He wants us to get real: Taxes are a ‘blood­suck­ing par­a­site’ on busi­ness.

The Washington Post Sunday - - BUSINESS - THOMAS HEATH thomas.heath@wash­post.com

From the out­side, Don Ch­er­noff looks like he has the life.

The 57-year-old for­mer In­tel en­gi­neer lives com­fort­ably in Re­ston, Va., where he runs his one­man lug­gage com­pany, an­swers only to him­self and pock­ets a low six-fig­ure in­come.

It doesn’t look so glam­orous from where he sits.

Ch­er­noff and his 16-year-old lug­gage firm, called SkyRoll, have weath­ered two re­ces­sions, a re­tail down­turn, oc­ca­sional prob­lems in his sup­ply chain and an 18 per­cent im­port-duty tax (it came to $100,000 last year) that the cur­mud­geonly busi­ness­man re­ally, re­ally dislikes.

“It is anal­o­gous to hav­ing a blood­suck­ing par­a­site at­tached to your body, ex­cept it’s the fed­eral gov­ern­ment and they at­tach them­selves to my wal­let,” he said.

The story of how a ma­te­ri­als en­gi­neer and in­ven­tor ended up sell­ing lug­gage comes down to a sim­ple mo­ti­va­tion: “I wanted to work for my­self.”

His road to self-suf­fi­ciency in­cludes ed­u­cat­ing him­self on patent law, join­ing an in­ven­tor group, end­less cold-call­ing of re­tail­ers and — the fun part — cre­at­ing new prod­ucts.

Ch­er­noff asked me to write about the unglam­orous side of busi­ness own­er­ship af­ter read­ing my re­cent col­umn about an­other en­tre­pre­neur who had to un­load a big chunk of his stock port­fo­lio at a big loss to keep his fam­ily fed dur­ing the lean start-up years.

“I re­ally hope you can write in more de­tail about the other is­sues that make it hard to sur­vive as an en­tre­pre­neur,” he said. Be­tween re­ces­sions and taxes, “some­times I feel like, no mat­ter what I do, I’m at the mercy of forces be­yond my con­trol. No one writes about the unglam­orous side.”

This lone-ea­gle en­tre­pre­neur spends his day at home try­ing to get the word out about SkyRoll by work­ing so­cial me­dia and talk­ing to jour­nal­ists like me. He also checks in with his man­u­fac­tur­ers and his ship­ping com­pany to keep tabs on the sup­ply chain. So what is the hard part? “All of it,” he said. “But for me per­son­ally, it’s sales and mar­ket­ing. I am not [em­pha­sis his] a sales and mar­ket­ing type per­son. [No kid­ding, I thought.] Then ac­count­ing, which I hate.”

SkyRoll’s prod­uct line is made up of three polyester-and-ny­lon lug­gage pieces, in­clud­ing — in or­der of sales vol­ume — a cylin­dri­cal gar­ment bag that slings over your shoul­der ($149), a SkyRoll on two wheels ($249) and some­thing called the Spinner ($299). SkyRoll’s “dif­fer­en­tia­tor” is that they are “roll up” bags that al­low you to carry suits and dresses with­out fold­ing them and risk­ing creases. The mil­i­tary tends to be good cus­tomers be­cause they need to keep their uni­forms sharp.

The prod­ucts are made in Thai­land and China and sold through SkyRoll’s web­site, as well as at Men’s Wear­house and Jos. A. Bank bricks-and-mor­tar re­tail stores. They are also in a Cana­dian men’s store called Moores and some in­de­pen­dent Wash­ing­ton-area lug­gage shops. The re­tail­ers ac­count for 75 per­cent of to­tal sales; the rest is direct to cus­tomers through SkyRoll’s on­line site.

The lug­gage is shipped in con­tain­ers to the Port of Los An­ge­les, where they are then moved by truck and train to dis­tri­bu­tion cen­ters or, some­times, di­rectly to the stores. The cost to ship a 40-foot con­tainer from Asia to the United States is around $5,000, not in­clud­ing im­port duty.

SkyRoll’s an­nual rev­enue drifts be­tween $1 mil­lion and $2 mil­lion, de­pend­ing on how many units are sold. A good year will bring 25,000 in sales. A poor year will see that num­ber drop to 10,000. Ch­er­noff prefers on­line sales be­cause he gets to keep more of the sale price.

So Ch­er­noff ’s bot­tom-line profit, which he lives on, can run from more than $100,000 to well over $200,000 af­ter sub­tract­ing costs for man­u­fac­tur­ing, ship­ping, Web de­sign, ac­count­ing and that dreaded im­port duty. The com­pany has zero debt.

Ch­er­noff be­gan his busi­ness ca­reer at In­tel, where he helped make com­puter chips for $25,000 a year in Cal­i­for­nia. He had just grad­u­ated from the Uni­ver­sity of Florida in 1982 with a ma­te­ri­als engi­neer­ing de­gree.

He de­vel­oped a spe­cialty in some­thing called elec­tron mi­cro­scopes — ex­pen­sive tech­nol­ogy used in in­dus­try.

Around the mid-1990s, when he was a 30-some­thing, he was on a flight when he saw a fel­low pas­sen­ger try­ing to jam his gar­ment bag into the over­head com­part­ment by fold­ing it in half.

“That just gave me the idea that the shape is wrong,” he said. “The so­lu­tion may be to make some­thing that rolls up.”

He ex­per­i­mented in his spare time, build­ing pro­to­types, buy­ing fab­ric and mess­ing around with dif­fer­ent shapes at his Silicon Valley apart­ment. He took a night class on in­tel­lec­tual prop­erty at the Uni­ver­sity of Cal­i­for­nia at Berke­ley, learn­ing enough to file a patent for the SkyRoll.

“It was a great in­tro­duc­tion to the nuts and bolts about patents, trade­marks and copy­rights,” he said. “It should be a re­quired class for any in­ven­tor.”

He had no idea he wanted to start a lug­gage com­pany. But he did know he wanted to in­vent some­thing to turn into a busi­ness.

Patent in hand, he moved to the Wash­ing­ton area to be near his brother. He also wanted to buy a home, which he could not af­ford in Cal­i­for­nia.

He asked a jour­nal­ist (not this one) for ad­vice on how to meet in­ven­tors who have bridged the gap be­tween mak­ing a prod­uct and sell­ing it. That led to find­ing a man­u­fac­turer who built some SkyRoll pro­to­types.

Ever re­source­ful, he funded the lug­gage project with the $100,000 or so he made from a side­line sell­ing prod­ucts for peo­ple who work with elec­tron mi­cro­scopes. “It was ba­si­cally a salary that let me go and play with ideas,” he said.

His hope was to li­cense the prod­uct with a big lug­gage com­pany or sell the busi­ness al­to­gether and be­come an full­time in­ven­tor. “The world doesn’t op­er­ate like that,” he said.

He had to prove that his lug­gage would ac­tu­ally sell. So he be­gan to hunt for a big re­tail cloth­ing chain that could sell his prod­ucts along­side the suits it was meant to carry.

He made a list of can­di­dates, and Men’s Wear­house was No. 1. He called them. He emailed them. He talked to vice pres­i­dents.

The courtship lasted a year. Fi­nally, the com­pany asked him to send a few dozen. “A few weeks later, they said, ‘How soon can you send us a few thou­sand?’ ”

He knew he had a busi­ness in 2004, when he sold 8,000 SkyRolls in stores and on the Web. Sales of SkyRolls mounted, and he was even­tu­ally sell­ing more than 20,000 a year. SkyRoll’s sales dropped by half last year af­ter bricks-and-mor­tar re­tail­ers had their own minire­ces­sion. Stores closed. One big SkyRoll re­tail or­der from Jos. A. Bank was pushed into 2017, also crimp­ing rev­enue for 2016.

Now with the Trump ad­min­is­tra­tion’s pro­posal for a bor­der-ad­just­ment tax, Ch­er­noff wor­ries about a new blood­sucker feed­ing off his busi­ness.

“Although he will pay more in tax due to the bor­der ad­just­ment, his to­tal im­port costs will not go up,” ac­cord­ing to Kyle Pomer­leau, di­rec­tor of fed­eral projects at the Tax Foun­da­tion, a non-par­ti­san think tank head­quar­tered in Wash­ing­ton. “The value of the U.S. dol­lar would in­crease to off­set the ad­di­tional taxes he would have to pay.” Ch­er­noff doesn’t be­lieve it. “If the BAT is on top of this im­port duty, as you say, then I might as well just file bank­ruptcy now and get it over with,” Ch­er­noff said.

Ch­er­noff said that he has had a few nib­bles from would-be ac­quir­ers. The key, he said, is to find a part­ner that can scale his lug­gage to global dis­tri­bu­tion, which would shave costs and boost prof­its. That would make SkyRoll more valu­able.

“This takes a bit of vi­sion from a CEO at a big­ger lug­gage or con­sumer prod­ucts com­pany, some­thing I think is in short sup­ply,” he said. “When I find them, the first thing I’ll tell them to do is fire me. I shouldn’t be run­ning this busi­ness.”

He al­ready has his next project: ar­ti­fi­cial ivory. That will al­low him to do his part to save ele­phants and get back to his engi­neer­ing back­ground.

That’s sure to put a smile on the cur­mud­geon’s face.

SAL­WAN GE­ORGES/THE WASH­ING­TON POST

SkyRoll founder Don Ch­er­noff stands at Dulles In­ter­na­tional Air­port with one of his cre­ations. Ch­er­noff sells lug­gage through Jos. A. Bank and Men’s Wear­house stores, as well as on­line.

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