A few years ago, I did some consulting for a business owner. We were throwing around some ideas for PR and word of mouth marketing. (I didn’t end up working with him, for a variety of reasons.)
He was dead sure he was creating the next Amazon. He’d built his product from scratch. He had some experience in the same business as his customers, and he believed he knew all of their needs inside and out.
Things were humming along reasonably well, but the business wasn’t the colossus he thought it deserved to be. So he took out a second mortgage on his house. He put another $40 or $50 grand on his credit cards. Then he borrowed some more money from a group of private investors.
He moved out of his basement and into a real office. He printed 10,000 four-color glossy brochures. He brought on a staff of salespeople to make cold calls.
He was glowingly confident all through this saga. After all, his product was groundbreaking. It was magnificent. It was his baby. With all this support, there was no way it wasn’t going to be a monster hit.
Alas, it turned out not, in fact, to be a monster hit.
He didn’t lose the business or his house, which is a miracle. If the timing had been different, he probably would have lost both. But he did saddle himself with a mountain of debt that was a lot larger than the actual worth of the business.
He’s fired everyone and moved back to his basement. If he works incredibly hard, he might someday sell the business and come close to breaking even.
Maybe.
Get tough with yourself
When you start playing with money that comes in as “capital” (as opposed to revenue you actually earn by selling stuff), it’s easy to get sloppy. You get more office than you need, more computer than you need, more fancypants furniture than you need. You keep salespeople who don’t sell, because it feels icky to fire people. And you spend hours on unnecessary trivia instead of figuring out how to put out the fire that’s consuming your business.
Sometimes, yes, borrowing money to expand is a good thing. But if you’re going to do that, you need a rock solid plan about how you’re going to make that money (and more) back.
“This thing is so awesome it just has to work” is not a solid plan.
You need to know your milestones (I need X sales at Y profit margin per month), and you need to devote your entire attention to hitting them.
If that sounds scary and awful, there’s another way to go about it
Start small. Make something (or provide a service) and sell that. See how it goes. Talk with customers and potential customers about what other stuff they would really like to see. Figure out what problems they have, and how you might solve them.
(And listen to their answers. That’s where my entrepreneurial friend went south. He was so sure he knew his customers better than they knew themselves. He didn’t spend any time actually listening to what they were telling him. It turns out they had a lot to say, loud and clear.)
Look at every new or improved product as a prototype. Build it, launch it, check your sales, tweak, and relaunch.
In fact, if you can build a simple version quickly, sell it before you build it. Create a discounted “pre-release” version and see how many people go for it. If your response is pitiful, dump the project before you start. Give your takers their money back with a little gift for their trouble.
If the new product isn’t bringing in additional profit, either in the form of more sales or better repeat and referral business, scrap the program. Move on to something else. Stay lean and light on your feet.
If you build based on real feedback (especially feedback in the form of customers actually taking action and buying something), you’ve got a much more stable foundation than your own vision.
Clouds are beautiful to dream about, but they’re darned chilly and uncomfortable to live in.
Tune in next time for Dumb Thing #4: Thinking It’s About You
7 Dumb Things Small Businesses Do
- #1: Deciding You’re “Just Not Good” at Marketing
- #2: Going Without a Business Plan
- #3: Getting Upside-Down
- #4: Thinking It’s About You
- #5: The Worst Number
- #6: Ingratitude
- #7: Following the Herd
Don’t miss all 7 dumb things! Subscribe (for free, of course) right now in a reader or by email.
This is so huge, Sonia. It’s difficult to step back and put on those objective glasses when it’s your baby.
Way back in the early 1990’s, Bob and I (hopeless, serial entrepreneurs that we are) launched a new business in California, Korporate Comedy Concepts. Young and foolish we were.
We knew we could make people laugh (always tapped for leading company employee recognition events, writing scripts for programs and such). And we had people in hysterics. We put employees in movie plots, changed the plot summaries to fit their jobs and their quirks, and hosted “Oscar Award Ceremonies.”
We thought, stupidly, why not sell these packages to CEOs and human relations managers? We just KNEW they needed programs to help staffs bond, reduce stress, laugh more, right?
Wrong. Couldn’t sell the idea. If we had second mortgaged the house or done some other stupid thing to finance a fancy office, an administrative assistant, a Mr. Who-Do-You-Think-You-Are brochure, we would have , well, I don’t even want to think about it.
I can feel for your friend because when that middle-of-the-night idea pops into your head (I’m a little wiser now), watch out.
Start-ups and the wouldn’t-it-be-cool-if’s out there should print this series out and post it on their computer monitors. Excellent advice.
Every once in a while (ok, quite often), I look at stuff about “entrepreneurs” and I think “I’m not like that. Maybe I shouldn’t even be trying this.” But then sometimes something happens that makes me think that what looked like a liability is actually a plus.
The #1 description that puts me off is the “will work really long hours just to realize the vision” one. But #2 is probably anything that looks like the whole point is to make money. I’m what Havi would call a “helper mouse”. I’m not motivated by money. And given that I convinced 2 employers to pay me less to work fewer hours, I also have no one workaholic instinct.
Reading this post made me realize that my “maybe this thing would earn me enough money to…” approach might be a good thing. Sure, I splashed out on some nicely designed business cards and a powerpoint theme to match. But then I contacted a couple of people I knew from a previous job who might want what I had to offer, picked a price out of the air and said “would you hire me to do this for this price?” They did. And that worked okay.
But then other things happened and growing the business took a back seat. I kept it going but at the size it was. It bedded in. I went to one conference to see if I could meet potential new clients. I got one. But they are now my biggest client. And then someone contacted me out of the blue because they heard I had done a great talk at x…. And she invited me to give a workshop for a bunch of people who could be potential clients.
Now I’m thinking about the direction of the business and shifting that a bit. But I’m still thinking small. How do I get a few of this other type of client? And then hoping that they will refer me. I’m all about the word of mouth.
But then I have the financial leeway to grow slowly. But maybe there is somewhere in between. Some middle ground between my almost too laid back approach and the gung-ho, borrow lots and build it approach. Thanks for the thought provoking ideas.
Long time reader, first time commenter. I love when people on the radio tell the DJ that line. Anywho…I’m trying to build my blog into a career. It’s not easy working from the ground up, but I’m loving every minute of it.
I’m a “small steps” type of person. Every day I get a little more courage to make the leap. I feel like I’m only a few months away. I’m going to start calling companies in my region to get myself out there (work happiness consultant) then build from there. Great advice, thanks.
Hi Sonia,
Thanks a lot for doing this series. It’s right on the money ( no pun intended. Really.) I get scary shivers whenever I see somebody doing this kind of thing with their business, cause it puts you in a situation where the stress can just become intolerable and the possibility of backfiring is way too high.
This is one of those places where my annoying tendency to think I am not quite good enough has really worked in my favor! Because I am never sure that any business idea that I have is going to fly, I tend to be cautious and take things slowly, don’t overextend, and only take risks that I can pay for pretty quickly. And I do take risks. But they’re kind of itty bitty risks ( at least with cash money) and as a result, I have grown, but have never crashed and burned. And I’m still here!
I also wonder if i am maybe too risk averse at times and am playing around with taking somewhat bigger gambles. But I don’t think I will ever get to the point of re-mortgaging the house. Although I guess these days that’s a moot point anyway!
Thanks for another great article…
chris zydels last blog post..BEFRIEND YOUR INTUITION : CULTIVATING A RELATIONSHIP WITH THE LOUD and BOSSY VOICE WITHIN
Small is beautiful, Sonia- way to put it out there! I studied a number of global spiritual leaders- Nelson Mandela, MLK Jr, Mother Teresa- they all did it the same way- started very small, and once they had momentum, they went hugemongous. In all cases, they actually forced themselves (or were forced to) stay small even when there was demand that they grow bigger… and that discipline had them avoiding a lot of pitfalls.
Big is not necessarily beautiful. thanks for bringing the good word.
Mark Silvers last blog post..More about Easy and Hard in Business
Judy, thanks for that story! I love your idea, wish it had worked.
JoVE, me too, I was put off of running a business for years because of that macho stereotype that you had to be willing to risk everything (health, house, marriage, all financial stability) for your business. What a load of garbage. The more businesses I see, the more I think that too much appetite for risk is a major negative for an entrepreneur. The willingness to take smart, managed, thoughtful risks? Sure.
Chris, these are such nice times to be timid, aren’t they? I’ve always been ultra careful about debt, etc. Makes things much more relaxing these days.
Mark, so nice to see you here! I agree–we don’t have to stay small, but we shouldn’t feel like we have to get big either.
Oh bloody hell, YES. Thank you!! We get so many people coming to us ready to saddle up debt on the credit card because they’re chasing a dream and they have no idea if it even has a chance.
Have belief in what you do, sure. Get excited. Get determined. But for god’s sake, don’t spend what you don’t have because you’ve fallen in love with your own product.
You need customers to fall in love too – and you have no idea if that’s the reality until you test.
If it doesn’t work small, it won’t work big. Good post as always Sonia.
Timothy Coote – Coote Libeaus last blog post..Simple.
It’s making me remember a book I read, on inventoritis. We love so much our invention, book, blog, anything we create we tend to think everybody will have just to agree. But then, of course…
Miguel de Luiss last blog post..Oliver Twist lives (2): Who will buy this wonderful morning?
Hey Sonia
Good points on real feedback and your recipe for results (build it, launch it, …)
One of my most effective managers used a simple test — “show me five customers that stand behind your idea.” I used to laugh, just five? … no problem. Surprisingly, that litmus test was smarter than I thought. It’s one thing to think you have a wild fire idea, it’s another to have five customers that stand behind it.
J.D. Meiers last blog post..How To Develop Your Intuition
Oh do you have any idea how many times I’ve said that exact sentence:
“This thing is so awesome it just has to work” is not a solid plan.
So so so so so true.
Exactly.
Although, to be clear in relation to what Judy said … if you build something and people don’t buy, it doesn’t necessarily mean that they didn’t want or need it. Just that it wasn’t pitched right.
Sometimes it’s the tiniest tweak in the copy, or a specific understanding about how to frame a concept, or taking out that one little metaphor that was creating cognitive dissonance.
But in order to be able to work on the small stuff, you have to be willing to spend the time and energy to tweak the hell out of things and to do usability testing and to not spend money that’s not really yours on fancypants stuff.
But wait, you just wrote a genius post about that. I have nothing to add!
That is a totally good point. Sometimes it is your marketing. It’s tricky to work that out, especially if you happen to be in the information product biz. But for a lot of businesses, a product people need can be transformed into a product people want by talking about it differently.
As it happens, the next post in this series should help sort that out. 🙂
Great point. It’s hard sometimes to stop throwing money at the business, especially if it look like it’s about to grow or it just needs that extra thousand more…
I would add the caveat that you need to understand also differences between lack of growth and short term cash flow problems.