What It Takes to Make It, or "Hey Buddy, Show Me Your Machine!"

Posted: 05/1998

What It Takes to Make It, or "Hey Buddy, Show Me Your Machine!"

By Dan Baldwin

At the AgENt show in Houston this past February, we had a very popular panel discussion
on how a person could go from being an agent to being a reseller. For this month’s column
we’d like to share with you the One Plus Agent Association’s (OPAA’s) spin on not only
what it takes to become a reseller, but also what it takes to make it as an agent or a
reseller.

As an interesting preamble, let me share with you the following: By hook or by crook I
ended up on the circulation list of a semi-interesting bimonthly magazine several years
ago. It’s published by a group out of Montana and it’s aimed at "telecom service
providers," which is what they call folks who run answering services and the like.
From the magazine’s ad list, one could easily get the impression the magazine is sponsored
by a company in the business of brokering sales of answering service companies. (It’s easy
for me to understand why one in this business would want to sell out–any business as
labor-intensive as an answering service can’t be all that easy to run.)

The interesting part of the magazine was the business broker’s ads. It basically
spelled out the formula for success–at least $50,000 a month in revenue, a 30 percent
profit margin on that revenue and a management team in place. The broker’s ad suggested
that this simple equation would produce an easy 10 to 15 times "multiple." (For
those of you new to the telecom dream, the multiple is the big "pie in the sky"
we’re all after. Take your businesses monthly revenue, multiply it by the multiple and
voila, you have the amount of money someone would pay you for your business.
Congratulations–you’re an instant millionaire!)

The one catch to that dream for agents is it only applies to those who actually
"own" that which they intend to sell. (For a quick reality check, please refer
to the specific paragraph in your agent contract that clearly states in no uncertain terms
that "your" agent base is actually not yours at all; the carrier is the only one
that will get rich from the sale of your base.) A quick fix to this little hitch in the
get-along is offered by TMC Inc., a reseller that suggests they’ll share the multiple with
their deserving agents when they sell. (As a side note, we’ve met with TMC and like the
company. The only bad things said about TMC are said by its competition. Take heed,
though, from the "Midcom affair"–Midcom had a deal in which it was going to
share the wealth. Midcom went bankrupt.)

But more on actually getting the money later. (All our problems should be so big!) For
the purpose of identifying just what it takes to make it, let’s assume for the moment that
as an agent you can sell your base. To get anywhere close to being where someone would
want to buy you, you need the same three things an answering service business needs, plus
something more.

First, you need at least $50,000 a month in revenue to demonstrate you actually are in
business. (Anything below $50k tells people you’re either just starting out or you’ve
become seriously sidetracked.) Second, a high margin (customers who are paying at least
9.9 cents a minute but preferably a lot more, such as 12 cents or higher) gives you
something that someone would actually want to buy. Having a management team in place is
the third requirement, because when they buy you out they want just that–you out. The
business world seems to believe entrepreneurs are rarely helpful once they’ve sold their
business. How well is your business set up to run without you?

The fourth–and most critical–thing you need is a "money machine." A money
machine is that idea or marketing angle which gives birth to and then nurtures the above
mentioned three. The "money machine" (specifically, your money machine) is the
one answer that satisfies most all a potential purchasers’ questions, such as:

— "Why do people buy from you, how long do they stay with you and how is this
different from your competition?"

— "How much new revenue per month does your idea generate and at what profit
margin?"

— "Based on everything (technology, competition, customer choice, the stars, the
moon, etc.), how long will your machine continue to perform at its current output?"

If you have the right answer–the right machine–then you’re going to talk the
potential investor out of buying another load of pork bellies and into buying you (at a 15
times multiple–oh please, oh please!)

So what are good machines? Obviously anything that delivers the above. If your current
machine isn’t delivering the above, don’t despair (or reinvent the wheel). OPAA highly
recommends modeling after success (a.k.a. copying someone else who is succeeding). You
don’t have to go very far (nor should you) to find your model. Just open your town’s
yellow pages to "telecommunication service providers" for a list of locals you
can copy.

Before you say, "Hey Dan, you idiot, how can I compete against Sprint, MCI and
AT&T?" consider for a second what they actually do and you’ll realize you can do
it even better. (Or refer to OPAA’s book "How to Sell Long Distance" at our
website at http://www.opaa.org for a more detailed answer.)

Your competition has an extremely simple (and highly successful–hint, hint) machine.
They each keep on staff five to 10 semi-youthful and idealistic folks (whose primary
qualification is suit ownership). They incessantly share with them the joy of
"success through cyber-electronic prospect contact" (a.k.a. cold-calling). They
then count the money while sitting around in their big, fat comfy leather chairs smoking
cigars before meeting their rich friends at the country club for a three-martini lunch.
(Sure, that last part is a bit far-fetched, but it’s a vision that keeps me highly
motivated.)

In reality, though, their model works like a charm. Each salesperson gets $2,000
guaranteed per month to make upwards of 100 calls a day to set enough appointments to sell
enough business to meet their $3,000 monthly quotas. Most salespeople average just $2,000
per month in sales (bad for them but good for the company–no extra commissions to pay and
a reason to fire after 60 days–after the salesperson has maxed out but before his
benefits kick in at 90 days.) Each $2,000 in business brings the company a 30 percent
margin or $600 a month for 12 months ($7,200 profit per year) before the customer leaves
for another long distance company. Even if the company has $2,000 in overhead in addition
to the $2,000 salary on each salesperson, it still is breaking even in less than seven
months. The return on investment after one year is 80 percent ($4,000 invested; $7,200
minus $4,000 equals $3,200 earned.) Keep the customer for two years and the return is 260
percent!

Copy this classic model word for word or put your own spin on it. How many $2,000
accounts can you bring in spending $4,000 on each one? Don’t have $4,000 in real money?
You probably have it in time! If you did nothing but cold call and go on appointments
eight hours a day, could you bring in $2,000 a month in new business? Even as an agent
earning just 10 percent commission–at just $2,000 a month in new business that stayed at
least 25 months (because you provide such good customer service)–in the first year you’d
earn $15,600. In the second year you’d earn $44,000. After the 25th month you’d have
invented a one-person machine bringing in $60,000 a year at just 10 percent commission!
More importantly, though, you’ll have created the money machine that’ll make you rich.

With the machine in place, you can write your own ticket. Now you can just duplicate
yourself. For each $2,000-a-month sales position you create as an agency earning just 10
percent, you’ll profit $60,000 minus your overhead on the position. Become a reseller
earning closer to 30 percent margin and, well, you get the picture. Best of all though,
become a reseller, get $1 million a month in billing and sell out for $10 million or more!
(Can you say, "Hello, retirement!"?)

So, what does your machine look like?

Dan Baldwin is the president and founder of the One Plus Agent Association (OPAA),
a non-profit organization dedicated to serving the needs of agents and the carriers they
represent. To join OPAA, call (619) 522-6221. Baldwin also owns his own long distance
agency, San Diego Telemanagement, and Baldwin Consulting Group, which does one-on-one
consulting to agents and carriers. He can be reached at [email protected]