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This article was provided by Practical eCom.
I’m always amazed at the resilience of many successful business people, those that overcome big-time failures. Warren Buffett summed it up when he said, to paraphrase, “Success is the process of overcoming mistakes.”
Shakil Prasla recently made a big mistake. An astute ecommerce operator and owner, Prasla purchased in late 2020 Covid-related protective gloves at roughly twice the ultimate selling price. His company, Gloves.com, lost $6 million.
He told me, “It took three months for our products to arrive. By then vaccines were out, and demand fell. We panicked. We did a fire sale at a 50% discount from our purchase price. We lost about $6 million. It sucks.”
I first interviewed Prasla for this podcast back in 2019. He was as transparent then as now, sharing his experiences to help others. He did that again recently when he and I discussed his gloves mistake and moving forward.
What follows is our entire audio conversation and a transcript, which has been edited for length and clarity.
Eric Bandholz: You and I first spoke on this podcast two years ago. You were building an impressive portfolio of ecommerce businesses with borrowed money. But you experienced a setback earlier this year.
Shakil Prasla: Yes. The path that I chose has pros and cons. It’s risky. Taking on debt requires cash flow to repay it. When the cash flow is not there, you have to pull from somewhere or borrow even more money. Most of my decisions have worked out. But some have not. I’m currently in a crisis where one hasn’t worked out. But I’ve learned a lot about myself. I would do it again.
Bandholz: What happened?
Prasla: Last year during the pandemic, we started getting inquiries about masks, gowns, and gloves. We didn’t carry those products, but our manufacturers in China told us they could make them. So we started importing masks and gowns and learning about personal protective equipment.
We weren’t doing it on a large scale, but we built some good relationships. And during the summer, prices tanked for masks and gowns. So we focused on gloves. I saw long-term potential for that business. Dentists, physicians, nurses, tattoo artists, barbers — all will use gloves, even after Covid.
So I bought Gloves.com, the domain name. I believe in those exact domain-match keywords for search engine optimization and branding credibility. So I bought Gloves.com for seven figures. I had never spent that much on a domain. And, separately, we bought a bunch of inventory.
In Q4 2020, when we bought Gloves.com, all was going well. We were making 30% profit margins with high volume. I decided to focus on scale to gain even more customers. I went all in. We bought over $10 million in inventory. Coordinating all of that — manufacturing, containers — created a production delay. Manufacturers like to say, “It’s going to ship in one to two weeks.” That’s never the case. You have to double it. For us, the delay was extensive. And by the time the container shipped, the Long Beach, California port was already congested.
It took three months for our products to arrive. By then vaccines were out, and demand fell. We panicked. We did a fire sale at a 50% discount from our purchase price. We lost about $6 million. It sucks. It wasn’t investor money. It was two partners and me.
Bandholz: Why didn’t you hold on to the inventory?
Prasla: Covid inflated the price of PPE products. Before Covid, a box of gloves cost $3 to $4. During Covid, it increased to $15. We paid $10 per box. Once the demand fell, the prices returned to pre-Covid levels. We knew that would occur, but we didn’t think it would come so quickly.
So having paid $10 per box, our gloves were now selling in the U.S. for $5. We ended up selling a good portion of the inventory to non-U.S. customers in regions that lacked vaccines.
I violated the number one rule of investing: Don’t put all your eggs in one basket.
Bandholz: Are you bankrupt now?
Prasla: No, but I am cash flow poor.
My partners and I have had a lot of low points, a lot of emotional breakdowns. It carries to our other businesses, our relationships. It affects our health, our sleep, and other aspects of our lifestyle. I’m the heaviest I’ve ever been. But I’ve accepted it. I’m much happier now than a few months ago.
We live in a culture where people share the good stories but not the bad. But we learn from those bad ones. I’ve learned that going for quick money can result in quick losses. I need to stick to what I know best, which was predictable cash flow.
Bandholz: How long will it take to dig yourself out of this?
Prasla: Two years. I’m going to focus methodically on my companies that have the best long-term prospects. And Gloves.com is going to be a sustainable business. We’re starting to see an uptick. Our goal is to grow that company and sell it in two years. We’ve sold a lot of the expensive inventory and replenished it with cheaper alternatives.
Bandholz: Did you have to sell your house or your cars?
Prasla: No, I kept the house and the cars. I still have the same level of personal debt. I changed one mindset: I’m no longer a brand whore. I still need nice clothing and things. I want to spoil my wife. But I spoke with my family and said, “We’re going to pause on lavish expenses, such as travel. We’re cutting expenses to get through this.”
Bandholz: So this experience hasn’t convinced you to live debt-free?
Prasla: I get a thrill from carrying debt. It creates a surge of energy, knowing that I need to keep making these payments. Beyond that, it’s the return-on-investment aspect. Your dollar goes way further by borrowing, even when buying businesses.
Here’s an example. Say I buy an ecommerce brand for $1 million at roughly three times its annual profit of $333,000. Without debt, my ROI on the $1 million is 33%. But if I borrowed money — typically the U.S. Small Business Administration will finance with 10% to 20% down — the return on my money is much higher.
So with that $1 million I can buy multiple businesses. It’s much riskier, but I’m okay with that.
Bandholz: But you’re not buying anything for two years. Did I hear that right?
Prasla: That’s right. I’m not going to buy anything. I need to focus on growing my existing brands. Plus buying brands usually involves enlarging our team. All of that takes funding, which I don’t have now.
Bandholz: All of us are grateful to you for coming on the show and opening up about what happened with Gloves.com. I know you. You’re an amazing person, a pillar of the community. And now you have another link on the chain of the knowledge, so to speak. How can people reach out?
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