Life After High School: Chapter 12 Stupid Tax

Welcome to Chapter 12 of my blog-to-book project: Life After High School: Secrets To A Successful Life By Those Who Have Had Twenty Years To Think About It (or) What They Didn’t Teach Us Gen Xers In High School. This chapter is called Stupid Tax. If you missed the last post, click here, otherwise, you can start at the beginning here.

Before I left Pure Fitness I got caught up in the amazing returns people were getting on real estate during the false boom of 2005. I invested in a plot of land in a new development in Northport, Florida, and had my aunt checking on it in my stead. I thought I knew about real estate, as I had carefully purchased a condo in Belltown while working at University Fitness. The price on that had nearly doubled, so I thought I could handle a little long distance investing.

I had a house built on the land and was ready to sell. I would have profited around $50,000 when it sold. My aunt was interested in living there, so I made the very unfortunate decision to hold on to it and rent it to her. She lost her job and then the economy tanked in 2007. It was all over the news that this particular area in Florida was not only dropping rapidly, it was one of the worst places in the entire country. Only some areas in Nevada and California had bigger drops in value. I went down to Florida and realized that every two out of three houses in the area were in foreclosure. Every single house had a for sale sign.

I gritted my teeth, found a tenant, who ironically was a foreclosure attorney (and later took advantage of his knowledge of the system to avoid paying rent), and tried to ride it out suffering through the loss. I bought the house at around $200,000 (all leveraged with a stupid low-down payment ARM), it was going to sell a little over $260,000, and since I didn’t sell, it was now worth $57,000 and I had a ton of debt that would eventually adjust to higher interest and kill me financially.

Also in 2005, being married and trying to settle down to give my wife some much-needed security, I decided it was the perfect time for me to become… a high-risk entrepreneur.

It was an idea I had always believed I was destined for, even though my career had centered on the arts. In my mind, there is a strange parallel between the arts and entrepreneurship that most people miss. There is a creative genius that both require, but not everyone taps into.

I felt I had what it took, and since I had been kicking the idea around for around seven years, I dedicated focused time on carefully planning a new strategy to own my own gym. It was, after all, something I knew a lot about as an employee and independent contractor, and it seemed to go with my fascination with the physical.

Owning a gym is the perfect business for someone who wants to get in horrendous shape and go broke. Pushing pencils does wonders for the waistline, and any business that has huge fixed costs at the peak of the bubble with fickle customers paying $29 per month or less, is bound to have money slipping through your hands like a bucket shot full of holes by a 12-gauge shotgun.

I went back to my old boss, Rick Clark, and I appealed to his desire to expand his health club into new territory. I knew from years of conversations that he wanted more.

Actually, all Rick ever wanted to do was go golfing. He didn’t want to be there, but it had been a good gig and I saw that as an opportunity to be of service while helping myself make my own way simultaneously. I saw the debacle at the 5th Avenue Theater as a sign it was time to move on with my life and become a high roller.

I would say I wanted to be “like Donald Trump” since I had read his book among many other business books at the time before anyone knew who he was. Remember that people actually used to say that and it had real estate or business tycoon connotations. Of course, this was long before anyone dreamed that he might become president. I just respected some of his real estate accomplishments, and the stories were inspiring to show how America still has opportunities. That was it. He was barely getting into reality TV, and people only knew him as a shrewd and rather wise business man.

Be honest, before the presidential election, did you even know anything about him other than he was a business celebrity on TV? Did you read books about him or by him? Well, I did, which might just give me a slightly different perspective than the average Joe. So just relax for a minute before you go nuts on me and throw Molotov Cocktails at my front door.

At that time, if you said “Trump for president,” you would be probably looked on as a radical intellectual with interesting views of the world and a unique viewpoint that others would wonder at.

Of course, at the time of this writing, if I were to say anything remotely positive about him, I am afraid a lynch mob would be waiting outside my house ready to take me out for being a baby-hater and a xenophobic sexist-racist.

Living in Washington State has such a rich and tolerant culture!

So I will NOT say anything either for or against. I leave that to Facebook, the source of all of our news and opinions. Facebook will tell us how to think. Oh great Facebook, only you know the truth. Please enlighten us with your out-of-context video clips and serial rants. Show us the way.

OK, worship time is over. Back to the story…

While I was still working at the 5th Ave, I met a guy named Mark who worked with Gary at WAMU Capital Corporation. He was a finance guy of sorts, but his dream was just to brew beer. He was at some of our poker parties at Gary’s. For some reason, I called him up at the bank and said: “You still want to get out of there?” He was ecstatic. We decided to open a gym.

I mean, of course, if you put a bald banker together with a male show dancer, what choice did we really have?

We drove all over for months looking for spaces and writing business plans and then playing Halo on the X-Box to blow off steam. Eventually, a commercial broker introduced us to a space in Mountlake Terrace. It was 6,400 square feet next to a QFC and seemed to be prime retail. Mark and I gathered other partners (Mark’s friend Nathan, and my friends Gary and Luke) to raise cash, and then Rick provided the credit and his reputation. We called our new venture Retrofit, using a Seattle firm to create the branding elements.

At that time, my wife and I moved into the Snohomish house she grew up in, leaving Seattle behind in favor of rural commuting to the gym every day instead. She still worked at the UW, helping run a lab, and then came home to help me at the gym. She was and is an amazing woman, who stuck by me through some very bleak times. We are stronger for it.

The house was nearly condemned and in sore need of a major overhaul. My mom and dad came and stayed in hotels while helping remodel our house while Mae and I worked. I would come home after a very long day at the gym and crawl under the house to help with plumbing. We rebuilt the entire house from the inside out and ended up having to take a second mortgage to do it. We knew that everything would be fine since even though we had a lot of debt, real estate would most certainly keep going up and we would be making tons of money on our gyms after we opened three to five of them in the next couple of years as was our plan. We had run the numbers and were determined we would become wealthy.

CRASH Goes the Economy

This was a very tough time in my life that I am going to skirt over very quickly so as not to make myself rant excessively. We bought in at the top of the market on everything. We even went to the big IHRSA convention in Los Vegas to buy equipment. We did our research and studied our demographics and we were sure we could do it.

I signed up 635 new clients (setting a few records), in the worst time of the year to open a gym (summer), as fast as I could and things looked pretty good, but behind the scenes, we were falling apart. Let’s just say none of us could get along and there was some power plays that drove us further apart. The stock was internally devalued and somehow through some very tricky legal handiwork, I no longer had any control or value in the company and my equity had been reduced to nothing. I learned a huge lesson that day and for many days after that.

Luckily, while I was there, a guy named Wayne came in and had me try products from a direct sales nutrition company. I was very skeptical, but the stuff worked. In three weeks, without changing diet or exercise, the products helped me lose two notches on my belt, gain a pound of muscle, and feel more energy than I did in high school, and that was exactly what I needed at the time. Later, Mae would use the products to go from a size 12 to a 6 after kids and looks and feels fantastic. We have maintained those results for over ten years and love every aspect of the company and products. The customers were starting to love it too, but we didn’t have much time in the gym left to introduce it there.

Shortly after, the locks were changed and I was ousted of my own creation.

I was crushed and the company was in trouble. I could no longer sell memberships to keep it going and yet I still had all of the responsibilities and debts. The gym cost us $500,000 worth of equipment, and it was $13,000 a month in rent, not including the equipment leases.

The gym kept puttering along for a few years, and finally, they declared bankruptcy. Rick Clark lost his other gym and his house and retirement and moved to Arizona to get a job and start over in his sixty’s. Everybody lost, and a trainer who worked for us got pregnant (not by me).

My personal guarantee was on everything. My stock was worth nothing. It was a nightmare.

Right before we closed, another gym owner con man befriended me with an evil manipulation. I was weak and he saw it. He convinced me to give him $15,000, which was my last line of credit to my name to go invest in a new company so I could go work with him. He took it and ran. People from all over were trying to put him in jail for years. Like they say, an idiot is born every day, and I was being a glutton for punishment apparently.

Now there are different kinds of debt… At least there are different reasons you might choose to get into debt. You can just be a normal American and rack up the consumer kind using credit cards and payday loans and rent your furniture and get a couch repossessed, or you can get into debt as a small business owner and live the real American Dream.

“Our bank supports hard-working entrepreneurs like you. This country was built on the backs of small businesses and if you want to do something of patriotic significance you’ll need to take out a loan with us.”

“But I thought 99% of all traditional businesses fail, so why—”

“Well, yeah, but that could take years and you will be paying a lot of taxes in the meantime to support your local community… And don’t worry about us, we’ll just take your home when you fail.”

You know what’s stupid about business debt in particular? At least with normal consumer debt you get to have all the fun and trinkets that give you temporary material pleasures! Most regular Americans just rack up the credit cards and have a blast and then file bankruptcy… And later they might enjoy a bailout paid for by the taxpayers. With small business debt, however, you get an entire decade of lost hopes and dreams.

“So let’s see, would you like to take a cruise around the world for a year, buy a Lamborghini, and have a wild shopping spree to Best Buy every day for a month…

‘Or would your prefer to have all the same debt and just sit in a cold unfinished foreclosed house filling out endless paperwork for the IRS?”

“Hmmmm…. That paperwork in a cold empty house sounds pretty nice. Do I get extra airline miles with that?”

There was one time I was in court and remember representing myself in front of the judge. Even the judge admitted that he thought I really got screwed. The landlord took pity on me and released me from my obligations to him, although that was only a part of what I owed. He was still trying to collect over fifty-thousand in back rent. He tried to get the partners to come back together to make it work, but it wasn’t happening.

Lessons From The Loss Of Retrofit (Advice For Entrepreneurs)

1. Always Go Low Overhead (my dad warned me, but I had to learn the hard way)
2. Pick the right partners, because breaking up is hard to do
3. Handle conflict with care. It’s like a seriously inflamed hemorrhoid
4. The only way out of the business that continues to profit is to go from true business owner to investor (or a “B” to an “I”, as Robert Kiyosaki suggests in Rich Dad, Poor Dad). Become the financier and get a replacement who has skin in the game with ownership. Otherwise, sell or just cut your losses since that ship is eventually going to go down like the Titanic!

I fell into a deep depression in 2007 and 2008. I would lie around in my bathrobe all day and Mae would understandably be upset and worried. I would pour through emails and paper trails looking for a way to fight everyone. I was angry and sad and had never seen such loss.

I eventually drug my sorry tail out of the house and started over working at a little gym in Snohomish as a personal trainer. I felt like a nobody. I later took a second job crawling under houses for an insulation company, writing up estimates while lying in rat feces. I had spiders crawling all over me every day, lived out of their trucks, and had insulation in my hair and on my skin that never seemed to wash out—always itching.

I hated myself. I found myself in the crawl spaces, talking to myself and feeling sorry and mumbling: “I used to be on the 5th Avenue stage! We got a standing ovation at the end of A Chorus Line after our perfect show and I started balling!” Then, I was too angry to cry so I just went emotionally numb for a time.

(Ironically, this same company became a consulting client almost a decade later and hired me on full-time to transform their marketing strategy, but that is another story).

After the loss, it took me ten years to forgive everyone, and I am almost ready to forgive myself too. It has taken a lot of work since I live with the repercussions still to this day. The good news is that I never declared bankruptcy since I don’t really believe in it. I have lived modestly and worked hard and followed a debt reduction plan we got from our nutrition business. Using that system and by selling things off and earning additional plan-B income, we have gone from 2.2 million dollars of debt down to under two-hundred-thousand.

Our dream is to one day be debt free, and we see that as possible now. Granted, I lost my condo in downtown Seattle, had to short-sell the Florida property and sell most of my personal belongings, while working the new business on the side of multiple jobs. It is not easy, but I believe it will build character and be worth it in the long run.

I eventually started a boot camp business, called Snohomish Boot Camps that grew to four cities and had eight trainers working for me. We had hundreds of clients and helped people shed thousands of pounds. We did huge fundraisers and donated to charity. It was a rocking few years again from 2009 to 2012. We were also rocking and rolling in AdvoCare earning a substantial residual income. We had a month where we made a little over $7,000 just from that alone and decided Mae could leave her job in science to follow her dream, which was to be a mom to our two kids, Phinneas and Keira. At that time, it appeared it would all work out just fine.

Of course, we had another rude awakening. Perhaps I got a little ahead of myself again and tried to grow the fitness business too rapidly. I had a big vision to change the world with my boot camp system and franchise.

One of my trainers had a different idea of how it would be and she took the biggest camp I had and “moved” (a euphemism for “stole”) all the clients in a pretty well-executed coup d’état. I received dozens and dozens of cancellation notices virtually overnight. Now, I am to blame for several poor leadership blunders, but it doesn’t justify that extreme of action. Maybe I do deserve it anyway, I don’t know. Well, she wanted more money, and she thought I was rolling in the dough and just holding out and didn’t believe me when I said I wasn’t really making any money.

The truth is that I was living on under approximately $24,000 per year, and much of our income was coming from other sources, not from the boot camps. The reason she couldn’t believe it is that our gross revenue was very high. What she didn’t understand, because she was not and probably never will be a business owner, is that there is a huge difference between revenue and net income. I had huge expenses and was using the majority on the payroll (including her) and financing the launch of other camps so that someday if I worked really hard, I would eventually (after several more years of very hard work) make good money on it personally.

I decided to sell what was left of the company, but the new owners and I had some serious differences, so I was no longer involved at all. I found myself “retired,” but at least we were doing well enough in direct sales to make ends meet, which was the entire purpose of the plan-B income, to begin with.

After that, I have gone back to training and launched a boot camp with a new system I developed. I enjoy it and I help other people start their own fitness boot camp businesses as well. Coaching gyms and trainers eventually led me to small-business marketing consulting and a new opportunity with that insulation company (LOL) that is exciting and life-changing.

It is all good honest work now and I have zero partners, other than my wife. I am a believer now that most of the time the only ship sure to sink is a partnership (now watch, I’ll end up in another one), and all of these learning lessons and never-ending debt payments are my way of having to pay a stupid tax for my lack of wisdom and patience.

Lessons From The Loss Of Snohomish Boot Camps (Advice For Entrepreneurs, Part Deux)

1. There always is a way to exit and get to make lemonade out of lemons (E.g. I created a consulting practice and wrote a book).
2. Businesses without high overhead and debt are easy to change or get out of.
3. “Strictly Business” is a misnomer, and “It’s not personal” is a lie. It’s always personal, so you have to be prepared to handle it.
4. Leadership is influence, and it requires service and a servant’s heart. The business is not there to serve you, as much as you wish it were the other way around. If you treat it that way, you end up killing the Golden Goose and choking on the feathers. If it hurts you too much to see the world as it really is, you can always go back to being a lazy consumer and working for someone else and losing your influence. Then someone can tell you what to do all day and you can choose bondage. Freedom isn’t free.
5. Doing it “for the money” is a trap and a weird paradox. We must follow our dreams and passions to bring light to the world, and the light is what people pay for. Yet we feel we need money to follow our dreams, which entices us to choose careers and projects based on the lure of money, rather than the dream. We wait for the money so we can invest in the dream, but by then it’s too late… We are caught in a Catch 22.
6. Ok, this one is going to be challenging not to sound sexist (although I assure you that it isn’t), but here it goes… If you are a man:
   1. Working with women is more complicated than working with men.
   2. As a man, having women work for you is going to make you man up.
   3. Having a bunch of women running your business is either going to be the best idea in the world or a recipe for drama and disaster…
   4. And you can’t blame anyone but yourself (Just like the Jimmy Buffet song says).
7. If you are a woman:
   1. All the same rules apply.
   2. Whew! Glad I’m getting through that lesson relatively unscathed until the hate mail comes in.)

In the next post, I will continue with more interesting interviews, like this one with Polly Ann Anderson.

Are you from Generation X? I want to hear what you think! Please comment below and participate in the conversation about What They Didn’t Teach Us Gen Xers In High School. What do you wish someone told you when you were eighteen?