Jun 16, 2022

American Dream Achieved

IBA, as an approximately fifty-year old business brokerage firm serving the entrepreneurial community of the Pacific Northwest, has been uniquely positioned since before the American Bicentennial celebration of 1976 to witness and hear the stories of thousands of people who have lived the American dream through entrepreneurship creating beloved businesses by employees, customers, and communities while finding personal fulfillment and financial prosperity through execution of their ideas, hard work, perseverance, and ability.  In an effort to share these stories heard throughout the years by our team of business brokers, who are commonly regarded as the “best listeners” in the M&A industry, IBA has retained highly regarded writer, Nesha Ruther, to tell their stories.  It is our goal to share one story a month. It is our hope that you will find the stories as inspirational and motivational as they are to us and the buyers who bought the businesses in IBA facilitated transactions in Washington, Oregon, and Alaska.

The Story of David Shinder (Pedag USA)

By Nesha Ruther

David Shinder’s journey to achieving the American Dream began in the Soviet Union. Born in Moldova, Soviet Union to Romanian-Jewish family David grew up in Lviv, Ukraine. He is the fourth generation in a family of shoemakers.

His family’s history of shoemaking began with his great-grandfather, who was forced to join the Romanian army at eleven years old. “He was playing in the street, they grabbed him, and he came home 25 years later.” When David’s great-grandfather returned home, he was limited in his job options due to a disability he obtained during his service. He decided to become a shoemaker. “That’s how it all started, with my great-grandfather.”

David’s grandfather continued the tradition, owning a shoe factory that made boots for the Romanian army. When the Russians arrived in 1939, they seized the factory and nationalized it. “They said, “Well, it was yours, now it’s ours, now you work for us. Anybody who’s employed here, they work for the Soviet government, period.”

David learned his family trade, and after spending two years in the Soviet Union military, he returned home and worked in a shoe factory, where he learned more about shoemaking. “My father used to say, you learn this trade, and you can always rely on it in good times and bad times, and he was right.”

Afterward, he oversaw a shoe store, “I was the only person in a small shoe store; it was always closed. I sold one pair a year in that shoe store.”

Because all Soviet businesses were nationalized in 1917, no one was allowed to own their own business. “Everything belonged to the government, so if you were caught doing any business, you’d go to jail for many years, or they’d kill you.” To make a store monthly sales quota, David drove around Ukraine with a government driver and truck full of shoes and sold them illegally in different cities. “It was illegal to drive out of Lviv. You had to stay and sell shoes in the city where you were doing business,” he says. David would return from his trips with a soft briefcase full of money. “That business was illegal,” he says, “but when you’re young, you’re not concerned much.” The store’s sales quota was always accomplished, by taking chances David made a lot of money for himself once he paid bribes and the driver. “The Soviet Union’s system was very corrupt from top to bottom and it’s one of the reasons it only survived for 74 years,” he says.

Despite the illegality of the business, it taught David valuable skills such as managing inventory and handling finances.

David and his mother left the Soviet Union in 1975 when he was 25 years old, with $200 US dollars. David spent close to two years in Rome, Italy. At the time, Italy was a transition point for many Jewish immigrants. After learning some Italian, he worked for the Hebrew Immigrant Aid Society (HIAS). HIAS provided caseworkers and funding that allowed Jewish families leaving the Soviet Union to settle elsewhere.

In 1977 David arrived in Vancouver, Canada, where he lived for over a decade before moving to Seattle, Washington.

After arriving in Vancouver, “I went to work on the third day before I could speak any English.” David spent the next seven months in school learning English and working in a shoe repair shop.

David then bought a shoe repair in Vancouver with his brother. After a year, he left the business and worked in electronics for a while. In 1980 he opened his own shoe store and a shoe repair, which he called Davie Shoes and Shoe Repair. “I didn’t even have money. I just went to the bank and gave them a business plan. They gave me what I needed to open a business. I opened the business from scratch, and it’s still there.”

At the time, David had many friends in Seattle, whom he would visit often. It was there that he met his wife, Rose. In 1988 David started his new business DBA Euroimport Company, Inc. which he eventually sold through Gregory Kovsky and IBA.

DBA sold German shoe polish brand Collonil, produced by Salzenbrodt GmbH. “It was top of the line, best in the world at the time,” David says. David had first learned about Collonil through a distributor in Vancouver, and he began testing the product to see how it would sell in the United States.

While today, greater access to shoes made from cheaper materials has made shoe polish a fairly uncommon purchase, at the time, it was essential to the care and maintenance of high-quality leather shoes. “[Shoe Polish] was a necessity at the time,” David says.

David began selling small quantities of Collonil to shoe stores and shoe repairs in Seattle area. The polish was well-received, and he decided to focus on selling at a higher volume, “In volume sales, you have a smaller margin, but the volume will give you higher profit.”

In 1988 Shoe Stop, a chain of shoe repair stores contacted David about buying Collonil at a high volume. To afford the large order, David had them issue an irrevocable letter of credit. David was then able to purchase the order for Shoe Shop directly from the German manufacturer and prepay for the order.

Shortly after this purchase he asked Salzenbrodt for exclusivity for the United States. “[Initially] they gave me three states, and then I went to Germany in 1989, and I got exclusive [rights] for the whole United States. I basically convinced them that they should do business with me. They did not sell in the United States before I started. Nobody knew about the product. I convinced them that I would create a market for this product, and they gave me the whole United States and US territories.”

This moment represented a turning point for David’s business. What had begun as a truck full of shoes and a briefcase of money in the Soviet Union was beginning to grow into something larger than he ever could have imagined.

David’s business was growing. In addition to Collonil sales he also sold private label shoe care to Nordstrom, Allen Edmonds Shoe Corporation, and others. He began to notice a number of wholesale companies selling insoles. At the time, insoles were predominantly custom-made or sold in drug stores. “I saw people complaining to shoe store salespeople that they had foot problems, or that their shoes did not fit properly.”

David learned about another German company called Schelchen GmbH that was manufacturing insoles in Berlin. They were extremely high quality but were not supplying anyone in the United States. “I thought that could be the future, it could be big. I saw a potential demand for insoles in the United States,” David says.

David began purchasing insoles from Schelchen. Shortly after, he reached out and asked them for the exclusive sales rights for the United States and they agreed.

This gave David the confidence to begin selling more aggressively and the security of knowing that anyone in the US who wanted to purchase the insoles would have to go through his company.

On the side, David would also purchase sole leather from Spain, cut it in his own warehouse, and sell it to distributors / wholesale companies such as MacPherson Leather company in Seattle and many others across the US. He began to realize, however, that the industry was changing, and he no longer had the time to focus on anything besides insoles and shoe care.

“I dropped leather sales and sold all the equipment and products. So many shoe repair stores were closing, and people were fixing less and less shoes. I saw that, and knew I had to increase my sales in insoles,” David says. In addition, DBA began using the trade name Pedag USA which also contributed to Pedag name exposure.

David started sales to many distributors throughout the US and companies such as Nordstrom. “Selling to Nordstrom was very interesting. I was dealing with Pete Nordstrom, who is one of the Presidents today. At the time, he was a buyer for 7 Nordstrom Place Two a division which was eventually closed.”

Pete Nordstrom made a first purchase of insoles for $500 and sold them very quickly. “He says, “Oh, this looks good, it’s moving, I need more stuff.” I asked him if it would be okay to go to other Nordstrom stores and basically use his name,” David says. Within a few weeks, he began selling to all the Nordstrom stores in the Seattle area.

Working with a large retailer like Nordstrom meant a larger profit margin for David, but also required a more hands-on approach. “You had to help them sell the products,” he says, “go to the stores and educate the salespeople on what this product is all about, sometimes even being in the store helping to sell the product,”

David’s business did so well that he had to increase the size of his warehouses four times. He kept his costs low, however, by maintaining a small staff of six employees, including he and his wife.

In 2007, David was at a trade show for the National Association of Chain Drug Stores (NACDS) trying to build connections in order to sell his insoles in drug stores. Instead, he made a connection with a company that would go on to become the largest global distributor. “Amazon buyers came and said that they wanted to buy every product we sell.” David agreed and signed an agreement with Amazon.

At the time, however, Amazon’s status as an industry staple was uncertain. They were opening distribution centers left and right, spending money they did not have. Their stock at the time was $20-$30 a share. “My mistake was that I didn’t buy their stock!” David says.

“I thought they would go out of business, but I decided to start doing business with them and take a chance.”

Amazon began by placing small orders of insoles and shoe care products. They quickly realized however they did not have the margin to sell individual products and still make a profit. Many of our small items became “Add-On” purchases. David offered a solution. “I said, let’s introduce them in multiples. We created a kit, the first one was a kit of heel grips.” The heel grips were for the back of the shoes to fit properly. By selling them in multiples, the customer got a lower price per pair and Amazon made a larger profit.

This first kit was a breakthrough. “If we sell these kits, why can’t we create others? I took some three-quarter insoles and sold them in twos and threes. If you buy one pair it costs $15, but if you buy a kit it drops to $13.50. The costs were very reasonable,” David says. The kits were a success, within a few years Amazon was selling fifteen kits of multiple insoles in all twelve sizes.

David was able to meet a variety of customer needs not only by selling insoles in different lengths and sizes but for different climates as well. Pedag USA offered breathable cotton insoles for the summer months, as well as fur-lined insoles for winter. They also had specific insoles for athletes and ones that were designed to provide more arch support.

In one instance where Schelchen GmbH did not have a specific insole that customers wanted, David worked alongside them to design it. “There was demand for a certain insole that had both heel cushion and arch support. “I discussed this with Schelchen and told them what exactly I wanted and how the insole should look.” David named the insole Pro-Active XCO, and because David designed the product, he got complete exclusivity. He began by placing an order for 3,000 to 5,000 pairs, sales did so well that he eventually increased it to 10,000 to 20,000 pairs under the new name Pedag Sport. Pro-Active XCO went on to be Schelchen’s most popular product. “I’m not going to say I’m a genius,” David says, laughing, “But I am creative.”

At this point, David was sending palettes full of products to Amazon’s many distribution centers and receiving purchase orders for hundreds of kits ranging from insoles to shoe care products. “Business was doing really well,” he says, “and Amazon, of course, was one of our biggest customers.”

The one difficulty, however, was that because Amazon bases its order sizes on customer demand, its orders were extremely unpredictable. “They had something like 7 million customers a minute, and they were sending us orders once a week. Suddenly you would get orders you didn’t have inventory for, or that you had to supply to other customers across the United States.”

To manage the unpredictability and high volume, David created a pipeline of purchase orders that came in one after the other. “Any time I would be close to running out, I would bring in products by air. Shipping by air was, of course, more expensive, but my customers would not be out of products,” he says. Customer service and “in stock” supply was crucial.

This method allowed David to avoid backorders and maintain a steady stream of inventory ready to be shipped out. “My inventory was big, too big sometimes. But I had no choice; I had to bring enough to satisfy all potential orders.”

Many people don’t realize how logistically complicated a business of this size can be. Over the course of his business, David had to increase the size of his warehouse from 1,200 square feet to 3,600. The warehouse then needed to be organized properly so that the correct items were in the exact right place for easy pick-up.

For the Amazon kits alone, David had to organize bar codes and labels. He worked with Schelchen to design all the packaging and English language description, and for all his products he had to contend with reserving containers because of shortage as well as the occasional interruption due to customs spot checks. “It’s much more complicated than just getting an insole from Germany and selling it,” he says, “you have to be creative in handling logistics.”

In one instance, David had ordered a smaller shipment that was consolidated in a shipping container with another company’s products. The other company’s pallets were made with untreated wood that had attracted a small wood-eating bug. When customs officials discovered the insect, the container with the shipment got held up at the Canadian border and was eventually shipped back to Germany. David had to cover the costs for the return trip to Germany, as well as eventually get it shipped by air to the United States. “There’s nothing you can do with hiccups like that,” he says, “you just deal with it. I never panicked or wondered what I should do, I just did it”.

David credits his wife Rose with helping run this massive undertaking. “She handled our website, online customer service, reviews and very complicated Amazon’s software entry’s issues and online logistics. When we started with Amazon, she did customer service, so when customers would write reviews, she would reply to them and educate them. She built our website from scratch. Whatever needed to be done she did it.”

In 2017, David approached Gregory Kovsky and IBA about selling Pedag USA, Gregory agreed.

When asked if David would have been able to sell his business without the help of Gregory Kovsky and IBA, he says, “It would have been very difficult because of all the information that you have to supply. In addition, Gregory is a very professional guy; there are very few Gregorys out there. He’s not only good at what he does, but very patient, knowledgeable, and psychologically stable, he handles any stress, upsets, and angry reactions better than 99% of people.”

Throughout the process of seeking buyers, David kept the news quiet to not scare off clients or disrupt employee productivity. Through conversations with multiple potential customers, Gregory was able to find someone who met David’s criteria.

When asked if he believed the American Dream exists and if he feels he achieved it, David responded with the insight only someone who has lived without basic freedoms can truly possess; “The American Dream is freedom; it’s not about money. If you don’t have freedom, money will not do anything for you”.

“I believe the United States is very unique among other Western countries. You cannot do business anywhere as easily as in the United States; you get yourself a business license and start a business from scratch”, he says.

“It was true then when I started my business in this country, and it’s true today because there is always an opportunity. It doesn’t matter how much money you have; you can start without money if you have a good idea and you’re ready to work hard. It’s the hard work. It’s not that simple to build your own business because you have to rely 100% on yourself.” David prides himself on never using his $50,000 line of credit to support his business and never borrowing any money for this business.

Since selling his business, David is fully retired and lives in Florida. However, he still has many business ideas and would like to begin another venture in the future. At the end of our interview, he turns around his camera to show me the view of the ocean he has from his home office window.

“Freedom,” He says, “I think that is what is most important.”

Nesha Ruther is a writer and editor from Takoma Park, Maryland. She received her BA in English Creative Writing from the University of Wisconsin Madison, where she received a full tuition scholarship through the First Wave program based on academic and creative merits. She was a 2016 Young Arts winner in spoken word, a 2016 winner of the DC Commission of the Arts Larry Neal Writing Award, a 2017 winner of the Mochila Review Writing Award, which was judged by Nikki Giovanni, a 2020 winner of the University of Wisconsin’s Eudora Welty Fiction Thesis Award, and a 2022 Tin House Winter Workshop Participant. She has been commissioned to write and perform for the National Education Association, and has had work published in NarrativeNortheast, Angles Literary Magazine, Beltway Quarterly and more. She currently lives in Cincinnati Ohio and is the Lead Manuscript Developer at Holon Publishing and Collective Press.

Nesha Ruther

Nesha Ruther is a writer and editor from Takoma Park, Maryland. She received her BA in English Creative Writing from the University of Wisconsin Madison, where she received a full tuition scholarship through the First Wave program based on academic and creative merits. She was a 2016 Young Arts winner in spoken word, a 2016 winner of the DC Commission of the Arts Larry Neal Writing Award, a 2017 winner of the Mochila Review Writing Award, which was judged by Nikki Giovanni, a 2020 winner of the University of Wisconsin’s Eudora Welty Fiction Thesis Award, and a 2022 Tin House Winter Workshop Participant. She has been commissioned to write and perform for the National Education Association, and has had work published in NarrativeNortheast, Angles Literary Magazine, Beltway Quarterly and more. She currently lives in Cincinnati Ohio and is the Lead Manuscript Developer at Holon Publishing and Collective Press.