The face of change

Cameron Herold, 43, founder of BackPocket COO, turned a small business – 1-800-Got-Junk (where he was the COO from 2000 to 2007) – into a global business within six years. Herold now coaches entrepreneurs around the world on growth strategies. He tells Amanda Gome that huge shifts are afoot in the US. People are dumping Facebook, travel, spending and instead are starting their own businesses and saving. But while Americans are gloomy, the smart entrepreneurs are making more revenue than ever.

Amanda Gome: What’s happening in the US and are things getting any better?

I don’t think the recession is anywhere near over. I think we’re feeling a little bit of a false bottom. The market has kind of come back up again and people are a little bit exuberant and thinking things are happening, but all the signs are not showing that the recession is over.

We have major problems with some of the US Governments. The state of California, which is the fifth largest economy in the world, is effectively bankrupt. They have no budget; they haven’t been able to get a budget passed. They’re paying all of their vendors with IOUs. I actually know entrepreneurs who are being paid with IOUs. So it’s a really, really scary time in that whole state and you think about how big it is, it’s a huge, huge bubble that’s waiting to burst.

We’ve also got the impact of all the layoffs that are happening in the auto industry. This past month was still another record month for layoffs it actually recorrected in the other direction. The airline industry is still in trouble and then we have all of the down channel businesses in the auto sector that are starting to go bankrupt and declare bankruptcy protection.

Plus, we have people going out and starting to buy houses again because interest rates have been kept pretty low to try to stimulate the economy. Interest rates are starting to ratchet up pretty quickly right now. So there’s a bit more tightening starting to happen.

So we have not yet hit the bottom?

What I see happening is ‘cash is king’ coming into 2010. Businesses that have cash, that have cut their costs properly, that are not over-expanding, that are not getting over-exuberant, will still be in a good position to grow and to acquire and add the proper people. There’s still a lot of money flowing around out there but I don’t think we’re coming back into a boom for at least another two to three years.

Has there been a long-term shift in the US in the way that people approach spending and saving? Or is there just a short-term pull back, and eventually Americans will start spending again and give joy to the rest of the world?

People’s entire spending habits are starting to change over here. You’re hearing that more and more, at dinner parties and cocktail parties and coffee shop discussions, where people are saying: “That’s so stupid; I can’t believe we used to do that. We’ve cancelled this service and we’ve cancelled that service”. People are starting to look at where they were spending money and they are making those decisions.

What will that mean then for businesses that sell to consumers?

Well, there’s going to be that automatic slowdown where they’ve been hoping something’s going to snap back. It’s been artificially high. It’s kind of like a really great party that you go to all night and you get to 3am and everyone’s having a wonderful time and thinks: ‘Wow, this is just such a fantastic party’ and then the next day you’re just like ‘Oh, I hate myself. I’ll never do that again’.

And they don’t.

And we don’t. Because over time, we start to kind of slow it down. At 43 years of age I just don’t party like a rock star anymore. I can’t.

You were running 1-800-GOT-JUNK? through the dotcom era, were you also running that in the 90s, the early 90s?

No, I was running two other companies through the 90s. I had a chain of auto body collision repair shops and also had a currency company, a barter exchange.

How is this different to the recession of the early 90s?

I think it’s different because we’ve really been hit hard twice in this kind of irrational exuberance. The next era of business leaders were supposed to be Gen X and have been waiting for the Baby Boomers to get out of the way. Now all of a sudden they’ve just lost it all again, as well as having lost so much money seven or eight years ago with the dotcom burst.

That whole generation is not getting out of the workforce. They’re going to stay in the workforce for another five years. So there’s this whole group of people who were hoping to move up in their income earning and move up in their company and that’s just not going to happen.

The wealth transfer that the Gen Ys were hoping for from mum and dad, well that’s kind of dissipated and they’re now being told to go out and get jobs. So I think there’s going to be a bit more of a saving attitude. Where people aren’t going to leverage, they’re not going to spend, they will save. I think there are good opportunities for investors to pick up some of that, but I don’t see us coming back into a big boom again – and I’m a glass half-full kind of guy.

If we’re not going to return to those good times for another two years, and even then they’re going to be modified, what’s the strategy going forward?

Well, the US no longer flies the planet from what I’m seeing. I think places like Australia are actually in a good position because you’re so close to China, you’re going to benefit from that economy, which is going to be the new world leader.

China really does now hold the joystick for the world, so they get to fly the planet for the next 50 years. So I think Australia will do well. I think businesses that decide to stay focussed on the US are going to find it very tough.

I think businesses that decide to try and sell and also outsource some of their work offshore are going to do very well. I have clients in Geneva, Berlin, London, the US and Canada and I’m trying to get some in Asia now. And it’s specifically for that reason; I don’t want to put all my eggs in one basket.

I think that the people who are very American-centric are going to learn that the world has shifted and it has completely changed. They need to see what’s happening around the world.

And is there much acknowledgment of that in the US entrepreneurial community?

There’s starting to be. I’ve been working with entrepreneurs from MIT and Stanford. The groups of entrepreneurs are starting to get a feeling like, ‘wow something has really changed’. They’re definitely seeing that everyone is outsourcing, people have got suppliers or design shops or sub-contractors. That’s starting to happen all over the world.

They’re definitely seeing that the US can’t be competitive in terms of being a manufacturing base anymore. It’s not like the US is going to completely implode. But the UK went bankrupt back in the 1920s and 30s, in between World War I and II. That’s really where the US is, it’s effectively bankrupt, the states are bankrupt and the people are bankrupt. It just won’t be the ‘world super power’ anymore. I mean, you can still sell to them and buy there and do business. It will still grow, but it won’t crank along like 6.5% or 7% like Asia is doing in its slow period.

It’s always been difficult for Australians; many of them lost their shirts when they got into the US. I assume it’s just going to get a whole lot more competitive.

I think it will be more competitive. I was talking to an entrepreneur from Russia about three weeks ago who’s been through some huge devaluations in their currency and huge inflation and I think that’s what the US is going to be facing – more inflation. Because they’ve really devalued their currency, they’ve printed so much money. So I wouldn’t be holding US dollars or be investing in US dollars. I’d be looking to invest in the Yuan and the Yen and sort of hedge that way.

So what’s the strategy for entrepreneurs going forward?

Cash is king, so continuing to stockpile and find ways to cut costs so that they are cashflow positive and making good money – because there are amazing deals out there. There are a lot of 65-year-olds that were hoping to sell their business. Their business has just gotten pummeled and you can go out and pick up those businesses at a fire sale. Those 65-year-olds want to retire; they have no one to pass it off to.

There are great opportunities for acquisitions right now. The businesses that are well run and managing cash can actually go out and take out their competitors. Because competitors all basically think that a recession is going to cripple them. They already think they’re going out of business, why not make it happen for them? And I think that’s what I’m seeing now is the very aggressive, very keen, very sharp entrepreneurs; it’s a feeding frenzy for them. They’re loving it.

What are they doing with their people?

They’re getting rid of the wrong ones. They’re using this as a time to cut, and cut deeply. So they’re getting rid of all of their C players that they thought before ‘well, maybe we should keep them’. They’re now just cutting those people.

They’re also finding opportunities to go out and get the best employees from their competitor. If their competitors are all doom and gloom, they can see this as an opportunity to snag the really, really good employees right now. Probably for less money than they could have gotten them for a year ago.