Fist Fight at the Board of Directors Meeting – Part 3
I told you the story of getting in everyone’s face at a ‘friendly’ company dinner party, and how if they didn’t do their friggin’ research they’d fall flat on their happy faces.
Then I told you about getting in El Presidente’s face about the fact that they weren’t even running an actual business because after 2 1/2 years they still had not demonstrated that they knew how to MAKE ONE DOLLAR.
I emailed the president and board of directors and declared the company to be nothing more than a sink-hole for private investment money. I stated that I personally considered pitching a person on investing in the company an act of deception.
El Presidente strikes back:
For two and a half years, I have endured Perry’s various tirades both in Board meetings and in front of my employees, and I have bitten my tongue both out of friendship and respect for a man of unquestioned expertise in his field.
Unfortunately, Company building, as opposed to income building, is not his expertise.
If the Perry Marshall method is so effective, I defy him to name me one person, using his method, who has built a billion dollar business.
Well, the answer is almost certainly none because there are, relatively speaking, few billion dollar businesses.
How about a hundred million dollar one? Fifty? Twenty? Ten? Well, maybe ten, if you count the development of five separate two million dollar businesses building a ten million dollar shop.
The fact of the matter is, knowing those clients of Perry’s whom I have met, only one has a business in the eight figure range, and that business is almost thirty years old and does not owe its growth to that size to the Perry Marshall method.
Several of his devotees are doing well, from an income standpoint, but also so thoroughly burned out that they now look to scale back or sell their businesses. Several have gotten no where at all.
I have heard Perry’s arguments about a revenue silver bullet being out there. If that is true, how come no one else is doing these online courses Perry describes? [OUR INDUSTRY] is a highly entrepreneurial world, with plenty of people ready to start businesses on their credit cards.
This industry is one where there truly is no new business under the sun. So why are there not five or six of those out there already?
Well, taking a somewhat broader view, there are. [COMPANY A] invested 100 million dollars building its online course work. It is of the highest quality, and supported by annual shipments of those low margin [PRODUCTS] as well.
They endured year after year of no profitability and even brutally low sales for the first four years and now are profitable with 160 million in sales. Sound familiar? How about [X COMPANY]? [Y COMPANY]? [Z COMPANY]?
I am sure our offering, characterized by the poor quality presentation I have seen in Perry’s own online/teleconferences, would meet with the immediate ignominy it so richly deserves.
[OUR INDUSTRY CUSTOMERS] are savvy purchasers of products and services, and they will not long tolerate poor quality and half-baked presentation that comes from businesses built on credit cards.
Further, once we had done such a thing, the well would have been permanently poisoned for our future since reputations are hard to shed in this market.
I invite the world-wise reader to consider the following examples: what were Yahoo’s sales at the 2.5 year mark from get go or until they got that big dollop of capital? Or Google’s? Or MySpace or Facebook’s?
I guess there are always the examples of Dell, Apple, and HP (among others) that started in the proverbial Perry Marshall-esque garage, but in fact those tall tales are nothing but that, tall tales.
None of them went anywhere until some cigar chomping capitalist threw in a lot of money. Otherwise, they would have remained what all Perry Marshall businesses are: sole proprietorships existing in fringe markets.
I regret it if Perry did not understand that the high eight figure out-year revenue meant capital would have to be raised, but the text of the plan was quite explicit. It spoke quite directly to raising equity of, hold onto your seats, 16 million dollars!
We would have to do two and a half ["A"] deals plus what we have already raised to equal that.
It is always disappointing when a market does not cooperate and deliver you instant or even early financial success. But every business of any consequence I can think of didn’t, on the time scale about which we are speaking.
I take Perry’s comment about deception quite personally because I know the history. I was there when three other execs and I built a business of 250 million dollars in sales in two years. We had 60 million in capital that enabled us to do that and, at the end of that period were still not profitable.
That business is now one of more than 800 million dollars in sales and highly profitable. If we had undertaken "some course correction" at that point, the story’s end would have been quite different.
We had actually tried a direct sales method with much less capital similar to that advocated by Perry early on and it flopped completely.
So I will undertake no such fanciful course correction. This corporation is a Delaware 'C’. The Board has both the wherewithal and the right to terminate me as CEO any time it so pleases.
Perry, as a Board Member, has the right to enter just such a motion into the record, compelling the rest of the Board to vote on his proposal, if he can get a second.
You want a course correction, Perry? Find me the capital you originally signed on to be part of the team to raise, the $16 million on the plan you agreed to before there was a [Board Member 2], [Board Member 3] or [Board Member 4] in the picture.
Give me those funds, and then, if I fail, you can hoist me on your 'I told you so’ petard, but not until then. Now I will take my part.
It is nothing short of miraculous that this Company is even still alive, and that can be toted up EXCLUSIVELY to three things:
1. My leadership
2. My personal sacrifice and that of the Company’s employees
3. The fund-raising heroics of [Board Member 0] and [Board Member 1].
When this company succeeds, it will be exclusively attributable to the above plus [Board Member's] expertise to find us larger dollar figures and my ability to keep this idea alive and sell it along the way to literally scores of people from all walks and all levels of investing sophistication from the highest to the lowest.
And now, in conclusion, I will make you the deal of the century, Perry.
On December 31, I will meet you for lunch. If, at that time, you still feel the same way, I will happily buy your shares for what you paid for them: $100,000. You will have suffered no loss whatsoever and earned about 60 thousand in cash on which you only paid tax on 20. Pretty good deal, huh?
[El Presidente]
~~~
Enjoying this so far? Post your comments below.
I’ll share more scorching emails with you in Part 4….
Perry Marshall
About the Author
Entrepreneur Magazine says: "Perry Marshall is the #1 author and world's most-quoted consultant on Google Advertising. He has helped over 100,000 advertisers save literally billions of dollars in Adwords stupidity tax."
He is referenced across the Internet and by The Washington Post, USA Today, and the Chicago Tribune.
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Is this guy kidding? EL Corporate President had 60 mil in capital and flushed it down the toliet, because he wasn’t listening to sound business advice. My $6o million dollar challenge is to take the same amount and apply: Glenn Livingston systems, with David Bullock’s Taguchi, Perry’s adwords stuff, and Ken Gidden’s SEO methods and see how much revenue can be made without sweat equity. Corporate fat cats who can pull $60 mil on BIG CREDIT CARDS (that’s what that capital is, LOANS=CREDIT CARDS) have no business talking to the smaller business owners who fight tooth and nail with their own money, in fact, I’ll give that guy and Perry $100 bucks, and we’ll see who makes more money in the long run. Good luck.
Let the prez buy lunch and take the $100k.
Not having been there, I can’t comment on the truth of anything in the letter. But I will applaud your courage for showing it and leaving time for it to tarnish your reputation while we wait for part 4.
Or more likely you’ll refute the allegations in the next installment.
But this would all be a lot more fun without the redactions!
Man, I don’t know what I would say just yet, but I WILL say that I’m enjoying this tasty little drama. Keep ‘em coming Perry…please don’t delay long on your smackback.
like reality TV without the drawback of TV!
When you coming out with the video version of this?
Im not going to, but I could probably rattle off about 30 internet marketing sole-prop based companies that are doing better than $10M a year in PROFITS… which is better than doing $100M a $200 million in sales and not making any.
A few broke $10M in a single product launch!
Who on earth would spend $100M to create online courses? Thats a holywood movie budget! The content is the important part. If you have to spend that kind of money to make your content seem more valuable… then you got a problem.
You can’t polish a turd!
The sophisticated investors are the people who have allowed their sophistication to get the United States into the great economy we find ourselves. The prez sounds pretty proud…pride before the fall.
I’m speachless… great stuff!
I guess El Presidente does not know of Armon or Eben. They all started with credit cards and their businesses are above $20 million.
I hate it when you leave us hanging…….
Please hurry and send us part 4 !
He might be right who knows?
There are so many Ivy leage pricks who can get there hands on tons of money. They don’t live in our world. they are not held accountable for anything. If this flops Im sure it wont be the end of him.
This guy is from a different planet.
ps this is a great story even if it’s made up and if its not take your money and run.
Oh let me assure you, not a single word of this is made up. As a matter of fact, other than the [subsitutions] every bit is verbatim.
El Presidente reminds me of one I worked for previously. Both wanted all the glory & no responsibility for when it implodes. Classic example of big business leader, or acting like he is in big business, driving the ship into the rocks, then acting surprised at the outcome. Can’t wait for the rebuttal!
John, you can polish a turd but it is still a turd. I think you should challenge him to a match. You invest your $100k your way and let him invest his $ millions his way and evaluate in a year, three and 5 years and see who is ahead. This would be extremely interesting plus this will give you a whole new marketing angle.
$100 to ?? Guaranteed if you follow my proven system, exactly!
She’s got a great idea Perry, how about it???
Personally I’m not sure its in good taste to publically post all this – even though the other party is anonymous, its a violation of business etiquet that in the future would make any company think twice about bringing you in in a similar capacity – even if you are right!
I am truly enjoying the drama. Seems that the “Prez” has one huge ego. Of the three things he listed as reasons for the company’s success so far, two were directly related to HIM! Perry, you are such a good writer, I think you should; 1) take the money and run and 2)write a soap opera from this and put it on TV. You would make millions!
Perry,
1) Take the money and chalk it up to mismatched expectations. Call it irreconcilable differences.
2) Michael Masterson who has built several multi-million dollar businesses often tells his readers that you have to find a viable way to make money before you try to grow or expand a new business. In my opinion, this is the responsible way to build a business.
3) El Presidente is following the formula used by many tech businesses. Jeff Bezos lost money for 5 years before Amazon turned any real profit. He built a technology infrastructure that now gives them an edge in “Cloud computing”. It was a big gamble that paid off. Not all do.
4) End the public dispute with El Presidente now. Every disgruntled customer tells 10 others about it. It makes a great soap opera but to some people you will look the bad guy.
5) These disputes suck up your personal energy. Let it go (really let it go) and move on to the people who need your consulting and great ideas. Your next great accomplishment is just around the corner. Divorce yourself from this. (yeah, its painful – just like a marriage coming apart)
Best to you!
Well done the board members who raised $60 million. That’s impressive!
If they can just raise me 60 thousand I promise to show them a profit.
But think how much richer those investors could have been if they’d given $60 million to you to splash on selling affiliate stuff with Adwords.
Classic Perry. Will tune in same time, same place. El presidente should look at the Yahoo stock price in the last 5 years. Thanks for sharing Perry.
I’ve been a faithful follower of Brother Perry Marshall for many years now, but something strikes me as odd in this series.
Does anyone else smell something fishy in El Presidente’s retort?
Who gives a rat’s ass how much revenue the company brings in, and WTF does company building versus income building mean? I guess it means sell the turd to somebody else before their nose gets a whiff of the awful smell. Kinda like when Mark Cuban sold his polished turd to Yahoo for billions, only for Yahoo to find it was worthles.
It would make a great book, or soap opera storyline. Hmmm…
This illustrates the difference between living in the “Venture Capital” entrepreneur world vs the “Boot Strap – Owner Operator” entrepreneur world….I’ve been in both, and there are big differences….there have been big successes in the “make money down the road” Venture Capital world…but also many failures (see late 90s early 00s dot com bust). The mindset in the two worlds is not always compatible. Owner-operators tend to maintain control, want autonomy, avoid big risks, and create lifestyle….VC world tends to be about big ideas and possible home runs….many who invest here view their investments as “portfolio” eggs…they anticipate failure on some investments, hope for ok performance on others, and really aim for one big home run.
Big egos run deep in the VC world and people pride themselves on picking winners and losers via gut feel and MBA type analysis….If you run a business in the VC world, you have a boss: called the board of directors…and there is plenty of politics, even if you started the company (because now after investment your piece is small, most likely less than 50%)….This is a different mindset than a “Perry Marshall” entrepreneur….frankly having been in both worlds, I prefer to succeed in the “Perry Marshall” owner operator world.
Oh heck, we’ve been doing this all wrong people. El Presidente says “Unfortunately, Company building, as opposed to income building, is not his expertise.”
We’re not supposed to “build income”…we’re supposed to “build a company” that leaks money like a sieve with extra holes in it!
What’s scary about this scenario is there are likely honest, trusting folks investing real money into this idiots idea of business building. Without income there is no business..it’s an expensive hobby.
Just my take on the obvious.
Classic bureaucratic double talk when they can’t add the simple facts of the small cave dwellers that start with little or nothing and systemically build a legitimate business that actually helps people.
The standard corporate speak is always what’s ahead to bring it all together instead of utilizing a working model and making it better.
Good stuff man, I enjoy the big build up for the dramatic conclusion.
How can you put up with this headache of a CEO?
Is it worth it to continue dealing with El Presidente?
Paul
Eat Well. Live Well.
PurpleGreenPops.com
Honestly, I think he struck a few blows there. That said, the route of huge investments in huge ventures probably is the only way megabucks get made BUT the risk is huge too. Didn’t he hear of the dot com bubble? For every Yahoo and Amazon that made it, there were hundreds who blew through someone else’s cash then went to the wall.
Paul Isaac
haha.. wow what a letter! Seems to me you’ve hit quite a nerve!
Obviously, there’s a lot to building a business that large that I wouldn’t even understand because I haven’t been in those shoes.
However, if they can get the day to day stuff handled, I’d imagine building the business would involve mostly good marketing and sales, inexpensive advertising using joint-ventures, and continuously feeding your audience and customers with relevant content they need to stay interested in your product or service. I don’t see any better marketing medium than email and direct mail (if they respond via email) for this.
I can’t wait to see the next part of this dramatic story!
Ryan Thompson
You can’t leave us hanging like that!
Looking forward to your retort.
I’ve enjoyed this immensely. I think CK (and a few others) have pinpointed the problem – “mismatched expectations & irreconcilable differences”.
One thing that struck me in the email is the similarity to the documentary “Enron – the Smartest Guys in the Room” where Bethany McLean, the Forbes reporter that asked Enron the question that no one else dared to ask; “How does Enron make its money”? It was a “black box” and everyone was expected to just accept the results based on the track record of Enron’s stock price. When she asked the question – she was vilified by Enron as incompetent and obviously “hadn’t done her homework”. When the magazine said they were going public with the story questioning Enron’s profits, the next day Andy Fastow (CFO) and several other top execs flew to New York to “splain” it to her and her editors. As we now know – it was really to “damage control”. Her article was the beginning of the end for Enron.
She then goes on to say that in Jeff Skilling’s world – he thought that anyone who came up with a grand “idea” should be able to immediately be able to reap the rewards of that idea – just because it was “brilliant”, and thus no one should dare question it. In fact one of his favorite books was titled “the selfish gene” which was a very Darwinian view of how you have to crush your competition to get to the top. I don’t know if that fits here, but it just struck me how impressed “El Presidente” is with himself and his “ideas”, and I was reminded of that documentary.
Interview with – Bethany McLean – ENRON
http://www.youtube.com/watch?v=U9czXhjH7BI
Based on what I know so far, I agree with a few of the others; I’d take my money and run. I can think of a lot of other things to do with $100K than feed someone’s ego.
You just can’t make this stuff up. I’m not sure what this is smoking; but if I were you Perry, I’d take the money and run.
Frank
Well Perry, Interesting story. I’m impressed that this guy took it so personally. You must have really stepped on his heart.
I can’t tell if he’s right or wrong, but I can tell he has a huge ego, which is something people in leadership positions should have. You also have a huge ego.
I doubt however he’s right about him alone being responsible for the success of those companies. One of the things I have seen before and am even experiencing now in my business is the following:
Hero’s are people that solve problems. In a new business the hero’s get to work first. Once it gets to the point where just about everybody has to be a hero, more value is given to people that know how to prevent problems. This is rarely a decision by the CEO but more something that grows naturally within the business. It’s also the point where people in management get replaced (or leave on their own.) I wonder what the next chapter will tell us.
In rare cases, a new business has the right mix of hero’s and people that prevent problems. These kinds of businesses have much better chances of (faster) success. But let it be clear that a business of just people that prevent problems, have even less chance of success. It’s important to have the right mix where in the early stages the quantity of hero’s has to be higher and later the quantity of people that prevent problems has to be higher.
It’s sad that very very very few people that set up businesses really understand this.
Part 4 quick…
Glad I left company politics 5 yrs ago – haven’t made much yet but feel 100 times better!
Best wishes and hurry up with Part 4
Thanks – Dave
Liverpool UK
So I guess I don’t understand what the president thinks. Why would you not do the research and marketing necessary to sell your product. Sounds like he is only offended because his methods and ways seem to be the only way to build a “billion dollar” business. What happened to building a profitable business?
Great write up. Thanks Perry.
Perry you and the El Presidente reside on different planets.
El Presidente’s real goal is to help VCs make BIG money; It is okay to fail BIG too;(it is not his/their money!) just do it quickly. Besides El Presidente wants a corporate executive life style and a stronger resume. $60MM buys that.
If product and infrastructure development costs are huge, Mega Millions, you have to go with the VCs.
Perry you are thinking for the bootstrapping entreprenuers. Let us build the glider first; then add a big engine. Keep up the good work!
Eagerly awaiting the next email.
Perry,
The t-shirt I have from a not-so-different story is one of my most proud possessions. However, don’t be like me and not take the $100k. This is like a stock you will ride into the ground and then wonder why. Get your money now whilst the gettin’s good. Then, trust me on this, he’ll take care of himself. They always do. It’s not worth your energy, but makes a good story. Onward, ho!
I’ve seldon seen such an unconvincing and contrived piece as this *supposed* reply from a company president.
Really, Perry, is business that bad?
This is too funny… mis-matched motivation seems like the real story. Boss man wants to wear a crown and sit on a mortgaged throne. Perry just wants to put the kids through college. I’m loving this.
Lucas
Been there seen it done it. This is the same type of company I worked for. While on a company jolly which cost £50k were telling us as directors to start making cut backs & make people redundant. WTF!
It’s easier to sit in a big chair and spend money and justify it than it is to make it!
Geezer is totally removed from reality.
El Presidente hasn’t read or didn’t understand the lessons in “Good to Great”. He has the ego of a politician. Has he created a successful business with only his own money?
You obviously believe you are in the “right” and do have the answers to get the company into profits….so take him up on his challenge…make the motion and call for his resignation.
My favourite quote is from the late Colin Chapman, CEO of Lotus Cars UK. “Keeping cash in a business is like keeping water in a colander.” “You have to put more in at the top than is coming out the bottom”
El Presidente is intoxicated by his own magnificence. Sounds like the typical CEO blowing his own horn as they so often do.
El Presidente has been listening to his own hypnotic how great I art CD’s. Don’t keep us in suspense, we want the rest of the story.
What an ASS! He’s so good at running businesses down the toilet!
Don’t waste your time, ask for more than $100,000 & leave. Spend your effort on your clients & customers who value you.
Thank you Perry for such an entertaining serial.
I’m sharing it with someone else who recognizes the attitude of El Presidente. It is a common attitude, unfortunately.
And the damage done by these clueless self-important morons always hurts those who trusted them.
Hey Perry,
Talk about worlds colliding! Could two guys be further apart in their understanding of how things work?
Great story… can’t wait for the next installment. Reminds me of the way tales were fed to publications in the 19th century to keep the readers on the edge of their seats.
I invested in a really scrappy shoestring startup. You’d have had to empty a “45″ into the founder & CEO to make him quit.
Unfortunately the company was finally done in by the Dilbert cube and the last round of Angel-investors who also took over management.
Puffed up by their previous successes as executives, they managed to kick the founder to the curb and the company died within the year.
They totally didn’t get that he knew the market and they didn’t. Watching this from a distance, I was stunned by the last minute route…
They literally had managed to snag DEFEAT from the jaws of VICTORY!
I would say that “el presidente” is a very good copywriter. I wonder who’s e-book he bought.
“Apple is like a ship with a hole in the bottom, and my job is to point the ship in the right direction” -Gil Amelio, CEO of Apple Computer.
Just before being kicked out as Apple CEO Gil lost the company $750 million dollars in one quarter.
I don’t know where to begin with Mr. PREZ. He seems to be a Gil Amelio CEO-clone.
For one thing PREZ has to check his facts.
Please correct me if I am wrong but all Perry is asking the guy to do is some market research. To spend some time actually getting to know his market – what is wrong with that?
And why? So that PREZ could use his research data to deliver a product that his customers actually want to buy.
This company sounds like a B2C business (please correct me if I am wrong Perry) and knowing your audience is crucial to making such an enterprise work.
Let me jump to the Amazon.com example that someone brought up…It is okay IMHO to not make money for years while you expand your brand and grow your base and all of that. IF and only if you are actually making sales. Or you can prove that you can make money.
Amazon was moving millions of dollars in sales just that they were re-investing all of it back into the company.
So in the books it looked like Amazon was not being profitable but they could be if they wanted to.
Google was already a profitable company before they went public.
And even in the early days of Google (before they were profitable) they had a product that was demonstrably superior too all the rest. So, it made sense to invest and grow a company on those terms.
Facebook and Twitter are not making money now because they are also expanding their brand and trying to widen their base. But you would be very wrong if you thought that they couldn’t put tiny little Google ads on the right side and cash in on the traffic they are getting.
However, Mr. PREZ’s company has yet to sell a friggin’ widget. But he thinks he is “building” a company??!
How can PREZ claim to be building without making any sales. The only thing this PREZ has done so far is burn money.
Awaiting the 4th installment of the PREZ who couldn’t. Send it soon Perry. Thanks.
I have known many El Presidente’s in the past 20 years. With minor variations among them, they collectively define an archetype of one kind of business leadership.
Although I’ve only recently come to know a few Perry-style entrepreneurs, I now see them as a kind of counter-archetype.
I won’t weigh in on which archetype I think is more consistently successful, ethical, or enlightened in its judgments. I just don’t know.
Several of the El Presidente’s I’ve known have made millions for themselves.
Yeah, they made plenty of money — even when their employees made next to nothing for all the faith, trust and long hours they invested in El Presidente’s leadership and vision.
But following El Presidente is not always bad. By riding on the coat-tails of more than one El Presidente, I’ve been fortunate to do many interesting things and to see many interesting places.
El Presidentes and their VC backers helped put my kids through good schools and rewarded me with a comfortable life, even if it’s been a rough ride at times.
It would be hypocritical for me to bash them.
But now I’m sick of spending so much of my life in El Presidente’s world. At my advancing age, it’s become too hard to keep my mouth shut when I know I should.
Now I’m happy to have found what looks like an alternative way to thrive.
My recent discovery of the “Perry archetype” gives me hope that I can live comfortably, decently, honorably and honestly — without having to feel conflicted by how I earn my living.
That’s what matters to me now and for the short balance of my life.
As Candide modestly says at the end of his wild adventures in Voltaire’s play by the same title, “Let’s tend our own gardens.”
For those of us who dislike the world of El Presidente, let’s be proud of taking responsibility for growing our own sources of security.
Let’s revel in defining for ourselves the way we want to live our lives.
There has never been a better time during my life to do so.
I only wish this epiphany had come earlier.
Dave V.
Doing google adwords alone teaches you to look at your ROI intently.Many are making 40% – 100% on their money each month. Just imagine that return on 60 million in one month!!!!!!!!!!!!
I don’t know Perry – he puts a convincing argument (if what he says is an accurate reflection of history).
Thing is, the only thing that will prove either of you right is time.
In the meantime, the temperature is rising along with emotions and I wonder how that might effect critical thinking.
Time for a love fest, corporate bonding weekend maybe
Methinks all this stuff was in the past folks, so it’s not like Perry’s airing his “dirty laundry” live as it happens.
He doesn’t strike me as that kind of unprofessional…
As for El Prez, the man has his head so far up his posterior, he’s in danger of suffocated!
Loved his “brag” about using $60M in capital to build $250M in sales, but still not profitable!
What in hecks name were they doing with all that seed capital?
I suspect helping him & his buddies live the high life instead of making a profit!!!
AND, they tried a direct sales method ONCE, and it failed.
That automatically means it will never work eh?
Sheesh, I’ve had more than 1 failure in that dept, but I know where I went wrong AND will try again, learning from my mistakes. This bozo has no idea and wasn’t willing to try something else.
As for the 3 reasons the company is still alive! HUA syndrome again… (head up ****)
Modest little petal isn’t he.
There speaks a very wounded ego.
Lookin’ forward to the next Chapter Perry
Eran
Perry
I’m delighted to have read this email today. I just got a similar email from a company CEO who has become frustrated that i wont join them on a 25% share option as their PPC manager. We’ve been in discussions for months.
I was beginning to think it was me who was missing something. So thank you for this!
I could be more constructive but El Presidente is an asshole….simple as that. I look forward to your reply to him. Just don’t keep me waiting for another 4 weeks :^)
Wow hilariously painful…
Why are you into the client service model again?
Full on Consultative Marketing is totally undervalued, unmeasurable, and irreplaceable for any business.
Alchemy as you have called the creative side of business building is a mere part of it all. Making a business run properly from a project management position and financial position are total common place compared to the marketing positioning of a company.
The marketing positioning of this company is what will literally give it the leverage to do anything, go anywhere, and move period…> carrying its own massive weight.
LEGS is what you give a company Perry. This company is a cripple right now so “YOUR” choice is simple with “El Hello My name is Inigo Montoya. You killed my father. Prepare to die.”
1> Slap him in his face with your gauntlet and raise the stakes on your terms (privately). Challenging his manhood privately but not his image in public. These types love it hard.
2> Leave and make a bet with him he will not see positive ROI by x date without you or someone doing exactly what you do.
That when that time comes you can let him off the hook but let him know that full on marketing “IS” business. The rest has all been done before.
Wow,
I feel like I’m in the drama, but even though I like to see how it ends, if it were my money I would have one question for the president:
Why do I have wait for December 31?
Grab the money now and run it seems clear he doesn’t want you there as you will be a thorn in his side.
Thanks great drama,
Barry
WOW! I bet you can cut the tension with a knife in these board meetings.
Sounds like you need to have it out with paint ball guns with El Presidente!
I bet you would win. He should be pretty easy to hit with that inflated ego.
Just think what they could do if he was thinking with his brain instead of his ego.
Rex
Who’s to say either approach is “wrong”? They’re just different ways of solving a problem. Each approach has trade-offs (efficient use of capital, etc.), yes. But that doesn’t necessarily mean one way is more valid than the other.
Plus, people will be inclined to want to continue using the “hammer” that brought them success in the past. The challenge is to resist the tendency to subsequently see everything as a “nail.”
Chuck
All I have to say is what others have said, let’s not wait another 4 weeks for the next installment. I was have seriously been waiting for this since the last one, and have thought often about writing you to see if you’d give it to me early. How about a couple days tops?
Mike
The person who wrote that believes you need large amounts of capital to make money because a business needs a lot of funding to look professional. He believes starting small (testing) is mutually exclusive to building a large business. Starting with a lot of capital you could either make lots of money or lose lots of money as shown in the writers own examples with losses over several years. I’m not saying that companies should be against risk, just that it is not always necessary to do take on risks which can be avoided.
Perry’s response will say not all successful businesses need to lose money in the first few years and having a proven product or even a proven market will help attract the desired investment as and when it is required.
El Presidente says that “None of them went anywhere until some cigar chomping capitalist threw in a lot of money.” However this is far more logically argued in Perry’s favour as these companies started small which then gave them the opportunity to gain capital and in turn this made them successful. Starting small scale or doing research generally doesn’t hurt your progress!
I think I know where this is going. My prediction is that Mr. El Presidante will end up being bitterly disappointed and embarrassed.
There is so much to learn from this email. As someone mentioned above, adwords teaches you to instantly react when things go bad. It often amazes me how clueless some top corporate guys are.
Can’t wait for part 4.
Hi Perry,
Very ballsy putting this up, I wonder if drama (which no doubt attracts eyeballs) converts into sales…
Having said that I’ve been involved with both sorts of businesses, the >$100 million and the just me on my laptop kind and there is no doubt that a different strategy is necessary for each.
People in the info marketing business may forget that the purpose of raising capital is to build a business to sell, investors are ultimately betting on the IPO.
It is a bet (aka gamble).
Having bought and sold many many businesses I have seen that the businesses that get the highest valuations and ultimately sell are not the $20 mill info businesses run from peoples laptops.
Nothing wrong with a $20 mill a year business running from a laptop however, although anyone with any sense will know that the actual profits are far different from the turn over.
It is though a different outcome to betting on an IPO that potentially will make hundreds of millions.
It is simply a different outcome that is being sought.
Again an interesting and entertaining soap opera and I am interested to see if this actually creates sales….
Neil
Wow, what a reply…However if you feel that they need to change but don’t listen to your advice..so be it. let them suffer at their own hands.
I guess the president never read/studied what Peter Drucker had to say about the purpose of business, “The purpose of a business is to create a customer.”
Because unless you have a customer, you have no business. Business is all about having a customer. Without revenue, there is no business.
Obviously someone doesn’t walk on water!
Cant wait for Part 4. Perry, you have built up nice drama. Please release the next part soon.
Anyone who’s built an $800M company deserves respect for that accomplishment. It’s a *very* small club. And the number of people capable of raising $60M in funding isn’t all that much larger.
Most VC funded startups are expected to fail. That’s the business model. And it’s exactly how Apple, HP, Google and every other Fortune 1000 company became successful. It’s simply not possible to grow quickly without external financing which usually includes investor funding. $16M with a $1M burn rate is pretty average for such companies nowadays.
None of which makes him stupid or shortsighted, just far more knowledgable about the steps required to build a successful company. Doesn’t mean it always works. There are countless VC failures that could have become moderately successful small businesses. That’s not the goal.
> I was there when three other execs and I built a > business of 250 million dollars in sales in two > years. We had 60 million in capital that
> enabled us to do that and, at the end of that
> period were still not profitable.
> That business is now one of more than 800
> million dollars in sales and highly profitable.
Chris,
You are right about ALL of this.
But I still asked:
2 1/2 years and you STILL can’t prove that you can get a customer for $1.00 and get $2.00 back – even on a small scale?
Or….
Can’t you even get 50 cents back on that dollar?
They were getting 5 cents, or something like that.
Perry
Chris’s comment about the goal is important here…what was the goal/liquidty event objective?….probably to maximize shareholder value? right?….was that to be done by making money/earnings?…or was it to be done by strategic distribution, good product, and infrastructure…that a bigger acquirer could really exploit and leverage…thus creating strategic value even w/o traditional bottom line earnings.
Based on my experience raising money, proving your long term customer acquisition economics is always necessary…but sometimes its done via showing you have locked up important distribution channels versus direct marketing testing…(MBA thinking vs Direct Response thinking)…Self funded Owner Operator entrepreneurs usually cannot afford to follow an MBA type strategy….because the cash is just not there….well funded VC companies (or those seeking well funded status) are often expected to follow an MBA type strategy, because those providing the funds come from this world and have not adopted/don’t know the direct response business model(i.e. most pro VC firms and VC angels)….re-educating them can be time consuming…and is made difficult by scary visions of late night Jeff Paul and Carlton Sheets infomercials…the best reference to teach these folks is probably Dell Computer, which was built from a dorm room via direct response advertising and catalogs
The way this guy writes is very convincing. If you hadn’t read the rest of the story, and didn’t know anything about marketing, you’d be convinced. No wonder he’s persuaded people to part with $60m for a business that hasn’t proved it is profitable – the guy’s a good writer.
HOWEVER – I read a great book once by an investigative journalist called “The Root of All Evil?” about financial justice (or lack thereof) and her advice was, whenever you see somebody spouting off like this, follow the money.
You’ve got to ask, whose bank balance is served by following this guy’s route?
His own, and the guy who’s selling him the private yacht.
And then, whose interests are served by following Perry’s route?
The investors. Not Perry. He’s already got a reliable income stream, and he’s putting his neck right on the line for the people who’ve put their money into this.
I’m not sure that I’d have put my views forward using such stong language (deception is quite an accusation) but bravo Perry.
There isn’t enough information here to decide who if anyone is right or wrong. I have seen the behavior before in other VC and angel funded firms. That doesn’t make one side or the other right, there just isn’t enough information to make that call.
Perry, you have a decision to make and an easy way out if you want one.
Do you want to hang around and hope there is a light at the end of the tunnel, or walk away with your original investment while it is still possible to do so?
I can’t tell you which would be more valuable in the short run, but if you intend to try to work on more deals like this one, you might want to hang around and learn more about how to succeed in this environment. The skills you learn will probably be helpful on the next deal, even if you lose the $100K.
If on the other hand this is the last time you intend to try to work in this sort of situation, you might be better off taking the $100K and investing it in a smaller, faster opportunity.
Yes, they are spending money on things that probably won’t turn into much, if anything. That happens in that type of environment. Yes, they are doing things differently than you would. That doesn’t mean the company won’t succeed. It does seem to be taking you out of your comfort zone, though.
You have to decide if this is where you want to be or not. That’s all.
It would be interesting to see how many hits your 404 pages has with people trying to see pt4 by just typing it into the address bar.
Great read. Well done for standing up for your beliefs.
i tried that too!
I was about to jump on the “can’t wait for part 4″ bandwagon, when the thought occurred to me . . . “what if there’s 12 parts?”
Seriously, El Prez’s email reminded me of something I learned while working for 15 years on and off for the family bankruptcy firm.
Many business owners aren’t interested in running successful businesses (what I humbly define as a going concern that does well by their customers), they’re interested in running the business their way, regardless of customers or cash flow.
If the business has zero revenues and a huge base of active users, does it have value? Absolutely. It has value to anyone who can better leverage that customer base to generate future profits. That’s exactly why Google paid $1.65 BILLION for YouTube. That’s for a company which never generated a dime. Ever. That’s El Presidente’s dream in a nutshell.
From the MSNBC article (http://www.msnbc.msn.com/id/15196982/). “To conserve money as it subsisted on $11.5 million in venture capital, YouTube had been based in an austere office above a San Mateo pizzeria until recently moving to more spacious quarters in a neighboring city.”
Cashflow is king only you don’t have deep pockets. That’s true for most companies and certainly everyone in this forum. However, even positive cashflow companies don’t get valued the same way. Service business? 1x annual revenues. Industrial manufacturer? Perhaps 2-4x revenues or a low multiple of net earnings. Web application? Whatever the market thinks that day.
Perry mentioned acquiring 30,000 subscribers using $100,00 in Adwords spending. Those are all free accounts. How much lower would that number be if they charged even $1/month? No one really knows, but “a whole lot lower” is the right answer.
Paying customers and cashflow are the traditional way to generate value, but certainly not the only way. Value lies solely in the eyes of the potential buyer. And “buyer” includes potential investors including the public market. Just ask the companies listed below. These are all billion dollars companies right now.
Twitter: hasn’t earned a dime
YouTube: didn’t earn a dime before being acquired
Facebook: losing money by the bucketful
MySpace: losing money by the bucketful
Amazon: negative cashflow for at least five years
Google: negative cashflow for at four years
I’ve certainly considered offering our route planning service for free (it’s also a web app). The subscriber base, name recognition and buzz would grow dramatically faster.
Instead, we’re doing it the old fashioned way – acquiring paying customers one at a time aka “spend a dollar, earn two dollars.” It just boils down to “Here’s how I think a business should make money.” The real difference isn’t financial, it’s philosophical.
After Perry deposits the $100K from lunch, he can send El Presidente a one word reply: “Webvan”
thought I’d throw in my 2 cents as well…
…I kinda want to stick up for the president a bit.
(Not that Perry is wrong in any way, and makes an incredible point: do research).
The thing is if you’ve done 100+M deals you have a body of evidence to support that you can get results. You feel it. It’s in your bones. When you’re on a roll, you don’t tend to take advise from others.
And then Perry comes along.
Perry — it doesn’t seem at least — doesn’t have the authority status to make a dent in the prez’s decision making process.
(In a subtle way, this is a great example of when a business owner/CEO doesn’t respect you. If there is no authority status, people rarely listen to you, and even more rarely take your advise.
The “Guru” business is about respect from your clients. And big time business owners/CEOs rarely take the advise of others. I mean, even as Perry says, we are MISFITS. Us misfits trust our guts. Until it happens….
…the deal that smashes our balls into itty bitty pieces.
and THEN they listen.)
The prez made clear he valued fundraising more than advise. And Perry (rightfully so) didn’t rake in the dough unless their was a valid model.
Perry, had you known what the Prez was going to be like, would you have joined in the first place?
I think no. But, that’s why life is about learning. Doubt Perry will place himself in a losing situation. Surely not knowingly.
Glenn is a great example of a guy who got his balls smashed, said “no mas!”, and went back research basics. That’s why he doesn’t lose anymore; he picks winning battles.
I’d bet money that Perry’s best customers have lost a LOT OF $$$ from losing Adwords campaigns, say, “no mas!”, and rapidly buy Perry’s products.
Perry is the adwords solution for those who’ve been beaten into submission by Larry and sergeys’ machine.
Because once your balls put into a blender, you NEVER want to go through that pain again.
Perhaps the prez needed to have his balls beaten a little.
And I think that ALL of us at some point have been like the Prez; not listening and respecting our partners. In business or our personal lives.
It’s a required lesson us MISFITS learn as we journey on life.
Adam
It certainly seems that this is a completed sequence of events as far as Perry’s involvement. I agree that he is professional and discreet to the point of not broadcasting a continuing saga, as it evolves, for the public.
So c’mon Perry, dispel the mystery, when *did* this take place?
Guys this happened in the PAST. This is a story Perry has told already although not in this graphic detail.
El Presidente isn’t associated with AIG in any way, is he?
El Prez seems to embody the old Texas saying “All Hat and no Cattle” Take the money and move on, who needs the aggravation?
So it’s not just my businesses that have inner politics going on. Seems this is a very public way of presenting what should probably be a private matter.
But anyway, the entertainment value for us is 7.3 on the Richter scale, keep them coming.
What happened on dec 31th and where is part 4?
http://www.perrymarshall.com/fist-fight-pt4/