Will She Replace Lori Greiner On Shark Tank? Her Designs Have Brought In Over $1,000,000,000 In Revenue With Tracy Hazzard Of Hazz Design From The Top Podcast With Nathan Latka

Want to know how Tracy Hazzard grew her business? In this episode, she joins Nathan Latka from The Top Podcast to discuss just how she made it to the top with her design business! She talks about their business model and how their process was designed to increase success for their clients. Not everybody can have an 86% success rate, especially in the saturated product design and creation world, but Tracy figured out what works. With over 250 products launched and nearing 1 billion dollars in sales, there’s no doubt that what she’s doing shows results. Tune in to find out more and get advice for your design business!

Listen to the podcast here

You’re going to love our guest. Her name is Tracy Hazzard. She’s the CEO of Hazz Design, a co-designer of 250-plus consumer products generating over $1 billion at retail. Through her Inc. Magazine column By Design, she pushes companies to tactically create success by design accelerating business growth. Tracy cohosts the WTFFF??! 3D Printing Podcast for the next industrial revolution. Tracy, are you ready to take us to the top?

Absolutely.

First things first, where did you start? You’ve got an Inc. column, a podcast and a successful design company. What was first?

Design Business: It sounds unbelievable, but the reality is we just have this rapid launch process that produces things really quickly and very successfully.

First was a couple of lucky companies to work for. I worked for Milliken & Company, which is the world’s largest textile company, and I worked for Herman Miller. You can’t get to bigger companies that are design-oriented than that. That would have been ‘92, and at Herman Miller by ‘94. When the Aeron chair was launching, I have an article about Bill Stumpf and the Aeron chair and what he taught me at that time.

Walk me through the business model. How are you getting paid for Herman Miller?

Not anymore. That was an employee situation. That’s how I got started. It gave me this great resume to work off. My husband is my partner, and when the two of us went out on our own, having that pedigree helps. It opens a lot of doors.

What did you do after you decided to quit there?

We had a startup business that was focused on tech tools. We had stylus pens for handheld computers, and we got into a sticky IP battle with Palm Computing at the time. They just went off.

Did you win?

We did, but we didn’t. This is the thing that they don’t tell you about those IP battles. You can win on principle, but you will never win in money. You will always lose if you’re the small guy. We won on principle, which we needed to do because we were also battling IDEO, which is the largest industrial design firm. Our reputation as designers was on the line. It worked out for us, and we learned a lot of things about tactics for doing it with no money, and we’ve translated that into long-term consulting work for ourselves and for our clients. It’s worked because you’re always bootstrapping it.

Is that when you created Hazz Design?

That’s Hazz Design and it’s been in various phases, but in the last few years, we’ve had it exactly the way it is. If it hadn’t been for my experience at Herman Miller, it wouldn’t have opened the doors. Tom had lost his job. That is my partner and husband. There was this company we had a connection to, and they said they needed a chair designer. We said, “We can do that. Here’s why and here’s what we know about making office chairs.” They said, “Can you start immediately for us?” That catapulted us into the current form of our consulting business.

This is unbelievable, the success here. I’m going to read some numbers here. The audience is going to not believe this. You’ve helped launch over 253 retail products. Those products have done over $758,457,260 of client sales, and you, your husband and your team have put in over 98,688 design hours.

What’s more unbelievable is that’s probably a couple of months old, so it’s a little out of date because that counter doesn’t keep counting. It sounds unbelievable, but the reality is that we have this rapid launch process that we go through, and it produces things quickly and very successfully so that they generate a lot of sales for our clients.

Can you walk me through a client example? What was the last design that you did?

Our platinum record product is a chair at Costco called Metrex. It always changes names every year, but it’s been there for several years. It doesn’t get to stay on the shelf at a retailer unless it’s extremely successful. The way that we did it was we sometimes have to design hundreds of variations of something. In this case, we only did about twenty different chair designs because they’re so large, but for some of the smaller items, we do hundreds of variations.

How do you make money on the platinum chair?

We get royalties based on our client’s sales. We also charge fees, so we do both.

What’s the royalty on the chair?

Typically, a royalty depends on how big our fees were at the beginning. It’s anywhere from 2% to 3%. Sometimes, the 3% is usually when there’s some patent associated with it. This particular one doesn’t have that.

What was the fee associated with the initial prototyping of the chair?

Our fees are on a monthly basis, so we do a retainer because it takes a lot of time for us to concentrate on this particular client at one time, and we usually give them all our time. That’s what we do. We don’t overlap our clients. We’ll do 1, 2 at a time. That’s usually anywhere from $10,000 to $20,000 minimum guarantee per month for however long. Sometimes, it takes years to get into a retail store if you’re starting from scratch.

What was that chair and how many months did you work on that?

That particular chair took about six months.

Who was the client? Was it Costco or somebody else?

No, it’s Bayside Furnishings, which is owned by Whalen Furniture in San Diego. They already had office furniture that they made for Costco, and they wanted to expand it into a whole new category. That’s what our specialty is expanding companies. They already have a brand and a relationship with the retailer, but they want to grow fast.

It’s cheaper to work with you than it is for them to hire their own team and worry about health benefits, office space and all that.

Design Business: The thing they don’t tell you about IP battles is that you can win on principle, but you will never win in money.

It’s not just cheaper that way, but when you hire the right resources who have done it before, you don’t make mistakes because there are lots of things that can go wrong. There are lots of liabilities that are associated with chairs, for instance or comfort problems. They used the wrong foam and especially because most of the items, at least 90% of them are made in Asia. We also have sourcing relationships that we use. We go to the factory and we babysit these products when they’re first launching. You don’t get that from a typical in-house designer because they’ve got to move on to the next thing.

Tracy, when I’m looking at this chair, I’m on the chair on your website, first off, it’s gorgeous. This thing looks unbelievable. It looks like it’s made out of platinum.

It’s $99. Believe it or not.

What? That’s what I want to ask you.

It’s on sale for $79, which is a steal.

Let’s break down this $99. How much does it cost you to build?

Usually, 50% of the cost is somewhere in there. That’s a hard and fast rule with retail in general. That’s what would be typical, but Costco has an interesting model, and this is why people should buy it. If you’re already interested in buying it from Costco because they only charge a 12% margin, their profit is very low, so they can get more quality and get a better price out of it and still meet $99, unlike the other. That’s somewhere around $75 on that particular one.

Let me break this down. Again, it’s selling for $100. You have $50 of the cost to produce. What other costs are associated with it?

There are landing costs. You’ve got to bring it in and you’ve got to transport it. Landing costs vary all the time, but it’s usually around 10%.

Call it $10, what other costs?

There’s my fee. There’s the 2% royalty and usually, there’s a salesperson’s royalty on top of that because they almost always have a sales fee. You’ll get 10% or so between sales and design.

Let me break this down. This is from Costco’s perspective. Let’s say Costco is meeting about, “Let’s analyze this chair. It sells for $100, $50 cost of goods sold, $10 landing costs, $2 to Tracy and the design company or a little bit more, $8 to the salespeople. When you add it all up, you’ve got $50, $60, basically $70.” Costco is making $29 per chair?

Gross, yeah, somewhere in there. That’s why when I say when they sell it for $79 on sale, it’s a steal.

They’re barely making anything.

Sometimes, we’ll go out into people’s offices and I’m like, “You have a whole fleet of my chairs.” That’s because they bought them all at a sale.

When did you put this product into Costco where someone could walk in and buy it? What month and year?

It might have been the beginning of 2010.

What are sales to date just on the chair?

We calculated, and we hit one million units total, but that’s over five years.

How much have you made on royalties from the one million units sold?

It does about $20 million a year on average.

It looks on the website, $780,000 is the total that you guys have made between fees and royalty on the chair. Is that accurate?

That’s probably old. From whatever I put up that page, that’s at least a year old, but it’s fairly close to a $1 million on that one chair.

That is unbelievable and it took you both eighteen months to basically develop that out.

It took about six months to develop it. By the time it got onto the market, it takes about another 10 to 12 months.

You guys will work on one project per year, it sounds like. You make fees in that year, but if you hit a big winner, you’re going to be making a lot of royalties over time as well.

The way that we do it is we concentrate on making sure that our fees cover our costs. We’re not gouging our clients on that. Our fees are just to make sure that you have our attention. We work on multiple projects for them, but for one client at a time. We might do 10 or 12 chairs at a time for that particular client. We closed a project with a company that we did a whole line of juvenile products that are hitting Walmart and Target right now. It varies but usually it’s a product line. It could be anywhere from 100 to 300 designs.

Tracy, I have a question for you. Why do you need a baseline? If you’re doing $60 million in total sales, you’re only getting $1 million of that. Why not build these things yourself and put them in the stores?

It’s capital intensive, and brand building is hard. We always call ourselves ghost designers. We stay behind somebody else’s brand for a reason because there’s a lot of risk in there. There is a lot of money spent and their margins are very low. When I can cover my costs and still make my percentage, I’m actually netting better.

When you have clients ask you if you will work with them, I imagine you go through some analysis to try and figure out if the chair is going to be a winner, or if the pitch is going to be a winner because then you can go back into what you think your royalties will be. How do you figure out what’s going to be a winner and what’s going to be a loser?

We have an 86% success rate, which is pretty good considering most people have the verse of that. That means that 86% of all our designs have succeeded in the last years.

What does success mean though? Is there a metric?

Yes. If it were online, it means that it’s still more than 4,000 to 5,000 units online, but the margins are much higher there per design. The lowest selling product we’ve had in store probably did about 20,000, 30,000 units, and the best seller does much more per year.

As a business, is it just you and your husband, or do you have other employees?

It’s just the two of us. We have contractors we use, an assistant and things like that. We do have a virtual assistant team and freelancers we use for design when we need to do drawings and renderings. We prefer to keep it us. That’s how we’ve done it in the past, but we’re looking at expanding into an agency moving forward.

Congratulations. Help us understand the overall size of the business. In 2015, if you add up all the royalties you made and all the fees, what was the total revenue in 2015?

It was probably close to $500,000.

Your costs are your salaries, right?

It’s pretty low. We did a lot of re-investing in the business this past year because we’re expanding into 3D printing, and that’s what the agency will open.

You are buying equipment and stuff?

No, we’re more invested in brand building for a change. We started our podcast.

Tell me about the podcast.

It’s WTFFF, which stands for What the FFF, and FFF are Fused, Filament, Fabrication. It’s this geeky, techy word for 3D printing.

Design Business: There’s really a point when you should just hire an expert. It will cost you less money and take you less time.

When did you launch it? What year?

It’s in April 2015. We podcast five times a week. We pushed into it. We did this feature where we do Ask us Anything four days a week and one interview a week.

What are your downloads per episode?

We’re close to about 30,000 per month, but I don’t know what that breaks down per episode because we’re just about to hit our 200th episode.

What does it cost you guys to produce it? Do you pay an editor and a show notes person and all that?

We do. We analyzed it and it came out to close to $200 an episode. That’s fairly typical. We’re pretty picky about the quality. That’s part of the reason there.

What category is this in? Is it arts and crafts, or tech?

It’s in tech and it’s educational. The idea is that we’re the start point. When you go, “What the heck is 3D printing and why do I need to know about it? What should I do about it?” We get a lot of educators whose school district gives them a 3D printer and they say, “Go ahead and figure this thing out.” They’d come to us. We also have a huge designer community who are like, “I hear all about this 3D printing thing. I should learn about it.” They’re coming out of other design fields and trying to 3D print, and it’s not as easy because 3D printing is a product at the end of the day, not just a computer model.

Are you monetizing it? Do you have sponsors or anything?

We just landed our first sponsor. We’re excited about that.

What will they pay you per month?

It’s going to be close to $1,000 an episode or something like that. It’s something close to that. I don’t handle that part.

I talked to a lot of folks doing a podcast, even Alex Blumberg at StartUp and Art of Charm, and all these guys. I’m always curious when you work with a sponsor. Did you pitch a CPM to them? Are they paying per episode or what?

We did a per episode because our listeners are active, and they’re a tight niche. When we say, “We recommend this printer we’ve reviewed.” They all click through the links, check it out and watch the videos. We have a very high activity we can show, plus we have a site that’s highly Google ranked that’s connected to it. Both those things helped through that. In this case, we’re offering a free gift thing as well.

You’re doing five episodes per week, $1,000 per episode. You’re doing about $5,000 per week just on that sponsorship. Am I doing that math right?

This one is going to be $4,000 because they’re doing one episode a week.

Congratulations on that. Before we get into my favorite part of the show, Tracy, if people want to connect with you personally online, where can they do that?

They can do that anywhere on social media, and it’s @HazzDesign and HazzDesign.com is my homepage. You can find me there, you can link to my Inc. Column and everything else.

Tracy, before we get into my favorite part of the show, tell me really quick. The writing you’re doing for Inc., about how many impressions would you say your articles get per month? In other words, is it worth it?

I started it in January, so it’s not quite worth it yet, but I had an article that hit about 15,000 views in a week, so that was pretty exciting. That was about John Assaraf and how innovative thinking can happen. Innovation happens at a subconscious level.

Is that what you need to do to hire product-driven innovative designers?

No. It’s how the brain works, basically.

The 3 Ways to Train Your Brain for Bigger and Better Ideas?

Exactly, that one.

It’s time for the famous five. Number one, what’s your favorite business book?

My favorite business book is Rembrandts in the Attic, which is an unusual book, but it’s a designer’s book. It’s about unlocking the hidden value of patents.

You know a little bit about defending patents, don’t you?

I do. This one’s about building up an asset portfolio of patents and what we’ve done. I’ve loved that idea.

The next question, is there a CEO that you’re following or studying right now?

I met this man, Ken Courtright, about almost a year ago. He started a podcast called Today’s Growth. He’s the CEO of Today’s Growth and Income Store, and I love it. He tells the best stories and he has the most interesting people that he’s been connected to. I have learned so much from him, and I want to emulate him.

Next question. Is there a favorite online tool you have like Evernote?

We use GetPocket because Tom and I share things all the time. The easy part is we stick it in the pocket and then we both can open it on any device.

As you’re building this empire, yes or no, are you getting eight hours of sleep every night?

You say that, and I know I only got four hours last night. Absolutely not. It should have been assigned when at Christmas, I got two copies of Arianna Huffington’s book, Thrive. Everybody recognizes that that is a big problem for me.

Do you have kids?

I have three kids. That contributes to it.

You put the oldest one to work, right? Do you make her babysit?

She’s away at college. When she’s home, yes.

Last question, what do you wish that your twenty-year-old self knew?

I wish that I had recognized earlier the power of not doing it all myself. You think when you’re twenty, you’re invisible and you can learn, you can do anything, and you should do anything. There’s a point at which, especially when you are an expert, that you should hire an expert, and it will cost you less money and take you less time.

It’s such valuable feedback. For me, I know that’s been ego. I don’t want to let go of stuff.

It is for me as well, and I’m a perfectionist, so I want it to be better. It’s got to be my design style, but over the years, this came to me and that’s how I met Ken Courtright. I’ve written 40 blogs on my website, and nobody ever read them. I started podcasting and all of a sudden, all my things were tracking, and I didn’t understand what was going on. I talked to him at an event once and he was like, “This is because your podcast is such fresh content, and it’s Google ranking and what you needed as an authority site and all of these great things. I was like, “Why did I think I could do that myself?”

I love that advice, Tracy. Thank you so much. I hope you enjoyed Tracy. She’s one to follow, her and her husband of Hazz Design. They started from nothing. They’ve now launched over 200 retail products totaling over $1 billion in sales. We focused on the office chair that sold over $60 million in transaction volume across Costco, Staples, Office Depot, Walmart, Sam’s Club and others. Tracy, thank you for taking us to the top.

Thank you.

Watch the episode here:

The Top Podcast

Nathan Latka