Forbes

Mar 17, 2016,12:05pm EDT

How A High School Dropout Built A Business That Saves Companies Millions By Analyzing Their Spending

Susan Adams Forbes Staff

Forbes Trep Talks Contributor Group

Dan Schneider, 35, is founder and CEO of SIB Fixed Cost Reduction, a Charleston, SC-based firm with 75 employees who help businesses cut expenditures on everything from garbage collection to telecom bills. Companies pay no up-front fee for Schneider’s services. They split any cost-savings he finds by roughly 50/50. Most of his clients have revenues of $200 million and up. They include Hyatt Hotels, senior residence provider Genesis Health Care and Pep Boys auto parts stores. In this condensed and edited interview, Schneider describes how he went from dyslexic high school dropout to cell phone sales mogul to taking two years off to kite surf and travel around the world before building SIB from the ground up.

Susan Adams: Didn’t dropping out of high school make it tough to get a start in business?

Dan Schneider: I dropped out when I was 16, at the start of 10th grade. I’m dyslexic but the school didn’t figure that out and I was struggling in English and social studies, though I excelled in math. I started to think, there’s no way I’m ever going to be able to go to college.

Adams: Didn’t your parents give you a hard time?

Schneider: I always had that entrepreneurial spirit and my parents stood behind me. My plan was I was going to open a restaurant by the time I was 21. Though I mouthed off to the teachers and struggled in school, they told my parents that I was smart enough to get a GED. I never did.

Adams: What did you do after you dropped out?

Schneider: I was making balloon animals at T.G.I. Friday’s. I worked for a lady and the restaurant would pay her and I would work for tips. I went to the restaurant and said, I’ll work for you for free. Then the other restaurants in the area asked if I could train people and fire this lady. I trained my friends and the restaurants paid me a booking fee. It was a hostile takeover at 16 years old.

Adams: How did you get into the cell phone business?

Schneider: I had a cell phone to schedule all the balloon people. This was before every five-year-old kid had a cell phone. The store asked me to be a cell phone salesperson. I guess I am either extremely charismatic or they were desperate for salespeople. I got into B to B sales. When I turned 18, I didn’t want to go door to door anymore. In 1999 I opened up my own store in Doylestown, PA.

Adams: How did you finance that?

Schneider: I had $25,000-$30,000 saved from the six months of B to B sales. A carrier, Omnipoint, approached me, and wanted me to be a direct retailer for them. I started to open up more stores and they helped me with advertising funds. I ended up growing my business to 12 stores before I was 20. All the stores were funded from growth. I had a total of 40 people working for me, including a call center with 20 people. I was 20 years old.

Adams: How long did you run that business?

Schneider: Five years. I also got into inventory liquidation and importing and exporting cell phones around the world. An end-of-life product that nobody wanted in the U.S. would do incredibly well in South America. I had a manager running the stores.

Adams: Did you like what you were doing?

Schneider: There was the buy low/sell high, action-packed adventure of a business like that, and deadlines and dealing with the logistics of flying phones different places. I grew the company to $35 million in revenue.

Adams: Why did you give it up?

Schneider: I was 26 years old and I was at dinner and an irate customer called me for no good reason. I just said, “I’ve had enough.” I never got to be a kid. I called a friend in the business and said I want to turn over the company to you for a royalty deal. Within a week I sold my house.

Adams: It’s not like you had no childhood.

Schneider: I didn’t want to be 45 and think I never took time off in my 20s to do what I wanted to do. Everybody else got to go to high school and college and they got to screw around for a year after college. I never got that.

Adams: What did you do with your freedom?

Schneider: I traveled all over the world. I got into cycling and kite surfing.

Adams: What made you want to start working again?

Schneider: I ended up in Charleston, SC, because the kite boarding was good and I had some childhood friends here. I hadn’t worked in two years and I felt like I had to do something other than having fun. I wanted to think and solve problems. I got an office and started going to work every day.

Adams: How did that lead to SIB?

Schneider: It was November 2008 and the economy wasn’t good. I had this cost-saving consulting model in the back of my head.

Adams: How did you finance the business when you started?

Schneider: I self-funded it. Over the course of time I spent more than $500,000. I kept re-investing in the company. We became profitable two-and-a-half years ago.

Adams: How do you find clients?

Schneider: It’s a mix. Traditional cold-calling, and we have partnerships with trade organizations like a Burger King national franchise association, a Little Caesars national franchise association. We have referral partners who are retired executives who can kick open doors for us. They usually get 5%-10% of what we’re billing. We even have some retired athletes who do that for us, like Brian Propp, who used to play for the Philadelphia Flyers.

Adams: What’s your pitch to companies?

Schneider: We want to look at their monthly recurring expenses and we do three things. We audit to see if they’ve ever been overcharged. We look at contract compliance to make sure they aren’t due any refunds. Then we look for service standardization, like whether they’re charged for phone lines that don’t even come into the building, or dumpsters that are half-filled. We look at whether they’re paying for services they’re not using. The third thing is we negotiate, typically with their current vendors. We look at the vendor’s margin and what people across the street pay. It’s a little different from just wanting a better deal.

Adams: But isn’t the bottom line that you’re trying to get more favorable contracts with vendors?

Schneider: Let’s say you pay $100 for something and you call up your vendor and say, I want a better deal and they say, OK I’ll give you $90. You don’t know if the person down the street is paying $60 because you don’t have anything to benchmark it against. We come in and say, what are the people in our area paying for the same type of service? What is the vendor’s margin? Do they have a 10% margin or a 20% margin? We work with the vendor closely and come up with a fair contract going forward.

Adams: Can you give me a concrete example of that?

Schneider: We do a lot of work for senior living facilities and we also do a lot of work for hotels. A senior living facility isn’t going to say, what do I pay for elevator services compared to a hotel? But an elevator is an elevator, it goes up and down, and we know that health care companies get charged more than hotels for elevators. Landscaping is another good example. When it comes to landscaping, a Burger King and a bank are the same thing. There’s a freestanding building and some plants and grass. But a bank pays more because it’s a bank.

Adams: What do you do about the landscaper who’s charging the bank too much?

Schneider: We just expose that. We go to the landscaper and say, this is what’s going on.

Adams: Vendors must hate you.

Schneider: Our clients could go to a different vendor. But we go to the current vendor and say, we know what your margin is and what a fair price is, why don’t we just settle on a fair price? The vendor knows they may be lowering their margin a little but retaining the business for a longer time.

Adams: How often do you fail to come up with cost savings?

Schneider: We have a 98% success rate. Typically we find 10%-40% of savings.

Adams: You call yourself a “corporate five-year-old.” Why?

Schneider: If you tell a five-year-old, “Because I said so,” they’re going to keep asking you why until you give them a real reason. We do the same thing. Until someone gives a logical reason, we keep asking why. The response in the corporate world is, we’ve always done it that way. We ask, then why are there 10 line items that the client isn’t using but still being billed for?

Adams: Why wouldn’t a company want to be your client?

Schneider: People either think it’s not going to be worth their time, we won’t save them money, or they think it might make them look bad. There’s a pride thing. People are like, listen, we have great deals, we don’t care about what you’re offering. It’s the same mentality of someone who never goes to the doctor because they feel healthy.

Adams: You say you rarely get referrals. If I were a client and you’d saved me a lot of money, I’d want to recommend you to my friends.

Schneider: If you’re golfing with a friend, you’re not going to say, “I have a great proctologist.” You’d be saying that this company came in and found that you’d been overspending by hundreds of thousands of dollars. Nobody wants to brag about that, or about their proctologist.