The following story appeared as a chapter in the book
Where There's a Will, There's a Way
St. Patrick's Day 1983 is a date I'll never forget. That day I filed for bankruptcy and started my consulting firm.
I enjoyed good success in the computer industry, having started and operated several successful businesses. My most recent venture had been my new invention, the world's first electronic yellow pages! It was a great idea, yet when I brought in some outsiders in order to raise some badly needed capital, I lost control of my own company!
A period of political infighting left me on the outside of my own company. For the next year, I lived on credit cards in a state of depression. Then the personal bankruptcy took away my plastic.
Not too long afterward, I found myself sleeping on a used mattress in a studio apartment. I didn't have a car and had to borrow a friend's in order to make a sales call.
So what did I do? I became a consultant, just like a million other broke, unemployed guys. My office furniture was a wooden folding chair and a door laid across a couple of two-drawer files.
I had to find some clients, pronto! But how could I, with no money to advertise and no car?
Without the financial resources, I knew that I had to come up with an idea to drum up some business that didn't require a bundle of cash.
In my empty wallet, I found a yellowed tattered article that 10 years ago I had cut out of The Wall Street Journal. It listed 10 rules for entrepreneurs. Based on my personal experiences, I revised the list and christened it THE 10 COMMANDMENTS FOR MANAGING A YOUNG, GROWING BUSINESS. After several rewritings, I said to myself: "This is the kind of stuff I wish I had been taught a long time ago!"
Using credit, I convinced a local printer to print a total of 200 copies of the list on a 17" x 11" cardboard poster, with "Michael McCafferty & Associates" and my phone number on the bottom.
Next, I hired Marianne, a friend's girlfriend -- a pretty girl with a lovely smile -- to work for me on a commission basis. I promised to give her a percentage of my profits derived from anyone who became a client as a result of her work. Marianne was a full-time waitress who relied on tips, so working on commission for me suited her fine. Thank heavens. Because I didn't have the money to pay her up front.
I instructed her to stop at every business in a large industrial park in Sorrento Valley on the north side of San Diego. Her job was to give a poster to every businessperson in the area.
Knowing I had a computer background, Marianne said to me, "I know nothing about computers. What am I supposed to say to people?"
"Just one word," I coached her. "Computers."
"Computers? That's it?" she asked.
"And say it as if you are asking a question. You know: 'Computers?' I want you to have a question mark in your voice. Also, don't forget to give 'em your beautiful smile."
I wanted to keep it simple, realizing that there would be a problem if any business owners asked her questions since she knew nothing about computers.
"What do I do next?" Marianne questioned.
"Don't say a single word after you say, 'Computers?' Wait for them to reply. If somebody says 'Yes,' point down at the bottom of the poster and say 'Call this number if you have any questions,' and then turn around and leave."
"What if they say 'No'?" she asked.
"Point to my name and phone number and say 'Call this number if you have any questions.' Then get out. Don't say another word."
It took her about two days to pass out the 200 posters, and then the phone started to ring. A few people called only because they wanted another poster, but 25 genuine prospects also responded -- enough to get me started in my consulting business. From that point on, I never had to go out and make cold calls for new clients. From the business my 10 commandments posters generated, and the referrals and repeat business that followed, it didn't take long before I was making a decent living as a computer consultant.
I primarily consulted with small business owners on computer programs and software that would serve their needs. Sean Curtis was one of the first people to receive a 10 commandments poster. A man in his mid-twenties, Sean had a couple of salespeople working for his small, growing company, which provided coffee service to offices and warehouses. I recommended a software program for his company that kept records on his customers, including such things as inventory and billing information. Six months later, Sean informed me that while the program had done wonders for his business, and his company expanded, there were some things the software couldn't handle.
I studied his needs and understood his problem. It wasn't the first time I'd come across the limitations of this program. You see, every software program has certain drawbacks. Many can't be integrated with other software. Some companies lacked good customer support. Others didn't have a network version. The list went on and on, and I realized nothing in the marketplace would do the complete job for Sean.
Why should I put my customers into these software programs, when none of the programs was doing a superior job? By the time Sean approached me, I had already said to myself, "If just one more customer comes to me with these requirements, I am going to do whatever it takes to get the job done for them -- even if I have to write the software program myself."
After reviewing Sean's problems, I decided to design a software program that not only would fit Sean's needs, but would also work for other small business owners. Since I knew exactly what entrepreneurial clientele needed, by George, I'd be the one to design a program for them!
I said to Sean, "I want you to pay me to write this program for you. But I need to own it, so I can sell it to others too. If you agree to that, I'll give you free upgrades as I continually improve it. Okay?"
Sean gave me the go-ahead.
I worked on the program for about six months, and Sean ended up paying me $5000 in fees. As a direct result of the program, his business, Coffee Ambassador, started to expand by leaps and bounds, and Sean is the first to say that he got more than his money's worth out of it.
For me, it was the beginning of a new life. The software program, which I named TELEMAGIC, was the most practical, simple, user-friendly software program ever devised for its market. It was designed so that people without computer skills could easily learn it.
When TELEMAGIC was first introduced, I sold it through advertising in telemarketing magazines. The program retailed for $95. That was a revolutionary price when some telemarketing software sold for tens of thousands of dollars. At the time, personal computers were being introduced, which meant people could get into telemarketing for relatively little money.
Later I started distributing the program through dealers, and, believe it or not, I got complaints from them. "Your software is really terrific," they'd tell me. "The only problem is people don't believe it will do all it does for only $95. You have to raise your price."
"Look, if I charge more, you'd have to pay more."
"That's okay," they told me, "because we'll make more."
I thought to myself, "What a great business I'm in. People are telling me to raise my price!" I raised the price to $195, then to $295, $495, and later on, $695. We began selling network versions of the software which retailed for $795 and later sold for $1295, $1500, and $1995. We even sold TELEMAGIC corporate licenses to Fortune 500 corporations for sums in excess of $100,000 each.
All in all, we sold more than 200,000 TELEMAGIC programs. My business was booming. But it was killing me! It was eating me alive. In the beginning I enjoyed it, because I'm basically a creative person and can work comfortably in a company with 10 or so employees. But I am not good at the administrative end of a business. And as the business grew, I had to hire more people and pour more money into the company to keep it going. The company couldn't stand still. It had to go either forward or backward.
It's like playing in a poker game in which you buy in with a nickel. Then you start winning thousands and it runs into millions, and you're playing for eight years. Every time you get a hand, you push the entire pot of millions back in. But you're only winning one nickel at a time. That's the way my business was. I felt as though I risked everything, every day I was in business. At the same time, my competitors were getting bigger and stronger, and more and more of them came at me. When I first started TELEMAGIC, I had no competitors; now there were more than 600 software programs that had come out in the marketplace. As the saying goes, "Success breeds competition."
I felt enormous pressure, and I was getting a pain in my side that just wouldn't go away. I finally went to a doctor, who said there was nothing wrong with me. It was stress.
In early 1992, I met with a business broker and instructed him to find a buyer for my business. "This business is killing me," I said. "I want out."
I had studied my business and hired an independent analyst to determine its worth. "I want X million for it," I told the broker, "all in cash."
"Maybe I can get you $X million," he said, "but you may have to take some stock certificates instead of cash."
"No paper," I insisted. "Look, I've got paper now. I can sell this company only once, and if the stock goes down, I've just wasted eight years of my life." In view of my two past experiences of creating wealth only to lose it all, I wanted financial security that would last me a lifetime.
"We'll sell this business," he said "but don't get discouraged if I don't get you your number."
"If I don't get the number, I don't sell," I said.
After talking to a dozen or so buyers, six actually came in to look my company over. One potential buyer was Sage Group, a British company headquartered in Newcastle-Upon-Tyne. Sage owned a U.S. subsidiary, DacEasy, the largest accounting software company in the world, and TELEMAGIC looked like a good fit. After several meetings, an offer was made, but not at the price and terms I wanted. Sage offered me $Y million less than what I was asking.
I met with them and said: "I can do this only one time, isn't that right? Now you're going to want me to stay around for a while and help you with the business. In order for me to be able to properly help your company, I must have the right spirit. To have the right spirit, I've got to know I made the right deal. Only when I know I got the right number for this company will I feel as though I owe you my best effort.
"Now from your point of view, it's just money -- and you've got it," I continued. "What you really want is a company that will make you a lot of money. I'm the guy who'll make this $X million investment pale in comparison with what you'll make over the next several years.
"Look at it this way: We're only $Y million apart from making a deal. For a company your size, this amount of money is irrelevant. Mark my words, this is going to be one of the smartest moves you ever made. It would be very unfortunate for you to walk away from it because you're $Y million short of my asking price."
Evidently my logic made good sense to them. In October 1992, Sage bought my company for $X million, plus 15 percent of their sales for the next 27 months, which means what I was paid could potentially be worth a total of twice my asking price.
There are several good lessons in this story. First, Michael McCafferty, who was having dire financial problems, never gave up. Down for the nine-count, through sheer tenacity and ingenuity, he came up with a clever way to attract clients to use his consulting services. Incredibly, one of those first clients, Coffee Ambassador, had a special software need. McCafferty's programming became the catalyst for TELEMAGIC, a multi-million-dollar enterprise that made him a wealthy man. As McCafferty puts it, "When you go out and knock on doors, you never know what good fortune lies behind them." A second important lesson in this story is illustrated by McCafferty's determination to stick by his guns and hold out for the price and terms he believed his business was worth -- and get it!
Michael McCafferty began his career as an IBM sales rep. After a variety of successes in the computer industry, he formed Michael McCafferty & Associates, a one-man consulting firm, in 1983. His company evolved into TELEMAGIC, a firm that produced the number-one sales software program in the world.