Andrew Housser co-founded and is co-CEO of Freedom Financial Network (FFN). FFN is a family of companies including Freedom Debt Relief, FreedomPlus, ConsolidationPlus, Freedom Financial Asset Management, and Bills.com. The FFN family of companies focus on improving the financial well-being of American consumers and empowering them to do so with innovative products and services. FFN has appeared numerous times on the Best Places to Work list for both Phoenix and Silicon Valley, the company’s two primary locations. FFN has been acknowledge for its excellence by the Inc. 500 list and Entrepreneur Magazine’s Hot 100. After receiving his BA summa cum laude from Dartmouth College, Andrew received his MBA from Stanford University, where he as an Arjay Miller Scholar. Andrew began his career doing private equity investing with Littlejohn & Co., and working in investment banking for Salomon Smith Barney. Andrew, together with his business partner and co-founder Brad Stroh, won the Ernst & Young Entrepreneur of the Year Award for Northern California. Andrew sits on the board of directors of a number of startup companies. He is also actively involved in this community, serving on two independent school boards. He lives in California with his wife Lara and three children.
How did you get started in this business? What inspired you to start this business?
I was driven to attend business school by a strong desire to become an entrepreneur. The investment banking and private equity path I was on could have been lucrative, but it didn’t feed my fire. The idea to start this business was not even on my radar when I started seriously thinking about what to do. Some ideas I had were a bit more out there than others. I expanded on some research I had done in business school about the viability of importing beer from Belize. It was a fun project, and a good learning process, even if the primary lesson was that it was a terrible business idea. I also put serious research effort into other ideas, such as taxi cab medallions and what I called “The Netflix of Jewelry.” None of these fired me up, so I started focusing on an area in which I was experienced and had demonstrated skills – financial services. I started kicking around ideas with Brad Stroh, a good friend from Stanford and soon discovered that we shared vision and sensibilities and possessed some complimentary skills.
The closer we looked at the financial services industry, the more opportunity we saw – an enormous industry, with a lot of segmentation and fragmentation, and not a lot of innovation. The tech revolution hadn’t fully developed in this space, and the dotcom bust created room for us to start innovating. One thing that caught our attention was the enormous problems Americans faced with debt. People were not receiving even a basic education in managing their finances. Combine that with massive financial service companies actually paying behavioral economists to hone ways to get consumers to take on as much debt as possible, while paying only the required minimum payment, and you have a sure recipe for trapping people in debt. One of the frustrating insights we found was that it was a lot easier to make money by getting people into debt – and keeping them there – than it was to try to actually help people improve their financial lives.
At the same time that we were looking for the right business to start, we were already thinking about the kind of business we wanted to build. Stanford Business School emphasizes the importance of the organizational structure and company culture in building a successful business. From a practical standpoint, we knew we wanted to spend our working hours with people we admire and who inspire us, people with whom we enjoy spending time. We talked about what our company would be like after 10 or more years down the road. I believe that type of long-term thinking, even before the company was formed, helped us establish a common vision that guides us to this day.
We focused on two core values: The Heart and the Dollar. The heart encapsulates our commitment to delivering to consumers an excellent product in which we take pride and an equally important commitment to developing and maintaining an atmosphere that fosters caring deeply about our teammates, clients, partners and communities. The dollar is the symbol for a functional bottom line. If a business doesn’t deliver results, it won’t last. However, a business focused only on the bottom line isn’t going to make the right decisions and, for sure, is not where Brad or I would want to work.
Developing the right balance of heart and dollar has been a key factor in our ability to attract and retain the amazingly talented people with whom we enjoy working while at the same time having the means to invest heavily in the people, technology and processes necessary to innovate and continually improve our services. This balance allows us to attract and retain dedicated teammates and deliver exceptional results to our customers, while also establishing solid business partnerships and delivering strong returns to our investors.
Inspiration can come from a number of places. Sometimes, no doubt, luck is involved, but a listening ear is also valuable. Right after our heart and dollar moment, a friend told me the story of his escape from a $30,000 delinquent debt. After ignoring the creditor’s collection efforts for a number of months, he received a threatening message that motivated him to call back and yell at the collector. This yelling eventually turned into negotiating, and he ended up settling the $30,000 for $9,000!
I was amazed. I had no idea that creditors were open to negotiating their debts and would be willing to settle for a fraction of what was owed. And if I wasn’t aware of it, I figured the average consumer was also in the dark. Even my friend who negotiated his debt didn’t know it was an option when he chose to call the creditor back and yell. He actually got a kick out of negotiating with the collector, but my gut told me that most consumers would find it intimidating and aggravating, especially when dealing with multiple creditors (the average FDR customer enrolls 9 or 10 different creditors).
My friend’s story introduced the concept of debt negotiation to us. At the time, there were no real businesses doing it. There were a handful of small mom and pop shops doing it on a very small scale. Most were run by former attorneys, with horribly inefficient operations. Their lack of technology was surprising to us. Some didn’t even have computers. We knew we could shake up this marketplace. It was calling out for a 21st century model for debt negotiation that leverages technology, analytics, process and amazing people – all built on the foundation of the heart and the dollar.
How do you make money?
When we first started FDR, our customers paid us a monthly fee, from the very beginning of the contractual relationship. It was a negative working capital business model – an amazing benefit to a thinly capitalized, scrappy startup launched in the aftermath of the dotcom crash. The downside of that economic model was that it allowed bad actors to survive and thrive and did not reward companies for getting results. In 2010, that all changed with new regulations issued by the Federal Trade Commission to implement what is known as the Advance Fee Ban. Now FDR makes money only after we negotiate a debt for one of our customers. The business model has become very working capital intensive and it was an incredibly difficult transition, but in the end it was the best thing that ever happened to us because it has aligned our interests perfectly with those of our customers, and it cleaned out most of the knuckleheads from our industry.
How long did it take for you to become profitable?
Because of the revenue model that existed when we first started out (discussed in the prior question), we were profitable by 2004 (after starting at the end of 2002). If we had started our business under the new regulations, it would have taken us 6 or 7 years to get to profitability.
When you were starting out, was there ever a time you doubted it would work? If so, how did you handle that?
There are always moments of doubt, but one sticks out as particularly memorable. By December 2002, I had spent most of 2002, including 6 months after graduating from business school, trying to find the right idea to launch. A lot of time and effort had gone into ideas that were now crossed off my list. Frustration was building. About a week before I was to leave to go home for Christmas, I told my fiancée that I was probably going to start looking for a job in January once I got back. She was very supportive and told me to do whatever I thought was right. A couple nights later was the night I had a drink with my friend, and engaged in a conversation that gave me the inspiration for launching Freedom.
How did you get your first customer?
Not easily at first. It goes to show that even a good idea needs to be presented to the right consumers, which is not simple.
We began by trying to measure how great a need there was for debt negotiation. Remember, this was during the time that the economy was sluggish and consumers were battered with increased credit debt and loss of equity in property. Charged off debt was reaching all-time highs.
The first thing we did was set up an 800 number and ran an ad on the back of the National Enquirer. The number rang in a spare bedroom at a house I was renting in Menlo Park. The phone rang heavily, but we were mostly getting calls from people with $300 payday loans or a title loan on their car for $1,000-$3,000. These were not clients we could serve effectively with a labor-intensive negotiating service, and not the foundation for a viable business.
As is the case with the beginning of many businesses, everything that needed to be done was up to Brad and me to do ourselves. Brad focused on more effective advertising, learning the basics of using Google Adwords to target consumers (and aided by some advice from a former business school classmate who worked at Google, and who ultimately ran the entire Adwords segment). I took a crack at creating our first website. Basic would be on overstatement. It was a one–page site with a rudimentary form to capture the customer’s information. It wasn’t pretty either.
The day after we started our first Adwords campaign, our ugly website and unoptimized Adwords campaign generated more than 100 emails with the subject line, “You Have a New Form Submitted!” I quickly checked to see if a glitch had repeated the same email 100 times, but that wasn’t the case. Instead, we had 100 emails from different people all struggling with large debt, many over $30,000. When I called the people back to understand more about their situations, I was still thinking we were in research gathering mode. Some of the people I spoke with were disappointed that we weren’t able to start working for them immediately. Some said they didn’t care that we didn’t have a business yet, they wanted us to see what we could do for them – and several actually sent us checks in the mail to my house.
It was clear to us that this was an idea worth pursuing, so we had an attorney friend draw up the first version of legal docs for our customer agreement. A Stanford Business School alum, someone who attended a generation before we did, provided us free office space. We had to promise that we would return the favor, which I am thankful to say we have been able to do many times over (we have been a growing tenant in his building for 15 years). We reached out to family and friends for our first small round of financing and we got to work.
What is one marketing strategy (other than referrals) that you’re using that works really well to generate new business?
We have an amazing marketing team, with broad talents. We initially built our business on Google Adwords, and still invest heavily in that today (although it is a much more efficient, competitive market than it was in 2002). We have expanded broadly to Facebook, Display, Direct Mail, TV, Radio, BD Partnerships, Affiliates, Wholesalers, and more. Diversification is as important in marketing as it is in the investment business.
What is the toughest decision you’ve had to make in the last few months?
Killing a new product expansion. We spent months looking into the acquisition of a small business that would give us an entry into an exciting new product line that was tangential to our existing lending operations. We were getting into the red zone and needed to make a final decision whether to go for it or not. As excited as we were about the opportunity and the team, we ultimately chose to pass on the opportunity because of the need to focus on our core business operations. We have made several product expansions over the years, and we know how much focus, effort and time it takes to make something like that successful, and how much distraction it can cause to everything else. There is so much going on in our business right now that needs active management. As tempting as it is to think that some parts of the business can be put on auto-pilot, experience has taught me that auto-pilot is a recipe for crashing and burning. Warren Buffett is known for saying, “The difference between successful people and really successful people is that really successful people say no to almost everything.” It can be very hard in practice to live by this mantra.
What do you think it is that makes you successful?
Persistence. That and 8 hours of sleep a night.
What has been your most satisfying moment in business?
Getting to work with smart, amazing people every day. Of all the things we have accomplished, the thing I am most proud of is the quality of the people we have been able to attract and retain. We are doing something right if great people want to work with us.
What does the future hold for your business? What are you most excited about?
Growth and change. If we ever get to the point where we are planning for 5% growth a year, and tuning small dials for marginal changes to the business, then it will be hard for me to stay engaged. In the past 5 years, we have grown our top line at an average annual compounded rate of almost 40%. In that time we’ve gone from 500 teammates to almost 2,000. That kind of growth is not without challenges, but it is also exhilarating, and requires constant change – to processes, technology, systems and the way we use data. In that time we have launched new products and new marketing channels, implemented new technologies and new partnerships, opened new buildings, and created whole new departments. It can be overwhelming at times, but it is never boring.
What business books have inspired you?
The Advantage by Pat Lencioni is an easy to read, but very insightful book that I’d recommend to anybody who believes that organizational health and culture is important to their organization’s success.
What is a recent purchase you have made that’s helped with your business?
We are a people business first and foremost, but are constantly pushing ourselves to get better every day with heavy investments in technology and data & analytics. Some recent investments for us have been in Google Cloud Platform and Tableau, as well as hiring exceptional business intelligence and data & analytics teammates.
Talk about a near death experience for your company.
In 2010, when the FTC changed the revenue rules for our industry, it felt like we were launching a new business. We knew adjusting to the new economic model was going to be difficult, but we really didn’t have any idea how close it came to putting us in the ground.
As discussed above, the business model for our industry previously allowed for collection of fees from customers before any work had been done. It was great for the cash flow of a small start-up, but the downside of the model is that it also benefited companies who were not committed to delivering results to their customers. After the mortgage crisis of 2008, demand for our services was booming. However, the competitive landscape was also booming – at times it felt like every out of work mortgage broker was jumping into our space and competing. These new entrants were able to finance their businesses with upfront fees from consumers, but many of them were not able to deliver the results they were promising. Complaints against the industry started to roll in. We tried, through an industry association, to set rules for the industry and push for legislation at the state level, with limited success. It was hard to be effective with 50 different states to deal with, each with different political agendas. Ultimately, in 2009, the FTC announced that they were getting so many complaints about our industry that they were looking into issuing new regulations for our industry, and in particular they were discussing an Advance Fee Ban – that is a rule that would prevent collecting any fees from consumers until after debts are negotiated.
Our initial reaction to the Advance Fee Ban was shock – we ran some preliminary numbers and didn’t think there was any way we would be able to economically survive. But after a long period of discussion and reflection we realized that supporting this rule was the only way we’d ever be able to clean up the industry and force out competitors who were not delivering results to their customers. I spent most of the first half of 2010 traveling back and forth between California and Washington, D.C. with our General Counsel, Bob Linderman, discussing the industry with members of the FTC, members of Congress, and whoever would listen. We testified in front of the FTC, and also shared all of our data with the FTC so they could see what consumer results looked like when the business is done right. When the rule was announced, in July 2010, with an Advance Fee Ban in place, the vast majority of people in the industry were strongly opposed to it. Many talked about filing a lawsuit against the federal government. We came out as the first and only company to publicly support the rule, and when it went into effect on October 27, 2010, immediately started complying with it. Our revenue from new customers went to zero overnight.
We knew that we needed to raise outside capital to transition to the new economic model, and had already begun that process by the time the rule went into effect. We had done the financial modeling to know how much money was going to be required to get through the cash burn of the new model. We also saw how compelling the new business model was going to be once we crossed the chasm – a much more stable subscription-like revenue stream, much better alignment between our customers and us, and a much more valuable enterprise in the long run. It was a somewhat nuanced and complicated story, but we figured any smart investor would see what we saw and be excited about the investment.
What I hadn’t counted on was the realization that investors aren’t just interested in a thesis, they also are motivated by another powerful force – the desire to not look stupid. Many of the potential investors we talked to thought – you are smart guys, have built a great business and we get the story. The problem is, if things don’t work out, I am going to look like an idiot. People are going to say, why did you invest in this business whose revenue was plummeting at the same time they were going through a massive regulatory change?
So the capital raising process took much longer than we thought it would. One group that got it, and was willing to take the risk was Vulcan Capital. A great team of people who came in and really dug into every aspect of our business. We had developed a great relationship with them and were really looking forward to the partnership. The only downside to their digging into our business so deeply was that it was taking them a lot more time than we thought it would. And our cash on hand was depleting rapidly. By mid-July 2011 the situation was dire. After making the July 15 payroll payment (not insignificant with almost 500 employees on the payroll at that time), our CFO grabbed us for an urgent meeting to tell us that based on the way things were going, there was no way we were going to be able to make the July 31 payroll. Brad and I talked on our own and decided that we would fund the July 31 payroll ourselves, if necessary. But we knew that we could only pursue that strategy for a few payroll cycles at most, before we would be underwater personally. Less than a week later, we were able to get Vulcan the answers they needed to all of their questions, and we closed the deal on July 21, only 10 days before running out of money, and they have been amazing partners ever since.