Taxes are a 'bloodsucking parasite' on this business

SkyRoll founder Don Chernoff sits at a baggage claim at Dulles International Airport with one of his creations. Washington Post photo by Salwan Georges

SkyRoll founder Don Chernoff sits at a baggage claim at Dulles International Airport with one of his creations. Washington Post photo by Salwan Georges

Published Jun 3, 2017

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Washington - From the outside, Don Chernoff looks like he

has the life.

The 57-year-old former Intel engineer lives comfortably

in Reston, Virginia, where he runs his one-man 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.

Hard part

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.

Speciality

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.

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. Washington Post photo by Salwan Georges

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.

Resourceful

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 a full-time 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.

Read also:  Tax laws are not always 'fair'

He made a list of candidates, and Men's Wearhouse was number

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 mini-recession. 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.

WASHINGTON POST

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