Know your partner! One of my clients referred me to a doctor that needed my help. The referral was a doctor who had sold his medical practice. Then he had a team of computer programmers write new medical billing software. The software development project took a year and was ready to beta test the program with a medical practice. A doctor’s office that agreed to run a parallel experiment with their existing medical billing software. The test turned out to be very successful. The invoices were easier to enter by an assistant in the physician’s office. The receipts from the invoices were paid by the insurance companies 25% faster. The software was a great product and a winner.
Know your Partner!
Unfortunately, when the doctor tried to license the software to other medical practices, he was unsuccessful. The problem was that the doctors were afraid to change their existing billing systems. The problem was their current medical billing software represented 95% of their cash flow. If there were any problems with the installation of the new software, it would devastate to the business. Even though the new software was more efficient and collected the money faster, it would not sell. The customers said, “My existing medical billing software is okay, so I don’t want to try and fix it.”
Know your partner before you do any deal!
The doctor was very frustrated. He had not anticipated this problem when spending all the time and money designing this new product. Eventually, he came up with a new plan to purchase a couple of third-party medical billing practices. He would install his software to prove the efficiency of this product further and then take the company public. Once the company was public, he would have enough money to market and sell the product to many customers. His new problem was that he did not have enough money to purchase the third party medical billing companies.
Through a referral, the doctor called me and shared his problems over the phone. He wanted to borrow $15 million from an investment bank or private equity firm to purchase a medical billing company. This client was going to be an excellent opportunity for me to help the doctor raise the $15 million. I would assist with the acquisition transactions of the medical billing companies, and integrate the businesses profitably. I was very excited about the opportunity!
The doctor’s money requirements appeared to be a simple transaction to do.
A friend of mine told me that he knew someone who would help me with the $15 million raise. The referral was great because I had no experience raising capital for a company. I called him his friend immediately, so I was ready for the next phone call the doctor.
I talked to the gentleman with the fundraising experience for an hour on the phone. Later in the week, we met for coffee at a local Panera Bread. After hearing about his experiences with raising funds, I was confident enough to partner with on this project. We came to a fee sharing arrangement for the raise. The next day, we had a conference call with my client. Everything so far went well. The doctor was anxious to get the deal done as quickly as possible. I developed a contract for the raise and a fee split agreement between my partner and myself. Then I wrote a contract for the doctor for the raise of capital. The next morning, I overnighted the contract to the doctor.
Know who you are partnering with or it could cost you a lot of money!
I waited two days and called him to see if he received the package. He did not answer my call. I left him a message to please call me back as soon as possible. By 5:00 pm the next day, I still did not hear back from the doctor. I called him again and left another voicemail. Then I sent an email informing him that I wanted to talk to him about the agreement between us.
I made a huge mistake by not doing a background check on my future partner.
The next morning, I received a “one-line” email from the doctor. It said, “Google your partner.” When I read the email, I immediately got a sick feeling in my stomach. As directed, I googled my partner’s name. He spent nine years in jail for 25 counts of fraud. The ill-feeling only got worse.
Neglecting to do a background check on my partner cost me $500,000 plus embarrassment with the doctor. I would have earned a fee for the raise ($375,000), and $15,000 for writing the Private Placement Agreement. Then another $100,000 in consulting fees for the acquisitions of the medical billing companies by my firm.
This transaction taught me a very costly lesson.
I lost all those fees for not doing a background check before I let this guy interface with my client. Now, I am cautious about working with anyone. I hope by sharing my bad experience will help you never to make the same mistake that I did.
My name is Robert Curry, and I am an Author, CEO Coach, Keynote Speaker, and Turnaround Specialist. Over the past 20 years, I have worked with more than 70 companies taking their businesses from Loses to Profits.
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