420: My Big Purchase To Save 100K+ On Taxes – A Bumblebee Linens Update With Steve Chou

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You’re listening to the My Wife, Quit or Job podcast, the place where I bring on successful bootstrap business owners and delve deeply into the strategies they use to grow their businesses. Today, I’m doing a solo episode to give you an update on Bumble Bee linens and to provide you with a pretty cool tax strategy that e-commerce business owners are using to save on taxes. Now, it’s been a while since I’ve done one of these and I’ve done a lot of work lately under the hood of our e-commerce business. But before we begin, I want to thank Postscript for sponsoring this episode.

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Postscript is my SMS or text messaging provider that I use for ecommerce and it’s crushing it for me. I never thought that people would want marketing text messages, but it works. In fact, my tiny SMS list is performing on par with my email list, which is easily 10x bigger. Anyway, Postscript specializes in text message marketing for ecommerce and you can segment your audience just like email. It’s an inexpensive solution, converts like crazy, and you can try it for free over at postscript.io slash Steve. That’s P-O-S-T-S-U-I-P-T dot I-O slash Steve.

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I also want to thank Klaviyo for sponsoring this episode. Always excited to talk about Klaviyo because they’re the email marketing platform that I use for my ecommerce store and it depended on them for over 30 % of my revenue. Now you’re probably wondering why Klaviyo and not another provider. Well, Klaviyo is the only email platform out there that is specifically built for ecommerce stores. Klaviyo can track every single customer who is shopping in your store and exactly what they bought. So let’s say I want to send out an email to everyone who purchased a red handkerchief in the last week. Easy.

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Let’s say want to set up a special autoresponder sequence to my customers depending on what they bought, piece of cake, and there’s full revenue tracking on every email sent. Klaviyo is the most powerful email platform that I’ve ever used, and you can try them for free over at klaviyo.com slash my wife. That’s K-L-A-V-I-Y-O dot com slash my wife. And then finally, I wanted to mention my other podcasts that I released with my partner Tony, and unlike this one where I interview successful entrepreneurs in e-commerce,

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The Profitable Audience Podcast covers all things related to content creation and building an audience. No topic is off the table and we tell it like how it is in a raw and entertaining way. So be sure to check out the Profitable Audience Podcast on your favorite podcast app. Now onto the show.

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Welcome to the MyWifeCouterJob podcast. Now it’s been a while since I’ve given an update about Bumble Bee Linens, which is my e-commerce store. So I thought that I’d dedicate some time today to tell you what’s been going on over in handkerchief land. Now, first off, from an operation standpoint, Bumble Bee Linens is kind of at a crossroads right now. Living in the Bay Area of California, the labor costs are at an all time high. In addition, rents over here for office space have been skyrocketing like crazy.

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Now our lease runs out in January of 2023. And just to give you an idea, our rent is set to go up nearly 28 % from when we signed our last lease. 28%. That’s ridiculous, right? Not to mention that our current landlords are easily the worst landlords that we’ve ever had ever. Whenever anything is broken, they do not respond. They do not pay for anything and they don’t really care about their tenants at all.

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And I just have to say this, I California is one of the worst places to start a business. Now, if my kids weren’t in school here, and if the weather wasn’t so darn good, and if we didn’t have friends here, we would probably be out of here from a business perspective. And in fact, my wife, I don’t know if I mentioned this on the pod before, but we actually looked into moving to Texas, Washington, and Las Vegas for this exact reason. And don’t get me started on California taxes and laws. Right now, we are actually looking to purchase an office building

03:42
so that we’re no longer dependent on anyone else for rent ever again. Now, first off, before I continue, I just wanna give a quick shout out to Mike Jackness for what I’m about to tell you. And this conversation, it was a casual conversation that I had with Mike since we’re speaking together at the Sell and Scale Summit next month. But what Mike told me could save me hundreds of thousands of dollars in the coming years. So Mike, if you are listening to this, I owe you one, buddy. All right, so here’s what Mike told me.

04:11
Lots of e-commerce store owners are buying their own warehouses right now because of a tax benefit called the Opportunity Zone Program. By the way, before I go on, I just want to say that I’m not a tax professional, so make sure that you do your own research before you take what I tell you today as gospel. Not a tax professional. Anyway, okay, back to the Opportunity Zone Program. The Opportunity Zone Program is a government program that allows people to invest in distressed areas in the U.S. with a huge tax break.

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Now in our case, the office building that we’re looking at is on the fringe of an opportunity zone. I guess the definition of a distressed area is kind of up for debate and it probably just changes depending on where you’re located. this location isn’t bad at all. We scoped out the property, looks pretty good. Meanwhile, you get the following tax benefits. All right, so listen up here because I often get asked this question, like how to avoid paying taxes. This is one way to do that. When you…

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buy a property in an opportunity zone, you can actually defer your taxable income from any gains that you make from your investment. So I’m just going to kind of enumerate these first and I’ll give you some examples. You get a step up in basis for any capital gains invested into your opportunity zone building. And then your basis increased by 10 % if you hold it for five years and an additional 5 % if you hold it for seven years. And again, I’ll explain this all with a full example in just a second.

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But basically you can exclude up to 15 % of your gains if you hold onto the property for seven years. And here’s the best part, it gets better. The best part is that you get a permanent tax exclusion of your gains if you hold your property for 10 years. Basically you don’t need to pay any capital gains tax on the property appreciation if you hold it for 10 years, which is crazy. All right, so if you guys didn’t follow me.

06:05
This might be confusing and admittedly I actually had to read over the rules many times before I could understand it. So what I’m gonna do now is I’m gonna explain the tax benefits with an example and I’ll go slowly because once again, it took me a while to get it. And by the way, before I go on, you don’t actually need to buy a building in an opportunity zone to get this tax benefit. There’s actually opportunity funds out there that you can invest in as well. let’s wrap this up with an example here. Let’s say that you make $100 and

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profit from your business, stocks, or whatever. You make some gain that’s 100 bucks. Now if you invest that $100 into your opportunity zoned building, you can actually defer paying tax on that money. Now if you hold that investment for 10 years, your basis is increased by 15%, which effectively reduces your taxable gains to $85 instead of 100. Basically you get a 15 % off of your tax basis.

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Now let’s just throw some numbers in the mix here. I know I probably shouldn’t be doing podcast math, but I’m going to try to do it here so you guys can follow. Let’s say you buy this property and it appreciates $100 in the 10 years that you own it. Well, if you decide to sell after 10 years, you will pay zero taxes on the appreciation. So essentially investing in an opportunity zone property will save you 15 % on your taxes.

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and you’ll pay no taxes on any gains that your property will make in 10 years. This is pretty amazing. So if any of you guys are looking or even considering buying your own office building, consider looking for an opportunity zone as long as you’re in the U.S. All these things obviously apply just to the U.S.

07:51
Okay, so anyway, Jen and I put out an offer for an opportunity zone building and I hope it goes through. We haven’t heard back yet because you can never tell with the Bay Area. I think like three months ago, my wife and I, put a bid for an office building. It was a not a small building. It was 4000 square feet. We’re talking seven figures here. And we put a competitive offer in and then the winning bid ended up going for 10 % over the asking price.

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And it was an all cash offer, no contingencies as is. Now this is normal for residential property, but for an office property, this is actually pretty unusual. Anyway, I’ll let you guys know in an update, maybe in a subsequent podcast, whether we get this building or not, but I hope so. All right, so what else is going on here? A couple of months ago, my wife and my daughter went on a mother daughter trip to South Korea and

08:47
It’s rare for us to not travel together, but it was a great trip and they really bonded on that trip. I’m not going to talk about the trip. While my wife was gone without me, I actually started going into the Bumble Bee Linens office every single day. And normally I don’t go in because my wife handles operations and I handle marketing. Incidentally, if you’re working together with your wife, that’s actually the best way to stay married. If you guys kind of overlap in your business duties, you’ll probably start to fight and whatnot. Anyway, so I largely stay away from the

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because operations is his domain. And here’s what I have to say about that. Sometimes when you’ve been doing things the exact same way for a long time, it becomes a norm, and it’s tough to make any changes to like the standard protocol that you’ve established. And this is often why businesses hire outside consultants to make a business more efficient. When you’re in the business day to day, it can be hard to see things from 50,000 feet. Anyway,

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When I went into work that week, I actually took the time to fix some of the inefficiencies that I saw. And first off, before I go on with what these were, I just want to say this is probably largely my fault. Whenever my wife asks me to do something, especially when it comes to tech and coding, I’ll often respond with, all right, so what’s the priority of the change? Here is what’s on my plate right now. How urgent is this? And with anything that is process related,

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it’s really easy to put things on the back burner. Like let’s say my wife wants a way to do something a little bit more efficient, but it’s not like a fire that needs to be put out right away, right? It’s really easy to put that stuff on the back burner. I actually have a term for this. I call it business debt. So for example, I’m actually sitting on lots of code for Bumblebee linens that works okay, but it’s ugly. Now in the interest of just getting something working,

10:43
I took a couple of shortcuts and wrote code that I would probably be ashamed to show any other programmer. Now, if you’re a coder, you probably know what I mean. When I was at my full-time job, sometimes I would agonize over tweaking my code to provide the most efficient and elegant solution out there, right? It was more than just getting to work. It had to be maintainable. It had to work elegantly and had to be fast. But in business, sometimes I don’t have time for that.

11:09
Sure, you might plan on fixing things at some later point, which never ever comes, and this is what I call engineering debt. Now with business processes, it’s actually not that different. When you don’t get that many orders early on, and some of you guys who are listening to this, maybe you don’t get that many orders right now, it’s okay to be inefficient, pack stuff and ship it by hand. It’s okay not to automate in the beginning because it’s probably not that painful yet, right? But.

11:34
At some point, you’ll probably need to make things more efficient to free up your mind and your time to do other things. Anyway, so while my wife was out, I thought that I would surprise her by automating a lot of things that she may or may not have asked for. And even though I hang on that woman’s every word, sometimes I may not have heard her correctly. So here’s what I did while she was gone. And some of you guys listening to this might think this is a major risk, but I think I was pretty considerate with what I changed and, you know.

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what things need to change. I just want to say this, with our business, it’s a little different than a traditional e-comm because we do personalization and we’re in the wedding industry. One of our biggest problems is prioritizing orders that go out. So for example, we might get a series of orders with different shipping rates. Some of these orders might require personalization, which takes up to five business days. Some people might have special deadlines. And so,

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it can be difficult to prioritize which orders need to be processed first and which orders absolutely need to go out like today, the present day. Sometimes people have special comments that need to be processed and taken into consideration. And so I put together a dashboard that just basically puts all the rules for prioritization into code. Basically, here’s a list of orders that must go out today. Here’s a list of orders that must be stitched today.

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Here’s a list of orders with special comments that need to be processed early. Here’s a list of orders that need to be combined. Sometimes people place orders, multiple orders in like the same day, or maybe like the next day kind of spaced apart and you need to combine those orders so that people can save on shipping. Anyway, here’s what I come to realize after running this e-commerce business for 15 years now. People are careless. Lots of people just type in their address wrong.

13:28
Some people make spelling errors on personalization. I’ve had people spell their names wrong, you know, on personalization. We make sure that they double to have them double check their personalization before entering the order through, but still mistakes happen. And when this does happen, you can’t process anything unless you hear from them. Right. So what do do with these orders? Sometimes you’ll reach out to these people and you won’t hear from them. And then these orders are in limbo. Right. And

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You know, sometimes you forget to email them again if they haven’t responded. Sometimes you forget to call them. So this is what I put into the code. Now the website automatically emails people on a regular basis with a cron job for people who are technical and listening to this to remind them that they need to respond. So basically it takes the burden away from a human and puts it on a machine. The dashboard also indicates when the customer needs to be called again. Let’s say you send out two emails with no response then

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that that order will be annotated with, please call this person over the phone. I also took the time to revamp our inventory system. Our business is different than a lot of other e-commerce businesses because we do personalization. And inventory can be a bit of a mess the way we currently have things set up. Like if I were to start all over, we probably wouldn’t have done things this way, but let me just tell you what our inventory issue is. Basically, when someone chooses a personalized handkerchief,

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they can actually choose from a variety of hankies when they want to monogram it. Okay, but we also sell these hankies in sets of three that are blank. And in the past, there was no real automated way to reconcile inventory from the personalized side from these sets of three easily. And also, I think anyone who runs like a, certainly in a textile business, we often encounter irregular or defective merchandise that isn’t necessarily reflected in the inventory count. So let’s say,

15:23
you pull something and you it might have like a run in the fabric or a mark on it it’s unsellable but you need a way to account for that in the inventory.

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If you sell on Amazon or run any online business for that matter, the most important aspect of your long-term success will be your brand. And this is why I work with Steven Weigler and his team from Emerge Council to protect my brand over at Bumblebee Linens. Now what’s unique about Emerge Council is that Steve focuses his legal practice on e-commerce and provides strategic and legal representation to entrepreneurs to protect their IP. So for example, if you’ve ever been ripped off or knocked off on Amazon, then Steve can help you fight back and protect yourself.

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Now, first and foremost, protecting our IP starts with a solid trademark and Emerge Council provides attorney-advised strategic trademark prosecution, both in the United States and abroad for a very low price. And furthermore, the students in my course have used Steve for copyrighting their designs, policing against counterfeits and knockoffs, agreements with co-founders and employees, website and social media policies, privacy policies, vendor agreements, brand registry, you name it. So if you need IP protection services, go to EmergeCouncil.com and get a free consult.

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And if you tell Steve that I sent you, you’ll get a $100 discount. That’s E-M-E-R-G-E-C-O-U-N-S-E-L dot com. Now back to the show.

16:42
Anyway, so the upshot is I coded up a special inventory system for our store alone. And I don’t want to bore you with all the details, but the key takeaway here is that every now and then you got to step aside and fix some of the inefficiencies with your business. Your business, if you’ve been running it for a while, probably has a lot of process debt. And it’s actually going to make a huge difference and clear your head if you just fix some of these changes.

17:09
Here are couple of miscellaneous things that I’ve implemented with Bumblebee Linens, moving much of the Google ad spend over to Google Performance Max. Now, if you don’t know what Performance Max is, it’s Google’s latest advertising platform that is meant to take your advertising burden off of you. So basically it’s a black box. You feed a product some copy and it does the rest through machine learning. Now, personally, I hate using anything that is fully automated, like if I’m paying money for it, because I’m an engineer.

17:38
Performance max provides very little visibility in what Google is doing But I’ve been running it for several months now, and it’s actually doing quite well So I’m gonna let it slide, but I’m cautiously optimistic and I’m a pretty skeptical guy at heart. So for example Let’s say Google is about to miss earnings on Wall Street What is stopping them from like dialing down the conversions from this invisible black box of an advert advertising platform just to make a little bit of money?

18:07
and meet earnings. Google literally gives you no metrics or data, and so you wouldn’t be able to prove a thing. And this is the biggest problem that I have with Google AI taking over the world. Google basically tells you nothing about your ads except for your return on ad spend. And it’s great for the clueless user, but it’s really bad for people who know what they’re doing. So perhaps someday, I’ll just make a prediction here, Google and Facebook will probably have such good AI that it’s going to put advertising agencies out of business. Who knows?

18:37
Anyway, the other thing I’ve been working on is Google basically forced me to move all my Google campaigns over to Performance Max, which actually inadvertently forced me to optimize my Google shopping feed. Now, I’d actually put off optimizing my feed. So let me just tell you what this feed is. Basically, in order for Google to display your ads and the search results, you have to upload this document called a feed that outlines all of your products, images, copy, and that sort of thing. And the right way to do this, like most tools, if you’re using a shopping cart, will create this for you.

19:07
but it’s very inefficient. And in order to get more traffic and sales, you actually have to optimize your feed. I’ll talk about what that is in just a sec, but I’ve been putting this off for the longest time because it is a pain in the butt to rewrite custom keyword stuff titles for your feed. And literally you have to go into every product and rewrite it, do keyword research and figure out what people are searching for and stuff that in the title instead of the regular title for your product. And we have like 500 SKUs. And so it’s the most tedious work ever.

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But basically I bit the bullet and optimized it while I was sick with COVID on vacation with my family. Not sure if I told you guys about that, but in May, I went to my conference cellar summit in Florida, shook hands with everyone, gave people hugs, went massless, and I didn’t get COVID. But then I go to Orlando with my family. I’m super careful. I wear masks outdoors and indoors, and then I get the stupid disease. Anyway, I was actually the only one in my family who got COVID on the trip, so I actually stayed isolated back at the hotel.

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and I literally had nothing to do but work on the business, so I bit the bullet. And I optimized all the listings for Google Shopping. I literally had nothing to do for four days, so that’s what I did. This year, I’ve also focused a lot of my efforts on SEO. After getting hit with a Google algorithm update in 2020, where I lost almost 50 % of my traffic, I decided to bite the bullet and go all in on SEO. And today, I’m happy to report.

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that Bumblebee Linens is at the highest organic traffic rate that it’s ever been. From the lows in 2021, traffic is up over 5x. Now, if I could just solve some of my inventory issues, I could actually see some of the gains from my SEO. But overall, terms of inventory, it’s been a challenging year for our shop. We survived 2020 and 2021 with almost no issues in inventory, but 2020 actually has been pretty hard for us. Now, I don’t want to ramble too long here.

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since a lot of you guys probably are not that interested in my business. So let’s just end with some key takeaways, shall we? Okay, takeaway number one, with real estate prices getting lower and rents skyrocketing, might make sense for you to get your own building. So do a search for opportunity zones in your area so you can see if you can get a killer tax break. Takeaway number two, revisit your business debt. If there are processes that you have in place that are super manual or error prone, it’s time to revisit them.

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Do not wait too long because it’s going to come back and bite you in the end. Takeaway number three, have someone who is not involved in the day-to-day of your business just kind of look over your shoulder and point out ways that you could do things more efficiently. And then takeaway number four, isolate yourself in a hotel room for four days and you’ll be amazed at how much work gets done. Okay, quick update on the property. It is now three days later after the initial recording of this episode.

22:02
And where we left off, we had put down a bid that was slightly under asking and we were waiting for the owner to get back to us. Now this property has been on the market for 31 days at this point and we were pretty confident that our bid would win. But over the weekend, the owner of the property miraculously got two new offers. Now one was a lowball offer, which the owner ignored, but the other offer came in from overseas for all cash at the asking price, which was higher than our bid.

22:30
Yeah, so not only was this bit higher than ours, but it was all cash. However, the buyer was not in the US, had never seen the property at all. And I guess in the minds of the seller, there was a greater chance the deal would fall through. So at this point, Jen and I had to decide how badly we wanted the property. And after, you know, thinking about it for, I don’t know, I’d say half a day, we ultimately decided to raise our bid to asking. And then we went with all cash. Now,

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This was a very nerve-racking decision, but we are now the proud new owners of an Opportunity Zone property. Hope you enjoyed that episode. Now that we have the property, we have to do the part that is not so fun, which is the paperwork to get all this going, and I’ll keep you posted on how much of a pain it is to get this all set up. For more information about this episode, go to mywagputterjob.com slash episode 420. And once again, I want to thank Clavio, which is my email marketing platform of choice for e-commerce merchants.

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You can easily put together automated flows like an abandoned card sequence, a post purchase flow, a win back campaign. Basically all these sequences that will make you money on autopilot. So head on over to mywifequitterjob.com slash KLAVIO. Once again, that’s mywifequitterjob.com slash KLAVIO. I also want to thank Postscript, which is my SMS marketing platform of choice for e-commerce. With a few clicks of a button, you can easily segment and send targeted text messages to your client base. SMS is the next big own marketing platform.

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and you can sign up for free over at postscript.io slash div. That’s P-O-S-T-S-E-I-P-T dot I-O slash div. Now we talk about how I these tools in my blog and if you are interested in starting your own eCommerce store, head on over to mywebquaterjob.com and sign up for my free six day mini course. Just type in your email and I’ll send you the course right away. Thanks for listening.