Bob McCarthy

This transcript has been edited for better readability: Henry Harrison Podcast — Entrepreneurs, Business & Finance Guest: Bob McCarthy Henry Harrison Hello, Bob. Thank you for coming on Entrepreneurs, Business and Finance, the podcast. Bob McCarthy Good to be here. Henry Harrison Thank you. Bob and I became friends through mutual friends and also through our membership in the Entrepreneurs’ Organization, where so many of my friends come from. He is in the Fort Worth chapter. I’m in the Dallas chapter, but you can go back and forth between chapter events, so we’ve been at EO events together as well as private gatherings at homes. He’s also been a client of mine, so we have a neat relationship. And Bob has an even neater story — a real success story — about how he became a successful entrepreneur, businessman, real estate investor, family man, and someone deeply involved in charity, both personally and together with his wife. Now that I’ve built you up to be the best guy ever, let’s start with how you first got into business. I’ve heard some of it, but I don’t remember all the details, so I’m looking forward to hearing more. Bob McCarthy Really, I’ve been an entrepreneur, unbeknownst to me, since I was a teenager. It started with soliciting all my neighbors to let me mow their yards. I got more yards than I could mow myself, so I hired my friends to do some of them for a few dollars less per yard and made the spread. My mom sat me down one day and said, “You know that’s not right.” And I said, “It’s absolutely right. I landed the job, and they agreed to do it for that price, so it’s all good.” So that was really the beginning. Then I got married two weeks out of high school, and we had a child. Failure just wasn’t an option for me. I got tired of swinging a hammer in the snow in Maryland, so I moved to Texas and became a carpenter and cabinetmaker. Then I got fired from my cabinetmaking job because I was talking about starting my own business. Our paychecks bounced every Friday. We had to cash them at a pawn shop, and I thought that was nonsense. I didn’t want to give 2 percent to the pawn shop just to get my own money. So I started talking to some of the guys at work about maybe starting our own cabinet shop. It was mostly just talk. We didn’t really have the means or know-how yet. But I got fired for it. So I called my dad, who at the time lived with my mom in Stuttgart, Germany, and asked if I could borrow $2,500 to start a cabinet shop. He said yes. That gave me enough for a few tools and about two weeks’ worth of groceries, and I started my cabinet shop on my front porch. About a month in, I got kicked off my own front porch for making too much noise and too much mess, and I opened my first shop over by West 7th — what is now a cigar shop over there. That’s how it all began. Long story short, over 14 years we grew that business into 485,000 square feet of factory space, about 260 employees, and around $35 million in sales, building fixtures for Barnes & Noble, Bombay Company, Men’s Wearhouse, and stores all over the United States. So that’s where it all began — just being a cabinetmaker. Henry Harrison And did you have a natural skill as a craftsman and a love for making cabinets? Bob McCarthy Yes, I did. I was a craftsman, not a salesman, and I let my craft sell my product. One thing we always did was what we said we were going to do, when we said we were going to do it, and at a fair price. Even to this day, you can build an empire off that. It seems like a lost art. It shouldn’t be, but it is. A lot of people don’t adhere to that anymore. In 14 years, we never missed a ship date for a store — ever. That became our reputation. Henry Harrison And was it primarily commercial work? Bob McCarthy Exclusively commercial, really. I dabbled in residential a little bit, but commercial was where I fit. Those customers understood exactly what we were building, how it was supposed to look, the quality expected, and the deadlines. There wasn’t as much ambiguity. Luckily, we landed Bombay Company early on. They were a big national company based out of Fort Worth, and that really took us national. At first we were building local stores for them, and I shared with them that I could build stores for them all across the country and save them a lot of headache. They told me, “We couldn’t afford to ship a store’s worth of fixtures across the country.” And I said, “Oh yes you can. Let me show you how.” So I showed them how they could do that while maintaining quality and on-time delivery, which were the exact problems they were struggling with. What was happening at the time was that their design was getting compromised because they had to give in on quality or timing in order to open stores. We helped them solve that. Not too long after that, they asked, “Bob, can you do stockroom shelving?” I said yes. Then they asked, “Can you do the doors and hardware?” I said yes. Then I said, “We can do the trim and molding too. And by the way, we can build the storefront.” So what ended up happening was that we were essentially building the store in our shop, packaging it, shipping it to a location, and then the general contractor would put it together. We took that concept to Men’s Wearhouse, Store of Knowledge, Hollywood Video, Blockbuster Video, and eventually Barnes & Noble. Henry Harrison Everybody I’ve talked to so far on the entrepreneurial side has shared some sort of near miss, failure, or hard season. Mitchell Allen, who we both know, told a story on this podcast about being 37 days away from totally running out of money and going bankrupt in one of his first businesses. I think people sometimes underestimate the fact that successful people also go through real problems and down turns. I know you have a story or two there that people would find interesting. Bob McCarthy Yes. When Bombay Company said they were going to build 300 stores the next year, we couldn’t handle that out of our existing facility in Mansfield. At the time, we were spread across five different buildings in an industrial park, and trying to manufacture out of five different buildings was a nightmare. When it rained, it played havoc. We couldn’t move product across the street easily. So we purchased a half-million-square-foot factory. Moving into that and everything involved in it was difficult enough. But then, 30 days after we moved in and got up and running, Bombay shut down construction. So here I was in this brand new factory. I had leveraged everything. The bank had been willing to lend me about $3 million, and suddenly my biggest client had stopped building stores. There were no EO forums back then. I didn’t have 12 shoulders to cry on. I just closed my office door. Fortunately for us, our national trade show was the next month, and I had already been pursuing Barnes & Noble. I told their director of purchasing what had happened. I told them I had this brand new factory, not enough work, and that we’d probably be bankrupt if we didn’t land more business. I asked them to give me a chance. And they did. They gave me two stores. Unfortunately, both stores were scheduled to deliver in the same week. Each store took seven tractor trailers, and somehow we ended up with parts for one store in Houston that belonged in Austin and parts for Austin that belonged in Houston. It was a complete mess. We screwed up our first two Barnes & Noble stores. And I did what I still tell people to do today: I wanted the owner to hear it from me first. I didn’t want them hearing from the general contractor or from someone else. So I called and told them exactly what had happened. You could have held the phone out across the parking lot and heard me get chewed out. I told Jane Shea, “We’ve dispatched two trucks, one to each site, to switch parts, and hopefully you won’t miss a beat.” And of course I got another chewing-out. “You’re damn right we better not miss a beat.” Three days later, I called her back and said, “It’s all done. And just so you know, we’ve left crews on both sites. You can have them load books, sweep parking lots, wash windows — whatever you need. They’re your crews until you open. And I apologize.” I got another chewing-out. Then there was a pause, and Jane said, “But here’s what I’m going to tell you, McCarthy: in my 40 years of purchasing, nobody has ever responded like you did.” Then she said, “Walk over to your fax machine.” There were 17 stores coming in by fax. That was it. We became their number one manufacturer, did almost $20 million a year with them, and the rest was history. Then not too long after that, I got bought by a Fortune 500 company. Henry Harrison That is quite a story. Taking responsibility, being transparent, fixing it, and not hiding — all good lessons. And of course, what set you apart was that other people had probably messed up before, but they hadn’t responded the way you did. Everybody makes mistakes. Bob McCarthy Everybody makes mistakes, yes. Construction is complicated and hard. What we learned from that is what I still teach my team today: run toward the roar. Because the roar doesn’t get quieter. It gets louder. So if it’s your mistake, own it. Then tell the client how you’re going to fix it. That’s what set us apart, because people don’t own it anymore. Henry Harrison So how long ago did you sell that business? Bob McCarthy We sold to Leggett & Platt in 1997. After that, I took a few years off. I ended up becoming a single dad of five children, so I spent a couple of years raising them and giving them the time they needed. Then I realized that if you don’t use your brain, it starts to go away. So I decided I really needed to go back to work. I became a general contractor for a while. I didn’t love it. Then in 2006, we bought a high-end architectural millwork and door company in San Antonio. That company had actually been a supplier of mine in the 1990s for the Bombay contract. The founder was about to shut it down, and I told him, “No you’re not.” He had some of the most talented craftsmen on the planet. So I married our 21st-century manufacturing systems with old-world bench craftsmanship and went after some of the biggest projects in the United States. We did the Mandalay Bay Hotel and Casino in Las Vegas, the Montage in Beverly Hills, Naomi Judd’s home in Nashville, and the home of the owner of Pace Picante Sauce in San Antonio, among many others. The Montage alone was a $13 million millwork project. At the time, we were about a $4 million-a-year company, and we had to deliver that project in nine months. So we had to triple in nine months just to produce it. We delivered it. We delivered it on time. We made $5 million to the bottom line on that one project. And then things just took off from there. The founder, who I had bought 50 percent of the company from, wanted it back after that, so we ended up selling it back to him. Henry Harrison How about now? What are your main business activities these days? I know you’ve done general contracting and real estate development along the way. Bob McCarthy Yes. I’ve done real estate development over the years — usually one project at a time, just when the right opportunity came up. I really like real estate development, but I never did it full-time because I always had manufacturing going on. I’ve done well in real estate, mostly by being in the right place at the right time. Then in 2011, I bought about 55 percent of a concrete construction company from a friend of mine who was going to be bankrupt by age 50. I didn’t want to see him go through that. I knew he was a hard worker, so I stepped in. It didn’t go well. About a year and a half in, I had to remove him and his family from the business for cause. It was ugly and probably one of the hardest businesses I’ve ever run. We never really made any money with it. I got out of it a couple of years ago, and even getting out was difficult. It was one of those businesses that was really hard to step off the ferris wheel without taking a huge hit. You always think you can get leaner, do more, fix it, turn it around. But it’s hard to build a business on 12 to 14 percent gross margins unless you’re doing gigantic volume, and we could never get the volume up fast enough to make it work consistently. We’d have a handful of really good jobs, and then one or two bad ones would wipe it all out. That went on for about ten years. It was a beating. Finally I got off that concrete ferris wheel and paid attention to this little uniform company I had owned for 22 years. That business is making more money than the concrete company ever made, and it’s so much easier. It follows the same philosophy as my store fixture business: do what you say you’re going to do, when you say you’re going to do it, deliver a good product at the right price. We’ve grown that company from about $1.8 million to $12 million in sales in three years. It’s just a good business. If I had it to do over again, I would have gotten off that concrete ferris wheel sooner. What happens with a struggling business is that it sucks up all your oxygen. You don’t have any energy left to do anything else. Henry Harrison I know firsthand that you and your wife are involved in a charity — a 501(c)(3) — in downtown Fort Worth, because we had an EO event there. Why don’t you talk a little bit about that? I think that’s one of the many neat, kind, and godly things that you do. Bob McCarthy We’re big believers in giving back. We believe that none of what we’ve accomplished is really ours — it’s His. And when you live life as though it’s not really yours, you live differently. I learned a long time ago that you can’t out-give the good Lord. It comes back in spades. It’s amazing to watch how that works. So we’ve been involved in a number of 501(c)(3) organizations. Some we helped create ourselves, and on others we serve on the board. One of the more recent ones was helping get enough friends and money together to put a down payment on a 23-acre ranch in Aledo to address teen mental health and suicide. A lot of people don’t realize that the number one cause of death between ages 11 and 21 in the United States is suicide. We lost a neighbor’s 12-year-old son to suicide, and we just said, “We can’t sit around and watch anymore. We have to do something.” So we created Branch to Hope Community Center in Aledo. My wife is also involved on the board with Sunny James’ riding ministry, which uses horseback riding to help girls who have been abused. And I sit on the board of D Resources Solutions in Fort Worth, which is a homeless-community program serving people who really can’t help themselves. So yes, we’re pretty involved. Henry Harrison And the interesting thing is that some of these are, in a sense, businesses too — nonprofit businesses. So a lot of the skills, expertise, and experience you’ve built over the years translate directly. The place where we had the EO event gives free meals to people, but someone still has to manage the budget, cash flow, volunteers, payroll, and operations. Bob McCarthy Exactly. A lot of times you get on the board of one of these organizations and you end up being the lonely voice of reason saying, “Guys, we can’t help anybody if we’re not in business.” You have to run it like a business. That’s where I tend to come in. I take arrows sometimes for that. Around Christmas time, for example, somebody says, “Well, we should give everybody bonuses.” And I say, “With what? Is the board going to put up $20,000 or $25,000 to fund that?” “Well, we’ve got $50,000 in the bank.” “Yeah, and we’ve got $110,000 in payroll in two weeks.” It’s those kinds of conversations. Not everyone on nonprofit boards understands cash flow. Getting organizations to even have a cash-flow projection can be eye-opening. So yes, I think it’s helpful. Henry Harrison I know it’s helpful. I’ve seen it firsthand. So thank you for doing that, thank you for coming on the show, and thank you for being a friend. And I know I’ll talk to you — and probably see you — soon. Maybe Thursday night. Bob McCarthy Sounds good. Take care.