John Richie was referred to me. My friend said, “John just became available. He was working for a fast-growth tech company, and now he is looking for his next big opportunity. He’s smart, hard-working, and of high integrity.”
This would be the first time I laid eyes on John Richie. Little did I know we would become the best of friends over the next 20 years. But on that day, John didn’t know the trap he was about to walk into.
As a brand new angel, I’d just invested in my second entrepreneur. The new business was up and running, and I was on fire. In addition, Bob Lasher, who was working on the first business, was successful in adding new partners. Together, this new team was showing some great success. Sales were increasing dramatically, and they’d started making money. They were paying back the loans. It was working for them. It was working for me.
All it took was one almost successful business and I was thinking “I’m the greatest angel investor in the world.”
Back then, I would tell people, “I believe everybody should start, own, and operate their own business. Why not? If you have the desire and the business experience, I could put you in the founder’s chair, and you will succeed.” I told this to everybody I met. Everybody.
John came over to my office to network and get a little job-seeking advice and maybe a hot lead. He left as the founder and CEO of Roundtable Partners, LLC. Yep. I gave him my pitch and talked him into starting his own business.
We were both very excited.
I identified a couple of software companies which were tearing the cover off the ball. They were both in the logistics and warehousing market. One was a public company in Dallas called I2. The other was an up-and-comer in town called Manugistics.
These companies were selling lots of software. That’s all I had to see. It was clear to me this was a significant market opportunity for services. If a software company is growing software revenue by greater than 50% per year, they aren’t focused on services. This leaves a market gap which I was all too willing to fill by starting a services company.
Using this startup professional services business thesis, I convinced John to jump into the market. He said, “I really don’t know anything about logistics.”
“No problem. I have a formula which works. Look what Lasher is doing,” I said with great confidence.
Lasher knew the ERP market. He had insider knowledge. He knew who to call on and what to say. He had credibility in the market with the potential customers and employees. Prospects bought from him because they knew him. Employees would join the company because of his reputation.
John and I had none of that in the logistics and warehousing market. We were starting flat-footed. This was completely unfair to John. He didn’t care. He knew it was going to be hard, and it was. He was making cold calls (a whole new skill set) to software sales reps and their customers. He was also cold calling potential employees who would be his future superstar consultants.
Then the market blew out.
The high-flying software companies’ values dropped like a rock. The logistics software market all but evaporated. When a software company stops selling software, they start selling services. John and Roundtable Partners were DOA.
Down $125k, I walked into John’s office and put him out of his misery. I was told John was a man of high integrity before I met him. I learned he is also persistent and loyal. He was going to do everything he could do every day to make this new business succeed. He said he would do and, by God, he was doing it.
I called it quits. He went off and in no time was employed and doing well.
Here’s what I learned.
1. Everybody should not start a business. They need to want to start a business before we talk. If I find myself convincing them to start a business, it’s my vision for their life and not their vision for their life. I shouldn’t mess with people’s lives. I should focus on helping people go where they’ve already decided to go.
2. People who start a business should understand the market because they’ve worked in that market. Every market has a culture, influencers, and the unique way it operates. You can learn all these elements about the market, but it takes time. And as we all know, time is money. This is a very expensive MBA for entrepreneur and investor alike.
3. When the market isn’t buying, it’s over for a startup services company. These startups need to enter markets which are already buying. There is always room in a market for another services company. When a market retreats, only the best service companies survive. The startups and poor performers are the first to go.
4. If I think I have it figured out, I’m just about to lose money. The more confident I am, the more reckless I become. This is true in investing and everything else in my life.
5. “For there is a season, a time for every activity under the heaven.” There is a time to start a company and a time to shutter a company. You never think this time will come, but it does. It’s happened a few times in my investing career. Starting a company is the presence of all hope. Shuttering a company is the absence of all hope. This is hard, hard, hard.
John and I learned these lessons together. He sacrificed ego, time, and money. We became better business people because of this experience. We also became better friends for having been through it together.
Ten years later, John was hired as the CEO of a startup I invested in which was doing $2.5mm in revenue. He grew this company to double-digit sales and led it to the best exit I ever experienced.
“It ain’t over til it’s over.”
John Richie is the founder of Venture. He is currently working with 32 CEOs. These leaders are focused on growing their businesses by challenging each other to do business on the platform of their faith in Jesus Christ. To this end, John facilitates a monthly all-day meeting. Then, during the month, he coaches these leaders individually on the unique challenges in their business and their life. If you are interested in Venture, click here to send John an email.