You Can't Make This Stuff Up!

[Lee Stewart]

The biggest and most lucrative deal I ever did involved these machines: IBM 3890 Check Sorters.

As I had stated previously, many of my clients were banks. And all required these machines. They were 95% mechanical. LOL - they had, I kid you not, fishing line and wood in them. When you had two or more, IBM would provide an on-sight maintenance person. They could be configured from 1 to 6 modules depending on the bank's check volume. This one pictured has 4. Code B1 to B6. The starting price for a B1 was about $850,000 up to a B6 for $1.6 million.

IBM tried to replace them with a newer version called the 3895 with less mechanicals and more electronics but it's reject rate - checks that couldn't be read by the machine and had to be entered by hand was 92%. The 3890: 99.3%. No bank wanted them. A huge failure for IBM so everyone stuck with the 3890.

During the 1980s there was all this talk about a checkless society but it was a myth. The truth was people were writing more and more checks. So unlike say disc drives, whose value dropped off a cliff when a new model was introduced, the 3890 retained it's value at 88% of list price. Not bad for a product that was well over 20 years old.

The biggest bank in upstate NY was Marine Midland Bank out of Buffalo. Their check processing center had 4 B6s. They also had one in Syracuse (3 B5s) and one in NYC (2 B4s). All were on lease with IBM. All were maintained by IBM. All could be purchased from IBM for 50% of list price.

It took a year to convince all involved at Marine (the President of the bank was on the signature approval page) that their equipment was old and they were no longer getting 99.3% reject rate. Theirs averaged 97%. It was time to replace all the equipment with new machines and OBTW they would receive a 10% Investment Tax Credit for each machine.

Now I have 9 used 3890s to sell making a profit of 38% on each machine. I thought I was going to get rich. Little did I know that was nothing more than an appetizer to the main deal.

As Ed and I are sitting in the SVP's office with our contracts ready to be signed, the SVP (Rexford L. West III - a name I will never forget) says he would like to make a "small adjustment to the deal." They don't want to lease them again. They want to buy them, but the appropriations will need at least 6 to 9 months to get approved meaning get into the following year's budget. So they can't order the replacement 3890s from IBM. Can we do it and can we buy their existing machines and rent them to the bank at a savings until they get the money to buy the new machines.

Ed says "I think we can accommodate you with no problem. Let's add it to the contract." Rex says "won't a handshake suffice?" And Ed, the president of my company sticks his hand out and Rex shakes it, then signs our contracts. I knew I was going to see Joe Boldt their contracts VP to get the monthly rental contract within a day or two.

I have a million questions for Ed but hold off because I know he is a master of making a deal more profitable. The next day we are on a plane to NYC to a meeting with IBM about ordering 9 new 3890s. While on the plane Ed tells me he made a phone call to Marine Midland about getting a Bridge Loan to cover the purchase of the 9 3890s with Marine as the client. They approved the deal right over the phone. What he didn't tell me was that one part of the deal was worth $100,000 a month in pure profit to our company. My cut: $25,000 a month plus an additional 5% bonus for a total of $30,000 a month. Yep - every month the deal was alive (7 months total) I got $30,000 along with commission on all my other deals which was usually around $20,000 a month. Not bad for a salesman whose former income from Lanier Business Products was $30,000 a year.

While we are sitting in the office of the General Manager of the NYC IBM office who will take our order, I am looking at the contract Ed will sign and low and behold I see rainbows, sparkles, waterfalls and Unicorns! I look up at the GM and say "will you excuse us for a moment" and I grab Ed's arm and urge him to follow me.

"What?"

"Ed, there's no paragraph 8!"

IBM did not like the fact of people like us ordering brand new just released equipment - the latest versions - and adding a premium of like 10% because IBM had more orders than machines, so they used a lottery type system. To stop this only those who would actually take delivery and install the new computer, etc. would be part of the lottery system. No more third party leasing companies like ours could place an order. That was Paragraph 8. Our contract stopped at Paragraph 7 because the 3890 was an old machine.

We were prepared to order the 9 3890s and IBM would accept the order because all would be installed at Marine Midland.

We go back to the GM's office sit down and Ed says "we want to order 50 3890 B6s." If you ordered 10 you got a 10% discount. 7 got you a 7% and 5 got you 3% discounts and that was what Marine was expecting: 7%. The GM calls in his secretary, hands her our contract and tells her to change the order from 9 to 50 and make them all B6s.

Little did we know at the time but that was 2 years of the factory's output which we had just locked up. Any bank in the entire USA who wanted to order a new 3890 had to wait until we took possession of our 50 first. Or they could come to us and buy one of our machines and we would give them a small discount. We were in the 3890 business 100% lock, stock and barrel. Selling used and new 3890s along with Modules to make a B4 to a 5 or 6 etc.

A week later I sat down with Ed and told him it was time for me to become an owner in the company not just VP of Marketing. He agreed but only offered me 10%. I wanted 25%. He refused. 7 months later - the day the Bridge Loan with Marine ended I left Ed, took my best friend who replaced me in Buffalo (but didn't get Marine) and we started our own company.

[Lee Stewart]

[Lee Stewart]

[Lee Stewart]

[Lee Stewart]

[Lee Stewart]

[Lee Stewart]

[Keith Seymore]

Originally Posted by Lee Stewart

Well done, Lee.

K

[Keith Seymore]

Originally Posted by tom406

What could possibly go wrong?

Makes me think of a story :

My dad had a buddy that ran a fuel dragster back in the 60's. The guy was in it as a hobby (GM skilled trades was his day job), not a lot of capital, so his equipment was pretty rough. He made a pass one time and somehow the nitro fumes got to him, so when dad and the rest of the crew chased him down he was throwing up at the big end. He told dad "...Van, I don't think I can ride back in the car. You'll have to sit in there and we'll tow you back".

Dad said he got settled in and they started back down the return road. Of course, you are sitting right on top of the diff housing, and the rear end in this thing is going "BANG! Clank, clank, clank BBRRRRRRR BANG! Clank, clank clank, BBRRRRRRR..." all the way back to the pits.

Dad said he didn't feel safe in that thing going 10 mph down the return road; he couldn't imagine going down the racetrack in it.

K

[Lee Stewart]

Originally Posted by muscle_collector

never seen this. was it a one off or did they make a few? if it was a one off is it still around?

https://95octane.com/2017/01/15/1970...ester-concept/