The Dream Stealer I Wish I Had Listened To (Or, How I Lost $30,000 on a Dumb Business Opportunity)
I’ve been in business since I was 12 years old.
Worked out a deal with the sales guys down at the Richmond model homes. I’d water all the plants in the model homes each Saturday and they’d pay me $5 cash. Not bad since it only took me an hour.
Gradually, I scaled up. Started mowing lawns, shoveling driveways, house sitting, baby sitting, delivering flyers, even raising money for mission trips by knocking on doors.
I officially entered the workforce at age 14, but I continued to think about how I could make it on my own, be my own boss. So at age 18 I became an Amway rep. And at age 21 or so, I took out a second mortgage to fund a very dumb business idea.
But I’m getting ahead of myself.
When I got married (I was only 20), it was like somebody lit a fire under me. All of a sudden, I wasn’t just interested in making money; I was driven. Honestly, a good portion of my drive was really just greed, which is why I was a sucker.
I was what they call a “hyper responder.” I’d buy just about anything that promised freedom and fortune. I bought programs about how to trade the commodities market (and I actually did that and made money); I bought programs on how to bet the horses; I even bought a program about how to become a “waste auditor.”
Most of these were relatively harmless pursuits since the total investment never topped more than a couple hundred bucks.
But as my drive intensified, I began to make larger investments.
I dropped $5,000 on a real estate investment course. I realized too late that I was uncomfortable using the techniques in the program; it was basically worthless to me.
And while that loss hurt, it didn’t hurt nearly as much as the next mistake I was about to make.
Blinded by Greed
One day I got a direct mail package that pitched the benefits of running your own vending business. I watched the video and saw testimonials from people who were making six figures a year, some as high as $400,000. At the time, it looked like a fantastic opportunity.
I decided to attend the local “seminar” to learn more about vending. The company was called Antares. Their goal was to sell vending machines.
By the end of the presentation, I was excited. Not only could you get vending machines from them, but they’d lock in your territory and even provide you with pre-printed direct mail pieces with a mailing list of local businesses.
It was the closest thing to guaranteed money I’d ever seen!
The only obstacle was how to raise the money I’d need to buy the vending machines. Three machines was roughly $20,000. You got a small price break if you bought five machines for $28,000.
Since I couldn’t see how the business could fail, I began to search for ways to raise $30,000 to pay for the machines plus the fairly hefty shipping fees.
First I went to a local bank. I figured they’d be more willing to work with me than a large institutional bank. My wife and I walked in and sat down with a banker, a really nice middle-aged man.
As we began to explain our plans, he became visibly concerned. “Look, I can’t fund a vending business. They’re notorious for having one of the highest failure rates of any type of business.”
In my head, I had already decided that I was going to do this, and I said so. It was clear the banker wasn’t going to budge on financing. But he was still concerned. So he did something almost nobody in business has ever done for me before or since: he tried to talk me out of buying.
“I’m going to take off my banker hat for a minute,” he said. “Look, if you were my own kids, I would still tell you not to do this. I just see way too much failure in the vending business, and I think you’d be wise to reconsider.”
We then wrapped up the conversation, said a friendly goodbye, and parted ways.
Of course, I was too blinded by my own greed to see the sincerity of the banker’s concern. And his objection only made me more determined. After all, I had been in Amway for three years. I knew what this guy was trying to do… he was trying to steal my dream!
And yet, in reality, he was probably the first honest banker I had ever met.
How I Raised $30,000 I Didn’t Have
At the time, real estate prices in Douglas County, Colorado, were skyrocketing. If you moved every year, you could pocket an extra $20,000 up to $50,000 depending on the size of your home. That’s how fast prices were rising.
In one neighborhood, the builder was raising the price of new builds by $15,000 every two weeks.
Even our one-bedroom condo had risen in value. In fact, based on the appraisal, I figured we could pull out $30,000 — just enough to cover our business investment.
So that’s what I did. Took out a second mortgage, bought the vending machines, and took delivery of them at our condo in Castle Rock. When the truck arrived, we unloaded the machines into our one-stall garage, excited to start our new venture.
The first step? Send out some direct mail, of course!
It’s the Quality of the List, Idiot!
At that time in my life, I’d never worked in direct marketing. I had no idea what a good response rate was. All I knew was this: I had five machines in my garage that needed to be placed.
So if I could get five people to respond who then wanted me to place one of my machines at their establishment, then I was on my way.
But I started to become a little concerned as I went down the list of names and businesses that were on the list Antares had provided me. Borders was on the list. So were a few other large franchises.
I thought to myself, “Why would a single location that is part of a national franchise have a start-up entrepreneur like me place a vending machine on their property? Heck, wouldn’t they do business with a national vending company to ensure consistency at every location? Isn’t that the point of a franchise?”
As I thought more and more about it, the quality of the list I’d been given was just not that great. I recall removing a few of the labels — like Borders — because I just couldn’t see them being my ideal target. It was privately owned businesses I was really after.
So I labeled my pre-printed direct mail pieces, paid the postage, and waited with fingers crossed to see what would happen next.
Responses? Well, Yes, But…
Within a week or two I had gotten two responses to my mailing — a big letdown. Fortunately, one of the responders had a large rented space in an office building, and they actually wanted TWO machines placed.
And, unfortunately, the other responder was a public school, and they only wanted HALF a machine. (The vending machines I had purchased were primarily beverage machines, but had a snack machine on the front. The two could be separated if needed.)
So I placed the machines and began business. That’s when I began to learn a whole bunch of things like:
- All the schools in Douglas County have exclusive contracts with Coca-Cola. Only Coke products can be sold in D.C. schools, and the vending contract is exclusive, too. This is why they only had me place a snack machine in their break room.
- It is very difficult to service vending machines when you have a full-time job, especially if the locations are far apart. Unless you’re bonded and insured, you can’t restock after hours.
- It is really not possible to run a vending route with a little 4-door sedan. You at least need a truck or van. A vending truck with a refrigeration system would be ideal.
- Some people drink gallons of Diet Coke. (I was servicing one machine almost every day, and it was ALWAYS sold out of Diet Coke — one of the reasons I was eventually told they’d signed on with a different vending company.)
- Canned drinks can actually expire. They don’t taste good after they’ve expired.
- Buying cases of soft drinks and candy from Sam’s Club every week becomes tedious… tedious to haul the products home, tedious to haul them back out to the machines.
- Unless you do really high volume, it is difficult to turn a profit. A small vending business is a money-losing proposition.
- It’s hard to run a business you’re not passionate about. (I’m health-minded, so selling junk food was completely out of alignment with my values.)
- If you post a $30,000 loss on your annual tax return, the IRS will probably audit you.
And another big lesson I learned:
- A successful direct mail campaign shouldn’t be built on a single mailing. And yet one mailing is all I had. It was mail and pray. There was no “Step 2” if “Step 1” didn’t work.
Older, Wiser, and Poorer
For about a year, I held onto the hope that I might be able to make my vending machine business work.
But slowly and surely reality sunk in. I realized I wasn’t passionate about my business, and that my fledgling company was really an albatross around my neck. I didn’t want to run vending routes and I didn’t want vending machines.
So I began to look for ways to sell them.
I logged onto eBay and began to see what my competition looked like.
My heart sank.
Most people don’t know it until it’s too late, but used vending machines sell for pennies on the dollar, literally. A machine that sold for $6,000 new might sell for a couple hundred bucks used.
It was devastating, but I listed the machines anyway. Nobody responded (except one guy who contacted me with a question). I guess I wasn’t surprised. There were dozens and dozens of vending machines up for sale. I’d never seen so much supply and so little demand.
The auction expired and I still had my machines.
That’s when the “one guy” called me back. I’ll never forget him.
“You still have your machines?” he asked.
“Yep, I still have them,” I said.
“Well, I can give you $1,000 for all of them. If you agree, I’ll be by to pick them up tomorrow.”
I felt such a mix of disappointment and relief — disappointment because I realized just how much money I had lost; relief because the machines would be gone and I could “start over,” so to speak.
I said yes. He paid me, took the machines, and I was able to close that chapter of my business life. (Actually, that’s not entirely true. I still had to deal with the tax audit that followed. THAT was the final chapter.)
Heed the “Dream Stealers”
As I reflect on that time in my life, I distinctly remember two things:
- The banker who gave me good counsel, which I ignored.
- The savvy businessman who patiently waited to buy my machines for a rock-bottom price.
Sometimes it’s good to listen to the so-called “dream stealers.” You may think they’re being negative and trying to kill your ambition when really they may be trying to save you from making an exceedingly foolish decision.
And the real winner in this story was the savvy businessman. When he came to my condo to get the machines I asked him a few questions about his business. Turns out he had placed dozens of machines, but had never purchased them new. He had simply waited for foolish entrepreneurs to take the big financial hits, then bought up their machines for a fraction of the retail value.
He was cleaning up the mess left behind by Antares, a massive biz-opp company that preys on fools. And I’m sure he was doing well. Certainly, with so little invested in machines, he was able to turn a profit when I was not.
I’ll end with a verse, Proverbs 15:22: “Without consultation, plans are frustrated, But with many counselors they succeed.” Keep that in mind the next time you’re making a big financial decision, business or otherwise.
-Ryan M. Healy