My journey to failure, learning to choose expertise over money

Podcast transcription - 16th November 2018

Alan Cowley:                    Welcome to the Invested Investor. Today we have Carlos Diniz from Portugal. We are doing this recording over the internet. So, Carlos can you give us a bit about your background?

Carlos Diniz:                      Okay. Hello everyone. My name is Carlos Diniz, I live in Portugal. I have just started my life as an entrepreneur at 23 years old. I started with a dental clinic franchise here in Portugal and then, after that I realized that I could do better taking a part of that franchise and doing it by my own.

Alan Cowley:                    What led you into the dental practices. Now you have background in Economics and Banking?

Carlos Diniz:                      It just happened. And how did it happen? One of my best friends from high school, his sister was a dentist and she had this franchise company. It was a franchise of the same dental chain company. I was introduced to the master franchise of the business. I just realised that it would be the right idea for me to take part in it, so it just happened for that reason. Nothing more than that.

Alan Cowley:                    Okay so that's brilliant Carlos, and tell the listeners a little more about O Meu Dentista?

Carlos Diniz:                      I just started that new business after I left the franchise. I went to study a little bit more and after while I have just raised my own business. Things went very very well, in the first phase. I opened one clinic then after 3 or 4 months I opened the second one and I realised the opportunity I had to open clinics in shopping centres. I founded the first and biggest dental chain company in Portugal opening in shopping centres. After the second opening I realised I had a great opportunity but we were in 2010. And in 2010 we had all these problems with the banks which made it totally impossible to raise funds through banks so I had to go through private investors. I made a lot of pitches and I was lucky to choose ones that I wanted to share the journey of investment.

                                             So, in late 2010, I started the process in June and by November, I had already made a decision as to whom I was going to be with on the journey with. I started that in November then the contract was ready on Christmas Eve, so it was a busy time, we started our joint venture in January. I think it was pretty fast moving? That time, I raised one million euros, to do the accelerated expansion.

                                             At that point, we had opened clinic after clinic, by 2013 and we had no debt. We had double digits, we were like money printing machines at that time. Things were very good, things were great. And then suddenly we had the proposal of a new investor to enter the company.

Alan Cowley:                    So, during your first funding round you raised a million euros, in 2010. That was in a period of heavy recession in Portugal wasn’t it? Firstly, what was that process? and secondly, you said that you chose your investors, it would be interesting to hear what reason you had to choose your investors?

Carlos Diniz:                      Well, the most important thing to choose is the fit. Not the money. I had better financial proposals, but I didn’t have the fit with those guys. I would even have had more money at the beginning, not only for myself, but for the company too. But I have always believed, that with something like this, it’s better to have “A” players with a “B” project rather than “A” projects with “B” players. So that's the point. I really and truly believe that people will make all the difference. So I really needed the support of those guys. I really wanted the money too, but I wanted smart money, I think even today’s I made the best choice.

Alan Cowley:                    Okay. So, with the heavy recession, you obviously chose the right people, were they still quite apprehensive to give you the money, even in heavy recession?

Carlos Diniz:                      Well when you have a heavy recession, you have opportunities. So, I can tell you stores in shopping centres are cheaper, wages are cheaper also. We have a lot of unemployment in Portugal, so you have a lot of opportunities like creating a business on a recession model. We used to say, even in funerals you sell wipes right, so that's the thing. You have to get opportunities and that's it. Always look for the bottle it to be half full not half empty.

Alan Cowley:                    So, you made it to 2013 and you are growing the business. Could you carry on with the story?

Carlos Diniz:                      So yeah. We were in 2013, some guys appeared and said Carlos, here is big bucks for you, you can get your big bucks and put a huge amount of money in the company. In return you will lose your majority, but we will keep you in the company with a golden stake. They wanted me to continue to be the CEO of the company. Well this was a non-binding offer. It would have taken 2 to 3 years to become as rich as a king, so it was a very interesting offer. I just kept thinking man, next year we are going to make our biggest expansion, we are going to start our international business. We are going to get into Spain.

                                             Spain’s market is five times the Portuguese market. And I told them okay we'll just go there and next year we may talk again. But that was the moment when I knew things were just starting to go wrong. It was a big inflation point, we had just contacted a lot of banks, just trying to ask and they said you are such a good company we want to give you money.

                                             Portugal was now leaving the crises and banks just approached our company and said we can give you money, we want to give you money, you are a very good company, so we accepted it. It was a mistake, we should not have accepted so much money. And of course, from that point forward, we have done very good things but also a lot of things that we shouldn't have done.

Alan Cowley:                    So that money was to expand the amount of franchises that you had already?

Carlos Diniz:                      This was not a franchise. All the clinics were ours. It was to finance our expansion. We had to build clinics and buy equipment, very expensive equipment. Its medical equipment, the money was for that.

Alan Cowley:                    So how many clinics did you have before the money came in and then how many did you have by the end?

Carlos Diniz:                      12 and then when we went bankrupt, we had 22.

Alan Cowley:                    Okay, so you just said that you went bankrupt, so the listeners know where this is this going. So, tell us about that journey, from when the money came in, to bankruptcy and what happened over that 1 to 2 year period?

Carlos Diniz:                      Well, am going to share my opinion and of course there are no rules. My opinion is based on my experience, and that’s all. I believe someone may have had some experiences that make them have different opinions to mine.  Firstly, God syndrome, I think this is a huge problem. You need to understand that it’s inevitable. You are an entrepreneur, and you are successful, it is almost impossible not to suffer from it. But you need to deal with it, my advice is that everyone needs someone to bring him back to earth again. 

                                             Second thing is that, in this process, imagine we have sales of one million in the first year, two millions in the second year, five millions in the third year, seven millions in the fourth year. We were running the eleven million in the fifth year. With this amazing growth in your company you need people with track records in dealing with accelerated expansion. Somehow today I realise some of them didn't have the experience of such a high growth rate in the company it is very important to have people with this track record during this kind of process.

Alan Cowley:                    So, you would have hired people with a better track record of fast growth and you believe that that would have helped?

Carlos Diniz:                      I wouldn’t say better. With the track record. They were good, it was not their fault. I would say they were very good, it was my fault, I chose them I am sure of that, but things just happened.

                                             And another thing is that, we started to have problems contracting people because we were not finding the perfect people to work with us, plus sales were down in 2013, we had 12 clinics. We had one or two that were on the red numbers and the other ones were just covering them. Its normal in retail companies that some stores are not so good.

                                             Whilst expanding we couldn’t find good people. So, we had to split our teams in our clinics to open new clinics. With that difficulty plus internally not contracting new and good people, we had to go to a dental recruiter. Our sales were breaking down and we went to recruiters, in my opinion, in the specific market, that was a big mistake. We were contracting people with a recuiter that didn't know the sector plus we were losing money, we were paying more money to a recruiter to do that for us. And yet we were the ones who knew about the business and the people we wanted, so that generated another problem in our company.

Alan Cowley:                    So, is that when the flip came and more dentists ended been in the red?

Carlos Diniz:                      Yeah exactly, we did something that I believe, I have never seen in a dental retail chain company. We made all the standard operating procedures for the company, for all operations. From the receptionist to the doctor, if you wanted to do a filling, I can assure you that everyone did it in precisely the same way. You had the SOP and you had all the materials you needed to do a filling, to make a payment, we also had the SOP of how it should be done. I made a personal effort to do this with the big operational SOPs we had 200 pages of operational SOPs and 600 pages of medical SOPs. Plus, other very detailed SOPs in our company.

                                             The thing is, we did that work and then the state transition table closed. With all the expansion, at the beginning I was leading all the learning. I could do it because I was opening two or three clinics per year. But when I had to open 7 clinics in one year it was impossible, so I had to prepare people to do things for me.

Alan Cowley:                    You said that possibly you made some bad hires in terms of the growth it they were not performing, what about the investors? You said that you chose the right investors, did they give you enough advice with mentoring to help you out?

Carlos Diniz:                      I said I have chosen investors which I had faith in, I have not said I have chosen the right investors. Another thing, regarding the investors, I really had big faith in them, and this might be the biggest lesson I learnt with the investors, they are very capable and very wise and they really know a lot about markets but what I can share with people looking for investment, is that they should find investors,  with track records in things they need. Imagine, if they want to take a product to market, they should find investors that have a track record in going to market. If they want to make an international organisation, they should find investors that already know that process. If they want to recruit a lot of people and they need them, they should find investors with that experience. Track records is everything when you are a starter. Why, because a little failure can kill you. I guarantee an investor with a good track record is the best thing.

I think again, track record is important not only for your employees but also for your investors.

Alan Cowley:                    The expertise of the investors is paramount?

Carlos Diniz:                      Forget the thing about, if you are going to have people on your board because you think you are the one who knows about the business, and you just want them to give you the money, don't do it. Don't do it. Don't raise money just for the money.

Alan Cowley:                    That is actually a brilliant lesson for entrepreneurs. Have you got any other tips for entrepreneurs from your journey? I know we’ll go into mentoring and advising in a minute but have you got any top tips you can give to entrepreneurs?

Carlos Diniz:                      I have one, I would say every Euro, Pound or Dollar spent with a lawyer is well spent. Starters usually do not care so much about contracts because they are expensive. In my opinion and in my experience, a good lawyer can save you a lot of money and can give you a lot of money. Sometimes people just don't have money, so forget your friends doing things for free.

Alan Cowley:                    Yeah spend the money wisely.

Carlos Diniz:                      Money spent in this way was very useful. At the beginning and in the end. Another thing is that, ah this is a very important one. When you are a start up, it’s very difficult, but always try not to give personal guarantees. Always avoid it. You have a probability being a start up, the probability of failing is huge so try not to give all your private equity name of the business. That's one of the things that I always avoid.

Alan Cowley:                    So, what do you do now then?

Carlos Diniz:                      Looking backwards now it’s funny. It was not funny two years ago. The bankruptcy was like facing the newspapers, and then the news and television and your company appears every two weeks, every day in the news. But after a while, things just calm down and people start calling you again, asking for advice, then you go back to the beginning, you have opportunities again. So now I am advising in a lot of companies. I am a mentor at North University one of the best in Portugal. Helping people doing their business plans and moving on with their start up’s, besides that I have my small business too, but small, I might be preparing for something bigger in the near future.

Alan Cowley:                    I was just about to ask you that question, do you think you will start another company?

Carlos Diniz:                      Yeah

Alan Cowley:                    Is it addictive, even though you came through the failure, is it still…….?

Carlos Diniz:                      Oh, this is a very good thing that I have just remembered, I started working  after the bankruptcy I in probably one of the biggest Portuguese companies. I was contracted to be the head of the clinical company. I hated working there. It was the best thing that could have happened to me as I learnt that I just didn't want to live like that again. I’ll say this, those might have been the worst 6 months of my life. I don't know. The 6 months of my life with a bankrupted spirit was very bad too. But for all the starters and to people that want to have their own business, I just fell claustrophobic there, things didn't happen, it was so slow, it was unbelievable. Just hate that.

Alan Cowley:                    it’s obviously for some people and not for other people, isn't it?

Carlos Diniz:                      Yeah exactly

Alan Cowley:                    And I will say if you create your next business big enough, it up it might end up been the second largest company in Portugal so, basically you will do things differently.

Carlos Diniz:                      I don't know. Am thinking about Europe at this moment. Might be the biggest in Europe.

Alan Cowley:                    That's good. Alright Carlos it’s been absolutely fantastic to have you on the Invested Investor. Thank you very much for telling us your story and also talking about your failure. And we wish you best in the future.

Carlos Diniz:                      Thank you very much Alan. It was my pleasure.

Peter Cowley:                    Thanks for listening to another Invested Investor podcast. You can subscribe to all future podcasts via our website or via a number of podcast platforms online. Remember you can order our book online and be sure to follow us on Twitter, Linkedin and Facebook to get the most up to date interesting and inciteful content from the Invested Investor.