I shook my head. “Not my style. That just sounds like a great way to rack up trading commissions. I would much rather buy a quality stock for the long term, and hold it and watch it grow. Or the opposite, find a company in trouble, and ride it down the chute. I’ll make more from the steady rise or fall than what I’ll make playing the market on a daily basis, at least on a net basis.”
“Exactly. The devil is in the details here. I’m most concerned with the structure and reimbursement details.”
“How so?” I asked.
“Well, take me and Jake — father, not son — we’re both of an age, we’re stable, we’ve got some cash or stocks, we can probably come up with a buy in figure, as long as it isn’t in the millions. Melissa, too, for that matter, although she’s not as old as Jake and me. I’m curious, though, on where young Jake is going to come up with the buy-in. If he plans to use his income from the company to pay off a loan to buy his share, then how does he make a withdrawal to pay for the loan?”
I gave a bewildered look. “No idea. Here’s another question — can we all get along and do this? If we do this, it’s going to be fairly small and tightly held. Can you get along with everyone? Missy? Can the two Jakes?”
He nodded. “That part I’m pretty comfortable with. We’ve all known each other for a number of years now, except for young Jake, and I don’t see him as a problem. He’s ambitious, that much I can tell, but that’s not a problem for a young man. You young fellows are supposed to be ambitious!”
I snorted a laugh out at that. We talked a little more about how we could structure the Buckman Group, and make it more than just a nice name on a business card. I was already starting to get some ideas of my own. By the time we finished, we were dawdling over coffee and tea, and we broke apart. I drove home, found Charlie was taking a nap, and then chased Marilyn around the bedroom until I caught her. She didn’t run all that fast.
Two weeks to the day after Jake brought up the idea, he called for another meeting over at John’s office to discuss his ideas. I suspected that John had called him and gone over some of the questions we had raised that day at lunch. He had been a busy little beaver in the meantime. Like John said, Jake Junior was ambitious.
I wasn’t terribly surprised by this. I remember thinking, back on the first trip, how I was the same age as Steve Jobs and Bill Gates, and why was it them and not me. Now, Jake was looking at me and seeing somebody who was only a couple of years older, and he was wondering how to get his hands on the goose with the golden eggs.
I listened as he laid out his proposal. Some of it was enough to make the toughest accountant’s eyes glaze over. There was stuff about S corporations and C corporations and capital gains taxes and distributions and shares, and God only knows what else. After about an hour and a half, I made the time-out sign. “Okay, so we can do this, have it be legal, not go to jail, and make a few bucks. Let’s go back to the questions I posed a couple of weeks ago.”
He nodded. “Okay, correct me if I’m wrong, but the percentage of shares would be based on the amounts we have invested. If I have $49 million and you have $1 million, then I have 98 % of the votes, right?” I asked.
“Right.” He tried to expound on this but I just waved him off.
“Okay. So it doesn’t matter what our titles are. You can call yourself the Queen of the May, but I still get 98 % of the vote, right.”
He grinned at that. “Right!”
“Okay, ground rule two — everybody coughs up some dough. Did you have a figure in mind?”
At this, Jake got a little more nervous. He was almost stammering, as he said, “Well, I wasn’t sure what you had in mind, but I would imagine we can all come up with about $100,000.” He almost said this as a question. I simply gave him a half smile and made a thumbing gesture, indicating ‘Up!’ “$150,000?”
I smiled again. “Let’s make it simple. I want to see a real commitment from anybody involved in this, and setting this up will take some cash. If you want in, let’s make the buy-in an even $250,000, a flat quarter million.”
That woke them up, but nobody ran screaming from the room. Well, Jake Junior looked like he was about to puke. John and Jake Senior slowly nodded, Missy nodded even slower. Jake Junior started sweating. His father had to put his hand on his arm and say, lowly, “Don’t worry, we’ll handle this.”
Missy asked, “What did you mean by setting this up would take cash?”
“Well, if we are going to do this for real, make the Buckman Group a real company and not just a business card and a mail drop, we’ll need an office, some desks, furniture, computers, a bunch of stuff. Stuff like a real company.”
She nodded in understanding. “Anything else? You had three rules.”
“Well, it sort of goes with the real company, idea. No man can serve two masters, that sort of thing. You can’t work for other people, too.”
She nodded easily. “That won’t be a problem for me. To be blunt about it, you are far and away my largest client. They already tried to take you away from me last year, remember?”
I vaguely remembered getting a phone call from somebody at the investment firm’s Private Investment Group (PIG, nice acronym!) last year, suggesting how they would be better suited to handle my accounts, rather than a mere broker. I had turned them down, and then called Missy to ask what was going on.
Missy continued, “My bet is that I can save you enough on commissions to cover any salary I might get, as well as what I’ll lose out elsewhere. The capital upside is worth it in any case. I’m in.”
John was a touch slower to respond. “I have enough savings that I can convert some of it to cash. However, I do have a problem with suddenly dropping all my other clients. I can certainly agree to not take any more on, but I will need time to unravel the rest of my practice.”
Jake Senior agreed with John, although he had a partnership to transfer clients to, and would need to unravel the partnership. His son looked like he was swallowing a turd; he didn’t have clients beyond the accounting partnership, and wasn’t a partner, and he had nowhere near a quarter-million dollars to invest.
I nodded in understanding. “Okay, here’s a counterproposal. John, you and Jake have two years to unwind everything outside of the Buckman Group. Missy and Jake Junior, you can start immediately. Your shares vest immediately; theirs vest 50 % now, 50 % in two years, or whenever they are fully with the Buckman Group.”
Jake and John nodded slowly at this, and I could see the gears working in their minds. I kept on. “Here’s something I’ve been thinking about. I think that $49 million figure for me is probably accurate?” Jake Senior nodded and shrugged. “Okay, that makes the $1 million buy-in equal to 2 %. Let’s make things sporting, and give everybody here an incentive to do this right, and not just ride along. Over the next five years, we will automatically increase that 2 % to 10 % with a stock option program. Does that sound interesting?”
There was dead silence at the table. Everybody was running numbers in their head, but the gist was simple. They cough up a quarter million now; they make many, many millions down the road.
“Sign me up!” breathed Jake Junior quietly. Missy gulped and swallowed, and nodded wordlessly. Jake Senior nodded.
Only John said anything, “So in five years…”