Fail Series: The $40 Million Company

Dean Sourkeras co-founded and took ComputerGiants.com from a basement in Queens, NY to a spot on Entrperneuer magazine’s 100 fastest growing companies. Then he says he did what many other founders in his position would do, he grew it too fast with no controls in place.

Grab this interview to find out how he got the business to $40 million in sales and what happened next.

Dean Soukeras

Dean Soukeras

Dean Soukeras graduated from law school and started his own business, which landed on Entrepreneur Magazine’s Hot 500 Fastest-Growing Businesses in America before having to close in 2008. Since then he has returned to law, opening his Manhattan firm Morales Soukeras PLLC. Ever the entrepreneur, he is also launching two websites focused on the New York City residential and business communities, including www.CitiRenter.com.

 

roll-angle

Full Interview Transcript

Before we get started, have you seen these? Here’s a box right there, on Wistia, there’s another one on inDinero’s website. They’re all over the place. They’re from this company Olark. And the reason these companies have the box up on their website, is so their customers can have chats with them in real time. Now imagine what a confused customer is going through, and the frustration they’re having with the website, and then boom, they have the ability to chat with the founder, with someone at the company who cares and can help them. Beyond solving their problem, and giving you a way to help your customers, it’ll also give you insight into what your customers are going through, when they’re on your site, in real time. Olark, I’m making you aware of them so you’ll add them to your website and be able to give your customers incredible support, and so you can learn from them. Once you hear about Olark, you’ll see them all over the place.

My second sponsor is Grasshopper. It’s the virtual phone system that entrepreneurs love. It gives us toll free numbers, my toll free number is from Grasshopper, unlimited extensions, call forwarding and so much more. Grasshopper.com.

And final sponsor is Scott Edward Walker of Walker Corporate law. Imagine having a problem with a contract. Imagine having to get an agreement put together. You’re walking over to either a family lawyer, who just doesn’t get it, or one of the expensive start up law firms who’s going to want a piece of your business and then tens of thousands of dollars in billing. And then imagine going over to Scott Edward Walker who will understand what you have as a business and understand your environment and will be able to help you out. Walker Corporate law. Here’s the program.

Andrew: Hi everyone. My name is Andrew Warner. I’m the founder of Mixergy.com, home of the ambitious up start. And this is part of my series of interviews with entrepreneurs who are willing to sit down and talk candidly about their failures, and about their set backs. Today’s guest says that his accountant once told him that he was born an entrepreneur but not a great businessman. Dean Soukeras, co-founded and took ComputerGiants.com from a basement in Queens, New York to a spot on Entrepreneur magazine’s hundred fastest growing companies. Then he says he did what many people in his position might do, he grew it too fast with no controls in place. We’re going to find out what happened. Dean welcome.

Dean: Thank you Andrew. Pleasure to be here.

Andrew: What did ComputerGiants do?

Dean: ComputerGiants, when we first started the company in 1999, our goal was to build websites and do computer service. I feel many entrepreneurs find, when you start off with a plan to do one thing, you get turned in a totally different direction. And we ended up selling computer hardware over the internet. Which at that time very few people were doing. So somebody once, just came into our space and gave us some CD hard drives and said, “Can you sell these for me?” and the business was born.

Andrew: Okay. And at your height, how much revenue did you do?

Dean: At our height we were at just shy of $40 million of revenue for the year.

Andrew: And this was 2006?

Dean: If I recall right, it was either ’05 or ’06. Yeah, it was just shy of $40 million, and it was a very quick run up from 1990. When basically we had done, just maybe, I think it was just $15 to $20 thousand in revenues. So in a matter of 5 or 6 years we were up to almost $40 million.

Andrew: That is tremendously fast. And what happened at the end?

Dean: Well, at the end, which was in 2008, which I was not present there, because I actually exited the company at the end of 2007. The company unfortunately had to close for lots of different reasons, which we’ll go into. But we did have to close our doors.

Andrew: Okay. Yeah. We will go into it, we will find out how the business launched. I want to find out how it got to $40 million, that’s an incredible achievement. And as you said, I want to learn what happened there towards the end. As people are noticing the audio is a little bit bad, we’re dealing with a bad Verizon DSL issue today, but got to deal with what we got there. The content is really good and I refuse to stop just because Verizon is having some issues. This is too important. So whenever there’s a number that’s not clear enough, I might just clarify it by repeating it into my microphone here. Like 2006, you said 40 million dollars. I wanted to get that clear. Okay. What was the original idea that made you and your co-founders say, let’s do it, we’ve got to launch a business?

Dean: Well I had started the company with two family members. One of them was my cousin’s husband. And the other one was my brother. And I had just graduated from law school and I was looking for more of a business. My family has always been in some sort of business, since they immigrated here from Greece. That’s from my first generation. And they came here, they opened up a store in Queens New York and I kind of wanted to follow that model. After law school I was looking for something. My other brother and my cousin’s husband were both very tech savvy. And they said well why don’t we try this, it’s a ground floor opportunity, you know, the internet is something that is supposed to be big, this is going back to ’99. So we said, you know what, let’s give it a try. And I said I’ll give you six months, if not I have to go be a lawyer. And it ended up being about 10 years.

Andrew: Wow. So, after you came up with the idea and you decided I’m gonna commit to this for at least six months, what’s the first thing you did to get the idea off the ground?

Dean: The first thing we did was, we had initially started as just a computer service/website building company. And I remember at that point, of course, there’s no NCO, there’s no key words there’s no organic searches. So we did old school. We printed up flyers, we were in the neighborhood handing out fliers, we got our space. Which started out as a basement in Queens. We kept our overhead at basically zero, and that’s how we started.

Andrew: Where in Queens, by the way? I had my first office in Queens too. In Union Turnpike, I think.

Dean: We were in Jackson Heights, off of Roosevelt avenue and Junction boulevard.

Andrew: Cool. Okay. All right. So you handed out flyers to get business. How effective was that?

Dean: Not very.

Andrew: Okay.

Dean: Not very effective. It did not look like it was going that well. Until, that one day somebody came and asked us to do something completely different, that we were not doing. He saw that we were on the Internet, he actually had some spare computer parts and wanted to move. And he asked us, can you get rid of these, and we said we’ll try. We kind of built a very, very primitive website. Which I think you can still find it, I forget the name of the companies where you can look back in time in websites and see how the looked years ago.

Andrew: Archive.org.

Dean: If you look at ComputerGiants. com on Archive.org in 1999. It was a very, very simple basic website. Which is at the time, it was kind of advanced, but looking back, it’s very simple.

Andrew: So, until you had the hard drives, you didn’t have a website? I didn’t understand that at first. I thought you launched a website, even with the original idea. No?

Dean: With the original idea it was, we did not have a website. It’s kind of silly to think, it didn’t even seem like we needed one. Since we were really a computer service. And at that point marketing on the internet, or advertising on the internet was not really in existence to any large degree. So it occurred to us, well we should get a website and market on the internet.

Andrew: So flyers didn’t get you business, is there anything that got you business back when you were doing just service on computers?

Dean: More than anything, it was word of mouth. Just friends of friends networking. It’s a cliche, but networking does work. Especially in the service industry. Because you’re dealing with something, and back then when somebody had their computer or laptop. Now days you can buy something for $300. Back then, these were high tech, top of the line equipment. And they didn’t want just anybody touching their equipment. So really it was word of mouth and referrals.

Andrew: I see. And how long did you go doing that before that person came in and said hey I’ve got some extra hardware for you to sell?

Dean: It was probably about 3 months.

Andrew: Okay. So it’s still well within the six months that you were giving the business idea, but so far it wasn’t dazzling anybody and it wasn’t living up to the plan.

Dean: That’s right, that’s right. And then once that person came in about three months later, and we saw, you know what, maybe we can move a lot of these. We moved what he gave us very quickly. It was like in one day.

Andrew: How? How did you get so many people to buy equipment when you were new to the web, when people weren’t used to buying online back then?

Dean: Pricewatch.

Andrew: Pricewatch. What was it?

Dean: Pricewatch.com, I don’t know if you’ve heard of them. But they were the only game in town, really. For moving computer parts. Now there’s lots of these other websites, like NexTag, and the PriceGrabber. And lots of the comparison websites. But at the time Pricewatch was pretty much the only website out there where you could sell your computer parts. And if you wanted to buy something, that’s where you would go.

Andrew: And it was a place where, if I was a consumer, went on, I could do a search and find multiple prices for multiple vendors, all in one spot. I click on the vendor I want to buy from, go to his website and buy from there. Comparison shopping engine, as they say. Why not eBay, where you wouldn’t even need to create your own website?

Dean: Eventually we did end up working on eBay. But in the beginning, I was not the tech person. And one of the partners that we had knew Pricewatch very well. He knew how to use it. And he is the one that suggested, let’s use Pricewatch and the results were telling me that it was one or two days when all this equipment that the guy gave us was gone. So we just stuck with it. Believe it or not, I think that all the revenue we did for the first couple of years, pretty much came, I want to say exclusively from Pricewatch. But that was our main online marketing.

Andrew: Okay. So, first batch does well. You guys decide, it seems like, no more service. That’s too slow, it’s too mechanical. We’ve got this growth opportunity. But I’m imaging lots of people didn’t walk through your door, with equipment. How did you find the next batch of equipment that you were gonna sell?

Dean: Well this is pretty funny, because this shows naiveness or the guts of young entrepreneurs. Where we just called up a key gate, and we said, well we’re doing well, we’re selling the product. We want to buy direct from you. And basically, of course, who are we. I mean they have like billion dollar distributors. And you know, what did we know at the time. So we just called them up and said listen, whatever we have to do were willing to do to get us in.

The funny thing is that they didn’t hang up the phone on us or tell us to get lost. They actually set up a meeting between us, a CGATE rep and a distributor. Synic Technologies. I still remember the meeting it took place in a Wendy’s. And we met there and they got us set up with their distributor, Synic at that time, with open accounts.

Andrew: All right. So I imagine that there are many people who had distributor agreements with CGATE at the time. You were competing with all of them. How did you end up getting customers in a market that had so many other competitors?

Dean: Well there were not that many competitors. Going back in 1990 to 2000, maybe there were a handful of people doing what we were doing. It was not wide spread. You know, things changed relatively quickly. But in the beginning there were retailers who were selling to large companies. Who were selling to any company in office buildings in New York City and around the world. But as far as selling individual parts to individual people, there were not that many out there.

Andrew: I see. Okay. What happened next? Actually, how did you grow your customers? Was it still all Pricewatch?

Dean: It was Pricewatch, but we started to use Pricewatch as the lead generator. So we started selling that one piece, and then we would have a [inaudible] Martin or Northrop Grumman give us a call and at that point we would just put them on the list. And then we would just call them every week, you know, what do you need today, what do you need today. We didn’t want them going back to Pricewatch, we wanted them calling us.

Andrew: Oh, interesting.

Dean: We would convert the lead significance to our own clients.

Andrew

And so, were you selling for cost, just so you can the lead, or did you make a profit, even on Pricewatch?

Dean: On Pricewatch, I mean the profit was incredible in the early days. I mean you were talking from hundred percent of profit on computer components. Because there was no competition.

Andrew: This is where I have to repeat because of the DSL connection. A 100 % profit margin?

Dean: You could buy something back then for $100 and sell it for $200, $300 very easily.

Andrew: Wow. In addition to that, you would also call up the people who made a first purchases from you and say, do you need anything now. Maybe even send them an email.

Dean: Absolutely. We would give them a call, we had our call list and we would follow up with them weekly. And little by little, as the calls came in and our prime list expended, we started to become a known company in the retailer market.

Andrew: I see. Wow, alright. So, when your accountant said that you’re a great entrepreneur, I can see how the foresight to say, I’m not just gonna wait for these orders to come in from Pricewatch. As profitable as they are, I want more and I’m going to go directly at the customer. I can see how that’s a very entrepreneurial thing to do. What else did you do in the early days, that was so entrepreneurial that it helped you get to $40 million?

Dean: You know, I remember speaking to another company that I admired. Because they had broken this million dollar a month barrier, that we were just not able to figure out how to do. I mean we were doing 800, 900 thousand a month by 2002. But we were not able to break that million. And I remember talking to him and thinking how are you doing this, like, what’s the secret? Not that they told me, but I just remember that phone call. Because I remember thinking, how do I get to the next level, how do I that.

And one of the things that we did do, that really helped push us to another level was, we opened up another office in California. I had been actually selling computer parts to a customer in California. And he was another retailer. And we just became very good friends over a pretty short period of time. Maybe within 6 months. And he had been working with his company, and I had mine. And we just started talking, what if we spend, and become the partner at ComputerGiants. And we open up an office in California. Because at that point, California and the Los Angeles area, that was the center of the computer industry, the computer market. All these companies were manufacturing there, all these companies had warehouses there. So it’s just natural that we wanted to be there. And since I could not be, we decided, well let’s just take on another partner, and open up another office.

And after that, really, the relationship grew. Our customer base grew, our supply grew. And we were able to break that barrier and go well beyond that. At one point, we were at about $3 million a month.

Andrew: Oh wow. And so having an office and having that kind of personal contact, helped you triple your sales. Not that one aspect alone, but it helped get you to triple sales.

Dean: Yeah. It definitely did. And just hitting on some good quality sales people in our California office. We were not trained sales people, we were not even really computer sales people or computer tech people. But we got some good quality people through this extension in California which definitely helped with the growth.

Andrew: So what kind of customer responds better to a phone call instead of going online where they could price shop and take their time and place their order on their own?

Dean: Well, the type of customer, I would say, the one that we would go after were the corporate customers. And basically they do have limits, they’re litigating how they can use their corporate card or their government card, because a lot of times it was government agencies. But you have to remember that these people that are sitting behind these desks, they’re procurement. Whether they’re for a large company or the government end. Yes, they can definitely do searches online, but these people are not really high level people. They’re good people, but their card are basically limited to about $2500 maximum. So usually what they care about more than anything, is not saving a few bucks a year, because look, it’s not their money. But it’s more about the relationships and the contacts.

If you can create a good relationship with them, friendly, courteous, professional. They’re looking more for the human interaction than just, let me save a few dollars and just buy online. That happens, but in my experience it’s more about, how’s Dean doing today, let me give him a call, let me chat him up a little bit and at the same time see what’s going on with computer parts.

Andrew: So beyond Pricewatch, where did you find new customers?

Dean: Beyond Pricewatch, we started to expand, as more and more people started competing against Pricewatch. It was NexTag, it was PriceGrabber. I mean at one point we were on probably ten different comparison websites. And then we started to get onto the Google Keywords. At one point our Keyword budget was probably $50 to $75 thousand a month. Just on Google Keywords. So they were loving us there for awhile.

Andrew: And what percentage of your overall new customers were coming from comparison sites or Google?

Dean: There was a point where, Google kind of took over, from the comparison sites. Where we were getting more, I wont say necessarily more sales, but more leads, from the Google Keywords. And they were better leads. They were more qualified, because the only thing that we would market, and I would suggest this to anybody who is using Google Keywords, just be very specific. We would never market or advertise hard drives or CGATE, because you might as well just throw your money away. But if you’re very specific as far as card members or if somebody knows the size and speed they’re looking for.

Then you have somebody who knows what they want. They’ve done their research. So we didn’t want to pay somebody just to do their research. We wanted to actually speak with somebody who knew what they wanted. That’s where qualified lead, as opposed to at PriceGrabber, where somebody’s more, just shopping, probably doing their own research before they go out and buy.

Andrew: Were you trying to make a sale right away when a hit was coming to you from Google? Or were you first locking them down as a lead and then moving them through your funnel until you got the sale?

Dean: Well of course when somebody first calls, the first thing you want to do is get their information. So you find out what they’re looking for, what they want. Because at that point, we had different types of departments. There was hard drives, there was [inaudible] drives, there was media, there was memory. So we would first have to qualify them and send them to the right department, the right sales team. And then it was up to that person to close the deal. And we also had different levels of sales people. We had some sales people who only handled individual customers, and ones who were more seasoned, would handle the larger corporate customers.

So we would get a little bit more information about the customer, before we actually talked about, why they were calling, what are they looking for.

Andrew: What else did you do right that the rest of us could learn from? I mean to get to $40 million is phenomenal. How did you get there? What else can we learn from that part of the process? I know the interview should be apart of the second story, but help me understand how you got to the top of the mountain.

Dean: You know, looking back it was a very, very quick thing. Anybody who has been in business knows what it feels like when, it just seems like everything you do is just right. You can do no wrong. It’s almost like, I won’t say you know, it’s like God has blessed you, but that’s the feeling. Like everything is just so smooth. And that was from ’99 to about 2005, that was the feeling. Everything was going right, every move we made was a good move. But besides the Google Keywords, getting on all these price comparison websites, is really about relationships. And I would say, don’t be afraid to call, whether it’s a large distributor or manufacturer. You know, that’s what they’re there for. They’re there to sell. We were never satisfied going to the resellers themselves.

The market and the world is full of retailers like us. And we wouldn’t be satisfied calling us. We wanted to go to the step above us. So, at that time, I took many trips to China, to Taiwan, going to factory warehouses. Trying to make connections. Because it wasn’t the case in ’99 but by 2005, all these goods were being manufactured overseas. They were still manufactured in the United States. But more and more was going overseas. And you were able to find a better pricing overseas. So it was all about, get as close to the source as possible.

Andrew: Beyond hard drives, what else were you selling?

Dean: We started with hard drives and then we just tried to naturally expand out of that into storage. So it was hard drives, then it was tape drives, then it was tape drives media. So after that, it just started getting more and more into the memory and motherboards and everything else.

Andrew: I see.

Dean: In the beginning it was hard drives, and it just expanded out of there.

Andrew: Okay. During this high, were the seeds of the eventual fall being planted?

Dean: Yeah. Absolutely. I mean falls don’t come overnight out of the sky. They take years to develop. Typically in my experience. And it’s more about staying on top of things and not ignoring things. When everything is good who wants to be the one to start bringing up negatives. Everybody is happy and making a good income and a good living and enjoying themselves. So who wants to be the naysayer? But you know, we see that a lot, whether it’s the recent Ponzi schemes and all these other things. Where the signs are always there, it’s about who’s going to be willing to point them out. And it’s never comfortable but my experience now is that is what you have to do. You have to take care of these when they’re small weeds before they take over the garden.

Andrew: So what are those weeds? Before we get to what happened after 2006, lets talk about what happened before that led to that.

Dean: Sure absolutely. I would say one of the things I heard you mention before, this is my own criticism, when my accountant told me you are a great entrepreneur but not a good businessman. I was immediately taken aback. The feeling was, how dare you, of course I’m a great businessman. Who doesn’t want to be a good businessman? But at the same time, with reflection and some time to reflect, you really start to think about, you know, where did I go wrong, and what could I have done different. And the truth is that the day to day operation really wore me down, from just spending hours, and hours and hours at the office. Talking to hundreds of people a day and answering hundreds of emails. And at some point it was just overwhelming. And I don’t want to say that I didn’t have the foresight that it was coming, it was just I couldn’t deal with it at that time. So it just kind of kept going as best I could. Instead of changing things up and trying to alleviate some of that pressure. It was almost like, I’m the owner, I should bare this entire burden, no matter what. And obviously looking back, that wasn’t the right thing to do.

On the other hand, another weakness of mine is on the financial end. I never really liked accounting, and I think most entrepreneurs don’t like the accounting end of the business. Because they want creativity. They want to build something, they want to work with people who are putting something together. But the whole accounting end, and you see it all the time in today’s dotcom world. All these companies are billion dollar companies and they’re not turning a profit. We didn’t have that luxury from day one. We had to make a profit from day one. We didn’t have angel investors, we didn’t have anybody backing us, it was all out of our own pockets. So from day one we needed to turn a profit.

With that being said, I was the default one. I did go to law school, but I wouldn’t say I was very good with numbers, which is one of the reasons I went to law school. But the accounting fell on me, and I didn’t look after it as best as I could. Especially when the company went from a few thousand dollars to $40 million. It was definitely out of my skill set to keep track of that. And that was one of them that I could have caught earlier, but I didn’t. Looking back it’s very easy to say that I should have. But at the time you do the best you can with what you know and what you have. Of course, as we make mistakes, you learn from them. But that was definitely one of them, the accounting.

Andrew: Let me unpack what you said. I took down some notes so I could go over some of these issues. Like, you said that there were burdens you took on yourself. Can you be specific about some of those burdens?

Dean: Sure. Besides the financial, which basically I was handling all the finances for the company. I was also handling a lot of the sales myself, for awhile I was the company’s top salesman, just because I had the relationships that I started the company with and stayed with the company. I was also doing a lot of the purchasing. And with the small start ups, you have to take on the rolls, and you have to wear many hats. And so I was the sales, I was purchasing, I was accounting, I was even shipping for awhile. When we first started, I would take my own order and I would go down and pack it and go to UPS and drop it off. So obviously as time went on we did get busier. I did get rid of some of those roles, but the roles were the relationships that were built with me personally. Those I kept and those were in sales and purchasing. So I was wearing a lot of hats in accounting and purchasing and in sales.

Andrew: The writer Michael Gerber, says that one of the problems with entrepreneurs is that they’ll do everything at first, and then they’ll pass on some of those responsibilities to other people. Those other people wont do as good a job as they do. So the entrepreneurs will come back in and take it over. Did you find that that was happening to you?

Dean: Well I did pass on the accounting.

Andrew: What about with sales? I see a lot of pride in being the number one salesman in the company. Was there any sense that no one else could compete so I better handle this. Or, I tried to pass it on to people, they didn’t do a good job so I’ll just at least maintain my current relationship?

Dean: Well I mean there was some of that. Not that I had a huge number of clients. But there was still a select few that I would still hold onto. Because it’s true, I did not think that other people would be able to service my clients as well as I could. Whether that was boastful or prideful, that was the feeling then. With that being said, there were lots of other sales people, lots of other clients that they were helping. But a few, I did hold onto. Which maybe it was a little bit of a distraction from focusing on the other aspects of the business. So looking back you really don’t know what the right move would have been, or could have been. You can only say that you did what you thought was best at the time. And even today, I don’t know if I would have given up those clients. Because they were a major revenue stream for the company.

Andrew: You also said, on the financial end, I didn’t look after the financials as best as I could. What do you mean by that? What are some of the mistakes there?

Dean: Well one of the things was, the type of company that it was, we sold hundreds of thousands of products over the internet. And when you sell products over the internet, you’re dealing with an eight legged octopus, where one side you have the part itself, you have sales tax, you have shipping, you have the actual cost of good and are you gonna use blasting for south or are you going to use cursing for south. There’s all these different types of counting tricks that you need to know and use.

Andrew: I remember that. LIFO, FIFO, from accounting class. The difference is really big when it comes to profits. If you make a sale of a part, if you bought it two years ago at $1.00 and today you bought it at $0.50, which one of those two numbers use the expense, determines your profit today. And that’s a decision you have to make. And once you make those decisions you kind of locked into them, right? Or did you say you weren’t sure which way to go and you were going sometimes LIFO, sometimes FIFO, sometimes this, sometimes that?

Dean: Well it’s interesting because everybody has different opinions and different view points. The accountants for the company wanted to handle it one way, which is last in, first out. Of course the purchasers for the company, who are somewhat commission based, and the sales people who are definitely commission based, they had different ideas. If they had bought something a year ago that was still sitting there, they didn’t want it effecting their commission. When they bought it a year ago at, let’s say, a hundred dollars and their buying now for $15.00. They said first in first out because obviously they’re getting a much better commission. So everybody has a different viewpoint for what’s best for their bottom line. And of course, I was looking at what’s best for the company. Which sometimes would cause a disagreement with sales people or purchasers. And so that was always an ongoing issue.

Andrew: Okay. So, that’s one thing that had to do with accounting. What else? It seems like accounting was a really tough spot, what else?

Dean: I would say that the website that we created and built, was using a back proprietary software, that one of the original founders of the company created. He was the creator and he built it. And it was great when we were doing $50 thousand, $100 thousand, $1 million in revenue, but when we got to $38 million, it was showing it’s age and it was leaking, without us even realizing it.

Andrew: What kind of leaks?

Dean: It was revenue leaks. Like for whatever reason, and I don’t think we will ever know, it just wasn’t showing the cost involved. So things were costing a lot more than what we realized. So one of the things that we should have done, I won’t say from day one, but when we realized that hey we are a legitimately large company, we should have invested in a software package that would have better suited our needs. And we did try to do that in the end, it just didn’t work. We ended up paying $100 thousand for a brand new software accounting website package, called NetSuite. And had many, many hours of meetings with them. We would meet in New York, in California. We transferred the entire website over to them and it was a nightmare from the first day it went live. We saw our revenue go from $3 million a month, immediately drop to $2 million a month as soon as we went live with NetSuite.

Andrew: Why? Where did you lose a third of your business?

Dean: That’s a good question. And I can’t honestly answer that question today.

Andrew: So somehow, you ended up with fewer, not that the numbers weren’t being counted properly necessarily. What you’re saying is you ended up with a fewer orders.

Dean: We ended up with a lot fewer orders and we looked into everything. From the speed of the connection, from how are analyzing how people are using our website compared to how they were using the website before. And we never really got a satisfactory answer of what that change was, when we flipped the switch on NetSuite. NetSuite couldn’t answer our questions. So we were kind of flying blind and just trying to recoup and come back from that drop. And I really can’t say what that cost today.

Andrew: Wow. That must have been really painful.

Dean: Well it was very painful. And one of the main reasons why was, when we first started was self financed self funding. And at some point we had to get a line of credit. And we started off with a small line of credit, $100 thousand. And that went up to $200 thousand and eventually it went up to $2 million. We were able to pay the bills, and of course we were young and we were thing, you know, we’re so smart, I have two million dollars and I’m making $3 million on this $2 million. And of course, I know, older business people in my network and I would speak openly. They were like mentors, and everybody would say, you know, watch what you’re doing with this line of credit. Don’t get in trouble. And of course, I’m like, these old guys, what do they know. Thinking that I knew what I was doing, I have a $40 million business. In the end I won’t say they’re right because it might have turned out differently, but they were certainly right in my example because as soon as the company’s revenue dropped from $3 million a month to $2 million a month, it just became impossible to handle a $2 million line of credit.

Andrew: Why did you need a line of credit, considering how much revenue was coming in?

Dean: The revenue was, you know, when we first started I was saying the profit margins were 100, 200%. By the time we finished, maybe they were 5%. In the beginning there’s no competition, when we finished, just go onto PriceGrabber or NexTag, and you’ll see thousands of competitors out there. And of course, the big guys out there, like [inaudible] or [inaudible]. In the end we couldn’t even compete with their pricing. They just get such incredibly special deals from manufacturers and distributors, that it’s very, very difficult.

Andrew: The line of credit then, was that used to where you have to make your payments early, but you get paid from your customers later, working capital. Is that what it is? What was it for?

Dean: No the line of credit was pretty much just a straight loan. It was based on the company’s revenue, but it was also based on the company’s inventory. So it was kind of like this crazy idea that the more inventory you have, the more line of credit you can have, and you almost have to keep your line of credit high, your inventory high otherwise the bank was going to come and take the line of credit away.

Andrew: Right. Because they didn’t have the collateral anymore.

Dean: Yeah. So it was like a self fulfilling prophecy where our inventory is going low, we have to go in and buy more inventory so we can keep our line of credit higher. So it was this strange dynamic. And we needed it because at that point, in order to get that good pricing to compete in this market, you need to buy large volumes. We needed to buy not ten or twenty hard drives we needed to buy a thousand hard drives to get those special pricing and compete.

Andrew: I remember in my business, I don’t remember the exact date, but I remember I was sitting. I remember where I heard my CFO say for the first time, we had a down month. And the reason I remember is because I didn’t think much of it at the time. I thought he was being over worried but that was the beginning of a long drop, a long fall in our revenues. Do you remember one incident that was that indicator for you?

Dean: I remember two incidents. One of them was, one month when we were having a tough month and I went back and looked at what we had spent on Google Keywords. And it was, this one month, we had spend over $100 thousand on Google Keywords. And it was when things were kind of getting a little tight. And I didn’t have a good nights sleep for a week. I was just so amazed that this would happen with nobody really noticing. People were just so used to not having to worry about these things that it kind of lacks. We never used to look at how much we were spending on Google Keywords because the revenue was there, the business was there. So there was that, that was kind of a wake up call. That said hey this is real money and we’ve got to start paying attention.

The other thing was, I was sitting in my accountants office in 2005 with my controller. This was the person that I had given a lot of the accounts and control to. And, really nice guy, and to this day, I don’t think he did it on purpose, but when I had sat down with my accountants. And I had honestly thought that my line of credit with the bank was at probably about a million and they said well you’re line of credit is $1.7 million. You know, I turned white as a sheet. It was a wake up call and I still recall that feeling because you almost don’t believe it. I had to run back to the office to call the bank and check everything, because I thought they were wrong. But of course, they turned out to be right.

Andrew: And then, take me through. We talked about the rise. We talked about the seeds for the fall. Tell me what happened afterward. How did it play itself out?

Dean: One of the other issues that seemed to be pretty constant was we never really got the balance right between having two offices. A New York office and California office. Very different cultures, very different personalities and it never really fully meshed. So there was always these kind of turf battles as to who was doing what, and stepping on each others toes. I was always seen as kind of defending the New York office because I was in New York. And then we had the California manager. So of course the owners and the partners together, 99% of the time everything went great. I really couldn’t have asked for better people to do a company with. But still there was a culture clash. Where we all separated on very good terms. But that was probably a seen that we should have addressed early on, was the differences in offices. But at that point at the end of 2007, when things were just not going to turn around, I realized I’m going to have to personally step out of the picture.

One because I knew I needed to move on. So it was that sacrifice that I was willing to leave to kind of erase this entire culture clash, because unfortunately we had to close down one of the offices. So I took the decision that we were going to shut down the New York office and leave the California office.

Andrew: And the reason that the sells started going down, I mean the economy was still good then, it was in a recovery. Right? The problem was, if I’m understanding you right, is that a lot of competition came into this space. Drove down the margin, drove down the number of available customers and made you guys spend more to get less. Is that what happened?

Dean: That’s exactly what happened. There were certainly other things that we could have done to prevent, well I don’t know if it really could have been prevented. But we could have softened the blow. But it was all about what type of business do we want to be in what do we want to do. There’s a lot of money to be made, there’s a lot of good people in it, but the way the market was going, the manufacturers themselves are now selling more and more direct to the end user. They’re starting to follow the Dell method. Or you also see Ingro Micro, or Bell Micro, where they’re selling direct to the end user now. So they’re really trying to get the reseller out of the market. I saw that was coming. I also saw that more and more products were being manufactured overseas which led to two things.

Prices were coming down. Things were getting cheaper, there was less margin. But there was a huge, huge influx of fake counterfeit goods. And I can’t tell you how many times we’ve had our warehouse visited by customs people. We found a fake whatever, a switch or a hard drive. And of course you’re honestly trying to purchase from legitimate sources, and sell goods. But right now in the United States, I would imagine a very large percentage of computers and servers are being run on counterfeit goods. Just because there are so many in the market.

Andrew: And you’re saying that you had inspectors come in and they’ve found forged products and then they had to confiscate it. So you spent the money on it, they took it away.

Dean: Right. And that happened more than once. And it happens to lots of companies lots of people in the industry that I know of. It continues to happen.

Andrew: How much money did you lose to that?

Dean: Well, whatever you spent. If you’re lucky, you didn’t spend that much.

Andrew: In your situation, how much are we talking about?

Dean: In my situation, there was a time when the company was actually shut down for about a week because they decided that they wanted to take our servers as well, which they did.

Andrew: Oh, your computer servers. The ones that were operating the business, because they wanted to do what?

Dean: They wanted to do a forensic analysis.

Andrew: So for two weeks you were down as a business?

Dean: It was about one week. So you also lose a lot of revenue there as well. Nothing ever happened. I mean it’s not just that cost but it’s the cost of getting attorneys to speak to these people. And at that point the opposite was from ’99 to 2005 everything was going great. And then from 2005 to the end, until 2008 you wonder. It’s like Murphy’s law, everything goes wrong. And it just compounds and one goes on top of the other. And that was a very, very tough period.

Andrew: When your accountant said, I don’t mean to keep going back to this one sentence, but I’m using it as a tool in this interview. When your accountant said that you weren’t a great businessman, what would a great businessman have done? How could a great businessman dealt with this situation as it unfolded?

Dean: That’s a good question. We’ll have to ask one.

Andrew: If I ever find one who is perfect I’ll have him talk us through.

Dean: I can only look back and say, would I have done things differently. And would it have made a difference, I’m not sure. You know in 2004 we had somebody come and offer us $6 million for the company. Not a huge amount of money when we look at the grand scheme of technology. But it was a lot of money to us, but we didn’t take it. We said, you know what, we have something really solid here and we think that we can do better in a couple of years. Of course, now we all wish that we took it.

Andrew: In the low, when you were on your way out, when you were dealing with the headaches day in and day out, where everything was Murphy’s law, how did that memory of the $6 million offer that you refused, how did that impact your day?

Dean: Well, you definitely thought about it. I defiantly thought about it. But I wouldn’t say it was a huge consideration. I mean, you know, it would have been nice, but I didn’t spend too much time looking back.

Andrew: Okay.

Dean: And I do think that is a signature of an entrepreneur, is whether it’s good times or bad times we really tend to look forward instead of look back. So even today I don’t have too many regrets. I don’t have too many, I don’t beat myself up over mistakes I made. It’s a cliche but you just have to keep moving on. So that’s what I plan on doing, and that’s what I intend to do and when you have a large company like this, it’s actually a lot harder to move on then somebody might think.

Andrew: Why?

Dean: Well because you have all these creditors that you owe money to. And when you get into these types of numbers you get personal guarantees. And you just have to deal with them as they come. I never personally declared bankruptcy. I was able to avoid that. The company had to declare bankruptcy. But I had to settle with all these creditors and come to terms and it just takes time. It took 2 years before I was able to really get out from under the collapse of the company. I would say this year, 2011 is the first year I can really start to move forward, free of any other obligations. Because there’s no point in starting another company under your name if you’re worried somebody is going to come that you owe money to and attach it and take your new business away.

Andrew: Isn’t that something? I mean when you’re fired from a job at least you have a clean break and you go free yourself for a day, go free your mind and then you can start something new. But with a business, it’s like being divorced from your ex wife but living with her for two very stressful years afterwards. You can never just go out. You can never go on dates really. It’s just painful.

Dean: Yeah it is. I mean its a shame. It would be great if there could be some sort of laws or regulation to help relieve that because, this company, after the recession that we’ve been through. What happened to me happened to a lot of people. And it was actually a benefit that this happened at that time, because creditors were a lot more willing to listen and negotiate, settle, than they might have otherwise been. So worst case scenario happened, but ironically happened at the best time because even though I owed a couple of million dollars, it was a drop in the bucket compared to what was owed overall in the economy.

Andrew: All right. So now that that’s behind you what’s next? What are you doing next?

Dean: So I have recently started a law firm. I did end up going back into law. In the past couple of years I’ve had my own real estate company. I was working as a broker, because it’s more commissioned based and I don’t have to worry about salaries. And I’ve been doing a lot more real estate law. And a couple of months ago, I had a friend of mine come to me, she does a lot of immigration work, so she said why don’t we combine the real estate and the immigration law. And so we created my new law firm Morales Superous. And so we’ve been doing that for a few months. It’s very interesting because it’s totally different then what I’m used to. So it’s like a whole new experience for me. Where I have to market and promote myself, not on the internet, not really on the marketing campaigns, but more networking. More going to all these social events, and that’s not as prevalent in the computer industry. I mean it has been, but here I’m going to networking events.

Andrew: Chamber of Commerce meetings, those kind of events? DNI?

Dean: Those kinds of events. DNI, absolutely.

Andrew: So, at the same time, you’re still watching the tech industry. You’re listening to Mixergy interviews, or am I just assuming it?

Dean: Well, you’re assuming it, but you’re correct. I love your interviews. I listen to you. I listen to Rise to the Top. I read Entrepreneur and Fast Company. So absolutely, my passion is still in technology, and I’m working on a technology website right now. There really working up right now, with Bloomberg as mayor, they’re considering New York City as Silicon Alley. There are a lot of new companies starting up so we are launching, actually two tech websites within the next two months.

Andrew: Can you tell us anything about what those sites are?

Dean: Yeah, I’d love to. Thanks. One of them is called CitiRenter.com.

Andrew: Let me give it to people again, just because of the Verizon connection. CitiRrenter.com. Okay.

Dean: And so the tag line for this is Own your City. So our approach is, it’s more of a portal to New York City. Starting with New York, we hope to go beyond that. But this site you’re going to be able to find anything you want, as a renter in New York City. One of the things from the recession is less people own, more people rent. And you can definitely see that in New York. Rents are starting to go back up, and the number of renters is increasing. So we wanted to create a website to gear towards them. And I kind of consider this a portal to New York where you can find your apartment. You can find the coupon deals, the Groupon deals or any number of them. As well as Yelp reviews, as well as anything a renter needs. Whether it’s a dog walker, a house cleaner, a locksmith. This is where you’re going to be able to come and not only just find them, but price compare them. So we’re kind of creating a price comparison engine for renters as well.

Andrew: And I can see how something like that would be really useful in New York and many other cities. Where you were born, is essentially where you’re going to grow up. If you’re raising a family in one place, you’re going to stay in that one area. I remember when I lived in New York, I moved from apartment to apartment in Manhattan pretty easily. And you don’t have that understanding of what’s around you. You’re always rediscovering your few blocks because it’s a whole other world between midtown and downtown and upper west side and upper east side. Okay. So what’s the other site?

Dean: The other site is called, and it’s an interesting one as well. It’s called Violation Management Solutions. It’s actually very much geared towards property owners in New York City. Property owners, property management companies as well as construction companies. The reason why this is interesting is because Bloomberg has just pretty much opened up the city’s data servers to entrepreneurs. So what we’re able to do now is we’re able to go in there, grab a specific property information and kind of create cool software programs around them. So we decided to follow this one because the other thing that New York is doing right now is, New York City is broke, like a lot of municipalities. And if you hire one city inspector for $35 thousand a year, it’s said that it he’ll ticket about a half a million dollars. So this is a win for the city and not a good thing for property owners. Because these people spend their days going around ticketing property owners. So we kind of created a website to help alleviate some of that burden.

Andrew: All right. And is there a way for people to connect with you before the sites launch. Or even after the sites launch, if they’re happening to be listening to this in the future? I want them to connect with you, and maybe give you feedback on the website when it launches or maybe just if nothing else, I always want my audience to thank the guest and this is a good way for them to do it so, how can they connect with you to do that.

Dean: Yeah. I definitely appreciate that. The best way to connect with me is just to send me an email. My email address is DSoukeras@gmail.com. I’ll give you my personal email. I would love to hear from people. You know at the beginning you asked me how is this a win for you. Nobody wants to talk about their failures but there’s a lot to learn from failures. As I learned. But it’s a win for me just because I can share my story and help somebody avoid a mistake that I made, that’s a win. As well as I’d love to be back on the show, in six months or a year’s time and share some of the successes.

Andrew: Thank you so much for doing this interview.

Dean: Thank you Andrew.

Andrew: Thank you all for watching. Bye.

Who should we feature on Mixergy? Let us know who you think would make a great interviewee.

x