for him. He started this new company.

So he had the 2 different venues. You had the shithead kid makes good. And then you had this brand new product that no one's ever seen before. And they're intertwined. That's great.

They're intertwined. Well, they weren't intertwined. But to say it was kind of easy to get the PR. So over the next 4 or 5 years. I had done Oprah 3 times.

Amazing. Every good morning, America, today's show, all of them. Okay. I I was in every magazine Now I had done over about 300 local talk shows. What what city are you in?

Miami. Miami. So I would go to Miami, and I would do wake up Miami or good morning, Miami or whatever it's called. Oh, know what I have, the the local talk shows, they'll have the chef come back every 3 months and cook something. And they'll have the gardener come back every 3 or 4 months and say, this is what it's now you need to plant.

Now the season. Yeah.

Well, I would come back every 3 or 4 months. First, we would teach them how to organize their closets without buying anything. Then I'd come back 3 months later and we talk about the garage. Then I'd come back 3 months later and we talk about the pantry. So it was an ongoing I was mere organization guy.

So we were doing that all around the country, and that's how we sold all the franchises. Yeah.

Did you do media media training to get good at that or

Well, I did a basic, but but 1 of the things is is that what I believe is advertising is cursed. K?editorial is blessed. You could put the same format in advertising, and and they take it with a grain of salt. But if it's in a story or on a TV show, they tend to believe it. Right?

So so that and and forget about selling franchises. It was helping grow the business. Sure.

Yeah. The franchisees are thrilled that you are.

I mean, you know, there were 2 that were being really, we were growing the business and top line sales, but then we were selling franchises. From that. Right? You know, you do a story of people magazine. You get calls.

You gain Forbes. I mean, you know, see, pick your flavor out. We were in it. Right? And it was a very strategic decision to quit advertising and dump all that money into PR and hiring a a PR company and and making it the fundamental basis of how we were gonna grow the business in the this retail side of it and acquire franchises.

I guess you could say that your customer acquisition cost went from more than 0 to 0 because you're not paying for well, you're paying for the PR.

Well, you're paying for the PR? It should be offered the lot less.

Yeah. Lot less. Right? So then that changes the economics. And the the the choice of franchising now allows you to keep up with demand.

Because if you didn't do that, probably, some of the call you up and you say, I can't get there, and then they'll call someone else up and that creates an opening for someone else to

Well, yeah. For everybody call up and they say, we wanna close it and we don't have a dealer down there, but we're looking for franchises. And

Yep. Yes.

You sold branches that way.

Yes. Yeah. That's great. Yeah.

That's great. Yeah. That's great. You know, because they thought it was a good idea. Now, you know, we've we definitely sold some that way.

Yes. Yes.

Where the initially, inquiry was for a retail closet and ended up getting it in the business.

Great. Love it. Can can you tell me a little bit about the product? So it could be covered, like, kind of promotion marketing, your business model, you're you're kind of you know, the your your mentors, but, like, talk about the product a little bit. Actually, I haven't been able to find a lot about this. But I do understand that you built, like, a product with a stronger base that allows more customization. There must be some modularity to it.

Talk us a little bit about Yeah.

Well, the the product itself is when you go back from the very beginning stages of it to where it is now, it's substantially different, and it's much better. I mean, in the beginning, when I first started, literally used to go to Home Depot, buy the material, put it in the truck, and cut it at the customer's house in their driveway. Right now, you know, some of the big California closets now do upwards of a million and a half a month. And so they're running sophisticated manufacturing locations on their own. Forget about the parent company, the franchise.

I mean, you get up to that kind of volume, and, you know, you're talking sophisticated manufacturing. So the product has definitely evolved over the 40 years compared to LITO where it started. I mean, it started, you know, nail, clay, raw particle board. Now it's finished products, self closing runners, self closing images. I mean, it it's as nice as it can be.

I mean, it it it it really is. I mean, it's not cheap, but you buy it once, you use it every day in your life for the rest of the time you're in that house. How many times have you bought something, used it for a month, and then it goes into the closet, and you never use it again. Our product, you're using twice a day every day for the rest of your life. Period.

And and the product itself today is it I mean, it's just substantially better than what it was when we started. You know, the materials, the adjustability, the whatnot. Now it's not modular. Everything is custom done. You know, we sent 1 out to the house, they look at you what you've got, and they design something just for you.

Now you can add to it, you know, if you wanted to, you know, 6 months out of the org, you wanted to add 2 drawers? Yes. We could do that. So in that way, it's a little bit modular, but the design itself is all custom. Everyone's different.

Great.

So how do you I imagined the training the people that, you know, that are working for the franchisee who are who are there talking to the I mean, I I would I've been impressed with the 2 different people that have come over. Like, they're just so knowledgeable. So so what I imagine getting them there, that does take a lot of training.

It was stopped. You're absolutely right. You know, getting people to take 2 week 2 weeks out of their lives to come for training because it was 2 weeks. And then we sent after the training, we set people there for 2 weeks, different people for week 1 and week 2. But they're

Through the franchise the franchise location following around and

Yeah. To the title. Location and what so so there is the front end training and the ongoing training, and it and it was a lot. And you're not joking. It was tough a lot of times because it we needed 2 weeks.

Not a week. We wouldn't have been a lot easier, but the more work you do up front, the better results you're gonna have in the future. It's that's it. Right? And we wanted to make sure that everybody was trained and whatnot.

And that's why we did initial training, infield training, and then ongoing. There was always ongoing training for salespeople, regional meetings, national meeting, whatever. There it it was an ever ending battle.

So it seems like that's I'm I'm thinking of kinda where my head is. You put this thing out into the world. You eventually we will get to it. You eventually sell it, and it's still growing. You put something into motion that is permanent or, you know, a sustainable competitive advantage at least.

1 thing seems to be the fact that you are you create the market, so you got the you kinda own the own the market with your brand. I think that the training must be a big effort. If someone wanted to copy that, that would be a

a big effort to try to replicate that knowledge. What were you saying some of the other reasons are that someone else who would can't just come up, come over, come along, and do it. 1 of the biggest issues, I think, honestly, is the brand. So here here's an example of what I think the power of the brand. You remodel your house.

Your wife wants a sub 0. Well, you know, this one's just as good. No honey. I want a sub 0. Okay?

Well, it's a lot like that with Cal. It it's a branded product at this point, and people want the brand. Right? There's no question about it because it's branded. Right?

And so I it's again, it's similar to the sub 0 analogy. Right? You know, the other ones are just as good at whatever, but But when that consumer gets in their mind, they want that brand, yay, shake it up. What's interesting about the Cal brand is there's, like, the brand beforehand while I'm selecting into Reputation. Afterwards, I'm using it twice a day, and I'm interacting with the physicality of it. But in the middle, the people are such a big part of the band and the experience.

Well, yes. It is. And we were an we're an so customer centric focused from the initial contact to the vacuuming up after we're done. Because here's 1 thing that you have to the downside with closets. You want a closet.

You don't have to have 1. K? If your hot water heater breaks, you put it on a credit card, do whatever you gotta do. You gotta get your hot water fix. K?

You want a closet. You don't have to have it. So it is a it it's a very poster child for disposable income when you're gonna spend a couple grand getting your closet organized. So that that type of customer has a legitimate expectation for a level of customer service that is commensurate with what they're buying. Because this is a I wanna have a product.

This isn't I have to have it. And and would get to those kind of products, the level expectation level of customer service, I believe, is bigger. The Cal brand stands for something. There's certainly attributes of the Cal brand, and that has to get translated into the service human interaction as well. It certainly stands for quality. It's high end service. It is customer centric, but are there are there other attributes? Those are kind of things that many brands aspire to.

Is there what what what does what does the brands how would you describe the brand? Or what does the brands stand for?

What it stands for is quality knowledge. See, 1 of the things that you liked is when the person came to your home, they knew what they were talking about. See, when you deal with the salespeople, I don't care if it's closets or you go to Best Buy to Buy TV. You start to talk to the person. Within 5 seconds, you know if they know that what they're talking about or if they're making it up as they go.

Mhmm. Isn't it? Right. Right. You know, they have a handle and a grasp on it, or they don't.

And so what we wanna do is we need to make sure that our customer has a high confidence level with the person that's coming into their home. Listen. This is when someone it is such a high level, watch, you call Cal. You invite them to your home. You walk them into your bedroom.

You show them your closet. It it doesn't get more personal and private. It is you you first of all, how many people come to your home and you never bring them into the bedroom?

That's right.

That's right. I mean, going into the bedroom and, again, you it's like the depths. You're going into their most private place possible. And so there needs to be that level of confidence that you're giving them that they're showing you this. Because, I mean, it when someone calls you up, it's such a good lead because if they call you up, invite you to their home, walk you to the bedroom, show you their closet, guess what?

They want it.

Yes. Yes.

They're not, like, saying they're not doing this to give me a couple good ideas. They want it.

Right. Yes. Right. Gotcha.

Yes. That's simple.

I love that. I'm sorry about Bill Class quality knowledge. That's the brand that gets translated, physical product, communication, but also the people which requires at higher level of training. What are some of the things that you put in place to ensure because these people aren't your employees. They go through some training, but how do you ensure that you're providing the right experience of when they're doing the installation of doing this on?

Listen, over the years, have we had a couple of bad ones? Sure. Everybody does. If I was sitting here to tell you, out of the 200 franchises, they are all perfect. No.

But bad news has a way of eventually filtering back to corporate. Right? Because on all the marketing materials and whatnot would be corporate phone number and and email. Right? Mhmm.

And so when when in turn see, 1 of the things we try to impress upon the franchises It's their business, in their market. They are the ones who are gonna make it successful or not. So if you're not treating your customers like this, you're gonna fail. Right? So we've tried to get the dealer, the franchisee, to understand this as much as possible because, again, at the end of the day, it's their business and their market with their reputation.

In 1990, you sell to to Williams and Sonoma. And I wanted to know and it was a stock swap, so you're still in the game, I guess. Right. Somewhat. Somewhat.

Okay. But you're taking money off the table.

Yes. But the stock swap was the best thing that ever happened because it funny how things work. It was called a pooling of interest. The only deal with it was I had to hold the stock for 90 days after the first combined quarterly earnings. That was only restriction.

Within that 90 days, your spot stay was trading at 30, split 3 for 2 1 back up to 28.

No way. So it basically triples in value.

I yeah. Those ideas. And and and I had every penny and not every penny, but you'll the bulk of my net worth was wrapped up in the stock. I was pulling a hundred thousand shares or something day 1 that I could. But by being locked out for the 90 days, I got an extra 35 percent money.

It was unbelievable.

That's amazing. What what was the reason what what was the reason I mean, was that stock split already in plan before you did the

Oh, that 1 happened. Had had to done to them. So the Williams Sonoma story. Right? Because it's it's kind of interesting how the whole thing happened.

It was unbelievable. I was at a friend of mine's house. I met another guy there. He was in the printing business. And he said, do you would you mind and I was gonna print some stuff.

He goes, can we give you a bid for it? I go, sure. Why not? So I I give him the deal His dad was Bill Lebine. K?

Bill Lebine started pit printing. If you remember back or it was you, g, they had, like, 1200 locations. So So, you know, he the guy introduced me to Bill. Right? And the advertising so you know, we got the brochure done.

Everything was done. Everything was fine. Right? So but the guy I met, he I was telling him that I wanted to do a deal with William Syneoma. They owned a company called Old Everything.

Which were home or national stores. They had, like, a hundred and 50 of them in regional shopping centers, and they did their catalog. So what I wanted to do was I wanted to put an ad in their catalog and put a display in their store and give them commission. Okay? Well, this guy somehow knew his dad knew the chairman of William Sonoma.

Wow. So he was Neil, I can get you a meeting with the chairman. I go, yeah. Okay. Rather than starting with the marketing guy and trying to work my way up.

Right? So I get a call from Howard's office. Use chairman of William Sonoma. But he go his secretary says he's gonna be in LA. He wants to take your golfing.

Can you meet him at LA country club, you know, blah blah blah at 10:00? Fine. So I go and meet him and work golfing. And, you know, he said he had never heard of California closets. Now I don't know if he would push you my buttons or you minimally never heard of it.

But I told him doing out, you know, our whole wood thing and whatnot, And then after dinner, we went or after golf, we went to dinner. He took me to some restaurant of his. In the middle of dinner, right, he gets up walks over to this table of 4 women sitting next to us, and he said, ladies, do you mind if I ask you a question? Sure. Have you ever heard of a company called California Closets?

And they go off of the 1 lady said, heard them. They did my closets. I love my closets. It's the best thing I ever did. But on it on it.

Right? So he sits back down. He goes, oh, you set that up. Right? I go, Alan, you brought me to a restaurant.

I never even heard of. Okay? So But by the end of dinner, he said, have you ever thought about selling the company? I was like, dumbstruck, because what he saw was we had about 1500 salespeople at that point walking into 2 to 3 homes a day. Right?

He had a catalog and he had the retail stores. So he had retail catalog and I had in home sales. So they were gonna create a catalog for the salespeople to sell shoeboxes and hangers and all that stuff. And then they were gonna put displays in the hundred and 50 stores to generate leads for the dealers it it just worked. Right?

It it just made sense. So I wasn't looking to sell the company. Not at all. I mean, it came out of left field.

I could see there being also like a a good overlap between their customers and your customers.

Oh, there's no point out at least. Yeah. Yeah. Same type same profile. Yeah.

The Williams Sonoma customer is a high end, fluent, upscale. Again, wanna have I mean, half the stuff in that catalog is stuff you want. You don't need. So it all you know what I'm saying? It just all made sense.

And that right? That and, you know, it took 6, 8 months to close, but it all made sense.

It was it was a great deal. And this isn't the only company you sold. You you later on, you start closet made, you sell that, you start organizers directly, you sell that. So thinking about that overall, you know, each case, was it that it just was the right deal? Or how do you think about when is the right time to sell?

Because, like, Vern, who who, you know, he he talked about, like, on the s curve, where do you sell?

The cost of anything was a 10 year deal It was fantastic. It worked great for them. Worked great for me. Every at AWS, everybody was happy. Organizer Direct, which is it the last company I had was do it unbelievably, but I got sick.

Right? Okay. So that's you know what I'm saying? I got I ended up I got diagnosed with multiple myeloma, bad, what answer, go cure, bad, bad. So after a couple years, I had a partner at the organizers Direct, and, well, about a couple 7 years, he bought me out because I was sick.

So that's why I sold that that organizer's direct. But, you know, quite frankly, I when I sold organizer direct, made more money from that than I did from gal. What what what was the concept? What was the concept between organizer and I was just direct? Oh, the concept was there was no different from gal?

Right? We were direct competitors with Cow. We had about 350 installing dealers throughout the country. More insurance for Pete. I mean, it wasn't me.

It was more insurance for Pete. I'm not all that bright. I just do the same thing over here.

This is summarized for me. What what were the key elements that you wash, rinse, repeat? What are the key ingredients, or key success factors for this business?

This business, if you ask me, the number 1 He it's all about lead generation. Right? The business is very simple. Generate a lead, make a phone ring, send to Salesforce now, design a closet, send the installers out to put it in. Very simple.

Right? All starts with the phone ring. That's where the whole program starts. You could have the best salespeople and the best installers, freaking phone don't ring. And that's where we have your biggest variable cost is in customer acquisition.

You can generate leads on the Internet 30 bucks, 40 bucks, whatever. You know, in a in a magazine, like, you know, LA magazine, whatever, could cost 3, 400. And so the the driving factor to growing those business is all marketing and lead generation. Getting the phone rate. That's that's the fundamental where that's where the whole program starts is getting that and looking at that conversion rate.

You know, it's all about ROI. I spent a hundred dollars in advertising at the end of it between, you know, closing rates and average sale and all that all that matters is the ROI. I know you're I brought back 707 to 1, I'm a happy guy.

Yeah. That's that's fascinating because the delivery and maybe there's not a lot of post installation service. Maybe maybe that's not so cupid. But, operationally, this seems like a very complicated business that requires a lot of humans as well, which makes it kinda hard to produce, but particularly Yeah.

Yeah. There's no question. I mean, fundamentally, you're right. It's a in home service business. And they're the hardest you know, outbound service businesses are the hardest to manage and run.

It could be an air conditioning company. It could be blinds. It could be a painting contractor, but they're all outbound services. And when you get down to it, the model on those things are all pretty much the same. Generatorly make a sale, deal with the product.

They're all fundamentally the same. For someone who is growing their business from an early stage, is there something that you didn't share with a related strategy that they should Well, to me, the the number 1 thing of growing the business to me personally is identifying the drivers. What's the drivers of the business? Right? And it can be all different things.

You know? In our business, the drivers was lead generation. In other businesses, it could be, you know, whatever. But what's driving the business? What is the fuel to it?

Because the rest of it is secondary to me. Right? It's a very important don't get me wrong. But unless this happens, I never get to that. And so it's really focusing on the drivers because every business has a driver to it.

What is driving sales? Because sales fixes everything. If you have enough top line money coming in, you'll fix the problems below the line. Right? Sales drives everything.

How do you this may not be a relevant question here because it seems like you have figured out this particular business, and so you stick with those drivers. But when you look at a different business, how do you identify what the drivers are? Where's your business going from? Where's the coming from? Where are you generating business?

How are you generating business? Because, again, it's all about, to me, top line. See, to me, if you don't have the sales coming in, everything else is academic. That's just the way I feel about things. It's all about the top line.

Right? Because I can manage my way through expenses and this and that. But if this ain't this is the big variable. Right? So I'm always gonna say to someone, I would say to anyone.

Well, where's your business coming from? Who's your best customers? How did you get them? Why are they your best customers? How can you get another 1 like that?

I love that. Yep. Yeah. It's sort of like yeah. I mean, a way to, like, phrase that is it's valuable customers, customer lifetime value, who are your most valuable customers, where do you get them, how do you get more of them at the lowest price product list?

I'm generally at the end of it, it's customer acquisition. Right? Because nothing happens until something is sold.

Thank you. That is a gold, and sharing that is gonna help so many entrepreneurs. Neil, thank you so much for taking the time. To share your story and insights and your strategic acumen with us. We really appreciate it.

Happy to help. Glad we glad we got it together.

Thanks for listening to this episode of Strategy at Scale. Thank you to our producer, Oscar Perez, and our teams at scaling up Outthinker and Growth Institute. If you like what you heard, please, follow, download, and subscribe. I'm Kaihan Krippendorff. We'll catch you soon with another episode of Strategy at Scale.