Interview with Rich McIver, Lead Gen Entrepreneur & Texas Attorney

Rich McIver is an attorney based in Houston, Texas. He is also a lead generation expert, who has founded multiple companies in the online education vertical that achieved successful exits. Mr. McIver has graciously agreed to take the time to share some of his thoughts on business strategy and entrepreneurship with MonetizePros readers.

[Disclosure: Some investors in MonetizePros are involved in past and current business partnerships with Mr. McIver.]

MonetizePros [Andy Hagans]: So tell us about your journey as an entrepreneur. Where and how did it start?

Rich McIver is a Web entrepreneur and attorney based in the Houston area.

Rich McIver is a Web entrepreneur and attorney based in the Houston area.

Rich: Having two parents that owned their own businesses, I grew up starting all kinds of businesses, from landscaping to home renovation. But my first serious foray began during college, when I tried to emulate the success of Jason Calacanis and Weblogs Inc. with my college friend Andy Hagans. To that end, we created a blog network called BizNiche Media (forgive the name, I was in college). That business went through a few pivots over 2-3 years before we found a lead gen model that was successful.

That business got some traction, and so my partner and I raised a few million in angel funding and rapidly expanded, rebranding as DomainDev and then College Degrees Inc. That business was acquired by a group of VC’s and private equity a few years later. At that point, because I didn’t have a non-compete, I started a second internet lead generation business in the online education vertical, this time without a business partner, and that was also acquired through an asset sale. After that second sale, I formed a third business in the SEO lead generation space with another business partner, Ron Denny. A year and a half later, that business merged with a competitor Best Online Universities, and shortly after the merger much of that businesses assets were sold in an asset sale. I remain a board member at that merged company, Best Online Universities LLC, which continues to operate in the online education lead generation space.

After those three exits, I was looking to get out of the online education niche, and decided to start a legal lead generation company. The original idea was to sell case leads to law firms. But because the legal lead buying market isn’t as consolidated and established and therefore liquid as the online education vertical, I ended up having to pivot the business and become the end user of the leads themselves. To do that, I joined with a partner and started a law firm (I’m an attorney) to work up the cases that the legal lead gen business generated. That law firm continues to grow and operate, primarily handing personal injury claims such as nursing home abuse cases and slip and fall cases. (As you can see from those two links, we create a niche content website for each claim area.)

MonetizePros: I want to talk a little bit about your business philosophy. Your management style is a little bit unorthodox but obviously it’s proven very successful. Specifically, you’ve built businesses with very high growth, but have managed to run them responsibly (or I might even say frugally). Obviously there is financial upside to frugality but it also provides security and has allowed your businesses to weather “downturns” with less drama. The frugality almost seems like an offshoot of your personality. Do you think most Web entrepreneurs should focus on “frugality” more, in terms of managing their ongoing expenses and capital?

Rich: I don’t use debt in my own personal life, which given that interest rates are at 3% is frankly not a smart move objectively speaking. But for me, personally, it enforces a level of spending discipline. And professionally speaking, it forces me to stay involved in the minutiae of the business because every dollar spent is my own. Finally, the approach works for me, because it creates a huge cushion in case the business turns bad for a quarter or two (which most do from time to time), as opposed to if I had a note to pay each month. There is certainly a downside to not being willing to leverage your business, and that is growth rate. But for me at least, that tradeoff is worthwhile.

MonetizePros: You’ve achieved several exits from educational lead generation firms you’ve founded. I’d even call you an “exit entrepreneur”… it’s a label I think I just made up, but it refers to the fact that you’re a founder who often starts a company, grows it, puts it in pretty box, sells it, and then starts another company again! Is this something in your DNA? Or do you get bored after a while? Or did circumstances just work out that way?

Rich: I think it comes in part from from the same sort of paranoia that causes me to avoid putting debt on my business, which is that I see pretty clearly the risks to the business and how they endanger what was my primary objective, which is personal financial security. So when I have had the chance to sell for a number that achieves personal financial security for me and my family through an exit, I’ve taken that opportunity. Plus cash-outs are fun and exciting, whereas once you’ve laid the foundation for a business the “waiting for it to scale further part” can become less exciting.

Now that I’ve had a few exits, I’m building a much more long-term business. There’s no easy exit from a law firm, and so I’m focusing less on packaging it for an exit, and more on building a foundation for growing market share over decades and building something that we can be proud of.

MonetizePros: OK, please give some advice to another hypothetical budding “exit entrepreneur”. Let’s say we have a young woman with an affiliate Web site, in a mildly (but not overly) competitive and liquid niche (that she’s passionate about). Her site attracts 60,000 uniques per month and grosses about $60,000 in affiliate commissions (revenue) per year. She has minimal expenses (besides the opportunity cost of her own time). This exit entrepreneur’s “number” is $1M USD–she wants to eventually sell her site for a million bucks to pay off her home and give her family financial security. What activities should she prioritize, to really maximize her chances of reaching her goal (of building a site she can sell for $1M)?

Rich: First, I think it’s very smart to have a number in mind for your personal financial security, and once you hit that number, unload the business. If your business ramps up quickly, you will have a lot of people, who frankly don’t understand the business as well as you do, telling you that you should hold out another year and double or triple your money. But I’ve seen those businesses blow up a lot before the founders get cash, so I would recommend sticking to your number and selling when you can.

Assuming that number is $1M under this hypothetical, I think it’s important to find out what the revenue multiple she’d be getting is, so she knows what she has to work toward. At a sales price as low as $1M you’re probably looking to sell the business just for its asset value, and perhaps have a short earn-out. That is, the buyer is just buying your website, traffic and IP, plus a little of your labor during the earn-out. In my experience, an affiliate site’s asset value is going to be around 2x-5x annual revenues. That of course depends on the niche and the quality of the asset.

Let’s assume 3x annual revenues is the sale multiple; that means she needs to grow the business to where it’s generating $333k per year, which means she needs to roughly quintuple its size. So I would start by asking whether the niche is big enough to support 5x growth, and if not, consider expanding the verticals her site operates in.

Second, in terms of packaging the site for exit, I would spend some time cleaning up the finances, ownership documentation, analytics, etc. and make sure all of it complies with GAAP. Nobody is going to take your word for anything when you try to sell an intangible asset like a website, so you need to have all contracts, financials, analytics, etc. running for as long as you can and using reliable third-party software to document it all. Next, make sure you’re reporting your income fully to the IRS. Nobody is going to take your word for it that you’re making money but offsetting it by claiming deductions for what should be personal expenses. In sum, keep your books clean.

Finally, outsource yourself. Consider all of the things that you do for the company, and figure out how to outsource them. A buyer who is buying something for $1M, is likely looking for a low maintenance cash flow generator. So you want to be able to explain how they won’t have to do anything, and that means figuring out alternatives to you doing everything manually and actually implementing them. That will lower your profit margin, but it’s worthwhile because it dramatically increases the salability of the site.

MonetizePros: Now fast forward two years, and pretend our hypothetical exit entrepreneur has nearly achieved her goal–her site is now objectively worth $1M USD (having achieved traffic or revenue numbers to support that valuation). And let’s say she’s found two potential buyers of her site who have expressed interest. What would you tell her to focus on, going into a purchase agreement negotiation? Obviously there are countless potential landmines, but are there any you’d specifically tell her to watch out for, or over which to negotiate?

Rich: When considering valuations, the first thing I do, is discount all private stock offered to 5% of its stated value, and discount restricted public stock to 15% of its listed market value. That’s because for me, I’m looking for an exit in order to achieve personal financial security, and that means cold hard cash in the bank. I don’t trust myself running the business for 2 more years (which is why I want to sell), so I certainly don’t trust another person to run a company well enough to secure me a good exit in the future.

When looking at the terms, make any earn-out as objective and as short as possible. Almost every buyer has buyer’s remorse, at least during the moment when they’re writing you an earn-out check. And almost every seller is disappointed with how the asset is being handled at some level. So just assume that if there is any ambiguity, they will try to get out of paying you, and assume relations won’t be ideal at the point that they’re writing that check. If you start with that mentality, you’ll work towards clear objective criteria for your earn-out. In the example of a single affiliate site, that might mean running the affiliate accounts separately during the earn-out period in order to ensure you get credit for all your sales; it might mean you getting to approve of site changes during the earn-out period, etc.

Finally, you should always look closely at a non-compete. Most times, the buyer doesn’t really care all that much about the clause, and if starting affiliate sites is your livelihood, you certainly should care a lot about it. So you may be able to eliminate the clause altogether, or define it very narrowly so that it just excludes direct competition with the site you’re selling rather than the niche as a whole.

MonetizePros: You have in-depth experience in several lead generation verticals, but I think I’m correct in saying the main vertical you’ve had success with is online education. What do you think is the state of the online education lead gen industry today? What about its growth potential: has the industry peaked? Plateaued? Slow growth mode? Or is it in a temporary setback that’s going to set up another round of strong growth in the future?

Rich: The online education industry is the perfect market for a lead generation seller.

It includes;

  1. a product that the end user doesn’t directly pay for so they aren’t particularly cost conscious (most school is paid for via loans),
  2. the underlying product (education) is funded by the government so payment is assured,
  3. the margins on the underlying product, a degree, are astronomical (because the government has created huge barriers to entry in the form of requiring colleges to be accredited in order to obtain federal loan dollars and doesn’t differentiate pricing between brick and mortar and online), and
  4. it’s an enormous but relatively new niche.

With respect to the future of the industry, I’m very bullish. The industry as a whole got very scared after legislators started taking a look at student loan default rates at the behest of brick and mortar schools who were themselves afraid of the competition. Thankfully for online education, the online edu industry was able to effectively create a coalition of big business Republicans and pro-minority education Democrats, plus the administration was anxious to push the idea that a college degree would reinvigorate the middle class, plus the economy was in the tank and so cutting back on student loans was akin to pulling more money out of the economy. Those three countervailing forces meant that the severe regulations that threatened to crush the industry have largely been defeated. That is made especially clear by the fact that the same brick and mortar schools who, five years ago, were talking about how online education was a farce, are now rushing to offer their own products in order to reclaim some lost market share.

So, as I see it, the market is primed for a few more years of growth. As more and more brick and mortar schools begin to offer online courses and degrees, the legitimacy of an online education ceases to be as important of a question, and the distinction between the for-profit online schools and the traditional brick and mortar schools becomes blurred. Then the only question, is how long the US government, in the form of subsidized loans, is willing to funnel money into higher education in general without demanding clear market returns. The answer, as I see it, is indefinitely given the strength of the interests supporting it.

MonetizePros: Are there any “newish” lead gen verticals you’re interested in? Or do you think the (financial) “low hanging fruit” is mostly gone in lead gen, and it’s now a game of efficiency and execution?

Rich: I think the key to selecting a lead gen vertical is to understand that, the margin of the underlying product has to be huge in order to support a significant cut for the lead generator. That generally means some sort of (a) government intervention into the market that creates and sustains the margin, (b) a third-party funding source, (c) a purely IP product, (d) a scam product, or some combination thereof.

If you think about verticals that fit these characteristics, I think of a few examples: (a) the law, (a & b) medicine, (c) finance or ringtones, (d) asiago berries or the latest fad diet.

I think there are tons of these niches opening and closing all the time. The key is just to remember that you have to time them correctly, and that the end buyers need to be consolidated enough to effectively sell the leads.

MonetizePros: Alright, that’s enough lead gen talk. Tell us about your current business projects. (Usually you have multiple start-ups going at a time; we’re interested in all of them.)

Rich: Right now I’m running McIver Brown Law Firm full time, and I’m a board member at Best Online Universities. McIver Brown Law Firm is a fast growing law firm that has had a great deal of success thus far because we have incorporated business principles into the practice of law. While that sounds obvious, most of our competition hasn’t done so, which has given us a significant competitive advantage.

MonetizePros: Let’s talk Notre Dame football. Obviously they had a great season last year, and the program is exponentially better than, say, the University of Iowa’s. But I’m wondering, will the Irish just surprise everyone with a good season every decade (but otherwise be generally mediocre)? Or, are they “back” as a sustained powerhouse program? And do you think ND can hold on to Coach Kelly?

Rich: I think the Irish are back in the sense that they have a coach that knows how to run a program at high level. They haven’t had that in a while. Moreover he is consistently recruiting top 10 talent on both sides of the ball. So with that, I think they can consistently field a BCS level program, but I don’t think they can compete with the top of the SEC every year with the advantages in terms of over signing, no academic restrictions, and a willingness to overlook felonies that they have. So in sum, I fully expect them to be a top 10 program as long as they can hold on to Kelly, but not a top 5 team.

Now, how long can they hold on to Kelly, my guess is just a few years. He’s not a lifelong Notre Dame coach, and the NFL is going to come calling sooner rather than later.

MonetizePros: You built a bar in the second floor of your garage. I understand you did *some* of the work yourself (that’s amazing to me, because most “Web guys” are pretty useless at the kind of stuff). What all was involved in this custom creation?

Rich McIver has a garage of which many are jealous. Go Irish!

Rich McIver has a garage of which many are jealous. Go Irish!

Rich: Sadly, I’m actually selling the house right now. But yes, I built an Irish bar and installed a bathroom above my garage. The bar itself is easy, its just a set of custom cabinets (read: boxes made of wood) all surrounded by a stained hardwood with trim to make it look like a bar. And then you drop in an undercounter fridge and sink, all which you can just buy. The hard part, to me, was creating a custom tap system that would keep the beer cold and under the right pressure throughout the pouring process so that it didn’t all turn to warm foam by the time it reached the glass. The only off the shelf tap systems available are either for commercial bars or these crummy all-in-one kegerators that don’t do a good job and look ugly. So I had to piece together something, but in the end it turned out great.

MonetizePros: Thanks for taking the time, Rich!

Comments

  1. Andy Hagans says:

    One of the best interviews we’ve ever had at MonetizePros. Thanks for the awesome, in-depth answers, Rich!

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