By working faithfully eight hours a day you may eventually get to be boss and work twelve hours a day.”
– Robert Frost
I was fortunate enough to be able to cofound a company which, seven years later, I was able to sell. While I was unable to claim the IPO status of Mark Zuckerberg when Facebook made its IPO, I was able to negotiate a deal that funded my apocalypse fund. However, in looking back on the seven years, while we were successful – and I hope that the company continues to be successful! – we certainly didn’t have the meteoric rise that our starry-eyed dreams envisioned in our first strategic retreat while we were being grilled by an IBM Master Inventor.
Why Weren’t We As Successful As We Dreamed?
I could ascribe many reasons why we weren’t successful. I could blame the market – after all, the Great Recession hit! I used to joke that our company was a leading indicator of where the market was going, as we slumped six months before the S&P 500 did. I could also blame the fact that we started our company when Jupiter was in the third shadow of Venus, or whatever other astrological mumbo jumbo I could come up with.
The biggest reason was the guy in the mirror.
Let’s evaluate where I went wrong, and maybe you won’t make the same mistakes that I did.
- I wasn’t where my customers were. I say this in both a physical and metaphorical way. First, we did a lot of government contracting; yet, we were not that close to a central location where government contracting actually happened. Business in the government gets done on the backs of relationships, and no matter what government agency small business representatives parrot to you, the people who hire others in the government are just as subject to anchoring biases as anyone else, so they go with those whom they know. Why shouldn’t they? It’s a risk reduction strategy that they employ just like the rest of us do. However, getting those buyers to the state where they feel lower risk, requires relationship building. I should have spent 2-3 days a week in Washington, DC, but I didn’t. We also weren’t where our customers were in a metaphorical way. When we first started out, we were a general IT services company, which meant that not only were we everything to everyone, but we were also nothing to anyone. I failed to listen to what the customers and our potential customers truly wanted to enable us to focus on solving those problems, meaning…
- We didn’t find a true niche soon enough. Since we were such generalists, we really never stood out for anything. It wasn’t until my partner got an offer to co-author a book with a well-known publisher that we got our first chance to really stake a claim in expertise in any one area. Previously, we’d been a jack of all trades and masters of none. People are willing to pay more for expertise and focus. It’s fine to see your general practitioner for your annual physical, but when you need to get a quadruple bypass, you’re going to a cardiologist, not your GP. It got a lot easier to tell our story when we could say what sort of specific customer problems we could solve. “Searching for red shoes on Zappos and you see black shoes on the results page? We can fix that!” is much more compelling than “whatever software development you need” is.
- I didn’t collect a true prospect list, and I didn’t keep it warm. My partner’s books sold probably well over 10,000 copies, and most of them were digital copies, meaning that the buyer had to give up an e-mail address to get a copy of the book. Our website would get between 700-1,500 visitors a week. Yet, for all of that potential interest, we failed to capture any information about these people.
- I let us rest on laurels. Whenever we’d land a big client or a big project, there was almost a palpable sigh of relief that preceded the excitement of doing the work. However, just because the trough was full for a few months didn’t mean that it couldn’t go dry again. As the primary rainmaker in the company, I should have stopped long enough to celebrate and then gotten right back to work finding the next big deal.
- We grew too quickly when our customer list wasn’t diversified. Just as diversification of uncorrelated investments usually provides lower volatility in your returns, so too does the concept work in business. When you’re a small business owner and you land a big fish, it’s all you can do not to get sucked into a vortex of only serving that one client, especially when it’s your first large client. Still, having one client, no matter how big and how happy that client is with you, means that if the client no longer needs your services or products, your source of income has just dried up. Instead of realizing this and leveraging our great work and great project to land more, I simply extrapolated into the future and assumed that the gravy train would ride on forever. Remember, vision is not the same as execution. Because I was so bedazzled by our initial success, I helped us hire people in anticipation of the next wave of work, and when that next wave didn’t come as soon as we thought it would, we were left with a lot of overhead.
- We were very risk-averse. I’m not listing this one as a mark against us, but it was a governor at times. Once our first big client lost funding for the project we were working on, we were left scrambling to find more work. I altogether too vividly remember the stress of making payroll twice a month for people who didn’t have to pay for work to do and vowed never to make that mistake again. Resultantly, we didn’t hire again unless we were fairly certain that we could match future revenues to the person to be hired. It cost us both profit, since contractors were more expensive than employees, and revenues since we didn’t always have people at the ready to work on projects that our clients wanted to do.
If you are everyone to everyone in business, then you are nothing to anyone.
Even though this seems like a list of mea culpa, we wound up doing fairly well and I sold when the company was well poised to make continued growth. The people in our company did great work, and almost every time we did work, we served our clients really well. Those were necessary conditions for success, but they alone weren’t sufficient conditions to really grow the company the way we’d envisioned back on the mountaintop in our first retreat.
This time, I’m doing it differently.
Do you have a small business? What problems have you faced in growing it? Want to start one? What challenges do you foresee? Join in the conversation in the comments below!
- John Davis is a nationally recognized expert on credit reporting, credit scoring, and identity theft. He has written four books about his expertise in the field and has been featured extensively in numerous media outlets such as The Wall Street Journal, The Washington Post, CNN, CBS News, CNBC, Fox Business, and many more. With over 20 years of experience helping consumers understand their credit and identity protection rights, John is passionate about empowering people to take control of their finances. He works with financial institutions to develop consumer-friendly policies that promote financial literacy and responsible borrowing habits.
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