Preface & Metaphor

I actually almost burnt down a real house once. It was close. History in pics, here (see the “fire” link). Then, here for the lemons to lemonade story: a top vacation rental property, 39 reviews, 100% 5/5. That’s over about a year and a half since we began offering it. We’ve had guests from all over the world—even a Swedish ski team. Three families at three different times from the UK last summer. Etc.

So what? So I have a cool place and it’s one of thousands or millions of cool vacation rentals. Understood. Not your life, my life. Thing is, this was a very tough deal to do. Here’s what it looked like when we bought it (see the “before the rebuild” link). Not awful, not great, but Beatrice dragged me up for the 3-hour drive at least 6 times over months to look at places because she had saved money for years for that down payment. Just as I knew immediately that almost everyplace we saw was crap with no potential, I knew this was the winner in 5-minutes. “Let’s go write the offer.” It was Saturday. The house came on the market Thursday and I knew it would be sold today or tomorrow. We offered $10K more than asking and got it.

Well, almost. There were issues with property lines and setbacks, common in rural areas. By the time those began to be sorted out months later, the seller tried to back out because properties were appreciating by the day in the early 2000s. I had to force the sale (he signed the contract, we had performed to the letter). Took a year an a half, but only about $2-3k in attorney fees. We made $80K in instant appreciation when we signed docs and by just settling with him (I gave him a few token consolations). Six weeks later, the fire scene.

The fireman who called me that night as I was coming out of the movie—having just left the place in the early afternoon—seemed upbeat. “Just a small fire.” The next morning after I drove up, I understood: “small fire” is relative. And, I wept. When that was over, I went to work and completely rebuilt the place to my exclusive standards according to my original vision for its potential. I think I got good results. Now, it’s rented out almost every weekend per year and most weekdays during winter and summer.

Another Burnt House

I burnt down another house last Thursday, a house I’d lived in for two months shy of 20 years. I began building it in the summer of 1993. This was after exhausting my savings trying to build a couple of other houses that just collapsed under the weight of learnings.

But this one, the last one, worked, and worked quickly—a critical clue to any venture. …I worked at home for a number of years but in ’98, moved into offices and by about 2001, began growing at a good pace, having to move into even bigger offices. At the high point in around 2004/5: two locations here in San Jose of about 10,000 sq ft, an office in San Francisco of about 2,000 sq feet, two small in-house offices in SoCal, and a few independent sales offices scattered around CA, NV, AZ and even MI. 30 employees and a number of independent sales reps.

Livin’ high. But then, I began to hate my house. If you don’t ultimately control every detail, it’s not at all like when you were running it from a bedroom. Employees will lie to clients because they want to get off the call and go on a break. Sales reps will lie to prospective clients so the prospect becomes a client and they get paid; and if there’s a problem, that’s what you’ve just purchased by means of a commission. I spent months trying to build better economic logic incentives vis-a-vis commissions and chargebacks for bad signups into the database—that determined a sales rep’s pay—to no avail. It just pissed them off. So I eventually had to take all sales in-house, so as to avoid “heat in the deal.” I was unwilling to outright lie to people to get money.

Once I did that, sales were less than wonderful no matter what, and we did it all (PPC, SEO on the website, Radio, print, direct mail, and a few other things). Most successful sales reps had used telmarketing, which was very effective. I would not do telemarketing. Huge regulatory pain in the ass; and besides, I sensed society was moving far beyond the point where a marketing call on the phone was in any way “OK.” Or, in other words, the people you do get as clients are kinda too stupid to not be bothered by a phone call trying to sell them something. As always, I’m my own standard of propriety.

I thought marketing was a problem. It was; but now, I had an even bigger problem. Thing is, I had already had more than 10 years of bliss, an A+ BBB rating, and so on. I had yet to face—even one single time—all those people who protect you “consumers” from people like me. And, anyway, from 1993-1998 I had been exclusively a B2B operation. Your “protectors” only care about you because someone else pays you. They don’t care about small business entrepreneurs who pay themselves. You can screw them with abandon if you like, and if they’ll let you get away with it. They never complain to “authorities,” and even if they did, there’s just no juice in it for such “authorities” to do anything about it. Nobody cares that any self made people “get what they deserve.”

That which I had pioneered with a few others—settling debt between antagonistic parties—began to become populated with your typical predators who would have no qualms about lying to people as a matter of policy (and not just wayward sales reps ignoring your policies). Here’s the deal in a nutshell: tons of people have astounding amounts of credit card debt (our average client, $30,000; and many clients with over 100, even 200K). Many people will simply not file bankruptcy, even though they could and just be done with it all. That was my niche: people with too much morality or pride for their own good. They just could not bring themselves to punt that way. I offered negotiated satisfaction.

It was a lovely business at first. Defaulted debt, when all said and done and all costs accounted for, nets about 5 cents on the dollar to the original creditor. We convinced credit card companies, collection agencies and collection law firms to go with 30% now: easy money. We’ll overnight it, cashier’s check! No? OK. Then let me return that call to Citibank, MBNA, Chase, Discover or whomever. Perhaps they want the money the client has saved up. Get it? Most clients have 5-6 accounts on average. You pit one against the other for available money, by 10am FEDEX tomorrow, and they can close it forever and get it off their desk.

I made millions and paid millions to employees doing this over 20 years. Over and over. …$1-2 million of CC debt settled per month, average 35 cents on the dollar. (I will soon have a comprehensive ebook on how to do this yourself.)

I burnt it all down in about three hours last Thursday; a nice, sunny afternoon.

…I tried hard to help forge a new, recognized financial service—with a long, viable history already that I had pioneered with others—into something that really worked. I flew to Chicago three times. That’s where The National Conference of Commissioners on Uniform State Laws were meeting every few months to attempt to craft uniform legislation with the goal of such legislation being adopted by every state (they did the Uniform Commercial Code (“UCC”)—perhaps you’ve heard of it—also “The Truth in Lending Act,” and other stuff). I went there by invitation of the commission. The first visit went very well and I was optimistic. I was given ample time to speak and to explain the business model: why I and other good operators do what we do. In comparison to the shrill “consumer advocates,” also there, we entrepreneurs sounded decidedly sane; and it was obvious from the feedback tone of the various uniform state law commissioners that we had the upper hand.

But then, I went back to San Jose and resumed doing what I do: run a business. How naive. I didn’t operate behind the scenes during the interim to the next meeting a few months later. By the time we met again in the winter, in the same super fancy hotel on Michigan Avenue, all had changed. The big DC “consumer advocate” law firms had realized what the score was; and by the time of that second meeting, even those state commissioners—many, retired judges—who were most understanding, favorable, and even promoting of our business logic the first time around….had completely flipped.

I didn’t bother to ask or even wonder why. I just don’t operate like that. But, knowing there would be a final meeting in the spring, I sent out communiqués to other good operators I knew in the business who’d not previously attended, letting them know they’d better do so. It was a hopeless Hail Mary. Some of them showed up, but by then, the legislative sausage was already well into its final stages of being fit for zoo human consumption.

I got to sit there, groaning, as the law professor from LSU made real-time changes to the draft legislation that would make it increasingly difficult, probably impossible, to operate as I’d been accustomed via on-the-ground tweaking for more than a decade. I was watching my business livelihood be burt to the ground before my very eyes, and there was absolutely nothing I could do about it. It’s so comical, the pretentiousness of the thing. Like they can just pull all manner of stinky stupid shit right out of their asses, nod to each other, and wiggle fingers on the draft, and smile in self congratulation. And that’s what’s respected—while people who actually prove viable business procedures over years of successful operations get scorn. Welcome to my upside-down world.

So basically, yea. I got to see how the sausage gets made. Everyone gets to take a shit in it, preference to those with no stake. You get to eat it.

In the end, it was a total failure as uniform state legislation. I don’t have the exact figures, but the association of which I was a member successfully opposed passage in most states where it came up, and was only passed in a small handful of states like Massachusetts unmodified (and none of the big ones). This motivated the NCCUSL to come to “us” to negotiate changes. Not very fruitful. So your “protectors” did what they always do: made it happen anyway. Along comes the Federal Trade Commission (FTC) to the rescue, magically interpreting a federal law combined with their “rule making” authority (that’s euphemism for legislation without representation), to forbid the collection of a single penny as deposit or retainer on services that by the nature of our business, requires 3-4 years on average to complete.

For a touch of perspective, how many of you have ever gone to a lawyer—where it wasn’t an on-the-come, insurance funded personal injury case—and not been told what the retainer would be in order to take the case? If you’re a business, even a small one, how many times is the retainer for anything significant less than $10,000? Our business model costs the average person with $30,000 in credit card debt about $5-6,000 over 3-4 years. In the end, they are debt free for an average of $20,000 net total (while the debt grew to 35-40K with interest and late fees over that time), including all settlements and fees—i.e., EVERYTHING. But, we’ve got to have about $2,000 of that upfront in the first 4-6 months in order to perform this service effectively and fund operations and overhead whilst waiting for the debts to age in a collection status and save settlement funds sufficiently to negotiate a settlement. The math is first grade level, where you learn addition and subtraction.

For more perspective, all aware small business are deathly afraid of the FTC. It doesn’t operate anything like a state attorney general who’ll notify you of an investigation, subpoena business records, sit down with you, and go back & forth and ultimately decide whether to file suit or not (due process…still a huge pain, but it at least goes at a snail’s pace). Sure, it’ll cost you between 1/4 and 1/2 million dollars like it did me—even if they drop it after 3 years, like they did with me. But at least you’ll still be in business. The FTC conducts all of their investigations of small businesses they can unilaterally bully in secret (they can’t get away with that for the biggies who will out them anyway for publicity, so those are the ones you learn of in the news). In secret, they search out all cherry picked bad they can find, and avoid being presented with anything that even sniffs of exculpatory. Then, when they’ve deemed themselves to have collected enough, they file for an ex parte “Protective Order” in the local county court. They call it ex parte (from one party) because english doesn’t cut it and “secret hearing” is, well…”inconvenient” terminology. This means: the FTC and the court are holding a hearing about you with you being absent from it. In fact, you don’t even know it’s happening.

The FTC gets their court ordered, ex parte “Protective Order” 100% of the time (check it out if you like). What happens next is that completely out of the blue, FTC agents, a team of accountants—euphemistically referred to as “trustees”—show up as soon as the office is opened in the morning, backed by the guns of the county sheriff. All employees are invited to leave (it’s for good, job is over). Business owner gets to stay, so as to be invited to give up administrative passwords, keys to the door (he’ll be locked out from then on), and anything else pertinent to the job of the “Trustee.” Now, the “trustee’s” job is not at all to run the business. Phones don’t get answered, emails & faxes pile up, nothing gets done that needs to be done. What does get done is a top-to-bottom and wall-to-wall assessment of company assets. In this way, the contract trustee who’s team is billing thousands per hour has a good bead on how long the gig can last while still being able to return a few pennies on the dollar to all the clients they’ve just “protected” (think: class-action lawsuit, where the lawyers get millions and most class members get pennies).

I’ve seen it happen to many, some in my own industry. One friend had his $80 million business “burnt to the ground” in the first few hours of a pleasant spring day, circa 2004. He was at those meetings in Chicago, too. Fortunately, I was always a boutique operation and always wanted to stay that way, not much of a target.

But no matter what happens, the FTC will issue a press release, and they can make Santa Claus look like a thief. They use every catch phrase, bromide, and metaphor in the book to paint the picture they want: that you were at risk; and by the grace of your overlords, you have been “protected.” Simple fact: real and obvious predatory frauds get dealt with by the county-level attorney general. They perform a decent service in that regard. It only makes local news, sometimes.

Burning Down The House

…In the end of that whole legislative and plain brute force FTC rulemaking, they got everything they wanted. What did they, “your protectors,” want? They wanted an out for themselves as the perceived authority in such matters. You see, to them, they simply have only to be perceived as protectors. Small businesses make that hard because there are just too many independent small operators and yes, some are going to be bad operators—and that will make “your protectors” appear as though they don’t have an iron grip on your “protection” 24/7. Dealing with the big ones is easy, because they’ll always come to some negotiated agreement and even millions in Armani-clad power lawyer fees is no sweat for a big company. You’re paying it, after all. They negotiate a deal, FTC slaps ’em with a “big fine” that seems large by your standars, and the company goes on. In my specific case, the intent was clear: create barriers to entry and by any small operation, such that only a highly capitalized large firm could possibly meet all the requirements.

I could not. I could meet some, not all, and so had to fly under the radar and stay small. I met the ones I deemed most likely to draw attention to myself—such as any upfront fees. That was a mistake. I went that route in early 2010, actually months before it became an official requirement and from then on, it was steadily downhill more precipitously than before. The business model simply will not work without either those upfront fees, or, significant capitalization to fuel growth in order to achieve minimum economies of scale.

…But I was wrong on another score even more important. All the life for this thing had long since left my being. I was just shuffling pieces logically with no passion, anymore. Others I knew had immediately closed up shop; some liquidated, filed BK, etc. Not me. Nope. I started this with one first client, with my mom as my first employee and I was going to finish it with one last client, with my mom as my last employee.

In terms of that concrete goal, things were going well. From a high of several thousand clients, I stopped taking new ones in October of 2011. By the time last Thursday rolled around a year and a half later, we were down to somewhere between 100-120 clients. Right on track. But Wednesday afternoon, on pretense I still have no understanding of, the State of California emptied my business bank account out of the blue with zero due process: balance=$0. I initially thought the email I got from the bank was a phishing attempt, so logged in fresh from bookmarks (never click on such email links, dummies).

Sure enough. Zeroes. …It was a sleepless night, and being somewhat adept at advising clients over 20 years on how to avoid or buy time in the face of various forceful financial executions, I naturally went to all of the ways I could foil further attempts at such levies. It’s not that hard to do, provided you have the balls & gusto to do it. But, it’s a distraction. You’re not making money, building values. You’re a cornered animal, protecting what you have. It’s no way to live a human animal life.

I suspected it was the CA Employment Development Department, the agency that handles employee pay, layoff & firing procedures, payment on time, vacation pay and State unemployment. Since day one in 1998 when I hired official employees for the first time and wanted to have full health benefits and matching 401K, I used PEOs. The first was a small independent company in Green Bay, WI: Vincam. They got bought out by the PEO arm of ADP, called ADP Total Source. Then Administaff lured me away in the early 2000s, until the point where the controller I’d hired admonished me to let him run payroll and benefits separately to save money. We switched to Paychex, and then later, Quickbooks Payroll. But in each case, all those deductions you see on your paycheck were meticulously deducted, forwarded to the state & federal entities for your general well being—as you seem to like being taken care of like children—and the quarterly and annual filings done electronically with a few points & clicks.

But for some reason, the EDD had “determined” we owed them $8,000. I’d received notices for months but put it on back burner because I knew our payroll agents had forwarded all deductions. But when I called about the bank levy, it wasn’t them. It was the California FTB, the “Franchise Tax Board”—whatever the fuck that’s supposed to mean: unless it means we’re all just a franchise of the State. Apparently, there was some dispute going back to 2008 when we reorganized from C-corp to S-Corp, and to make a long story short, even my tax CPA hasn’t a clue. All we do know is that when a governmental authority makes a “determination” in the absence of “voluntary” filings, it’s a simple equation: you take the average yearly liability and history of payment, multiply by 10+, and that’s your “determination.”

I’ve seen it 30 times. Well, 3 times, actually. But I determined I’d seen it 30 times. That was easy.

So the FTB claims about $6K. I listened to the state collector’s heartfelt, condescending admonishments, including how much he’d so have preferred to work it out, had I just called him back and et cetera, et cetera. I got quiet, nicer.

“Well, I think that tells me everything I need, and I know what I need to do.

“Oh, good.”

“Yea, I’m going to rectify this whole situation immediately, as soon as I hang up. But before I do, I want to thank you for the help. I’ve been neglecting things for too long and I’m going to change that right now. I know it’s only Thursday, but you have a good weekend.

“You too.”

I hung up, and immediately deleted the email server. Then I shut off all the phones and the fax. My next email (I’m operating on private email by this point) was to the bank that holds client funds, telling them I’m done, to delete the $30,000 in already earned fees that trickle in to us as client funds trickle in to them, to delete all drafts and refund all money to clients. Soon as that was confirmed, I sent all paper files to the shredder/recycler, and had the company that hosts our servers shut them down and send them to the electronic recycler (they’re old, no commercial value).

[Update: It’s probably prudent to stipulate that the reason for all of this deletion and shredding was for the purpose of protecting sensitive client information like SSNs, financial records, etc. Since I was closing down and have no means of protecting or storing things in an adequate secure facility (i.e., not my garage), it needed to be professionally disposed of.]

I closed, locked the door, and walked away…having accomplished an irrevocable burning down in hours of what it took 20 years to establish. That night, sleep was less than optimal but Friday morning was euphoric. I learned an instant lesson: make your big moves in life irrevocable. You can’t go back, even if you wanted to.

Or, think of it this way: how many times did you get fired or get a “pink slip,” and then decide to go in next morning and fix it all? “There must be some kind of misunderstanding.” You can’t. It’s finality, and you accept it if you have any sanity left, and then you move on. Moreover, how many can look back on an acute hardship like that and conclude it was a chronically good thing, because it pushed you—kicking, screaming, perhaps crying—into new territory?

What I did, in essence, was to fire myself from a job that was far too low paying, anymore, considering the overall burden I had to bear. I realized, on that euphoric, weight-lifted-off-shoulders Friday morning, how dumb I was to have not done it at least a year earlier. I accomplished nothing, and lost at least a year in a one and only life.

I think David Byrne did this in about 1984.

What house in your life needs burning down?

• A business?
• A job?
• A relationship with a friend, love, family member?
• Wife or husband?
• Being a custodian of endless crap that needs dusting & storage?
• Status symbol vehicles?
• A real house that was determined to be what you needed at a time?

Probably everyone can do with a little house burning. Identify it and take action. Just one word of advice: when you do so, make it irrevocable. The regrets and second thoughts will only last so long as to let the reality sink in.