Frank Farwell founded WinterSilks, a Wisconsin-based online apparel retailer, and helped it become an Inc. 500 company. Now he’s written a book titled Chicken Lips, Wheeler-Dealer, and the Beady-Eyed MBA: An Entrepreneur’s Wild Adventures on the New Silk Road. As the title suggests, the book has plenty of attitude, including the assertions that venture capital isn’t needed to seed small business growth and, more controversially, his panning of private-sector unions. Perhaps a combination of “tude” and unconventional wisdom is exactly what entrepreneurs need to navigate these economically troubled times, especially since Farwell is candid about his own mistakes and what he learned from them.
IB: Why did you write this book?
Farwell: After I sold WinterSilks, one of the things I did was teach myself the investment management process. I ended up managing the proceeds from my sale, as well as accounts for several relatives. The combination of selling out to a New York investment firm, and learning more and more about Wall Street, made me realize how disconnected the government and investment world are from the realities of an actual business. Both government and Wall Street are protected by layers of easily begotten synthetic money, whereas small business owners – the ground zero of capitalism – play by the real rules and have nothing to fall back on. So I figured if I could tell the relatively modest WinterSilks story well, perhaps I could end up telling a much bigger, more important story.
IB: MBAs have been taking it on the chin lately. Your title suggests you don’t trust them. Why?
Farwell: In general, I do trust MBAs. In fact, my son and daughter-in-law just completed MBAs at UW-Madison and landed great jobs at Medtronic and General Mills, respectively, in the Twin Cities, and many of my friends are MBAs. The reference to “The Beady-Eyed MBA” in the title of the book is a fellow who was key to closing the deal for the first acquirer of WinterSilks, but who as an individual may not have always been trustworthy. (After the deal closed, the COO of my company took “Beady-Eyed” aside and said point-blank, “I don’t trust you.” As a result, another person became the point man for the acquirers.)
IB: Some believe that Hong Kong, at least before the Chinese takeover, practiced the purest form of capitalism in the world. Is that why you think we should be more like Hong Kong?
Farwell: Yes. Seeing Hong Kong in the early- and mid-1980s was a great experience. There was little or no welfare, which stimulated the already robust Chinese work ethic and induced families to stay together and work together. Income taxes were 17% to 19%, Hong Kong was then the main portal into emerging China, making money was a big part of the culture, and the Chinese were known for careful saving and investing in family businesses. Stir these components together and you get a near-perfect recipe for a healthy, growing economy.
Contrast this with the U.S. of today: Dispersed families and hence less teamwork, lower savings rates, higher taxes, tight bank credit, a dwindling small business culture, worsening public school educational systems, and a higher failure rate for small business start ups. When was the last time you saw a 9-year-old operating a lemonade stand, or a 14-year-old knocking on your door asking if he could mow the lawn? Without this Phase One layer of entrepreneurs, how can we expect them to become 28-year-olds founding software companies, or 34-year-olds starting manufacturing enterprises? Hong Kong has us beat hands down and China has become a mammoth version of Hong Kong.
IB: You write about being adaptable to change. Early on, did you fear change? If so, how did you overcome it?
Farwell: At first I was afraid of change and afraid to leave my job. But over a period of months, I gained energy to overcome that fear and make the leap. Once I was out on my own, I embraced change if it would help build the company. When you are losing money, persistence and change are the only things that may help. Once a company is established and making steady positive cash flow and profits, then change may be the only thing to derail it.
Once I got to the administration stage of the business, I became much more cautious about change, because it is so hard to get all the pieces of a business start-up puzzle right. Keep in mind that 95% of new businesses fail within the first 10 years. The trick is to keep changing until a company is steadily profitable, and then resist most change once steady profits are attained.
IB: Small businesses as a whole appear to be having the most trouble gaining traction in this economy. Since they are a key part of our job-creating engine, would you recommend anything to get them out of this funk?
Farwell: There’s no magic pill. The best state and federal governments can do is to unwind the counterproductive onion we’ve created layer by layer: Eliminate the payroll tax on the first five employees for the first two years of a start up; have no company-provided health insurance requirement until a company has been profitable for two years in a row or been in business for 10 years; teach small business skills (basic accounting, marketing, etc.) to all high school students and communicate to them that starting their own business is a viable option; have local entrepreneurs speak at high schools and colleges, sharing their experiences of how it changed their lives for the better.
The process of energizing small company start ups will take 10 years or so, but it can be done – and has to be done. Otherwise, we continually drift more and more toward France, Spain, and Italy, where economies are lukewarm and college graduates have a hard time getting a suitable job, and away from China and India, where economies are sizzling and the founding of small and large businesses creates steady demand for job seekers.
Also, we have to get away from the long shadow of unions. I live in northern Michigan now and I can see the damage that has been done by the UAW and similar organizations. For decades post-1960, the employee attitude too often was, “We’re doing you a big favor showing up for work, and we expect a lot in return.” Even today, in the midst of negative job growth in Michigan, this attitude persists with many young males coming out of high school. I sweated bullets for 11 years building a company that is now 32 years old, and company founders like me can tell you that creating just one job, let alone 100, takes a lot of work. A better employee attitude starts with the 9-year-old at the lemonade stand and 14-year-old raking leaves who says to himself, “When I grow up, I’m going to own a restaurant or landscaping business like my Uncle Harry and Aunt Sue, and work for myself, be my own boss, and have money. I’ll get experience working for them, and then take the right courses in college.”
Even if this path isn’t taken, there will be more respect for the sanctity of having a job, and for those who provide it. Perhaps if we go back to the mindset of 1950, we can get a fresh and proper start.
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