My Ultimate Blunder

Now that I have posted a few times and read quite a few posts I think it is a good time to explain my ultimate blunder:

I had a company, Advanced Outsource, Inc. which took me 5 & a half years to build into a small conglomerate of 4 subsidiaries under the Advanced Outsource parent company.

1. The 1st was Advanced Outsource Online Technologies where we built Web systems for large companies. Completed about 2-3 projects a year for approx. $80,000 - $200,000 each. Usually a 25% profit margin.

2. The Washington Henry Fund was a private Stock Market fund (mine & best friend's money). Gains were about $50,000 per month, the year it was open (last year of the company).

3. InsuranceFix.com; same as 1-800 Dentist online, which collected permission based medical info from consumers to help them find a good Health Insurance Agent. We rated the agents and sold them the profiles (leads) at a premium. 80% success rate. Free to the consumers. We grossed $75,000 per month for the year it was opened. Had the Agents ready to go when we opened the doors.

4. Advanced Outsource Marketing; I gave seminars on Web Marketing and developed & managed Web Marketing campaigns for a few Marketing Firms. Grossed approximately $20,000 - $40,000 per month with low costs providing a 60% profit margin.

All in all my company grossed from $3,000,000 - $5,000,000. Net was more like $1.2MM. Here is where all went wrong:

I hired a law firm in the area to manage my legal entity structures, an accountant to square away the company finances, and a new President for InsuranceFix.com(abbrev. IFX.com). IFX.com was the only structure that was a DBA for Advanced Outsource, Inc. because we moved too fast to form it into an LLC. ahead of time (mistake No. 1). Second mistake, the new President was recommended to me by the largest insurance brokerage in a way that I felt I couldn't refuse; they said they would provide enough Agents to IFX.com to surpass our break even point if this new President managed IFX.com. They thought the world of him and his references checked out, even a background check (surface only) checked out. He turned out to be a conman who built his references over a year just for this kind of situation! He stole money from the IFX.com account and falsified reports. 3rd mistake; the law firm I hired took over $50,000 to structure the various subsidiaries until they talked with the accountant who noticed funds missing. Based on this info, he recommended we shut down the trading account to avoid red flags from the government. Then we all found out that the President also fraudulently modified the contracts for IFX.com resulting in 56 simultaneous lawsuits from the insurance agents! The law firm saw an opportunity to recommend bankruptcy to my board of directors insisting I would be breaking the law in asking them to cover the lawsuits financially and turning the company around. I believed him (mistake 4).

Needless to say, the law firm received over $55,000 in total to handle my company's and my personal bankruptcy, the accountant which worked closely with the law firm received $8,000 to assist with the bankruptcy and the President fled to New Mexico! In 2005 my bankruptcies were accepted and I lost all assets. The law firm in my area has a reputation for recommending bankruptcies in 2005 because of the law changes in October. What could I have done better?

1. Make sure all companies are structured correctly.
2. Getting the customers 1st was right, but research the customers.
3. Conduct a deeper background check for all management, especially executive management.
4. Build up the personal "Oh Crap!" fund (right move) but don't re-invest it in the company all at once.
5. Research my advisory board better especially if I am going to pay them for services.
6. Safeguard the companies (subsidiaries) that are profiting.
7. Try to avoid Investors from the beginning, or research their risk aversion and experience. My board was made up of my investors, many had very little Entrepreneurial experience which fostered their fear when the lawyer decided to give business advice.
8. Lawyers, accountants and most consultants work for me, not the other way around. Make sure I don't allow them to take the reigns of my company.

I hope this helps others avoid my mistakes.

Man, I have been with a business partner who screwed me big time. But I have never had a President screwing me before. But as I see it, how else could you have checked out the President? Personally, I can't see how you could have done better (anyone else have suggestions on the President part?).

What I do in investments is: to always get my money back as quick as possible. So as to minimize the risk of losing it all in a bankruptcy. It may sound easy for me to say right now, when things have happened, but remember I too was screwed and I know how business can treat you. I came to grips with RK's model of investing, getting you money back as soon as possible by mortgaging your business, RE or whatever.

You had a lot of revenue and also a lot of profits. I guess you could have gained a lot by mortgaging your business and staying away from the board room (did you sit on the board of directors? If so, that is not good. The board of directors are those who are hanged if things go sour. As you may know).

In Sweden you may mortgage 70-75% (in best cases) of your profits (commercial loan). With $1.2 Million in profits in total, you should have been able to get a $1.2 Million X 70%/ 8% (fixed interest) = $10.5 Million out of there. If you where to setup a private foundation offshore to own your shares for you, then you could have transferred those $10.5 Million out as tax free dividents to the foundation (assuming ownership of 100% of the shares. In your case you would get dividents in relation to ownership, of course). So even if the company/companies did go "belly-up", you had secured your personal finances.

Look at Bill Gates, doesn't he have a quarterly "sell-off" of shares? Ask yourself why he sell of shares? Answer: to secure his cashflow. So even if Microsoft did go belly-up he would have been secured for the rest of his life. Bill may have been sad for Microsofts bankruptcy, but he wouldn't starve to death. That's a comfort.

Just a constructive tip until next time. Anyone else who can share in here?

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"Make as much as you can for as long as you can. Whoever has the most when he dies is the winner." - Lawrence Garfield in the movie Other People's Money

Thanks for the info fanocks2003,

I didn't know that then because my advisory board was not up to par. Yes I sat on the Board and yes, I won't be sitting in thew CEO and Chairman seats simultaneously again. In fact I will probably have to be dragged kicking and screaming to become a publicly traded company again!

I have learned to build the right team since then; however, the team is the hardest part. And, yes I did learn the hard way to secure my personal wealth even if times for the company get rough because I can always re-incarnate the company. Hard lessons to learn, but well learned now. Thanks again.

Wow, great story, speed++

Your story outlines some of the difficulties I encountered in the decision of self-management, or hired management. Your horror story is why I chose to self-manage. Hiring a manager/president is only half the battle because you have to manage the president and ensure he isn't screwing you!

Great thread. Thanks a lot for sharing this.

Do you still control that domain name? or was it sold by bankruptcy court?

What prevents you from doing something similar in a different market? (or are you already doing that?)

andviv,

I let InsuranceFix.com fade to the background because I was upset. In 2005 the Domainers market wasn't where it is today so I let a lot of domains go. I guess I went through a bit of depression.

I have found a dislike for the Lead Generation business even though it is lucrative and easy. Dealing with most of the Salespersons who purchase leads become tiresome. Most Sales people who purchased our leads blamed us for losing sales rather than their methods. I don't respect people who don't take responsibility for their own actions!

I have gone back into software services, specifically SaaS & PaaS. I think subscription web applications is our future and I like offering Web Applications with easy user interfaces as this aspect is usually ignored by most Web Developers. Right now I have this server full of awesome apps, but they appeal to too broad of a market and I need to narrow down the niche. This time around the marketing is the easy part, the right service to offer is the hard part.

Ha ha ... you are speaking my language. I can't agree more. 95% of my staff's time was dedicated to owners who were blameless for their own performance, or lack thereof.

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Servicefly,

If I may ask...what would you say is the best way to generate online local leads for say health and life insurance? I'm not an insurance agent but it's my back up plan at the moment. I've owned a service business for seven years doing paintwork for car dealers. I'm not slow YET but we will see in the coming months. Mom did insurance the old fashioned way for 28 years and we have another family member who was State Farm for 30+ years.

In reading insurance forums lately I can see that a lot of the agents blame the lead company for their not producing the required results. Then you have other guys that are tearing it up. They also demand a generous return policy. I hear your pain.

Although $75k a month is damn good cashflow. If I had to guess I would say that will not be down for long!

*Vigorously taking down notes*

Glad to see you overcome!

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"If I have seen further than others, it is by standing upon the shoulders of giants." - Sir Isaac Newton

I don't like the "blame others for your problems mentality" which is why I will not get back into the industry. That said, if you want to generate leads for health insurance (or any other insurance) first try to provide assistance for free to the average person, then build a structure to sell the leads. Think 1-800 dentist.

Get the agents to promise to subscribe to your service before you spend any money based on proof of concept. Download and read the attachment under the "Web Marketing Success" thread, particularly the "Funnel Marketing" section. It can be done quite easily if you are willing to deal with whining agents. Better you than me. LOL.

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More information in this thread too:
How to $ucceed with No Money!!

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this is scary and brings up a discussion I had yesterday about business owner vs. entrepreneur, an example is the owner of an architecture firm who delegates most work, but b/c his name is on the contracts(and he is the CEO) still has to work around the clock and thus the business runs him not the other way around, so despite net earnings of over $1million/yr after expenses, is it really worth it when work IS your life?

I see that as a typical "self-manage" situation, please correct me if I'm off, which I'm sure I am.

now in this case, it seems that servicefly took an entrepreneur's approach to starting the business and finding the someone to run it, granted even in this case you still have to monitor those in charge, you have to trust their judgment towards running the company and thus he can work on other endeavors or worry more about personal matters than business matters, whether it's financials or just leisure activities.

what I'm reminded of is in the Real Estate forum where a Realtor can make or break an investor... a great realtor can help get the business going while a bad one can take it down.

bottom line is it is a hard reminder of the real-world that all of us can learn from whether it is as fannocks suggested that you secure your personal financials or just make sure you have the right management in place, glad to see servicefly has moved on and learned from this, rep+++

Let me know if you'd like any input as this is right up my alley.

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"Failure is not the result of an unsuccessful attempt,but of NO attempt." - Me
MNS Real Estate Services, LLC

Just to add more to this thread; I will again hire someone else to run my company this next time around. What I learned most is how to evaluate loyalty and breed trust in managers. Hiring top level managers (executive especially) is the hardest transition to the expansion phase of business. I can't say I would recommend hiring from 3rd parties; however, it is usually necessary to hire outside the employee base.

Next time I will create a checks and balances system to prevent fraud and embezzlement. Such a system would probably have a loyal employee promoted within to control finances and a President to manage the managers. All managers must get approval by the new Financial Officer (i.e. the employee promoted) who in turn must get approval by me. I will have a director (partner) with an equal stake in the company to handle things in my absence (vacation). If I pre-approve certain lower expenses ahead of time, then it will streamline decision making.

It is all about spending as much time building your management team as you can. I know what to look for now and I have some tests I put all managers through (whether they know it or not).

Being a business owner is far better than "Self Employed." Before I hired the evil president guy (LOL) I had a pretty good team and I was free to do a lot of what I preferred like learning golf (really bad at it still).

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Couldn't agree more ... I believe it is the most Fastlane of all revenue models even eclipsing lead-gen which I believe has a limited life cycle ... subscription based content/services isn't.

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Control is everything in management. I have gotten really good at verifying and spotting lies. It's all about systems. I am not naturally talented at it, but you can make the systems easy to maneuver.

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"Make as much as you can for as long as you can. Whoever has the most when he dies is the winner." - Lawrence Garfield in the movie Other People's Money