Chapter 6

The Next Level

Group 2Back to the Beginning

Farewell to Dome

On April 25, 1985 – my 30th birthday – I accomplished a goal I’d set for myself several years earlier: I quit my job at Dome Petroleum. From there on out, I intended to only work for myself. That left one more goal to achieve: retirement by age 40.

If retirement by 40 was going to happen, I would need to take Westbeach to the next level. Over the last year, the evolution from surf to skateboard had only become more pronounced. It was obvious to me that skateboarding, like surfing, would be a billion-dollar industry over the next five years. What was less clear was what I needed to do to capitalize on that evolution.

One of my main challenges was still producing 500 to 2,000 items of each style to bring my costs down to make a profit. I was doing small wholesale consignments at various locations across North America, including Hamill’s Surf Shop in San Diego, and Scott Sibley and Richard Mellon’s store in Vancouver, but I still couldn’t achieve the right volume for anything bigger.

An example of this scaling challenge came at a trade show I attended in Singapore in 1986. Buyers from a big Japanese department store came by my booth and knew my reversible, long, quilted shorts were a product differentiator. But, from talking to me, these buyers knew I couldn’t deliver what they wanted – namely product volume in the millions. We could not work out a deal, so instead, those same buyers went back to Japan and immediately trademarked the name Westbeach. The ramifications of not controlling my trade name would show up again soon.

Partnering with Scott and Richard

I began to consider partnering. If I didn’t partner, once the skateboarding trend broke into the mainstream, someone with more money and more expertise would run me over. As it happened, Scott and Richard had been placing increasingly large orders of clothing to put in their store. By the summer of 1985, the three of us talked about joining forces.

In a partnership, an aspiring entrepreneur can learn how a combination of different skill sets needs to come together to make the business work. You need a designer/creative and visionary, you need someone with a good sense of structure and accounting; and you need someone who’s a people person a genuine lover of people - to handle sales. It’s almost impossible to find all of these skills in one person.

This blend of expertise was something I saw in a potential partnership with Scott and Richard. Scott was gifted at sales and people. Richard was creative at heart, but he was also much older than our target demographic, which by default saw him handle the books and the business end of things. I would be the manufacturer, product developer, and designer.

As we got the partnership discussions underway, I quickly learned how many aspects of expanding a business were beyond my experience. Richard knew about payables, receivables, and how to invoice properly. I didn’t understand payment terms and financing. Previously, if someone sent me an invoice, I’d pay them in five days, even though I had 30 days before it was due. Had I been doing things the way Richard did, I could have used the money in the 25 days between the date I paid the invoice and the date it was due. Richard also knew a lot about setting up warehouses and shipping channels. I would never have known how to do this on my own. (I ended up discovering that paying invoices in five days was the key to vertical retailing. Unbeknownst to me, the suppliers loved me so much for being a great invoice payer - I got superior service and access to all the new products and technology.)

My future partners recognized the clothing I supplied had more momentum and better profit than sailing equipment. They carried Westbeach clothing, and the other labels I distributed. By partnering, they could profit by sharing in my markup. Together, we thought we could position ourselves to be the leaders of the coming surfing and skateboarding trend.

In September 1985, I sold 66 percent of my business to Richard and Scott, making our merger official. Westbeach was now truly a West Coast company. Initially, our company grew quickly, which included changes in the way it was modeled.

“It started growing from a vertical retail model to a wholesale model,” Scott remembers. “Whereas Chip’s focus was on going to California to fill his own stores full of stuff, our new focus became importing and wholesaling into Canadian stores. Surf wear was growing like crazy there.”

Later that fall, we attended our first apparel industry trade show together in Montreal. During the ’80s, booths at East Coast sporting goods conventions were weird. Company booths were run and staffed by male sales reps in suits and ties, smoking cigarettes. All the clothes they were selling would smell like smoke. This was the common culture of East Coast business, and it was not how I wanted to operate. I detested unhealthy people in suits selling athletic products. It all seemed so fake.

We showed up at our first trade show in a Volkswagen convertible with surfboards, skateboards, shorts, T-shirts, and flip-flops. We played speed metal and had fun while we talked business. We had a brand, as well as a culture and a way of marketing that nobody else had. Right away, the sporting goods industry sat up and took notice.

For the next several years, trade shows a few times a year – not just in Montreal but in places like Japan, Las Vegas, and Munich – would be a fact of life. The purpose of attending these trade shows was to keep securing wholesale deals for our brand.

This was well before I understood the power of vertical retail. Since I was still trying to reach effective economy-of-scale production, even after the partnership was formalized, wholesale deals seemed the best way to increase production quantities quickly because wholesale provided an exponential number of customers.

Although that first tradeshow was fun and felt good – a positive sign for the beginning of our partnership – I did not understand how financially constrained we were about to find ourselves. For starters, Westbeach was already in debt.

Debt and Credit

When I’d entered the partnership, it was critically important to me to be debt-free. I didn’t want a bank telling me how to run my business. I took the last of my nest egg and paid off everything I owed before I entered the partnership with Richard and Scott.

I didn’t realize my two new partners were coming to the table with debts from their earlier business, Windlift Design. That debt came with them. Right off the bat, the company owed money, with interest, to my new partner Richard.

The trouble wasn’t just the payments and the lack of capital for growing the business – it was the drain on mental energy caused by the debt. I felt like 40 to 50 percent of our conversations revolved around money, where we could get it, and how we could operate without it. I wondered how much more creative we could have been if we’d been able to take our focus away from these soul-crushing conversations.

Westbeach would continue to struggle with being in the red for the next several years. One way to address our money concerns was to secure a line of credit. Credit would play a significant role in how we operated, particularly with the California companies whose wares we were licensed to sell in Canada.

Unfortunately, this debt would define much of our time at Westbeach for the next 10 years. We were always fighting the clock and nearing the end of our line of credit.

Testing Toronto

Meanwhile, we were also attempting to build a broader geographical presence. The Westbeach flagship store was in Vancouver, but I relocated to Toronto from Calgary. We thought we’d need a solid foot- hold out east, since that’s where 70 percent of the population of Canada lived.

To cover my own costs, I kept my house in Calgary, using it entirely as an income property. Meanwhile, I lived in the dungeon of doom – the unfinished dank basement of the Toronto store – to save money. The Beach was a highly tight-knit neighbourhood, but the community took me under its wing, and I loved everyone I met.

Quickly, it became apparent that the vast majority of sales at our Toronto store were to the neighbourhood’s emerging beach volleyball scene. With our struggles to find financing, we couldn’t pursue the growth we’d intended for our East Coast presence.

We felt continuous pressure to adopt a wholesale model. As Scott says, “In the early days, it was recognized that if you wanted your company to get bigger, you’ve got to go wholesale. You can’t go to the bank and finance retail. The banks hated retail because there was no proof of vertical retailing.” I imagine early e-commerce companies had the same issue.

“With unlimited money, you could open up a bunch of retail stores,” Scott adds, “but even then, it’s riskier to do so. It worked well for lululemon, which is why it went the way it did. He grew it like that and was accepted by banks because lululemon proved the vertical model could make more money with less risk. But in the Westbeach days, we wouldn’t commit to diverting wholesale expenses to make building the vertical retail model possible.”

By 1987, we knew it didn’t make sense for me to stay in Toronto. My being there wasn’t working for Westbeach, kind of like a strained long-distance relationship. We sold the Westbeach retail location to a Toronto beach volley designer named Fred Koops, who would go on to found Overkill.

Discovering Vancouver

From Toronto, I moved to Vancouver to live with Scott and Richard. They were living in a run-down five-suite mansion on Point Grey Road. The street runs along the beaches on the south side of English Bay and has since become one of the most expensive housing markets in the world.

While living there, I would wake up every morning to see a blue sky, freighters moving on the ocean, and snow-capped mountains I could almost touch. You could surf, ski, and sail, all in the same day. It was – and continues to be – a spectacular place to live. One morning, while waking up to that view, I made a goal to own a house on the beach in Vancouver by the age of 50.

Despite the Westbeach partnership’s many early challenges, I was in love with Vancouver already – relocating there was one of the best moves I ever made, both professionally and personally.

We had stores in Calgary, Seattle, and Innsbruck, and a location in Whistler would follow a few years later. Each store had three or four employees and made a little over $1 million dollars a year. This was good revenue, but never enough to lift us out of debt created by the cash-flow-poor wholesaling model.

A Married Life

Most of my friends had been married for almost 10 years. The ’70s were a different era – most people got married before age 24 and most of my married friends had all had kids shortly after tying the knot. There I was, in my early 30s, still single, and living a different lifestyle. I’d started to subconsciously feel like I was missing out on the family aspect of life.

Finally, at 33, I met and married a wonderful woman with whom I had two beautiful boys.

The New Flagship Store

Around that same time, a much bigger retail location became available just across the street from Westbeach’s first Vancouver store on West 4th Avenue. It was a financial stretch for Scott, Richard, and I to make the move, but with the extra space came a lot of opportunity.

Thinking back to the big skateboard ramp at my house in Calgary, I realized we could install the same in our store. It would only strengthen our position at the forefront of skateboarding culture in Canada. Almost right away, the ramp became an integral part of the culture of the store.

Having the ramp at the bigger West 4th store helped Westbeach become the biggest distributor of skateboards in Canada. This was not something I’d ever foreseen when I’d sold wrap shorts from a booth on the 8th Avenue Mall, but I’d paid attention to the trends, to what was coming a few years down the line, and as a result, this was how we’d evolved.

West 4th was a perfect location for selling skateboards because Kitsilano had a surfing community. Skateboarding gave surfers a way to surf on land, so to speak, all year round. It was easy for Westbeach then, because for the most part, skate was the same customer as surf.

Our position at the front of Canada’s skateboard scene stayed unchallenged until Powell Peralta – a company founded by George Powell and Stacy Peralta of Lords of Dogtown fame – came in with their enormously successful Bones Brigade branding. The Bones Brigade was a professional skateboarding team, formed in 1978, featuring the likes of Tony Hawk. After their popularity hit its peak in 1988, if there wasn’t a skull-and-crossbones on your skateboards, you just couldn’t sell them.

We quickly lost our hard-good skateboard business to Powell Peralta, as did other competitors, but it was good while it lasted.

Taking Vertical Further

Having the bigger location on West 4th also allowed us to bring Westbeach’s production fully in- house. This was all part of an even larger vertical retail model I had imagined. I questioned why we shouldn’t take vertical top to bottom.

There was no roadmap and no one from whom to learn. Intuitively, I’d come to understand how big an economic advantage we could have if we could make vertical retail and in-house production work. We would miss all the middleman markups and supply a better-quality product at a better price. This thought became my mantra as my business acumen developed.

I knew we had to achieve economy-of-scale production. Instead of making 400 units of a particular item, we had to increase production to 2,000 or more. That required buying all our own fabric, trim, zippers, snaps (sometimes not covering these costs upfront, and learning from those mistakes), learning how to inventory it all, and bringing in payroll and labour to make it all happen.

This was learning by doing, and it gave me a deep – if not formal – sense of how manufacturing and production work for a brand. To this day, that unique experience has given me the ability to walk into a retail store and within about 15 seconds, sense what kind of sales, volume, and turnover the store is doing, and how happy the employees are. It’s almost second nature for me, but the insight was hard-earned over my years at Westbeach.

Even after we’d centred Westbeach in Vancouver, I kept using Josephine Terratiano as a producer, but ultimately, we had to reconsider production. Vancouver had a large Asian immigrant community, which meant access to a high number of skilled, low-cost seamstresses and tailors, plus better connections with factories overseas.

Breaking the production relationship with Josephine was hard. She’d become like a mother to me. I’ve never been very good at keeping up relationships, and I’m not the best communicator, but I never forget people either.

Years later, after my personal fortunes had changed, I sent Josephine a shoebox with $10,000 cash in it and two first-class tickets to Italy. I didn’t say who it was from – and apparently, I didn’t need to. Not long after I’d sent her the shoebox, I “anonymously” received a tin of the same homemade biscotti I’d loved eating at Josephine’s house many years before.