Dave Borden, who sold his first business for $19MM tells his story on what it takes to be a serial entrepreneur, selling too soon, and the definition of what “entrepreneur” really means.
Transcription
Dan Daugherty
Welcome to this episode of The Big Exit. I’m here with Dave Borden who sold his company in 2006 for $19MM. I wanted to structure this episode a little bit differently and actually get into the psyche and the mind of serial entrepreneurs and Dave has built multiple companies throughout the last couple decades. Some have been successful and some have failed, but we will talk more about his story. Dave, thank you for joining me.
Dave Borden
Thanks for having me Dan, we’ll talk more about the success hopefully, but yeah, there’s probably a lot more to learn from the failures but the successes are obviously more fun. So..
Dan Daugherty
Well, let’s start at the beginning, even in childhood, you grew up in Colorado Springs, correct?
Dave Borden
Yeah. I grew up mostly in Colorado, but yeah, probably from about sixth grade on I was in Colorado Springs.
Dan Daugherty
And did you always want to start a company, or were you influenced by your parents? Were they entrepreneurs?
Dave Borden
Yeah, from a very young age, I always wanted to have a business of my own and I didn’t really know exactly what it was, but both my parents were, they were entrepreneurs and they still are. And so I grew up from about the age of five where my family never worked for anybody else, and they always were able to provide plenty of income and do well. So I guess I was never scared of starting a business and I’ve only worked for, other than my time in the army, in a very brief stint in corporate America, I’ve never worked for anybody other than myself.
Dan Daugherty
You know growing up my mom actually ran Daugherty Construction and she also built pools. But one of the things I remember is that she was always stressed out about money. Did you see that at all with your family?
Dave Borden
Okay, a couple rare times. Yes, I will say, my dad, I love him to death, he’s also one of the most frugal guys I know. So, he never had a desire for fancy stuff and he was always very good at saving. However, we did have a pretty rough time and I think it was early 80’s, like ’81, ’82, we used to live in Steamboat actually and it was before the big ski boom. So they they owned a bunch of property in real estate and they’ve always been into real estate and investing but the market really went sour, nothing was selling and even though I knew we had some good savings, I know it dried up pretty quickly and that’s the point where we pretty much moved.
We were forced to move to Colorado Springs just because there wasn’t any income in Steamboat. I think my dad actually took a job at a hardware store for about six to twelve months just to pay some bills. That was a pretty rough time and I think they just decided that we needed to pick up and go somewhere with a little more opportunity.
Dan Daugherty
Subconsciously, do you think that helped transform your ideas, your ideals, and your thoughts about starting a company?
Dave Borden
Well, I think I was pretty young at that time. I’m 48 now. I think at that time, I was under ten, maybe eight or nine, maybe ten. Well. I don’t know, sixth grade whatever that is, ten, eleven, twelve, something like that. I did see you can feel the struggle, even though my parents never talked about it, but we were okay and I don’t remember ever a time with my parents that we, you know, had bill collectors calling or we were late on mortgages.
I’m not saying that stuff never happened, but I certainly never felt it so I don’t, I don’t think I ever had a fear of starting a business because my parents always seemed to make it happen, even if it wasn’t, even if they weren’t thriving. I don’t feel like they ever had any stress. They may have just done a really good job of not portraying that to me and my brother, but I just felt like they always felt like they could make it happen. And they always did, so I think that does factor into having confidence and starting a business and being able to make it happen.
Dan Daugherty
And then fast forward, you went to West Point correct?
Dave Borden
I did.
Dan Daugherty
And why did you choose West Point?
Dave Borden
It kind of chose me. Actually, I grew up in Colorado Springs, which the Air Force Academy is right in my backyard. I used to play basketball over there and we used to spend a significant amount of time at the Air Force.
I was familiar with academies and while I did well in high school, I didn’t really do well enough to get into an academy. So, I actually went to CSU for a semester and had a little bit too much fun there and dropped out and moved back in with my parents. I was, you know, delivering some pizza. I worked for my dad’s friend and I didn’t really know what I wanted to do with myself, but I knew it wasn’t that, so I joined the Army and, while I was in the army, I had a really good ASVAB score.
When I was in basic training, the drill sergeants told me that I was eligible to go to West Point if I wanted to. Since I knew about West Point, I was like, “Hell Yeah, I’ll definitely do that.”
So I got in. I did a year at the prep school and went to West Point and that was very challenging, I think what that probably taught me, it’s funny, because that’s such a regimented lifestyle that honestly life is a lot easier than attending West Point. I don’t know if that makes any sense but when we wake up at five thirty and go to bed at midnight and your every hour is pretty much accounted for, and you’re always doing something physically, mentally. It’s a strenuous life, but you really don’t know any better while you’re doing it, but once you get out, it’s like, oh, this life stuffed is really not that hard. It definitely strengthens your resolve for taking on other things in normal life that most people aren’t used to dealing with.
Dan Daugherty
So a lot of structure, a lot of leadership. Did you know that you wanted to start a business when you were in college or do you say, “Hey I I want to spend the rest of my life in the military.”
Dave Borden
I told people in high school that I was going to be a millionaire someday.
I definitely had the business bug. I definitely wanted to start a business, like I said, I had no idea what it was going to be. When I was in the military, don’t get me wrong, the military was fantastic for me as far as developing self discipline, leadership, and just having the determination to accomplish stuff. You learn several things. You learn mostly that you can do anything you really set your mind to and there’s certain things that you just are forced to do that you don’t want to do and you have to do it anyway.
So those are two really good lessons I think. And I carried those into my, into my entrepreneurial life and with businesses, you know, you learn that no one’s going to do stuff for you and you can also do pretty much anything you set your mind to if you really try.
So, I think the structure of the military was fantastic for me. However, I am an entrepreneur and that’s like the biggest corporation in the world. I didn’t love the Army. I didn’t hate it or love it, but the first opportunity I had to get out, I definitely took so I could get my feet wet in the entrepreneurial world. I did so by joining my mom’s property management company, and that’s what led me into RentClicks, you know my first business.
Dan Daugherty
So, you graduated from West Point, then you started working for..
Dave Borden
No, I started flying helicopters for five years. I flew chinooks.
I got out a little bit early because I had bad feet. I owed like another year and a half, but they told me I could get surgery or get out, so I got out. Then I joined my mom, I did a brief stint in the corporate world at a company called Rhythms, which was a DSL provider in Denver. You probably are familiar with them living up there, they’re gone now. I think at the time, that was during the dotcom boom and I think the CEO, I think her name was Catherine Hapka, she was the richest woman in Colorado for a while, just because of those overinflated stock prices, but that company, I saw the writing on the wall that it was not going to make it, and I had thought about joining my mom straight out of the army, but I wanted to scratch the corporate itch. So I did that, was not excited by it, and so, worked with my mom.
Dan Daugherty
Do you think if you had a really good experience working at a larger corporation, that you would not have launched?
Dave Borden
No, I Don’t think so. Unless I obviously, if maybe the Rhythm stock or if I would have been at Amazon or something like that, my stock was worth a few million bucks, I probably would have hung in there, but I just, it’s going to sound super arrogant, but I just felt like a lot of the people in charge of me were not, were not only, I didn’t think they were as smart as me and think they wanted to work as hard as me. I just felt like they were paycheck collectors and I didn’t want to be around that, um, so I I’ve always wanted to do my own thing and I went and kind got my feet wet with my mom and she made me a partner in her business, which was very nice, she didn’t have to do that.
I worked super hard for her and that, that led me into RentClicks because at the time it was 2002, there was no where to advertise rental properties online other than like Craig’s List, which was only in like two or three markets at the time and Robert Fowler’s company Home Rental Ads that had a few markets too, but we, we just saw an opportunity and went for it. I had a couple of really smart business partners, one of which was really good at IT, Jonathan Hartley, he was really really good at the IT side. Jason worked his ass off on the sales, Jason Moren, and we were a really good team. We really pushed each other hard, we got along and everyone was accountable and worked hard. It was a really good experience.
Dan Daugherty
So now, now, back, back in two thousand, two thousand and one, two thousand and two, you did have multifamily sites like apartments.comcom and others, but you’re right, I didn’t, I don’t think there was any large scale, single family home rental properties at the time, I remember, a vast majority of property managers would actually post in the local classifieds or the local of newspapers, and it was very expensive.
Dave Borden
Yeah. It was three or four hundred dollars. We were thirty nine bucks and I think that the we came about our pricing was like the average cost of one day in the Newspaper. It was what we charged- and it was a thirty day ad that worked way better, and at the time there was really only the only national players like rent.com at the time, which was definitely in advertising, but they were more of like almost an online locator.
eBay ended up buying them for a few hundred million bucks. I remember that, but there really wasn’t much and then as we were growing, Craig’s list started growing a little bit more, some other people started getting into the space and that made us a little nervous. We were clearly the leaders in the single family industry. I mean a lot of those other sites attacked the apartment industry. We were clearly the leader in the single family industry. You remember ’cause,’ you were in that industry as well. We were a very fast growing, very effective, very profitable company. It was a lot of fun.
Dan Daugherty
So, you saw that gap because you were working with your mom at the property management company. You saw that need within the market.
Dave Borden
Yeah, in all honesty, what happened is the market just kind of turned. The rental market was pretty good in the late nineties, early two thousands, but a lot of crazy loans started happening and everyone could get a loan and everyone was buying home.
So i think, the percentage of homes that rented dropped from like 40% down to like 31%. Vacancy rates were high, right now, they’re super low at the three to five percent range. At that time, there were markets, including Denver and Colorado Springs, with fifteen or twenty percent vacancies. We were spending a fortune on our owners money on newspaper ads and never hearing the end of it from them with not much success.
So I was literally just looking for somewhere else to advertise. The Internet was emerging at the time and I was like there’s got to be somewhere online to advertise this stuff. There really wasn’t, so we made it.
Dan Daugherty
Do you remember what your revenue was that first year?
Dave Borden
It was funny ’cause, I turned 30 that year and I remember thinking when I turned thirty, I was just pissed. It was like right after 9/11, so I was a little depressed after that, and then I turned 30 and I was like, I just am not where I want to be in life.
I need to do something here, and then, a few months later we started just in Colorado. It was Colorado Springs and we launched it toward the end of the year, like maybe August or September, and I think we only made about $10K the first year.
I think we made about $180K the second year and then we made like $3MM the third year and then we were at about a $5MM run rate when we sold.
Dan Daugherty
So you had a five million run rate and what were your profit margins?
Dave Borden
75% easily.
Dan Daugherty
Do you have any regrets about selling?
Dave Borden
You know yes, and no. I mean it’s pretty nice when you’re 30. I think I was 30. You know, getting a five million dollar check was my share for the first portion, and then I got another million and a half a year later. So that’s a nice chunk of change at that age. However, when we sold, we were doing about $400K a month, which is about five million a year, six or seven months later, from July of ‘07 to August of ‘07, we grew $130K a month over a month. So if we would have waited six or seven months, we would have gotten at least double what we got and probably more. So to say that there’s regrets definitely because I think the company probably made $150MM in revenues since I sold it.
I would have, at a seventy five percent margins, that would have been another $30MM or $40MM dollars for me personally. So that’s a regret, but at the time you just really didn’t know. Like I said, Craig’s List was getting a lot bigger. Google was playing around with getting into the space. Yahoo was still a big company at the time looking at getting into the space and classified ventures who owned apartments.com at the time, had entered the space.
So we didn’t really know how defensible our position was and looking back on it, it was really good and we feel like we probably could have done what Zillow did with the rental market had we stuck with it. But we didn’t, so there’s regrets there that the company made a ton of money and I think, under our leadership it could have made two, three, four, five times that. I think we could have been more like a VRBO type company, and you know I think they ended up selling to Home Away for a hundred and some million.
So I don’t, no,I don’t regret getting a big fat check like that. But when you look back on it you could have done a lot better and we were young. We were worn out. Because we had gone, and you know it sounds really stupid being worn out after three years, but man we went hard. I was at every trade show. I was on the road, fifty percent of my life, you know Jonathan, was programming, 12, 15, 18 hours a day and we took it really seriously and we worked really hard.
We didn’t have a ton of fun with it. Honestly, we were just really serious as three West Point guys so we were all just really working hard and busting our ass and it was great, but we probably should have hung on and rode it out for another fifteen years. That would have been really interesting to see what happened. We did what we did and we did really well at a young age, and you know it’s just one of those lessons.
You learn in life, and if people are listening to this trying to get advice, Man, when you get a company like that, when you’re 33 years old and you’re making $70K a month, you might be onto something. I say you should probably think long and hard about selling it and there’s so many other ways to exit.
You don’t have to sell it to someone. For example, If you have great leadership, younger people in your company can help run it. We had a leader in our company that easily could have run that company and would not have skipped a beat. We could have just hung on to it and done some other stuff with our life and still owned it. There’s so many other ways to exit.
You can sell it to your employees, there’s some serious tax benefits in doing so I mean there’s just so many other options that we didn’t consider at the time. So regrets yes, but ultimately- and I’ve learned so much during that- and since that I just really can’t complain.
Dan Daugherty
I think so many of us would love that opportunity. It’s interesting, it sounded like it was a combination of things, one fear of the unknown, even though you personally were making seventy thousand or so a month.
Dave Borden
When you apply for a loan or something and they say, “what is your monthly income?” and $70K and they’re like, “no, you’re monthly income, not annual”, and you’re like, that is my monthly income.
Dan Daugherty
The fear of you guys not knowing what other competitors would do within the space and maybe in the back of your mind, you thought, Well, maybe this opportunity won’t come up again and it’s almost like the risk / reward.
So definitely nothing to be sad about for sure, but it’s interesting to see a lot of different companies that have been acquired. Some are acquired and you know they made way more money than they could have if they continued to be a stand alone. For example, you know when I was at Google, Google acquired Urchin, which is now Google Analytics, and you know a standalone product probably would not have been super successful and they became a lot more successful being under Google, and if it was a stock option deal, you can imagine what that ended up being so for those that are listening and are entrepreneurs, there’s never a right answer.
Dave Borden
These are very rare in this world and none of us, not me or my business partners had a mentor in our life that had been down that road before. Jonathan’s parents were successful, but in a smaller way, my parents were successful, but in a smaller way and Jay’s parents, they had jobs, so we didn’t really have anyone in our lives. That just said, listen guys, you guys are doing exceptionally well, even our own bankers were like You should probably sell it. I wish those guys would have shaken us and said guys hang on for two or three more years. You know double triple your revenue and then sell it. It’s really rare, the world’s not full of people that have made the hundreds of millions, tens and millions of dollars. So if you find somebody that’s willing to talk to you, listen to those people, because that’s what we lacked in our life at the time. With, just someone to say, “guys this doesn’t come around very often.”
have another business now as you know. Our business now is doing about the same amount of revenue, but it took us ten years to get there instead of three. You know making money’s hard. It really is. I mean you see all these stories of people doing it all the time. So it looks easy. But it’s not. It’s freaking hard.
Dan Daugherty
With the new company are you looking to potentially exit, or is this going to be more of a distribution play for the rest of your life?
Dave Borden
We get opportunities every week to exit and we are staunchly opposed. You know we’re making really nice money, the business is extremely defensible and we think it’s going to grow at twenty, thirty, forty percent for the next ten or fifteen years. So there’s no reason to sell. That’s also a high margin business- it’s not quite as high, but it’s very nice, forty to fifty percent. So, and not only that, but as you know, we are launching another product which I’ve talked to you about our accounting software. We have a built in customer base that loves and trusts and respects us that we can tap right into and in any product that we roll out.
So it’s being armed with my experience. It is really incredible because I mean we could probably sell that business for more than I sold Rent Clicks for in a week. I know three or four people that are always wanting to acquire us, there’s three or four venture capital companies that are always there contacting us. Like I said, pretty much every week they contact me or one of my business partners and they want to make significant investments and we’re just not interested, and I think that that’s extremely rare. I see all these guys go out and start companies and the first thing they do is ask, “How do we raise money,” and that’s smart and it can work that way, but I think the first question always needs to be, “do we have something that someone will pay us one dollar for to use?” If we do, then you have a real business. If you have a product or a software or whatever it is you’re doing, and you have customers that are willing to pay you for it, then you have a business and it doesn’t mean it’s profitable but I mean that’s really 90% of the struggle.
Do you have something where customers are willing to give you money? If that answer is yes, then, and preferably with some good margin, then you can build a business around that. There’s raising money when you don’t have revenue and then there’s raising money when you do have revenue, and it is a significantly different conversation when you are making a lot of money and your preferably profitable. You’re going to have guys begging you to give you money versus you begging them to get money at a low valuation. Some enterprises out there I mean, I’m sure Tesla doesn’t start with profits. You have to have some massive capital sunk into an operation like that, but if you’re growing software or a little business or something like that to start with, you don’t need someone else’s money, and I think that there’s just this obsession with going out and raising money or getting money from people and all that does- is just lets other people mooch and leach off of your efforts, which, if you have something for real, then you wanna wait as long as you can to let other people have access to it.
Dan Daugherty
What is your definition of an entrepreneur?
Dave Borden
An entrepreneur is a sexy term that people like to say. There’s a lot of entrepreneurs out there that don’t do very well. As a matter of fact, most of them do not, so the term entrepreneur generally applies to a group of people that 90% of which are usually failures. So it’s not as sexy as it may seem unless you have a successful company.
I think what people have to realize before any of that other stuff and the thing that I have talked to my business partners about is, if you want to be an entrepreneur there’s, there’s people out there that have jobs and please don’t take it the wrong way, that is absolutely admirable and worthy and awesome, and some people don’t want to work. They want to work as little as they can to go skiing or fishing or have fun or whatever, and you know what sometimes I think those people are way smarter than me.
But if you want to be an entrepreneur, I mean really, you have to have a cast iron stomach and what I mean by that is, you have to be able to function in life, not knowing when your next paycheck’s coming or if it’s coming or how you’re going to get by and just have faith and confidence in yourself that it’s going to happen. If you don’t feel like you can do that and if you don’t have the persistence to push through the periods when it looks like you’re not going to make it. Those are the times when great companies are created. You ask anybody, Amazon and Microsoft and Apple and all those guys, they all had points in their experience where they were like this just isn’t working and they powered through it.
They persisted and they just kept on going and I think that’s the first question about an entrepreneur before you raise money, is do I have that cast irons stomach because you know what, if you go to a venture capital guy and say yeah me and my team we’re going to make a hundred and fifty grand a year apiece, they’re going to be like no you’re not. Why? Oh ’cause I have a mortgage and three cars and some Nordstrom cards. They don’t care about any of that stuff, and if you really want to be an entrepreneur, you have to have zero debt. You have to have zero debt and live on nothing and be able to sustain yourself through those periods that are just going to get brutal because it will happen and if you have ten thousand dollars a month in expenses, the second things get brutal, you’re going to go look for a job.
