Executive Perspectives: Howard Schwartz, founder and CEO of HDS Marketing Inc.

As part of Print+Promo’s ongoing feature, Executive Perspectives, we get to know leading professionals in the print and promotional industry. This month, we interviewed Howard Schwartz, founder and CEO of HDS Marketing Inc., Pittsburgh. Here, he explains how key chains influenced his career path, discusses staying above the technology curve and issues a warning to Kevin Bacon.

Howard Schwartz, founder and CEO of HDS Marketing Inc.

How did you first get started in the industry, and what path did you take to land in your current role?

Howard Schwartz: There was no passion, there was no understanding, there was no nothing. I moved to Daytona Beach after college just to kind of do something else, so I really didn’t want to go work for anybody at that point. But, I’ve been a salesman all my life—whether it was selling raffles door-to-door, being a paperboy for 10 years and I was a caddie for about 10 years—I’ve always just loved sales. And then I worked at a bar in college and sold at a Gap in high school, a sporting goods store. Basically, I lived in Europe my first semester of my senior year at Penn State University; the college had a program through the University of Manchester for international mass communications. I had an unbelievable experience and spent a lot of money. I got back from Europe and didn’t have any direction or any clue. I had a bunch of job opportunities when I was in school, and I turned down every one of them, including an offer with the May Company as a buyer and with Andersen Consulting as a consultant, and these were some pretty high-paying jobs. My parents thought I was crazy. They asked what I was going to do, and I said I was going to go to Daytona Beach [to sell key chains in bars]. I met these guys in Ocean City, Md., who would walk around with a camera and put a picture of you on one side [of the key chain] and the bar’s name on the other side, and I thought, “I’m going to try to do this.” So, I bought this equipment from them for like $1,500 and brought enough in to make $20 on every Polaroid. Every Polaroid camera has like 10 pictures, so you can make $40 on that and the film cost $4 at the time, and then with the key chains they were selling me at a $1, there were pretty good profit margins to be made. When I moved to Daytona, I found a couple of bars to do this in and made $5,000 the seven weeks or so that I was down there. … I ran out of my key chains, so I called these guys, and they wanted to charge me $1 for each key chain. I started doing a little research because $1 sounded like way too much money. They wouldn’t cut me a break, so I reached out to the manufacturer and they said they couldn’t sell to me because I wasn’t an ASI distributor. I reached out to ASI and had no idea what I was getting myself into, but this woman there was pretty friendly and receptive and said she would introduce me to a distributor in Daytona and that I could buy through him. So, I called the guy up and went to see him. One thing led to another, and he told me he could get me these things for like 45 cents or 50 cents. I asked him, “Out of curiosity, is all of your business coming from spring break?” He said, “No, it’s coming from Daytona year-round.” He was writing about $500,000 in business and making 40 percent margin on $500,000. I was 22 years old and that sounded pretty good. I ended up buying the key chains from him and saving some money. … I told ASI I was going to do this. I got home from Daytona and was really determined. I knew nothing about promotional products, but I did know that car dealers bought license plate frames and key chains. This person gave me two or three companies to contact, and I was told by ASI, for these companies, I had to have 10 invoices of sales to become a member and start buying this stuff. But these companies had to agree to sell it to me. So, I called every car dealer in the Tri-state area, like 100 car dealers, and I finally got one to agree to see me. I’ll never forget it…this is probably the reason why I’m doing what I’m doing right now. I walked into this guy’s office wearing a gray bar mitzvah-suit-looking-thing, and I’m all excited. The guy said, “Kid, show me what you’ve got; you’ve got five minutes.” I opened up my briefcase, pulled out my catalogs, pulled out my samples and he asked, “How much for 5,000 of these [key chains]? And 1,000 of these [license plate frames]?” And I’m thinking I hit the mother lode. So, I opened up the catalog and saw 5,000 of these key chains were going to be 56 cents [each] and 1,000 of these license plate frames were going to be $1.02 [each] because that was the listing price. He looked at me and said, “Are you sure?” “Sir, this is your price, this is the price in the catalog,” I responded. He said, “I’m going to ask you one more time, are you sure?” “Sir, as you can see this is the price. I’m not supposed to deviate from this” and he said, “OK, just wanted to let you know that I can get it on the street for 25 percent cheaper.” He asked how old I was and after I told him, he said, “I’ve got some good news and some bad news for you. The good news is you’ve got the rest of your life ahead of you. The bad news is you suck at what you’re doing, now get the f*ck out of my office.” I don’t like to fail and that did not sit well with me, and I said no customer was ever going to laugh at me again. I’m still a student of the industry, but that first year I just studied [about suppliers and distributors], I learned, I figured a little bit of things out and did like $35,000 in sales that first year. Second year, I did about $180,000. Third year, I did $500,000. Fourth year, I did $1 million. All by myself. The business was called HDS Specialties at the time. … Not only does HDS stand for Howard Daniel Schwartz, it stands for honesty, dedication and service, because those are the three key ingredients into maintaining a customer relationship. … The business grew from there; last year we did about $32.5 million. In 1995, I hired my first employee and that person didn’t work out, but in 1996, I hired another gentleman named Martin Bohinski as a “controller” and he has been with me ever since. And in 1999, we started our decorating company and brought on a gentleman named Ryan Niggel and Ryan is now our chief operating officer, Martin is our chief financial officer, and they’re both partners in the company. I’ve bought three companies in the last 20 years.

How do you set goals for yourself? For your business?

HS: I need to get to the next level of where I was. So, personally, I’ve turned over a book of somewhere in the area of $4 million or $5 million over the years to inside people essentially, and it’s been maintained very well. My role now is much different. I kind of set the vision for the company and then I rely on the people that work with me to make good on the promises that I’ve made out to myself, as well as to the company. My partners in the company are amazing. But, what I’ll tell you why I know that I’m not very good at running a business is because I’m a sales guy. I’m not a finance guy and I’m not an operations guy. I knew that a long time ago. I received some advice when I first got started from my best friend’s boss at the time. He was 40 years old and worth about $500 million, so he did quite well in life. And he said, “Howard, you’re going to get a lot of advice as you start your business. I’m going to give you the best advice I’ve ever received: Don’t be afraid to pay people what they’re worth.” And they’re literally the words I live by. I’ve read a ton of business books and I understand all of these different philosophies, like, take for example, Jim Collins’ book “Good to Great”: You’re the bus driver and you put all the people on the bus and in the right seats. That’s essentially what I’m doing. I’m a BD (business development?) guy, but I’ve got a phenomenal finance guy, I’ve got a phenomenal operations guy and I’ve got a phenomenal vice president of sales, and they’ve assembled great teams underneath them. So, it allows me to do what I do and basically that’s just to tell the story of HDS to whoever is willing to listen—whether it’s a potential salesman, a potential customer or even a company that we might be acquiring.

How does the economy continue to affect the industry?

HS: With the economy humming right now, people are spending money. 2020 is going to be really interesting. To give you an example, at the end of 2007, HDS was supposed to be almost a $10 million company, but when the economy crashed, we went from $9.2 million in sales that year (we were looking at hitting $10 million and the spicket just turned off around October), and from there, we dropped to $6.7 million in one year. Our biggest client, who was in the housing business, was $2 million and they dropped to $200,000. So, literally the economy just turned off; people stopped buying, and there’s a big concern about that. This economy is going well and if a new administration comes in and changes different things—whether it’s from a health care standpoint or a tax standpoint—it could have a drastic effect. … We also do a lot of uniform business, and [that sector] is a little bit more protected because people still need to have their image.

What do you expect to be some of the biggest challenges the industry will face?

HS: Good, bad or indifferent, consolidation is happening. Look, private equity is still hot on this space. ... It’s an evolution, and I think you either have to look to grow, or look to be acquired. I don’t know that it’s going to allow the little guy to sit there. We’re kind of in an in-between phase because we’re a big mid-size company. My goal is to focus on continued growth, both organically and through acquisition.

What do you think is the most exciting, cutting-edge thing your company is doing right now? Why?

HS: We have really invested in our technology both through the industry, as well as on our own. ... We have also recently gone through a technology change on our e-commerce side of it, and we are [happy] that we’re on the curve, almost even at the front of the curve, and not living in the background like we were for the last 15-20 years. We are really excited about what that’s going to do and how we’re going to be able to compete with the likes of the Staples of the world, or whomever it is, because now it’s not a matter of trying to sell around our technology; we’re actually selling with our technology.

What would people be surprised to learn about you?

HS: I probably have more connections than most people in this world. You’ve heard of the Six Degrees of Kevin Bacon, right? I can tell you, without a doubt, there are the Three Degrees of Separation to Howard Schwartz. I could, within three people, name somebody we have in common just by understanding who you are, your business, where you’re from and what you do.