Why I Stopped Listening to Gurus

Let me start off with a story.

In 2004, I saw a little ad that said “Learn How to Make $350/mo with Vending Machines in Your Sleep”.

I recently read Rich Dad Poor Dad so I was so into this financial freedom thing, so my mind was open to whatever means to achieving that goal. So of course, I was super interested and signed up for the free seminar.

When I got there, the room was full of guys who were probably in their mid 40′s+.

I talked to a few, and they were corporate execs who were sick of their jobs and needed a way out.

The speaker was this tall big suburban dude. Looked like your typical middle management guy. Nothing special. But I do remember him looking like a fat version of Rico Suave.

(Mental alarm #1)

But he was really well spoken. Maybe because he was selling us a dream. But whatever the case, he got us engaged.

We were mesmerized. He told us that these vending machines are like the salesmen that make sales for you, day in and day out. You don’t even have to pay them.

The sales pitch was that you’d make about $350 per machine per month each time the vending machine emptied out. The cost of candy per month? Less than $20 bucks if you buy wholesale at Costco.

All you have to do is collect the cash, deposit in the bank, and put in the candy. IN fact, you don’t even have to do that because you can hire people to do that.

Wow.. $320 per machine per month sitting on your butt? $20 turns into $350 in one month? This is what I’ve been looking for!

Yes.. it was a dream. (And ended up being that… just a dream.)

Yes, I was on cloud 9. My heart was beating and my mind was racing.. ‘woah, i can be a millionaire in 5 years if I just kept reinvesting into more machines!”

The price? $5k for a set of 10 machines (or 12.. i forget exactly).

Let’s do the math.

If you really DID make $350 per machine per month… that’s $350 x 10 x 12 = $42,000 in ONE year. That’s 740% ROI on $5k investment.

My mind was going nuts.. HOLY COW.. i’ll be RICH!

But then, I thought …’if this is that profitable, why doesn’t that company do it’s OWN vending route?’

(Mental alarm #2)

In fact, he said that he was a vendor himself but that he got out of the business and started working for the vending machine manufacturer to “spread the good word”.

I wanted to ask for this “discrepancy” but I did not. (Stupid me.)

The sales pitch was SO good that probably 1/2 the room submitted a $1500 deposit for their order.

Of course, they use pressure sales tactics… “this deal is only good for THIS week. After that it goes up to $10k”.

OH REARRY?

(Mental alarm #3)

Luckily, I didn’t fall for that trap. Yes, i fell into the ditch.. but not all the way.

I did submit my information, but I didn’t give them anything. For the next 2 weeks, this dude called me every day reminding me how the deal was going to expire so I had to act now.

Luckily by now, my gold rush mentality had already faded. Instead, I scoured the net and I managed to buy some used 12 vending machines for $100 a piece.

When i met the seller (a pizza delivery boy from long island), i got curious and i asked why he’s selling if this thing is that profitable.

His response? “Oh i’m too busy.”

You’re a 22 year old pizza delivery boy? You don’t have time?

(Mental alarm #4)

I had doubts about the purchase once I paid the guy and drove off.

I’ll cut the story short: about 6 months of operation, I just broke EVEN.

Yeap, just recouped my cost and that was about it. (I imagine if I kept going, I would’ve made some profits. The keyword is “some”.)

Here’s why

1. The only way you make $350 per machine per month is if you had your machine placed next to some INSANELY trafficked location, like Times Square.
2. To make that kind of money (with quarters, by the way), the only way to that is by filling up the candy dispenser once a DAY. The labor in NYC is NOT cheap, even if it is blue collar labor.
3. If you skim on the amount of candy it dispenses, people will damage the machine. Kick it, punch it, beat it with a bat… and I even had machines stolen (which by the way, I can’t prove but i think it was an inside job. Thank Cingular wireless people.. that’s why you guys don’t even exist anymore).
4. If you place the machines in areas where the regulars are buying your stuff, they have expectations. They even want the expensive stuff like cashews and almonds (which my machines could not service and would have wiped my profits completely).

Yeap, I finally understood the phrase “don’t dig for gold, instead sell shovels to people looking for the gold”. Unfortunately, that vending salesman & his company understood it way before I did.

Actually, I have to admit. Even though the ROI was nowhere what the sales guy pitched, it was easy money. A lot of lifting, carrying, and stuff… but in the grand scheme of things, it was easy passive income.

The breaking point was when I had a backpack full of candy & quarters (probably 40-50 lbs worth of stuff). I was biking (no I didn’t have a car) on a snowy day and I happen to fall in front of a bus, and that backpack split open, sending candy and quarters all over the street intersection.

I spent the next 30 minutes trying to pick up my quarters and my M&M’s while trying to dodge cars and asking them to stop.

Looking back I am thankful that the bus didn’t run me over and cripple/kill me. But at the time, I was so embarrassed.

At the end, i sold my route off for a decent profit.

Lessons Learned

1) Banks charge you money to deposit 50+ lbs of quarters.

Why? “Labor fee”. Ugh. I even had to deal with local laundromat guy. He even asked me “do you rob banks for quarters?” because I had so many damn quarters every week.

Did you know $100 in quarters is 5 lbs?

Who would’ve known? I only found this out because the laundromat guy would never hand count them when I handed him a ridiculously large container of quarters, but instead weigh them.

2) If you’re looking for salesmen on commission basis only, try hiring retirees with sales experience.

Getting the machines placed into high traffic location is probably the hardest part of the vending business. If you don’t understand lean marketing strategies, you have to resort to … well, door to door sales.

I did them for a couple of months myself, knocking on 10-15 doors a day.. until I discovered retired salesmen.

For one, they are really bored and want to do something productive with their lives. Second, because of their experience in sales, they know how to generate their own leads & even close them on their own.

If I had to start another vending related business, I would hire an army of these guys and instead sell the locations to vendors instead of trying to be a vendor myself.

3) PayPal is evil

Arbitrary merchant account freezing, no explanations in their judgement on disputes, insane fees, and super complicated & user unfriendly interface.

Yes, I learned the hard way. If you run a business in the physical world, don’t do PayPal. Use Square, Stripe, or any of these upstarts that are way more merchant friendly, actually have customer service, and yes.. treat you with respect.

4) In the world of physical products, scaling is the hardest

If you deal with the physical world, finding something that has product market fit isn’t so hard when you’re buying low selling high. For example, finding people who like candy isn’t hard nor do I have to educate people on the concept of candy or the benefits of eating it.

Problem is scaling (which growth hacking tries to solve more in the virtual realm). How many machines can I possibly buy & service? Well, in theory infinite but how likely? Not very.

That’s why you don’t see vulture capitalists investing heavily in vending machine business.

5) Listen to your gut instinct

If you do have these kinds of mental alarms going off, just listen to them.

If you do attend these seminars, do NOT act there ad then.

GO home, wait a few days to cool off. Do some research on the web, but then get into analysis paralysis.

I am all for taking action, but if you really do truly believe that this is your opportunity.

If after a couple of days, the hype fades, then remember…

Rico Suave was selling you just a dreams.

6) You can’t get the destination if you hate the process

Looking back, if I kept going, I could’ve probably turn this into a 6 or 7 figure business (as long as I kept re-investing, acquiring new routes, and expanding into different niches). I did get my investment back in just a couple of months, so the money was definitely there.

But I just could NOT see myself being a vendor for the rest of my life.

Like Oprah and other entrepreneurs, you have to have some meaning in what you do every day. Otherwise, why bother?

If you hate the process, then the goal will never come. You don’t have to love what you do, because passion can be developed. And as Mark Cuban said, go where your effort takes you.

But if the grind turns you off, maybe it’s time to look for another path.