Spring 2014 Business Lectures –  Jeffrey Flamm

Spring 2014 Business Lectures – Jeffrey Flamm

[ Music ]>>Good morning.>>Good morning.>>Good morning.>>Good morning.>>Is it afternoon? OK. [inaudible] OK,
under the forum today, and a few people e-mailed
me their problems, that’s OK and it gives you kind of an
opportunity to talk to Mr. Flamm about how to build a
successful business. Because Jeff Flamm was someone that has built successful
business and he’s been involved in several launchers [phonetic]. In addition, at the moment, he’s
doing a huge condominium project on the Island of
Kauai in Hawaii. And it takes a lot of time
and energy, doesn’t it?>>Yeah.>>But I’m going
to let you tell– let Jeff tell his story about
how he got to where he is and so without any further
conversation, let’s welcome Jeff Flamm. [ Applause ]>>Hey, it’s nice to be
with you this afternoon. So, kindly, may I know
who my audience is? Tell me what your majors are? Are they business? How many are business major? And then what your focus is, is
it entrepreneurship, anybody? How many? So, entrepreneurship. What’s the rest? Finance?>>Accounting.>>Accounting.>>Accounting?>>Business administration.>>How many are accounting? And how many administration? Anyone else with finance?>>Economics.>>Economics, OK. Good, good. Well, I graduated from
Weber State in 1977 and I was a business major. When I took a double kind
of major, I studied to a lot of management and marketing
’cause I was interested in both. And both of them became very, very important in
my career move. So, the more classes
you can take and learn. It’s some information
you’re really going to use when you start a business. But so many people think,
“I’ve got a great idea. I’m just going to
start a business.” So, today, I’m going to
tell you about my ride of starting the business
and selling it. And then I’ll tell you
the pros and cons and some of those pitfalls of starting
the business so that you can– and I’ve got them
written on that sheet so you want to keep it. So, if you ever start a company,
you can read back through those and you’ll remember some of the
things I’ve talked about that because you’ll learn
along the way what to do and what not to do. So, I’m going to teach you
some of the things not to do as well as what to do, OK? So, my background is I was
a student body president and LDSSA [phonetic] president
up at Weber State years ago. And I’ve been very involved
at Weber State since I’m on the National Advisory
Committee with the president of Chuck Young [assumed
spelling] of Weber State. I started when I graduated in financial planning
with my father. And it was kind of like a
glorified insurance salesman and you’re doing
people’s insurance and you’re helping them
do a state planning and get health insurance,
life insurance and disability insurance. And I was really successful
at it because I knew a lot of people from my
years at Weber State. And so, one of the key things
in business, you will find and it’s really apparent in today’s generation is
social networking is important. The more people you know,
the more chance you’ll have of being successful in any
business because really, people do business
with those they know, they like and they trust. So, the more you can develop
that as you go in school, the more success you’ll have in any company whether
it’s a restaurant, whether it’s a software
company, whatever you build, the more people you know,
the more you’ll be able to pull key talent in or
resources to help you succeed. In 1985, an opportunity
came along while I was a financial planner. And I have enough experience to know this was a key
opportunity, golden opportunity. And Ron Gunnell, my dad had
hired to come in and work in our firm and he
had worked for HMOs. Now, who knows what
an HMO is, anybody? OK. Health maintenance
organization, they were started in the late ’70s because
health care cost were growing by 20 percent a year. And the rest of inflation
was 3 or 4 percent. And so, the government
is trying to figure out how do we control
health care cost? Is that sound like
a familiar topic? It’s never really gone away. Why? ‘Cause we’re saving
pretty much everybody. I mean, I had a daughter, a
granddaughter just died in June from cancer and she was in the
hospital three and a half years, it cost over a million
dollars to try to save her. And unfortunately,
she didn’t make it but in leukemia,
that’s what she had. In child leukemia, 92
percent of the kids live. So, when they diagnosed her with
leukemia, I was like, “Oh yeah, most– we can save
almost all of the kids.” But they weren’t able
to but what is that– how many premiums you have
to bring in from families to cover a million
dollar claim, a lot. And we do hip surgeries, hip
replacements, knee surgeries, knee replacements for
everybody in their 60s and 70s, all that’s expensive. And so, health care costs
are growing tremendously and they still are. And so, it’s a hard thing
because the less ration– ration health care, you’ll
never be able to get away from higher inflation as
the baby bloomers get older and they need more
and more care. So it’s age-old problem. But what happened is my partner
and I, the HMO Act was passed to try to control
health care costs. What they had found is there
are seven health maintenance organizations that had
started in the country. The biggest was Kaiser
Permanente out of California and Henry Kaiser started Kaiser
Aluminum and he made a lot of money during World
War II, building– doing aluminum for
planes and everything else and so it became a huge,
huge company with tens of thousands of employees. So, to control health
care costs, they decided, they would build their own
hospital in Southern California and have their own
group of doctors so they can control
the health care cost of their employees and they did. Their health care costs
were half of anybody else’s. Because back then they found,
there was no regulation of health care in the US. People could go to
any doctor they wanted and get any treatment
they wanted, nobody managed it at all. So, if you want to go
over to this doctor, he’d do about any procedure
he could make money on. And so, they found out
when they did studies that in the northeast
up in Connecticut, the doctors that had million
dollar homes were doing seven times as many C sections
as normal, OK? So, they found that doctors
were doing unnecessary care and it went right along
with how much debt they had. So, health care– managed
health care was organized and the government decided
to, let’s go ahead and fund that that if they have managed
care which means you have to go to a primary care physician
and if you need some surgery, he’ll refer you on to make sure
you need what you’re getting and then there’s somebody always
reviewing everything before it happens. So, you have to, you know,
go in and if you’re going to get some surgery, it
has to be pre-approved to make sure it’s necessary. And so that really helped to
control health care costs. So, in 1977, the
HMO Act was passed and the government gave
interest-free loans for people to start HMOs. And they also gave
some real teeth to it that if there was an HMO in
your area and you had more than 25 employees,
you have to offer it. And if they came in and
said, we want to be offered and you didn’t, after 180 days, there was 10,000-dollar
a day penalty. And that was what attached
to the bill that was passed. So, because there was
interest-free loans, we went from seven HMOs in 1977. By 1985, there were 400
HMOs in the country. Now, anybody that knows IHC,
SelectHealth, Select Med, select value, Blue Cross Blue
Shield has all kind of names for their managed care plans. Everybody started them,
doctors started them, hospitals started them, different individuals
just started HMOs. So, what you found is in every
state, there were unique HMOs, different ones, they weren’t
national ’cause everybody just started them in their
local areas. So, a national employer
like Marriott has hotels in every state, right? Or Kmart has stores or Walmart
and so they’d have to offer and it was a regulation
had to offer two if there were two
available, at least two HMOs. So, you had a traditional
plan that was covered through Aeta or Metropolitan. They just paid the
claims, right? They were just a claim
processor and then you had to offer two HMO choices so the employees would
have three choices. So, what happened is
companies like Marriot or Kmart or Walmart, they were now
offering three to 400 HMOs and have to manage
all that at corporate. Well, my partner
and I, Ron and I saw that that was just a huge
mess, it wasn’t organized, there was no centralized
data in the country so every employer
is trying to figure out which HMO is
good in which state. In the Southern California,
there were 17 different HMOs, how do you know which
one is good? So, some employers ’cause
their employees would say, “I want to be on this one,
I want to be on this one that offer them all,”
and so it just became a management nightmare. So, whenever you see something
that creates confusion, what does that create? Opportunity. When you see confusion and
something people don’t like, figure out how to help fix
it and that’s what we did. So, we decided we were going to
go and build a national database of all the HMOs in one place so that any national employer
could access our database and help choose what HMOs
to offer to their employees and so each HMO is required
to turn in to that state, a form that had everything
like physician turnover, member turnover, number of
grievances that have been filed on that HMO, people that
are unhappy with the state that have contacted them. So, they had all
this information and their average rates for
single two party and family. So, we knew all of that, they have their service
area by zip code. You had to have a hospital
and a pharmacy within 20 miles to be able to consider
that a service area. If you didn’t have a hospital
within 20 or 30 miles, that wasn’t your service area. So, like they couldn’t
say, “We serve Evanston if it’s 100 miles away.” OK? That the people in
Evanston couldn’t join the plan because there’s not a hospital
and instant care center and so on in Evanston. So, they would actually
have to have facilities and that’s how they
monitored it. So, HMOs were really there to
service those in their area. So, what Ron and I did is we
decided, we’d prove the model, we thought there’s a
better way to do this. Now, if you can picture
back in the old days that have open-enrollment
meetings once a year and you’d have a chance to
change plans once a year. And it’s usually in the
fall effective January 1st. So, 90 percent of companies
had open-enrolment in the fall. There’s a few that were
off cycle but not very many and so you’d go to your
open-enrollment meeting and you’d have a whole
stock of IHC staff with their doctor list,
and their benefits and its beautiful packets and
colored and they’re really nice, and then you give the Blue Cross
one, the IHC one, the FHP one, the MaxiCare one, and
whatever your employer offered, and you’d go home at the
kitchen table and try to make sense of it all. And if you’re going
to have a baby, you’re looking for
maternity care. You’re searching every
one of those brochures to see how it’s covered and then after you see what the benefits
are, you’re looking to see if your doctor is
on the list, right? So, it was really
cumbersome to make a decision. It would take CEO hours. The smartest person
in the company maybe or at least the top person in
that company, it would take in hours to try to
make a decision. Let alone the mailroom boy, OK? So, we decided there’s a
much better way to do this. So, what we did is we’ve
produced the materials for each employer
having everything on the comparison
sheet in one booklet, and then the physicians
tabbed in the back by HMO within 30 miles of your home. So, we went from having
the stacks of papers, you’d have to take home. You get one little booklet in
the mail and you could look and see everything
compared across. It would say, here’s
office visit, copay, and then it would list all the
plans and this one is 5 dollars, 10 dollars, 5 dollars, no copay
or whatever and you just look across and then down at
the bottom was the cost for single person, two
party and for family. So, you could look and see
what’s your benefits were, look at the cost, see which
one looks best and then go to the back and see if your
doctors are on it, right? So, that changed the industry. Now, it sounds really
simple but the problem was– for national companies, even local companies
had a hard time with it. There were a few that would do
a comparison sheet but not many. Some few brokers would for
their clients but nationally, there is no one doing that
and so what we did Ron and I is we went out and
picked up American Express, Browning Arms, Warner-Lambert,
eSystems, a few companies here in Salt Lake and did
it for their employees and did the whole
open enrolment, got everybody enrolled and
then handled their problems throughout the year. We had a form called
the Problem Solver. We’d leave it at the HR person,
anybody had a problem with and any of your HMO
is getting service, they would fill it
out, fax it to us. And within 24 hours, we
would have an answer to them. So, what’s that called?>>Customer service.>>Yeah. It’s a world
class customer service, and answer within 24 hours, OK? And so, that’s how Ron and I
built the company and we had– before we went national,
we improved the model, had really happy clients
because to go big, you have to have reference book
clients, clients that are happy. So, when you start
out a business, you’ve got to start
making every client happy because they’re going to
be your referrals, right? And you’re going to want
to– Every client will say, “Give me a list of referrals,”
and you want to give them some of your clients and
they’re going to call them. And so, clients are pretty
honest, if they’re not happy with you, they’re going to tell
your potential business they’re not happy. So, the key is keeping your
customers 100 percent happy. And so, after we built HBA, we
ended up selling that in 1996 to ADP, and I’ll tell you
more about that in a minute but after I sold the company, then we developed
RiverPark, 106 out. Do you know where
Lifetime Fitness is? Do people know where that is or
market street grill down there? Anyway, two of my buddies
and I decided to build that business park and
so we bought the land and designed the whole thing. Drew it all up, had
an artist rendering. And to this day, if you look
at the original rendering, it’s 95 percent of
exactly what was planned. There’s been very
few modifications to that original designed. So, once you learn a pattern of
business and how to do it well, you can usually replicate in another businesses
’cause business is business. It’s knowing how to
market, it’s knowing how to give great customer
service, it’s knowing how to keep your finances really in
order, and know when to spend and when not to spend. Too many people spend money and they never make money
’cause they spend too much. So, you’ve got to learn
when it’s important to spend and when you’re going to
get a return on that dollar. If you don’t see that
you’re going to get a return and you don’t want to spend
that dollar ’cause it’s right out of your profit, OK? And so then, one of my
greatest learning experiences when I opened SkyBOX. A friend come to me and say, “Oh
there’s this greatest sports bar in New York called ESPN zone. We need one like that
in Utah ’cause we’re all family-oriented. We love sports, let’s
build one in Utah and we just needs somebody to help us get the
list down in gateway.” So I said, “You find
another major investor that will put some in
and I’ll put some in and we’ll help you
guys get going. A couple of young guys that were
aggressive and friends of mine, he was a [inaudible]
partner of mine. So, we put in some money. They got the place
down in gateway and we decide it would
build up for the Olympics. So, we were on a fast track. Nine months to build the
whole restaurant down and get right open for the
Olympics and it was a great hit. During the Olympics, there
was two-hour wait to get in. We did 350 thousand
a week in sales. It was just unbelievable
that it was a restaurant that set 370 peoples. So, we built a restaurant
for the Olympics and when the Olympics is
finished, we had a restaurant that was two-thirds empty
the rest of the time. So, I learned a lot
of what not to do. That’s what I call my 2-million
dollar MBA ’cause I lost 2 million bucks on that thing. So, I’ll tell you, if
anybody wants to get in the restaurant business, you
can echo out [phonetic] a living to have with one restaurant
as a family working long, long hours unless you
get a successful chain, you’ll never make a lot of
money at it and you’ll lose. 95 percent of restaurants don’t
make it more than five years. So, Chotvat [phonetic] went off. I learned the hard way and then
later, after we’ve had success with RiverPark building
that business part, we have some investors coming
to us and want us to invest in this project they
were doing in Kauai. And so, it look good,
the members look good. We thought it’s pretty safe
investment, they’ve got a bunch of money until they’ve
secured a great piece of property 30 acres
right next to the church and hotel and near the beach. So, we thought it
was great place. We invested the money, these
guys weren’t big enough and this time went on and
it took too much money. They just didn’t have the
money so we had to decide, do we want to lose our money
or take over the project? And so, we took over the
project and it took us some, oh, probably five or six
years to get it turned around to where it makes money. Now, it makes money and so we’re
building another 208 condos on the rest of the
property right now getting, it’d be ready in two years. So again, we took it from–
there’s several hundred resorts on Kauai and we’re number three
now behind the Saint Regis and the Hyatt, the Grand Hyatt,
we’re number three on rankings in the island– on the island. And you do that and RiverPark
is the number one business park in the state for five
years in a row voted. It gets 100 percent, three
years in a row satisfaction by the 140 tenants
to stay there. We have a thing, are you
satisfied, extremely satisfied and list all the areas
on service, on location, and amenities and at RiverPark,
we get 100 percent scores. That’s unheard of, OK? And we did at HBA. So, it’s when you want to give
world class customer service and you can do it in any
business but you have to work hard and you have
to stay right on top of it and so we’re going to go
through the keys in a minute but I’ll tell you a little bit
more about HBA and then I’ll go through all this
at the end, OK ? ‘Cause this is the good summary. So, with health benefits in
America, we’ve got 18 companies, local, they were happy and
while we were working those 18 companies, Ron and I were
going around to every state, actually 47 states,
there were three Alaska, North and South Dakota
didn’t have HMOs but 47 states have them so
we had to go to every state and meet with the HMOs and
get us appointed as an agent or broker for them so that we
could write their insurance and get paid. So, we spent two years doing
that and building the database. And so, after we had
18 happy companies and we had built this database,
then we decided to go national. So, we went to a health care
conference, rendered a booth, everybody had this big
fancy 50,000-dollar boots and we had a table
with a skirt on. And I said, “Let us
manage your HMOs.” And people came up and we said, “Here’s what you have
nowadays,” and we sat down. “Here’s the way you do
business right now and with us, here’s the way you do it.” And people go, “Wow,
that’s amazing.” And so, we’d like
to talk to you more. And so, we got three
appointments from that conference with Kodak,
Marriott and Holiday Inns. And so, after we made an
appointment to fly and meet with all of them and I
got a call from Xerox. And they said, “Well,
we were talking to Kodak and they said you’re
coming to meet with them about managing their HMOs. Can you meet with us too?” I said, “Sure.” So, we flew to Atlanta and
sold Holiday Inns first. And then we went– flew up to
Marriott and sold Marriott. And then we flew
up– and then, yeah, we flew up into and
met with Xerox. And they bought– and then we
went up to Kodak and it turned into a big fight internally
because we talked about. They said, “How many people do
you have in your organization?” I said, “Seven.” They said, “We have 40 doing
this, how are you going to do this with seven?” And we said, “We use technology. It’s all building the database. It’s much easier. You guys are doing
everything, you know, in a very arcade
[phonetic], laborious way.” So, anyway, so the vice
president of HR wasn’t happy with the benefits department. And the vice president
of HR didn’t– or benefits didn’t want to
see all these people canned and it make him look back. So, he’d kind to turn in
the fight between the two. The one goes, “No, no, I don’t
think they really can do it.” And the one said, “Well, there’s
only one direction we can go and that’s up.” We’re doing such a
chromate job here. So, finally, they ask us to
leave the room for a while, while they discussed it. We’re out in the hallway and
then we were invited back in to the– it’s a huge
boardroom, you know, it’s like you see in the
movies, 20 foot high ceilings, all wood paneling, table
with seats 40 or whatever. Anyway, it’s like King
Arthur in the roundtable. Anyway, we come back in and they
said, we’ve decide to use you. So, Ron and I went out
and gotten a taxi cab and we didn’t whether to laugh
or cry ’cause all of a sudden, we went from managing
150,000 employees to a million and a half in one business
trip ’cause we picked up all the companies. And so, we had to hire and
get ready and do a great job. The next year, when we picked up
Kmart and– or excuse me, Sears. Sears spoke at the retailer
convention and said, “We have a whole new way. We do benefits now. We use this company called
Health Benefits America. And we got phone
calls the next week from about every major
retailer including Walmart. So, we ended up selling
Kmart and then Walmart. We already had Sears. And so, we sold Federated
Department Stores and Mervyns and all of these chains and started doing their
benefits forum nationwide. And then we got into the banks and we started doing
Bank of America. And they were so happy that
then Citibank picked us up and then Coke and then PepsiCo. And so, if you look down
the list of our clients, because we were the only game
in town, we knew we could pick up the big ones before
anybody was around, before we had competition. And we’d get calls all the time,
people want to do interviews– interview us for
trade publications in the health care industry. And we’d say, “We
don’t do interviews.” And so, we won’t ever
give them any information to write an article on. Why would we do that?>>There’s no competition.>>Yeah, we don’t
want competition. How does competition find? They read, “Oh, that’s a good
idea, I’m going to do it.” So, we just laid really
low and we only spoke at industry seminars
on benefits. We would speak there. And so that worked
really well for us. And so, we went to the
very biggest companies and General Motors
was the biggest, had 760,000 total
employees, retirees. So, we went and sold them
and we just sold Walmart which is the next biggest
with 680,000 at the time. Now, Walmart is the biggest. But, and so we just went
down the list of those with the most employees. They all have more
than 100,000 employees. And we went down from the
biggest company down in America and out of the top 130,
we sold 127 of those, OK? There’s only two we didn’t
sell that we ever met with. And one was MCI. They’re a big phone company
out of Washington DC. And the other one was that
we didn’t sell was IBM. IBM, when they saw
what we had, they go, “My gosh, this is incredible.” And they decided they’re going
to build that themselves. It was good opportunity for IBM
to have another business line. So, they built one called
Corporate Health Strategies. Did it ever become a
competitor to us do you think? Why?>>’Cause you already
had on the big ones.>>Well, we had the big ones but big companies are
very slow to move. So, small companies can
kick their rear everyday, because you can make decisions
and move and get things done. Big companies have
such bureaucracy. Nobody can make a
decision of anything new. Nobody can call the
shots and say, “OK. We’ll do that for you,” or
“We don’t do that for you.” And so, big companies are
really easy to compete against, because they’re very slow
and people are usually, they have been there a long
time and they’re complacent. They sit at their desk and
there’s no sense of urgency. You know, young growing,
vibrant company, you always have a
sense or urgency. Everybody is always high energy, get it done, yeah,
we can do that. And that’s what makes
the difference. So, anytime you see a big
company that’s doing something like Paychex came out and saw that ADP was the world’s
biggest payroll company. Paychex goes, “I think
we can do this better, they don’t give great
customer service. They don’t do this. They don’t do that.” They went out and now, they’re
a major competitor ’cause they took the idea and
just made it better, ’cause ADP had been
around a long time. So, sometimes, just a new with
the right people or new company, lots of energy, and figure
out just a little way to do it a little
better, so when you go in, you say, “We can do this.” Now, what Paychex did
was said, “We’ll come in and not just manage payroll,
we’re going to manage COBRA.” Who knows what COBRA is? What is COBRA?>>It’s the interim
insurance you get after you get– you
quit or get–>>Yeah. It’s called
continuation of benefits. That’s what COBRA comes from,
continuation of benefits. And the government passed a
law back in the ’80s saying, if you leave your employer,
you can stay on your insurance in case you’re pregnant
or in the middle of a surgery or something. Because before, that
preexisting conditions, a lot of companies
wouldn’t take you. You go to work for new employer and there’s a one-year
waiting period on a preexisting condition. So, you’re caught in
the middle, right? If your husband changed their
job or you do or whatever, and so they passed the law that
if you have current coverage, you can stay on and pay
the premiums yourself. So, what did that do? That created a lot
of work for HMOs have to bill all these individuals
who would quit the company and they could have 2
percent on for their hassle. Well, they could never make
it for the 2 percent on this– happen to do this huge thing. So, a COBRA company
started called COBRA Serve that would do just for companies
do COBRA administration, and they grew really
big and went public. And so, ADP when they saw
that all of us sudden, their competitor Paychex was
offering COBRA administration, so they’d go into
an employer and say, “We offer all these COBRAs.” You don’t have to
get mess with it and your employees
calling you all the time and sending you the checks
and you have to send them on to the insurance company
’cause it was a mess. And Paychex said, “We
can do that for you.” And so, people would
join Paychex, right? And so, ADP realized,
“Oh my gosh, they have something
we don’t have.” We’ve got to get it. So, they went and looked
and buy in COBRA Serve. But by then, there’s
total stock values, 700 million on the market. And they were a 20-million
dollar year company. But it’s there– they
only came in town so their stock was
really, really high. So, ADP came and met
with us and asked if we do COBRA administration
for their payroll customers. We said, “Sure,”
’cause we did COBRA for all of our big clients. Why would we do that?>>[inaudible] transition?>>Yeah, we already did it. And now, we could get
in all their clients and then do their benefits. So, it was a really
good partnership between us and the ADP. And they came out
and when they walked through our corporate office
as we had grown in 10 years from two of us to
1,400 employees. And we’re on three different
buildings around town and happen to drive to meetings. It was really our take. So, we ended up buying
60 acres at Decker Lake. This is before the E Center
was there, Maverik Center. Its’ before Hale Center
Theatre and all the hotels, it was just a sworn kind of and Franklin had built their
corporate headquarters by there but you had to come in off
Redwood Road to go to Franklin. So, we went and met with
West Valley City and said, “We want to buy this 60 acres,
if you’ll put in the road of 3500 South, then we’ll
build these office buildings.” And so, they agreed to do that. So, once the road was put in, and we started building our
buildings, then they decided to put the E Center there and
then Hale Center Theatre came and it just blossomed, right? So, we built three
office buildings there that housed our 1,400 employees. We had 600 fulltime and
800 that were part-time on phones answering
benefit questions. And we had done that
in just 10 years. And so, ADP came out to visit
us and do an onsite tour. And when they came in
to our conference rooms, we met at different conference
rooms while they were there, different meetings. And they would go into the
San Francisco Conference Room and there would be Levi’s
logo, Bank of America’s logo, Chevron’s logo, I’m
trying to remember the rest of the clients from there. But anyway, we have all
our client logos in there. And we’d say, “This is who we
work for is these clients.” And when we went to New
York on their Citibank and Price Waterhouse and PepsiCo and all these big
companies’ logos. So, every conference
room had the logos of the companies we worked for. And what does that help
employees remember?>>Are there customer-based?>>Yeah, who are we
really working for? We’re not really
working for HBA. We’re working for
those customers and trying to make them happy. So, when ADP walked through
and then we took them over to our distribution
center and they say– saw where we printed six
million booklets in six weeks for Opera Roman [phonetic]. Every book was personalized
to you, yours would be different
than yours. Based on your homes, it would
say, “Here’s your HMO options and here’s the doctors
within 30 miles of your home, the hospitals within 30 miles, the urgent care centers
and the pharmacies.” So, you’d look in
the provider section under each HMO and
it would start. Since I live in Holiday, it
would have pulled up and said, “OK, Dr. John Anderson [assumed
spelling] is within 0.8 tenths of a mile from your home. And it would pull the
closest ones down. So, what– how easy
did that make it for people to choose a doctor? That’s not too far. ‘Cause when you’re in
Southern California, the HMOs listed them by county. So, if you were in
Borden [phonetic] County, you didn’t know what was
in the county next to you. You just– I mean,
you don’t know where county lines
are too much, right? When you’re in a big city and
they have counties all over. And so, they had them by
county so people often to try to find one in their
county and yet, there may be one really
close to the next county but they don’t know that. So, we simplified
that for people. So, when ADP came walking
through and saw we had partnered with one of our clients,
Kodak, with big web presses where it was on demand printing. Everyday, we would print
10,000 booklets all year long, everyday. Those are new hires and
all those 127 companies. The new hires would
get a booklet. Here’s your benefits. Here’s what you’re eligible for. You have 30 days to enroll
and get this form back, OK? And then later, we went
online with everything. So, everything kind of opened
up for us to be able to do this out of Salt Lake City
’cause when we started, did you know there weren’t
even– FedEx had just started. So, we were able to
get stuff overnighted. And then two years
later, faxes were created. So, we could fax things. Before, you had to wait for the
mail between you and clients, days, three days each way. And so, it was hard to do business unless you’re
right New York or right in– It was hard to do
business nationally, let alone internationally. But oh, it started
changing really quickly in the ’70s and ’80s. And then pretty soon,
we have computers and we could e-mail stuff
and it just got really easy and so then, we can have people
enroll online and actually look at their full of physician list. They would get their
booklet that it says, “This is just the physicians
within 30 miles your home. You can go on to this website
and look at all physicians.” So, if you worked in New
York City, but you lived in New Jersey ’cause you
crossed the Hudson or whatever, then you would get
the physicians within so many miles your
home address but maybe you go to doctors in the city, right? So, you could go online
and look those up. So, it changed the
way business happened and we became big really fast. So, what happened is ADP
came through and have– Two vice presidents
came and visited us to sign this COBRA
contract for us to do COBRA. They got back home and two
days later, and they got a call and said, “Well, Art
Weinberg [assumed spelling], our CEO wants to come
out and meet you guys. They said they’re on– I
think they’re going to want to make us an offer
on their company. And that last year, we had
18 different companies coming and tried to buy us,
including Fidelity. Fidelity was the
most aggressive. They want to buy us in the worst
way but we looked at Fidelity and they’re privately held. The whole thing would
be taxable if we did it. And then, we found out
every company they buy, all the employees are
gone within a year, all the key management. They bring in their own. And we don’t want do that to
all our employees who’ve made a career there. And we found out, when ADP
buys a company, they learn and do their own thing. So, when ADP came
along and I realized that they were interested
in probably buying us, I went online and looked
and their stock was trading for 27 times earnings. That’s really high. So, when they came out and met
with us, we’re just at lunch and he goes, “You know,
we’re wanting to do this in a more formal way
than just the vendor. We’d like you to be
part of the ADP family. How do you feel about that?” I said, “Well, we’re
the top in benefits. We’ve created this industry
and benefits outsourcing, just like you have in payroll.” So, we feel like we’re worth
our– if we went public, we’d do in multiples many times
like COBRA Serve has done. And so, we’re thinking of
going public in a year. So now, they knew we had a
big number in mind, right? And so, I said if you want to pay us 27 times our
earnings, we’d do it. And the next day, after
they left, a day later, we got a FedEx in the
mail and it was the offer. Exactly 27 times our earnings, so it’s about 100
million dollars. And so then– So, I’m going
to talk to you a little bit about stock and what to
do with stock and so on so that you don’t have to give up
most your company to investors. There’s ways to do
it so you don’t have to give all your company away. OK. The first key rule in
starting a company is you’ve got to develop a product or
service that you understand. If you go into something
you don’t understand, the learning curve is too big and there is not enough
investors who’ll stay with you while you learn. You’ve got to know
what you’re in to. So, I say, find an
area of your interest and whether it’s
renewable energy or whether its technology
of some kind. Go work at one of the
best companies out there. For three to five years,
figure out how they do it and then figure out how
you can make it better. Because there’s room for
lots of companies out there, lots doing the same thing. It’s whoever can just sell
the best really as long as you give great service. So, go work somewhere or do
at an area you already know and love because you do not
have time for a learning curve. Once you’ve come up with an
idea, the best thing is go out and create and share
your vision with others. Find out and go to some
smart people that have been in business and said– say,
“I would like you to look at this business idea I have, and just give me your
real truthful input, whether you think
this is something that we could do or not. And then, be open-minded
because it’s going to hurt to have people not think
your idea is great, right? But you want to hear because
you can spend a lot of money and if you’d gone out
and interviewed 10 people and they told nine
out of 10 said, “I wouldn’t do it, I won’t.” And they’ll tell you
why they wouldn’t do it. You want to learn that. Otherwise, you’ll
learn it the hard way. But then again, you have to go by really your gut whether you
really believe you can pull it off or not. Because when I went to my dad
and said, “We’re going to going to build this national
benefits company.” My dad said, “Well, if
it was such a good idea, somebody would already
be doing it.” He thought we were crazy. And later, he ate his words
many times when we ended up making lot of money
and growing really big. So, he was the one that thought, “Somebody would already
be doing it.” That’s not true, whenever
there is change in legislation like right now, the Affordable
Care Act is creating a lot of opportunities for insurance
guys to get in there and talk to people and help educate
them and sell them something. But whenever there’s changes, there’s opportunities
created somewhere to help fix the confusion
’cause there will be confusion. So, you just have to watch. Whenever there’s a
change in legislation, it creates opportunity. And always get your
best experts. I say to people, “Liars
are your best friends when you’re starting a company.” If you have your contracts
written really well with your clients, they’re
looking out for your interests, your own attorney, yes. And they’re making sure it
covers you and protects you. And if you don’t have those
kind of contracts, someday, it could come back to bite you
big and we’re talking big money. So, you want to have
really good contracts. And you can either use somebody
who you know who’s an attorney and they do it, you know,
they’re specialized in one area and they– they’re a
friend and they say, “I’ll do it for you
for 200 an hour.” Or you can go to the expert and
pay 300 an hour that somebody that does just what you’re
doing, whether it’s trade, trademarks or contracts or employment agreements
for key employees. Go to the best attorneys,
I tell you ’cause those are where you’ll get
stung the worse is if you don’t have
good contracts. Find qualified employees. When you have an idea, every–
you tend to hire those that say, “Oh, I like that idea.” And they may not have any
experience on what you’re doing. But because they believe
in you, you’ll hire them. Once you really got a good idea, make sure you’re interviewing
enough employees before you hire anybody ’cause once you
hire anybody, hire someone, it’s very hard to let them go. You get emotionally attached
and then they’re friends and it’s hard to fire
them and it gets ugly. So, don’t hire people unless you
really know they have the talent to take wherever
you want to go, OK? And then find a product or
service that be widely accepted. See, we found one where
everybody had health insurance. They needed it. It was a huge opportunity. And so, there’s an old
adage that says if you sell to the masses– I mean,
sell to the classes, you’ll leave with the masses. So, if you sold just a few– some unique product that
a few are going to use, some special thing that
Olympians are going to use, you’re going to leave
with the masses. You’re not going to ever
really make a lot of money. But if you sell to the masses, then you’ll leave
with the classes. If you get something that
everybody buy for a buck, then you would make
a lot of money. So, try to find something
that’s got broad appeal. Be shrewd with stock options. Now, here’s what Ron and I did. We would say to people, “You’ve
got to come give us a year so we know you’re serious.” And ’cause we’d hire key
executives and they’d all say, “But we want some stock.” I’d say, “OK, after a year,
if you’ve proven yourself, we have stock options.” Now, who knows what
a stock option is? Joy.>>It’s a form of payment
in stocks to the company that you’re working for
or that you’re being on the board for [inaudible]–>>Yeah, there’s two
ways to do stock. You either give them stock. Now, if you give
somebody a stock, IRS considers that compensation. So, it’s extra income
basically or value to you. So, if they gave you a
thousand shares of stock that worth 10 dollars,
10,000 worth of stock. Once the company
gives it to you, you have to pay taxes on that. Even if you can’t sell
that company stock yet ’cause it’s not
public, it’s privately held. But if somebody gives
you something to value, you have to pick it up on
your 1099 form or I mean on your– yeah, your tax form. You have to pick
it up as income. So, what we did is
gave stock options and it said, “OK,
our stock today. We have so many shares
outstanding. We’re going to give you so
many shares at this price. Today, it’s 10 dollars a share.” So, someday, see if it’s 100
dollars a share then they can exercise it. They only have to pay
10 and that’s worth 100. And so, they really just
sell their stock option. They’d convert it right at the
time and so they don’t have to really come up with the
cash ’cause the stocks worth this much. It’s publicly traded. So, stock options are
the best way to do it, because it doesn’t create a
taxable income and then people when they quit working,
you give them 30– maybe 90 days to
exercise their options. If they don’t, go buy them at
that point then they lose them. So, it comes back
to the company. So, it forces them to come
up with money at some point if they want to keep their
options, if they quit. And that’s way, you
don’t have people hanging on that are shareholders that
don’t work with you anymore, OK? Like I said, get the best legal
council you can get, accounting and choosing advisory board. That’s what helped
Ron and I a lot. We had– Dean Skousen
[assumed spelling] was the dean of business at BYU. He was on our board. A guy named Walker
Lewis [assumed spelling] from Warburg Pincus in
New York was on our board. And then we had another
guy out of LA who was the chief legal counsel
for Century 21 Real Estate. And they were guys we had
met and knew and respected and they would fly
in twice a year and we pay them 1,000
bucks a meeting. We’d come in. We’d go through everything
and they would tell us, “You’re doing this right. Don’t do this. Do this.” And when
ADP came along, he said this is the right fish. You want to do this right. And so, he helped
us with the sell of the company, Walker
Lewis did. So, key advisors are good
and then personal mentors. Find people that are successful
in business that can coach you because it’ll be
worth a lot to you. OK. This one is really where
most people have mistakes in business is the
Peter Principle. Now, this is a book
written back in the ’70s. Who’s ever heard of
the Peter Principle? OK. It’s where you hire– I mean you promote
somebody in an organization. You keep promoting them and promoting them till they
hit their level of incompetency. So, you got somebody who’s a
great manager of the warehouse and he wants to be
the sales manager. So, you move him over there
and he just fails miserably. So, you have to fire him
because you’ve already filled his position. So, here’s what we learned is
postal positions say internally, “OK, we’re going to have the
following positions we’re looking for.” And then you post them
externally and take applications and you compare any of
your internal candidates, the one that go for it and
even your own employees that are applying
for that position. And you’d compare them to
others that you’re interviewing. And if you do that, it’s kind
of like buying the first car, you go test drive or buying
the first house you’ll look at. And then, if you
don’t look at 10, you really haven’t had a chance
to sort through and say, “Oh, I like this better than that.” Do you know what I mean? And so, by interviewing
a number of candidates, some will really appear– will
definitely resurface the top that they have way more
talent, way more expertise to what you’re looking at. And that way, you don’t get in
the trap of somebody feeling like they have to be
promoted ’cause they– you owe what to him. And so, you just have
that as a company policy. We post internally, externally
and make sure we interview at least 10 candidates, narrow
it down to the top three and then Ron and I for anybody
who has any management position, we’d interview the top three
and make the final decision. That way, we didn’t have people
stocking their organizations with friends or family
members or whatever. We would interview the
top three and decide which of those top
three candidates. And there was only one time we
didn’t like any of the three. Most of the time, we liked
one of them and hired them. Then here’s the key when
you’re interviewing. Do enough research that when
you go into an interview, you know enough about
the company and what you think you
could do to help them that you act excited
about their company, you’re knowledgeable about it. The worst thing is to go in
and you don’t know anything about the company and they
ask you some questions and you look like a total dunce. So, we would– when
we’d interview people, within 10 minutes, we’d
have 15-minute interviews. Then 10 minutes, I’d have
an idea whether we’re going to hire them or not. And you know how
much was the resume? 1 percent. It got the interview maybe
so it’s maybe more than that, but once they’re
in the interview, the resume is really
just a talking sheet. It’s not really what
makes the decision. What do you think makes
you hire somebody?>>The way you talk
and the way you dress?>>Everything, it’s the
connection you make. So, here’s a tip. If you’re in an interview and
you see somebody go like this, look at their watch,
it’s not a good sign. Because when we were with
somebody we really liked, we were so engaged
in the conversation, our assistant be knocking
on the door and saying, “Your next interview is ready.” OK. You want to make sure
you’re engaged with that person that they get to know who you
are because Ron and I hired from here not off the resume. And we built the most
incredible team ever and most of them are still in the
business here in Utah, working from Blue Cross
or Mercer or somewhere. I ran in to them all the time
and we hired young people and a lot of them didn’t
have a lot of experience. We trained them. And so, we created a whole
bunch of experts in this field that are still out there today. And we have a reunion
every other year and still have 300 shop
[phonetic] at the reunion and it’s like a family reunion. Here, we’ll have a
buffet food lying and say, “The food is ready,”
and you can’t get people to quit talking. They’re so excited to be
together because we worked in the trenches together. We built that company. They all felt part of it. And the best part is
when we sold the company, what we decided to do is take
the 7 million a profit that year and take that off the price. They were paying us and
told them, “Drop the price by the 7 million, we
want to distribute that to employees this year.” So, we distributed it to all the
employees, 7 million dollars. So, you know, we called them
in one at a time and said, “We want to do something for you
’cause you made a difference.” We did it over five months and what we did is
came up with a formula. First, we said everybody
is going to get 3 percent of their income times the number
of years they’ve been here. So, if you’ve been
here 10 years, you can get a 30 percent bonus. And so, when they’d come in one
by one, we’d have several a day for months and we just
say, “Have you figured out what your bonus
is going to be?” And they’d say, “Yeah.” And I say, “These look right.” And they’d say, “Yeah.” And I’d say, “Because you
made such a difference to us in making this company
successful, Ron and I wanted to do something more for you. But if you talk about it with
anybody ’cause it’s not going to happen until Christmas,
if it gets back to us that you’ve shared this
with anybody, then it’s– we’re not going to give it you.” Because everybody– if somebody
finds out you’re getting more than them, it just
creates hard feelings. And so, we don’t want to
ruin everybody’s excitement. They’re already getting a bonus. So, if we find out and it’s a
small grapevine in a company like that, you find out. Said, “If gets back
to us, you’ve talked about it then you won’t get it.” And so, we never– it never
came back to us and I’d have not to have them turn it over and
there would be a number there of 10,000 to 200,000
or whatever. And they would sit and
cry and cry together. Because there were a lot of
single moms and young couples and stuff that this
got them into a home. It paid for their student debt. It really helped them
get going in life. And that was kind
of the most fun for selling [phonetic]
the company is sharing that with everybody. And so, everybody had a
little head start in life. Anyway, that’s kind of my story. Any questions?>>You said to get mentors, where would you suggest
finding a person?>>Anybody in the industry
you’re interested in. Go at your sake, I’d love to
take you to lunch sometime and take to your– stop by
your house or your business. I thinking to go in this area and I just need somebody
coach me or I’m thinking of starting a company
just like your opinion, ’cause I have people call me all
the time and I’ll meet with them and spend some time with
them and give them some tips. So, people in the
industry probably or people who have been successful
in their business that you trust their
opinion, that you know well, tell you whether they think
that’s a good idea or not. OK. This is the other key. Ask your clients how
you’re doing and quarterly, we do an interview with
every customer with a sheet, ask them questions and
check it off and find out if they weren’t
happy with something. You know, that’s the number one
thing people do not do is they don’t ask their customers
how they’re doing because they’re afraid
they’ll get bad news so they don’t dare ask. If you find there’s a
problem, you want to fix it. You don’t want to it
festering out there. So, that’s a real key one too. OK. Any other quick– one more.>>I was just wondering,
when you picked all of those contracts, how long
do it take you guys to catch up with that, with like–>>Well, we would pick
them up throughout the year and then anytime in
open-enrollment via the fall, so we wouldn’t pick
up any new ones after about May,
it was too late.>>Anyway, when you went
from like your staff of like 14 people to suddenly
having all those major companies at the one business trip
like how long is it going to take a company to grow to
just see what [inaudible]?>>Oh, you hired him right
away and we’d pulled it off. Yeah. Thank you. [ Applause ]>>Thank you, Jeff. That was great.>>Thanks.>>Jeff would, you know,
take questions and stuff like that if you need to. You can get a hold of him. He’s very accessible.>>I think I put
some information on the back, let’s see.>>I think there’s–
It seems like you have.>>It’s my website anyway.>>Yeah. But, so if you
have further questions, hey, wasn’t that a great job?>>Yeah.>>Yeah.>>Thank you.>>Thanks, Jeff.>>And I’d shake your hands but
I’m just getting over a cold, so I don’t want to
pass that to anybody. So, thanks.>>Thanks.>>So, I’ll also look out. [ Music ]

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