Why I Hate Partnerships (an inside look at my Cyberworx partnership)

By | May 2, 2010

In a previous posting about partnerships, I wrote about various partnerships I entered into over the years, and one of those was with Cyberworx.com. After 11 years, the company is still in business, yet I have never received any of the profits, and am still owed almost $200,000 that I had loaned the company to keep it in business. I was already a full partner in the company before I made the loan to them (from the several years of work I did to help launch the company). The loan was just something extra that I contributed with no benefit to me other than stopping the company from going under (and thereby preventing my partnership share from becoming worthless). I had to max out all my credit cards to come up with the money to loan to Cyberworx, and the result of that was a few years later when my own company (Impulse Communications) was short of cash (partially because I was still paying 20% interest on Cyberworx’s $200,000 in credit card loans). So, I had to sell some of my high profile domains, including InsuranceQuotes.com and PornoMovies.com to prevent my company from going out of business. I happened to just read that InsuranceQuotes.com sold last month to a large company for what is rumored to be millions of dollars, and PornoMovies.com is now probably worth at least several hundred thousand dollars. I also sold around 100 other big domains at that time, which are now worth at least a million dollars. Even more importantly, if I had that $200,000 back and had not sold those domains, I am pretty sure I would not have sold Bored.com a few years ago. I did not sell Bored.com because I got some overvalued price for it, or because I thought its profits would decline, I sold it only to have money in the bank. I would have much rather have sold a domain like InsuranceQuotes.com (had I still owned it) and kept Bored.com. Or, if I were getting monthly profits from Cyberworx plus payback of the loan, I might not have felt the need to raise any cash at all, and would not have sold anything. Because of all of this, my dealings with Cyberworx have had a big impact on the path that my life has taken.

My point is not to rant against Cyberworx, as I am sure they have their own justifications for how things transpired, but rather to give my readers an inside look at the inner workings of a partnership, including copies of the actual emails I have been sending my partners (see copies below). What angers me most is that my partners don’t usually even bother to respond to my communication attempts about the situation, and when I see my original partner (Phil) in person about it (I see him occasionally in social situations), he tells me to talk to the other partner (Neil) who is in charge of the company’s finances and running the day to day operations. I know this is how the company is setup, with Phil not dealing with any of the financial stuff, but because he was my original partner it is not enough for him to just hand me off to Neil, who then ignores me or gives me a status report without any actual solution to the problem. I have been going back and forth with them for 7 years over this (see the emails below dating back to 2003), and nothing ever gets resolved. Part of the problem is that Phil and I worked together daily for several years to start the company, but Neil (who I have only met once or twice) was brought on later so he does not fully understand or appreciate my role in the company and how there never would be a Cyberworx without me, yet he is the one making the decisions about paying me.

What it all comes down to is that after 11 years, there are still no “profits”, so none of us are happy. But, Cyberworx spends money on things like health insurance for employees, trade shows, New York City office space, salaries for my partners (I never got a salary of course), payroll for employees, etc., so at some point (we are way way past that point already in my opinion) they need to change things and go on the assumption that there will never be any “extra money”, and then figure out a plan to pay me based on how things actually are right now.

I have emailed Phil and Neil several times so far this year (see below) and received no response, other than when I finally Facebook messaged Phil and he messaged back that he would talk to Neil about it, but that was several months ago. At this point, I am giving up waiting for a response and posting these emails on my blog instead in the hopes that this will get a response from them.

Here are the emails (I removed a few small non-relevant parts for privacy reasons):

—– Original Message —–
From: Eric Borgos
To: Phil
Sent: Sunday, February 07, 2010 7:59 PM
Subject: Cyberworx

Phil,

See below:

=========================

—– Original Message —–
From: Eric Borgos
To: Phil
Sent: Saturday, January 30, 2010 10:42 AM
Subject: Cyberworx

Phil,

It has been a week and I have not heard back from Neil about this.

============================

—– Original Message —–
From: Eric Borgos
To: neil
Cc: Phil
Sent: Sunday, January 24, 2010 7:47 AM
Subject: Cyberworx

Neil,

I spoke with Phil in person, and he gave me an update on the status of the company. I know the finances are not great, but you need to make some sort of plan to start making payments to me. It has been over 3 years since we last discussed this (which was a continuation of a discussion from 3 years before that – see the old emails below), and I am still not getting anything.

It has been over 11 years since Phil and I first started Cyberworx, and before you came on board I put a huge amount of time into it, and then after that I put a huge amount of money into it. It was not like I had extra cash and was looking for investments. The financial strain to keep Cyberworx in business ($10,000/month for payroll, rent, etc.) almost put me out of business. The current value of the domains I had to liquidate to raise money, and all the credit card interest I paid, total over $1 million. Plus, it severely damaged my business since I was in crises mode for several years instead of expanding and trying to do new business.

I know your goal is obviously to try to improve things and make more money, and I know you guys are not wasting money or getting big paychecks, but that does not solve the problem on my end, which is that year after year goes by and I still end up with nothing out of it,

– Eric

========================

—– Original Message —–
From: Eric Borgos
To: Phil, Neil
Sent: Monday, July 31, 2006 11:45 AM
Subject: Cyberworx

Phil,

At some point we need to figure a way for me to get some income from Cyberworx, to repay the money I had lent to the company and for being a partner in the company. When we first started the business (in 1999 I think), the plan was to finance sites from any profits we made, so money was not an issue in our partnership. I had the programmers, web hosting, contacts, and expertise to offer. But, sites like ecirculars and totalshopper.com never made any money, and textbookhound was too seasonal to give us much cash flow, so I ended up having to finance Cyberworx out of my own pockets or else the company would have gone out of business, and all our hard work would have been lost. I lent the company around $185,000 (mostly in $10,000/month payments for you to meet payroll) from 1999-2001, in addition to still spending a lot of time working on sites like textbookhound and toyhound. Pretty much all of the money I lent Cyberworx was borrowed from credit cards/lines, at an average of 20% interest, so I ended up paying around another $100,000 in interest on that $185,000 over the next few years. Maxing out all my credit cards and having to make these monthly interest payments almost caused me to go out of business when my own cash flow declined soon after. I had to cut staff, sell a bunch of sites and domains, and borrow even more money at even higher rates just to stay in business. If I had had that $185,000, my temporary negative cash flow would not have been a big problem. I wasted the next 2 years just dealing with trying to stay in business and cut costs, and had no money to work on new projects and expand like I wanted. This was mainly due to the money I had lent to Cyberworx.

I understand that there is always risk in any business, and especially partnerships, and that the first few years we spent working on setting up Cyberworx might never payoff, but 7 years later Cyberworx is still in business and I have never received any payments as a partner or any payments on the money I lent Cyberworx. I know both you and Neil have put a huge amount of work into the company, and get very little compensation for it, but it seems like the way things are going there is never going be a good time for me to get paid. There is always some expense that comes up (leasing a printing press, cigarette supplier problems, offering health insurance, etc.), and more money is always needed to hire new employees and build new sites . It is exactly the same way with my business. There is unlikely to ever be “extra” money in Cyberworx. So, we need to figure out some sort of way for me to compensated.

– Eric

===========================

—– Original Message —–
From: Neil
To: eric@impulsecorp.com
Sent: Friday, December 05, 2003 2:34 PM
Subject: RE: Cyberworx

Hi Eric,

I am sorry we did not get back to you faster.

It was kind of a surprise to me. I did not know that things are so bad
with Impulse. We will certainly try to help in any way possible.

As you know, some websites that worked for us
before are not doing anything now and some that are working now may
not next year. It is very difficult to predict and budget, so we take it one month at a time.
Keep in mind that our biggest money maker will dry out by March. It almost
Did last week but the state gave an extension until March. This web site accounts for
More than 70% of our gross profit. When this happens we would really be in deep trouble
Because it will be impossible to maintain our existing personnel.

We will try every month to send you a check. It will fluctuate but we will do the best
we can.

Let me know your thoughts,

Thanks

—– Original Message —–
From: Eric Borgos
To: Phil
Cc: Neil
Sent: Thursday, November 20, 2003 8:00 AM
Subject: Cyberworx

Dear Phil and Neil,

Would it be possible for Cyberworx to start paying back some of the roughly $200,000 that I have loaned the company? I am very low on cash right now and have had close my 2 flower stores and my California office (my 2 employees now work from home instead). In general my websites are still doing fine, but I have had to sell sites like insurancequotes.com and pornomovies.com to keep afloat for the past year and my income has gone down considerably now that I don’t have that revenue anymore. Also, much of the money I put into Cyberworx was borrowed from credit cards and bank loans so I have big debt payments every month. Impulse has over $250,000 in debt.

– Eric

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22 thoughts on “Why I Hate Partnerships (an inside look at my Cyberworx partnership)

  1. Pingback: Why I Hate Partnerships (an inside look at my Cyberworx … Image

  2. Sin

    Wow, you are abosultely got ripped off. You sold the high profile domain InsuranceQuotes.com that could have make 20 thousands per year of profit atleast, wow. And you sold it for these bastards who do not even bother responding to you. What a shame for them. This is absolutely Shame to these people who do not even care for someone who helped in saving them.

    Phil- You are the Most Selfish Guy and Do not worry Karma will look after you and you will be suffering soon.

    1. admin Post author

      I would guess that InsuranceQuotes.com would now be making well over $100,000 per year profit for me if I still owned it. Back when I sold it insurance was not nearly as big a business online as it is now.

    2. admin Post author

      I don’t think they are intentionally trying to screw me, but the end result of all of this is that I did get screwed, which is why I hate partnerships.

  3. SanFranBusiness

    What a story! Ridiculous how those guys (Phil and Neil) took advantage of you. Is it worth suing?

  4. Shiphouse

    As smart man once told me you have to pay for an education. Were any of the capital contributions documented as loans? Is their a paper trail or any re-course for a lawsuit? Why haven’t you pursued legal action other than the fact that it is costly?

    What was/is the ownership structure? It sounds like you collaterized the whole business, couldn’t you have cleaned house?

    I am confused.

    1. admin Post author

      Shiphouse – When we started the company in the late 1990s, my capital contribution was the value of the labor and hosting I provided. I think we may have recorded the value as $1000 or maybe $10,000. The loans were not documented, other than all the old emails I have about it. The verbal agreement was for Cyberworx to pay me back the loan before paying profits to the partners. The problem is that after 11 years, there are still no profits, but the company spends money on all sorts of things like health insurance for employees, trade shows, New York City office space, salaries for my partners (I never got a salary of course) and employees, etc. I am not saying they waste money, but the point is that there is money there, they just never feel they have any extra money.

      As for the structure of the company, originally I was 50% partners with Phil, but after a few years he brought in Neil as a partner to handle the daily tasks of running the business. I think that made it so each of us had 1/3 of the company, although somehow it later got changed so I own 24% (or something like that). Unless I was the majority owner, it did not really matter what percentage I owned, so I was not that concerned with the specifics (if Phil felt he needed another partner it was fine with me since it made less work for me to do), and I would rather own 10% of a thriving company that 51% of one that goes out of business.

  5. t

    That sucks, …A mans word doesn’t mean much when it comes to business. Umm you say you don’t think they’re trying to intentionally screw you ? Is that Really what you believe, I think your just holding on to a little iota of hope that maybe just maybe they will do the right thing,…I wouldn’t bet on it,..They should have let you see their books if they had nothing to hide,.. Anyways It was a hard lesson but fortunately for you it didn’t take you under, As for insurancequotes.com yeah its a good name but I think EQuotes.com is just as good and I’m sure much cheaper (Less letters = Bigger letters – Display/Print/Outdoor) you should ck it out, its just parked,..And nope its not mine …. I have to get back to work, take care Eric.

    1. admin Post author

      When we started the company, I did the books until 2000 when Phil brought in a 3rd partner Neil to handle all of that (accounting, running the business, managing workers, etc.). I have not seen their financials since then, although I believe that they are always low on cash. But, that does not solve my end of the problem.

    2. admin Post author

      In regards to InsuranceQuotes.com vs. eQuotes.com, InsuranceQuotes.com is worth much much more because that phrase gets a huge number of searches in Google, which means that if you setup a real site on that domain it will get huge traffic. eQuotes.com might be more brandable, but it would get little free traffic, making it harder to sell. If I were starting a big insurance company, I might rather buy eQuotes.com, but it still has a lot less sale value, so it would go for a lower price.

  6. DN abc

    Any partnership or even a simple affiliate program is always a risk, and sometimes we have absolutely no control…
    I also have companies owing me thousands and thousands of dollars. They may think they got the upper hand but in the long term they will loose as well, because I could be providing even more value for them.
    I always give a chance, but if the other party doesn’t take it, their loss.

  7. portable air conditioners

    Sue.

    Sometimes in life you do not get to be the good guy, and you have to learn to be okay with that. Your ‘partners’ would not be surprised if you did, and are probably a bit relieved that you are not.

    It is also possible to sue and remain on good personal terms if you play your cards right, but that needs to be a choice. A lawsuit does not have to be an overt form of hostility, it can be a way of clearing the air so that everyone does as they have agreed and all parties walk away happy.

  8. Spritz

    [Editor’s Note: I emailed this person after he posted the comment below, to tell him he was confusing me and my company with another business owner that J Filbird also worked for during that same time period, who happened to be in the same office suite as me. I never did anything with personalized email sites, but this other business owner did.]

    Eric,

    You and I butted heads back in 2000, when we both were running personalized email sites. You had J Filbird onboard, and he revealed some of our plans to you (so I heard) and you started a competitive response. I can’t dog you for that, I guess a lot of us copy the “happening thing” so we can be positioned for major profits.

    I went a different route in 2004, and it worked great for me. You might not know this, but I live about 1 mile from your office.

    I can help you recover your money, guide you back into domain name greatness, and help you secure your future with domains. I do this as a profession, and I am very successful at it.

    Contact me at the email address I provided. I don’t check it all the time, so don’t worry if there’s no answer for a few days or more.

    However, I can clean up your problems, and place you in the catbird seat where you used to be back in 2001.

    cheers,

    Old Wild Onea

    1. admin Post author

      I don’t remember any of that. What site did I create that was similar to what you were doing?

  9. Ozie Jackson

    This is why I don’t like partnerships. There is too much risk in dealing with people who may have different ethics/values than your own. Often there are no warning signs until, inevitably, money issues creep up.

    It sounds like you broke every textbook rule for entering a partnership; Was there a written contract between the partners outlining every detail of responsibility both financially and duty wise? Is there a business plan with cost/profit projections? Was the partnership agreement reviewed by each individual’s own attorney? Is there an exit plan/buyout contingency in case one of the partners wants out of the partnership? I am especially surprised to hear that you did not have a revised agreement in place at least before the 200K emergency loan.

    I hate to hear that this partnership situation has turned into such a costly lesson for you. But take heart in knowing that despite adversity winners always have a way of getting back on top. Just keep the other crabs (your partners) from pulling you down.

    1. admin Post author

      No, there were no contracts or buyout plans or projections. Yes, I should have at least had a formal agreement for the loan. But, I am still not sure how much any of that would help right now. If I were to try to make them pay me a large amount of money it might put the company out of business, and I don’t think it has much liquidation value. It does not benefit anyone involved if the company goes under. At least the way it is now there is a chance I will eventually get something out of it if the company starts making more money. What bothers me is not that I was not paid back in full, it is that they are not even making an effort to pay me back.

    2. admin Post author

      No, there were no contracts or buyout plans or projections. Yes, I should have at least had a formal agreement for the loan. But, I am still not sure how much any of that would help right now. If I were to try to make them pay me a large amount of money it might put the company out of business, and I don’t think it has much liquidation value. It does not benefit anyone involved if the company goes under. At least the way it is now there is a chance I will eventually get something out of it if the company starts making more money. What bothers me is not that I was not paid back in full, it is that they are not even making an effort to pay me back.

  10. Ozie Jackson

    It is too bad you don’t have a way to take over management of the company. Obviously the partner running it has no clue as to how to make it profitable. Why the company is still headquartered in a high rent, high cost of living area is perplexing. If I had put up most of the money I would bounce both of their asses and install my own team or run operations myself. If the ship is destined to go down I would rather be the one steering it than some clown who doesn’t care.

    Of course I realize this is much easier said than done. If I were you I would be developing some kind of plan on my own, without your partners knowledge, to take over, sue or force them out or force a sale of the company before they lose it all. I don’t know the details about the company so I don’t know exactly what kind of plan it would be but it would probably involve the counsel of a good attorney and business adviser. Screw the friendship. The only friends you have to look out for now are all named George Washington all 200,000 of them.

    1. admin Post author

      Since I am not the majority partner, there is not much I can do. Also, I don’t think I could run it any better or make it more profitable. The only change I would make is to pay myself a monthly check.

    2. admin Post author

      I don’t mean to imply that I disagree with how my partners are running the company. We have not argued over strategic visions, management, or any of the other factors involved in the business. I have no idea how they could go about making more money, and I know they are working very hard just to keep things afloat. I have no desire to try to get involved in things. I just want them to pay back what they owe me, and then if the company starts making a profit at some point I want to get a share of the profits.

  11. John Humphrey

    Eric is Cyberworx.com, the domain, yours or do you manage it? It would seem you’d have some leverage there. It’s easy to see in hindsight, but my takeaway from your lesson will be to never give up ownership of the domain name as long as my partners owe me money.

    1. admin Post author

      Yes, looking back, it would have been good leverage for me to keep all their domains in my name. The main reason I did not do that was for liability reasons, because as the domain owner I could be sued for anything they do, whereas when I am just a partner in the company, I can’t be sued personally (under most circumstances).

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