How do you help entrepreneurs save over $1 billion for retirement?
Chad Parks is the CEO of The Online 401(K). He started the business in 1999. Today, The Online 401(K) has 80 employees and $12 million revenue.
Listen to the following interview to learn how Chad built his business and how he plans to take it to $100 million.
Say hi to Chad at theonline401k.com.
Read Raw Transcript Now:
Success Harbor: Hi everyone. This is George Meszaros with Success Harbor and I have Chad Parks with me. Chad is the founder of the online 401k. His company of 50 employees is helping over 4,000 businesses with their retirement. Welcome.
Chad Parks: Hi George. Thanks for having me.
Success Harbor: Thank you for being here Chad. Can you tell our audience about the online 401k and how you help entrepreneurs with their retirement, what the business is about?
Chad Parks: Yeah, absolutely. So it’s hard to believe that I started the company way back in 1999 right when the internet was coming along and I did that out of my financial planning and investment management practice because I would work with a lot of small business owners in that capacity and would help them with their overall financial planning including retirement planning, and one of the big pillars of retirement planning is to have a retirement plan in place so that you don’t spend tax dollars unnecessarily and that you have a good vehicle or accumulation over your lifetime. And most of my clients at the time didn’t argue with me, they said, ‘sure, go find me a plan’. And so I went to market as an independent advisor looking for a turning key solution for my small business clients and lo and behold I didn’t find anything that met my needs or their needs. And then with the internet coming along I saw this as a great opportunity to sort of level the playing field and create a new business model in the retirement saving space that would be able to serve small businesses regardless of their size and regardless of their assets.
Success Harbor: So you have started the online 401k in ’99, have you had other business ventures prior to this one?
Chad Parks: Yeah, you know, I’m one of those, I guess, serial entrepreneurs that they call us. I was the kid who had the newspaper route, and the lawn mowing business and the car detailing business. I had a real job for a while there in High School and College and then I also, prior to this in Grad School I published a menu guide-book to San Francisco’s city restaurants and then I also prior to the online 401k, that was my independent financial planning and investment management practice and I’ve got to say I’ve had a few hobby businesses along the way on the side with this one as well.
Success Harbor: So those other businesses prior to the online 401k were you making a living with those businesses or they were kind of like side businesses?
Chad Parks: I mean, you know, those when I was a kid were just more like side businesses but the financial planning practice and the other businesses that I’ve had while I’ve been running this company have definitely made money.
Success Harbor: Okay, and so how much of your business was online back in ’99 when you started it?
Chad Parks: Well, we had some local clients in the San Francisco Bay Area, and I had built a website because I wanted to have something that was a leave behind for me, that would represent me when I wasn’t on site, you know, to help them enrol their employees and educate them to sort of just replicate me. And so we started with that and our local clients started using it and I was not the third-party administrator / record keeper so I was merely the advisor on a plan, and I was using other people’s administration or record keeping. And my clients liked that so much so they said ‘hey can’t you do the rest of it?’ and you know ‘we don’t really like this other part of it, but we like what you have, it seems pretty cool, pretty advanced’. So that’s what really has driven me into this space and I said ‘okay, you know, what really is going on here?’. So it didn’t take us long from that, from you know ’98 or ’97, to say there’s something bigger here and so we committed to that at the end of ’99 and basically all of 2000, for the first nine months of 2000 was when we committed to taking our light approach to a more institutional quality back then and we began engineering again full-scale. And so by the end of 2000 we were fully online.
Success Harbor: So, when you started your business did you have a partner or did you go alone?
Chad Parks: I had, my wife at the time was one of my co-founders that made it convenient since being an entrepreneur as your audience knows, having family support is very important. And we also had an attorney friend who had helped me with some contract work with some of my other businesses and you’ve got to remember we were all sort of getting the dot com fever and he was looking for an opportunity and so we needed a lot of legal work and things in the early days so he came on as a co-founder and helped us as well.
Success Harbor: So, I read one of your interviews that your company took off and really kicked ass with the small business audience. So what did you do right, what were the things that resonated with the small business audience, because you’re in a very competitive area and there are a lot of very competitive areas but yours is one of them and so a lot of people try to succeed there and most fail. So, what did you do right?
Chad Parks: Well, I think, and you know I appreciate that, thank you, you have to kind of understand our industry to understand my answer and our industry being the financial services industry still to this day is very, very interested in your money. And they like to work with people and businesses that have a lot of it and that’s how they generate revenue and that’s how they pay their bills and they pay their distribution. And so many of them were not able to figure out how they could make money with small businesses while charging asset fees and retirement plans because brand new companies or small businesses with small plans they don’t have a lot of those assets. And so what really worked for me was I basically, I remember, had this epiphany one Sunday morning in my living room with my whiteboard and I was modelling this and I said, ‘you know, yes, the asset model is attractive no doubt, that’s why most of them are doing it this way, but it, how can I get into this market and serve the small end of the space without having an asset model?’. And basically I just did some calculations and turned the model upside down and said ‘what if I was to do a flat feature service model where a company would pay me a fair monthly fee to run their plan regardless of if they have one dollar or a million dollars and I don’t really care what they invest in because I’m not going to broker or get sold on the investments or get paid to be selling the investments’. So that’s basically how we approached it and then-
Success Harbor: So it’s kind of like an all you can eat financial planning service for small businesses?
Chad Parks: We don’t necessarily do the financial planning for people and individuals but what we do is definitely help a company install and run a successful retirement plan for themselves and their employees. And I think what resonated to answer the question ‘why have they been as appealing?’ it’s because we’ve always fair with our pricing, we’ve been transparent, we show them how the other guys are out there trying to, you know, either they’re ignoring them or once you get a lot of money how they kind of gauge you. And I think it also resonated that we are also a small business serving small business, you know, we’ll end the year this year with about 80 employees so we’re still, you know, a small business that serves small businesses.
Success Harbor: So what were some of the greatest challenges during the first let’s say a couple of years in business? You know, again, it’s a very competitive field, what did you do differently and what were some of the big challenges, before I go around anymore circles what was some of the big challenges in the first couple of years?
Chad Parks: Well, I mean first and foremost it was just figuring out what we’re doing. We were definitely blazing new territory, no one had done what we were about to do so there wasn’t a model that we could copy and do better, we really were creating it from scratch and so we just had to really be smart and think about, you know, what would I want and what’s makes sense and what is logical and what tools are available to me. So that was the first part, but really the day-to-day struggles and most of your audience will appreciate this is just that, you know, you don’t have much capital, you don’t have many resources, you don’t know what you don’t know, you’re having to scrap and put it together, you know, you’re a limited number of people I think in the first year or so we were like six or seven people max and so everybody’s doing everything and its very, very challenging and then as we start to grow past that the challenges are about just really where do you put your resources? Where’s the best return on your dollar? How do you stretch people thin and still, you know, be able to deliver a good product and so I’d also like to add to that, is that you’ve got to remember the time frame in which we started so we really came to market at the end of 2000 and for those who are old enough to remember, you know, the first quarter of 2001 was the internet dot com bubble bursting. And then six months later we had September 11th and then, you know, by 2002 we entered into a bit of a recession so it was really, a really difficult time to start a business and we did everything we could to survive including using credit cards and home equity, and other things, because we knew that in the long-term that this was something that was worth keeping going.
Success Harbor: Did you ever get close to shutting down or bankruptcy or anything like that during those years?
Chad Parks: Yeah, we got very close, we had been fortunate in February of 2000 we raised a little bit of Capital from an angel investor, about $300,000, and so we really stretched that and that attracted other investors but when all those things happened in the Summer of 2001 we were poised to raise another little bit of money, maybe a million dollars. And what they came to us and said was ‘well, you know, times are very strange right now, we’re not sure we just want to hand over a million dollars, we too still believe in the business so here’s what we want you to do, we want you to get to get to cash flow positive within 12 months, come up with a plan to do so, we’ll fund your monthly difference, and then once you’re cash flow positive then you won’t need us and you’ll be in a much better spot’. So that was probably the toughest love that anybody could give but it sure did forge a good solid foundation for us and lo and behold from October of ’01 to October of ’02, you know it was monthly maybe 40 or 50 thousand dollars a month in some cases short, they did fund it, and by October 2002, we were breakeven, and then all of ’03 we were breakeven. So it was a tough time but we did it.
Success Harbor: So what were some of the changes you had to make during that time period?
Chad Parks: A reduction of salaries across the board, renegotiate rent with your landlord, work on payables with people, I mean you remember it was a bad time for everybody so I think it’s always relative, you know, so everyone kind of understands. You know I was the type of entrepreneur who I wasn’t going to be the one who took my investors’ money and walked away from it and we saw that happening all over San Francisco where people would raise all kinds of cash and the first thing they would do is go out and buy and furnish a really fancy office space and not worry about their fundamentals of their business and I don’t know, something about me was very different and I just wasn’t going to be that guy so I just really felt the personal obligations just to ensure that my investors trusted me was worth it and you know, that their investment would be preserved.
Success Harbor: Did it change the way you do business, does it have an impact on your business today, the changes you made back then?
Chad Parks: You know, I think that’s a very good question, and I would say if anything it taught us a lot of discipline and not being, I guess, loose with the capital and making sure that you’re very, very careful about where you spend the money. I remember once we got to breakeven and I mean this sounds silly now, you know, we didn’t even have a photocopier type of machine in the office, and I remember when we were able to finally commit to a photocopier / document management system so we could get rid of a lot of our paper. But even spending those few hundred dollars a month that was really, just felt like it was a huge commitment, so I think there was sort of that DNA was sort of set and it carries forward to our company and today it’s allowed us to do a lot with very little resources and capital throughout the rest of its history.
Success Harbor: So how did you market your business during the first couple of years especially when you started the online 401k?
Chad Parks: So the first was we looked at other benefits, types of providers where these businesses would be going to get them, and we knew that retirement was a very underserved area when it came to that and so we partnered with several. One that the audience might know is a company that’s actually survived a long time as well called TriNet, and they were a professional employer organisation, and they were one of our first partners, and they would refer their clients to us for their 401k needs, so that was a good pipeline for us. We began to replicate that with other distribution partners, benefits, payroll, financial advisors, and then I don’t know what year it was but this also sounds crazy to say but there wasn’t always – there was a Pay Per Click, I can’t remember the name of it now, but the early days of Pay Per Click advertising we got into that and we said ‘Oh this is good’ and you know, using the paid advertising on what is now Google and something else that again, that I’m blanking on the name.
Success Harbor: I don’t know if it was Inked, was it Inked or something?
Chad Parks: Inked actually I think eventually bought the one I’m that I’m thinking of. But you know, that, we’re like early entrance into that and that started the drive on our business and that was our direct channel. Before it got too popular and it got too expensive so it was just a lot of that, a lot of highly leveraged relationships and really just trying to build a little bit of a brand.
Success Harbor: So instead of going directly to the customer you went through a partnership route mostly?
Chad Parks: Yeah in fact throughout the last fifteen years, I would say that we really re-emerged as a strong company, we got in 2004, ’04 was when the rubber started to hit the road. But for the last ten years we have been nothing but a relationship driven business, we have not had a true direct to the consumer, to the business owner presence, they’ve always come to us through referral partnerships or they’d find us online. And the reason I’m stressing that right now is because we are finally at a turning point in our company where we are changing that. We’re going to keep that existing model but we are now finally where we have the revenue and the momentum and the technology to take a sales force to the streets, so you’ll start to see that happening for us real soon and we’re very excited about that.
Success Harbor: So what shape is that going to take? Are you going to have just direct sales people or are you going to put on events? What additional marketing channel will you introduce now?
Chad Parks: Yeah, I think direct sales people, you know, we’re fortunate in this case, we don’t have to reinvent that wheel, you know, or invent a wheel that didn’t exist before because there are many organisations that have very successful in person sales forces that, you know, cover the country and so we can model that, we can take our product and our business model and our different way of doing business to the consumers directly. We know what the metrics are going to look like and we feel pretty confident that that’s going to be successful. I think that it is a little bit of a different approach, I mean when you’re an online company for you to be coming to somebody directly is somewhat novel. I think the time is now because in our market one of the things I didn’t mention to you is the statistics are frightening. We work in primarily the under 30, under 50 employee market, but our speciality is those business with two to twenty employees. And the data shows that 92% of businesses with two to twenty employees do not offer any kind of workplace savings for their employees. And there’s a lot of reasons why but those numbers are, that’s almost four million businesses, forty million people, so we have a natural market that raises their hand and says ‘hey, maybe I’m interested in retirement, I should do something about it’. But when you have 92% of them out there not realising that they can have an affordable tax savings vehicle and the true benefits to their employees, we feel like we’re going to be very successful by introducing them to this concept.
Success Harbor: So how are you using social media for marketing, if at all?
Chad Parks: You know that’s a great question. So what used to be our direct panel of PPC, search engine optimisation, etc., once the rest of the industry caught on and started outbidding us and our ORI kept dropping, I think it was probably 2008 or 9 we basically, we abandoned that as our direct effort. In 2011 we hired a new director of marketing and creative and one of the points of what she was here to do was to create more of a social presence as well as humanize our brand. We’d gotten a little bit stuck in selling features and benefits which I think a lot of people do in our space with retirement plans, you know, they’re plans, they are complicated and there’s a lot of jargon but you know if I tell you that I’m doing your 5,500 for you that doesn’t really mean anything to you, you know? It shouldn’t mean anything to you, if I’m in this business that should be a given, what I should really be doing is trying to connect with you on an emotional level and let you know that I’m like you and that we’re really here to help and be the good guys. And so part of the humanizing of the brand, was to engage our social channels, so that direct channel went from nothing, contributing nothing to the business because we’d abandoned it, to today where it is contributing about 20% of our business again and so I think that’s a pretty good success story. And what comprises that is that we have internally a team of people that we call our ‘twitterazi’ and so there’s seven or eight people who, there’s one person who’s responsible for it but there’s seven or eight people who help contribute to it and we have a corporate presence but you know also a personal presence on all the major platforms. You know, Facebook and Twitter, LinkedIn, Pinterest, Reddit and the bunch of others where we have that presence out there and it actually does work, it does generate a lot of exposure for us.
Success Harbor: Yeah, that’s great. I read about your revenue a little bit online at you had a 1.2 million in 2003, and this year you have 2014 forecasted to be a 12 million, which is very impressive. What is- it sounds like things have been fairly smooth, right, I’m sure you have made some mistakes and maybe you can share one learning experience or mistake with our audience that you think would be beneficial for us to learn. I’m sure you have a lot.
Chad Parks: I was going to say, I’m sure I have more than one. But yeah I mean this, you do a lot of introspection and reflection over the years and I think that the best advice that I could give or the experience I could share is that as an entrepreneur, as the founder, as the someone who has the vision, and in certain cases has the strategy to see it through, doesn’t mean that you’re always the one to execute. So there’s two parts to this; one, is make sure, and it’s a little bit cliché but it’s very true, make sure you surround yourself with people who can complement you and don’t be afraid to delegate. But the other part of that is what I’ve learned is that as that entrepreneur you really have to trust your gut, you really have to trust your instincts and where I’ve made mistakes is that you know I had my instincts and my gut telling me one thing, but then maybe logic and or others having different opinions and sort of overrode that decisions, and I went down that path and I can tell you every time that has happened I have regretted it, and I wish I had just listened to myself in the first place because it wouldn’t have happened.
Success Harbor: So entrepreneurs sometimes, you know, we’re looking at other businesses and you know for example in your business somebody looks at your business, you know, wow, you know, he’s making 12 million dollars revenue, I’m never going to get there, people get discouraged or all that so, who do you look to, to get motivated for your business and how much should you look outward as opposed to at your own business? So you can keep your focus but you’re also keep motivated at the same time.
Chad Parks: No I understand exactly that it’s a really, it’s hard, you know, who do you compare yourself to, right, that’s always, and if you’re comparing yourself to the Facebooks and the Microsofts and the Googles and Apples of the world then guess what? None of us are ever going to get there, those are sort of once in a lifetime things for those people, and the odds are very, very rare, and that’s one of the reasons we love small business too, because they’re not all sexy, they’re not all glamorous but man they take care of their founders families, and they take care of their employees and they help to fuel the economy in their community. And so I think that when you’re looking for some sort of, you know, validation in the world, benchmarking, you really just really need to look at those around you and say what is enough and when is enough. But there’s a couple of resources that I really like, that I’ve always drawn on over the years, one of them is called Entrepreneurs Organisation (EO) and it’s a global organisation of about 10,000 members, the entrepreneurs, you know, you do have to qualify to be in and that qualification is a million dollars of revenue for your business at least. They do have starter programmes to help people get in, but what it is, is it’s a peer group, and it’s a peer group of people who are just like you, founders and CEOs, managers, who are facing the same struggles that you do with personnel, with your own belief in yourself, with market, with, you know, a variety of everything and they have this infrastructure to support you with that and it’s not a networking group, in fact networking and solicitation is prohibited, so it’s a really great group of folks, who have instant brotherhood, instant camaraderie, no matter where you go you can find an EO number and you’re going to click. So I definitely recommend folks looking into that, they have chapters in every major metropolitan area and then some, and the other is Inc conference, the Inc. 5000, Inc. 500 group. When I was early on as an entrepreneur I used to read those magazines, there was Inc. and there was Entrepreneur, and they each had their subtle differences and I felt like Entrepreneur was more focused on franchises and didn’t really speak to me, and I felt like Inc. was something but to your point will I ever be that sort of company. You know, how does this help me? Well, years of pushing and eventually attending some of these conferences and networking and it sort of opened up a lot of things. I’m happy to say that we’ve been on the Inc. 5000 list eight years in a row. I think there’s very few companies who have done that. And so it’s really just about getting yourself out there and surrounding yourself with people who are going to positively support you and give you that sort of witness test to, you know, maybe it’s not easy but you’re sure moving forwards.
Success Harbor: Great, so what do you think is the biggest timewaster for entrepreneurs?
Chad Parks: So, I’m glad you asked that because for the last five years or so I’ve been actually looking at that myself, and really just try and get control of my schedule and figure out where my time is going and how can I be more efficient with it. And part of that answer is what I mentioned earlier which is that you really need to surround yourself with good people who can complement you and you have to trust them, and you need to do some of the hard work of making sure that the systems and policies and procedures are in place so that you’re not always chasing fires. And so those last five years of work have really been for me to challenge myself and challenge my team by adjusting my schedule and by putting myself off-limits in some cases and by keeping myself out of things in some cases. And really just trying to come up with a rhythm for my week. And most recently within the last six months I came across an organisation called Strategic Coach, and they are exactly about that, which is maximizing your time, making sure that your input gets the highest output and they come up with a sort of series of ways of segmenting your time and in a very simple form they call them buffer days, focus days, and free days. And so when you start to think about your life in that way and how your spending it then you kind of change your mind about it’s not just about hours worked, it’s about output and when you get into that mind-set then things really become more of a game for you and you say ‘how can I get it in and get out, get it done, and how can I ensure that my team is operating like that too?’ And so it’s been an evolution, I have to be open-minded to it, but I know a lot of entrepreneurs get caught in that trap of I have to do everything, you know there’s no predictability, but my challenge to them would be to say, you know, there are ways to get control, it’s just a matter of wanting it bad enough and finding the tools to help you do so.
Success Harbor: If somebody in your family or maybe a good friend came to you and saw your success as an entrepreneur and they say, you know, ‘Chad, I want to be a successful entrepreneur’, what would be the first thing that you would teach that person?
Chad Parks: Wow, that’s a good question, I hadn’t thought about that.
Success Harbor: What’s the one thing that they need to start with?
Chad Parks: I guess, I was going to say a dose of reality, but then that would probably stop them from doing what they wanted to do. So I guess, you know, here’s what it is, I advise some entrepreneurs as well so this is what I think I told the last one. Basically, if you have a clear vision, if you see it, and you know it in your body, in your soul that it is the right thing and it is doable and it’s your passion and you want to follow it then by all means do so because the Universe will have a way of showing things along the path that will continue to surprise you but also take care of you. And so you just have to have that leap of faith, you jump off the cliff, and there will be something there to catch you and I have done that so many times myself and I call that sort of the entrepreneurs paradox too because once you get a little bit more successful than you tend to not want to take those chances. But then you have to remember, like if I hadn’t taken those chances to begin with then I wouldn’t be where I am today. And so that’s really the main thing, just trust yourself, if you can see it and you know it’s real and it’s clear and it’s your passion, that’s the recipe right there. If it’s not, if your doubting it, if you don’t know why, if you don’t have a strong belief, if you think, ‘well I’ll try it, if it fails it’s okay’, then those cracks in the armour are almost going to be self-fulfilling. So you know if that vision isn’t there for you then don’t necessarily pursue something that is not yours and continue to work on it and wait for the one that is yours.
Success Harbor: Where do you see the online 401k five years from now? Do you plan that far ahead?
Chad Parks: We do, in fact I’m working on right now as we speak, in this time period not on this interview, what’s called a five-year growth plan and capital needs analysis. And so unfortunate that my companies not fifteen years old so if you think about it that way I’ve had three five-year cycles and the first five were so absolutely out my control and unpredictable, the second five from ’04 to ’09 that’s when things started to look better and I had some idea about where we were going and I made some commitments and I was able to deliver that pretty good. From ’09 to ’14, remember ’09 was difficult because we were in the middle of the recession so again a lot of uncertainty but I said here’s where I think we can go and I think we’ll get there. And so now here we are in ’14 and it’s hard for me to look out to 2019 and ’20, and of course it’s going to be a lot of uncertainty and unpredictability in the markets and in the economy but at the end of the day, you know, what I have is something that everybody needs, and I think for us we’re in a fortune spot that it’s not a matter of will we grow and be successful, it’s like how much will we grow and how fast. So in looking forward in the next five years we’re at a very interesting inflection point where I feel like the momentum that we have, the infrastructure, and the experience that we have in place that’s internal, with the hiring of the external sales forces and increasing our relationships out there in the market, plus let’s not forget that again what we have is something that everybody needs and I think more awareness is being put on that issue of retirement savings. Then I see us really growing strong, I kind of put out a goal internally for our company that says we want to hit a hundred million in revenue in five years and that sounds like a lot to go on, I just thought what you said earlier, how do you go from a million to 12 million, like how do you do that? Well going from 12 million to 100 million how do you do that? I have a lot more clarity and certainty about how we can do that now and it doesn’t scare me and I think that we’re going to be on a pretty good trajectory to hit that.
Success Harbor: I hope you hit it and thank you very much Chad for coming on the Success Harbor to share your story and I hope you come back in maybe next year, or in a few years, and report how your business is doing. I really appreciate your insight.
Chad Parks: Yeah, absolutely, George, thank you for the opportunity and congratulations on what you’re doing.
Success Harbor: And how can people find out more about the services that you offer or maybe connect with you.
Chad Parks: Sure, theonline401k.com is our website and me just search my name Chad Parks on 401k, I’m pretty much full up the first page of Google with you know LinkedIn and many other ways to get to me so I’m happy to talk to anybody further if they’d like to.
Success Harbor: Thank you very much Chad and everybody check out the online 401k and I wish you much success going forward in the next five years.
Chad Parks: Excellent, thanks George.
Success Harbor: Thank you.
Chad Parks: Bye.
Success Harbor: Bye.
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