I had read an article about a year ago. It was actually about myself and the seminar business I had built.

It talked about the fact that I had blamed the demise of my seminar business on the Great Recession.

I had certainly made that statement, but I had not implied, directly or by inference, that the Great Recession was the only reason the seminar business died. There were several other reasons that had nothing at all to do with the circumstances of the Great Recession or the circumstances surrounding the capital structure of the company, which also contributed.

In fact, if I were to rate them all, I would say that the capital structure of the company was third (the subject of prior blogs); the Great Recession was second, and, if the truth be told, the primary fundamental reason for its demise was the disruptive nature of technology.

Yes, the disruptive nature of technology. 

I know that many of you have heard that technology is disruptive.  However, I suspect very few of us have probably sustained or absorbed the direct and immediate impact that a disruptive technology had on our individual businesses. It is akin to the disruptive result of automobiles on the sale of buggy whips ninety (90) years ago, or of cell phones on pay phones, or of DVD’s on VHS’s, or of streaming video on DVD’s, and so forth and so on.

Good grief.  The pages of the Wall Street Journal are blood stained reporting on businesses and industries that have and are perishing in the midst of the technology rapture.

I just didn’t realize mine would be one of them.

I remember attending a convention of the Factoring industry some fifteen (15) years ago and commenting from the podium that the internet would fundamentally change their businesses. Truthfully, I really didn’t know how that would occur. I just knew that it was a powerful instrument and that it had to result in some influence on the way they operated their businesses. Of course, in fact, it did, even though I was met with skepticism at the time, and didn’t honestly know what I was talking about anyway.

All of us know how price comparisons are occurring. We know that the internet is incredibly efficient at delivering information, whether it’s on branded goods in our favorite grocery store, or on mortgage rates or insurance, or on footwear delivered overnight, and so forth and so on.

Similarly, I knew that the internet, over the next fifteen (15) years, would have an effect on our seminar business.

But what I didn’t know is in what ways. In the beginning, we saw some effect, but not terribly substantial and certainly not producing any significant result. As a matter of fact, the best years we ever had were from 2003 to 2007, when everyone in America was printing money in their businesses and the internet was a distant disrupter.

But, with each passing year, I saw more and more significance in the influence the internet was having in lots of different ways. However, it wasn’t so much the internet as it was the development of a derivative product that I hadn’t honestly thought about in the early 2000′s:  the evolution of search.

Let me explain.

Our seminars sold information. We did not sell tangible products; we sold information.

Information is very valuable if it is proprietary. Indeed, it continued to remain valuable even after the development of the internet because the information, although available, was buried in the gigabytes of information which may or may not have been accessible and certainly not in any recognizable or communicable format.  And, unfortunately, our information did not have the imprimatur of earning participants a diploma or a university degree.

Therefore, while the internet might have been somewhat disruptive to our business, it was not substantially harmful since it just simply proved that, in a sea of information, the most efficient way to obtain relevant information was to attend a proprietary seminar where it would be created, packaged and delivered cogently.

On the other hand, what happened in the later years of the seminar business was the development of search engine technology. Each of the search engines became more and more powerful and acute in identifying information that was relevant to the subject at hand. Therefore, by 2007, if you wanted to search for information on conducting a short sale, or an options straddle, or a triple net lease transaction, you could do it with a few strokes of your fingers and you would have more information than you could digest in a month.

It had the following attributes:

• Everything was free.
• It was comprehensive.
• Some information had agendas, but much information did not.
• At the end of the day, while some information was worthless, a great deal of the information was valuable.
• You could do it from the privacy of your own home without anybody being involved. 

And, by the way, did I say that it was free?

The Internet was disruptive, for sure.

But search technology was even more disruptive because it enabled a consumer to pinpoint information which was relevant to them, pay nothing, and digest the information in a useful way.

Fast forward one year.

My wife, Janet and I were getting ready for a Halloween Party. She wanted to do a spider cake. She went online, stroked the appropriate terms, and ended up with a recipe, not only in print, but also with a video narrator. She had her recipe in less than ten (10) minutes and, guess what . . . it was absolutely free. . .and tasted great!

Welcome to an era in which information is valuable, searchable . . . and free!

At the end of the day, the internet, with its culture of free exchange, free information, free communication, combined with a communality and culture of free sharing, made the business of selling information virtually impossible.

The seminars that made us the 800 lb. guerilla were “How to” seminars. They were legitimate and real. They were valuable, constructive and useful. However, they required a business model to make them work. The internet, combined with search and consolidated with the joint culture, ultimately killed that business model, at least in any format I was prepared to accept.

That does not mean that there are not other information-driven business models that work or may work.  It does mean, however, that mine no longer did. 

Seminars were not dead on arrival. But they ultimately became dead on delivery.

Consider my seminar business another case study in the annals of Darwinian economics relevant to each of us as we play out future scenarios for the businesses each of us runs!

In any event, the communications tended to suggest daily P & L statements were overkill and why (for heaven’s sake), as an entrepreneur, do I find that much necessity to be as granular and introspective as to daily performance.

I thought it was an appropriate question and I want to simply comment on it as a follow-up.

As an entrepreneur, at the end of the day, as odd as this may sound, I have never been particularly focused on net profit or more particularly “making money.” Frankly, I consider that to be one of my personal primary weaknesses because my focus has always been on creating a business enterprise and taking a look at what it looks like after it has been built.  I have called that in the past operating in the rear view mirror.

The entrepreneurial process for me has always been more sculptural than it is financial. Hence, it is very easy to become immersed in the art of entrepreneurism when you are not incessantly focused on financial results.

The brilliance of seeing, on a day by day basis, the financial outcome of your endeavors, is that it keeps up front, direct and very personal, whether what you are accomplishing is making money or not. As obvious as I’m sure that is to so many people, it has never been obvious to me, even though I’ve made and lost hundreds of millions over the years.

The first reason why daily P&Ls make sense is because it keeps upfront what the objective of the entire enterprise is – to make money. Absent that granular accountability, it becomes extremely easy to get wrapped up in the artistic process and lose sight of the primary objective.

Secondly, it provides the accountability that fosters survivability. As I continue to ponder the Goldman Sachs testimony and the position that they will no doubt argue in the SEC’s civil action, as well as any other derivative class actions, what is a cogent argument is that they did what they needed to do in order to survive. Had they not hedged when they did, had they not hedged aggressively, and had they not, in their words, turned lemons into lemonade, they might very well have been victims of the Great Recession, not profitable survivors of it. Goldman’s CEO, Lloyd Blankfein, as well as others, were very clear that their first and foremost objective, mandated by their investors, stockholders, clients and regulators, was to survive the seismic shifts in the economy.

Survival is the second reason.

And, finally, third, is the tangible fingerprint that a daily P&L statement provides as to the operational nuances of the business. There is nothing more revealing than a P&L statement along with its folders and subfolders in understanding the cost structure of revenue production in a business. The greatest calamity is when the information you review is dated by 6 weeks, is smoothed out over moving averages, or is otherwise not actionable in real ways.

Far more effective is understanding the numbers on a day by day basis where the opportunity to modify is upfront and in your face. Provided the information is accurate, and provided the information reflects operational contingencies, the opportunity to respond quickly, once decisions have been made, is paramount. It is little wonder that, after reviewing the numbers on a daily basis, the senior management team at Goldman saw the need to shift their strategic position in the housing market in a way which reflected both aggressive hedging in the short term and aggressive shorting in the long term that turned what could have been a financial debacle into an enormous profit in less than two months.

Is it also any wonder that they are making record profits, regardless of whether their stock is being tossed about by the crashing winds of regulatory libido?

So, the takeaways?

Real simple: daily P&L statements for three reasons:

• The profit motive up front and center
• Accountability and survivability
• Visibility and transparency

Good lessons from a painful process!

But, I do have to say, that my fundamental bias away from judgment and towards observation was severely strained as I listened to the Goldman Sachs hearings this past week.

Obviously, the testimony is driven by people who had been substantially lawyered – after all, there is an SEC civil suit and there is always the possibility that the charges could escalate based upon additional sworn testimony or disclosure of emails.  Hence, the individuals involved were probably cautioned to be as minimally responsive as they possibly could.

However, a cliff notes summary of the consolidated testimony no doubt indicates, based on what’s come out so far, at least the following:

1. Goldman was obviously in a long position initially premised upon the assumption that all was well in the mortgage and housing market.
2. Perceptions began to change towards the latter part of 2006 as certain Goldman traders started to identify trends, at least in the subprime market, suggesting that not all was right with the world.
3. Based on those discussions and ongoing conversations and analysis – apparently daily, Goldman eventually transformed its entire trading position to embrace a hedging strategy against  its long position.  That strategy consisted of creating financial instruments to short the market, selling the instruments, and accelerating the shorts. In option (and gambling) terminology, they were “doubling down” on their initial trades. And, based on the testimony on Capitol Hill, they didn’t just double down, they used every potential leverage point available to redirect the risk profile from their initial long positions.
4. They found out in less than two months, according to the testimony, that the strategy was working. In fact, they discovered that the strategy was working so well they were making money hand over fist. Based on the corporate commitment to that strategy, Goldman not only wiped out its exposure to its long position in a faltering housing market at every level (not just the subprime level), but they also happened to stumble on a strategy which was making substantially more money on the short position than they had initially been making on the long position. In light of that, they put on the gas and continued to short the country’s residential market, bagging record quarterly profits thereafter.
5. Of course, nobody at Goldman took personal responsibility for doing anything wrong, by legal or ethical standards, towards themselves, the country, investors, or their clients.

I’m still processing how I’m feeling with all of that.  

The slippery slope at Dynetech began to be felt in early 2007. It’s not that our numbers were particularly bad (we were still very profitable), but we were not, on a seasonable basis, producing the numbers that we would have expected for that time of year. In fact, the metrics we typically track were relatively weak for Q1 2007.

Frankly, I thought that it was us. I beat up operational people. I beat up the managers. I took personal responsibility. I launched more initiatives with more acronyms than I can even recall by name. But my thesis at the time was that we had to right the ship because something we were doing was wrong.

By the end of Q2 2007, we were losing money on just under half of our teams. With 34 teams on the road, we had at least 16 that were consistently showing negative weekly performance.

As we all know, the real estate bubble burst in September 2007, which cut our 34 teams down to 22. By that point, our retail operation (which is what we used for new customer acquisition) was losing close to $750,000 a month. We  were still making money across the board because of our latent customer base, but continuation of the customer acquisition process became problematic.

As I discover today in the Goldman hearings and as I read through Michael Lewis’ new book, The Big Short, during the first half of 2008, as the entire financial sector melted down, Dynetech, the company that had been built on America’s prosperity, was melting down too. Our 34 teams went down to 16 teams and our 600 employees were cut in half. The terrible thing is that, even based on that, we weren’t able to right the ship. It went from bad to worse.

By October, 2008, the month American consumers went on strike, Goldman made record profits.  In our neck of the woods, Dynetech hit a wall. As the numbers were flowing in from the remaining teams we had in the field, it was obvious that we were about to be overrun by a tidal wave.

2009 was the year of  that tidal wave.  The real estate meltdown in America had wiped us out because it had wiped out the real estate wealth Americans had created. The financial meltdown wiped out a significant balance because it had also wiped out a significant balance of America’s financial wealth. And the final straw wiped out the purchasing power of consumers nationwide.

So, as I sit here and listen in real time, I find myself literally sick to my stomach…but wondering why.

• Is it because I realize that they are just so much smarter than I am?
• Is it because I saw all of the evidence, but never looked at the right places in the economy to find the real reaons (something Goldman did)?
• Is it because hundreds of millions, if not billions of dollars, of our customers’ wealth had been wiped out in the great Tsunami?
• Is it because I allowed myself to lose so much control that I wasn’t able to make the adjustments as fast as the very smart financial pros were at Goldman?
• Is it because so many people across the country lost so much?
• Or that there was so much pain and suffering close up in the lives and families of our laid off associates?

I will always refuse to be a victim. And I will always refuse to complain. But I must say that I am still sick to my stomach.

Here’s what I do know for sure. I just simply wasn’t smart enough to see it coming, understand why, and protect myself and the people in my sphere of influence enough to have protected themselves.  I’m not beating myself up over it, but I do know that it will never happen again!

My Dad was.

He was Air Force. He fought in World War II . . . in Italy. He took his discharge after the war, spent two years in civilian life, and went back into the military with my mom, the first Italian war bride. He spent the next 20 years in the Air Force, eventually retiring as an officer.

That really doesn’t qualify me for much.  At least not as far as the military is concerned.

It doesn’t qualify me to engage in battle. It doesn’t qualify me to say that I served my country in the armed forces. And it doesn’t qualify me to understand the pride that our servicemen carry with them for the rest of their lives once they’ve served.

But it does give me somewhat of an inside track.

As a young child growing up in an Air Force officer’s household on military bases, I was incessantly exposed to the fundamental values of military life.  I was steeped in them everywhere; and, God knows, Dad made them explicit. 

From the frequent gatherings we used to have at the house where I operated as the 11 year old bartender who could whip up a drink for virtually any request, to the living room conversations with all those ex-World War II and Korean War Vets–conversation about modern America and the Soviet Union would be fast and furious…and I was left mesmerized.

I learned any number of life’s lessons during those days until Dad retired from SAC and headed back home to south Philly in 1963.

One particular one surfaced recently.  I had not thought about it for years.  But after this Chapter 11 experience (and on the verge of filing my Chapter 11 Plan), I think about it all the time now days.

It’s the fundamental maxim that in military service no man is ever left behind.

I can’t tell you how many times over the past several months I’ve had people tell me that I should just simply cut and run. “Larry, why do you need it? It’s time to to  move on to your future. You owe it to yourself and you owe it to your family.”

Really?  Do I?

“Larry, it’s not about you.  These have been terrible times.  Everyone will understand.  Use the situation as an opportunity to start over.”

“Larry, we can put a dress on it, but it’s still a…!”

“Larry, nobody will remember a couple of years from now.”

“Larry, who are you serving?  Take care of youself.  Everyone else would do the same.”

And on and on.

And I recognize that these comments are not from hard-hearted people.  And they have my best interests at heart.  They’re my friends; my colleagues:  the people who have either stood by me or watched me these many years.

And I appreciate their counsel…and their friendship!

Yet throughout it all, resounding in my ears, reverberating in my mind, is not just the military motto, it’s an entire upbringing: “never leave anyone behind.”

With my upbringing, I don’t have a choice…smart or stupid.

I can’t cut loose and move on. I just can’t do that.

I can’t turn my back on the shareholders who believed in me. The customers who followed me for over a decade . . . or two. The creditors who gave my company credit because they knew I was at the helm. The community who supported me and my ambitions for growing my company. 

I just can’t cut loose and leave them behind.

If I did, I’d leave myself behind…my soul behind.  And, of course, I’d ultimately leave my friends behind.

I don’t know if it’s smart or stupid; naïve or prescient; glorious or inglorious.  What I know is simply that I just can’t do it.

So, I will work to emerge out of this Chapter 11 and I will be submitting a Plan (a Disclosure) this week where nobody will hopefully lose a dime so long as they stay with me.  And while I don’t know if it makes good business sense to try to emerge with such a heavy burden on my future, I don’t think I’m prepared to accept the alternative.

After all, nobody should be left behind!

I was freshly off of reading the news releases about our loss of signage rights to Dynetech Centre, which had been purchased by the law firm moving into the 15th floor we occupied a mere two months ago and which cost us several million to develop.  So,  I immediately said, “Oh, that’s easy.”

He said, “Really?”

I said… “Sure, Sweetie.  Because there really were only two reasons.”

“So what were they, Dad?”

“Well, first, a failure of principled discipline, which eroded internal defenses. And second, an unfortunate collision of overpowering external forces which could only have been defeated by the principled discipline which had failed.”

Needless to say, Jared wasn’t at all sure what to make of that.

He said, “Okay, Dad, start over. What you are talking about?”

“Sweetie Pie, Rome was noted, during its entire history, for its enormous internal discipline. It had initially developed internal discipline for its own defense, but had eventually used it to conquer most of the known world. As a result of that, we know Rome and the Roman civilization to this day for its incredible influence and achievements.

“At the end of the day, however, and as a result of its own complacency, its own sluggishness, its own bureaucratization, and its own unprincipled sloppiness, Rome’s internal defenses eroded to such an extent that it became a target for external forces which, sooner or later, would defeat it.

“Did you get that one, sweetie pie?”

“Maybe, Dad, so what comes next?”

“You end up with a perfect storm provoked not by coordinated attackers from the outside but by the random activity of multiple destabilizers, all of which ultimately met together at the center of the known world – Rome. Every avaricious tribe. Every invading force. Every ambitious leader.  Every free radical. Every imposter.  They all concurrently and consecutively battered down the walls of a weakened Roman civilization until they ultimately caved in.

“In earlier times, they wouldn’t have had a chance. But after years of internal degradation, the external forces were overpowering.

“Make sense, sweetie pie?

“I got it, Daddy: internal collapse in the midst of external invasion.”

Well, that was the extent of the conversation. I put Jared to bed and I started walking downstairs.

And I realized, as I was walking down, how I had pretty much already lived through a very personal Roman experience of my own.

As I continue to process what transpired at Dynetech over these horrendous two and a half years, I begin to recognize so very well that the Great Recession, as that external force has become known to businesses, was clearly an incredibly powerful invader that represented the perfect storm in so many ways.  After all, who would have conjured it?–a real estate collapse, a mortgage collapse, the demise of the financial sector, a credit freeze, escalating unemployment, and eventually all topped off by a cash strapped consumer unwilling or unable to buy virtually anything–all within a two year time frame.  Overpowering external forces indeed!

At the same time, however, what I also recognize is that there was a time in which our internal principled discipline would have defended our walls and protected the body of our citizenry in a way we were not able to do by the time the Great Recession was in its fullest fury.

I’ll publish a future blog about what that principled discipline looks like in granular terms, because it is very structured (probably more significantly than most entrepreneurs could imagine) and it held us in good stead for many years as a leader in the industries we served.  

But for today’s thought, what I want to emphasize is that as powerful as the Great Recession was, there really is no invading force powerful enough to defeat a defender in its home turf if the defender remains principled and disciplined. 

Had we not allowed our own internal discipline to loosen; had we not let our guard down, so to speak; had we not gotten sloppy in our execution; had we not thought with our hearts rather than with our minds; had we not confused the objective with the process; had we not allowed all of that to occur over the past several years–the Great Recession, as powerful as it was, would never have levied such carnage.

No matter how destabilized, the defender ultimately always has the upper-hand, so long as the defense is based on the structure and discipline of what made the defender so powerful to begin with.

It’s a lesson too late to salvage this round in the ongoing pendulum swing of life.  But it’s a lesson I won’t forget when  our walls are back up and we’re at it again…but next time, I’ll be remembering the simple lesson my bath time conversation with Jared recalled–the two reasons why the greatest civilization in the world fell.

I thought I would share it with you.

Let me give you the context of why I thought it worthwhile.

As I have been fighting the demons of this dark period over the past several months, I’ve been attempting not only to deal with the day to day issues which emerge, but also to construct…or reconstruct, as it were…some understanding of what it will take to create order out of chaos.

I found personal consolation…as well as marital consolation for Janet…in telling Janet that we have to look at today from some point in the future. We have to see what we are going through not from today’s lens, but from a lens looking back from some time one, two or three years from now.

That’s not just wishful thinking, mind you. I truly believe that. And I truly believe (historically and experientially) that this moment is simply a freeze-framed moment in time.  After all, history is written looking backwards;  only newspapers are written in real time. 

And as I personally look back in my life, I sometimes do my best to reconstruct what I must have been feeling at the time I experienced whatever that particularly difficult time was.  And yet, today it often looks far different.

Let me discuss it through.

When we created Dynetech in 2000, we had no proof of concept, an untested business model, no revenue, and a cash flow burn of $700K in 1999 and $1.2 million in 2001. I lived off of credit cards, trading income, a little lawyering, a little speaking, and relatively small investments from friends and family–with a wife and two kids.  We only actually made money, for the first time, in 2002.

It wasn’t a totally black period, but it was certainly dark. And it was personally bleak for the two of us.

When Janet told me she was surprising me by bringing me to a Disney restaurant in September of 2001 for my birthday, I told her how distracted I was because we were struggling to make payroll that day. As I saw the tears well up in her eyes, I instantly regretted what I had said and reassured her that we would figure it out and it would be OK. Don’t worry:  it would be OK.  We went and I spent the rest of the evening salvaging her moment and rebuilding our intimacy.

We kept dealing with the issues of the moment for the balance of the year and into the next; working with vendors we owed money to; creating new products and services; rethinking and tweaking our business model: on and on, throughout 2002. Eventually, the clouds parted, the days brightened and we came out for our brief respite in the sun.

Between 2000 and 2007, we built a company that had gone from losing a consolidated $1.9 million on neglible revenue to grossing $256 million and $28 million in annual profit by the end of 2007.

And we topped out employing  just shy of 600 people–close to 1,000 household members were part of our family universe.  Some 15 associates had married each other.  Twice that number had married others.  20 newborns joined our ranks.  And 35 or so had reported buying their first homes or an additional investment property at our Annual Training Day.

Unfortunately, the latter part of 2007 and all of 2008 and 2009 were not nearly so kind. And I’ll address that in some other post.

But here’s the point I want to make right now.

My friend, Steve Ruttenberg from Seattle, sent me an email over the Christmas holidays which I want to share with you.  He said, in the midst of a fully developed message, “Larry, reserve all judgment of the present until it becomes the past.” He then went on to say that the frame within which we see life must be that of living in the now, but by seeing it from a detached point in the future. 

That frame blew me away.

I understood that each day I live through is a moment in time…and I have to live through it. But what Steve’s message gave me was the opportunity to recognize that the only way to gain perspective over what I am doing today is to conceptualize it from a perth several years away. That is, after all, where “perspective” (perthspective?) comes from.

That frame doesn’t make the job I have to do today any less difficult or problematic, but it definitely makes the process less painful and the outcomes more hopeful.

And most of all, it’s germinative.  It’s procreative.  It spawns a picture of the way it will look in the future, so that, from that spot…that perth, I can look back at where I am today and connect the dots.  “Here’s where I’m going to land; here’s where I am:  hence (looking backwards), here’s what I need to do to bridge the gap.”

I know that I will have to wake up tomorrow and face whatever the day brings.  Through some of it, I’ll be shadow-boxing; and through other parts, I’ll be securing my game face:  regardless, the cycle will continue to unfold and the outcomes will continue to be tallied.

But Steve, it helps me to know that you took the time to remind me to reserve judgment until the present has become the past. 

Thank you for sharing…and for caring!

Original writing date: May 8, 2008

Original writing date: June 30, 2009

Original writing date: May 27, 2009

What footprints do we create as we go through our lives? And how do we judge those footprints once we’re gone.

Original writing date: May 27, 2009

Original writing date: April 23, 2009