Thursday, September 30, 2010

Commission River 2.0

On September 1, 2010, Adam Edwards and I signed the documents that consummated our buy-out of Commission River from BayHill Capital. This would mark the first time since September 1999 that Commission River (know by the name of Cognigen at the time), has been a private entity. During the 11 years that Cognigen was a public company, the stock enjoyed 8 months of incredible success, followed by 10+ years of constant decline as the bottom fell out of the switched long distance market, and consequently, Cognigen's revenues.

As the boat was slowly leaking, many attempts were made by those in control of the company to save it. In 2002 Cognigen entered into an agreement with InTandem (made up of former switched long distance industry veterans) to convert Cognigen from a sales agency into a full-blown FCC-licensed long distance carrier. The move cost shareholders $500,000 on what was a very expensive change in accounting. It allowed Cognigen, who still brought in the same amount of customers on average, to count their customer's entire bill as revenue, as opposed to just the commissionable amount. The results were almost immediate - top line revenue increased almost overnight. But the net margin actually decreased, since it was very expensive to support, bill, and manage customers direct. When I asked a senior company official "what is more valuable? $10 in net margin on $15 in revenue, or $1 in net margin on $100 in revenue?", the answer was "$1 in net with $100 in top line - it makes it look better for investors."

But the investors didn't come.

Later, the company borrowed and spent another $300,000 trying to create a product that QSR (Quick Serve Retail) businesses could buy directly from them. The company created a business unit called CBSI (Cognigen Business Services Inc.) and created a product that included bundled internet, phone, and security that was to be sold to all of the Subway sandwich franchises in the country. In reality, they sold a few dozen accounts, after paying out hundreds of thousands of dollars on payroll, office space, and product development. To make matters worse, the $300,000 in debt was done with two banks that insisted they become secure creditors.

Still, the investors didn't come.

Lastly, faced with bankruptcy, Cognigen capitulated and was taken over by BayHill Capital - whose primary interest was the public entity - and Adam and I were brought in to "right the ship" of the affiliate marketing program. For the past three years we've been revamping the program, updating the code from perl, restructuring our advertiser roster, and drastically cutting costs through things like automation and free office space (thank you Telarus).

In the past three years, the huge book of residual that we receive declined slowly as the large group of switched long distance customers found VOIP, unlimited LD on their cellular phones, or both. Some vendors, like Unitel, completely stopped paying (and been subsequently sued), making matters worse. Over time, even though we've been blowing it out of the water on the commercial side (thanks again to Telarus), cellular phones, and residential broadband, we were barely able to backfill the loss of switched LD. This whole time BayHill needed money to pay accountants, attorneys, and other necessary professionals that are required to keep the SEC happy. Having a public company in good standing was a prerequisite to merging in to a suitor looking to go public (BayHill's main goal). Months passed. Years passed. No mergers.

Eventually, both BayHill and CR management realized that, in order for both to survive, a management buyout had to take place. BayHill would be able to clean off nearly all of their debt from the balance sheet, set up a nice receivable for the purchase price, and they would still be public - albeit without operations. CR management would be able to run the now-private affiliate marketing company with a long-term focus.

With the ink on the paper dry, Adam (the president of CR) and I have put our heads together to figure out how to take advantage of our new company, given our strengths:

1. We know how to generate telecom leads
2. We know some of the best large telecom agents in the country
3. We have a great engine for tracking sales and paying commission
4. We need to generate a LOT of money for our affiliates in a short period of time

With these four factors in mind, an obvious solution came to mind: create a marketplace where our affiliates can sell leads to Telarus' large agents. Not to be a copy of BuyerZone or 360Communications - but to raise the bar and earn more people, more money, with better leads. Miraculously, we found a domain that fit our business description and quickly snatched it up:


Just some quick numbers to consider:

- I know we can easily generate 100 scrubbed data T1 leads per day
- The lead generator will earn around $20 per lead, each and every time
- In the course of a month, we'll pay out $60,000 in commission, just for this one type of lead.
- The margin that CR will make will be anywhere from $60,000 to $150,000, depending on how many service providers our customers want to be contact by.

Add on telephone equipment, MPLS, fiber, and other high-ticket items, and CR could net $1M/month in a very short period of time. More importantly, our affiliates would also pocket in the neighborhood of $1M/month, making for some very happy and excited folks!

Which is why this post is entitled .... Commission River 2.0. The river has run its course and begun a new path to the ocean of success. To say I'm excited would be an understatement. We'll see you all at the top!