Small Business Show Interview: Tim Cote from Commonwealth Foreign Exchange

The Small Business show, episode number 77 for Wednesday, July 27, 2016. Greetings, folks, and welcome to the Small Business show here at BusinessShow Co, the show by, for and about small business owners here in Durham, New Hampshire, I'm Dave Hamilton.

And in Lafayette, California, I'm Shannon Jean. How are you, Dave?

I am doing well, Shannon. How are you today?

I'm good. Good. I'm good. We're heating up out here, man. I'm trying to stay cool. Yeah, it's that time of the year.

Yeah, it's okay, though, because, you know, well, we have snow here the other time of the year, so it's okay. I don't mind the heat.

Yeah, yeah, yeah, yeah, yeah. That's okay. I don't mind. We're close to the pool, so that's all right with me. It's good. Leading our charmed life that we always talk about.

Yeah, yeah, absolutely. It's all good.

Yeah. And speaking of charmed life, we're joined today by a good friend of mine, Tim Cody from Commonwealth Foreign Exchange. How are you, Tim?

I'm great. How are you guys doing?

We're good, man, we're good.

Welcome to the charmed life, man.

The charmed life. There we go.

Yeah, we talk about that a lot in the perspective of business owners. You know, we always say you don't have any freedom, but what you have is tremendous flexibility in how you do things. And at least Dave and I do. I don't know about you, Tim, but we're going to. We're here to learn about, you know, your day and what you do. And thanks for joining us and hanging out with us for a little bit. Absolutely. So, hey, let's start off. Let's tell people.

What.

What does Commonwealth do? What's your. What products, services do you. Do you guys offer out there?

What, what. What is Commonwealth?

Yeah.

Well, we are a international payment processing company. And by international. It's not that we're international. We're geographically all over the place. We are. It is a foreign denominated payment company. So any. Any payments either in or out of the country or in or out of any country denominated in a foreign currency is. Is what we do. So, you know, essentially you've got customers from your small mom and pop antique dealers up to your multinationals that have payroll in foreign countries. Wineries. We probably have about 500 winery clients that nice. They purchase barrels.

Oh, gosh.

That's all done in euros, I was gonna say.

So as long as they're not dealing in Dollars, they can deal with you.

Exactly, exactly. And we have a, we have a, an online payment platform. And they go to the online system and log in, they get live rates, their beneficiaries and clients are already into the system and they log in, put the amount and the instructions of where they want the funds sent and a live populated rate comes up and extrapolates out to the amount that they owe in US Dollars. They hit the okay button and it's done.

That's awesome. So what's the difference in somebody saying, okay, I need to do this and I could just go to my bank and do this kind of thing and wire transfer and all this stuff? You guys are handling the exchange. I don't know anything about your business. Tell me exactly what that difference would be.

The difference is we actually have a lot of banks that deal with us. We've got about 25 to 30 banks, typically smaller banks that would prefer to deal with us rather than have their own foreign exchange department and get that all set up. That's a very expensive and just from a regulatory standpoint, it's a gosh darn nightmare.

Oh, I can imagine.

And just the aml, and you're making sure that you're sending to the right place. You're not sending to Al Qaeda or ISIS or any of the bad drug people or any of that stuff, so.

Oh yeah, that's so weird.

Have you run into that over the years where people have tried to launder money through the, through the, through your service? I mean, you brought it up.

Boy, did I open Pandora.

That's right.

Hi, I'm Dave.

Yeah, that was a silly direction to go, wasn't it?

We talked about those segues.

Right, we, you know what, believe it or not, we have many, many years ago, we put in place certain criteria and screens that scan every payment that goes through. So if there's a payment, there's a, there's a list, an OFAC list, the Office of Foreign Asset Control. And they pretty much dictate where and who you can send money to or not to send money to. So every one of the payments and every one of our clients is already pre screened. So when the payments come in through the system, if a client is sending to a bad guy, Shannon Jean as an example. Yeah, that gets screened and caught and kicked out. So we are, yeah, we've, we've caught on to that whole thing. But we, we have, we have been scammed in the past, that I'm sure.

I mean. Yeah, it makes, makes sense.

It sounds like compliance has got to be just a massive part of your business.

It is.

Yeah.

And it. It gets more and more every year. And we are licensed and regulated as a federal entity and essentially by banking. State banking departments in every state that we do business in.

Man, you need to listen to the show where I rant about the banks. It's all very intimidating to me.

No, you need to have me on that show.

Yeah, yeah. Okay, so now we know what you do.

Let's go back to the start.

I just have a question about the business itself. Like, do you. So people using your business are able to get potentially a better rate because you're getting these interchange rates that some people can't touch. Right. And so you mark that up a little bit so that you can make some money and is that right?

Yeah, that's the. A significant piece of the picture is the rate savings that you get with us versus a bank.

Okay, got it.

Typically, banks charge in the 2 to 3 to 4% range.

Right.

We come in anywhere from 50 to 70 basis points, and we can go much lower depending on the client and the volume and the payments themselves.

You're handling what I said before, just so folks get it right, isn't quite true. If I'm going to use your system, I could be dealing in dollars. I just have to be dealing with someone that's not. And you're handling that interchange for me.

You know what? Yeah, that's exactly right. But we do do dollar payments for people.

Sure.

For corporates, again, this is all. It's all companies and we want to be a one stop payment processing shop. So if they have, you know, 100 payments that need to go out in US dollars, we'll do those too.

Sure, of course. Okay. All right. I just wanted to get that. That clarity in there because it seemed like I might have pigeonholed you in a way that wasn't accurate, so. Yeah, good.

No, it's great. I finally understand it after talking to you for about a. On the side of the lacrosse. Our kids play lacrosse together. Now I get it. I can sound far more intelligent than I actually am, so that's cool. So, okay, Tim, so tell me, how did you start this thing that is now, you know, ginormous and wildly successful? What was the impetus that, you know, you had? It's like, hey, we could go out and do this. So how'd you get started?

Well, I started in foreign exchange right out of college with one of the large banks.

Okay.

Probably shouldn't say who it is, but started with them. And I Did that for a bit and had a barbecue with my roommate at the time. This was, God, 30 years ago. We're in the backyard drinking a few too many beers and, you know, we just started talking about what I did and what he did and just went down the path of we should start a business together. And, you know, I always had a bug to start my own business. And this was a good potential way of getting into it. And, you know, he wanted to do something. I wanted to break away from the bank. And I thought that I could do a better job just from a, you know, from a small business standpoint to be able to really cater to these, to the small business. And I wasn't even thinking about larger businesses at the time. And I had a decent book of business at the previous bank and the clients liked me and I figured that I could bring some over and then get going. So, long story longer. We started a company called Continental Foreign Exchange. And I started, I was buying to get it started, just to get some quick, quick money in the door. I was buying currency from casinos.

Ah, that's awesome.

So I would go up there and really myself and my partner. It was the worst prepared company capital. We had no capital at all.

That was going to be one of my questions.

Yeah, no, this was the. It was just the worst thing we'd ever done. And literally, you know, when you're walking in and you're getting cash from the casinos, they're giving you 50, 75,000, $100,000 in actual Canadian cash, and you're giving them a check that there's nothing behind that check.

So you have to act fast.

I would pick the cash up on a Friday.

Banks are closed. This is good, right?

Banks are closed. I got a little bit of time and I would talk about playing the.

Float back in the day.

You have no idea. Ye would overnight the check down to Southern or the cash literally just pop it in a FedEx envelope.

That's awesome.

And send it down to a. A big bank down in Southern California. And they would clear it and put it in my. Put the check in my. Or the funds in my account on Monday. So that kind of, this is just.

In time operation here.

That's awesome though. That's great. Yeah. And it was just you, just you two guys at that time.

It was just us two at the time. And a couple some few months, six months, a year went by and, you know, we started to get it built up a bit and you know, then, then we realized, oh my God. One of our trading groups that we dealt with said you, you guys, you need to be regulated or we have to cut you guys off.

Sure, sure.

We're looking at each other like what do you mean regulated?

Yeah.

So we ended up moving our little book of business in with this other group who was only a retail cash outlet, but they happen to have been licensed in a state banking license in the state of California. So we worked over there and had our book of business and ran our book of business over there for six or seven years and it started kind of taking over the, it became one of the more profitable parts of that, that business. So at the time, operationally we were growing out of what they were able to provide us and, and really needed to move on. And so I got myself and my, what would be our four partners together and started doing the workings of creating Commonwealth Foreign Exchange. And I literally would just go over across the street to the Mandarin Oriental Hotel and just sit there and scratch it out on a napkin. How we're going to do this thing and which state banking licenses we needed to go. We wanted to do bi coastal, we wanted California and we wanted a Massachusetts set up and kind of attack the country from, from both coasts. Yeah.

The outside in.

Yeah, that's great.

Yet another. I can't tell you how many stories we've had on here where the idea for the business comes from. Two people sitting together drinking too many beers.

That is, that's awesome.

Yeah. And there's a lesson in that for people. It's not go out and just drink beer all the time, but it is, you know, pay attention, your gut tells you things. And, and sometimes, you know, having a couple of beers opens up your gut a little bit, hopefully in the right way. Yeah, sure. Yeah. But that, you know, the, you know, I think my, my programmer friends probably have a, have a phrase that probably encapsulates this well, which is code drunk, debug, sober. So there's, right, so there's, you know, let the ideas flow, then take a sober look at them. And that's actually a really bad idea. You know, but sometimes there's a, there's a good one in there.

Yeah, no, I'm with you.

Oh yeah. And the key is, I mean we all can sit around and throw around ideas, especially after a few beers, but it's that follow up execution, it's that the willingness like to take that risk of dropping cash in, overnighting it, those kinds of things.

I'm pretty sure the regulatory agencies told you you couldn't overnight cash with FedEx anymore.

Yeah. They. We can't. You know, that stuff is out.

Yeah, that's out. No, yeah, yeah, I figured. Yeah, but you gotta start somewhere and you gotta be willing.

Exactly. Yeah, exactly.

You didn't have as much to lose and you're. You're trying to get yourself going and, you know, you're just doing it. You don't have the luxury or maybe the hindrance of sitting around talking about it. You just gotta take action. Yeah, yeah.

And we just needed a way to get the thing funded and to keep us afloat so we could pay for gas so we can get to the office.

Yeah, yeah, no, that, that's true. That's good. So when, when you guys started Commonwealth. Yeah. Continental even. I mean, when did you first start to think, hey, we. We do have a viable business here. This is work, you know, working, you know, what kind of have to go back.

You know, I, I think the. When we, when we transitioned and moved over with the other group that, you know, we did that for seven or so years. I think when, when things. I think when we, when we really hit Commonwealth, when we got Commonwealth up and running, you know, broke away from the other firm. We had actually kind of a side story here. The, the firm that we broke away from, obviously they didn't like that we left, so there was a lawsuit that, that ended up happening.

Sure.

The kind of. The interesting little story here, side note story is that the, the bartender at the, at the place that I used to go across and scribble on the napkin at the, at the Mandarin, he ended up being our first employee.

That's great.

And he. Unbelievable. I mean, when I was scratching, doing my little note, scratching on the, on the napkins there. This is before we even started it. He calls me up at work and says, tim, you know, I just kind of eavesdropping last night and, you know, I'd like to just see if there's an opportunity if something comes up in the future. And I said, yeah, you know, hey, we are. This is a long stretch. I don't know if this thing is going to.

We're not sure we need a corporate bartender yet.

I just don't think, you know, this is. We're a long way away. We need a banking license and, you know, we really. We have to keep this thing under lock and key. Nobody can talk about it until we're ready to really kind of make the move or, you know, some things could hit the fan. And so he says, okay, that's fine, but I just, you know, I just would like to Meet you and just have a chat about it. And I said, yeah, no problem. Next time I come in, we'll just, we'll talk about it. And he said, no, no, no, I don't want to. Don't want to meet you here. I want you to know that I'm not just some guy schlepping cocktails. And so he puts a place and a meeting place and we go and we meet at another restaurant. And, you know, I walk in the door and he's got the whole blue suit going and the white shirt and the yellow power tie. This to him was an interview. And he was dead serious. He wanted to really kind of make something of this. And as. As time would have it, it took about 13 months from that point for us to get our license, our state banking license, and go through with everything. And this guy called me every month for 13 months. And on day one, when we were ready to do the walk of shame down the street with our. With our Rolodex and chairs, he was there on day one.

Wow, that's awesome.

Yeah, yeah, that story.

Always listen to your bartender.

Yeah, always a bartender.

Well, it's that perseverance, man. Impressive.

Yeah, but I just wanted to segue him in there because as a bartender, when the other firm was doing their going after us, they would go over to the Mandarin Oriental and sit at the bar and strategize about how they're gonna.

Yeah, there's no NDA with your bartender, man.

Yeah, yeah, there really is. That is great.

Yeah, that's a great story. But he had, from a. From a success story standpoint, he is our number one sales guy and has been for many years.

He's still with you?

He is still with us.

Wow, that's impressive, man.

19 years.

That's great.

He's. He's the top dog around here.

That's awesome. Well, yeah, that's a great story. That's very, very cool.

Yeah, yeah. Don't. Yeah, don't, don't. Don't just judge a book by the COVID you know?

No, yeah, sure.

Yeah, no, that's really good.

That's awesome.

Yeah, so that's good. So let's talk about. We always like talking about mistakes on here and, you know, because we've made so many and, you know, failure is such a big part of eventually succeeding. Yeah. You know, what do you think? Other than sending the cash overnight down to la, what do you think? I've done that too, but I got.

A friend who's a FedEx pilot, so he's Going to love this.

Yeah, yeah.

Ripping these things over, it's always that way.

Yeah. It's like, okay, I'm not going to sleep until tomorrow morning. Right.

Yeah, I get it, I hear it.

What do you think? What mistake? You know, we always say, what's the best mistake you've ever made? You know, what, what mistake taught you the most? You know, during this process.

God, there's so many.

Oh, well, I figured.

But there we are. In our business, you really need to be ticked and tied on your account setup, you know. You know, we need to know who we're setting up and you need to know all aspects of their business. You need to know their financials. You need to know that, yes, they're an importer and they're bringing in product from this country and you need to know the product and services that they're providing. Back in the, you know, the formative stages or the early days, we, we certainly did not have an account opening group. We had, you know, basically the five of us doing all the behind the scenes stuff and pretending like we knew that we were doing the right thing and, you know, not having an account setup group in place, we, we got hit with a, a Nigerian scam.

Oh.

And it's not your typical Nigerian email scam with, you know, the dots on the lettering and.

Right.

The stuff that's incredibly easy to pick these guys. Actually there was somewhere, I think about 100 people supposedly involved in this particular scam. And what they did is they infiltrate a large bank and they figure out who's got money and what type of business and then they basically steal the identity and open up accounts with somebody like us and then have us send the funds off to Never Never Land. And so what we ended up doing is we opened up this account based on our little short, little checklist of. Yeah, okay, we know who they are, we know that they deal with XYZ bank, but we certainly didn't go through the rigam and roll that we do now. We're just a dramatically different company on that, on that front. And we ended up getting hit. It was about three quarters of a million dollars in our second year of business.

Oh, that's.

Which to us it was a absolute nightmare.

Yeah.

And you know, it's one of these things where they book the transaction and they tell us where to send it. And it was, you know, we're sending pounds to the UK and the account looked like a normal account. Didn't look like anything bad behind the scenes. And so the next day we got a Call from this woman who is. She's a bank representative, and she says that, you know, I'm sitting in front of blah, blah, blah, who owns the account that you just debited for three quarters of a million dollars. And I said, what?

Ouch.

So, yeah, we sent that off. Sent the funds off. And when the funds got to the UK Account, the second they got there, they were splintered into six different directions. Six other wires, and then they were splintered again from there in 12 directions.

Wow.

So it was a.

They knew what they were doing.

Oh, yeah. Yeah.

It was completely set up. So we immediately had to return funds. And, you know, you can imagine in your first couple years of business, we don't have the funds to return, but you. You got to make do on it. You figure it out.

Right.

And so we were able to get the funds back to her immediately. And then from there, you know, that's when you. You really start to kind of figure out, okay, get this thing funded, get it paid for, get your butt back, and figure out a system where this kind of crap doesn't happen again.

That's right.

Yeah. Because that. That could have. I mean, in many cases, I'm sure it has a situation like that could just. Could bury the company and. Oh, yeah. Not be able to. To, you know, recover from that.

Oh, we were.

Yeah.

Yeah, I. I was able to call on a friend who, you know, wired me in about five minutes.

Wow.

You know, funds. Just to help me out. He had just sold his company, and. Very entrepreneurial guy. And he just said, yep, no problem. I got it.

Wow.

And. And helped us out. We were lucky. We were able to actually track those funds, even though they'd splintered in all different directions. And we were able to get all of them back with the exception of about 200,000.

Oh, wow, that's great.

And then, you know, then we go through the process of getting the rest from the insurance company.

Sure.

And that nightmare.

I'm sure that was fun.

Yeah, that was.

They're always so helpful. Yeah. Wow, that's great. And then I imagine right after that is when your new account group got set up.

Yeah, our new account group. You know, getting a compliance officer, getting that stuff all set up was. It was crucial. We just had to get that stuff put in place. And then, you know, you start to set up your. Your online platform. And, you know, our first priority now is to make sure that we're doing things ticked and tied and. Right. And there's no debiting of accounts until it is so thoroughly Vetted and processed.

And I think that especially with newer businesses, you're so hungry for business and excited and you're just jacked up and you want to take every deal that comes along because you're just getting going. That. I think that's a very easy. We've had stuff like that happen to us and, you know, with. Certainly not at that scale, but things that make a big impact.

Yeah, yeah, it happens.

It's.

Yeah, yeah, it will. There's a lesson there. We haven't ever talked about this on the show, but yeah, you're going to get screwed by not. Not unintentionally. You know, someone is going to target you and they're going to win. Oh, yeah, yeah, yeah, yeah. That's great.

That's a great. That's a, That's a great story.

Yeah. Particularly now in this, you know, this environment right now with email scam.

Yeah.

There's so many things going on and people's emails are getting hacked. Yeah. You just, you have to be so cautious and just. They can direct somebody to move money and it's gone.

Yeah, that's right.

Yeah.

We always. I still talk to people about, hey, you know, don't ever click any links in those emails. I mean, you know, they'll. Your bank or, you know, whatever financial institution is not going to send you an email that says, click here.

Yeah, yeah, give me all your info.

Yeah, they're going to say, go log into your account and then, you know, when it's secure and. But it's just, it's so, it's. It's everywhere and it's constant, you know.

Yeah.

And so they get it. They must, you know, still get enough people that are clicking on those links that. To make it worthwhile for them.

Yeah, yeah, yeah. It's. It's something that, the whole scam thing, the. Actually, the Secret Service kind of helped us through that whole thing with the Nigerian. They actually had a department down in. And this is. I don't know whether they still do, but they had a department down in Southern California called the International Department, and it was 100% dedicated to Nigerian scams.

Wow.

Wow, that's awesome.

Yeah, it's pretty fascinating stuff. And to go through the process because we. We actually tried to do a sting.

Oh, no kidding.

Yeah.

So, yeah, because the, the scammers were still calling us. Oh, they still wanted to do transactions.

Oh, yeah, of course.

Now, the first one went so well for them.

Yeah, I was just gonna say they did. Yeah, exactly.

Let's try it again.

And that. And that's, you know, if you're a victim of fraud like this, you know, in. In, you know, your business out there, they're listeners. I mean, that's. You definitely have to reach out to the.

Those.

Those groups, those organizations, because they will help you. I mean, we had. Oh, yeah, you know, fake cashiers, checks for orders, and, you know, it was like 25, I think about $25,000. And they were all over it. I mean, we got calls from the Secret Service, and they're like, oh, we're gonna send an agent out. And, you know, like, you think like, well, this. These guys are for real. You know, they come out and they really take it seriously, and they're. They're there to help you.

Yeah, yeah.

Which is great. Yeah. No, it's. They're serious guys.

Yeah.

And ladies.

Yes, that's right. So, hey, you know, you've been around for 30 years. You know, we always talk about different measurements of success. Obviously, financials, very easy, you know, to measure, but, you know, what's the yardstick, you know, for you and your company, maybe your partners, you know, that you really measure beyond monetary rewards. That keeps you moving forward. You know, what's your measure of success?

You know what? It's. Employees. We have so many employees. Our retention level, I think, relative to the industry is pretty unheard of for us to have. Our first employee was a bartender, and he stayed with us for so many years. Right now, that's just one example we could go through. And I can give you 15, 20 other examples of people that have been with us for years and years.

That's awesome.

And they're just. They're great people. They do a terrific job. And they're still. It's. It's fascinating to me that they. They still come to work with an enthusiasm of how they're looking for, you know, how do we better the company? What can we do next? And that's a. That's a great level of success. And it's all pushing to see our. Our volumes and our, you know, the. The amount of money that. That flows through our little business. We want to see higher volumes every year. So that's, you know, the true gauge is to see the actual dollars and cents flowing through. Sure. Which is. It's great. Just shoot for more volume, volume, volume, volume, volume.

And, you know, when you're building that culture, it's. You guys are either, you know, have set it up really well, or you're just not there very much. You don't want that. Well, you got One of the other.

I think you hit the nail on there.

That's great.

You know, and that's always the running joke around here among the partners is every time we go on vacation, we seem to do so much better.

Of course, it happens in my business, too. I go away and sales go through the roof. I joke with them about it. I'm like, I'm gonna plan another trip. They're like, yeah, sounds good.

Yeah, that's true.

They feel more empowered, you know, they have to make the decisions. And. Yeah, you know, we.

Yeah, yeah.

And we always. I mean, I tell everybody, hey, make the decision. I mean, even if it's, you know, the wrong one, you know, we. We can critique it and discuss it, but. Exactly. And the. The not making the decisions is always the, you know, the worst thing to do.

Yep.

In my opinion.

So decision to do nothing is.

Yeah, it's a decision.

That's right.

Yeah.

And it's usually the worst one.

Yeah, yeah, yeah, for sure.

So it is great stuff, man. I love talking to you about this. And we always have a question, you know, looking back, not to say you're an old man, but, like, I call.

You all the time, I feel like an old man.

Yeah, you and me both. But, you know, if you could tell yourself something when you were just getting started, you know, if you go back and say, look, you know, what bit of advice would you want to give yourself when you were just getting started with Continental or rolling out with, you know, Commonwealth? What would you tell yourself?

Take your time. Be detailed in your setup. Get the right people around you in all aspects of things that you want to have considered. If you need an accountant, make sure you have a good accountant. If you, you know, if you need great sales, don't slack on your sales. Get the best possible sales guys you can possibly get, even if they're a bartender. Yeah, you know.

Nice. That's awesome.

It's just the key to the whole thing, I think, is just getting the right people and just nailing out your operational duties and having those things pegged by your people.

That's good advice, man. That's great. So how do people learn more about Commonwealth? What's the best way to learn about the company?

Go to the website. Go to the website. And we have another. Our new website is going to be rolling out probably in the next three or four months. But Commonwealth Foreign Exchange. Www.comfex.com check us out.

Yeah, it's awesome.

And Facebook, we have. Follow us on Facebook. We've got an analyst. That guy's fantastic. And he's on Bloomberg and in the Wall Street Journal pretty much daily. So it's all good stuff.

Yeah, that's great. Well, we really appreciate you, you know, spending some time with us today and, you know, talking about your experience. It's good stuff, everybody. You know, we love it.

Absolutely. Happy to do it. It was a great time. Great to, great to chat with you guys.

Yeah, thanks for coming. This was, it was, yeah, as always, very enlightening. So, yeah, for sure.

If you have questions for Tim, you know, feedbackusinessshow, co, we'll pass it on. Or you can send a text to 401-467-24249. Also leave us a voicemail there. Thanks, everybody.

Thanks, guys. Thanks, Shannon. Thanks, Dave.

Have a great week. Yeah, of course.

Thanks, everyone. Bye.