Fist Fight at the Board of Directors Meeting – Part 3

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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.

"So many options for growing my business, but what should I do NOW?" Tell me your most pressing business problems and I'll show you your BEST next step.

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 €œsome 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

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About the Author

Perry Marshall has launched two revolutions in sales and marketing. In Pay-Per-Click advertising, he pioneered best practices and wrote the world's best selling book on Google advertising. And he's driven the 80/20 Principle deeper than any other author, creating a new movement in business.

He is referenced across the Internet and by Harvard Business Review, The New York Times, INC and Forbes Magazine.

84 Comments on “Fist Fight at the Board of Directors Meeting – Part 3”

  1. This situation reminds me of a story I read years ago about a woman who started a little retail company (which I won’t mention the name of because she used her own name for the company name and there’s no need to drag someone into the mud) which she eventually took national and then years later (for what I would consider a hell of a lot less than what she could have gotten for it if she knew what she was doing and wasn’t just working with her… well you’ll see in a second what she was working with.
    Here’s the thing though, once you read a little more about this woman, you find out that she is married to a Wall Street finance guy (20 years older than her BTW) who LENT her $50,000 (this started in the early 80’s I believe, so that was a nice little piece of change) BUT that $50,000 isn’t the whole story, because if you think she blew through that money, because she didn’t know what she was doing, that she’d of NOT have gotten another $50,000 from her Wall Street Sugar Daddy? (might be interested in knowing that once she got the business off the ground, she filed for divorce – just saying).
    The point I’m trying to make here, is that if El Presedente thinks he can build a business by simply always going back to the well for more money, then he’s got a very good chance of being wrong in the long run, because even though it might work in the short term by throwing money at it, he’s NOT really building a legitimate base of customers. Whereas the method Perry uses has a much better chance of building the business on the backs of real, paying customers, who have shown you they have the potential to become loyal customers because they have given you their own hard earned money. I think that is the real difference here and that El Presendente is building a house of cards with other peoples money and hopes he can get out in time before the wind blows it over.

  2. 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.

  3. El Prez seems to embody the old Texas saying “All Hat and no Cattle” Take the money and move on, who needs the aggravation?

  4. 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?

  5. 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.


  6. 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 ( “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”

  7. 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.

  8. 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.

  9. 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.

  10. 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.

  11. 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.

    1. 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?


      Can’t you even get 50 cents back on that dollar?

      They were getting 5 cents, or something like that.


      1. 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

  12. Cant wait for Part 4. Perry, you have built up nice drama. Please release the next part soon.

  13. 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.

  14. 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….


  15. Wow, what a reply…However if you feel that they need to change but don’t listen to your be it. let them suffer at their own hands.

  16. 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.

  17. 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!

  18. 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?


  19. 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.”


  20. 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.


  21. 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,

  22. 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.

  23. 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 :^)

  24. 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 :)


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