In Part 4 we saw Hellman-Chang attract the interest of A. Rudin, a well-established, fourth-generation family-run showroom and furniture line serving interior designers and architects. Now Dan Hellman and Eric Chang have to step up and find the cash, time and manpower to fulfill an order far beyond what they've been able to produce thus far.
And when Dan and Eric head out to visit the flagship Los Angeles showroom, they're in for a Rudin awakening.
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A. Rudin is a discriminating showroom. What do you think they saw in Hellman-Chang, versus others, that made them say "Let's go with these guys?"
Eric: I think they were sold on the brand. They were sold on Dan and myself after sitting down with us and seeing two young creative guys that were enthusiastic and fresh to the market. I think we were able to sell them really well on what we were about as a company that made them think that it was good opportunity for them to jump on it.
They're also more of a transitional showroom, whereas we're more contemporary and they felt it would be a good fit, both for their new New York showroom and to help round out their brand a little more, too. We're at a little more of a higher price point than most of their product line. So we were also bringing a lot to the table for them, I think. All in all it's a really good mutual relationship in that respect.
And now they'd placed this relatively massive order with you. How do you guys tackle this, and what were some of the problems that you had to deal with?
Eric: In the furniture industry, at least within the United States, it's industry standard that the designer/manufacturer—in this case, Hellman-Chang—produces and ships all of those pieces at our own expense. So the showroom didn't order 32 pieces and give us a big check; instead it was "We want these pieces in three months, and then we'll start selling from that." So it was a huge upfront cost for us to start that off, just tens of thousands of dollars.
I have to ask—where did the money come from?
Eric: Most of it was from personal savings but then [we depleted that to the point where] we sought help from family. But we didn't want it to be us just asking family for money; we never wanted to be in that position. So we set up a loan structure with interest payments. Any move that we do is a calculated business decision. Dan I very carefully planned out what we should do, how much we needed, where we should spend it.
Despite all of that planning, there's still risk involved. As the stakes start getting higher, did you feel any fear?
Dan: If anything, it was exciting.
Eric: The ability to look beyond [that potential fear] is important, and that might be what sets people apart. Dan and I made very calculated moves and discussed things heavily between us.
Dan: It's good to have someone that you can talk it out, plan it out with.
Eric: We could both play devil's advocate, no one was right or wrong. Hellman-Chang made, and continues to make, a lot of moves that might seem risky. But you need to balance that out with the potential outcomes and avoid getting swept up in the emotional reactions. It's a matter of drowning out the fear with sound decisions and pulling the trigger.
Dan: And on top of the financial aspect, we had the production aspect--"How are we going to meet this deadline?"
And how did you?
Dan: The two interns we had were leaving at the end of August to go back to school. We needed somebody capable of helping build these showroom floor samples, so we hired our first full-time employee, a RISD graduate with furniture building experience. Reed would come in from nine to five.
Eric: And then it was the three of us. Dan was there nine to five with Reed and I'd come in after putting in a day at the marketing firm. Then Dan and I were working through the night and weekends to fulfill this order.
Dan: We went from me and two interns producing a small quantity to working with a full-time employee and being able to produce much more. It was exciting being faced with a big demand to get four showrooms up and running, it really kicked us into gear. And we knew that the showroom's deadline was our deadline [in terms of seeing a profit].
It was exhausting, a lot of long days from that August to October. And there were other things to be done [beyond just the building].
Dan: While the main focus was on getting the showroom up and running, we still had to work out price points and new types of collateral stuff like finish samples. The work was all-encompassing.
Eric: In being formally sold through showrooms there's a much higher amount of marketing collateral that you need, tear sheets, catalogs, things like that. We did a tremendous amount of research into the competition to see what their tear sheets looked like, what their marketing collateral was. We wanted to present the best qualities of what we saw and avoid the worst. So it was back to the drawing board on all of that stuff.
But you got it done.
Eric: Yeah. The A. Rudin New York showroom was opened October 1st 2007, so New York got their furniture first. And by January of 2008 the Los Angeles, Chicago and San Francisco showrooms got all of their furniture. That was the first time we shipped that much furniture all over the place. It was very exciting because we'd gone from having one picture in a magazine [which would result in, at best] two phone calls a month, to having 30-plus pieces of our furniture all throughout the country where designers could see it day in and day out. So now those sales channels were open.
What were the days and weeks like immediately following fulfillment? You mentioned earlier that it's not like you deliver the pieces and immediately receive a check.
Dan: After filling that first showroom in October, it was the waiting game. We were told that it could be six months to a year before designers started noticing our stuff. But within two months, orders started trickling in.
It was really refreshing to get those purchase orders. I still remember the first one, where all we got was a fax—let me explain: Prior to that, in order to make a sale it was us doing everything, on the phone with the designer, them telling us what they needed, back and forth about customizations, et cetera. But for this first order after the showroom, we just got a simple fax detailing what was needed: Three Z-Side Tables customized for a residence in New York, with everything spelled out in the fax. One piece of paper, very clear, that's it. It was really nice.
Eric: And by the end of that year, we became A. Rudin's number two vendor in our category of casegoods.
Whoa. Who was number one?
Eric: A. Rudin. They had their own in-house line.
How did you guys become number two so rapidly, were there a couple of massive orders that pushed up sales?
Dan: Actually no, and that was the other nice thing: After that first order, more orders came in gradually and more importantly, steadily. Steadily increasing, month over month, manageable-sized orders. It grew evenly [without any chart spikes to skew our perception of demand], which meant we were being noticed and picked up on across the board, orders coming in from all over. And by the end of the year we're number two.
Was there any proactivity on your part, or was it a matter of just sitting back and waiting for orders to roll in?
Eric: There was proactivity.
Dan: Once the New York showroom opened, Eric quit the marketing agency and went full-time with Hellman-Chang.
Eric: At that point Hellman-Chang still wasn't making any money, and we needed the manpower. After getting our pieces into the showrooms, instantly there was so much administrative work. There's so much that goes into building and selling furniture.
Dan: Not to mention the design work for new pieces.
Eric: We couldn't just have the eight pieces we had and just sit tight waiting for orders to roll in and then filling them. We needed to grow.
How did you know how to grow, what was the plan?
Eric: In very early 2008 we both went out to A. Rudin's flagship Los Angeles showroom to see what it was like. We had just gotten our pieces in there.
Dan: It's at the Pacific Design Center, which is a huge building. The amount and size of the showrooms in there is enormous, and going into the individual showrooms and seeing the amount of furniture and all the different lines that they carry, we saw we were the smallest one in there by far.
Eric: We had had maybe eight pieces in A. Rudin's massive showroom. And we saw that their largest vendor at the time had something like 40 or 50 pieces, I mean they just seemed to be monopolizing that space.
Dan: That company's furniture was everywhere, and since we didn't have very much ours was just sprinkled throughout. It was like a Hellman-Chang coffee table in this vignette, and 40 feet away a Hellman-Chang side table in another vignette.
Eric: It was both disheartening—and inspirational. We were looking at it, like, "Man, how are we going to—"
Dan: How do we take over? [Laughter]
Eric: Yeah, how are we going to get there? Where we have 40 or 50 pieces in the showroom and they're selling our product like crazy?
Dan: That kind of lit a fire.
No resting on your laurels and back-slapping, huh?
Dan: Well, we're standing there in this whole new world kind of like "Wow, we're a part of this now." So in that way it was very exciting for sure.
Eric: It definitely was, because for two years we had been working on this idea of Hellman-Chang and now, on the other side of the country, we have some of our pieces on display for all designers to see.
And as Dan said, you guys did now feel a part of this world.
Eric: Yeah, and it's inspirational because you see other companies that are huge, with deep lines and you know they're selling a tremendous amount of product; and we're like babies in the industry, just getting into it, with zero experience and no mentorship.
At the same time I think we had an advantage in starting from scratch. Because that meant we could dictate where we wanted to go with it. The market is very mature, a lot of brands are grandfathered in and kind of set in their ways, but we looked at it like we were able to carve our own path in this new world. So it was definitely a really exciting time for us. But we knew we needed to grow.
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Coming up in Part 6: Dan & Eric undertake their plan for growth—while the market crashes, jobs start disappearing and despair hits the industry. What does Hellman-Chang do?