Competitor = fool

Some days I marvel at the many executives who seem to be successful (at least for a time) in spite of their lack of critical thinking. We have an excellent example this week in Terry Drayton, celebrated CEO of Count Me In, a competitor in Bellevue WA. Terry is making the media rounds apologizing for losing $5,000,000 of his customers’ money. He either made the mistake or allowed the mistake to be made of co-mingling operating funds for his company with the funds paid to the company to be held in trust for his customers. It may not have become such a massive issue except for the fact that his company was losing money and therefore “lost” the money that should have been dispersed to his customers. He discusses the issue and takes full responsibility for the error in this article. I doubt this apology will get him through the multiple lawsuits the company is facing.

I’m happy to say that, coincidently, I talked with Bill Diamond about setting up the proper trust account structures on Monday night and mentioned it to Natalie yesterday even before I read this article. To me, this is a obvious thing to do but it appears that it is not obvious to others. I’m going to make sure that we highlight that our customers’ funds will be held in trust and segregated from our own funds. We will try to use this as a competitive advantage over others who may be making the same mistake as Count Me In.

However, I’m concerned that the media coverage and word-of-mouth rumblings over this incident will make customers reluctant to use services like ours. Trust broken is difficult to recover and one bad apple in an industry can have a major poisonous effect on the business of others, at least for a while. We’ll tackle this proactively but with the margins we work with we have to hope that it won’t be a major barrier to acquiring new customers. We simply don’t have the luxury of applying additional sales pressure to sell around or over the objection. In spite of this possibility, I’m comfortable that our multi-niche market strategy (sports teams, political fundraising, clubs, school groups, etc.) will help mitigate the impact of this incident on us.

There are a couple of good pieces of news that have come to light from all this.

First, Count Me In has processed $175M dollars of fees over the last seven years of operations. This equates to, on average, $25M of business volume per year. We believe we can be profitable at less than $25M per year.

Second, they currently process well over 25,000 registrations per month. In our model, this would equate to 1,000 team sign-ups per month and is in the same range as our required business activity to generate the net profit that would allow us to sell the company for over $20M in our fourth or fifth year.

To me, these two numbers show that our forecast and business model growth projections are realistic. We just now have to make it happen…

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