Make Sure It’s Legal: A Cautionary Tale on Starting Your Own Small Business

Sometime during my elementary school days, my parents referred to me a “schemer”.

To their credit, that’s probably how I would have described myself as I was always selling bubble gum, warheads (the candy, not the missile) and anything else I could buy in bulk and sell of at a profit.

And even as I grew older, I’ve never stopped trying to carve out extra cash with unusual business ideas.

My First Big Scheme

While in college, one such idea was the re-selling of Lacoste Polo shirts.

I went to the University of Miami and I noticed while there that roughly 100% of the male students wore polo shirts. In addition, these students had a wide variety of colors and styles. So what better way to make money than by reselling expensive Lacoste shirts?

After a few days of research, I determined the following (back in 2006):

  • Lacoste polo shirts sell for $72 at every store across the country. It’s rare for shirts to be discounted, and the brands is very expensive compared to others like it.
  • People selling Lacoste shirts on eBay generally sold them for between $40 and $50. These people would sell one shirt at a time, never in lots and only a select few would sell more than a dozen shirts a week (not because of demand, but because of supply).
  • A lot of the shirts being sold on eBay are counterfeit. Lacoste polo shirts have a specific thread patter, specific tags and other markers to tell you if in fact the shirt is real, or fake. That being said, the differences in quality are very minimal and almost impossible to spot as a casual buyer.
  • Retail markup from product to outlet is insanely high, so if I could find a way to buy at the production level, I could retire!

My first trial run was the purchase of a lot of 10 shirts on eBay. I bought the shirts for just over $250, and then resold them individual on eBay for a total of $450. Take out my shipping costs, Paypal costs and eBay fees, and I had a profit of $100. A small success, but I thought bigger.

I asked around from sellers on eBay about where they obtained their supply. No luck.

Then I found a website called TradeKey. This website puts buyers and sellers in touch at the wholesale level, and most of the registered users are international.

The Beginning of the End of Business

Luckily (or unluckily as it would eventually turn out), I found a wholesaler in Peru (which is where Lacoste shirts are manufactured) that was willing to sell me high quantities of Lacoste polo shirts at an excellent price of around $20 per polo (shipping included).

Without considering the potential for counterfeit shirts, or safety in sending money internationally (with little guarantee that I would actually receive a product back), I ordered 200 polo shirts.

Much to my surprise, the shirts arrived in a timely fashion, in a variety of colors and sizes and passed all of the quality checks I could throw at them. My college apartment now had 200 Lacoste polo shirts available for sale and I routinely had kids coming by dropping $40 – $50 for shirts they could buy at the store for $72.

100% profit was something I really loved and so I decided to go back and buy another big lot of shirts. This time, double the size!

Go Big or Go Home

Even though business was good, it was slow. Miami isn’t a large University (I think 12,000 undergraduate and graduate students at the time) and my clientele was drying up. And so, I took to eBay and started selling the shirts there.

My profit wasn’t as large (with shipping costs, packaging costs and fees) but it was still around $10 a shirt. Business was good, demand was good, and I seemed to have hit my stride in finding a way to make money without having to do anything other than being a middle man.

The Letter Than Changed Everything

Then, things quickly changed. I received a letter in the mail (registered mail, never a good sign) informing me that what I was doing was quite illegal.

Much to my surprise, I am unable to buy and sell Lacoste shirts, regardless of where they are from. I need a license to sell a particular brand of merchandise and Lacoste had found out I was undercutting their retailers and selling for discounted prices.

And as it turns out, PT alerted me of legislation that could be passed which makes selling even your own individual items illegal.

The nice letter I received years ago.

I was ordered to stop immediately, which I did and was also ordered to turn over all unsold merchandise, which I did (was only a few shirts by that time). In addition, I had to pay a settlement to Lacoste to avoid prosecution.

I complied and later I received a follow-up letter confirming that the matter was closed. My eBay ID was banned for life and I know if I’m ever found selling Lacoste merchandise again, I’ll be in big, big trouble.

Final Thoughts

All in all, the experience was a profitable one. Even after the settlement and turnover. It was also quite terrifying, as I was only 21 years old and already being sued; this experience did get me to start a “Lawsuits” file in my strongbox, which is a little more full than I want it to be!

My pitfalls in starting this small business lie squarely in my inability to do enough research about the legality of my business (I assure you I was well researched in the mechanics of the business) and if nothing else, this venture taught me one of the more valuable lessons I’ve learned in life.

Should you decide to open your own small business in the future, I urge you to learn from my mistakes and triple check with as many lawyers and legal minds as you can to make sure everything you do is 100% within the law.



Last Edited: December 22, 2014 @ 12:07 pm The content of ptmoney.com is for general information purposes only and does not constitute professional advice. Visitors to ptmoney.com should not act upon the content or information without first seeking appropriate professional advice. In accordance with the latest FTC guidelines, we declare that we have a financial relationship with every company mentioned on this site.
About Michael Pruser

Michael Pruser is the man. After spending a ton of money to go to the private University of Miami, Michael now enjoys spending time at home, writing personal finance articles for the world to read. His journey out of debt continues 500 words at a time.

Comments

  1. IAmDebtProject says:

    @ptmoney Great story, I really hope that law on reselling doesn’t pass!

  2. Yikes, that’s a cautionary tale if ever I heard one! I applaud your hustling, however.

  3. I got lucky. I started selling my taco seasonings without checking to see what was needed to legally sell food products. But Colorado passed a cottage foods law last year that allows small, at-home food producers to skip a great deal of the regulartory hassles basically by including a disclaimer on the label.

  4. ahathaway says:

    Wow I guess that was one valuable lesson learned!   Great idea though, especially in college when money was tight.

  5. I knew this was going badly as soon as I saw the name ‘Lacoste’ … those guys are notoriously fierce in protecting their trade marks.  You don’t ever want to mess with big name brands like that.