Sewbo And Startups (Podcast)

Jonathan Zornow
Hi, Amy. Thanks for having me.

Amy Laburda
And returning to the podcast,

00:33
senior client service manager Melinda Kibler is joining me from our Fort Lauderdale headquarters.

Melinda Kibler
Hi guys, happy to be back.

Amy Laburda
So Jon, to kick us off, can you describe for our listeners what Sewbo does?

Jonathan Zornow
So I think the fundamental problem is that robots expect things to stay in place, and fabric just doesn't do that. It'll stretch, it'll curl up on itself. When you move it, it'll sway in the breeze. It'll stick to itself. Pretty much any way that you could think of it misbehaving, it will do

01:01
when you're trying to handle it. So when people have tried to use robots for this in the past, they tend to compensate for the complexity of handling the fabric with very complex systems. Lots of cameras, lots of software, lots of mechanical things to hold everything down. And they haven't worked. Either it doesn't match the complexity, or the complexity becomes too expensive, so that the product isn't viable. I mean, you could go on for a while, I think, about why some of the other approaches have struggled so much, but

01:31
what we've done is said, “OK, that's just too complicated. Why don't we simplify this by simplifying the materials that we're handling?” So I developed a process for temporarily strengthening fabric, stiffening it with a water soluble plastic that makes it rigid, dimensionally stable, and sits flat. So it becomes very easy to work with, using off-the-shelf industrial robots. The treatment is actually airtight. So we can just pick it up using these simple suction cups, compared to these

01:59
very complicated grippers that try to resemble human hands, or use pneumatics, all sorts of complicated airflow tricks to try to, like, whip the fabric into the correct place. We don't need any of that; we just use a suction cup. And because everything's been treated with this thermoplastic, if we heat it up, we can actually mold it into whatever shape we need, and then when it cools down, it'll retain that shape. The other really big benefit of this approach is that the plastic treatment will actually bond to itself if you try to weld it with an ultrasonic welder.

02:29
So what we're able to do is take these panels of fabric, cut them very accurately, because they're not going to shift or stretch or anything, pick them up with the robots, we can mold them into whatever shape we need, weld them to each other, and then come along later and sew through, knowing that every seam is already set up correctly. And so it stops looking like a conventional tailor sitting at a sewing machine and starts to look a little bit more like an automated assembly line for cars, or electronics, or any other product where we have seen that level of automation.

02:58
And that just comes from being able to use off-the-shelf industrial robots, all of these existing tools, with a material that previously didn't accommodate them. And then afterwards, once the stitching has been put in, it all rinses out. So it just goes into a normal laundry process, comes out with the wastewater. Right now, this is something that actually does come out with wastewater in factories. So we know that it's environmentally benign, but what we're planning on doing is actually recovering and reusing it.

03:27
It can be recycled, and it's cost effective to do so. So that's the plan.

Amy Laburda
Yeah, I think I'm certainly one of the many people who, before I started looking into your project, did think a lot of our clothes had at least some automation, because it's just such a thing we seem to assume these days. We live in a world where so many things are made partially or fully by machine, with some level of automation. Even writers like me have automation coming for us. So this really seems like a surprising fact to find out.

03:55
What gave you the idea, in the initial idea stage, for Sewbo’s approach?

Jonathan Zornow
Well, I was shocked actually to find that clothes were being made by people and not machines, and that was what kind of launched me down this path, is learning how blue jeans get made currently, and thinking that there must be a better way. So that was quite a while ago, and it sent me down a path of discovery and some innovation and a lot of, sort of,

04:24
just grinding, kind of trying to work away at the problem. And that's what led me to this. The specific idea and solution that ended up being the one that works for us came to me when I was reading about some other technologies, some tools for 3D printing that I realized might actually be useful in this space as well. So it was a little cross-pollination from other manufacturing technologies.

Amy Laburda
Very cool. So Melinda, Jon is one of the clients you work with here at Palisades Hudson.

04:53
At what stage of the Sewbo story did you enter the picture? Was it from the jump, or did you sort of join the story in progress a little later?

Melinda Kibler
Yeah, so I was actually involved from the early stages, mostly related to talking about the business structure for Sewbo. I remember us talking about the basics back in, I think it was about late 2013, early 2014. I remember having a meeting. There was a team of us working on it: myself, ReKeithen, who's one of our senior managers in Atlanta, and Larry, the firm

05:22
president. But Jon took the exact approach you want entrepreneurs to take: once you have your thoughts organized, to seek out professional advice on setting the business up. So we always say you don't want to put the cart before the horse. And so a polished business plan, you want to have laid out with the business structure before you get moving and before you end up doing any real work. You don't want to start raising capital or things like that until the business entity is put together. So

05:48
Jon was great about coming and seeking advice on how to set things up. And getting a professional opinion is helpful too for weighing the pros and cons of decisions in the near term, and then how that might affect the business over the long term. So we had a lot of conversations about things that are cost-effective now, but might create structural issues in the future. So a lot of things to consider. And it's always important to have a couple sets of eyes on your plan. And that's useful. So, yeah, these were some of the early conversations we had with Jon when he was

06:18
starting out.

Amy Laburda
Jon, we're about a decade, a little plus, past that at this point. If you cast your mind back to the early stages, beyond going to professionals for some help, what were some of the first concrete steps you were taking after you'd had the idea stage and sort of looked into the existing state of jeans manufacturing? What was sort of the first few things that really got you going with Sewbo?

Jonathan Zornow
Well, for me, it was all about the kind of tinkering, playing, you know, we have an idea, but now we've got the materials in front of us, and

06:46
it's never as easy as it is in your head. So figuring out how to translate a concept into a practical technique. There's always a lot of back and forth and iteration. And that, for me, is the fun part. The less fun part, which is equally important, is what I think of as the homework. But you need to make sure that this is an original idea. So you have to go and read through dozens of patents and lots of academic papers and just figure out, OK, well, no idea is completely original. The polymer that we're using,

07:15
for example, was actually already in use in the textile industry as part of the weaving process. We didn't invent the polymer. All we're doing is using it in a different way. So when you're looking for originality, you really have to go quite deep and figure out exactly how everybody else is using it, and whether or not you can make a claim. Patents are very expensive. So you don't want to start that process until you know, with some confidence, that you're going to get something at the end of it.

Amy Laburda
Makes total sense. So

07:42
Melinda, when you work with a client, whether Jon or someone else, starting up a business, obviously, I think funding is going to be front of mind for many, many people. Do you have particular routes you recommend to people with funding, or does it really depend on the kind of business? And is it too varied to have sort of a normal approach that you default to?

Melinda Kibler
Yeah. So I guess it takes money to get anything done, right? So I think the first conversation I usually have is whether or not the entrepreneur is open to giving up some ownership

08:10
in exchange for funding. I've met some people who are unwilling to cave on that issue, and that sort of directs the conversation. Others are open to the idea, depending on the setup. There's some who will self-fund, but that can grow increasingly risky if their pockets aren't that deep. So one route you can pursue is equity financing. This might include an angel investor, if you can find one. Angel investors are typically more wealthy individuals who want to

08:36
invest their personal funds because they believe in the business or the product or the idea. They typically, although not always, are a little less involved in the operations. They're more focused on the startup taking the right steps, first getting an immediate financial return. You can also pursue a venture capitalist, but that type of investor will generally be a little more aggressive. They want to seek a higher return faster. They tend to want more control or voice in decisions to get that faster turnaround on their investment.

09:03
Another route you can go is debt financing. So we're talking about taking on a loan. There's different options out there, depending on the size of the loan needed and the stage of the business. So a lot of banks offer startup business loans, small-scale new business loans. The U.S. Small Business Administration also backs loans for a network of lenders and banks. So assuming your business meets the SBA criteria, they'll back the loan, and then that allows the lender to

09:30
be a little more at ease and able to offer better terms to the business. If you're taking a loan, generally the lenders will require the loan to be secured, meaning you're putting up collateral. The most common thing we see is putting up real estate as the collateral. You might be able to get an unsecured loan, but it's, at best, going to be a significantly smaller dollar amount in those situations. The other thing we sometimes see is there's friends or family who are offering a loan. This is always a very

09:57
delicate line, since startups, as we know, are unpredictable. So you want to make sure if you're not taking these options at the risk of damaging a friend or family relationship, or sometimes what can happen is you take a loan like that and you feel pressure to make rushed business decisions that maybe aren't the best for the business over the long term for growth purposes, just because you want to get it paid off to get that pressure off of you. So that's factors to consider when you're making that call. And if you do take a family or friend loan,

10:26
I've heard stories of, “Oh, so-and-so is going to loan me the money. They're not going to charge any interest rate. I get free money to handle this.” That doesn't actually work that way. The IRS will view that as a gift. So that is a major no-no from a tax perspective. So they are required to charge a minimum interest rate. It's called the Applicable Federal Rate. You can find them online. They're posted monthly. The rate changes. So that rate has to be charged at a minimum for whatever loan they give to make sure you're not creating a gift tax issue.

10:56
So yeah, there's a lot of options out there. It's just a matter of, do you want to maintain full control? And if you're — or are you comfortable racking up debt and interest payments? I suppose to some extent, that's also dictated by [the] current interest rate environment, right? All the 2010s, we saw these low, low interest rates for years on end, 3% rates, things like that. That's obviously not the case right now. We're seeing much higher interest rates charged. So that can weigh into decision-making.

11:21
But at the end of the day, it's kind of whatever is the best fit for the business and the owner to get the money going so they can start doing real work.

Amy Laburda
I really should know better, by this point, than to ask about one-size-fits-all solutions. I know the answer is always no. But someday, maybe I'll hit one.

Melinda Kibler
It gives me an opportunity to break it all out though.

Amy Laburda
So Jon, for Sewbo, it sounds like a lot of these options are obviously going to be easier or even possible once you've done some of that initial tinkering, some of that initial research on the patent.

11:48
When you got to the point where you needed to secure seed capital, which I imagine happened more than one time, there's ongoing securing going on. But when you decided how you were going to finance Sewbo, which way did you go and what made you decide to go that way with it?

Jonathan Zornow
Well, we ended up doing a little bit of almost everything that Melinda described. But I'd say actually the bulk of the funding has come from one source that we haven't touched on yet, which is grant money. So we have been

12:17
fortunate enough to receive very generous funding to pursue our research from the government, basically. Funded through different nonprofits and different agencies, but ultimately, they've decided that they want to be investing in R&D for manufacturing technology. And luckily, we at Sewbo are kind of in a sweet spot for getting support from a couple of different groups. So that's not

12:42
seed funding, per se. Most of it is research oriented and not really intended to be commercializing products, which is one of the reasons why our road has taken a somewhat more winding route than we might have initially anticipated in 2013 when we were structuring the business. But what we've been able to do is take these grant funds and apply them towards research in a way that has

13:04
allowed us to do a lot of development and basically de-risk the technology and take it to the point where we're now turning back to venture capitalists and other sort of more traditional seed funding opportunities. But in a very different place than when we started. When we were first pitching, it was an idea, and now it's a demonstrated technology that they can come in touch, and hear how it works in the factory, and see everything for real. So ultimately, the grant funding, I think, has been the most important out of all of them but

13:32
of course, I'm very grateful to our angel and friends and family and everyone who supported the project all along.

Amy Laburda
Speaking of concrete demonstrations, I will take a moment to recommend your website to our listeners. There's a very cool little video that shows some of the fundamentals of the process that I watched before our record today. So I'll link that in the show notes for anyone who's interested.

Jonathan Zornow
Thank you.

Amy Laburda
Beyond just funding, one of the earliest choices that you're going to have to make with a business is how to structure it. Whether you’re going to

14:01
go it alone as a sole proprietor, or do something a little more formal and organized. So kicking it back to Melinda, when you sit down with a client who's like, “I'm excited about this business idea. I want to start a business.” What sort of business structures are out there, and what are the pros and cons for different kinds of people who might want to start an enterprise?

Melinda Kibler
Right. So anytime we sit down, this is never a one-size-fits-all situation, in terms of the recommendation. It's how we ended up in long conversations with

14:27
Jon when he was first getting started. So a lot of it is dependent on the type of work the business is doing, who's going to own the business, what assets the business plans to own itself, and where they're going to operate from. So let's kind of walk through what's out there. So one of the simplest and most popular options you're going to see for business owners is to just set up an LLC [limited liability company].

14:47
An LLC can provide some liability protection. It's flexible, generally easy to maintain. If you're opening an LLC, we recommend you open one in Nevada. Not because Nevada is near and dear to my heart, but because it is very cost efficient. There's no income tax. And then, once it's set up there, you know, the annual fees and whatnot are relatively low. And then you can open an LLC in Nevada and then register in whatever state it is that you're operating in. So you could have a Nevada LLC and go ahead and register in,

15:15
you know, California to operate. And you would just operate as a foreign LLC working in California. When you open up an LLC, all the income and losses are reported on what we call a Schedule K-1. That's the tax form. And then that flows onto your personal income tax returns. So we call that the pass-through taxation. It gets reported on the entity's K-1, but you don't pay the tax till it hits you personally. So that's one option and usually one of the more popular ones.

15:41
We rarely recommend sole proprietorships unless you're working in a very low-risk field, you know, freelance writers doing a one-off small job here or there. Sole proprietorships, you're basically, you're unincorporated. So there's not really a distinction between you and the business. And this structure is often hard to get lending, too, because of the perceived risk, since there's really no liability protection level in there. So we don't see that too often, but it's out there. There's general partnerships, in which the profits and the liability are equally shared among partners.

16:09
There's limited partnerships, in which you have some partners with limited liability and less involvement in the management. There's also joint ventures, which are general partnerships, but you form them particular to a project. S corporations are another option. Those tend to be another one that's more common and popular. They provide liability protection, but then they flow the income to the owners Schedule K-1s, like we were talking about with the LLC.

16:33
S corps are a little bit less flexible in the rules in terms of how you distribute income to owners. You can get wrapped into kind of the nitty-gritty of requiring payroll for the owners, instead of distributing it out to the owners, and they can be a little more expensive to administer. And the shareholders all have to be U.S. citizens or residents. So that comes back to what I was talking about, about who's going to own this business, because that can affect the decision. And finally, we have C corps. So C corps are a completely

17:00
separate legal entity. It's entirely responsible for its own liabilities. It's — the C corporation itself is subject to tax. So there's not this, you know, Schedule K-1s flowing through to you personally. The entity itself pays the tax. And then if it has profits, it can issue it to the shareholders via dividends. And those are yet again taxed again. So we talk about the double taxation downfall of C corps. In the case of

17:24
Sewbo, or other intellectual property businesses, a C corp might be your best route. It's a little heavier on the work upfront, and the cost and setup, but it's a better structure for protecting the IP. For business continuance, if the startup takes off in the future, there's more transaction options and possibilities in terms of selling shares and whatnot, versus if it's locked up in an LLC or partnership, it can be a little more complicated. So, a lot of options out there.

Amy Laburda 17:52
To zoom back in a little, Jon, if you're comfortable to build off of that, how did you decide to structure Sewbo? And was that an easy decision, or was it a decision you had to dig into a little bit?

Jonathan Zornow
Well, parts of it were easy. We knew that it was going to be a C corp because we knew that we had to sell shares, and to different people at different prices over time, and with different rights and all of that. So it was, I think, from a selling-of-shares perspective, pretty straightforward. One thing that we did encounter that was a little

18:22
more nuanced was the question of where to incorporate. We had initially set up in Nevada, as I think is your recommendation these days for administrative simplicity. What we discovered when I went out and started meeting with prospective investors was that it was actually kind of unusual for startups who are raising in this way to be incorporated outside of Delaware. They pretty much expect that everyone is going to be there. That's what all of their paperwork is set up for. After talking to my lawyer, I understand that’s

18:51
what a lot of lawyers in the field also kind of expect, just because, for companies like Sewbo, things do get a little complicated and having a really robust case law where they know exactly how everything is going to play out in courts is important to both investors and attorneys who are involved with all of this. So we did initially set up in Nevada, and then after talking to a couple of investors, decided to reincorporate in Delaware. So I think that was really the only part that really required a lot of thought.

19:20
And we weren't sure how to balance all of the different benefits and drawbacks to each place. But ultimately, in the interest of simplifying the fundraising process, we decided to go to Delaware.

Melinda Kibler
And that can be a really common thing that comes up, that you have to weigh your pros and cons. Like you said, Nevada was one that we found is better for ease of use and fees and whatnot. But then on the switch off, for years, Delaware was the go-to place. And so in a lot of ways, the structure has been built out in the IP world

19:49
for Delaware. So there's a familiarity bias there. So even though fees are kind of upticking in Delaware, and there's some other legal things going on that are less favorable, sometimes you have to make that decision because it's like you said, also we have to get money through the door. So if there's legal paperwork that's more, better built out for Delaware or investors are more comfortable due to familiarity bias, then sometimes you have to make that decision of what fits best. So that made perfect sense.

Jonathan Zornow
I suppose we could always move back.

Melinda Kibler 20:15
Yeah, I mean down the road. Yeah, maybe there's options for flexibility with that. So sure.

Amy Laburda
Well, and it also suggests to me that when you're making these early choices as an entrepreneur, a lot of them aren't set in stone, right? Like, obviously, it's going to cost you money, time, paperwork, maybe headaches. But it seems like a lot of them are flexible to the point where you're like, “Oh, this isn't really working for this reason. Let's take a step back and reconsider.”

Jonathan Zornow
It's an R&D business. So we're doing that with almost everything all the time.

Amy Laburda
Yeah.

Melinda Kibler
And tax law changes and

20:45
fees change and, yeah, exactly. Nothing is stagnant forever.

Amy Laburda
So speaking of research and development, I do understand that at one point you were splitting your New York City apartment with an industrial robot, which — currently living in a New York City apartment, you have my condolences. That's a lot of floor space to necessarily give up. But you know, it's been a little over a decade since Sewbo got its start. And I understand you've done a lot of travel, been a lot of places.

21:10
You already sort of touched on some of the changes that have happened from your grant funding to now. Do you mind talking a little bit about just how it's sort of developed as a company over time, anything that you've sort of run into as you were developing it that surprised you, or major moves to support your business, just sort of the experience of being an entrepreneur for the last 10 years or so?

Jonathan Zornow
Well, you know, when I started, I thought that this was going to be mostly an intellectual property play.

21:38
I had an idea, I was able to demonstrate it at, like, a tabletop scale, and I kind of figured that was about as much as I was qualified to do. And I really did, I mean, very naively, think that I was just going to be able to get the patent and sell it to, you know, Levi's or whoever wants to make blue jeans with robots, and probably just move on to my next project. I very quickly learned that that was not

22:04
on the table. People really did need to see it working at a different scale before they would even consider getting involved, and that it was quite unlikely that somebody was going to just want to pick it up and run with this. Levi's is not a technology R&D company, right? They make blue jeans. So if they're going to invest in technology, it's got to be a product that they can actually use, something that they can just kind of roll in, plug in, turn on, and put to work. And I found that even with the clothing manufacturers who were so desperate for automation, they were

22:33
really excited to hear what we're working on, flying me all around the world to see their factories and meet their engineers, and just kind of see their products and everything that's going on so they could just talk about it. Even these people, who were willing to fly me to Bangladesh or whatever, were not really ready to invest in the technology per se. They're all the end users. And they might want to be involved in a very limited degree, but ultimately I realized it was going to be up to me to turn this into a product.

23:03
And then once it's a product that's selling and that has revenue numbers that we can look at and performance metrics, then we might be able to conceivably hand this off to somebody else. But it was a much longer road than I initially envisioned. And so that was what led me on some of my geographic adventures. I started moving to Seattle. A spreadsheet basically told me that that was the best place to do this business.

23:31
I think probably weighed quite heavily by the tax benefits of being based in Washington. So the spreadsheet didn't really incorporate a lot of what goes into having a successful business, and some of that is: Who's around you? Who else is working on this? Where are the investors? Where are your customers? It also didn't really consider my own sort of well-being. I moved to a city where I didn't know anybody.

23:58
And that ended up being a very sort of, kind of gray, lonely experience where I just sort of like, “OK, well, like, let's go,” you know, and I got there and I there was like, you know, kind of crickets chirping in the background.

24:11
And I found myself flying down to San Francisco a lot, because that's where the investors were. A lot of the engineers that I was talking to were based down here. I was flying to Los Angeles a lot, because that's where the American garment industry is centered right now. To the extent that we're producing things at large scales for commercial purposes, that's happening in Los Angeles. It's where all the sewing machine mechanics are. When something breaks, we have to fly somebody up from there. So it did, I think,

24:40
seem like a misstep, going to Seattle. The numbers stuff worked out, but if you don't have any revenue yet, what do you care what the taxes are? So that was a mistake, I think, but a valuable lesson. And I did get some good work done while I was there. That's when I got to spend a lot of time traveling all around, especially to the Indian subcontinent, where I was able to visit some really cool, really big factories and meet people who were so excited about the work that we're doing and really very eager for the products.

25:10
It became clear that that wasn't going to be the permanent home for Sewbo or me, but it was an interesting experience all the same. After that, I briefly moved back to New York while I was figuring out where to go and who to be working with. I was lucky enough to get involved, at around that time, with a group called the Advanced Robotic[s for] Manufacturing Institute. This is a DOD-backed nonprofit that basically supports companies like Sewbo,

25:36
where there's someone out there who's trying to move the needle for robotic manufacturing. And this stuff is pretty hard. It doesn't always fit so well into the traditional funding models, where you need more time and you need more money than I think most VCs, or at least the software-oriented ones, are used to. And so this group exists to kind of help move things from the lab-scale demonstration all the way up to the factory floor demonstrations, not to commercial products, but just to things that

26:04
kind of work, or can be shown to work under some circumstances. So that's the sort of paradigm that we've been working in for the past couple of years, where the ARM Institute has been putting out project calls. We've been finding aspects of our work that fit within their own stated research goals. And we've been able to get a lot of good work done. When I say we, it's a team. Sewbo ended up partnering with Siemens, the big German multinational engineering company, and a couple of other companies, a manufacturer

26:34
of clothing. We've also been working with Levi's for the past couple of years, and a couple of other partners that have really helped take the technology from the desktop all the way up to the factory floor. So that's what brought me out to San Francisco. When Siemens reached out, they have a Berkeley-based office here. I kind of leapt at the chance, because I knew I really should be in the Bay Area anyway. So I moved out here and set up Sewbo’s office just a couple of minutes down the road from the Siemens office, and we've been able to collaborate productively for four years now and

27:03
get a lot of good work done around here.

Amy Laburda
Well, you've obviously had a lot of growth. Did you, early on, have any moments where you were like, “Yes, this is like really taking off, other people are excited about this,” like any positive feedback. Or I guess on the flip side, were there any sort of dark moments of the soul early on where you're like, “Man, I'm just grinding at this and I'm not sure that it's worth it?”

Jonathan Zornow
Yeah, quite a few of both. You know, it was really, I think one of the most special moments of my life when I got to actually finish the stitching in a T-shirt with a robot

27:33
and put the shirt on. That was like, “I did it. It works. So cool.” That was in 2015, by the way. So that was a long time ago. And there have been a lot of highs and lows since then. We've been very lucky to get some really cool positive — positive and negative, but broadly circulated press coverage. Getting to be

27:56
in The Economist, on the front page of The Financial Times, the Reuters article. We've been able to get a lot of eyeballs on the project. That’s always really something when a story like this comes out, because you get people writing you love letters, people writing you hate mail. Everybody's talking on Twitter about how this will never work, and this is so stupid. Why is the government funding this? It comes with a big mix. I think the biggest mix of emotions comes when

28:24
it all dies down, because it only lasts for like a week. You know, you get a big story, everyone gets super excited, and then it's like, OK, well, back to work. And that's always been kind of, you know, one of those things that takes a little getting used to, because I think it's like going from like a hot tub into a cold, cold dip or something like that. And, you know, back and forth. And I think I'm used to it now, but the first couple of times, you know, it always really felt like a roller coaster.

Amy Laburda
Absolutely.

Melinda Kibler 28:50
I'll note that we are the proud owners of one of those T-shirts that's been produced by the Sewbo machine. So we have it framed in our office, for anyone who wants to come see it in Fort Lauderdale.

Amy Laburda
So Melinda, as we talked a little bit about getting a business started, sitting down thinking about structure, thinking about funding, all those sort of fundamentals, when you work with a client who, like Jon, has had a business going on for quite a while, what kind of discussions are you having as a financial planner?

29:20
How do you sort of mesh running a business with the way you're looking at a client's overall financial planning picture? Or is it really that different? Is it just — every client's unique and, you know, a business is one more piece of the puzzle?

Melinda Kibler
Yeah, I think part of the charm of the job is, it's very widespread. I see a lot every day, so it keeps it interesting. So for some clients, you know, I'm talking through contract negotiations and helping problem-solve when something's stalled. As a third party,

29:47
I have a little less emotion involved. I'm not, you know, this isn't my baby. So I come at it from a different perspective. And sometimes it's easier for me to find the missing piece and keep a negotiation moving or edit a contract in a way that makes all the parties happy. So — and look, I get it from their perspective. They've built it from the ground up. So they're going to be more protective. So sometimes I get to be the one that says, “All right, what's really the root of this issue? How can we keep this moving?” Sometimes discussions are focused on, you know,

30:14
where they can operate their business from profitably, but also maybe they want to start balancing home life a little better. Maybe they've been wrapped into this project for years and years and are ready to find some more balance. Sometimes we're advising on budgeting issues, wanting clients to avoid taking on so much risk that they back themselves into a corner with high interest rates.

30:34
You know, information's power, as they always say. So sometimes we're helping with running regular profit and loss reports, and comparing to previous year performance, and helping try to catch trends with a business. Maybe it's finding problem areas in the business or weak business lines. Are there seasonal cycles of high and low income? And how can we help them prepare for this and start to plan for this? So, you know, it kind of depends on the business and what the problems are. But we get to see a lot of things and help where we can.

Amy Laburda
Sure. Jon, you mentioned with Seattle, that it was

31:03
probably a misstep, but an educational one. Did you have any other challenges you ran into with Sewbo so far that you're like, “Oh man, if I had a time machine, I'd go back and just do that differently?” Or in general, have you found that things you ended up changing were still useful enough to you that you're glad they happened?

Jonathan Zornow
Well, like I said earlier, it's an R&D company. So from a technology perspective, we do this a lot.

Amy Laburda
Sure.

Jonathan Zornow
We do it one way and then a different way

31:30
and then a fifth way, and it goes on. And then eventually, one of those that we tried did end up being the best. But you don't always know until you've tried everything. And that can apply to virtually everything we're doing: software, hardware, even some of the products or steps that we've decided to work on. So I think that it's just kind of built into the job, on the technical side. I do think that there were probably some conversations I had early on, and decisions that were made about

31:59
prospective partners, investors, basically things that would have had a big impact on the direction that the business took, where I ultimately decided not to move forward with an opportunity. And it's really hard to do the sort of retroactive counterfactual and like, “OK, well, if I had taken that money and given away so much of my company to this VC who doesn't really care about me, would that have been better? Or would

32:27
that have been worse?” I really don't know. But that's the sort of stuff that does definitely keep me up at night.

Amy Laburda
I bet. Melinda, every company is going to be different. And not all of them are going to be so iterative, sort of at the heart of them, the way Sewbo is. But I imagine every business owner is learning things as they go. Are there any really common pitfalls that you warn clients about or that you've seen clients fall into? Like,

32:52
basic trip wires that you're like, “OK, that one you don't have to learn a lesson from, let's just not trip over it in the first place.”

Melinda Kibler
I mean, I might have a more biased view on this, just from the nature of what we do for a business, but I tend to see more of the paperwork-type issues that clients fall into, just improper state registrations, not getting proper city licensing if you have an office in a particular location, forgetting to pay renewals or sales tax filings.

33:18
So for owners of businesses that pass through income, we talked about Schedule K-1s, that income is flowing through to them, but they don't know that they're going to suddenly have this big tax liability in April. So getting ahead of that, talking about quarterly tax projections. So there's a lot of the paperwork and the nitty gritty tax stuff that I find, we get pulled in after the mess has already been created.

Amy Laburda
Sure.

Melinda Kibler 33:40
And so, you know, we're there to clean that up and fix that. But I often advise, “Get ahead of it. Get someone involved. Get someone who's looking at this and giving you some feedback or taking care of the filings for you.” You know, there's a cost associated with that. And with startups, they're usually not flush with cash. So there's a balance there. But I often see people falling behind just because they don't know any better. It's their first time ,or only first or second time possibly, running a business, or it's in a new city and they just don't — they haven't had the time to do the research on

34:09
you know, proper licensing requirements and things like that. I also tend to find that those who cut corners with their accounting early pay for it later. Eventually, things grow out of control doing the books in-house, especially if the person's not savvy with the bookkeeping. And then they end up either having to pay more for an outside firm to come and clean it up for them, and go back and fix a bunch of years of issues. Or they end up with tax notices, because they aren't really giving accurate information to the tax preparer and then they're filing incorrectly. Recordkeeping is

34:38
cleanest when it's done properly from the start, I always say. I also have seen situations where businesses grow quickly, and the owner is unprepared or struggles to relinquish responsibility to a helping hand. And as a result, things start slipping through the cracks, because they're overwhelmed. You can't do everything, eventually. So again, we're talking about a balance of… you've got budgets in the factor and a balance between hiring help before you start to miss things.

35:07
But of course, you only have so much money, so you don't want to hire help too early and run into higher debt for that.

Jonathan Zornow
Yeah, so adding on to what Melinda was saying, I just know what I'm good at and what should be my responsibility. And it makes me so grateful to have somebody who I can trust and know that they're going to be in charge of really important stuff. If you screw up your accounting or taxes, you go to jail. Or maybe it just costs you money, but whatever it is.

35:36
It's not a headache that I want to deal with. And, you know, I have this catch-all job where I sort of just say, “OK, well, like, I'll roll up my sleeves and, yeah, we can fix the sewing machine. Or, yeah, I can clean the fridge. You know, whatever the office requires of me, I'm going to do.” But when it comes to certain things like taxes and bookkeeping, I think that I would have just said, “Oh, sure, yeah, I can do this.” But because I'm working with Palisades Hudson and because I

36:05
already have somebody who I know is going to be doing a much better job than me, it's never even crossed my mind. And if I were to try to do that myself, I think it would have been a huge mistake. You know, just so much brain power goes into trying to understand what the government is asking of you or, you know, what the sort of proper accounting procedure is for any particular process. And it's just so easy to make mistakes that, you know, I'm sure that I would have been making them and that I would have been overpaying later to fix them.

36:33
So just a quick thank you to Melinda for doing such a good job, keeping us on track over all these years.

Melinda Kibler
My pleasure.

Amy Laburda
So I think we'll do a palate cleanser after all of that. Jon, what's one of the most rewarding things about working on Sewbo this long? Have you had any major “mountain-top,” highlight moments that particularly stick out as an entrepreneur?

Jonathan Zornow
I have identified a certain job: somebody who works for the factories, who's somewhere between a

37:01
manufacturing engineer and industrial engineer who's focused on efficiency, and who's basically sort of the problem solver for the factory floor, whose job it is to make things run better. This particular individual is usually the one who seeks me out when the company is interested in using our technology. These are the people who know the best about what's actually going on in the factory floor and where the problems really are. They tend to be very, very enthusiastic about

37:30
these efforts. I think that they are just so glad that somebody out there is working on this. The truth is I don't have a ton of bandwidth, so I don't get to actually engage with every single person who emails our inquiries line. I usually just try to skim it, and if something seems promising, I'll reach out. But some of these guys will follow up with me, no joke, a dozen times because they're just so eager for anything.

37:57
That to me is like, really, it makes me feel like we're doing something right, you know? Because like, I've never followed up with somebody 12 times. Forget about it. You know, about anything. So, like, the fact that they're so excited about this, it always really does make me feel pretty good about what we're doing. And you know, we're 10 years in. Who knows where we'll be in 10 years? But like, you know, at least there are other people out there who agree that this is worth working on.

38:27
So hopefully I'll come up with something good for them.

Amy Laburda
At Palisades Hudson, we talk a lot, or at least I talk a lot on this podcast, in our books, about how essential it is to set goals, if you're making financial plans effective. I assume that's probably also true when you're setting up a business. Melinda, you can correct me if I'm wrong. But if goals are important to businesses, as I assume, is it sort of similar

38:52
to individual financial planning where you want to get specific, you want to sort of dig into what those are? Or is it easier to keep them kind of broad at first with a bigger enterprise?

Melinda Kibler
Yeah. So I mean, first off, I mean, I don't think anyone's ever said that having goals is a bad thing. It's always good to have goals. We're on board with that plan. So yeah, I think having the owner of the startup sit down and take time to think through their goals for the business, or more importantly, prioritizing those goals is great.

39:21
Laying out targets and timelines for goals is really important too. Maybe it's obtaining your financing by a certain deadline, or setting a schedule to pay down debt on a monthly basis for a budget you created for the business and then trying to stick to that budget, which is key. Maybe it's reaching a sales target. But however you measure your growth and progress, it's important to be tracking it. If you're repeatedly missing your goals or targets, it gives you an opportunity to review and sort out,

39:47
“Well, was my goal unrealistic, or were there missteps along the way that kept me from hitting the target? What happened here? Let's break it down.” I often recommend starting small. If you have big lofty goals, they're probably far away, and you're going to feel like you're not making progress and you're going to get frustrated. So I recommend setting more near-term, smaller goals that are reasonable, attainable. Let's take baby steps there. And then as the business develops, the types of goals are going to change too, as you're building out and seeing where this thing is going to go.

Amy Laburda 40:17
So Jon, we've already sort of spoken a little bit about how Sewbo has grown into different areas than you were initially thinking about. I think probably fair to say that all of us have had things happen since 2013 that we did not expect going in. As you're looking forward towards the next few years with Sewbo, obviously other things could happen that you're not expecting. But to the extent that you are setting specific goals, where are you hoping to move to, in the next few years, with it?

Jonathan Zornow
Well, we have

40:44
a really great collection of technologies that we've been able to develop and demonstrate at different scales, but mostly individual, one-off demonstrations where we've taken this to a factory, it's the end of a project, we're showing what we did, and now the project's over and we take everything back. So we've covered a lot of ground with that. We can now do over half of the labor that goes into a pair of jeans. So it's time to take all of those individual pieces and turn them into a product, turn them into a product or service,

41:12
still figuring some of this out, but basically a tool that can be delivered to manufacturers, for which they will pay us, and that can be performing for them productively on their factory floor. So that's the goal, is to actually start wearing clothes that were made using our technologies. To get there, we have a shorter term goal, which is to raise some money. So that is something that, as the summer winds down, I'm starting to get my act together to start [to] go out and talk to investors again, and show them the

41:41
progress that we've made over the past couple of years, and see who might want to be working with us to reach the next milestones. Once the money comes in, the real work will begin. I think building the team, and getting everything organized and running well and able to actually deliver on our goals, that's going to be, I think, a big enough goal for the short term.

Amy Laburda
You mentioned early on that you were sort of naively imagining, “Oh, I'll develop this cool idea, hand it off and move on to the next thing.”

42:11
Have you felt any itch to move to another thing, or have you found Sewbo itself enough of a sort of project to keep you engaged the last 10 years or so?

Jonathan Zornow
That's actually a pretty good question. So I have my own sort of specific career goals and things that I want to be working on next that I do feel some urgency in kind of getting started on. But on the other hand, the nature of the work with Sewbo, the problems that I'm

42:40
solving and the stuff that I do day to day, I think is all a good exercise. I think that rushing through it and trying to move on to the next thing before I've been able to raise a full round and put a team together and get the work done and deliver a product, it wouldn't serve me, I think, to try to rush through this, because I'm learning so much and, I think, establishing a track record that will be hopefully helpful down the road. So if there were a knob that I could turn

43:09
and just make everything go faster, I think I would definitely turn that knob. But so much of this is things outside of our control and learning how to work with the economic winds, the business currents, and just basically figuring out how to navigate this whole world as an entrepreneur for the first time, I think is beneficial and rewarding in its own right, even if it is a bit slower than I had hoped.

Amy Laburda 43:38
So last season I chatted with Larry Elkin, who founded Palisades Hudson, about the process of founding the company. And he mentioned that early on, he knew more or less from the jump that he wanted to build a company that would outlast his personal involvement, that wouldn't just shutter whenever he retired. Melinda, in your experience with clients, is it common for business founders to come in with sort of a vision of, “Yes, I'm going to stick with this. I plan to sell. I want to build a legacy,” that kind of thing?

44:07
Or is it a thing that many people sort of discover over the course of working? Or is there not a common enough answer to say one is more common than the other?

Melinda Kibler
I think it depends on the type of brain the founder has, so to speak. So some people are big-picture, long-term thinkers. They're really thinking far out. Others are in the here and now. The details are, we call it like the weeds. You're in the weeds. And so the future may just seem

44:33
too far away, especially when they're still hashing out whether this business is going to turn into something or not. Given the high failure rate of startups, I think it's great if you have long-term goals for your business, but if you're caught up in getting it off the ground and up and running, I think that's OK too. Eventually, once you've evaluated whether or not the business is feasible, there does come a time when you have to

44:54
kind of come out of the weeds and map out what the future looks like. And so that's sort of where the leadership role of the business comes. So what's the end goal? You know, are you trying to sell off the intellectual property for its max worth and maybe, if you get lucky, retire off the funds? If that's the case, you know, as a financial planner, it's our goal to help with minimizing the tax consequences of a potential sale, and helping with planning for wealth for your lifetime or maybe future generations.

45:19
Maybe you already, like Jon was talking about, maybe you kind of know what your next project is or kind of have a feeling of where you want your career to go. So you want to sell the business sooner than later, get the cash out, and move on to the next thing. Again, there's planning that can be done for that. Like you were talking about with Larry, where his goal was really business longevity. Will the business outlive you? And in that case, you're starting to think more along the lines of succession planning for the business. Who's going to take over for you when you're gone?

45:48
That shouldn't be an overnight decision, and that shouldn't be an overnight leap. What's the ownership structure going to look like? So in order for the transition to be smooth, you need to be pulling in that new leadership gradually. Get them trained into the roles, get them settled in well before you're gone to avoid a bumpy road. So there's also, will you want to sell that ownership, or are you going to do more of a gradual payoff, or do you want to be paid all at once?

46:14
These are all kind of things to consider. So I think it's OK if someone comes in with a new business and doesn't really know where they stand on all those topics. But I do think good leadership as you develop the business, you have to start thinking more long term once you realize you've got something here that could turn into something long term.

Amy Laburda
OK, so Jon, there's potentially still a long road ahead of you, absent that fast-forward knob. But if you could go back now, knowing what you know, and give a

46:40
piece of advice to your younger self — or just to an entrepreneur who's in a position similar to yours when you were first starting out. Do you have any one piece of advice that really sticks out to you as this would have been really helpful to know?

Jonathan Zornow
Well, the advice that I'll pass along was given to me when I was starting, and I didn't take it. So I can't say that I didn't know it. But I think the best piece of advice I got was just to write everything down. Every day.

47:09
When your job is the sort of catch-all and you have to do everything that comes through, whether it's, you know: Melinda has some questions about something I've put in, you know, some financial report. The sewing machine is broken, can you come replace the needle? The fabric shipment is ready, where should we send it to? You know, there's a dozen different things going on all day long and, you know, it's fine. But when you switch tracks that often, I think it's inevitable that something is going to fall through,

47:38
and developing good habits really early on about just taking copious notes, keeping lots of to-do lists, doing everything in writing, so that when you come back from whatever the distraction was you can pick up. I don't do that. I wish I did. I wish that I had taken the advice when it was given to me, because now I'm looking back on conversations from a year ago and I'm like, “Well, what did we agree on?”

Amy Laburda
Yeah.

Jonathan Zornow 48:03
And I would definitely pass it along to anybody else. You think you can keep track of it all, but it's impossible. Nobody could.

Melinda Kibler
Post-it Notes are your friend. If you only saw my desk, covered in Post-it Notes.

Amy Laburda
Melinda, I'll kick basically the same question to you. From a financial adviser's perspective rather than an entrepreneur's: Obviously, every startup is different. Things are idiosyncratic to their founders and what they want to accomplish. But if you had one

48:34
go-to you could give to someone that came to you for advice about their business. Do you have one nugget of wisdom you would hand over?

Melinda Kibler
You know, Jon touched on it a little bit earlier, just related to his time in Seattle and the move and being in San Francisco and whatnot. And I would suggest do a ton of connecting. You'd be surprised how interested people are in helping one another, sharing knowledge. The number of times I've been in a room chatting with people, only to watch two people connect on some

49:01
random business issue that — or problem they've been going round and round on. They happen to just get deep into conversation with someone, and now suddenly that other person is helping them. So, and I know that was kind of what you were talking about with your time in Seattle, that it was a struggle meeting people, connecting, getting in that, and you were finding that connection in San Francisco. So you leant that direction, which was, in my opinion, a really smart way to go. People who have been through it tend to want to help,

49:24
because they know how hard it is. Maybe I'm a glass half full kind of gal, but I believe people are innately good and want to see each other succeed. So be willing to help, take the help or advice, good and bad. You can filter through it later with more of a critical eye, but be willing to just hear people out and take the help. And I think historically we've seen so much success in startups comes from being surrounded by the right people. So connect, connect, connect is my advice.

Jonathan Zornow 49:50
That's really good advice. And just a kind of random anecdote to back that up, but actually I think one of the most important connections that has been made for me through Sewbo and everything ended up coming from two 11-year-old girls talking to each other at summer camp: my cousin and the daughter of somebody who owned a military uniform factory. This was back in 2014, I think. And I don't know how it came up. I don't know why they would be talking about this.

50:19
But it came up, an 11-year-old girl offered to make a connection for me. I said, “Sure, why not?” And that's what actually got me into the ARM Institute, where all of Sewbo’s grant funding has come from. So connections: super important, and you never really know where it's going to come from.

Melinda Kibler
And never underestimate an 11-year-old girl.

Jonathan Zornow
Definitely.

Amy Laburda
I don't think we're going to do better than that. So I will wrap up here, but thank you both, Jon and Melinda, for talking with me today. It was a really fascinating conversation. It was a pleasure to have you both.

Jonathan Zornow
Thank you so much.

Melinda Kibler
Thanks for having me.

Amy Laburda 50:52
“Something Personal” is a production of Palisades Hudson Financial Group, a financial planning and investment firm headquartered in South Florida. Our other offices are in Atlanta; Austin; the Portland, Oregon metropolitan area; and the New York City metro area. “Something Personal” is hosted by me, Amy Laburda. Our producers are Ali Elkin and Joseph Ranghelli. Joseph Ranghelli is also our director, editor and mixer. Our firm has written two books:

51:21
Looking Ahead: Life, Family, Wealth and Business After 55, and The High Achiever's Guide to Wealth, which offers advice for younger professionals, entrepreneurs, athletes and performers. Both books are available on Amazon, in paperback and as e-books.