Unplugged from the Matrix

In 2007, Kenneth Coats started a business helping Chicagoans expunge their arrest records so they could improve their job prospects. After a challenge from the Illinois Attorney General shut down that venture, Kenneth reinvented his business with an assist from a local clinic that provides free legal services to entrepreneurs. In this episode, hear how Kenneth pivoted—and what he did to ensure he couldn’t return to his previous career.

• Our 2017 episode, “Can You Sell Water? Part 2” - 00:29
• The Institute for Justice Clinic on Entrepreneurship at the University of Chicago - 00:37
• The study “The Growth, Scope, and Spatial Distribution of People With Felony Records in the United States, 1948–2010” was published in the October 2017 issue of Demography - 3:23
• Microsoft made $16,005 in revenues its first year - 5:31
• Wikipedia article on ichthys - 9:22
• “Care.com Puts Onus on Families to Check Caregivers’ Backgrounds—With Sometimes Tragic Outcomes” (Wall Street Journal, March 2019) - 12:42
• “103 Uber drivers accused of sexual assault or abuse” (CNN, April 2018) - 12:44
• KENTECH - 12:48

Transcript

Shaun: (00:00:00) Before we get into today’s episode I would just like to remind everyone that we have a mailbag episode coming up. So, if you have any questions for Jason, David, or anyone else here at Basecamp please leave us a voicemail at (708) 628-7850. And now, on to the episode.

(00:00:19) Broken By Design by Clip Art plays.

Shaun: (00:00:21) Welcome to REWORK, a podcast by Basecamp about the better way to work and run your business. I’m Shaun Hildner.

Wailin: (00:00:27) And I’m Wailin Wong. Back in 2o17 we did an episode featuring a legal clinic at the University of Chicago that works with small business owners. The Institute for Justice on Entrepreneurship provides free legal services and works on policy at the city and state level. Beth Kregor is the director.

Beth: (00:00:44) I’m a lawyer and an advocate and a teacher working on behalf of low-income entrepreneurs.

Wailin: (00:00:52) This year, the IJ Clinic celebrates its 20th anniversary. It’s worked with over 200 businesses during that time and we thought we’d help them mark their big milestone by talking to one of their clients.

Beth: (00:01:11) When you’re kind of the in-house council for a start-up every legal decision is intertwined with business decisions. And when you’re talking to people who are the one or two people making the business work, every legal decision is intertwined with personal decisions. One of our greatest success stories is Ken Coats. He really managed to do what entrepreneurs do best by really pivoting and changing his business model to meet the challenges and the push-back that he experienced. And his business has grown phenomenally well.

Ken: (00:01:50) I come from an entrepreneurial, I guess, background. My grandparents who came up from Mississippi at the time with very little education, started their own restaurant and got into owning real estate on the South Side in Englewood.

Wailin: (00:02:06) In the early 2000s, Kenneth Coats got the idea for his first business: Arrest Free. A service to help people expunge their arrest records. At the time he was working in the Chicago office of Equifax, the big credit bureau.

Ken: (00:02:18) I used to be an IT guy there. I used to have family and friends who asked questions about, you know, their credit report. Like, man, how do I fix this thing? Do you got some insight, go fix a couple things. You know, as jokingly would tell me. But then, after post-9/11, there became such an intense scrutiny on peoples’ background, everything was digitized. People were looking at background information more readily and so it began denying opportunities, is what I saw from friends and family who, it wasn’t so much about credit, but it was about, man, I just got denied a job opportunity because of some silly thing I did in college or high school.

(00:02:58) And so, I began looking at that issue and looking at the startling statistics to know that 1 out of every 32 Americans may be plagued with that, in terms of having some kind of scuffle in their background from a criminal record. And then, more startingly, unfortunately for my neighborhood and communities, or minorites, it was like, 1 out of 3 had some type of felony conviction.

Wailin: (00:03:21) According to a study published in 2017, people with felony convictions account for 8% of all adults in the US but 33% of African-American men.

Ken: (00:03:31) So, if you have this record, are you permanently banned from society of being able to pursue your dreams? I heard about a form of relief called expungement. I found out it was very simple to apply for but many people didn’t know about it. Unlike a credit mark that falls off after say, seven years, an arrest record stays with you permanently, forever, unless you go and get that information expunged, they call it.

(00:03:59) So, that’s expungement. That’s kind of the permanent destruction of any arrest record that may exist at the agency level or the court level. And so, my first venture was a project called Arrest Free and the whole idea was to give people the opportunity to learn about expungement. They can pool their records online and then similar to like a TurboTax, how it pre-populates the tax fields, would pre-populate the forms they need to print it out with instructions to get their record expunged.

Wailin: (00:04:28) Kenneth launched Arrest Free in 2007. He focused the service on the Chicago area and hired some freelance developers to build it out.

Ken: (00:04:37) I took all of my savings and just jumped on out there.

Wailin: (00:04:41) How did you find your customers?

Ken: (00:04:44) Just go outside my door. You know, it’s like I said, unfortunately, as I mentioned, 1 out of 3 African Americans had a record so, I did a lot of grassroots, guerrilla marketing. Going to churches, going to fast food restaurants. Passing out pluggers, going…

Wailin: (00:05:02) What are pluggers?

Ken: (00:05:03) Hey, man I’m dating myself. This is old-school party stuff. But pluggers, they’re like, little four-by-six pamphlets. You know, flyers with information. Yeah. So, I would just pass them out. And I’d jokingly say the upswing of it, although the story’s not so beautiful, doing your first venture. But the upswing is that I used to brag and say, man I made more money than Microsoft made in their first year. Microsoft, I think, made $15,000 when Bill Gates first launched, and I think we made like, $30,000 or something like that. So, good in the sense that I can do this. I can create my own path and provide a service.

Wailin: (00:05:43) Kenneth wanted to eventually take Arrest Free national, but there were soe problems.

Ken: (00:05:48) There were various things that didn’t make this thing work as great as I thought it would. And one of them the price. The most needed population, like I said, people from my neighborhood who were having these issues who had an issue of affordability and then even the whole digital divide there. They didn’t have access to computers. So, we would take stuff over the phone and go meet them in person. Or me. I say we, but it was me.

Wailin: (00:06:14) I was going to say, it was just you, wasn’t it?

Ken: (00:06:16) Me and my dog, okay. We were a big company at the time.

Wailin: (00:06:20) On top of that, it was the housing crisis and the recession and then on top of that, the Illinois Attorney General took notice of Arrest Free and said Kenneth was providing unauthorized legal services by helping customers fill out the expungement paperwork.

(00:06:35) Here’s Beth Kregor from the Institute for Justice Clinic with Kenneth had been introduced to during a small business job fair.

Beth: (00:06:41) There are very strict laws in the books here in Illinois about who can practice law and what it measn to practice law. So he was warned by the Attorney General that he could not offer the services he wanted to offer to help people clear their records and try to get jobs. So, it was an awful experience. It an awful thing to learn about. And we wanted to represent Ken in whatever he wanted to do to move forward.

Ken: (00:07:15) Man, talk about scary. It was extremely scary, you know. I’m jumped out here on this venture with all my ducks in there and using this as my only survival as income at the time, and I refused to try and go back on the workforce and give up. And at the same time, you have, you know, a big giant government body saying, you’re doing something wrong and you’ve got to shut it down. The Institute of Justice, they were extremely great at the time. They went to a couple of the hearings with me and what have you to talk about what we were doing. I believe they were ready to fight more than I was. Like, you know, we could, we could make this a big deal. We could get ‘em. I’m like, no. I’m in the middle of this. In the mean time, I gotta eat. So, you know. It’s great to get things on principle but I have to eat. So.

Wailin: (00:08:05) So, you just have to like, call it.

Ken: (00:08:05) Yeah. Mean and my dog, we have to eat, and I have a daughter, too. So, I had a daughter at the time. So, yeah, so we just, as I call it, reposition.

Beth: (00:08:12) That’s a great example of an entrepreneur facing a decision about not only the future of the business but what that person wants to do and where that energy should be directed. Should it be fighting for something against pretty powerful forces like the Bar? The lawyers, of all people? Or, should that energy be focused on building something new, and Ken chose to build something new and what an amazing thing he’s built.

Wailin: (00:08:45) Kenneth transformed Arrest Free into something new. But, before he reinvented his business, he did something to ensure that he would have a really hard time returning to his old life as an office worker in a conservative corporate culture.

Ken: (00:08:58) You know, you go through these crazy things when you decide to become an entrepreneur to unplug from the Matrix. So one of my deals was that, okay, I want to guarantee myself that I do not look back. Similar to how they say generals will burn their ships on the shore so that they cannot retreat.

Wailin: (00:09:17) Kenneth got a tattoo. It sits on his lower forearm, and it’s an ichthys, more commonly known as the Jesus Fish. Inside the shape is the Greek word for fish, ichthys. The tattoo symbolizes Kenneth’s Christian faith and his astrological sign because he’s a pisces.

Ken: (00:09:33) It would have been frowned upon, or maybe less desired, I guess, based on a job I held before because I was more high-visible working in the C-suite with a lot of executives at the time. Very, I’d call myself Bryant Gumbel, you know, oh, how’s it going? You know, do the small talk and now that I was back in the neighborhood, I kind of got back into who I am, truly. So, yeah. That was part of my deal that there was no returning. I wasn’t going back.

Wailin: (00:10:00) Kenneth was ready for the second version of his business. He turned to the other side of the background check transaction. If before he was helping people expunge arrest records to improve their chances of getting hired, he was now going to help employers screen job candidates by providing the technology for comprehensive background checks.

Ken: (00:10:18) One of my mentors kind of beat me up and as I was telling him all the troubles I was having launching Arrest Free, because he used to tell me, just go into traditional background checks, and you can go save the world later, he would tell me. Like, no, man, I’m saving the world now. So, when I came to him with my tail between my legs, I said, I told you not to do it, so. But he’s like, go out there and he told me, and gave me kind of some basics on how to go and do it.

(00:10:50) I knew it was always there. But it didn’t really excite me. It wasn’t anything innovative or new. It was just a commodity and it just becomes about how low can you price things.

Wailin: (00:11:02) Kenneth lined up a college as a client early on, helping the school run background checks on students getting placed into internships in fields like health care and social work. As word of mouth spread, he was able to sign other colleges as customers and build a specialized product called CollegeScreen.

Ken: (00:11:18) And then luckily from there we got a call from some very large law enforcement agencies that needed more of a deep background investigation. So, kind of reignited my spark about, okay, the challenges that people are getting, unfortunately getting these records is sometimes question. Like, okay, the arresting authority, were they on the up-and-up and who arrested them? Are these valid records or why is it disproportionately affecting one community. So, we had an opportunity to work with some large law enforcement agencies to actually vet them. So, I thought, ah man, this is exciting. Maybe there’s an indirect way of us still achieving results. Maybe we can’t do anything for those who are afflicted but moving forward maybe we can ensure that the officers that are patrolling these neighborhoods are good people. So, that kind of sparked my interest, I guess if you will. And so, that’s where we’re at now.

(00:12:20) So, we work with some of the largest law enforcement agencies across the country, and that’s what we do. We help them find great next hires who can serve the community now, so.

Wailin: (00:12:29) When companies talk about running a background check or screening workers it can mean a lot of different things. Local, state, and federal jurisdictions have their own databases and sometimes big red flags get missed. That’s why companies like Care.com and Uber have come under scrutiny for their screening processes.

(00:12:46) Kenneth’s company, KENTECH can do around 200 different searches. And then he tries to provide a more holistic look at a person so that a single blip on someone’s record doesn’t automatically doom their chances of getting hired. This approach has helped set KENTECH apart from other companies offering more surface-level background checks.

Ken: (00:13:05) When agencies are conducting these background investigations internally, there’s an unconscious bias about who they think could be a good officer based on whatever. One of our clients in New York, NYPD, when they investigate say, I don’t want to hire her, her dad was a felony convict. Part of the code of new hires is you can’t be associated with a known felon or what have you. She overturned it and said, well, what does that have to do with it? I mean, this kid was, she did volunteer service and did all these great things, you say, no, I think she’ll make a great cop. You look for every reason not to hire a person, you now look a little deeper and find out every reason you should hire them that may not fit the standard profile, if you will.

(00:13:46) Our background investigations requires that we actually sit down and speak with the subject about what we found as opposed to us just turning the information over to the private sector and just have them figure it out on their own. So, we’ll sit down and we’ll say, hey, we found these things on you. You wanna explain them? And they have the opportunity right there to challenge and say, oh yeah, well, what that was… You know, whatever their excuse would be. And so I like that give and take and that equal transparency that they’re not caught off guard by what we found.

(00:14:15) We call it a unique band of high tech, high touch. So on the high tech side of background checks there’s millions of competition. Because right now, it’s all a marketing game. On the other side, you have high touch, which are like, private investigations. There are small mom and pops, very fragmented, but no one has uniquely blended both where we’re doing high tech data, building all the technology, and then still believe in what we call a Barney Fife traditional method of background investigations. And the space that we service is primarily security clearance and gaming in casinos. So, not too many people in that field.

Wailin: (00:14:51) With Arrest Free, it was always just Kenneth and his laptop. After the transition to KENTECH, he grew enough to be able to hire staff.

Ken: (00:14:58) I think after the first solid year of college screens, so this is like 2000—no, maybe like 2010, so the second year, I knew I needed to get a sales person. That was my first hire. I needed a sales person. I need a person who can help me just do all this stuff that I end up having to do all at the end of the month. Billing and collections and you know, answering the phones for support issues. So, sales to grow fast, and see if I can replicate myself in that. And then support because I was, of course, when you’re starting off a one-man shop, you’re doing everything. You’re processing the orders. You’re selling. You’re meeting with clients. You’re doing invoice and then support and all. So, it was just like… it was fun, but after a while, it’s like, this is not entrepreneurship. I think I was on vacation and I was like, I was just working all the time. I was sitting by the pool, I was up at night. And I was like, this… you know. This is not fun. So, yeah, so I hired somebody, yeah.

(00:15:58) I saw that shift after like, the tenth employee. Like, you’re the man now, Ken. It’s not just pizza, a couple beers, a painted garage kind of mentality. You really have to delegate and hold people accountable. So, yeah, that kind of shift.

Wailin: (00:16:15) Today, KENTECH has about 35 full-time employees and another 25 subcontractors. The company is bootstrapped, although Ken says he might consider outside funding after he gains more market share. As always, he’s not looking back.

Ken: (00:16:27) You make up your mind you’re moving forward and you move forward. You have to show that you are not only capable but you deserve that opportunity and no matter how bleak it may get, if you continue to stand up, the door’s gonna finally open. Like, oh, we can’t punk this person, in terms of life, in terms of getting out of the Matrix and you’ll be let in.

(00:16:50) Broken By Design by Clip Art plays.

Shaun: (00:16:58) REWORK is produced by Wailin Wong and me, Shaun Hildner. Our theme music is Broken By Design by Clip Art. You can find show notes for the podcast at rework.fm or you contact us on Twitter at @reworkpodcast. And, once again, I’d like to remind everyone that we are collecting questions for a mailbag episode. So, if you have questions for anyone here at Basecamp, please leave us a voicemail at (708) 628-7850.

(00:17:37) [Phone ringing]

Alec: (00:17:38) Oh, hey there.

Wailin: (00:17:39) Hi. Um.

Alec: (00:17:40) Hey, what’s up.

Wailin: (00:17:40) I have a Greek question.

Alec: (00:17:44) Okay.

Wailin: (00:17:44) How do you pronounce the word for fish. I-C-H-T-H-Y-S. You know like the Jesus fish?

Alec: (00:17:54) Yeah, ichthys. [Ick-thohs]

Wailin: (00:17:54) Ichthys? [Ick-thohs]

Alec: (00:17:57) It’s a U-S at the end?

Wailin: (00:17:59) It’s a Y-S at the end. I-C-H-T-H-Y-S.

Alec: (00:18:02) Oh. Yeah, let me look it up in my dictionary here. Just so I can, you know, verify it. I haven’t opened this book in a while.

Wailin: (00:18:10) Your Greek dictionary?

Alec: (00:18:11) Yeah.

Wailin: (00:18:11) Okay. We will stand by.

Alec: (00:18:15) Uh, yes. I would say ichthys. [Ick-thoos]

Wailin: (00:18:19) Ichthys. Okay. Ichthys.

Alec: (00:18:21) Got it?

Wailin: (00:18:22) Yes. Thank you so much!

Alec: (00:18:24) Okay, no problem. Bye.

Wailin: (00:18:24) Okay, see you later. Bye.

Shaun: (00:18:27) Is that the first time Alec’s been on.

Wailin: (00:18:30) [laughing] Yeah.