Losing 80% Of My Net Worth

Intro to Episode 2

I mentioned in our first episode that I lost nearly 80% of my net worth during the Great Recession (Financial Crisis). I didn’t want to leave everybody hanging on those words. Some listeners have contacted me asking me to share that story. So, rather than wait for Episode 2, I thought I would share some of the story now as an intro to next week’s episode.


A statement I often hear from entrepreneurs is: “The reason I started my business is to make money.” Before I jump into my story, I’d like to examine this statement for a minute. Is our reason for starting a business to make money? Or is it to make a profit?


Let’s talk about the difference between money and profit. Certainly, profit is measured by money, as in the U.S. monetary unit of US dollars ($). Money is a medium of exchange that stands on its own merits and has relative value to other currencies and what it can be exchanged for, such as purchasing a new car. Often I have seen business owners exchanging hard work and product produced for the same or lesser amount of money than it costs to produce, plus the other operating costs of the business. In one sense, you could say that the business is making money because they are trading services or products for dollars.


On the other hand, to make a profit you would need to exchange those products or services for dollars that are greater than the cost to produce, plus all other business-related costs (often referred to as overhead).  For example: In a given month, if you produce t-shirts and you sell 1,000 of them and collect $20,000 from your sales and your production cost per shirt is $12.00, then your cost of the shirts sold is $12,000. This example would result in a profit margin of $8,000. However, let’s say the business has warehouse rent and electricity costs that are $5,000. Then you have a profit of $3,000. This does not mean that you have cash flow of $3,000 per month. In this example, let’s say you sold 1,000 t-shirts but produced 2,000 t-shirts. In this case, your cash flow would be negative $9,000your profit of $3,000 minus the $12,000 used to produce the extra inventory of shirts. Of course, you can make that cash flow back the next month by selling the shirts you produce. This is just an example of the fact that money is not necessarily profit, but a measure of profit. 


In 1999, I started a business called UTAZ Development. UTAZ developed office buildings for sale in a concept I called the “Professional Village.” The idea was that business owners and medical professionals could own their office for less than rent.  The average size of the building was around 6,000 square feet, with the average Professional Village having 9nine buildings or approximately 50,000 square feet.


The hallmarks of a Professional Village are that you have drive-up-to-the-front-door parking for your patients or clients, 13-foot-high ceilings, and a building with your name on it located on a major thoroughfare with great visibility and easy access as well as ample parking ratios. The buildings in each Vvillage were designed with unique architectural styles, and allowed you to buy as small as half of a building where you maintain a separate entrance and had your name on that half of the building. The concept was simplePut 10% down and get an SBA loan for 20 years. The payment in many instances was 30% less than comparable rent. The long-term benefit to the business owner occurs at retirementowning a building that is paid for with their name on it rather than a pile of cancelled rent checks. In many cases, this can augment the owner’s retirement by the rent savings over time plus the value of the building, which in many instances exceeded $1 million.. 


Needless to say, the Professional Village was received with great demand from its inception in 1999 to late 2008 when the impacts of the Great Recession, or Financial Crisis, hit. At the time, UTAZ had eight Professional Village projects at various stages of development. Banks stopped lending to anyone, not the least of which were the potential Professional Village buyers. I had put my money into the land and was building buildings that could no longer be sold. The bottom dropped out of the market, and the buildings over a matter of months were worth 60-70% of the value prior to the onset of the financial crisis. The lenders to all real estate developers were looking for every way to get out of the loans they had committed in commercial real estate. This was a very frustrating situation. 


I spent three years working with my lenders and creditors to satisfy the company’s obligations and my personal guarantees. At the same time, we endeavored to finish constructing the nearly completed projects. There was no appreciation by the banks for the efforts we were making to fund the completion of our projects. As if those valiant efforts weren’t enough, I found myself in a lawsuit with a bank suing me to pay off the loan. There was not enough liquidity to pay off all of the bank lenders. I made a proposal that would allow me to complete the project and sell the units remaining as collateral on the loan to pay the bank in full. They had no appetite for that plan, and off to court we went. I defended the lawsuit against me personally, and at the end of the day prevailed. The court determined there was no deficiency and awarded me the reimbursement of my attorney’s fees to defend the lawsuit.


This is one example of the challenges I faced over a three-year period of properly unwinding the business. At the end of the day, after gut-wrenching negotiations and countless hours working with each lender and creditor to satisfy the obligations of the company, the result was that my personal net worth was 20% of what it was prior to the crisis.


Imagine the days and hours I spent over those three years trying to figure out how the situation could have been avoided. I even questioned my own ability to effectively operate a business, to have experienced such a devastating set of unforeseen circumstances. One day, I got on the floor and cried with excruciating pain in my soul questioning my value as an individual, and wondering if I could provide value to anyone ever again. At the end of the day, I was able to determine that among all of my peers, none of us was able to survive as we were before the financial crisisit was unreasonable for me to expect that I could withstand the fact that our major lender was the second bank closed by the FDIC during the crisis, and the bailouts made were for the banks and not those affected by misdoings of the Wall Street financial engineers.


I came away from this period in my career looking at the root cause of financial engineering and how it leads to a false sense of financial success. Prior to the crisis, I was looking to hire a president to replace me at the company so that I could focus my efforts on helping the next generation of entrepreneurs. Of course, those plans quickly had to be set aside to attend to the effects of the crisis. After successfully settling all obligations, I chose to resume my plans to  devote my time to helping the next generation of entrepreneurs be more successful. I have found it to be very rewarding in many ways. Which leads me to the topic of Episode 2Defining Your Personal Currency. 


In Episode 1, we talked about hitting the reset button and how we can search for and find the activities within our business that we can do to bring us greater personal satisfaction and make the biggest difference in our business. In Episode 2, I will explore taking another step to hitting the reset button by defining your own personal currency. Today we live in a world with a multitude of currencies: plastic, cash, and electronic and ethereal (think bitcoin).  If someone can invent and mine an electronic, ethereal form of money, then I think it worthwhile to take a few hours of our life and determine what our unique talents are, and then figure how we can apply those talents to the interactions our business has with its clients or customers to bring unsolicited appreciation from them. Ken Blanchard refers to the appreciation I am referring to as “raving fans.” I think of it as exchanging our talents for the intangible gratitude and loyalty of our customers. Therein lies a personal level of emotional satisfaction greater than making a profit. 


Believe it or not, I have experienced this form of emotional compensation many times. I can say that its impact on your life can be greater than making a profit. These emotional exchanges provide greater personal fulfillment as your product or service makes a difference in someone else’s life. It goes beyond the dollars and cents of business.


As I struggled through the minefield of the financial crisis and its impact on me and my business, I held on to the notion that my customers had sent me letters in which they shared thoughts like this: “I am so proud to own my building with my name on it; the process was unique and so satisfying that I referred my brother who also has an insurance agency to buy a building from you in your newest project.” The thanks continued when I ran into this buyer in the grocery store one day.


The unexpected result of putting together the elements that should make an office building a successful investment (the Professional Village elements referred to earlier) was that those elements would combine to help those businesses who bought in a pProfessional vVillage be more financially successful“In my previous location I averaged four new walk-in customers a month. In my new location, I average five new walk-in clients a week.” 


Another experience: “When I thought of buying a building, I did not think I needed to buy one with visibility. I am a physical therapist and receive all of my patient referrals from surgeons. However, after three months at my new location I found that surgery patients were asking their surgeonswho previously were not referring to meto be referred to me because my office was so convenient for them. Without my name on the building in a prominent location, they never would have asked to come to me.”


One more: “I hesitated to buy my building; I felt that I had a good one before with a good location, but this is so much more professional that my dental clients accept my recommendations for cosmetic treatments at a 70% higher rate due to the professional look of my office.”


These letters were a source of satisfaction prior to the financial crisis and led me to strive to achieve similar reactions from each customer. I made that emotional reward my currency. I figured if I could develop a product and deliver it in a way that meets and exceeds the expectations of my customers, the financial formula would take care of itself. And it did. Pre- financial crisis, there were years where our profits were more than double our projections.   


As you listen to Episode 2 next week, I will share with you more about this and give you an exercise you can do to focus on your unique talents and use those to define a currency that rewards you beyond dollars and cents. This combination is very powerful and will bring not only financial rewards, but lasting satisfaction from a job uniquely and extraordinarily done. 



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