Richard Palarea | Building a Real Estate Appraisal Company and Transitioning to a Cost Reduction Company for Telecoms and the Healthcare Industry

John Corcoran 11:19

in that generous in his

Richard Palarea 11:20

mind, that was very generous, I guess. I guess maybe the the elderly females that were there were making less, but it was far less than when I was making Phaselis. I had, you know, I was like, $150,000 a year in cash, doing appraisals. But it took me on this different journey. And it was a journey of faith. I learned kind of my purpose, I was very humbled and all that going from kind of where I was to then working for my father. And as a precious time, John, and not a lot of people get to spend time with their dad, especially in the work environment, before they pass away. And my dad passed away only a few years later. So it was a very sweet, precious time for me, where I got to spend every day with him working in his business and with with him in his business and having lunch every day. And I’ll always cherish that.

John Corcoran 12:07

Yeah. What was it like, you know, coming into a business that was owned by your father, and the father says, the existing staff, here’s my son, he’s going to make this massive change from typewriters to computers

Richard Palarea 12:19

  1. It was crazy. Because, you know, if you think think about it, as a kid, I grew up going to that office, I’d either go there for checkups, or I go there to hang out with my dad in the summer, we just always would just visit so that was family, those people were family to us. We had them over for barbecues and whatnot. I knew their kids really well. So it was a little strange. But at the same time, I think they always saw this coming. And and it got to the point, my dad was doing so much stuff for the government taking care of police officers, fire department and things that he had to get on computerized billing, that was the only way he was gonna get paid. So he had to make the transition. I think they knew it was coming. But it was it was almost a wholesale change overnight. He let him go, kept the nurses let the let the office staff go. And then boom, it was just me. And I didn’t really know anything about his business. So I had to learn, you know how to do the Medicare billing and the coding and make the bank deposits. And it was kind of the first a lot introduction to the operations part that I was already doing in the appraisal company. But it was somebody else’s business. And I felt like the stakes were high. Because it was not only just medical practice, but as my dad like I didn’t want I didn’t want to do a poor job there. 

John Corcoran 13:36

So now a lot of these small family practices where there’s one, but I don’t know how many doctors he had, but just himself. Yeah. So what happened? Were you still there when he passed away? What happened to the business when he passed away?

Richard Palarea 13:49

Really sad story, John, so so he suffered a number of very small strokes over a long period of time. And I think it was happening for a while before my mother and I and my siblings knew what was happening. But one day, he said to me, we were we were at home, it was a weekend. And he said, have you seen my thing? And I said, what do you what do you what do you mean what thing he goes, you know, the thing you hold in your hand? What are you talking about? Because the thing you pull through your hair to make it look better? Your comb? It goes, yeah, if you see my comb, and I ran and told my mom, I said just I’ve never seen him like this. He’s very articulate, very smart. Duck, typical doctor, right? great problem solver. And, and it turns out that he had had these number of small ischemic attacks that are starting to kind of like chip away at his ability to connect what he already knew in his head, he could see the comb. He couldn’t connect that thought to his mouth, as very frustrating for him as a doctor. And I watched these happen one day, we would always close the office at noon so we could have lunch. So we close the office from noon to one. Nobody would come in. We would have lunch sometimes together sometimes apart. And he was having lunch in in his office. I was Doing something on the computer having lunch. And I heard heard a thud. That That’s odd. I got up out of my desk, I went down the hallway and I saw him laying in the hallway, white white coat on, just laying unconscious in the hallway. I called 911. He revives before the paramedics showed up. But he got up and got on his feet and told a very cogent story to the to the paramedics. I just had a transient ischemic attack, I’m fine. It’s happened before. And he was really good at that. He’s kind of shooting away everybody from his problem, because he could talk the talk. But when I witnessed it, John, I said, Dad, we’re in a situation now that’s dire. You can’t be practicing medicine. I knew at least that much in my young 20s. This is a huge risk, we have to do something. And he really resisted closing the office because I think he knew in his mind, he was defined by that job. He was a doctor. And yes, he was a husband and a father, but he was a doctor. And to in that chapter in his life meant that he really didn’t have a lot of meaning. And that’s why that journey for me was so important where I found meaning at that time, too. So unfortunately, you know, when we he finally agreed to close the office, it was only a few years before he just deteriorated so quickly without purpose in his life, and and succumb to those, those strokes. And eventually there was a heart attack. So that’s what

John Corcoran 16:23

happened. Yeah. I want to ask about April 1992. end of April 1982 it proclaimed to be precise, okay. That’s the date. The Rodney King riots happened in Los Angeles, you’re in Los Angeles. You haven’t met your wife let yet but by coincidence, she’s on a plane on her way to Los Angeles. With smoke rising above LA. She’s on a journey to try to become an actress. You’re still you know, at this point, I think you are running a real estate business,

Richard Palarea 16:59

right? I was appraising real estate. Yeah. Right.

John Corcoran 17:02

And you actually were driving in the area where the the riots broke out, take him back to what that was like.

Richard Palarea 17:09

Florida’s enormity was the Flashpoint where they yanked Rodney King out of the truck, and I was a couple blocks away from there. One of my clients had sent me up there to do a couple of appraisals in the morning, and got out of there and was headed south on the highway on the freeway, as we call it in California, was on the freeway coming back home, to write up those reports. And I was listening on the radio to the news. And they just said some some general unrest. No, they didn’t really say what it was. And as I got closer home, the story was developing that that it was they were trying to figure out, like what created this, but it started to become was proliferating from the intersection out toward the general area. So there were fires that had broken out there were windows being smashed, or mobs starting to amass. And all I remember was, I had one of the first cell phones ever in cars back then the kind of early this big that was like Trunk Mounted, and you put it on a strap. And I called my mom and I said, Are you watching the news? She said, Yes, here’s what’s happening. And she said, this reminds me of when you were born. In 1965, we had, we had riots in watts in LA. And they started to come south, and I was so scared that something was going to happen, they were going to finally eventually make their way toward South LA and Long Beach where I was born. Whereas from that, that I would lose you as a baby. As a she was. She’s like freaking me out now. And I’m like, What’s going to happen? So I finally get home. And yeah, it was, as you know, the rest is history, as they say. So that was a terrifying time. I mean, nobody really knew what was gonna happen. And it was a few a few months later, actually, I did meet Juliette. And she told me the other day she arrived. Yeah,

John Corcoran 18:58

that’s crazy. Yeah. And she, she actually was how you got into kind of the line of work you’re in now. So helping other companies to reduce their costs. So she worked in telecom, and she was the number one salesperson for MCI a company, big, massive telecommunication company at the time. Tell us about how she got into that area of helping other companies to reduce their costs.

Richard Palarea 19:24

So as you said she was she was selling long distance lines T ones at the time before we had fiber right and I kid her to this day, I’ll say Juliet, what’s the T one she’s like, don’t ask me the question. I can’t answer it for you know that. But she’s a great phenomenal salesperson. She She did really well in the Philly market. They transfer her to LA. She thought you know what, I’ll go to LA because I want to become an actress. Anyway, that’s what I really want to do. And as you mentioned, there was a visual of the plane landing at LAX but smoke coming up from from the floor of the city. And she tells a story about how her had called her and said like, what are you doing? Are you want to come home this this can’t be good. So she she was in telecom for a while the whistleblower situation happened at MCI, which took that company down, really good company, but unfortunate situation. And from that, she had a lot of knowledge about how the cost side of this worked. And she went to go work for somebody who was doing telecom cost reduction, and she would go out and meet with CFOs. And say, I’ll help you reduce your telecom expenses. And I’ll only take a portion of what I save you as my fee. And she was doing that for a couple of years. And she wasn’t making a ton of money. But the person that she worked with was making a ton of money. And they decided to try to kind of cut her commission. And I remember going, I left my my dad’s medical practice to go pick her up for lunch one day, she worked right down the street. And and I got to the office, and I knocked on the door, nobody answered. So I opened the door, and I walked in, and they were in a private meeting in the conference room, I just heard a lot of yelling. And I thought, Wow, I’m not going to interrupt this. But you know what, if I can get her out of here, we can start our own version of this, we should do it. And I left her a little handwritten note, I put it on her windshield. And I said, Don’t worry, everything’s gonna be fine. We’re gonna do this without these jerks. And she got home that night in tears. It was it was a really rough day. And the next week, we started PA and Associates, which is doing telecom cost reduction, and competed against that company did better than that company and added other services, including logistics, spend management and parcel cost reduction. So she would go out and sell all day long, which is what she was really good at, I had a full time job doing something else, I’d come home, and I deliver on everything she sold. I do all the back office work, the billing, the analysis, the negotiations, against the telecom companies, and shipping copies the marketing, and kind of kept the business operations going. So it was like a 24/7 thing she worked in today. I work in the night. And we made that work, because that was the business I was running when I started Kermit, actually. So

John Corcoran 22:07

what’s kind of interesting to me is that, from the story you told about being a kid and kind of hustling and doing sales as a kid, you strike me as someone who’s good at sales. And yet you took the role of doing running the back office, a lot of times people have different types of personalities, they don’t tend to do well in both of those types of roles. So how did you reconcile those two? How do you manage to be you know, someone who naturally is inclined towards sales, which is what I kind of get from you, and also manage the back office?

Richard Palarea 22:41

Yeah, it’s interesting, you’re getting the sales vibe, because that’s, that’s something that I I’ve really wanted to kind of perfect and be better at. It doesn’t come naturally. For me, I if I get very passionate about something, I can explain something to some somebody and kind of take them on that emotional journey. And maybe they end up buying. But I’m, I’m more of an operations person. I like the details of things, I can see how things fit together to solve problems, I can spend my entire day in a spreadsheet, that doesn’t bother me, and making sure the formulas are connected and take care figure that out. And that’s good. So I think that’s really helped me build businesses along the way. Because even here at Kermit, with the exception of programming, the software I’ve done, and my partners have every other job in this business for the first couple of years, we had to so I’ve worn the marketing hat, the CFO hat HR had done it all. And after the 10 year journey, we started this 10 years ago, a fight feel like I’m finally free to be the CEO of the company, finally, have all the key people in all the right seats. And now go on to kind of the next journey and do more of that, you know, speaking, working with partners, finding investors, finding m&a partners and doing that kind of work. But it’s it’s not what truly comes naturally to me. The operations piece I can get lost in that for hours.

John Corcoran 23:59

Yeah. And I also want to ask about you for family reasons. You and your wife, your wife was from the East Coast, Washington, DC Baltimore area, you’re from Southern California, that’s 20 years ago, you decided that for family reasons, you need to move back to the East Coast. I think it’s fascinating that you have this business in Southern California, the expense reduction business, and you kept it open and you ran it from a distance, which was not something that people did 20 years ago is a lot harder to do then the tools are a lot more limited. So how did you manage to keep this business and not have to sell it or fold it when you moved all the way across the country?

Richard Palarea 24:34

Yeah, there was right no zoom back then. Email was actually expensive. Like to to actually have like service and broadband and all that stuff. And back that day, it was probably dial up still. Yeah, what what we ended up doing was we had somebody who worked at FedEx, who was a Senior Account Manager at fedex, who kind of became disillusioned with working for the big company and wanted to do something on her own. She was a Having her first child, at the same time, we were having our first child. So she was on this kind of journey. It’s very much parallel with Juliet, my wife, and I, they got to know each other. And she said, Look, if you want to, why don’t you come help us with this company, you can go, you can work down in Orange County, we’ll work up here in LA. And, you know, you just eat, we kill kind of a thing. And when we left, we put the business in her hands, and she was in charge of the West. And we started a brand new business out here in the East. And here’s one thing that I wasn’t prepared for. And those of your, your listeners and watchers who are from the market in Baltimore will understand what I mean by this. We call it small to more here. That’s what it’s called. And it’s it’s because, you know, we, we were here, one Christmas visiting my, my father in law and mother in law. At the time, we had a two year old child, and I flew out separately, Juliet picks me up from the airport, and I’m seeing all these stickers on the backs of cars. I said, why you guys have a lot of colleges here. She says Those aren’t colleges. Those are high schools. Those are all private high school. She said, Yeah, that’s how it works here. And that’s the network in in Maryland. So when we started the business in on the east, we would go into, you know, large financial offices like Legg Mason, for example. And we pitch our service and they say, this is great, yes, we’ll get you started right away. We just this one page contract, they’d sign it on the spot. And they’d say, okay, great. Now, where are you going to school? And I’d say that San Diego state right now not not college, high school, and like Woodrow Wilson, High School in Long Beach, California, like you how would you ever, you know, why would you care. And I started to see what this is all about. There’s a network here that’s very generational. Whereas if I go just an hour south to Washington, DC, it’s a lot more transient, like I’m used to in Southern California. So I mean, in Southern California, you were in a private school, because you had some kind of a need. Everybody went to public school. So we had to kind of learn that whole thing. When we came here and started the business here. And eventually, we were doing business nationally. And we didn’t have to have a distinction of East Coast west coast, the business grew to a point where it was just was what it was. And we went wherever we needed to

John Corcoran 27:17

cut to great point about those kinds of regional particularities. What did you do? Did you end up hiring around it, like hire some people that were local, and that were parts of those different private high school communities.

Richard Palarea 27:29

For the most part, in order to this is kind of a fascinating story that we’re still using today, here at Kermit, I didn’t have a Salesforce. In those days, everything was referral based. And I just paid a commission. And we formalized the program called at market connectors, and we just had people who, as their side hustle, they would just refer deals to us. And because we were doing Telecom, cost reduction, and shipping cost reduction, we would find telecom reps who didn’t want us coming into their territory and taking their margin. And we say, just introduce us to your clients. And we’ll only do the shipping part. And so brilliant, well, we put them under agreement. And they give us they bring us business all day long to protect their business and also to earn a commission. And so that became this kind of formal thing with the we launched an international sales force from they were 1099. We didn’t have to put them on on payroll. And so here at Kermit, we have we still are doing this market connectors thing where people who want to introduce us to hospitals, all we want is the introduction. We’ll take it from there, if it turns into revenue producing the ALT and we’ll cut them a commission for the for the period in which we’re sharing in that so that still works really well. We do have a Salesforce here, we just hired a Chief growth officer this year as part of our growth plan. And he has a national sales force, we still have this idea that anybody wants to bring us a deal will get a commission. So what

John Corcoran 28:47

would you say to someone who’s listening to this, about this? I love this market connectors idea. And I think lots of business owners. You know, love the idea of Oh, having a force of referral partners out there, I pay a commission to what would you say to someone listening to this, about how to structure something like that, how to set something like that up for their business?

Richard Palarea 29:11

I’d say this, John, it’s probably here’s what not to do. Basically, it’s not enough to just offer them a healthy commission, because most people already have some kind of thing they’re doing during the day for pay. So money tends to not be the thing that drives people. But if you give them some reason to do it, in the case of what I just explained, there was a protective reason they didn’t want us coming in and chopping their revenue. So they were doing that when we were doing the primarily so during the meltdown of telecom, and that eventually went away. We were just doing shipping in the latter years of that organization. I would actually go to fedex and say FedEx didn’t have the market share UPS did but FedEx in my territory or in my local area would say let me blueprint all the ups account center trying to get into. And you just give me a chance to bid. And that’s enough. So there’s a way if you can figure out what is the relationship, what does somebody want? This is the true sense of all negotiation, right? It’s not that one wins and one loses. That’s how we think about or to think about it incorrectly. Like it’s a compromise, it’s not a compromise. It’s that you need something, and I need something, how can we both get what we need inside of that same agreement. And that’s what truly what negotiation is about. So if you can find a reason to have a community, who is incentivized to bring you those leads, the money is just kind of extra for them. They really enjoy it, they enjoy the hunt, they enjoy working with somebody different, all those different aspects. Have a really good agreement. That makes sense. It shouldn’t be too hard to understand it should be fair, but it should set up some of the eventualities, you’re going to get into like, what if what if that referral person exhausts all their resources, but they’re very enterprising, and they have a bunch of friends who they can tap? Are they still getting commissioned? Or do the friends grant full commission like, we had to come up with all these different permutations to how this was going to work? So you got to kind of think a little bit ahead of the game about what could possibly happen, and try to bake that into your model.

John Corcoran 31:09

Yeah, that’s great. I want to ask you about you had a pivotal discussion. So two medical device representatives came in, had a conversation with you. And they basically told you a story that was the germination of Kermit, your current business, which is cost reduction into health care parameters, so you go on, more narrow, still cost reduction, but just in the healthcare world. What was that conversation? How did that happen?

Richard Palarea 31:38

So at the time, I was still running PA & Associates, which was the shipping cost reduction company. I had an attorney who is helping me for many years since since I moved to Baltimore, the first legal relationship I ever made. And he’d helped me with contracts and different disputes, and things like that. That attorney was also trying to help. My current business partners who came out of Zimmer Biomet Corporation, so big, global manufacturer of lots of different implantable medical devices, where they were salespeople for 10 years a piece in the in the Baltimore region. And they would stand in the operating room with a surgeon during the surgeries. And they were trying to set up they were disillusioned with this ceiling on their earnings. And May and having the distributorship they work for making all the all of the revenue, and also kind of being told how to keep things less than transparent, let’s just say in the hospital as far as the billing goes. And so if you want to add an extra screw to the bill, or an extra drill bit, nobody’s really going to know. And so they kind of knew what they could get away with. I think that kind of ate at them after a while. And so they decided together before they knew me, let’s leave Zimmer Biomet, let’s start a business with all the knowledge we have. Let’s go back to our clients. And let’s show them what we know and how we could save them money. And maybe if they let us help negotiate the cost of these implants, we can take a portion of the savings as our fee. And the attorney heard the story and said, Rich does exactly this very thing in a different industry. I think you guys just ought to go get together have coffee, whatever. So they came into my office, and that that was a story, John, they told me, We stand in the operating room with a surgeon, we don’t provide patient care, we’re only there to tender medical devices into the sterile field as they’re being called on. There’s no price tag on the box, the doctor doesn’t know what it costs. And when the doctor gets into a jam, for example, you know, the patient has osteoporosis, soft bone, and I need a longer implant that’s going to be more fixated into the bone. The job of the rep is to kind of bail them out and have trays and trays and trays have lots of options and implants for that one weird time when the surgeon says, Hey, John, I need something different. And John pulls it out and sends it into the sterile field. And that’s something different could cost multiples more, but nobody really knows. And so they’re peeling barcode stickers off the boxes, that are fixing those to a piece of paper. They’re tallying what’s been sold during the surgery and they’re writing down what they expect to be paid. They get a nurse to sign that in the operating room, then they leave the O R and they walk down the hallway to procurement. And they turn in that piece of paper to purchasing to a person and they’re expecting a purchase order to a person doesn’t have any clinical understanding of why the surgeon use what he or she did in surgery. So you have this. It’s being bought by the surgeon, but the hospital has to pay and neither party is collaborating or whether or not the bill is even correct. And it’s paper based. So when I kind of saw all of these different intersections, it was healthcare it was still paper based

John Corcoran 34:47

Did you ever find that even going back to what you did with your father’s practice?

Richard Palarea 34:51

Yeah, all of that was just a big was kind of a big journey, you know, rolling forward and, and I thought for a second like that. This is interesting, we could try to innovate here. But like, do I really want to start another business? Like, I could just forget we ever had this conversation and go go back to what I was doing and, and everything’s great. Or we could really not only start a business, but really change the whole paradigm of how this has been done this way for 50 years, could we really come in and innovate and really change everything. And now, look back on it. 10 years later, we we manage criminate manages 40% of the implant spent the transacts in the state of Maryland today. So I would say yes, we fundamentally have changed the way this works. And now we’re ready to scale. And I mentioned we have somebody in charge of sales, we have a full Salesforce, we have a full time marketing person, HR, finance, everything is ready to go. And we can now go tell the story outside of Maryland, for the rest of the nation. So that that’s the next journey of growth for us.

John Corcoran 35:49

That’s really cool. And reflecting back on it now. You know, 10 years in this is a very different type of business than the previous businesses that you had. You said the previous businesses are kind of like the lifestyle businesses much bigger challenges bigger team reflect back on on some of the bigger challenges that you’ve had and that you experienced. Now, I realize that’s not the best question to ask, because there’s probably a million different things. But you know, you could have stayed you could have not decided to go forward and take on this new challenge. So are you glad that you did it?

Richard Palarea 36:25

Um, I’m really glad I did it. I would say probably the biggest thing I know, it’s a broad question. But one thing really stands out for me. And that’s the fact that when you’re running your own thing, you’re it’s not really a company. And I don’t mean to disparage anybody who’s who is an entrepreneur, but a sole proprietor, because that’s a journey. And I went on that journey with the real estate appraisal company, I went on that journey with a couple other things I started, I was doing graphic design and building websites and things like that. I did it when I was doing the shipping cost reduction stuff. But the journey of a solopreneur when you make decisions in the business, and you have to live with that, it’s just you, you don’t have to worry about the team. Yes, I had a few employees here and there that helped me with different things. But it wasn’t we weren’t building a large organization, with HR concerns and everything else that goes with that. So it’s a lonely existence. And when we when you have a big win, who do you celebrate with high five myself, that’s about all you get to do. Right? So, so it’s totally different. But and I could equate it to, you know, I played team sports, and I played some solo stuff to it, where’s a better fit. I mean, they both have their advantages and their disadvantages. But the big leap coming over to Kermit was, was Jason and John, my two co founders and myself, just the three of us when we started. And it was all about subject matter expertise. They knew the implant space, they knew hospitals, I only knew hospitals, because my dad would take me on his rounds on Sunday morning, stick me in the doctors lounge or the box of doughnuts and a TV. And if I wasn’t kidnapped, come take me home at the end of the day, you know, so I didn’t really know of the hospital, I was comfortable in the environment, but they based in the operating room. So it’s a totally different thing. So taking that subject matter expertise, and me on the on the business and operations side, I was kind of like the journey of the shipping business, like they were doing all the SME work, I was doing kind of everything else. And the two were a really good pair. And it just, it just so happened that in the first year, we landed two hospitals, save them respectively, 3 million and 5 million each. Wow. And I said, I’m not being an effective CEO of either organization, I need to get rid of my baby, you know, my 25 year business. So I really didn’t think that was actually going to happen. When they came in. I’m like, let’s just try a joint venture, we’ll see what what kind of happens and, and I was fortunate and it worked out. And now we’re at 26 employees in like seven different states. And it’s more of a corporate structure. So it’s been an interesting journey to go from from there to here. The one thing I’ll say, though, that was it was tough. And it still is for me, I like to move at my own pace. When I see there’s something to do, and I know I can get it done, I would just go get a get it done kind of person. And when you have a team of people, you can’t really do that you have to all go together. So that’s been a real journey for me. And even I’ve gotten much better at it. But there are some mentors that I have who really kind of instilled in me Look, you’re gonna go further as a team, you’ll go faster by yourself, but much further as a team. Think about that as you start to build your organization.

John Corcoran 39:29

That’s great. You handled a really poorly worded question with a lot of skill. So I appreciate that. This has been great learning about your background and Kermit and everything. I know we’re out of time. Rich, thank you for for taking the time to talk with us. Where can people go to learn more about you connect with you and learn more about Kermit?

Richard Palarea 39:48

Sure. So the first place would be our website, The PPI stands for physician preference Adam’s that preference part is very curious. We can talk about that on another show. And on the website, there’s a really quick little explainer video that kind of in a nutshell tells your viewer why we do what we do. What’s the problem we solve? It’s worth watching it for two minutes. Definitely find us on LinkedIn. If you look up, Kermit. And if it’s not a frog, it’s probably us. And we do a lot of content creation on LinkedIn, will we do videos? Most of my podcast work is up there too. And interviews I’ve done and things like that. And we post stuff on our blog all the time, but really interesting content about why is it important to reduce healthcare costs? And how can we do it when physicians want what they want? And they’re very concerned with outcomes, but we also have the business side of running a hospital. What happens when the numbers don’t line up? And why is that really important? Especially in the era of a pandemic, so it’s been a very interesting time to be in healthcare for the past two years. So those are probably the two places I would say and then I manage my own profile on LinkedIn. I’m very active there and post and write articles and things.

John Corcoran 41:07

Great, Rich, thank you so much for your time.

Richard Palarea 41:09

Thanks, John. It’s been great.

Outro 41:10

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