Podcast Transcript
Speaker 1:
Welcome to Real Wealth Real Health. The show that empowers you with insights, information, and inspiration to achieve your version of financial wellness. Learn how to balance living a full life today with planning for the future. This podcast is brought to you by Alpha Investing, a real estate centric, private capital network that provides exclusive investment opportunities to its members. And now here are your hosts, AdaPia d’Errico and Daniel Cocca.
AdaPia d’Errico:
Hello, and welcome back to another episode of Real Wealth Real Health. Today our guest is Brian Fox. Brian is the VP of strategic partnerships at Thomson Reuters and the founder of Confirmation.com, the trusted global provider of digital confirmations that sold in 2019 to Thomson Reuters. Brian is recognized as the creator of Electronic Confirmations and hold several patents on electronic audit confirmations. Brian is an industry thought leader and frequent speaker on accounting and fraud issues. He’s been named four times as one of the top 100 most influential people in accounting, is a five-time winner of the accounting professions top 40 under 40 CPA in America, and was named as entrepreneur of the year in Nashville.
AdaPia d’Errico:
Prior to confirmation, Brian began his career in audit for Ernst and Young LLP and in mergers and acquisitions for PricewaterhouseCoopers. He’s also one of the founders and a board member of Rivio.com. He also serves as a mentor in the Inc. 500 Military Entrepreneurs Mentor program, the Jumpstart Foundry, and the Nashville Entrepreneurship Center, and is on the advisory board for the Nashville Capital Network. Brian is also a member of the AICPA and the Tennessee Society of CPAs. Brian’s entrepreneurial journey has been lifelong with his grandparents consistently illustrating the power and importance of investing, encouraging the family to work toward financial freedom through sound investment decisions, particularly in real estate. Brian tells us about the challenges, both personal and professional that he faced when starting his business. And what really shines through is the persistence in keeping with it through the ups and downs, especially the downturns and really sticking with it for 19 years before he eventually sold it to Thomson Reuters in 2019.
AdaPia d’Errico:
We talk about the various inflection points that were the most influential in the development of confirmation. And throughout our wide ranging conversation, we touch on Brian’s decision-making as a business leader, how he plans and prepares for retirement, and of course his personal definition of wealth.
AdaPia d’Errico:
Brian, thank you so much for joining us on the podcast today.
Brian Fox:
Good morning. Thank you.
AdaPia d’Errico:
It’s a real pleasure and an honor to have you on the podcast. You’re a very special and very important part of Alpha Investing as one of our early backers and investors and you have this incredible story that we’re really excited to dive into and all of your experience and your advice as it relates to being an entrepreneur, and also a really interesting background that you have in real estate and how we all tie that together. So it should be a really fun episode and I’m really honored to have you.
Brian Fox:
Well, great. I’m glad to be here.
AdaPia d’Errico:
Great. So let’s get started. Why don’t you tell us your story and don’t hold back, don’t cut it short. It’s such an incredible story so we’d love to hear that.
Brian Fox:
Sure. And ask questions, take me down any path you want. It’s certainly a fun story. It’s a huge part of my life. So just as background, I’m from Nashville, Tennessee. I grew up here. I went to SMU for college and I took accounting. Actually, my intent was to be a finance major, but I knew I wanted to start my own business at some point in time. And so I had talked to a lot of entreprenuers along the way, just interviewing them, which I recommend anybody go out and do and ask them about their business and how they got started. And one of the questions I always ask is, “Well, what would you have done different?” And just about all of them said that one of the things they’d do differently is they would have taken more accounting classes because accounting really is the foreign language of business.
Brian Fox:
In any country in the world, the numbers are what are consistent. And even here in the U.S., if you can’t read your financial statement, you’re going to rely on an interpreter and the interpretation is only as good as the interpreter and they may or may not be willing to tell you the truth. And so I said, “Well, that makes a lot of sense to me.” I was never really good at foreign languages, but I was always pretty good at math and numbers and so I understood that.
Brian Fox:
And so I woke up kind of one day and I was closer to an accounting degree at SMU than a finance degree and I said, “Well, I’ll just get the accounting degree. That’ll set me apart a little bit from everybody who’s doing finance.” And then I said, “What do you do with that?” He said, “Well, go work for a big firm.” It was the big six at the time and so I came down to be between Arthur Anderson, who was the biggest firm in the world, and Ernst and Young. And a friend of mine had said, he was at Anderson, said, “It’s a meat grinder. They beat you and if you can run the gamut, then you can make partner at some point.” And I thought that my intent is not to try and make partner because I kind of want to do this for a period of time and go back to this experience.
Brian Fox:
So I went to work for Ernst and Young, which was a great choice for me and ultimately for my career, because we all know what happened to Anderson not too long afterwards. But I ended up, while I was there in the mid-90s at Ernst and Young doing audit, got my CPA. So I’m a CPA. And saw that we were transitioning as a firm from paper, work papers, to electronic work papers, which made sense in the min-90s. And with the exception of something called confirmations, anything that touched a third party, we’ve really continued to do it the old way, the way we’ve done it for 100 years. And the first year I was happy to staple, copy, fax, go get the supplies for the audit room, whatever they told me to do. My grandmother, she’d called me and she’d say, “How’s it going?” And I’d say, “This is really not difficult. It’s kind of mind-numbingly boring.” And she’d said, “Well, as long as they’re paying your paycheck, you show up and work harder than the boy or the girl in the cube next to you and put a smile on your face.” And so that’s what I did.
Brian Fox:
So that first year I was whatever they asked me to do. And the second year, I was looking forward to learning a few more things, having somebody else to do all the grunt work. And on our largest client, our intern got pulled because we were short staffed there. I heard that staff one got pulled and there I was, the staff two and I was, effectively, the low man on the totem pole again. A low-cost employee. So I had to do all the grunt work again, which involved confirmations. And that year, I said… My senior on the job got himself here and said, “Tag, you’re it Brian. I hated it. But you’ve got to do this again.” I was like, “Sam, you’ve got to be kidding me. These are terrible.” You’re licking stamps, you’re stuffing envelopes, you’re folding paper, you’re chasing the mail, making phone calls, trying to get banks and customers to send these things back to you. He said, “I know, but you’ve got to do it.”
Brian Fox:
And that year, while I was not very happy on the job, I was much more efficient, which I reminded him in my review that year because he did note that my attitude wasn’t as good as it probably was the year before. But when I was doing it, I remember standing over a fax machine, waiting for a confirmation from Wells Fargo to come back to tell me what the client’s account balance was at Wells Fargo. And it was, typically, I’d send the first request in the mail, second request in the mail, things had gone wrong, the bank probably threw it away, responding with incorrect information, whatever happened. And we needed it back, and I was standing over the fax machine and I thought to myself, “This is crazy.” At the end of the day, I’ve been taught that I had to control the process. If I left, went and got a cup of coffee, somebody or the customer picked it up off the fax machine and handed it to me, I quote “would have lost control” and would have had to call Wells Fargo back and ask him to re-fax.
Brian Fox:
I thought to myself, “This is silly.” I’ve been standing up, trying to do my work, papers in my arms, my laptop, and said, “At the end of the day, I just simply ask the customer for the fax number and for the phone number.” I never validated the fax number. I never validated… In fact, I never validated any of the mailing addresses that we send any of the hundreds of confirmations to. And I said, “I could commit fraud on Ernst and Young.” And I said, “This is a silly process, but these people are smarter. I’ve only been in accounting for two years. They’ve been doing this for hundreds of years so I’ll listen to them.”
Brian Fox:
And I ended up, I wanted to get some finance background before I went back to business school. So I went over to PricewaterhouseCoopers to one of the mergers and acquisitions team and that was a lot more fun. I enjoyed the M&A side. It was rewarding, but I did get pulled onto some audits because we were short-staffed at the PWC office and they needed some audit work done. And so I was a senior at that point and my staff had to do confirmations and it was a funny audit that we’d cobbled together a team from MNA team to try and do this one company’s three-year audit because they would get acquired. And my staff had never done audit before and they said, “This is the craziest thing. It was so stupid that anybody’s actually doing this. I can’t believe that people are having to chase mail lick envelopes and stuff, paper.”
Brian Fox:
And I said, “Yeah, I know, but you’ve got to do it.” And I realized that PWC and the same problems Ernst and Young did, that I could commit fraud on another large firm. And that idea stuck with me. I went back to business school at Vanderbilt. Came home, that summer, to only apply to Vandy. I figured I’d apply even if I hadn’t done enough to get in. Fortunately, I got in that first year. And I was working on, I was in my entrepreneurship class, Germain Boer was my professor. And I had to write a business plan and I wrote a business plan that said, “Hey, this thing that I think is broken and inefficient and a hundred year old process, I think we could solve this with this new technology called the internet.” Because this was in 1999 and the internet was just about three years old. It wasn’t too old and at that point, I said, “We could use this technology to create a secure clearinghouse where we could take what was a four, six or eight week process into a near real-time process and really eliminate those loopholes, and hopefully, catch fraud and eliminate the opportunity for fraud to occur.”
Brian Fox:
And the fraud that occurs is anytime you see a company where they’ve inflated their revenue or where they’ve stolen enough cash to effectively put the business out of business. Those two frauds, typically, have happened because the company manipulated the Harper’s confirmation procedures. And so, when you hear of the fraud sweep, you look at Health South, right? Health South had 400 million of fake revenue because they faked the cash accounts. So, not to get too technical, but essentially, if you’ve got revenue in your company, I come in, I can’t touch your revenue. Right? There’s nothing I can actually touch. I can’t say, “Show me your revenue.” But what I can do is I can confirm with the bank that the cash is there or with your customers that the receivable is found. So if I can verify the items on the balance sheet, I can certify that the revenue number on the income statement is also valid at that point.
Brian Fox:
So that’s essentially how we do that. And it’s really is simple and a hundred year old process to mail those letters to customers and banks, verify information that the bank statements are correct or that the receivables are valid and the payables on the customer side. But it’s a very simple process to manipulate. So that was the technology. That was the idea. That was the “aha” moment. And my professor, Germain, who’d been an accountant came up to me and he was like, “Hey, I understand that problem that you’re trying to solve. It makes sense. Why don’t you do it?” And I said, “I don’t have any money.” So I’m going to go to work for a startup.com at the time. Again, this was ’99 and going into the summer of 2000.
Brian Fox:
And I had interviewed with some startups and .com projects and, unfortunately, my father was killed in an accident towards the end of my first year of business school. And so I had to talked to my mom and my brother and we used my dad’s life insurance policy as the seed capital for the business. And so that was how I was able to even have the money to start the business. And so I did that as my internship. Where most of my classmates were getting pretty well-paid internships, I found a Confirmation.com in June of 2000.
Brian Fox:
And that was really how it started. I used my classmates that next year, our second year of business school, we were in marketing class or technology class to help write the marketing plans or the technology plan or whatever. They said, “Well, we might as well use your idea since it’s a real one instead of making one up.” And so I really appreciated all the help along the way. And then I graduated and the funny thing is for entrepreneurship, your life happens at the same time you’re starting a business and there’s never a right time or a good time to start a business really. My wife and I, our first child was born the week before graduate school. Shoot, my wife was going back to graduate school as well, getting her master’s in early childhood special education at Vandy. And we had our first child the week before graduate school started and the week of graduation we found out we were expecting our second.
Brian Fox:
So that summer, I hit the ground running. I was all fired up. I had my MBA, CPA, an idea, a little cash in the bank and so I hit the ground running, but we needed to, really at that point, raise an outside ground funding. The internet bubble could just burst, but I was like, “That’s okay. I’m still going to go forward with this. I got a good idea.” So we were out there, I had three other people, we were trying to raise money, a million dollars on financing. We had that pretty much locked in. We had a lead investor, which is always the hardest investor to find. And we had a lot of people on the outside and round it out and the lead investor’s going to take… They price the deal, they were going to lead the investment and we had to follow that investment, we just needed to pitch the investment committee.
Brian Fox:
And so we pitched the investment committee that night. We went to the little conference room, they came in and one of the folks said, “Hey, everything looked great. You did a great job. We’ve got an issue with a portfolio company. You guys go on home, we’ll call you tomorrow. Well done.” And they called us the next morning, that was about 10 o’clock in the morning. They said, “Hey, you know that portfolio company? We ended up talking to throughout the evening, we’re going to have to fire the CEO, get a new CEO. If we met until 1, 1:30 in the morning. We didn’t get a chance to vote, we’re going to vote about it at next week’s meeting.”
Brian Fox:
Well, the day we pitched was September 7th. The day they called this was September 8th. And as you may remember, three days later, 9/11 happened. So they never had that next week’s meeting and the entire global financial world just took a significant hit. And companies that had revenue, if you weren’t cash flow positive, you weren’t getting any follow-up financing and we were pre-revenue. And so here I was, I had a business, a .com. I was 26, two kids under the age of two, a one and a half year old and a newborn on the way. We’d actually adopted my wife’s half-brother, who was 14 at that point in time, that summer.
Brian Fox:
And so life was a little crazy for us. The internet bubble had burst and then 9/11 happened. And so that was a crazy time to start a business and that’s how it is, pretty much today. I get where you are in trying to start a business, right? We all expected… The economy has been on a great bull run for the last 10 years and I expected it to take a downturn after the presidential elections, regardless of who won. It was just a natural time and cycle for it. But just like we’ve seen a little bit of that happen, they had an unexpected event in the COVID crisis, just like we had 9/11. So that put everybody in a tailspin there. So a very similar type situation, different than the 2009 to 10 different economy, because there wasn’t a global crisis other than the global real estate crisis that kind of caused a market correction.
Brian Fox:
So that was the start. So I moved the business into my grandmother’s garage. There was three of us, we ran up the credit card debt, right? Deferred my $92,000 of student loans from Vandy. We were living on a shoe string. My mom was helping pay our bills. My wife was having to go to our in-laws to pay our rent every month and we were trying to make due. And paid everybody in stock. Everybody pretty much ate their own expenses. The one thing we did pay, we lived on, from a business standpoint, we lived on a small budget, about $10,000 total a month. We had to pay $5,000 a month for an outsource company to build our technology, $2,500 a month was what our health insurance was. We always paid health insurance. So we paid that 100%, so we paid health insurance for everybody. If people are sick then you can’t come to work and you can’t run to business.
Brian Fox:
And then we had about $2,500 to figure out at the end of the month, who we were actually gonna pay the minimums. We had to pay the minimums on the credit cards so they wouldn’t shut it off. We had to pay the cable companies so they wouldn’t shut off our internet. And every now and then we had to pay the attorneys, the accountants or somebody a little bit, a token, just to let them know we were still alive.
Brian Fox:
And so we did that for about two years. We really lived on 30 to 45 day budgets at max, did all the entrepreneurial stuff. I would tell everybody, I would go to pitch meetings and the tops of my shoes always would shine but the bottoms of my shoes, every pair had holes in them. I would often go into investor meetings with wet socks in the winter time with cold feet because I stepped in a puddle. And I couldn’t cross my legs because my shoes had holes in the bottom, but the tops had been polished. I’d read an article in a magazine that said, “If it touches a customer, it needs to feel like an A. But otherwise, it doesn’t need to.” So you had to figure out where to spend your money.
Brian Fox:
I remember one time my wife had to come downtown and get me out of a parking garage because we didn’t have any money in our account and I didn’t have the $10 to get out of the parking garage. And so it was a million times and tough times. But we were able, about two years later, to get some outside financing. We did that in the form of debt from some angel investors along the way, aunts, uncles, cousins, college roommates, high school friends and their parents. Anybody that we could get $500 or 1,000 or 5,000 or $10,000 from, help us kind of get to another point of time. And we finally had good things happen in the business even though the financial margins were very tight from the investing standpoint, but we were able to raise a $750,000 debt round with warrants attached from angel investors about two years later. And that gave us the ability to have really useful capital for the first time and to do some planning.
Brian Fox:
And so the business continued to grow. We ended up then, at that point in time, we needed to internalize our technology team because we needed more resources and the business that had been helping us, a great business, but they weren’t an outsourced development shop per se. They actually had their own business. They were just had built ours on the side because they also were starting up and needed capital. And so I had given them some stock and they needed their resources because their business was doing well. And so we raised a $3 million round of funding. We did a $400,000 bridge fund from the original 750 and then we raised a $3 million round of financing on a third A-round that actually allowed us to internalize a technology team. And so that gave us our technology to continue to grow. We were doing well.
Brian Fox:
A couple of years later… Or really about that time, it was one of the kind of the hallmarks was I had been telling people about how easy it was to commit financial fraud. And in December of 2003, a company in Italy or Europe, from Italy, called Parmalat, the Italian dairy company. You may see there were boxes of milk products and things on the shelves, Parmalat. But it’s still the world’s largest confirmation fraud. So they faked a $5 billion cash account at Bank of America. And they’d gone out, they’ve been getting money, borrowing money on the open market. They have stock price and everything. And they borrowed several billion dollars. A strong balance sheet with $4.9 billion of cash in it. And toward the end of December that year, their creditors were like, “This doesn’t make any sense. You’re not making your debt payments. You’ve got plenty of cash. We don’t understand what’s going on.”
Brian Fox:
And finally, the pressure was too much and they issued a press release, put it on their website that basically, one page that said, “Sorry, we lied. That account doesn’t exist and never has.” And the stock price dropped 97% over the next two weeks and the debt-holders got pennies on the dollar. They had to go into bankruptcy, restructure, but it was a $5 billion account that didn’t exist. And that put us on the map. The New York Times, we were on the front page of the business section saying, “We could have caught this, our technology. This is what I’ve been telling people about.” And then even though I’d been telling the large firms about it, each of the big four firms at the time called me in the first two weeks of January that year and said, “Hey, that fraud service you’ve been talking about, could you come up to New York and tell us about it?” And that began their use in pilot of the service.
Brian Fox:
So we continued to grow. We then raised a $5 million growth capital and what we thought would take us to cash flow positive. We raised that in 2006 and that did. The biggest cash flow positive in 2009. And we were growing. We had a lot of top 10 banks, a lot of accounting firm use us. And kind of one of the pivotal points was Bank of America was the bank where Parmalat had pretended they had the bank account, but they never even had an account so Bank of America’s name got dragged through the mud. And so in 2008, Bank of America said, “Look, we’re never going to do that again. We don’t want to jeopardize our name and reputation because somebody just picks us out of the hat.” And so they said, “We’re going to mandate the use of Confirmation.com service.” And so they did that and that was a crazy time.
Brian Fox:
They mandated as of October of 2008. And at that time we had about 220 ish accounting firms using us, all good size and a lot of the top 100 users we’d be focused on, the people with the volume, but we only had about 10 people in the company at the time. And at that point, they said they were going to mandate us and we went from having about 220 accounting firms October 1st to about five months later, we had 4,500 accounting firms globally using us at that point, so it was a watershed moment for us. And we brought on additional staff. We grew. In 2009 was when we were supposed to hit cash flow positive, we did. In that year, the market was doing pretty bad, but we hit cash flow positive. We were actually number 96 in the Inc. 500 that year and so that was a pretty cool year for us. We paid off our debt with interest, which was about 1,400,000, so we paid that back. So we were debt free, cash flow positive and really, in all honesty, we said… My partner, Chris Schellhorn and I, I was the largest shareholder, Chris was second largest, we said that we were going to look to have our liquidity event once we get cash flow positive.
Brian Fox:
And so we looked around in 2010 and the market was pretty dismal. A lot of friends, other CEOs were taking 50% haircuts on their evaluations because they had to raise money because they weren’t cash flow positive. And it was buyer’s market, it wasn’t seller’s market. So we said, “Thanks, but no thanks.” So for the next couple of years, we actually paid significant dividends to our own shareholders, which was nice, and we continued to grow. And so we were international at that point, we had users outside of the U.S. We ended up buying a company in London, which allowed us to have our first office outside of the U.S. and we continued to expand and grow.
Brian Fox:
And then we said, “Okay. What’s kind of the next trigger?” And we said, “Well, when we get on that $20 million run rate, you kind of get an extra one in the multiple category.” So we said, “It’d be a nice time to look into doing that, right?” Because now all of my business school classmates that went to places like Goldman and Merrill Lynch’s, they would call and I’d be like, “Look, my asset allocation sucks. It’s in two assets, it’s my house in this business. And not a lot of diversification and really everything I’ve got is in one stop. And I realized that that’s not what you’d recommend, but I don’t have any other way to do.” And so that was kind of funny.
Brian Fox:
So when we saw that we were about a year and a half away from $20 million, we hired FD partners, Steve McLaughlin and his team, which were just awesome, and said, “Here’s what we want to do. We want to liquidity and then sell the business when we get to 20 million and be prepared when we do that.” And so as we went through that preparation, we had a lot of dinners and lunches with Steve and Steve said, “Well look guys, you guys love the business.” We said, “Yeah.” He said, “You guys are having a lot of fun.” And we said, “Yeah.” He said, “You guys have significant growth opportunity. You’re cash flow positive.” We said, “Well yeah.” He said, “Well, why do you want to sell?” Well, because we want some liquidity. We’ve been in this thing for a while and I’ve got bills to pay. I still need to pay all my student loans.
Brian Fox:
And I’m out there rolling the dice, right? I’m putting it on red and black every single day and I could lose everything. And he said, “Well, have you thought about other options?” And we said, “What?” And he said, “Well how about debt?” And we said, “Nope. Been there, done that. Don’t want to owe anybody. Plus I don’t think we could leverage the business enough that we could have an event that would allow me enough of a nest egg that if the whole bank went zero, I was okay.” And so he said, “How about an investor who comes in and buys majority stake?” And we said, “Well that would achieve the current opportunity, it’s not 100%, and then somebody’s going to own the business but control 40% of our current equity stake.” And we said, “If you want to own us, buy us, but we didn’t want to lose control of the business. We wanted to make decisions, run the business, what have you.”
Brian Fox:
And then said, “Well how about a minority investment?” And we said, “Well I don’t think you could get a minority investor who’s going to give us a liquidity event that would essentially give me the ability to retire.” And he said, “Well what if I could?” And we said, “Well if you pull that rabbit out of the hat Steve, we’re in.” And he said, “Well I think I can.” And so we ran a PE only, no strategic and sure enough we ended up, we had actually three or four private equity firms that it came down to and we picked a great one, Great Hill Partners, to see if we could work with and loved those guys. And so we did a $60 million recap, really primarily all for secondary capital which was great. And we did put a little bit of money on the balance sheet, about five million on the balance sheet just to put it on there because the rest of the Great Hill Partners said that, “Some of the cash needs to go to the balance sheet.” But we actually never touched it.
Brian Fox:
But we had a six year time frame that we talked and negotiated with them before they could force a transaction because of the fund’s life cycle. But about a year in, we had, at that point, we were operating in well over 150 or so countries and at that point, about a year in, we had one of the largest strategics that we had talked to over the years come in and start to talk to us. And ultimately one day, they invited us to New York and told us that they wanted to buy us. And we said, “Well we’re not for sale. We just took $60 million. We have a private equity firm. We had five more years left.” We hadn’t even seen the leverage of the investments of the new staff and the new offices that we both had… And they said, “Nope. We want to buy you.”
Brian Fox:
So we did a little bit of a dance because they said, “Well how much do you want to sell for?” And I was like, “It’s like real estate. You knocked on my door, I didn’t knock on your door. So how much do you want to pay?” You know? I like the house I’m living in. If you want it, you’ve got to give me an offer. And then we played game and I knew they were serious. So we went to the board and we said, “Look, let’s hire an investment banker to run the process.” So we hired William Blair out of Chicago again. He and all of his team were excellent. And we ran a strategic’s only, no PE process at that point.
Brian Fox:
And interestingly enough, even though it was Wolters Kluwer who had come and wanted to buy us, it ended up being Thomson Reuters, their largest competitor, who ended up buying us. And so we ended up selling the business two years after the private equity round that we did and we sold 100%, all cash and everybody got out. So it was a fantastic transaction for everybody. Some of the cool stats. We had over 60 people who made a million dollars or more. All four of us that were in my grandmother’s garage… The coolest thing I can say about the transaction, really one of the things that led me to want to go ahead and do it, well really two things but, one of them was the fact the four of us that were in my grandmother’s garage, that were there when we started, were there the day 19 years later when we sold it. And you don’t see that a lot in entrepreneurial businesses.
Brian Fox:
A lot of times, the founders, the early folks, they scatter, they get upset, but we didn’t. 19 years later, we had two, my partner Chris and Janette Houser, who was the first person I ever hired, they were going to retire last December anyway. And so we were able to sell the business last summer so they were off for about six months with transition. And then Dave Malone, and so he and I are still doing business, but we sold it last summer. And everybody in the garage made over $10 million so that was kind of cool. So it was a fantastic deal. The private equity firm, they made I think it was a little over 2.75 times their money so that’s a pretty good return in two years. And again they were great.
Brian Fox:
But to their credit, the week before we were going to sign, they said to Chris and I, they said, “Look, if you guys don’t want to sell, we’re in this. We love the business, we love the management team, we’re behind you and we think it’s a great opportunity.” But the fact that I could sell the business with Chris and Janette still there before they retired. And also, as I said earlier, I thought and expected that given the 10-year goal run that we’ve had that regardless of who won the presidential election, right, left or in the middle, that we were due for a significant correction that may take two or three years to come out of. And there’s operational risk, right? So you make money when you can buy on the downside so if I could have cash sitting on the side that I could invest when the market turns, you can ride it back up on the other side.
Brian Fox:
Whereas, I have talked to some friends and you go back to a couple of different down turns and they didn’t sell the business and when the market turned, even though their revenues grew, when they ultimately sold a few years later, the multiples were lower and they ended up selling for the same valuation three or four years later that they could have sold for before the down turn, but they took all that additional operating risk on for those years and headaches. So fortunately for us, I think it was great timing. So that’s kind of the story.
Daniel Cocca:
What an incredible story Brian. I love hearing it. And it’s not just about the success, it’s all of the inflection points along the way where, really, things could have gone in any direction, but because of your resilience and your work effort and whatnot, you were able to kind of move things where you needed to go. And I think what I find most interesting is that almost all working professionals at some point in their careers, were kind of sitting in the same shoes that you were. Right? Which is, I’m showing up to work every day, I’m doing something. It’s not particularly efficient but it’s just the way it goes and it’s how the industry operates. And over the course of time, you get promoted, you advance, and eventually those issues just aren’t your problem anymore and you kind of stop thinking about them.
Daniel Cocca:
And so what I’m wondering is just your mindset. What got you to the point where you said, “Hey. I’m actually going to do something about this problem.” And just how did you get there?
Brian Fox:
Great question. I grew up with the lemonade stands on the corner. I grew up, I started, a friend of mine and I, we started a drop way ceiling company for a couple of years out of high school. And in college, I parked cars. I worked at Abercrombie and Fitch during college. So I was always doing something and my family was very entrepreneurial-minded. So my grandparents always invested in real estate and so every time we had that extra five dollars they’d let us invest in any deal they were doing.
Brian Fox:
My grandfather and my dad had construction businesses just building residential homes. My mom, her first job out of college, she was one of the first six female police officers for Metro Nashville before they had women on the force. And then she became an attorney and then became a real estate agent. I saw her with real estate and my dad with building kind of owning their own business and so that was kind of in the blood. My grandmother, when my grandfather died, she ended up starting a dress shop. So she gave me these stories about having credit, having to go knock on people’s doors so you get them to pay and inventory and all sorts of things. And I used to run around her dress shop and those kind of things.
Brian Fox:
My other grandmother started Sarah’s Candy and I used to work the cash register there. She had a candy shop which is actually the candy shop was behind their house and that was where we ended up starting Confirmation.com. And she used to pay me in chunks of caramel. And so I worked the cash register and I’d leave at the end of the day with a big chunk of caramel.
Brian Fox:
So it was always kind of in my blood. And the frustration that I had, I loved Ernst & Young, I loved the people. I loved the firm-PWC, as well. But I remember in my start class, there was about 42 of us. Typically, the pass rate on CPA exam is 8%. Well there was four of us out of that 42 that passed the CPA exam that first shot. And then, just like any business, at the time we were kind of hoteling in terms of where we sat and everybody knew if you walked around and sat on the main floor on a Friday afternoon, you’re likely to pick up weekend wordk. But I was there to learn because I knew I had my objective. My next step was to go to business school.
Brian Fox:
And so I was trying to learn and gather that in. And so at the end of the day, when we got promoted to senior right there before I left Ernst and Young, there was four of us that… All 42 of us got promoted to senior and four of us got an extra $1,000 in our raise. I’m an accountant so I’m decent with math so 1,000 bucks over the course of a year is less than $100 a month. After taxes, it’s an extra $50 a month. For all that extra work and effort, that was our total reward. And I said, “I’m not just going to sit around here and move up the food chain with just because of how long I’ve been here.”
Brian Fox:
I was more narrow-minded. I wanted to start something. I wanted to make a difference but I also wanted to see that what I put in had the ability to change the outcome versus just based on time. And so that was really why, some of the reasons. I had a very strong entrepreneurial background and mindset and I didn’t want to climb that corporate ladder based on just time. And so that was why I ended up starting my own business.
AdaPia d’Errico:
And throughout all of your time in business, what’s really striking is that you really stuck with it for those 19 years. And when, at the end of your story, you’re saying it was 19 years, it’s impressive because we get these ideas that entrepreneurship is, “I’m going to be successful next year if I start something this year.” Just like anything, right? Anything that we go to build even if it’s investing in real estate. Like, “Oh, what’s my quarterly return?” And there’s so much to be said about the patience and the persistence and the resilience and the strategic timing as well. You really spoke to that a lot and I don’t know if you could speak to that a little bit, sticking with it for 19 years.
AdaPia d’Errico:
Like you said, not everybody does. Founders scatter but you stuck with it for all of those years. What would you say to people who might have this idea that wealth comes in windfalls and like that? What would you say to that?
Brian Fox:
We all hear those stories, right? Of Twitter and the 10 employees and they’ve been at it for three months and they got bought for a billion dollars. We hear the stories. And certainly the fact that you’re an entrepreneur means you’re an optimist by nature. You think you could do anything and tackle anything and then even the things that people tell you you can’t do, you’re determined to show them that you can.
Brian Fox:
And I’ll tell you that it’s funny. I look back at the business school plan that I wrote in business school at Vanderbilt and I still don’t think I’ve achieved our five-year revenue target. I thought for sure this was like a lay-up. I mean the .com era was going. I was going to start this thing within five years, three to five years I could sell it, be a millionaire and I’d move on the next one and do it again. And that just didn’t happen at that pace. So it funny to look back and read that old business plan. I got more embarrassed about by how optimistic I was about…
Brian Fox:
Because it was such a no-brainer of an idea, right? And the funny thing is, people come up and tell us, “That’s a no-brainer. Wow, I wish I had started that.” But what different about our business, not every business, but two things. One, it was a network model, which was really probably one of the toughest models to build because you have to have both sides. I’m not just selling it shared through a consumer. Right? It’s me and the consumer. In this case, I’ve got to sell both sides of the transaction, right? So you think of eBay. eBay’s a tough model because if I want to go buy a chair, but nobody’s selling a chair, eBay doesn’t get a transaction. And if I were to sell a chair and nobody’s buying a chair, there’s still no transaction. And so, you have to have critical mass on both side so you can evaluate both sides.
Brian Fox:
And what’s interesting, if you look back at the history of the internet and what was going on in some of the companies where eBay started, they were really the first big auction site and Yahoo came along second. They had more money at the time before they blew a hood and never figure out their business problems, but they had more money. But what happened was, because they were second to market in the network model, if you wanted to buy a chair, you went to eBay. You didn’t go to Yahoo’s auction site because there wasn’t anybody there selling anything. And if you wanted to sell something, you didn’t list it on Yahoo site because everybody was buying it on eBay site. So Yahoo ended up canceling and throwing away their auction site.
Brian Fox:
No different than Facebook. Facebook got there first and Google came along second and tried to copy the model but they couldn’t get enough critical mass on kind of both sides. And so it’s a tough model to build where you have to have simultaneous value for both sides and that was a significant trench for us in terms of competition.
Brian Fox:
And when we sold, we actually operated in 174 countries. We had over 16,000 accounting firms, 5,000 banks, 6,000 acquiring firms, The Federal Reserve as a user. We had really all the top 10 banks, I think it might be seven of the top 10 banks in the United States. So that was a tremendous network that we had built but it was hard. When you build something new, that’s also extremely hard because it has never been done before. When I used to go out and I’d have CPA firms say, “Well, so you’re going to email my confirmations?” No, we’re not emailing. It’s like a network, it sits online. Remember the internet was three years old, four years old most, at that point in time so we were explaining how internet worked and security and those things. It was extremely difficult.
Brian Fox:
And I’m dealing with CPA firms and banks, who by nature are pretty conservative people, so it wasn’t the easy “aha”, this no-brainer. I had to convince both side. And you had to start small. I had to start with one bank and one accounting firm in Nashville and that grew to a couple of banks and a couple of accounting firms in Nashville. Then middle Tennessee, then Tennessee, then Tennessee, Mississippi, and Alabama. Then the southeast, then the U.S. and then internationally.
Brian Fox:
So we had offices in 15 countries around the world and really I’d never even assume that we would be international in my business plan. I just thought we’d be a U.S. only. That there was certainly global market, but we’d be sold well before we ever tapped into that market place. But it was fun. It was a lot fun along the way.
AdaPia d’Errico:
Yeah. Yeah. It’s really like you said, building that network model. We have that a little bit at Alpha, right? Because we’re looking for the sponsors, that we’re vetting their deals and then bringing them to our network of investors at a different scale than Confirmation. But I would love to pivot a little bit into the investing side and your philosophy on investing and in real estate. Actually, my first question is those five dollars that you would get to invest in your family’s syndications, how did those do? That’s actually my first question.
Brian Fox:
What my grandparents did is… My grandmother got remarried before I was born. I was the oldest grandchild and so the person that I know as my grandfather all my life, he worked at a bank. He’s got an awesome story too. He started, enlisted in World War II as a private, he and his brother. And when he retired from the military, he was a one-star general. You don’t see that a lot.
Brian Fox:
And his advice to me was always, what helped him move up was volunteer for every opportunity that comes along. And so that was part of my philosophy was always volunteering and taking jobs nobody else wants and do a better job than was expected. And that’ll get you some recognition along the way. And he ended up going into banking as well. And so they, after their retirement, they started to invest in real estate. My grandmother ended up selling her dress shop. My grandfather retired from banking. They would travel a lot but they would drive and they would stop at restaurants. And there’d be a restaurant that had never seen or eating at and they said, “Well that’s pretty cool.”
Brian Fox:
And my grandma always told us the story in the first of the Waffle Houses and she asked the waitress, “Well who owns you?” You know, Waffle House. And through a conversation, she says, “Well who signs your checks?” And the waitress gave her the name and my grandmother just called one and said, “Hey, if you’re interested, we’d love to invest and plan the building” And so ultimately, they ended up doing a lot of triple net leases for restaurants. Whether it was Captain D’s, Bonanza, Waffle House, IHOP, and others.
Brian Fox:
And so that was really it. They’d travel around and my grandmother always says, “You’re going to get a lot of no’s but it only takes one yes.” And if they found a restaurant they liked eating at, they’d pick up the phone and call them. Back Yard Burgers, which was started out of Memphis, that was how they found them. And they let the restaurant pick the location, but they’d buy the land and build the building and then triple that lease and that was really their cash flow. My grandparents didn’t really travel a lot in the car. They had a bumper sticker that said, “Happiness is a positive cash flow.” So that was kind of funny.
AdaPia d’Errico:
That’s amazing.
Brian Fox:
Yeah. And so they were always doing those types of real estate deals and my aunts and uncles and cousins, we could always, if we had $10 or $5 to spare, we could go in on deals that they put together. So that was really what got me into the real estate investing along with my grandmother had always told stories. She had an older sister and their mother died when my grandmother was 12 and so my great-great grandfather raised them. The two girls, and he taught them business, and he owned a manufacturing plant, and he taught them business. And he bought them each a duplex and they were required to go and make sure the grass was cut and get the rent paid and all those kind of things.
Brian Fox:
And so my grandmother did that for my brother and I. So when I was about 16 and my brother was 13, the market had taken a dive in the late 80s there, the real estate market. And so we went in and she had talked to several banks and said if you have some duplexes that you want to sell, we’re in the market. And so we ended up, we bought a piece of property that had three duplexes on it for about $150,000 total and my brother and I still own those three duplexes today and we’ve refinanced them, I think, at least twice. Each of the duplexes is now worth probably $250,000. And so that was how she taught us. We’d go there and we’d cut the grass and trim the hedges and deal with the renters and all of those kind of things. So she was just trying to teach us what had been taught to her and that was how, between the triple net leases with the restaurants and then the duplexes that we were managing, that was really what got us into real estate.
Brian Fox:
Today, my brother does that. He and I invest in duplexes and smaller complexes and who manages those. He actually, it’s funny, he actually out of college, he followed by mom’s footsteps. He became a police officer for a while and I always told everybody that I started Confirmation.com to also help the good guys catch the bad guys. And we’ve put a lot of people in jail over the years. We’ve caught billions of dollars of financial fraud over the last 20 years. We’re even in an episode of American Greed which is kind of fun. But they were in law enforcement and Confirmation.com helped catch fraudsters and it’s been a great, great deal but with the joy of doing the real estate investing on the side.
AdaPia d’Errico:
Right. Right. Wow. I was going to say, your grandma was really precocious.
Brian Fox:
Very.
AdaPia d’Errico:
To be doing…
Brian Fox:
If you knew her.
AdaPia d’Errico:
Wow. Yeah, I mean…
Brian Fox:
Yeah and then you take my mom, when she went into the police force, she graduated from Vanderbilt, there was no women on the police force. And so what they did was because the bad guys didn’t realize that there was a woman on the police force, they put her in under cover. So she worked vice, she was vice squad and so she went in, she would go in and buy the drugs, do all those kind of things, stakeouts. So just crazy.
AdaPia d’Errico:
Wow. I mean, it’s really inspiring. You’re surrounded by people that are of a certain mindset which is so important, right? To be surrounded by people who push you to grow, push you to do better, push you in so many ways and to have that, I think it’s also very fortunate to be surrounded by that and to come from that, which probably explains your resilience and what you’ve been able to accomplish. With your real estate investing, I’m just kind of curious, when you were building for all those years Confirmation.com, and for many years you weren’t paying yourself and then you were but you still had debt. We all know student loan debt is still a big, big problem.
AdaPia d’Errico:
I wonder, how did you think through or strategically invest or did you invest in all of these years? Or were you sort of waiting for the big pay day? How did you approach that?
Brian Fox:
Really the way I did if at all, was my grandmother would typically would loan me the money to invest in those and so then I would pay her back with the income stream of that. If there was an opportunity to put something in on some real estate because again, she felt that that was an opportunity to build up net worth that allows you to have passive income. And one other thing that was kind of said is that, “You’re not really wealthy until you can make money at the beach or while you’re sleeping, otherwise you’re working by the hour or by your labors.”
Brian Fox:
So real estate gives you that freedom, that opportunity to have passive income. Even though there’re active times when you’ve got to do it for sure but I saw the benefit of their investments and their ability to have a lifestyle of traveling and pay and doing things that they wanted to do late in life supplemented by their real estate investments.
AdaPia d’Errico:
Right, right, right. Okay. That’s great. No, that’s really good to know because I know for a lot of people in our network and there’s sometimes this idea of “when I have money then I will X”, right? When if this, then that. I think it’s really important to find a way to, almost like the dollar cost averaging that we hear about index funds and everything, but to find a way to start building that passive income it sounds like.
Brian Fox:
My grandparents always said this, which was, “Never spend the principle. Use the interest.” They’d always pay off their debt as fast as possible and then use that to either refinance and use that refinance money to invest in other properties. So you’ve got to start small but it continues to grow and has significant capabilities that it should grow and as long as you’re just using the interest that you’re earning and not spending the principle, you could build up a significant net worth.
Brian Fox:
And my business partner, Chris, who is my youngest daughter’s godfather even, he always says and tells people and tell our staff that when they got a raise, they lived without the raise, whatever they had the year before, they lived. And so you get a raise, take half of it and put it into savings because even the other half is more than you had last year. And if you do that and max out your retirement accounts, 401Ks, your IRAs, those kinds of things, you have the ability to also invest in yourself and build up significant financial net worth in that respect over a period of time.
AdaPia d’Errico:
Yeah. Yeah. That’s great advice. That’s great advice. Well, Brian I think that the last question, and you kind of touched on it so I’m really excited to hear what you say about this, is what does wealth mean to you? How would you define wealth for yourself and how do you approach it and what does wealth mean to you?
Brian Fox:
I’ve thought about that question. I’ve been asked that question before. In a book, actually it’s an audiobook that I listen to, I love audiobooks, but the original Napoleon Hill book Think and Grow Rich. I’ve listened to it when I was in high school, I thought that the title was catchy. Right? Think and Grow Rich. And there’s a twist in it and really the twist is that wealth riches are not monetary. They are the relationships you have or the experiences that you have in a lifetime or what you do with your life. That’s really the real definition of have you had a rich, wealthy life?
Brian Fox:
And so that was kind of a twist in his book, Think and Grow Rich. And I love the original book because there’s actually outtakes of Napoleon Hill talking. And to hear the passion in his voice. And there is a narrator for most of it, but he pops in with pieces of it and to hear his stories about talking to Henry Ford and those kind of things is just amazing stories. But really, wealth and rich are the relationship that you make, the experiences that you have with those folks and so me, it’s that opportunity. And when I look back and the things that I remember most are the trips that we went on with families, the activities that we’ve done. It’s not the things that we buy necessarily. Those all actually…Chris calls this the Pagan Theory.
Brian Fox:
If you buy something, there’s always things where you buy a car, it’s got to have oil changes and maintenance. But there’s always the companion theory, the things you don’t think of when you’re spending money. The experiences are what you sit around and you talk about later. Right? It’s the things that you’ve done with people. And so to me, that’s on the things that I invest in whether it’s experience with my family, my kids, my friends. To me, that’s the real pleasure in life, is the ability to do those types of activities.
AdaPia d’Errico:
Yeah. Yeah. Wonderful. Well, no I have to go get the original audiobook of Think and Get Rich. I have the book, but that’s great. And it’s a classic and for good reason, clearly.
Brian Fox:
Yeah.
AdaPia d’Errico:
And I think a lot of people, we kind of come back to that. I heard something explained this way which was, if we’re not looking for abundance in terms of money, we’re looking for a form of freedom that having that money can offer. And so, it’s like, “Oh, I think want money. But no, I don’t want money. I want the freedom. I want the experiences. I want the time.” The time to be with the people that I care about and so it’s really beautifully said. Thank you.
Brian Fox:
Yeah, absolutely.
AdaPia d’Errico:
Well Brian, thanks so much for being on the podcast. This has been really fascinating. Your story is incredible, you’re like one of the first fintech companies, as far as I’m concerned. I came into the fintech space late, like 2013, but you’re definitely one of the early Fintechs. And thank you also for being such an incredible partner to Alpha Investing and believing in us and backing us. It really means a lot to have your support.
Brian Fox:
No, it’s been great. When I look at investments, I look at people, purpose, and profits. You don’t necessarily have to be profitable but I think for me, there needs to be a path of profitability. There’re some companies out there that work a lot, that still haven’t figured out their path to profitability or if there is one. That’s fine, but I feel like you’re playing hot potato. But I really believe in your business model, I invested in the business, I’ve invested in several of the actual real estate investments and then the fund as well. The team’s great. I enjoy working with you guys so thanks for all you guys do. Keep it up and also thanks for the opportunity to be on the podcast today.
AdaPia d’Errico:
It’s really our pleasure. So again, thank you and we’ll talk to you soon.
Brian Fox:
Sounds good. Thanks everybody.
AdaPia d’Errico:
Bye.
Brian Fox:
Good bye.
AdaPia d’Errico:
Thanks for tuning in to Real Wealth Real Health. We hope that you’ve enjoyed today’s episode and found it both informative and insightful. We welcome all your questions and your feedback about today’s episode and especially, we welcome your questions about specific topics that you would like us to cover. So shoot us an email at [email protected]. And if you have a moment, we really appreciate ratings and reviews, as it helps us grow our online community and our interactions with you. And we’ll also be linking to a number of relevant articles on topics that we might have touched on during our conversations. Some of them are broad, some of them are technical, but we’re always aiming to provide information that helps you better understand the mechanics of building this healthy financial foundation, especially if you’re looking to do this with real estate.
