#19: Starting and selling a successful government medical firm with Ted Terrazas
June 3, 2020 • 51:52
SPEAKERS
Aaron Spatz, Host, America’s Entrepreneur
Ted Terrazas, President, TerraBusiness Enterprises
Aaron 00:05
I’m Aaron Spatz and this is The Veterans Business Podcast. A podcast centered around the stories of US military veterans and their adventures in the business world following their time in service, its stories of challenges and obstacles, and an inside look at how veterans find their life’s work, their purpose in their post-military lives.
Thank you so much for tuning in this week. I was privileged to welcome to the show Ted Terrazas. Ted is an Air Force veteran and an entrepreneur and you’ll get to hear a lot more about that in the show intro coming up in just a minute. And a reminder to you, if you have not had a chance to check out the video format of the show, it is now available on YouTube. You just jump over to YouTube, do a quick search of my name, Aaron Spatz, and you’ll be able to see this entire season, Season 2, in video form in addition to audio. So anyway, I’m so glad that you’re tuning in and we’re just going to jump right to it.
Thanks so much for tuning in to The Veterans Business Podcast. We’re excited to be kicking Season 2 off. We’re now a couple episodes into Season 2 and we just wanted to welcome you to the show this week with special guest, Ted Terrazas. Ted served 20 years in the Air Force Medical Corps and we’re going to learn a lot more about that, but also, he’s an entrepreneur at heart and we’ll learn more about his background and all the way what’s taking them up today. So Ted, thank you so much for joining us today.
Ted 01:38
Well, Aaron, thank you for having me.
Aaron 01:40
Absolutely. So, yeah. So just share on this real quick, a little bit about your background. Tell us a little bit about your story going into the Air Force and then we’ll take it from there.
Ted 01:49
Okay, well, I’ll try to give you the Reader’s Digest version. That basically starts in ’76 when I joined as an enlisted guy as a dental technician medic. Because to go to war, they didn’t need dental hygienists to go or dental technicians, they needed medics. And so I did that for a while, taught BME NCO leadership school for a couple of years. And then applied for ROTC, was accepted and became a Medical Service Corps Officer, which I served most of my career in doing. By the way, all the training, both enlisted and then as an officer really provided me the basis and the tools for going into becoming an entrepreneur and being able to provide services to the federal government. Because most of my endeavors have been in supporting the US government in one capacity or another.
Aaron 02:43
Wow. Yes. So that’s a whole another ball of wax, the government contracting world. And I mean, it’s like a dark shadowy mess. I’ve heard stories of just how difficult it can be to land government contracts, but also, you know, once you know how to do it, you know how to do it, but it’s a bit of that unknown.
Ted 03:04
It is. The unknown and the bureaucracy of having to apply for the different venues or vehicles that you can use so that you can get contracts at the same time as navigating the understandings of the acronyms that someone on the commercial side may have trouble or struggle with.
Aaron 03:26
Right. Yeah. I can only imagine. Well, tell us more briefly about your medical service. What did that look like?
Ted 03:36
Well, when I was in a medical service, I started out as an enlisted guy. One of the best jobs I had was as a dental hygienist, where I got to see my own patients. Later on, as a Medical Service Corps Officer, I think my last job was probably my best job and that was the implementation of Tricare. And at that time, we had 12 regions and we rolled out Tricare. That was the DOD moving into managed care in a very fast way. They had set me up for that job by sending me to UnitedHealthcare for education with industry so we can see how they do it in the commercial side, which really helped me transition to the commercial side as well. Because now I got a chance to spend time in the commercial entity with my military training, go ahead and implement Tricare in the Southeast and US. And then my first job out of the military was actually working for a consulting company in DC in evaluating the programs of Tricare, which made it a nice transition.
Aaron 04:40
Wow. Wow. That’s crazy. What was your actual role in the Medical Service Corps during that time?
Ted 04:50
Well, in the Medical Service Corps, there are several different jobs that a person can have – everything from a patient administration to IT to logistics, a whole bunch of them. I was considered a generalist. But I ended up implementing Tricare because I had served time with UnitedHealthcare and had a unique understanding. My role was a consultant to – what they call at that time – the lead agent for the implementation of Tricare and rolling it out. So I was assigned a number of different bases for ensuring that they had an understanding of the program and the intricacies in rolling it out.
Aaron 05:30
Wow, that’s crazy. Because, really, what that means is like you were a business consultant for the bulk of your time in and going around and executing different projects, making sure things were rolled out properly or making sure people had the education or the know-how of what’s going on. Does that sound right?
Ted 05:48
No, you’re exactly right. I remember one of the requirements we had before. We’ll just say, we’ll just call it some documentation and there were just reams and reams and reams. And I went to my boss, I said, “Why are we asking for all this information? We’re not going to look at all of it.” So I said, “What we need to do is to establish some thresholds, a low and a high, and we only want to see those things that can be below the standard and those things that exceed the standard so we can understand why are we doing so good in certain aspects and why we’re not doing so good in other.” And so we got rid of those reams. So just little things like that made a big difference.
Aaron 06:23
That’s crazy. So, well, share with us a little bit about your transition out. What did that look like? And then share with us when you began doing work on your own business. What did that journey look like for you?
Ted 06:39
You bet. So when I was working as the Tricare lead agent rolling out Tricare, I got a phone call from a previous peer of mine who was already retired, working in the DC area and says, “Ted, you’re one of the few that understands Tricare and is eligible to retire.” I was not really looking to retire, but I did the cost benefit analysis of I am eligible to retire, I can have a job and a good income, and I’m going to have to make that transition sooner or later. So at a relatively young age, around 38, 40, I was able to retire and go right into a job that I was very familiar with. I was able to use my civilian training with UnitedHealthcare, my military training, and work in a capacity of a consultant.
That company moved me to San Antonio, Texas. And in San Antonio, sometimes things happen in your life that you cannot prepare for or realize what a good thing that was. So I continued working for that company for a couple more years. But then I said, you know what, let me transition to the civilian life. I’ve got the training. Now, let me try to do that. So I became a regional director for a health system focused on mental health. So everything from San Antonio, south of the border.
Then in 2001, I decided to start my own company, TerraHealth. Given all my tool sets doing government contracting, modeling my company on the consulting company, I actually started as a consultant company. But then bad things for the country were good things for me. And that is as we had the Afghanistan war going on, we had the Iraq war going on. And at that time, the Army was carrying the brunt and providing a lot of forward deployments.
So that left a gap in the rears here in the US so I was able to fill some of those gaps. And as a result, my company just bloomed into doing staff augmentation and programs for the returning vets like case management. You may have heard in the very beginning, there was some issues in the returning vets coming back from Afghanistan and getting through the health system. So I helped design a case management program to give attention to those vets, give them priority, get them through the system, get them home, and care a little closer to their home.
So those kinds of things was you never know when your skill sets are going to come and what experiences are going to come in. You just got to be ready for when the time comes that you can go ahead and seize the moment. So at that time, my stars aligned up.
Aaron 09:27
Wow. No, it seems like you’d had at that point 20 years of training leading up to that very moment, so that you’re able to jump in and meet needs as they popped up. But share with us a little bit more of the detail in terms of, you know, when you formed the company, what were your first hires? What did that look like for you? What were some of the challenges that you dealt with as you’re trying to grow it from zero to wherever it ultimately ended up?
Ted 10:03
Well, let me start with the end and I’ll bring you to your question. So in the end, I was able to grow a company with a payroll of about $2 million a month, 400 employees in 32 states, approximate revenues between 45 million and 48 million at the time that I sold it in 2009. Now, what basically my operandi is always just surround myself by people smarter than me. So I was able to get some really good staff that was able to really propel the company. And there were different stages, which I can talk about, that you go through in the company.
But initially, I was turned down by seven banks. I couldn’t get funding. I had to go to a micro lender in San Antonio, which basically, people that are not bankable and have a business, you can go ahead and get a loan. So my first loan was $10,000, which lasted one week. My second loan to another micro lender was, I think, 50,000. So that lasted two weeks. And from there, I found out about a relatively unknown but known within the staffing world of a mechanism for funding and it’s called a factoring. And a lot of companies don’t know or struggle with it a little bit, because although I ended up with a traditional line of credit with a bank, you have to make sure that the stipulations allow you to do factoring too. And it’s important that you have both. The traditional lines of credit with a bank offer you the best cost of money. It is more expensive to use factoring.
So factoring, for example, what they do is – well, let me go back to the line of credit. With a bank, you get a line of credit, and let’s say you get 100,000. Man, that sounds really good, but it’s not. When your company is growing and then you hit that $100,000 limit, you go back to get an increase because you say, “Hey, banker, man, I want a contract. I need some more money.” Well, the banker says, “Congratulations. What are the collateral we have?” They don’t always look at the contract as an asset.
Factoring companies do. They will factor that invoice. Meaning that if you have an invoice, you can factor it within 24 hours, you get paid, 80% to 90%. So 100,000, they’ll give you 80,000 and put it in your bank within 24 hours. And then in 30 days, after you pay back or you get paid by the government, then you get back the residual. If not and you don’t get paid within another 15 days, then you’re going to add another percent. The factoring company’s going to add another percent. So the incentive is you got to write to government to get paid. So factoring will cost you roughly about 3% of that invoice, which doesn’t sound like a lot. As a small company, you can bury it into your costs. But as you start growing, that’s a very expensive resource of paying for money. Because if you have to back it for a year, you can roll it out there. That’s going to cost you somewhere between 36% and 40%. That’s a lot of money.
Aaron 13:20
Wow. No, that’s nuts. But actually, I’d never even heard of that before, the factoring process. So that’s fascinating. And I’m sure there’s a lot people watching this and be like, oh, wow, I never realized that. But I mean, I guess that you’re in a spot where you need to get going. I mean, that funding was helping pay for your team or was it paying for the products or the deliverables that you had for your clients?
Ted 12:50
Oh, yeah. Factoring, really, is good for companies that provide services. Although they factor for construction and other things, typically, for services, it works out well. And predominantly, your biggest cost in service is labor. So labor is pretty much what I use the factoring for. When you’re hiring a lot of nurses and doctors, in my particular case, my company was focused on healthcare, that can be a very expensive ordeal. So the factoring came in really good. It provided me the elasticity to grow when banks were not very flexible. At the end of the day, the banks competed for my accounts and I ended up with a sizeable line of credit. But, you know, where were they when I really needed them?
Aaron 14:39
Right. Yeah, good. And hopefully, if anything, you’re able to negotiate a negative interest rate. But no, so walk us through some of those first hires. For those that are watching this, I mean, it’s a diverse audience, right? So you’re going to have people out there that are just watching because they just love to see two veterans in business. There’s going to be other folks out there that want to start their own business. Or they are in that journey of starting their business, but they’re more on the front end of the journey, whereas you’ve walked that trail. You’ve been down that trail. So share with us a little bit of some of those challenges of those early days of when trying to balance hiring people, but you got to get a contract. But if you get the contract, you’ve got to have the people. And so walk us through some of those issues, those problems that you faced and how did you grapple with those and how did you overcome those?
Ted 15:39
Sure. And I help a lot of companies today and most of them are better known companies. Just because, you know, we help each other. I wish I knew what I did today back then because there are a lot of resources and a lot of tricks to the trade, if you will. And there’s some pitfalls that people don’t realize, especially in government contracting, in any company when you’re trying to start out at the very beginning and people will say, “Hey, I want to work for you.”
I had a guy, who became a partner, who came to me when I really needed some help because I was wearing all the hats in the company. This guy came to me – a veteran, by the way, Army veteran, artillery, if I remember right. And he said, “Ted, I believe in you. I heard you’re starting a company. You’re doing some really good stuff and I know you need help.” And I said, “You know, I do need help. And the good news is I could use your help. The bad news, I can’t afford you.” So he said, “I just was laid off.” Because he worked for a dotcom company at the time. And he says, “I will work for you. And as we make money, you can pay me.” So he did that and he showed me that he could help my business and really help it grow. And he became a cornerstone and I made him a partner.
Aaron 16:55
Wow.
Ted 16:56
But what we have to be careful of in the beginning is a lot of companies will hire family, which you have to be very careful, and we don’t have to get into all the issues that could happen with family. Or you hire people that are maybe not an A player, and later on, you got to replace them. And you have to be careful not to over promise them or give them stock or give stock in a company prematurely, because you want to hold that stock for when you really need a strategic hire. And in my case, that came later as a company group and I needed a CFO that understood how to operate like a large company and prepare my company for a sale. That’s a different skill set. If I kept my company as it started to grow and wanting to continue, then I would have probably had to hire a new team that it was more attuned to mergers and acquisitions. But I didn’t want to go that route.
And there was a lot of decision points that you make in your different stages of growth. At the very beginning, it’s staff, it’s how do you pay them? How do you access cash? Well, I explained you had to have a traditional line of credit and factoring. If you’re a services company, it really helps. The next one is your hires. You want to hire AAA people, but you can’t afford them at the very beginning. So you have to keep that in mind that you’re going to have to have a strategy at some stage in your growth, that they mean people you start with may not be the same ones you end with.
There are a number of different lessons learned. In the very beginning, one of the mistakes that a lot of contractors make is they say, “Well, I’ve got a company. I can be very cost competitive. I can beat everybody in cost.” Well, that’s true when you’re working out of your home, but then when you start hiring some employees and you need to have benefits, then you need to have an office. And so then at the end of the year or the second year, you find out those contracts are no longer profitable because you didn’t do forward pricing to anticipate the cost that you’re going to need to continue to run your company. So, yeah, there’s a lot of lessons learned.
Aaron 19:00
Yeah, no, my brain is going a hundred miles an hour as you’re talking. It has all these different scenarios. Because no, that’s such a wisdom. And I feel like that’s wisdom that can only be bought with experience. And so help me understand the vision for the company. So did you know on day one that you’re building it for a certain – you had a vision of the size or you knew that you wanted to become an acquisition target or you knew you wanted to sell it? Or was it simply like, hey, I saw this need, I wanted to fill the need. So we just went wild west and just took care of it. And then along the way, maybe selling isn’t such a bad idea. What was that like for you, your mental journey there?
Ted 19:47
Well, Aaron, that’s an excellent question because I think a lot of owners struggle with that, especially as the company starts growing. And either they get up in age and they look at retirement, what do they do with their company? Do they pass it to a family member and make it a family company? Or do they look at developing an acquisition strategy? I started my company in the basis of timing. It was 2001, which was a recession. And I looked at it as an advantage of the recession and I sold it in the second recession after that, which you had to think that didn’t sit well. That should be opposite.
But no, I started the company because I wanted to do something that I felt that I can offer to the government that was better. And I think you have a lot of smart people that are engineers, that are scientists, they develop a widget and they want to start a company. But with that, you have to be careful and decide and look at yourself in the mirror. Okay. I can develop the best widget but am I the best CEO to run this company, to get the financing, to drive and motivate people when things are down and keep things looking high, looking to your competition to build a company?
So the first thing I usually tell folks and what I did is I started with a diagram and said, “What do I want my company to look like?” The website reflected that I had all these divisions – a staffing division, consulting division, IT division. I had these divisions and I had senior vice presidents for each of these divisions. In reality, they were subject matter experts. They were semiretired that I had a contract agreement with them, a consulting agreement with them, but they held and made my company look bigger than it was. So one of my lessons that really helped drive my company and my strategies was a government required reading one time of Sun Tzu.
Aaron 21:56
Oh, wow.
Ted 21:56
And one of the things that Sun Tzu teaches us is to live bigger than you actually are. You need to give a presence that you’re bigger and more capable so that the enemy will think twice. Well, in this case, on business, on paper, on my websites, my documentation, my material that I put out look like I was bigger. So then it looked and gave the feeling of confidence for people to come and work for the company, people to want to contract with the company. So I didn’t know exactly which division was going to work the fastest, but as it turned out, consulting and staffing. And staffing became the biggest component of the company, although I really enjoyed the consulting. I thought that was my focus. But at the end of the day, a lot of people look back at my company as a staffing company, mainly because the wars drove that component. I wasn’t ready and didn’t see that coming, but I was ready for it when it did happen.
Aaron 22:55
Wow. And so when you had the opportunity then to kind of pivot more into the staffing world, then you already had these contract agreements set up with the members of your team. Granted, they may have been just to attend 1099 consultants, but you at least had a framework, right? You had a structure, you had something already. But I think most importantly, the biggest takeaway I’m getting from just hearing you share this is you had a vision for where you want it to go. Maybe you didn’t have plan one through ten or phases one through ten planned out, but you had a really good idea, though, of where you want it to be. You probably had an 80% plus idea of where you’re wanting it to go. And so you just started off day one operating as if that was you, and every day, you were intentional to bend each phase of the company closer towards that vision. Does that sound right?
Ted 23:53
No, that’s exactly right. And I think our experiences kind of drive our visions. So my vision working for that consulting company gave me the model in which I wanted to operate from. And one of the things, too, that company owners have if we were deciding to start a company, one of the biggest things is what are you going to name your company? So mine was TerraHealth Consulting which then became just TerraHealth. I ended up hiring an IT guy from Lockheed Martin, a former Marine. And this guy was really good in the IT, but eventually, I received my ADA. I didn’t know about the ADA program, which was interesting, but I ended up going into the ADA program and he found some work for me that were in the missile systems.
So the missile folks were saying, “Why is a healthcare company going and doing work in the missiles area?” So then I said, “We need to maybe play down the medical and basically call my company THI, which was TerraHealth Incorporated.” So we presented ourselves as THI and changed up our material and our IT capabilities to reflect that being able to support systems that would support missiles. So be careful what you name your company because you don’t know –many times, you have a vision, but you have to be able to be flexible and go where the money is.
Aaron 25:17
That’s fascinating. It sounds like you’re able to be flexible, though maybe you had to get a little creative, but you definitely figured it out. Share with us a time just like a big moment in a company, the first major contract that you won, what did that look like?
Ted 23:53
Well, I think there’s two major moments. I think the one major moment was when you – and I tell entrepreneurs, “Don’t just read the books that tell you about how the people who were successful and why were they were so successful, but also look at the company owners who failed. It’s not because they weren’t smart, but what is it that triggered a failure?” And I had an experience one time where my CFO comes to me and he says, “Ted,” and I just hired him. He was a former banker, and he says, “Ted, we’re not going to make payroll.” I said, “What do you mean we’re not going to make payroll?” I said, “We have all the invoices to cover payroll.” He says, “Yeah. But we’re not being paid timely and we’re not going to make payroll.”
So I said, “Okay. You’re a banker. What if we go to our bank and say, ‘Hey, we need a loan to make payroll.’” He says, “Well, if I was a banker, I wouldn’t give it to you.” And so I was thinking, oh, crap, you know, this is not good. This is not a good picture. “Grab our invoices and let’s go meet with our banker.” So we did. And our banker looked at our track record, looked at who was on my team, and that gave him the confidence – the fact that I had a banker as a CFO, that I had the right talent. And he gave us a payroll loan.
And that was a major point. The next major point from a success perspective is I’ve always thought – I started a small company. I thought 500,000 was a lot of money. But when we crossed a million mark, all of a sudden, the hairs on my back of my head rose and said, “Oh, my gosh, this is really happening. And we’re becoming a bigger company than I really had anticipated.” As a consultant company, 500,000, you know you’re doing really good and you have a small staff. But all of a sudden, I started looking around and I didn’t realize it because we were working so, so hard, but we got recognized because we grew 8000% in one year. And I was on the front of the Hispanic business magazine as the fastest Hispanic business company in the US.
Aaron 27:43
Wow.
Ted 27:43
And Inc. Magazine recognized us as the fastest inner-city growing company in the US. But when you’re working, you’re sweating, and you’re rolling up your sleeves and making things work and robbing Peter to pay Paul to make things work, you don’t realize you’ve worked so hard and you’ve achieved that so you start looking backwards. But, yeah, at the end, when we were 50 million, I looked back and it was just another decimal point because the machine was finetuned at that time. We could have gone to 100 million and been fine.
Aaron 28:17
Wow, wow.
Ted 28:19
But the critical components, in the very beginning, you kind of rent. I was renting people as subject matter experts, as consultants, to look and be my go-to. The same thing is with your payroll services, your HR. There are companies out there that you can buy these services that sound like they’re expensive. But, really, because you don’t have them in-house, you’re not paying them all the time, you only paying them by the hour. In the long run, it’s actually cheaper. And then you get to a certain threshold, and you know, well, now it’s time for me to bring that service back in-house because it then becomes cheaper to hire an HR director, for example, and to go ahead and bid your benefits.
Aaron 29:02
Well, yeah, I’ve seen that. I know exactly what you’re talking about with the outsourcing side of things, whether, I mean, like you say, you’re outsourcing your HR, you’re outsourcing your IT, you’re outsourcing your marketing or whatever it may be. And so, I mean, that’s the lesson that I’ve been learning just in growing my own business, just understanding when it does make sense to bring that in versus just hiring that out. So, I mean, that’s pretty interesting.
Ted 29:32
Well, Aaron, that brings actually a new point that I’d share with you. So we have COVID-19 going on right now and a lot of people are working from home. The government especially has been pushing down pricing to very low levels. And so to compete in it, some of the companies that I’ve worked with and currently work with have gone virtual. So there is, you know, traditionally, we think you got to have an office and you have to have offices and a building and you put people underneath you and then you have to guide work that way. I have companies that are very good size, you know, same size that I had, 50 million, and all of their workers, the HR, maybe in Ohio, the company president, maybe in Colorado, and the recruiting is out of Florida, and anyhow, it works, and they’re able to re reduce their costs by having a virtual company because they don’t have to pay rent and utilities.
Aaron 30:33
Yeah, that’s a huge headache saver. I mean, you don’t have to lease office space. You’re not having to pay for the utilities. I mean, it’s a whole another chunk out of your P&L that you’re not having to worry about. And I think the COVID-19 madness that it’s become, I really think, is going to really show people that the whole remote and working atmosphere can work if you’re intentional and you work hard at making it work. And I think there’s companies that maybe they haven’t embraced it as well as they maybe should have, and they’re going to find that on the other side of this, I feel like the companies that really embraced it – I don’t want to say you don’t have to, you could reinvent your company to do completely remote. But maybe it’s a mix of both, right? Maybe it’s a bit of a blend when it’s all said and done. Because I don’t think we’re going back 100% at how things were previously. I don’t see it. What do you think?
Ted 31:34
No, Aaron, you’re exactly right. And there are two pivotal points or things that are happening at the same time today. And you’re exactly right. The way that kids attend school, the way that we go to work, the way that healthcare delivery is going to change. We’re going to see more telemedicine, televideo. We’re going to see more podcasts, where you can get information in other ways. And I think that you’re right. We’re going to see a lot of those changes and it’ll take a long time to get through all those types of things that we could see.
The second thing that we’re seeing is happening right now in front of us, and a lot of people are not aware – and they are, but it’s just in the back of the mind versus at the forefront, and businesses should change as they see changes. Change is good for a business because change brings on new ideas, new capabilities, new ways of making money, new revenues, new revenue sources. And the one that’s happening right now is our venture into space.
So you know, one time we thought that NASA was going to become obsolete. SpaceX was going to take over and our space program was going to be in the toilet. Well, we’ve seen a resurgence of the interest in being in outer space. So right now, by 2024, we’re going to be either on orbit or back on the moon. By 2030, the objective is to be to Mars. We are going to be setting – the objective is to have a space station and start mining and having a business on the moon, which will launch us further into space.
So all those things require a lot of different new capabilities that a lot of small and large businesses could add because that’s like taking an industry and moving it into outer space and you’ve got the logistics. SpaceX is going to be delivering logistics to the Space Station. We have a whole industry around how does – in fact, one that I’m working on is the prolonged space travel and its effect on the human body. Everything from radiation to isolation and mental health. How do you provide medical care in a very isolated environment without the support of a medical center or facility? So space is happening as we speak as a new venture. And I would ask companies who have those types of technologies to take a look at NASA, SpaceX, and all the other space developing companies because that’s a big area of growth.
Aaron 34:20
Wow. Yeah, that’s a lot of foresight. And so I think that’s exciting for you just to see kind of where these developments take place and what the impact that you can have on an industry, but also what that means for you in your business. I would love to pivot and talk just briefly, you know, if you want to share with us any of the major challenges. So we talked briefly about some of the success that you’ve had and some of the aha moments of you were able to get funding for payroll. But then seeing the company grow and then you’re getting more contracts, more revenue come in, and you’re like, well, this might actually be working. Share with us a little bit of maybe some of the struggles or some of the bigger lessons learned that you only could have found out with hindsight being in 2020.
Ted 35:18
Sure. Well, there’s a long list there. Well, one thing is I think that CEOs have to be innovators. And you have to have a vision but also an understanding of the industry that you’re engaged in, and really understanding. I had been in federal government almost my whole life. My father was a veteran in the Air Force and formerly with Marines, and I lived my whole life around the government, but there are things in the government that I did not know.
So in a government contracting, there is a thing called the Service Contract Act and that was enacted in order to protect employees that were basically categorized as non-professional. They would get on a contract work on it for five years. Another contract would come in and competitively bid lower wages, lower benefits. And these poor employees would be on a rollercoaster up and down. So what the government said under the Service Contract Act, “Hey, we’re going to have a minimum wage that you have to at least offer them. You have to offer them a certain level of benefit.” I didn’t know that. And I had an employee that came and said, “Hey, you owe me this and that.” And I said, “No, I don’t. That’s your previous employer.” And I looked into it and I said, “Sure enough, that employee was right.”
Aaron 36:43
Man.
Ted 36:43
At the end of the day, I ended up having to hire a lawyer. I ended up having to self-disclose to the Department of Labor and it ended up costing me. Because the good news is when you self-disclose, the government is very forgiving. So I only had to go back two years and I had to pay some employees that I owed them some extra money. And with the cost of my lawyer, probably cost me about 500,000, about a half a million dollars in all. It was a very expensive lesson learned, but it served me well later. And I was able to over overcome that. That is a hidden – not so much anymore, but back then, it was kind of a hidden “I got you” when the light went on.
Aaron 37:23
But how would I or how would anybody else that’s in an earlier stage of a company, how would we know about that? How do I not do that?
Ted 37:34
Yeah. I think what happens, Aaron, is we think we know more than maybe sometimes our customer. But I think it was in the contract, you know, but we don’t always read all the contract because we figured, well, if you read one, you read them all. Well, not all of them have Service Contract Act language in the contracts. But on those, you have to read the detail and you have to have an understanding of what that means and you have to have a network. One of the things I think this broadcast provides to people is information that you otherwise may not have like knowing about the Service Contract Act and bringing it up, but also now creating this network of, oh, Ted talked about that. “Ted, I need help. How do I understand this? Who do I know that can help me?” And so you’re one handshake away from having the source who can help you with that. That was helpful to me.
Aaron 38:36
And absolutely. And I I feel like, you know, we’re no longer five, six, seven degrees of separation from people anymore. I mean, we’re one, two at most. And so, no, it’s unbelievable how accessible people are, if you’re persistent and creative in how you reach out to them. And you’d be surprised how accessible people can be if you approach it the right way. Well, no, but thanks for sharing that. I mean, like you said – and one of the big takeaways, I think, that I’ve already gotten just from listening to you talk is going back and studying businesses that have failed and really diving into the reasons as to why.
I mean, there’s a book I’m sure a lot of us have heard of, Good to Great. And that book covered quite a bit of some of the companies that didn’t do so well. And I think there’s another book, and I may be getting the content a little bit mixed up, but it’s one of those books that talks about companies that went from good to great, but also few examples of companies that didn’t do so well.
Ted 39:45
You’re exactly right. In fact, I’ve got Good to Great as one of my objectives actually at one of my strategic plans at one time.
Aaron 39:55
Oh, wow.
Ted 39:55
I think a lot of times, to small businesses, as they’re growing, don’t pay attention to a strategic plan and a strategic plan because, geez, how can I have one? Everything changes so fast these days. I just need one to get me by the year. But you really do need at least a three-year strategic plan because not everything along the plan is going to happen, but I’m a scuba diver as well. And we always say, “Plan your dive and dive your plan.” So you know you have enough water – I mean, not water. You going to have a lot plenty of water, but you have enough air. And you’re going to meet those objectives you want to see underwater and so then you can plan consecutive dives.
And the same thing with a company. Nothing’s going to work the same. Everything’s going to be adjusted and revised. But I think having a plan is really important. I don’t care if it’s a bullet paper with just bullets of what you want to do, but you have a plan and that plan also needs to assign accountability. Because it was one thing to have a small company. But as we started going into becoming a medium-sized company, you now had to have operating procedures. There had to be consistency amongst the players. Because that’s the first thing that starts falling apart is you start having different players with different ways of servicing different customers. And so now you have to bring consistencies across your organization. You have to start building in accountabilities for them because your hired person, they say they can do everything. But at the end of the day, you look back after a year, you didn’t get anything.
So those are some of the things that you have, and like I said earlier, the people you start with are not the same people you’re going end with. So you can only hire, let’s say, I’m calling them CV players, but you really need an AAA. So somewhere along the line, you also have to have a strategy in which ones are you going to replace. Or are you going to keep them and what positions are you going to give them to retain them? Because they have a value, but you need a higher operating value. So you have to hire and restructure your company constantly as you start growing. And there’s growing pains in that too. Because I have hired great resumes but can’t work together with a team. And then you have that issue.
Aaron 42:24
Yeah. Hired great resumes. I liked that. I’ll have to file up that one away. That’s good. And it’s certainly worth thinking about for future use. Before we go, I love to hear – so there’s probably a subset of people are listening. And I think other people may just be fascinated to hear this because we don’t talk about government contracting a whole lot because it is this big black hole. I mean, I will speak for myself. I know very little about it. I just know it’s complicated. I’ve worked indirectly with a few companies that have done that kind of work. But in terms of the whole contracting process, just share with us – you don’t have to show us your trade secrets or anything, but share with us a little bit about just the process of, you know, if you already started a company, if you’re an entrepreneur listening to this and you’re trying to get into government contracting, what are a couple of things that people need to know now that it’s going to save them years of ripping their hair out?
Ted 43:22
You know, that’s a very good question. And I would say that the first thing I would recommend to young companies starting now is go to their small business office. At the small business office, they can provide some training that they offer. The universities usually have a group that helps small entrepreneurs, and whether it’s an incubation tank or whether it is helping with government contracts, how to write proposals, how you access to market to the government.
That would be step one. Step two would be each of the military or DOD – I should say, each of the federal agencies also have a small business office and a website that has a cookbook, a guide to how to do business with their agency, how their agency runs procurements. They also have seminars and industry days where they’re invited to come out to kick the tires of a particular opportunity and work with the government to provide a solution that they may have that’s unique that maybe someone didn’t think about and a better way of doing it. And those you can do before the procurement comes out. When the procurement comes out, then you have to kind of respond to it.
But those entities, the small business offices and the universities would have these training programs will provide you the means for doing that. The other thing is there are plenty of consultants. Go to a company that’s already doing business with them, partner with them, and become a protege. So under the federal government, they have protege agreements where the prime contractor gets a benefit by having a company that they can mentor. And that mentorship will help them also get contracts, understand the government, at the same time, help them in their own business processes so their company can mature and grow and grow. So that’s also another good program.
Aaron 45:25
Wow. That’s fascinating. Well, thanks for sharing that. And I love to give this last segment back to you. So if there’s anything that you haven’t been able to share with us yet that you want to or any lessons learned or words of encouragement or I mean, anything that you’d like to share, I would love to hand this back over to you.
Ted 45:47
First of all, well, thank you, Aaron. I think in closing, what I’d like to tell your audience and entrepreneurs is that always tap at least three different sources. Because if you use one consultant, you’re going to get one view. If you go to Sony, you’re going to get Sony’s answer, but you need to open your vision to take in other people’s ideas and more than one. And not all of them are going to fit you. Only the CEO, only the entrepreneur is going to know what fits their circumstances at that moment. They may do something in two days from now and next year from now, the advice may be spot on, but maybe there’s some limitations. But only at that time that person will take that information that fits their need at that time assimilated to fit their need. So always have more than one person to ask the same question and see how it fits you.
The other thing too is no matter how many people you ask and they say, “Hey, don’t do it. It’s not going to work,” it may not have worked in their experience. It may have been a matter of time. It may have been a policy. It may have been something that time may have passed. It doesn’t mean it won’t work. Sometimes you may have to do some – what I call – market testing to see if it will work. I have seen companies that I said, “Man, that’s a terrible idea. I can’t imagine that even been working.” And it worked. I’ve seen companies that I said, “Man, that’s a greatest idea.” It didn’t work.
And so I think that being an entrepreneur, it reminds me of the mouse in that maze, trying to get to the other side to find the cheese. You’re always trying to find the path that’s going to take you to get your reward. And you’re always moving in the direction that you think you’re going to make money. Now, some places you go are not going to make money. There’s certain things you’re going to try. Companies in the later stages tend to move into new directions to expand their growth and they look at new enterprises. And just like medicines are practice, I think business is also practice. We’re constantly learning.
Aaron 48:05
Wow, wow. That’s awesome. And just real quick. Share with us a little bit about what you’re doing today, how can people get in touch with you, what kind of problems can you solve for companies?
Ted 48:20
Sure. So I sold TerraHealth in 2009 and I stayed on with them a couple of years. After that, I started another company called TerraBusiness Enterprises, which part of that is consulting. One of my customers was Chenega Corporation. I helped them win one of their largest contracts and helped them in another contract that they ended up wanting to hire me. So now, today, I’m the Senior Vice President of Medical Services for Chenega Corporation. I’m located in San Antonio, Texas. I’d be glad to give you my email address. It’s tterrazas, which is TTERRAZAS like in Sam, @chenega, CHENEGA.com.
And a lot of people will say, “Well, Ted, you help a lot of small companies.” Well, I help a lot of small companies and some of them may even say, “Ted, but you’re helping your competition.” No, because those small companies, or those companies, even large, sometimes, they’re my competitors, but most of the time, we become part of a network where we can help each other, whether it be an information or whether it be in resources. So they’re going to get information from somebody, I’d rather they get it from me and we’re able to have this journey together. And I have found that by helping others, it has helped me more and my company, whether it be a new tool, a new capability or a new friend.
Aaron 50:02
Oh, that’s super awesome. And II can’t thank you enough, one, for sharing your time with me, but two, just sharing a lot of your insights and your wisdom and the things that you’ve endured and challenges and the victories and the battles that you fought. I really, really appreciate you making time.
Ted 50:22
No, my pleasure, Aaron, and I wish you the best.
Aaron 50:30
What an absolutely fun interview. And for those of you that were with me from the very beginning of Season 1, you can definitely tell a difference in the interview format and style, because it is way more interactive when you can actually see the person. And so I really enjoyed the interaction with Ted. I love just gleaning a lot of the insights, a lot of the knowledge, and experience that he has. I mean, he’s a guy who has definitely done some amazing things, and I would encourage you to check out and connect with him on social media. And perhaps he could be a resource to you in your business. I was just incredibly grateful to have him on the show.
And so if you haven’t had a chance to subscribe yet on YouTube, I’d once again encourages you to over there. And man, if you’re liking the show, if you’re liking this new season, I would love just to hear from you. So if you want to drop me a line at podcast@boldmedia.us. Or even better, just shout me out on social media and just let me know that you are there and that you’re enjoying this. This has just been a tremendously fun project to produce for you. And thank you for your patience in Season 2. So far, I’ve been experimenting with some different audio formats. So no doubt, I’m sure you notice a difference in the audio format today that will be corrected in other episodes that I have not recorded yet. But anyway, have a great rest of your week and thank you so much for listening.