Do you know what’s fun and free? Dreaming BIG! As kids, we use to daydream all the time. I fantasized about being a professional tennis player who’d compete in tournaments around the world via a private jet until I realized I couldn’t even make it to All-State, just All-District. It was only until the age of 32 did I start dreaming again.
When Ariana Huffington sold The Huffington Post to AOL for $315 million in 2013, The Smoking Gun, and several other sites reported that Ariana only received $21 million, or ~6.6% from the sale. $21 million isn’t chump change, but that’s a far cry from the original sale price.
Meanwhile, Michael Arrington, founder of TechCrunch sold his site to AOL in 2010 for only $40 million (includes incentives). 2010 was a bad time to sell anything – stocks, real estate, businesses, you name it. But because he owned an estimated ~80% of the site, Mike walked away with around $32 million, or 50% more than Ariana even though TechCrunch sold for 85% less than HuffPo!
It’s amazing how two vastly different sales prices can result in two surprisingly different windfalls due to company ownership structures. It often takes an army of employees and capital to build something massive. I’m not looking for fame, but I’m starting to wonder whether it’s time to once again rekindle the dreams of great fortune.
Whether you know it or not, you the FS community, is instrumental in the continued content production here. I struggled for years not wanting to do anything but travel and play because years ago I finally found “enough.” But thanks to your continued support and encouragement, I’ve kept on going. People keep asking whether I will ever run out of material to write. The answer is always “never,” because there’s an endless amount of things to talk about. If you can speak forever, you can write forever.
A new adventure on Financial Samurai may begin by the end of 2015, and I’d love to get your input once more. I’ve been seriously thinking about this topic since the beginning of the year. In fact, I’ve been sitting on this post since January, going through things in my head.
GO FOR GLORY OR STAY FREE?
Back in October, 2010 I was already beginning to burn out from my finance job after 11 consecutive years (plus another two years at a previous firm in the same position in NYC). I penned the post, The Comfortable Lifestyle Business Or The Big Payout?, as a way to gut-check my feelings about taking work down a notch with the community. I asked the following question to a bunch of poker buddies and to all of you:
Would you rather make $15-000-$30,000 a month and work only 2-4 hours a day? Or, would you rather make minimum wage working 12-18 hours a day for two years with a 25% chance of selling your business for $100 million dollars and netting yourself a cool $25 million? If you don’t, all you are left with are your experiences.
The large majority of you chose option #1, the lifestyle business making $180,000 – $360,000 a year working up to 28 hours a week. And you know what? That was exactly the answer I wanted to hear as I left a $250,000 – $1,000,000 a year job in finance 2012 to pursue such a lifestyle. In retrospect, leaving so much money on the table at 34 was crazy. But, without taking some risk, I knew my life wouldn’t change one bit.
The great irony is that for the first year, I was probably working just as hard, but I was enjoying every minute of it because there was a 100% correlation with effort. My old job had dissolved into a somewhat communistic structure where high performers or high performing departments subsidized low performers or low performing departments. It’s a team sport in the rocky world of finance, but I wanted to see what I could do on my own.
It’s been almost five years since I first asked the lifestyle business question, and By The Power Of Greyskull, the dream turned true. Who would have thought discussing an idea while waiting for a good poker hand could turn into something life changing? Who would have thought, simply one day registering a name online would ever lead to anything?
Ever since middle school, I’ve thought in four or five year blocks because that’s the typical duration of high school and college. The last five years have been terrifyingly wonderful.
Given the lifestyle business goal was met by the end of 2013, one and a half years after I left Corporate America, I decided to utilize my free time consulting for financial tech startups that I believed could revolutionize the industry for the better. I thought how cool it would be to bring Silicon Valley insights to the FS community living here in San Francisco. Fintech was a chance to pivot into something new.
WHY NOT ME TOO?
During the year and a half of consulting for financial tech startups I learned a ton about Silicon Valley tech culture, compensation structure, fundraising, growth metrics, venture capital, product creation, pitfalls of working at a startup, and various ways people exit for big and small money.
Since November 2, 2013, I’ve spent over 1,600 hours consulting for Personal Capital. During this period, the company raised a series D funding round led by USAA, BBVA, and Corsair. And I’ve spent over 300 hours with Motif Investing, who during this time raised a Series E round led by Renren of China, a company I ironically helped take public years ago.
Over the next 10 years, there’s a good chance the founders of these companies will personally walk away with eight-figure paychecks. The value propositions Personal Capital and Motif Investing have created are just too compelling for big finance companies and consumers to ignore. I use and enjoy their products, which is why I wanted to be part of their team.
Starting in 2015, the feeling of why not me too began rising in my underbelly again. I haven’t felt this way since I began to seriously think about leaving my corporate job at the end of 2011. But life has a funny way of pulling you OUT of satisfaction. When I read an article by FastCompany this past January about the 10 most innovative companies in personal finance, it got me all excited!
FastCompany is a leading entrepreneur’s magazine. If you click the article you’ll see that Motif Investing is ranked the #1 most innovative personal finance company, and it’s hard for me to disagree. I couldn’t fully comprehend the full value proposition until I built my own motif. Their user interface is slick and the ability to build a diversified portfolio for only $9.95 blows away the competition. How neat it is to be able to consult with a company that has such recognition.
Then I started reading about every other company on the list, until I stumbled across LearnVest at #10, a company founded in 2009 like Financial Samurai, but a company I never thought was that innovative because they are basically a larger version of Financial Samurai, but with a lot less personality, experience, and firsthand knowledge. My only innovation is coming up with new financial metrics like FS-DAIR for paying down debt or investing, FS-FR Score for measuring fiscal responsibility, the 1/10th rule for car buying in order to save you from yourself, and the Average Net Worth For The Above Average Person to provide people some financial targets.
LearnVest started off helping women with their personal finances, and has since expanded to be a large lead generator for financial advisors with media heavy content. For $299, one of LearnVest’s 50-plus planners will speak with a client on the phone, draw up a financial plan, and then walk the client through it. For $19 per month, users get continued support via email, plus access to premium educational tips. A referral + subscription business based on content is pretty standard, and something I could easily do.
Financial Samurai has similar content, but my content is written by me, someone who painstakingly writes 1,000 – 4,000 word articles based on my experiences investing in stocks, bonds, real estate, private equity, getting out of the rat race, saving for retirement, and so forth. LearnVest hires a team of freelancers, who may or may not have the experience, to write its financial content.
Since early 2010 when I started the Yakezie blogging network, I’ve come to deeply understand the world of freelance writing because I’m friends with freelance writers, hire freelance writers for my consulting clients, and researched how the industry works from an SEO and business perspective. Personal finance is just too important a topic for people to accept pontification rather than first-hand experience.
The greatest peculiarity I’ve found online is how there can be so many people out there giving financial advice when they have no experience. (See: Is Fake It ‘Til You Make It The Reason Why We Are All Screwed?) The online media world is filled with people who produce content under a recognizable brand, yet lack expertise. Yet, it doesn’t matter so much because readers automatically associate authority based on the platform i.e. if an article is published under Forbes, then it must be good.
What an opportunity to change the way financial content is published! I know hoards of highly qualified professionals with 15+ years experience who are just dying to do something new with their lives.
My “A-Ha” Moment
LearnVest raised around $75 million in funding over six rounds since 2009. On the other hand, Financial Samurai has raised a total of maybe a dozen draft beers and a couple cheeseburgers, with zero equity exchanged when I sat around a bar with friends discussing my idea before leaving Corporate America.
FastCompany reports LearnVest draws 1.5 million visits per month with their large staff of writers, executives, and operational personnel. Financial Samurai draws roughly half of LearnVest’s traffic with my team of ten fingers, best friend, and father who frequently reviews my posts for edits (thanks guys!).
In terms of revenue, multiple sources have said the company generates “way less than $10 million a year.” Based on their latest regulatory filing, they’ve got 45 employees and 3,700 paying clients. They charge $19/month and a $299 “setup” fee. The recurring revenue is therefore $19X12 X 3700 = $843,600 a year. Add on the $299 X 3700 and that’s $1,106,300 in one-time revenue.
With 45 employees, and even more contractors and financial providers to pay, offices to rent in NYC, lawyers, accountants, advisors, and so forth, it’s obvious that LearnVest is deeply loss-making. Let’s say my basic calculation on their revenue is wrong, and they actually make $10 million in revenue a year. I still can’t imagine them being very profitable.
When LearnVest raised $16.5 million in Series C funding in mid-2013, it was valued at roughly $100 million ($40 million total funding to date). With its $28 million Series D funding in April, 2014, I’m assuming the company was valued at around $200 million. (A double in one year is commonplace in the bubble land of private equity) What surprised me is that during the time I spent developing this post, LearnVest was sold to Northwestern Mutual for a reported $250 million (probably includes lots of target hurdles) on March 25, 2015!
Why would LearnVest sell for $250 million after raising almost $75 million in total funding, and $28 million just a year ago? Let’s not worry about capital returns, cash burn, the inability to raise money at higher valuations, and LearnVest’s employees getting blind-sided. They were bought by a cash-rich giant who already invested in previous rounds and is relatively price insensitive. Everybody is ensured of a job at least (not the main goal of a startup employee making below market rate to just work for survival). Furthermore, let’s say the Founder and CEO owns 10% of the company, that’s a cool $25 million for her. Not too shabby, but probably not very exciting for many others except for the first three employees.
My ah-ha moment is this: If LearnVest only grew to 1.5 – 2 million in monthly visitors and has less than 10,000 paying subscribers after raising ~$75 million dollars and being barely profitable, if at all, imagine what Financial Samurai could do raising just $1 – $2 million dollars? I was able to generate a third to one half the amount of visitors as LearnVest with zero budget, and zero publicity. Meanwhile, Financial Samurai is very profitable and growing!
Maybe all I have to do is become a more public figure and get on Bloomberg or CNBC to talk about escaping the rat race, entrepreneurial life in Silicon valley, negotiating a severance package, retirement planning, or the myriad of personal finance topics to surpass LearnVest’s traffic. Speaking to big media costs nothing, except for my time. In the past, I’ve turned down multiple interviews as I enjoy privacy.
What To Do With $75 Million?
Hire the best writers: With $75 million, I could hire some of the most experienced personal finance authority figures to write the best personal finance content on the web. My writers would all write from experience, instead of pontification. I’d have Samurai Marisa, Samurai Mark, Samurai Steven, and Samurai Sally all write and manage different tracks of personal finance columns to build a thriving community. The writers would all have 10+ years of experience working in wealth management, investing, insurance, estate planning, taxes, and real estate.
Create a free Financial Samurai app: Then I’d hire a developer or three to build a free Financial Samurai app that helps people grow their finances based on the ratios me and my colleagues believe should be followed. For example, users can answer a series of questions and the app will the spit out a FS ratio for each, compare you to the average, and then compare you to the ideal figure based on your financial goals. Once the inputs are in place for savings, investments, spending, retirement, housing and so forth, the app will pull your data and track your progress towards financial freedom! We can even gamify the app to make your finances as fun as possible.
Build a subscription based business: In addition to building a wonderful free app to propel you towards financial independence, I’ll have a couple engineers build a financial subscription business where people who want more direct help can sign up on a monthly, or yearly basis. The beautiful interface will focus on connecting those who value professional advice to a team of the most qualified financial advisers, estate planners, tax attorneys, and career coaches. We would only highlight the most qualified people and leverage video meetings over your phone or laptop.
Develop corporate partnerships: After the free app and subscription business is built out, then I’ll build partnerships with the largest financial institutions in America to create value-added extensions to their exiting customer base. The enterprise model can be a fee based on customer, or a revolving subscription fee.
What makes you think you can do it? My “unfair advantage” as VC Chris Sacca likes to ask is that I’ve got 16 years of experience in the finance world, an already established perpetual stream of incoming traffic on Financial Samurai due to high search rankings in coveted keywords, and relationships with meaningful players with deep pockets. Furthermore, I have no business debt, strong cash flow, six years of experience building a profitable online business, and over a couple thousand hours working in startups from Series Seed to Series D.
What’s The Problem? Go Do It Already!
My problem is that I don’t crave the limelight. I’m also content. I’ll gladly meet up with readers and clients when I’m free, but I’m not a promotional machine. Heck, I don’t even have a FS Facebook account. I’m of the old school where I want the writing to speak for itself in a meritocratic manner. But as we know in many of my career building articles, doing good work can only take you so far. You must self promote!
Those who rise to the top are masters of self-promotion. Building a big business is about having a “big ego,” as my venture debt friend told me. I’ve definitely got an ego, but it’s not yet big enough to take incessant amount of selfies to post online, share vacation pics on Facebook, write memes with my picture on it, and drive around in a fancy car. You see none of that on Financial Samurai. Meanwhile, I drive around in a Honda Fit, which does nothing to boost confidence, just driving range. Self-promotion just feels a little off.
My other issue is that I love the speed in which decisions are made at Financial Samurai. Here’s how it may go: 1) Wake up at 5am and remember an idea from a dream, 2) Write from 5:30am – 7:30am while the idea is still fresh, 3) Take a break by doing five sit-ups to keep my one-pack toned, 4) Eat breakfast and get on a call, go to a consulting client at 9am, or work on some business development opportunities, 5) Come back from work and respond to e-mails and comments, 6) Ping a freelancer to work on a project, 7) Spend time with friends and family, 7) Go travel for four weeks somewhere, and 8) repeat.
There’s never a need to have a meeting about a meeting to hear yourself speak. Sitting in too many meetings crushes my soul because that time could be spent doing something productive. A 30 – 60 minute meeting once a week is fine. Or a 15 minute meeting once a day works too. But I’ve noticed there are endless in the startup world.
Finally, there is complete autonomy with running my online media business. “Sam, you like the idea?” “Why yes, I do. Let’s do it!” Voila! So easy! Once you take money from investors, you’ve now got to report to other people, even if they don’t make the final decision. There will be increased pressure to hit targets and perform, and knowing me, I will stress significantly to try and always over-deliver.
“Sam, I’ve got a thousand bosses. There’s something to be said about being your own.” – CEO of a $3.5 billion public tech company.
ONE BILLION DOLLAR PIPE DREAM
Selling Financial Samurai for one billion dollars is probably never going to happen. But selling Financial Samurai for $100 million in five years is a real possibility. During my due diligence, I talked to the following people:
* A VC who invested in Lending Club and Mint.com
* A CEO/entrepreneur who is worth hundreds of millions of dollars
* An Angel who has invested in both AirBnB and Uber
* A CFO of a Series E company
* A CEO of a Y Combinator seed stage startup
* A Venture Debt partner
* A failed entrepreneur after 10 years of trying
* My parents and my best friend
Here’s how I could turn Financial Samurai into a $100 million dollar company.
1) Put together a pitch book with details of my organic growth, revenue projections, business plan, and use of proceeds. Highlight the various new products and business lines planned with cost figures and timelin. Compare Financial Samurai with the likes of LearnVest and other similar companies to show that there is demand for innovation in the multi-trillion dollar financial wealth management industry.
2) Hire a respected technical first employee or co-founder given funding is easier with a team.
3) Establish an existing valuation of $10 million – $20 million. If pre-product, pre-revenue companies (i.e. loss making, just idea stage) can be valued for $10 – $20 million, why can’t Financial Samurai, which is highly profitable, has six years of existence, can pay a nice dividend if it wants to, has way less risk than all these new startups, and can grow revenue by triple digits every year with promotion, be worth a similar range?
4) Sell 10% of the company for $1 million – $2 million to a consortium of passive investors who understand the space and can provide connections and expertise.
5) Spend $ 1- $2 million on hiring content producers and engineers to develop the products I’ve outlined above. The $1 – $2 million can theoretically last forever because I don’t need the money to grow. But, I will spend the money for growth in a prudent way. If Financial Samurai can grow to 1 million pageviews a month with no big media appearances, no forum, and no marketing spend, I have no doubt I can grow even bigger and quicker with an actual budget. I have literally not put any money back into my company as a lifestyle business, except for ongoing maintenance.
6) In five years, I’m confident I’ll be able to grow to three to five million visitors a month, gain more than 10,000 paying subscribers, and boost revenue 20X due to a fantastic app, a new subscription business model, more advertising revenue, and new partnerships. Let’s say revenue grows to $10 – $20 million, with 60% operating profit margins in five years. Why can’t I sell the company for $100 million based on a 5 – 10X revenue multiple when comparable startups are being valued at 15 – 25X revenue? Remember, LearnVest was generating $10 million or less in revenue a year, was loss-making, and got sold for $250 million!
So there you have it. That’s how I can grow Financial Samurai to a $100 million business if I actually get down to trying. The private equity market is absurdly hot right now as too many dollars are chasing too few deals. Vox Media just purchased Re/Code after just 1.5 years of existence. Buzzfeed is looking to go public with over a $1 billion valuation. Tech publishing site GigaOm shut down after raising an estimated $40 million because they took on debt and were burning $400,000 a month (!). It just goes to show how much money is out there. And who knows, maybe I’ll pivot the business model at some point after a couple years so it can scale to a billion dollar company.
All I know is that after speaking to some highly respected people, researching what other companies are doing with massive funding, and analyzing what I’ve done on my own, I think I’ve got a much higher chance of a $100 million exit than the average new startup. Half the battle is survival, and given Financial Samurai doesn’t need funding to grow, it can survive into perpetuity.
So let me ask you dear readers, as I asked you back in 2010 with some new figures:
Would you rather 1) continue building a lifestyle business that provides all the freedom in the world with $500,000+ a year in revenue and 50% – 70% operating profit margins? 2) Go for glory and try and build the next $100 million dollar business over the next 5 years with a 25% chance of walking away with $40 – $80 million dollars based off a 80-90% ownership and a $50 – $100 million exit? 3) Follow a hybrid route by finally plowing back earnings into growing the company instead of using the money to fund a lifestyle while joining another promising startup? 4) Sell everything now for $5 – $8 million based on current offers and start another site.
Seven Second Resume
* Was a consistent top 3 producer in the brutally competitive finance industry for 10 years in a row.
* Built Financial Samurai from the ground up over the past six years into a recognizable brand and a highly profitable business with no marketing spend and zero PR.
* Spent 1.5 years and 3,000 hours consulting at leading financial tech firms.
* Understand the importance of scale and profitability.
* Will not fail due to a lack of effort. Calculated risk-taker.
* Can be intensely competitive as a current athlete if needed e.g. beat the founder of one roboadvisor company 6-0, 6-1 without remorse or regard for future consulting business opportunities. But can also be a good politician who can build collaboration.
* Connected to people who can “flip the switch” and expedite the business.
* Weaknesses: already content, lack patience for inefficiency, already helping folks with their financial problems by publishing posts and answer questions, more of the happy-go-lucky type.
Start Your Own Website, Be Your Own Boss: You can try to start your own massive startup, or you can do what I’m doing and run a lifestyle business online. But nothing will happen if you don’t start your own site to begin with. At least own your brand online and earn extra income on the side.
Why should LinkedIn, FB, and Twitter pop up when someone Google’s your name? With your own website you can connect with potentially millions of people online, sell a product, sell some else’s product, make passive income and find a lot of new consulting and FT work opportunities. Here’s my step-by-step guide on how to start your own website today.
Financial Samurai started as a personal journal to make sense of the financial crisis in 2009. By early 2012, it started making a livable income stream so I decided to negotiate a severance package.
Years later, FS now makes more than I did as an Executive Director at a major bulge bracket firm with 90% less work and 100% more fun. Follow my step-by-step guide to starting your own website today in under 30 minutes. Once you own your platform online, you can now potentially reach 3 billion+ people! You never know where the journey will take you!
Updated for 2020 and beyond. I’m loving the lifestyle business lifestyle. No investors. No shareholders. 100% freedom to do whatever I want is priceless.