Geeks On Call: its rise, fall and future

What was left out of the deal with Davis was what appear to be millions in debt and a shell public company that still has shares and shareholders…allowing Cole, who hasn’t responded to requests for comment for several months, to step away too easily. “Something like this doesn’t happen by accident,” Bostin said.

http://hamptonroads.com
November 9, 2009

Geeks On Call: its rise, fall and future
Michael Schwartz

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In 2003 Richard Cole told The Virginian-Pilot in an interview that he was not a geek.

“I just employ them,” he said then. “I’m an entrepreneur who exploited a niche.”

And for a few years, exploiting that niche paid off for Cole and his former company, Geeks On Call America.

Founded in 1999, Geeks On Call was one of the first companies of its kind, selling branded on-site computer repair franchises nationwide.

By 2003, Cole told the Pilot the company topped 100 franchises and was on pace to reach $10 million in revenue that year.

In 2004 Geeks had more than 140 locations in 11 states and was named one of the 55 fastest-growing companies by Franchise Times magazine.

Accolades continued to roll in 2005 for the Norfolk-based company, considered a local success story. Cole was awarded the High-Tech Entrepreneur Award by the Hampton Roads Technology Council. In January of 2006, Geeks was named the best new franchise concept in the nation by Entrepreneur Magazine.

By 2008, shortly after becoming a publicly traded company, the rising star began to sputter; culminating late last month in what amounted to a fire sale of what was left of the company after declining revenue left it in the hole and in default on debt that was collateralized by the company’s assets.

Pinpointing where, when and why things went wrong isn’t easy.

With the benefit of hindsight, some current and former Geeks franchisees and executives tried to make sense of it all, painting a picture of a fast-rising company with a leader who in the face of a changing marketplace talked the talk but, most say in the end, couldn’t walk the walk.

Geeks on a roll
Michael Vanderslice remembers the good days.

The former Geeks executive says he was fortunate to be part of the company’s startup and growth.

It was a time of success and promise, he said, as Geeks had ballooned quickly to more than 350 franchises.

“Working in Geeks On Call those first few years was incredible,” Vanderslice said. “The culture was such that we had people coming out of the woodwork that wanted to work for us.”

Shep Bostin entered the fold as a Geeks franchise owner in 2002, a fortuitous time, he realizes now.

“It was a company very much in growth mode,” said Bostin who still owns six Geeks franchisees in the Maryland suburbs.

“A lot of the systems were a bit rough around the edges,” he said. “But the phone was ringing.”

And as the company’s name implies, if the phones were ringing Geeks were making money.

Growth was also fueled by the fact that Geeks On Call was basically the only geek in the business.

“There was not a lot of competition in the early days,” Bostin said. “You know that’s never going to last.”

And it didn’t. Small competitors popped up everywhere, many using the geek or nerd theme in the name. The greatest threat came from the Geek Squad, a name close enough to confuse people and with the corporate backing of retail electronics giant Best Buy.

“If you succeed it’s going to happen,” Bostin said of competition. “Coke had to know Pepsi was eventually going to come along.”

What Bostin and others now say was a failure to react to the competition was one of a number of reasons things eventually turned sour at Geeks On Call.

A year to remember
By all accounts, 2006 seems to be the watershed.

The market for onsite computer service began to change as prices of home computers continued to decline. It was quickly becoming cheaper to buy a new PC than to hire a Geek to repair it.

That trend in turn began to chip away at Geeks’ bread and butter, the residential break/fix market.

A shake-up among Geeks executives also began in 2006.

Vanderslice, along with local franchising expert Walter Ewell, and others left Geeks within a short period of time early that year.

“I and others left due to the desire by the CEO [Cole] to lead us in a direction that we didn’t believe was in the best interest of our franchise partners,” Vanderslice said. “I had ethical and business concerns about this direction.”

The direction included changes in the way new territories were being opened with insufficient corporate marketing support, Vanderslice said.

“I knew I didn’t want to be around for the aftermath,” he said. “Others also shared my concerns and that is why there was such a large exodus of the original leadership.”

Bostin said he can look back at his own revenue track to see when things turned in 2006.

“There was already evidence of stagnating call volume being derived from marketing and advertising activities,” Bostin said.

Then came the decision to rebrand the company name around its phone number – 1-800-905-GEEK.

There was dissension in the ranks against the idea. But Cole, exercising what many say was his trademark characteristic, stuck to his guns.

“They steamrolled ahead with the brand change,” said Bostin, who along with his fellow franchisees was left with a fleet of corporate-mandated Chrysler PT Cruisers that were emblazoned with the wrong name.

“That was a huge error,” Bostin said. “They squandered the equity of the brand and ended up confusing people as to whether we still existed.”

The smartest guy in the room
Vanderslice and other Geeks executives thought early on that the business model needed to begin to move away from relying solely on the break/fix market.

Those ideas were dismissed by Cole.

“I throw a lot of the responsibility at the feet of Richard Cole,” Bostin said. “He is a very nice person, but ill-equipped to handle this evolving and growing enterprise.”

Others in the company were “unable to express themselves in a manner contrary to Richard and have that be accepted,” Bostin said.

That perceived infallibility at the top might have fueled compensation decisions that were out of touch with what the balance sheet could support.

Cole, according to Securities and Exchange Commission filings, was to earn an annual base salary of $275,000 as chairman and CEO.

Richard Artese, listed as vice president and CIO, had a contract for $150,000 a year.

Keith Wesp, vice president of finance, had an agreement for $95,000 a year.

Doug Glenn, former general counsel and director who resigned in early August, had an agreement for a consulting fee of $50,000 annually.

But Bostin said those salaries were never realized toward the end.

“In lieu of most of the salary they took options of stock in the company,” he said, though those options are mostly worthless now that the still-public holding company, Geeks On Call Holdings, surrendered its assets in late October to an entity controlled by Virginia Beach City Councilman and businessman Glenn Davis.

Geeks on Wall Street
The fact that a publicly traded Geeks On Call ever existed is a detail of the story now oozing with irony.

That effort began in early 2008, when GOCH quietly popped on the radar screen in SEC filings.

The entity had no assets to speak of, though it shared an address with the Geeks On Call America corporate headquarters. Soon thereafter, GOCH merged with a failed cosmetic laser company called Lightview in what turned out be a reverse merger, a cheap and quiet way of going public.

Going public, Cole later said, would give the company “the wherewithal to raise capital for expansion purposes.”

The goal was to raise $6 million, Cole said at the time. Geeks managed to raise only $650,000.

And the costs of going public were eating away at what little cash the company had left. It also forced Geeks to disclose its financial status, the details of which previously had never been made public.

The SEC financial filings revealed, despite the popularity of its original brand and the growth of its franchise footprint, the company had never turned a profit.

Cole said in an interview in January that profitability was attainable, but was not the focus of the company up to that point.

“At any point I stopped expanding, the company would have been in the black,” Cole said. “But that’s not valuable to franchisees.”

Vanderslice agreed.

“During my time there we were plowing every cent we had back into making our franchisees and our brand more successful, sacrificing immediate profits for the long term,” he said.

Revealing its failure to earn a profit chipped away at the confidence of its franchisees in corporate’s ability to sustain itself.

And later that year, the company said in a filing that its accountants “expressed doubt in our ability to continue as a going concern.”

Then as Bostin put it, “Things got ugly after that point.”

Trying to turn things around

Geeks employed new strategies in 2008 including the implementation of corporate-owned territories and signing a test deal with Sam’s Club to experiment with big-box store affiliation.

By that time, according to Bostin, Cole’s involvement in the day-to-day operations and interactions with franchisees had faded, being handled mostly by Artese.

Quarterly financials were getting worse, despite those efforts. A vocal and angry independent franchise owners’ association popped up and then came the lawsuits.

Ten franchisees filed suits against the company and executives claiming fraud and breach of contract.

The company, the suits claimed, was cannibalizing its franchisees, partly through its new turnaround efforts.

The suits were all eventually dismissed but the relationship between Geeks corporate and the franchises it relied on for its lifeblood had been tarnished badly and many franchisees called for Cole to step down.

Cole held firm.

“I’m not backing down,” he said in January. “If you look at the amount of stock I own or control, I’m not going anywhere.”

He boldly predicted profitability in 2009, though the company had already been shedding employees and watching franchises fail. Six months later it was sued by its landlord and moved out of its longtime Norfolk headquarters.

To franchisees like Bostin the situation was a “holding pattern until a miracle occurred or we completely crashed.”

A new beginning, lingering questions
On Oct. 27, Cole sent a letter to Geeks staff and franchisees, which was followed by one from Geeks’ new owner, Glenn Davis.

The deal allowed Davis to acquire the good assets from GOCH, including the brand, trademarks and the franchise agreements.

Davis has said he has big plans for the company, first and foremost repairing the relationship with franchisees and rebuilding their strength.

The new ownership has been well-received.

“From my perspective it’s a move in the right direction,” Bostin said. “I was hoping for a change. This is a change.”

Vanderslice, who remains a shareholder in the now detached and empty holding company, said there is hope for salvation for the Geeks brand.

“They have a large hole to dig themselves out of but if [Davis] can replace the current leadership with qualified individuals who know how to build a business and do so using ethical means, there is hope that the company and brand can be meaningful and successful again,” he said.

What was left out of the deal with Davis was what appear to be millions in debt and a shell public company that still has shares and shareholders.

Some feel the deal was too painless for corporate, allowing Cole, who hasn’t responded to requests for comment for several months, to step away too easily.

“Something like this doesn’t happen by accident,” Bostin said.

Jeff Phelps, formerly one of the most successful Geeks franchisees, whose franchise agreement was terminated in May, said he believes there is more to story. “This guy [Glenn] gets to come in and take their only assets for a fire sale – that’s too clean,” Phelps said.

Judging from Cole’s letter in which he apologized for any inconvenience, it appears his days with anything Geeks-related are done.

“That was a goodbye and good luck letter as far as I read it,” Bostin said. “I would hope and expect Richard has made a graceful exit.”

Bowing out, the letter ended with Cole wishing everyone well.

“You have my warmest regards, Richard T. Cole.”

http://hamptonroads.com/2009/11/geeks-call-its-rise-fall-and-future#comment-805187


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Risks: Accounting, creative, Apologists, Appraiser and lender has cozy, repeat-business relationship, Bad cop executive takes "control" from good cop manager, Bullshit baffles brains, Confidence game, Conflict of interest, trustee/consultant, Corporate stores competing with franchisees, corporatus interruptus, Encroachment (too many outlets put in territory), Excuse du jour, Executives create their own golden parachute, Federal insolvency laws used to shirk legal claims, Franchisees are pawns in insolvency flip, Greatest lies are told in silence, Half-truths, History is often re-written by the winners, aided by the unaware, Hope springs eternal in the hearts of the delusional, If it doesn't jingle, it doesn't count, Independent franchisee association, Initial public offering, IPO, Intentional franchisor insolvency creates huge fees for legal, accounting, consulting firms, Learning is an assault on non-thinking stupors, Multiple corporations protect majority shareholders' interests, On Cooling the Mark Out (Erving Goffman), Protect gross negligence, wanton recklessness and intentional misconduct, Pump-and-dump scheme, Rebranding usually hides real objective, Raining litigation, Secured creditors (banks) 100% covered in dodgy insolvency, Securities fraud, Sets up competing distribution channel, Shell companies, Shills, Sincerity, Smartest guy in the room, The Fixer fixes for a hefty price, The game is fixed, Unskilled and unaware bias (Dunning–Kruger effect), The Long Con: prick your own IPO bubble, walk and keep your mouth shut, This is nothing but cold calculation, Trustee/consultant does mass terminations during protection to flip to new owner, Unsecured creditors get next to nothing, Wealth is meant to be re-distributed (not created), White-knight lawyer turns black, Why should we care? It's not our money., United States, 20091109 Geeks On

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