✈️ My Million Dollar Mistake

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Time Estimate: 7 minutes

I’m a huge fan of Personal Holding Companies.

Turn your hobbies into businesses. Lifestyle business on steroids. No VCs breathing down your neck. Tax benefits. Yada yada yada.

It’s all the rage these days.

But today, I’ll let you in on a little secret I’ve never told anyone else. How my own Personal HoldCo strategy failed. And how I plan to recover.

It’s the most expensive lesson I learned during my 8.5 years of entrepreneurship. Millions of dollars. I don’t want you to make the same mistake I made.

Of course, before we begin… I want to tell you how amazing Riverside is.

The Backdrop

First off, what the heck is a Personal Holding Company?

A Personal HoldCo is a specific type of Holding Company (company that holds and operates a portfolio of companies) that benefits an individual, rather than shareholders, investors, or other stakeholders.

Think of it like your own private portfolio of businesses that you own, but don’t operate on a daily basis. You hire operators (or CEOs, GMs, whatever title is appropriate) on niche businesses that you love. Life is good, isn’t it?

How I bootstrapped my Personal HoldCo was a complete accident. Here’s a quick timeline:

• 2015: Launched Urban EDC

• 2018: Launched Spotted by Humphrey

• 2020: Launched GrowthJet (acquired)

I launched Urban EDC because everyday carry gear is cool. I love geeking out on it.

My wife and I launched Spotted by Humphrey after our French bulldog Humphrey grew a large audience through his adorable looks and ridiculous shenanigans. Now, we get paid to stay at 5-star hotels.

I launched GrowthJet because the fulfillment and shipping sucked for our two e-commerce businesses. And we had paying customers even before we had a website or a name.

I hired talented operators in both Urban EDC and GrowthJet, while my wife ran Spotted by Humphrey.

I had a Personal HoldCo, baby!

My ‘Brilliant’ PHC Strategy

One perk of owning multiple businesses is that you can use the cashflow from one business, to grow another business. Then repeat this process until you have many cash-flowing businesses.

If you play your cards right, you’ll end up growing a giant multi-million dollar portfolio of private businesses that you own, without paying little to no taxes. How? Because you’re always investing in the growth of your next business.

I used this playbook for the past 8 years. Urban EDC was our cash cow, then Spotted by Humphrey, then GrowthJet.

But, I have a confession to make. I wasn’t in love with the operational side of GrowthJet. Whenever there was an emergency, I was the last man standing at the warehouse, shipping packages late into the evening. It was painful.

But here’s my dirty little secret. The best part about GrowthJet was that the shipping labels all went through my Capital One credit card, which accrued 2% cash back. With close to $300k in shipping labels per month, that’s a lot of burritos I could eat “for free.” (Do the math.)

Earlier, I said that you build businesses within your Personal HoldCo that you love, right? Well, I lied. Sort of.

You don’t have to love every single business you own in your PHC. You can own certain types of businesses for certain use cases.

Take Syed Balkhi, for example. I heard his story on an episode of My First Millions. He’s the founder & CEO of Awesome Motive. In a nutshell, he has a near monopoly on Wordpress plugins. His net worth is in the hundreds of millions of dollars.

But guess what he owns? Gas stations. Not just one. He owns 10 of them.

Why would a multi-millionaire own 10 gas stations? Good question.

Those 10 gas stations are part of his Personal HoldCo because the cash flow funds his son’s future expenses.

Does Syed Balkhi have “gas stations” as one of his hobbies? I doubt it.

But it fills a particular need for his family life.

Just like how GrowthJet wrote me a fat check for all my shipping labels each month. I didn’t have to pay myself a single dime from the business. It was like getting a 2% dividend on all shipping labels purchased from my business. It was glorious.

GrowthJet served a purpose in my Personal HoldCo.

But there was a problem… a big one. It killed my “brilliant” PHC strategy.

But before I dive in, a word from my own company (yes, I just did that.)

Cracks Begin To Show

Ok, let’s get real for a sec.

This strategy worked brilliantly for 8 years. I reinvested all profits into growing the next business. Then, the next one. I had a unstoppable compounding machine… right?

May 2022. We are running out of space because our biggest client, Katy Perry’s brand, is growing. Fast. So, to keep up with their demand, we expanded into a 39,000 square feet warehouse. We locked down a sweet deal on our lease.

And then? October 2022. Out of nowhere, our largest client (the same one) decide to move their fulfillment operations to another 3PL. We lose more than 50% of our revenue overnight. Ouch. That sucked.

I knew this was a risk when we expanded, but I didn’t anticipate this happening, this early after our expansion.

In hindsight, we should have hedged our risk by having our largest clients sign longer term contracts.

All of a sudden, we were bleeding cash. The other two companies were holding up GrowthJet. We did everything we could to get GrowthJet more clients but it wasn’t fast enough. We needed more time. We found ourselves in a death spiral.

We had two options:

• Buy more time

• Stop the bleeding

Ideally, we do both.

I had been thinking about selling Urban EDC to buy more time for GrowthJet for a few months by now. When I found out that my wife was expecting our first newborn, the decision was final.

I wrote an entire post about this whole process last week.

In a nutshell, ironically, I was unable to find a buyer for Urban EDC (positive-cash flow business) to get the funds to buy us more time. But, I found a buyer for GrowthJet (negative-cash flow business), which stopped the bleeding.

Selling GrowthJet was the most stressful experience of my life.

But hey, I’ll take it.

Breaking It Down (Play-By-Play)

So, what really happened here?

The two cash-flowing businesses were supporting the third new business, GrowthJet. New businesses take time to ramp up. I get it.

But we had a problem. Like a boxing match, we took too many hard punches too frequently and never fully recovered. Our biggest client left abruptly. We weren’t able to close on large clients fast enough to support our expansion. Our landlord put up a fight about a lease dispute, which put us in a tight spot.

All of a sudden, instead of Urban EDC and Spotted by Humphrey supporting GrowthJet’s growth, GrowthJet was dragging down both Urban EDC and Spotted by Humphrey.

It was too much. Something had to give.

My “brilliant” PHC strategy had officially broken down.

Road to Recovery

Where do I go from here? Good question.

I’m stripping down my business to its bare bones. Cutting costs. Then, rebuilding.

Over the past 8 years, Urban EDC had a great run. But, looking underneath the hood, our operations was a mess.

Too many to list all of them. But here are a few examples:

• Less than perfect customer experience

• Paying for software we weren’t using

• Our branding became more diluted

Now, I’ve cut down all expenses as much as I can. Our biweekly payroll went from $20k to $2.5k. We’ll refocus on our core strengths. We’ll become even more profitable.

Then, as we scale back up, instead of building another business from scratch, we’ll look to acquire or partner up with other EDC brands in our space.

The biggest lesson I’ve learned is that the early stages of building a new business can not only be a challenge, it can actually sink your entire ship.

And once you’re out of the game, it’s not easy to get back in.

So, there you have it. How I lost millions of dollars on my PHC growth strategy that was supposed to work.

Steve Jobs once said: "You can't connect the dots looking forward; you can only connect them looking backwards."

One day, I’ll look back and be thankful for this valuable (and costly!) experience.

Before I wrap up today, I just can’t help it. I’m the proud father of my newborn son, Logan. Here he is at 10 days old. (Sorry, I promise I’ll stop posting photos of him… some day.)

🏷 Lost & Found

Did you miss these? Each week, I round up all sorts of interesting things I found on the internet that you missed. Enjoy!

• How Neil Patel Spends $200,000 Per Month

• The Myth of Exponential Hypergrowth

• Living Intentionally & Keys to a Rich Life

• Wealth Secrets of the .001% with Syed Balkhi

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