When “Fudging the Data” Goes Too Far

Yo,

The new poster child

Charlie Javice, founder of Frank, is the perfect example of this. By having her own company, she was the boss, she didn’t have the checks and balances.  She was able to “fudge the numbers” long enough to be acquired by JPMorgan for $175 million and make the Forbes 30 Under 30 list.

But it was all fake.

Now she joins the list of other fraudsters I’ve written about here after she was arrested this week for defrauding JPMorgan out that $175 million. She was set to make $45 million from the acquisition.

The NYC attorney states it well “This arrest should warn entrepreneurs who lie to advance their businesses that their lies will catch up to them, and this Office will hold them accountable for putting their greed above the law.”

In case you weren’t counting, that’s three people from previous Forbes 30 Under 30 lists that have been arrested or charged in the past year.

Lucky for me, I stopped cheating back in chemistry, so Dr. ­­­Wolf, catch me if you can.

What’s Frank and what happened?

Javice started Frank after graduating from Penn. Frank was a platform that streamlined the financial aid process and made it easier for students to apply for government assistance.

To me, that’s a decent idea. Right now, the process runs primarily through completion of government documents, is rather confusing, and is completely disjointed, so becoming a disruptor makes sense. The market is huge and regenerates itself, and from what I could find they seemed to be the only one in the space.

Where they ran into problems was with user acquisition.

When they sold to JPMorgan, they claimed to have over 4.25 million users. When JPMorgan emailed 400,000 of them, 70% of those emails bounced back. It turns out that over 99% of the “accounts” they claimed to have been fake, and the app only had about 300,000 actual users.

Which makes you wonder, what made her do that? Was it trying to get on Forbes, was it the idea of getting $45 million dollars? Not sure, but she’ll have plenty of time to think about it in jail.

Also, how does one of the biggest banks not catch this in their due diligence process? 

People buy people

Companies love to buy customers; we see it time and time again throughout history. In this case, JPMorgan wasn’t acquiring Frank because of their groundbreaking tech, they wanted access to the 4.25 million users.

For JPMorgan, sure the 4.25 million users would’ve gotten their foot into a new market, but it would’ve also allowed them to employ their marketing engine to retain those users, turn them into real customers, open new/additional accounts, generating millions of dollars down the road.

The users were what they really wanted, but that happened to be the one weakness of Frank’s business.

The other, slightly better poster child

And if you’re thinking “if the value is in the audience, and people buy people, then give me a good example.”

Two words. One man. Ryan Reynolds (he can do nothing wrong).

Reynolds invested in Mint Mobile, getting 25% of the company and becoming the face of the business. Turn on a TV for more than a minute and you’ll see him in a commercial for Mint.

Mint just sold for $1.35 billion to T-Mobile, and the actor is set to make over $300 million from it. Mint had 3 million users at the time of sale.

The big difference between Ryan Reynolds and Charlie Javice? His users were real.

That’s right, he exited for 10x what Javice did with fewer customers because they were legit (and phone customers are worth slightly more).

How? Well, it’s just another example of how companies pay for customers. Mint Mobile isn’t doing anything novel. In fact, they use the same infrastructure and telecom network as any other company, but this was a chance for T-Mobile to acquire customers of a new demographic, employ their marketing engine, and retain them as customers to make millions down the road.

Instead of sitting behind bars, Reynolds will be sitting, well…. anywhere he wants to.

Starter Story

 

I give you all of the ideas, but you want to hear about the people who go out and build them check out Starter Story. They highlight to most interesting startup stories of people making anywhere from $1,000/month to $1 million/month. The best part? They’re written by the founders. Go check them out!.  #ad

from, matt