Life after Death

Local entrepreneur learns valuable lesson when the unforeseen intrudes on business plans

BY TIM O'REILEY

Las Vegas Business Press

fter one attempt to line up outside financing for expansion crashed and burned, Chad Stone skipped over much of the fine print when a much better prospect came along early last year.

Everything seemed to have fallen into place when the second investor kept his promise and supplied Stone, the president and CEO of the tiny computer repair service PC911, with the $250,000 he needed to a open a second office in Phoenix. This was to be the opening piece of a much larger growth strategy.

"When that happens, you don't want to deal with awkward subjects," he said. "This guy is so happy to write you a check, you don't want to ask what would happen if he dies."

MIKE STOTTS | BUSINESS PRESS PC911 service trucks are seen outside the company’s Las Vegas offices. An investor’s death sent the computer repair business into a year of struggle. MIKE STOTTS | BUSINESS PRESS The check and note Michael Metz provided for PC911 to expand is pictured. After Metz died in August 2008, his 51-percent stake in the company fell into the hands of his estate.

But that is exactly what happened. Michael Metz, a well-known Wall Street veteran who saw promise in PC911's formula, died of a brain tumor on Aug. 6, 2008. Not only did that wipe away plans for future funding, but the 51 percent stake Metz obtained in the company for his investment then fell into the hands of an estate that knew nothing about the company and showed no interest in its growth plans once it found out.

After months of wrangling with the estate and taking out personal loans to cover expenses approaching $100,000 -- not including the undisclosed price to repurchase Metz's ownership stake -- Stone has managed to get the company back to about where it was before the expansion attempt. The key turned out to be one of his attorneys finding an angel, one that Stone did not realize existed, among the devils that seemingly had infested the details to get the attention of the estate administrators.

Stone said he has learned a valuable lesson as a result.

"To me, the concept (of expansion) is still valid," he said. "But it won't be anytime soon and it won't be as rushed."

He also pays much more attention to the operating minutiae. For example, about three-fourths of PC911's annual revenues of $600,000 come from service contracts signed with small business customers. Where he would previously sign anybody who could make an initial payment, he now researches credit histories and has begun turning away customers that fall short of his standards.

"You have to look deeper than what you see on the surface," he said.

In addition, as a rule of thumb, he counts on spending double what he has budgeted for accounting fees and triple for legal fees.

To see an entrepreneur go through the type of trauma PC911 has endured is not all that rare, said Williams Botts, chairman of the Vegas Valley Angels, a group of local investors in small companies.

"Entrepreneurs are optimistic to begin with; they go down the road wearing rose-colored glasses," Botts said. "They don't want to think about the negative and then, boom, they get bit in the butt. It's the nature of the bird."

However, he added that it is essential that entrepreneurs plow through all the documents to know exactly what they are signing and make sure that they and investors are on the same page, or at least inside the same book.

While investments often entail entrepreneurs adjusting their original concepts, he said, "The entrepreneur should not take the money if he thinks that the changes the investor wants are absolutely wrong."

Stone believed in franchising, and still does. But he had given way because Metz thought the PC911 concept was strong enough that all operations should remain with the company. That concession turned out to be particularly expensive when Stone had to close the Phoenix office after just a couple of months.

A self-confessed techie who collects and refurbishes old telephone equipment as a hobby, Stone proved adept at attracting attention. In the crowded field of mobile computer and phone repair, he hit upon a distinctive marketing ploy by calling on customers in used ambulances instead of trucks or vans, the source of the name PC911. He carried the image further by adopting scrub tops as the company uniform and carrying a malfunctioning computer on a gurney to the ambulance, which is filled with tools and spare parts.

He went one step further by converting the ambulances to run on biodiesel made from used cooking oil he collects at restaurants, many of them clients.

After starting PC911 in 2006, he came in contact with an investment firm he declined to identify that said it would raise cash for expansion. Stone's concept was to open locations in Phoenix, Dallas and somewhere in Florida to prove the concept, and then sell franchises. But with the stock market still hot in 2007, the investment firm wanted to proceed quickly with an initial public stock offering, something that made Stone queasy.

Nevertheless, he signed over half of the stock to the investment firm even before he received the first dollar.

"I was young, this was my first business and I was starry-eyed," Stone said. "But every step of the way I had an attorney saying it was the right thing to do."

After the investment firm missed several progress deadlines, the deal came unglued in August 2007. Then Stone had to spend the rest of the year, and about $25,000 to $30,000 in professional fees, to wrest back the stock.

Early in 2008, local public relations consultant Steve Stern put him in contact with Metz, a longtime friend who had directed the investment strategy of mutual fund giant Oppenheimer & Co. since 1990 and worked on Wall Street for five decades. Metz liked PC911 enough that he wrote Stone the $250,000 check on March 12 from his personal account to pay for opening Phoenix, and agreed to put more money in to cover marketing and the early operating phase.

In mid-June, however, Stone had the wind knocked out of him after receiving a call from a Metz associate disclosing the brain tumor. Despite the uncertainty this threw into the business plan, Stone felt he still had to open the Phoenix shop on July 1.

Metz hand-wrote a letter in his dying days that gave part of his stock to Stone to boost his total to 51 percent, then distributing the rest to three other people. But the letter was dismissed as invalid because Metz was so ill and heavily medicated at the time.

After Metz died Aug. 6, 2008, the estate made it clear no more money would come, so Stone had to close Phoenix a month later. Because Metz had wanted it, the office had been part of PC911 instead of set up as a separate entity. The liabilities for items such as early termination of the lease fell back on Stone and the company.

Following about three months of brush-offs from the estate, for which PC911 amounted to pocket change, Stone's attorney found a clause in the investment agreement that allowed remaining shareholders in PC911 to vote on the suitability of a new shareholder if one died. This allowed Stone to object to the estate's ownership, a move that, combined with daily phone calls finally led to his repurchasing Metz's interest.

While trying to line up loans to pull everything together, Stone came across a nasty surprise. The first investment firm had him change PC911 from a limited liability corporation to a C corporation, something Stone barely noticed, and then he switched back to an LLC. Because the company is legally less than a year old, this ruled out Small Business Administration financing and raised red flags among bankers, Stone said, forcing him to take out personal loans.

On one hand, the experience has left him a more hardheaded businessman, he said. He plowed all of the Metz investment into Phoenix because it seemed like the right thing to do. Now, he said, "I would take some as compensation for myself," a typical practice.

However, he still retains an idea of propriety. Rather than try to stiff the estate once he voted against it as a new shareholder, he chose to work out a deal.

"It felt it had to be aboveboard," he said. "I owed it to Mike (Metz)."

Contact reporter Tim O'Reiley at This e-mail address is being protected from spambots. You need JavaScript enabled to view it or 702-387-5290.