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Our company went from zero to $1,000,000 in 4 years and $1,000,000 to (-) $100,000 in 14 months. Most importantly, it just happened, and I wrote it all down. IN THIS SERIES, I WALK THROUGH: an account of the RISE to the FALL,the critical lessons I learned and why I think our business failed, how to transition from failure.
The critical lessons include: what I learned about managing people, the business model we were trying to execute, the funnel, and the finances.
If you are starting, or on your way to $1,000,000, please, take this course.
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My commitment to you! Yes, I would love for this to be the best course on udmey, but most importantly, I want you to receive amazing value from this series! This is not just a course, a principle, this was my life as an entrepreneur. When starting, failure is not an option, but statistically, most startups fail- but no one talks about it... I want to not only talk about it, but share everything I learned.
Please, tell me about your experience. What you like, don't like and want to know more of. I will stay as active as I can and reply to questions, add videos and more. This is my first udemy course and the only way to make it perfect is to serve you to make it better.
I am so grateful for you!
|Section 1: INTRODUCTION|
Every Problem is a Leadership Problem
This is the first in a series of posts where I’ll lay out the narrative of my lessons learned from being a minority owner in a startup that failed. These posts are companions to an Udemy Course that will chronicle these same lessons.
I’ve come to understand through experience that every problem is a leadership problem… no matter what. In this scenario, and maybe in your own narrative, the people around you might screw up or drop the ball, but so did I as I’m sure you have. Until I officially removed myself from this previous endeavor, I still had responsibility based on my percentage of ownership. This made me accountable to what was happening, even if I wasn’t always present or making decisions about the future of this investment.
We can’t learn anything through blame. We can only learn if by owning our own part and mistakes, carefully reviewing for lessons learned to further us in the entrepreneurial journey.
I received amazing advice during this trying time… making mistakes is commonplace, but failure is when you decide to stop learning from those mistakes.
I hope you’ll find this series helpful. It is in sharing our own difficulties that we can all be lifted. In the next post I’ll tell you a little bit more about who I am and how that lead to a fantastically wild entrepreneurial endeavor that taught me so much. Follow along here or check out the course!
Below are two books I stronger recommend you buy now! These books have helped me tremendously with owning failure, how to empathetically see those around me, and start forming new thoughts that direct me in the right direction.
A little about myself.
Before we get into my leadership lessons learned from watching a company that I was a minority owner in fail, I think you should know a little about who I am and how I got there...
I am the middle child of an ultra creative dad and brilliant manager mom. I really started to appreciate their influence on me when I realized at 27 that I sit right in the middle of creative and operations. I love the art of business.
At first, I never thought of myself as an entrepreneur. Looking back, my first entrepreneurial endeavor was a recording studio me and some buddies built in high school. We ended up using our own money to build a five room studio with glass walls and thousands of dollars in gear.
Eventually, this lead me to doing live audio engineering and helping with event production. After a few years, I started getting opportunities to craft experiences in meetings and smaller group settings. This consisted of a lot of facilitation and brainstorming, and I wasn’t sure how to bill for these skills, so I mostly did it for free. What I really loved was contributing to creative process in a way I hadn’t before.
After jumping around for a few years, I met someone who was doing similar work, and over sushi in the suburbs of Atlanta, I was pitched an idea to turn this craft into a business. The proposition was to serve the nonprofit community by offering for profit quality marketing and advertising.
I liked the idea of starting something from nothing and the chance to serve organizations that were impacting lives around the world was really exciting for me. We continued meeting, eventually conducting some strategy sessions, and in February 2011 I quit my job to join a new team on a new adventure.
In the next couple of posts (or course videos if you are following along on Udemy), we will discuss my version of our company’s radical growth after a crazy startup… and our perceived success.
|Section 2: THE STORY FROM THE RISE TO THE FALL|
The Startup Honeymoon Phase
If you’ve been following along, you know I caught the entrepreneurial bug early and eventually partnered to pursue my own venture — Root Radius. We started your typical startup…our office was the musty attic space in a small office building about 40 minutes north of Atlanta.
We set out with a mission to help nonprofits market and advertise effectively. Nonprofits represent about five to six percent of the country's gross domestic product (GDP) — meaning as a sector, they possess five percent of the country's resources to solve the world's challenges. Nonprofits are also expected to keep their operating costs below 33 percent of their annual budget, which typically leaves little to no margin for marketing and advertising.
Over time, our pitch evolved to, “At Root Radius we equip causes to tell their story.” We believed the anchor of any brand should be a clear and compelling story that produces a call to action. Once we helped our clients develop that story, then we helped them determine the strategy to tell that story across multiple mediums.
During our first five years, we served more than 250 unique organizations that were changing people’s lives. Our greatest satisfaction was gained in helping real people bring clarity to their stories in a way that was compelling, something many people struggle to do and remain relevant cross-audience.
We helped organizations rebrand, raise money, develop confidence and interact with their advocates in ways they have never done before. We got to help organizations like the American Cancer Society execute projects to be recognized on a the global agenda. We built Facebook apps for BCBC. We helped visionaries who gave up their careers to pursue their causes. We supported a merger between two nonprofits.
We definitely had our struggles and missteps along the way, but we were driven by this supporting role in the much more satisfying business of changing lives around the world.
This drive allowed us to grow from $120,000 in our first year, to $240,000, then to $420,000, then to $580,000, and then to just under $900,000. We were growing and we were profitable. This growth became addictive and ultimately sent us down a path trapped by the desire to grow.
Success Can Be a Trap
The success trap refers to business organizations that focus on the exploitation of their (historically successful) current business activities and as such neglect the need to explore new territory and enhance their long-term viability.
Reporting our entrepreneurial success to business associates, family and friends was like a drug. Every holiday gathering felt like a shareholder update. Grandparents, aunts, uncles and cousins would ask how the business was doing and if we had hired more people. Every time the answer was yes, it elicited responses of impress and respect.
Entrepreneurship isn’t easy, and people aren’t always courageous in pursuing their own business ventures. People by default expect startups to fail, because they can’t imagine what it would take to make it work themselves. As our business continued growing, people started reaching out to meet up and pick our brains wanting to learn what made this different.
It gives you a sense of power to sit across from people you respect and be asked your advice. To be placed in league with other successful business people is addictive and that desire to succeed and be something can take over.
Growth, success and accomplishing amazing goals are always something we should strive for and are not by nature bad things. It’s what they do to people and how they change focus and decision-making that can be dangerous. You can forget what was a priority and what drove you before you realized this success and that can trap you. It can dictate how you spend your time, where and with who. It can cause you to prioritize business over your health and wellbeing.
These are some of the things I personally experienced in falling into this success trap and I’ll share more about the personal sacrifices I made to retain the success I felt I’d achieved next time.
The True Cost of Ownership
It takes a lot of work to start a business. If we fall prey to the success trap, as discussed previously, that hard work can lead to poor decisions, bad leadership and operational inefficiencies.
I alluded in the last post to some of the personal sacrifices I began to make once I got caught up in the growth and success our startup experienced in the first five years of operation. To understand exactly how caught in the trap I was, below are some examples of the sacrifices I made to pursue the business.
Prioritization of Time
Work mornings were early mornings, driving about an hour to get into the office around 7:00 a.m. With a wife and small son at home, I would always leave around 5:00 p.m. to protect time with them. But after a couple of hours with them, I would work again for the next few hours.
Moving and a Financial Hit
After sacrificing the time to my commute for a couple of years, I was done with seeing my son for an hour before putting him down for bed every night. I became desperate to move my family closer to work, which meant taking a loss on our current home to sell it. This was a $25,000 hit, but I chose to shave off that couple of hours a day to make getting from home to work and vice versa more efficient.
Because we were a small startup, we chose not to allocate any budget to provide insurance. This was before Obamacare. My son has down syndrome and we were denied by several companies before finally landing insurance that wasn’t all that great. Our son being in the hospital for a week and we spent 20K after taxes in medical premiums and after coverage bills.
To fully support our family, my wife was also working full-time. Having both of us devoted to work outside the home became a major strain on our family as her days were also filling up. In addition to her work, therapies, doctors visits and taking care of our son were also pulling her in different directions, leaving us all with less time together.
Our decisions in each of these scenarios were giving us short-term relief in some way, but were placing long-term pressure on the success of the business.
As entrepreneurs we are often told to be successful we have to put all of our time and energy behind our business. I’m not sure this really works for people. It’s easy to read the stories about the blood, sweat and tears that paid off and the people whose startups took off and became something, but how often does this capture reality for the majority of us?
The goal isn’t that we should reach a place where we don’t have to sacrifice, but what if we sought to truly understand what priorities we are setting? What if we left space to intentionally sacrifice versus sacrificing out of necessity? When we set out to do big things professionally we need to truly see and consider the opportunity cost, the risk, and the outcomes — good and bad — of the sacrifices we choose to make.
In 2014, I was asked by the original founder of the startup I’d help build into a successful business to take part ownership in the company. In the next post, I’ll start to describe where our growing small business began to crumble, a business I now shared minority ownership in.
Burnout: Beginning the End of Our Startup
To recap, my first joint venture was a startup that helped nonprofits to effectively share their stories. We grew and experienced success over several years, and eventually I took part ownership in the company. This led me to make personal sacrifices and decisions that were influenced by wanting to maintain that success. Then burnout started to set in...
A buddy called me a few weeks ago and asked me how I knew burn out had set in when I was running Root Radius. Burnout is a powerful thing. When I thought about it, I had to admit that in the moment I didn’t realize I was burning out because sometimes it takes your body totally shutting down to realize where you’re at. It’s strange to be in a place feeling so incredibly numb. Burnout happens to a lot of people, but often they don't recognize it until they have a nervous breakdown, a heart attack or worse.
I have spent a great deal of time reflecting on what led me to burnout, and to be honest, I can’t identify any one thing that got me there. There were a lot of little things that built a strong web of pressure, slowly creating this weight. It didn’t happen overnight, but overtime, I broke.
Here are some of the small things that begin leading us to burnout:
This was the beginning of the end of this venture in a lot of ways. Once your leaders are in burnout, it can be hard to maintain and grow. Next up I’ll talk a bit about the unforeseen roadblocks we started to encounter
Unforeseen Startup Roadblocks
The success trap is a tricky thing, especially when you mix it with burnout in leadership. Though we billed our highest in revenue during 2014, it was our first year with a loss. There were three major missteps we didn’t foresee coming.
One of our employees who was carrying several large projects had to take leave because of a family emergency. We were still paying him full salary not knowing that he was looking for another job. Once we realized the employee wasn’t coming back, we were left scrambling to cover these projects. We could either maintain integrity and hire expensive quality contractors to finish the projects or call the clients and tell them the projects wouldn’t be finished. We decided to hire the contractors to finish several websites, some of which required rework from poor preliminary execution. In total, this loss cost us about $80,000.
We were also investing heavily in leadership. We believed that we would hit $1.2 million in 2015 based on our growth trends. To support this and relieve some of the burnout we were experiencing, we needed a solid team in place. Unfortunately, roles at this level are higher paid and force more demand on sales. The cost of these investments was not yielding the return we expected and became a burden.
Lastly, we hadn’t figured our numbers correctly and wound up overpaying on our taxes. Because of this accounting error, we lost about another $15,000.
As these roadblocks started to compound with the burnout we were experiencing, the inevitable began to happen
Waving the Flag of Startup Burn Out
You know that feeling of having the wind knocked out of you? That feeling of trying to catch your breath but not being able to? At the end of 2014, this became a persistent feeling for me.
After throwing much of my time and energy into work since was a teenager, needing a break made me feel this guilt and shame. But because of the burnout, I couldn’t do it anymore, so I told my team I either had to take a month off, quit or die. We landed on the break.
Time away from work wound up being amazing. I probably hiked and ran over 50 miles. In the first week, I was able to catch up on the home projects I’d been neglecting. Then I slept. And read. And then my family went to the beach for more than week. During this time, it took about three weeks before the tightness in my chest even began to release.
There were three questions I reflected on during this time away:
A few days before it was time to head back from this extended absence, my business partner met with to discuss next steps for our business. This conversation left me enraged, upset, anxious, tired, and feeling trapped.
Looking back, I should have exited the company, but at the time I was unsure how that worked and felt like I should stay until the company was healthy. Ultimately, we decided I should pull up and focus on strategy, which was something I still enjoyed, and my operating responsibilities should be given to someone else. It seemed like the right thing to do at the time, but we were wrong.
And then the walls started crumbling
Our Startup Crash and Burn
Coming out of a difficult 2014, we refocused on leaning up the business and developing a healthy funnel and product offering. Each month was a month of cutting costs and slowly removing our salaries as owners from the company to increase cash flow for operations and overhead.
My business partner decided to start another company and work a fulltime project for his church. This lead to him being almost completely removed from the business. As I removed my salary, I also needed to replace my income with other projects.
At first, it felt good to be a minority owner of a company that was running itself, but this didn’t last long. We met every other week to review the business and make what we thought were the best decisions for overall direction and strategy, but it seemed to only delay the inevitable.
We had three months left of the year, and what were items of concern quickly snowballed into issues of urgency. The president of our company also decided he was done at the end of the year. After just a few months of building personal stability outside the company, I had to step back in to determine our current health.
I went to my partner and to see what he wanted to do, and he was done. In about 10 months, a company built on sweat equity became a liability no one wanted. Believing there was some value in the systems and infrastructure we created, a random thought came to me... What if I assumed the company as is for full equity?
At first my partner said no, and then after a few weeks of nudging said yes to my potential offer. Before I accepted full ownership, I first wanted to do a VERY THOROUGH audit. My goal was to determine if the equity in the business was worth more than the current liabilities.
Let me tell you, the results from the audit were devastating...
A Thanksgiving Business Audit
If reporting on entrepreneurial success is a drug, reporting on failure is like going through withdrawals. For me, it was very hard to tell people the business was failing. Not just because I was embarrassed, but because I was still going through a million scenarios of what I should have or shouldn’t have done.
I decided to do an audit between Thanksgiving and Christmas. This is generally when most people want to know how the business is going. Just a year before, I was able to report that the business was setup to run itself. It was a million dollar business. This holiday, I was auditing a failed business that no one wanted. This was probably one of the most difficult times in my entrepreneurial career.
After talking to just about every client and vendor, the results were in, and it was devastating.
Financially we had $50,000 on a line of credit and we had $22,000 racked up in credit card debt. We had $30,000 in vendor back pay and 30 to 45 days worth of work to complete with only $9,000 in the bank, and no more accounts receivable. To top it all off, of the 40 clients we served that year, only three wanted to continue with us in 2016.
You’re probably wondering how we went from a million dollar business to negative $100,000 in just 14 months. Believe me when I tell you, I absolutely want to warn, preach, scream and share everything I can to save you from making the same mistakes.
In the next section of videos, we will discuss some lessons learned based on the critical functions of the business: the talent, the model, the funnel and the finances and what I would do differently looking back.
|Section 3: Critical Business Lessons: The Talent|
Coming Up: Critical Business Lessons
One of the most rewarding things about owning your own business is developing deep relationships with the people around you. We spent eight, sometimes 10, hours a day right next to each other. We shared our dreams, passions and goals with each other, and we celebrated major milestones and heartbreaks.
For many years I was account manager and though my job was to protect the client, I also loved fighting for the team. The creative, the art, combating clients with poor and toxic feedback. For most of the journey in my first startup, it felt like one big family, and that’s one of the positive things that this venture gave me. Though the business is gone, I made lifelong friends, and to me that is an irreplaceable gift.
In the next few posts, I want to share with you what I learned about leadership dynamics, becoming a career coach and not just an employer, and the cost of culture. I learned a lot about myself through this process, and can’t wait to share
Learning Leadership in Our Startup
If you’ve been following along, you know I started my entrepreneurial career in what is now a failed startup. This experience taught me invaluable lessons that I want to share with others who may be experiencing similar situations or struggles. I do, though, need to reiterate that this is my perspective looking into the past. Just because something didn’t work for me, doesn’t mean you will find yourself in the same situation. Instead, I hope there are insights here and there that resonate with you and help you learn from my journey.
In the beginning, the founder, of this venture who would later become my partner, and I really complemented each other’s skill sets and thinking. We constantly reviewed every decision, every project, every system and scrutinized ways to improve. We saw each day as an opportunity to improve. If we thought that meant better executing a service for a client, the second I walked out of the meeting, I sold differently.
My initial responsibility for the company was to handle project management and account management. Then I started adding sales to my plate, and eventually started running the business. Just as much as we iterated in our business, I iterated in my leadership.
Here are some critical mistakes I made and learned from along the way:
Involved in all the details...
Everyone is not me...
A Foundationless Partnership
Ownership, Even When You Don’t Have the Ball
Learning From Our Startup Team
We had some brilliant people on our team — people I respect and still work with to this day. Of all the hats I wore, learning about hiring, job and position agreements, coaching, and engaging employees was the most rewarding.
I knew I had to remove myself from project management in order to run the business. I’d like to share a story about trying to hire someone to function in this role. Each decision right or wrong had its difficulties.
First, we decided to hire green twice. This was helpful because we could shape and mold people according to our process and philosophy, but I was unable to fully let go in this scenario. The cost was also less, but it required more of my time, outweighing the cost benefit. Next, we decided to do a major hiring exercise and interviewed 30 people to choose just one. We had a $75,000 salary plus insurance, but the person we landed on quit within a few months because the workload was too high.
This of-course was incredibly frustrating, but we had to start the search again. We hired another experienced project manager who had managed million dollar accounts. We were a small shop in the suburbs of Atlanta serving nonprofits, and though I knew project management was hard, I had expectations for projects to be managed the way I managed them.
After 4 years in business, we had either fired or received notices from nine people, and we were a small mission-driven business that never had more than 10 employees at one time. In the midst of this, I was completely blind to the realization I later came to: we did not have a staff problem, we had a leadership and business model problem.
I will talk more about the business model later, but first I would love to share with you one of the greatest philosophies I learned about managing people.
Career Coaching vs. Employing
One thing I’ve learned about leading people, which has proved to be a huge game changer, is that the focus should be on career coaching, not on employing. In my previous venture, we started doing monthly coaching sessions with employees, and it was awesome. Though we began doing this around the time we started to decline, it is something I believe in and will carry with me.
I found a book at Goodwill — where I get most of my business books, as a side note — called TopGrading, by Bradford D. Smart, Ph.D. It is a little dated and very long, but I’ve found it to be an awesome resource. The previously mentioned idea of approaching people as a career coach versus an employer was one of the main principles described in this book.
If you genuinely care about someone, you want them to be in the best position possible to thrive and be successful. That may be in their current role, a new role in the company, or in another company. Being a career coach is all about working hard to ensure you put your employees in the BEST position possible for them.
We learned this right before our decline, which was unfortunate. At this point we started to slowly let people go one by one, month after month
The Decline of Our Startup Culture
I always thought it was strange how people always wanted to know if we were hiring more people when they asked about the business. Maybe that’s the proper way to ask if someone’s business is making more money or doing well, not sure. But yes was our answer. We were hiring.
What’s funny is having more people scurrying around the office getting work done just feels like success. And for us we were genuinely honored that people wanted to join our team and be part of our big why. It was addictive. However, in our case, it was in no way tied to success of our business.
One of the most difficult things to watch in a dying company is the energy of a passionate group of people slowly dwindle to nothing. The following are some of my lessons learned from experiencing this.
As stated before, much of our pain centered around the critical truth that we had a business model problem… In the next set of posts, we’ll share what we learned about this model.
|Section 4: Critical Business Lessons: The Model|
Our Flawed Startup Business Model
In starting up my first joint venture and watching it slowly crumble, the why now seems pretty simple. We didn’t have a strong foundation built on a good business model.
The agency model itself is very difficult to start and maintain successfully. I have tremendous respect for those who have long-term success in this space.
On top of the inherent difficulties in running this type of model, we were also serving an industry that had little to no margin for the services and products we were offering.
We had a strong why for going into business and were mission oriented. Starting with this sort of vision blindness didn’t serve us well. We were complacent in thinking our mission and why were so strong and failed to create a model that truly got at the needs of the clients we were serving.
We learned a ton of lessons from this and will highlight some of those in the next several posts.
You Need It? We Got It.
Like many service based agencies, we tried to do it all — brand strategy, digital strategy, content strategy, site ux, design, frontend development, backend development, application development, print design, film video, animation video, marketing automation, etc. We even helped clients write books. Looking back, we were getting in way over our head and spreading ourselves too thin.
We thought we were great creative strategist, but our strategies were plans we couldn’t execute. The following are some critical lessons this taught me.
Missing the Details
Our team was smart and super creative and we operated from a place of strategizing and brainstorming and believing whatever we could create in our minds, we could execute. Client’s expected us to execute as we strategized, and this wasn’t always a feasible or realistic course of action.
We had a great niche target audience. Unfortunately we were blind to the fact that we had no targeted solutions to meet the needs of that audience.
We assumed our clients needed great creative, strong brands and clear stories. While those things are helpful, it is not what they were desperate for. We learned over time, our clients needed the basics. Simple, executable plans to help with email, social, site, and more.
Our model was broken because we were so focused on creating awesome things for our clients that we did a poor job listening to what they actually needed.
When I was able to really step back, here is what I learned about nonprofits…
If you want to help nonprofits, you need to help them say thank you in a way that is personal and scalable. And after years of conversations with struggling clients, I realized it was right in front of me. They needed systems that worked and processes that were effective and manageable to implement.
In trying to accommodate the needs of small nonprofits, we never understood the founding principle of business that you have to know your customer and their needs to create a valuable product…
The True Cost to Execute
In the last post, I discussed some of my major lessons learned from not understanding the needs of the nonprofit clients we were serving. Many of our clients were small to medium in size who had never engaged a team like ours. And really, they’d never even tried to implement the types of strategies we were recommending.
As we were closing out the business, I realized that for every dollar we made executing a deliverable, we gave an extra dollar in training and support. This was a major flaw in our model. We were offering solutions too complicated for our clients to maintain or implement without support.
A great example of this was when we were building out custom sites. They were these complicated content management systems for our clients that they never ended up using. A client who also happened to be a good friend put it this way, “You sold me a BMW that we couldn’t afford the maintenance on.” For this client’s project we billed around $15,000 to $20,000. Other companies doing similar builds in the for profit space were charging $50,000 or more for the same thing.
In hindsight, even if we’d realized this with time to act, it still wouldn have presented as a problem. We needed to be charging more for what we were actually providing, but charging more would mean pricing ourselves out of the market. Remember, these are clients with little to no budget for marketing type solutions.
We thought we were doing an incredible service to our clients when really we were undercharging and overselling. This critical issues was a piece of the issue we were having with our business model in that we weren’t accurately quantifying the work and costs incurred for specific projects.
Too Many Hats in Our Startup
Over the last several posts, I’ve been discussing some key lessons learned about the flawed business model we employed with a business partner in my first startup I was a minority owner in. Today I’ll discuss another gap in the model around trying to accommodate lots of disparate needs. In short, we wound up wearing too many hats and creating several mini-businesses.
We had eight employees and eight unique individual skill sets. One person did development, one did design and one did video. If one person was sick, or if they left, about half of our projects were typically at risk. In the case of leaving, by the time we found replacement talent, we’d have another hole to fill. We were constantly in flux with talent and skill sets, which hurt us in consistency and execution. The talent we did have were like little mini kraft shops, because no one was a generalist or could pick up the specialized work others were doing. With no specific products, this was even more compounded. We had very specialized people working on custom projects with no standard offerings or model.
In early phases of business development, there is nothing wrong with trying out multiple models and offerings until you truly understand the needs of your market. But by the time we tried to transition from custom offerings to particular packages and services, it was too late.
Seeing and understanding this helped me realize that I was shifting from one type of business owner to another. Next time, I’ll explain this and hopefully share some insight that resonates with you in experiencing you’ve had or maybe find yourself in the midst of.
Two Types of Startup Founders
After talking to several business owners, I’ve noticed that they generally fall into one of two categories. There are those who believe their business is God’s gift to the market. No one can do it like them. They’ll keep it alive until they die, and often they become trapped by the belief that if they just work harder and stay up later, or if the economy was better, success was right around the corner.
And then there are those who believe the market is God’s gift to them. They live to learn about the market and really study it. They seek to empathetically see the needs of their market and sacrifice focus and dedication to serve that market in a beautiful way.
I love the idea that every problem has a solution, but not every solution a problem… A flaw in the business model we employed in my previous venture was not having the discipline to truly validate our customers, their needs, and the right solutions for them.
It’s less about having amazing ideas, market innovation, being resilient, and more about having a radical empathetic relationship with the market you serve. There are some incredible resources out there to help you build a solid business model… instead of trying to reteach, I will just pass these along for your reference.
During the next few posts, I’ll share with you another critical function of the business that we struggled with and a function that, in my opinion, is the divider between a struggling business and a thriving business…
|Section 5: Critical Business Lessons: The FUNNEL|
Our Startup Funnel Was Shortsighted
Whether you call it the funnel, the customer’s buyer journey or the value exchange, all of these concepts essentially mean you need customers. Once you understand what the problem is you are trying to solve, you should be more equipped to fill your funnel with more of the right customer.
In this startup, we knew our target customer: nonprofit directors and founders. Since we didn’t know our product, we were constantly responding to the urgent requests of our customers. As the company grew in revenue, responding in this way became difficult to manage. We were a small team under 10 billing around $50,000 to $70,000 per month and most of the projects sold in and started in the same month.
This might work great when you have 100 widgets on the shelf that you need to sale, but when you have to go through creative discovery, concepting, designing, building and delivering in 30 to 60 days, not so much. No wonder we started experiencing burnout. The project managers were lasting about four months before getting physically sick and experiencing panic attacks.
Because we had high volume, we thought we had a healthy funnel. In fact, we were so focused on managing the work, we really couldn’t think about much else. This led to some critical mistakes we made related to our funnel and in the next couple of posts I’ll share some things I wish we had done differently.
Our Startup Sales and Operations
Early on in the startup, I was responsible for sales and operations. You have to do everything when you're small, but as the company grew and the project load became exhausting, it got to where I was so tired of trying to execute with quality that I lost motivation to sell. And I love to sell.
But the team grew and the cost of the company grew, and now there was pressure from above and below. It this time, I had a pressure to close $35,000-$45,000 a month, and pressure to project manage and account manage another $35,000-$45,000 a month.
Remember, we were serving nonprofits, and the breakdown went something like this:
Eventually, we burned through our networks and extended networks in about four years. This in-network method was in and of itself a mistake. More on that next time.
Developing Industry Value
During this post series, we’ve been detailing the rise and fall of a first startup venture. We were a creative agency with strengths in brand strategy and creating big experiences. We were not strong in marketing strategy. Creating value in your industry could have been a great way to extract value from your industry, and we weren’t marketing ourselves as industry leaders in anything.
Through various forums like webinars, seminars and public events, we should have been developing a value exchange between our brand and our potential customers. As the service provider, we needed to start the conversation, which means we needed to initiate the value…
Because we were spending so much energy trying to execute, as discussed previously, we never developed a system to generate value outside of our existing networks. Instead we maintained embarrassing customer retention, eventually burning through all of our relational capital. With little to no focus on providing value in our market, we ran out of customers.
We were blinded by hard work and didn’t see the threat posed by not developing a brand value that was transferrable inside and outside of our networks.
No System, No Measurement, No Accountability
In a previous post, we talked about the broken funnel we had feeding our business, which eventually failed. If you don’t have a system, you also have nothing to measure yourself against. And if you don’t have anything to measure against, there’s no accountability.
With no system to measure, we only had two ways to gauge our success. Was there money in the bank? Were our employees busy? With these two measurements, we were driving forward while watching the rearview mirror.
Here are some difficulties we faced with these two measurements.
Did we make money?
Money is a lag measure resulting from the activities of the funnel. We didn’t have a system to set direction for what activities needed to be accomplished on a daily basis to meet weekly, monthly, quarterly and annual goals.
Is the Team Performing at a High Level?
Our measurement for employees became, did they look busy? We were busy and if someone on the team did not appear as stressed out or as busy as we were, we concluded they either did not care about the cause or were not pulling their weight.
In the absence of a true business model, we weren’t selling, we were accepting project work. We were paying market salary for a salesperson and a larger salary for a president to find work. This was a HIGH cost. We thought that if we spent the money on the right people, the business would work. It would be easy to blame the team we had, but in reality we had no process for the funnel, loose measurements, and therefore, retrospective accountability… Even if we didn’t have all the right people, having a system with measurements and accountability would have revealed that sooner so we could do something about it.
As you can imagine, a broken model and a neglected funnel eventually impacted the finances… We’ll get into that later.
|Section 6: Critical Business Lessons: The FINANCES|
Desperate for Finance Mentorship
Seeing myself burn out and watching the startup I was a part of decline, there was a lot to be learned about the finances. We experienced early success because we had the energy to sprint. But as you probably know, sprinting is a hard baseline to maintain.
As the complexity of our projects grew, the demand for attention started growing. The need for systems in every area of the business grew, including in our finances. The problem was, we weren’t financial experts and were desperate for mentors.
I remember asking our accountant questions about what we should do, they reposed the question to us asking what we wanted to do. This was incredibly frustrating. Millions of businesses in the world do this and do it well. Why the hell couldn’t we find someone to show us the best way to set-up the finances?
Today I have my tax advisor, a family money advisor, and a few CFOs who I consult on a regular basis. I’ve learned not to be afraid to ask for their mentorship and guidance. Scheduling a lunch once a quarter can go a long way!
Stay connected over the next few posts as I’ll go into more detail on some of the specific lessons I learned about the finances.
Finance Management in Our Startup
Most of us don’t start our own businesses dreaming about spreadsheets, and calculations, and all the other fun of managing the finances. However, this is an extremely important aspect of any business and it’s better to understand and have a good command of them versus experiencing financial issues, like we did in our first startup.
Here are some tips I learned along the way and picked up from people far smarter than me. This is my perspective and the things I’ve found helpful, so hopefully you can glean something from them too.
Simplify the financial management:
Try to make managing your finances simple. The more complex, the more difficult they will be to manage. The following are some ways to simplify:
These principles apply whether you’re an independent contractor or a multi-million dollar business. Anywhere you see a lot of energy to manage a system or process, look for ways to reduce complexity.
Simplifying your financial processes is critical to making the funnel work. The more prospects you have in your funnel, the more you are able to work with clients efficiently and effectively. If client’s push back on your processes or don’t value your systems, they might not be worth it. Focus on working with customers that support creating a value exchange and set-up the systems and processes that align to these types of relationships.
The New Reality of Bleeding Cash
If you haven’t been following along, the last several series of posts have detailed the rise and fall of my first startup experience. In the last few posts we’ve been discussing my lessons learned about managing the finances.
My former business partner was a Dave Ramsey believer and started the business with no debt and no desire to acquire any debt. At the end of 2013, our finances looked like this:
This is pretty good right? Especially for a startup that provided custom creative services. At the beginning of 2014 was when we started to take the hits. Previously we discussed an employee issue that wound up costing us $50,000 or more, eating up our cash reserves. We also discussed previously the issues we were experiencing with selling a high percentage of work that had to be started in the same month because we did not have a healthy backlog. With no cash reserves, we had to close $30,000 every 15 days to break even. This started our cash flow dance.
When our payroll started to increase, our payroll taxes grew to $10,000-$15,000 per month — we hadn’t accounted for this high of an increase. We were also overpaying taxes through our W2s as an s-corp. To top it all off, we decided to get a $50,000 line of credit and a $25,000 credit card early in the year to help with cash flow.
At the time, taking on debt was perceived as a way to increase our operating capital, but we quickly found out it was pumping blood into a animal with a severed artery. Really we were just delaying the inevitable for another 3-5 months.
Then something I was unable to see on the books until it was too late which was a final method to gain operating capital. The president was underselling work to cover payroll while hiring vendors to execute the work. With vendors not submitting invoices until after the work was complete, the vendor accounts payable did not hit the balance sheet until 45 days after the vendor was approved. Which bought 45 - 60 days of cash. This also increased our debt by $30,000 before I could stop the bleeding.
At the end of 2015, our president communicated that he was stepping away, the majority owner and founder communicated he no longer wanted to run the business, and I completed an audit, this is what the finances looked like:
All of this was just a few weeks before Christmas break. And this friends is how a business went from a $1,000,000 startup to negative $100,000 in about 14 months.
Responsibility in Failure
Being a minority partner and watching a startup crumble around me, I knew it was time to exit the partnership I’d entered. I worked hard on auditing the finances to see if the business had enough equity to justify taking on the debt that we’d collected, and I came to the conclusion that it just wasn’t there.
I remember meeting with the team in late November and sharing with them the state of the company. It appeared the last iteration was to close out the business.
Closing out the business was hard, but closing with integrity was even harder. We worked for several weeks unbillable to finish up our ongoing projects, taking some of the accounts and giving them to our contractors. The founder and I managed, worked and called each client to talk through what closing out projects would look like.
We kept sharing the news and having the same conversation over and over again. We could have called all active clients and told them our doors were shut. We could have called the vendors and told them we couldn't pay them. But we did our best to finish strong.
Though I was frustrated, disappointed and tired, I realized I had to own my part in how we got here and take action and responsibility for that part. I could’ve tried to justify my side of the story, and walk away from the debt that was left over. The debt was not in my name, and we could have simply communicated to the vendors they were not going to get paid.
I was a minority owner, of course I was partly responsible for the state of the company. Oftentimes, this is where things get nasty between partners. Fortunately the founder, majority owner, and I set down and looked at the situation and did our best to close it down appropriately.
Two days before Christmas of 2015, the founder and I set down to determine what the final close out looked like of a startup we labored 5 years and countless hours trying to build. For me, this included owning my part of the debt. We had our attorney draft paperwork stating that if I owned my percent of the debt, it would allow me to pay my way out.
I wanted to ensure our contractors were paid. This was primarily out of respect for them as people and for their work, and if they chose, I wanted to continue to work with them in other ventures. We itemized the vendors I would take responsibility for paying, which totaled about $30,000 plus 35 percent for attorney’s fees, and signed the paperwork. That concluded my 5 years of working and 24-months of ownership in a small business that failed.
I’ve shared a lot of the lessons learned and oversight looking back, but to round out this series, in the next few posts I’ll discuss my major learning from this experience.
|Section 7: THE TRANSITION FROM FAILURE|
The Greatest Lessons in Startup Failure
The experience of pursuing the entrepreneurial path, starting something from the ground up, and deciding to take part ownership in a business have taught me a lot.
These are all critical lessons I learned but the greatest one is this: life and business have taught me far more than I could ever have learned in school or anywhere else. I am to this day incredibly grateful for the people I worked with, the skills I learned and the experience I gained in being part of what was an awesome company.
Failure is tricky, because failure feels like failing. It makes sense right? But you only become a failure when you decide to stop learning from your mistakes.
So now it’s on to the next venture… but first, a necessary step in transitioning from one startup to the next… I’ll share my thoughts on cleansing and starting fresh next time.
I could have walked, but I decided to take a different approach. One that allows me to continue with integrity today.
The big lessons through it all. Please comment, ask questions about any of these lessons. This is an overview of the critical lessons from my five years in a startup and 2 years as a minority owner.
Cleansing from Failure
With everything in life, there are seasons of pruning and cleansing. Just consider any recent mistakes or failures as an opportunity to cleanse.
Here are my steps for cleansing, both personally and professionally.
Finalize your responsibilities and take care of your debts. I still owe a little money, but most of my debts are paid from my experience closing out a once successful startup.
Have honest conversations with family and close friends about your struggles. Get it all out. Have these same honest and open conversations with your employees and friends in business.
Purge your emails, paperwork, and all the work items left over from previous ventures or businesses.
Declutter your house and personal life. What can you do away with? What can you get rid of? Clutter has this way of developing around us when we’re consumed by business.
Cleanse your body. Whether it is exercising, juicing or meditating, give yourself the physical capacity to heal.
Journal your experiences. Your successes, your struggles, what you learned. Time for self-reflection can be a powerful thing.
I meet people each week that are facing similar challenges that I’ve faced. I’m desperate to share what I have learned so you can strengthen your ideas, your startups and your companies.
The greatest joy I have received after this experience is the opportunity to apply everything to the next venture…. It’s time to start this next adventure and I hope you’ll follow along, connect and come along for the ride!
This series has been an overview. There are plenty of how to's and 10 steps to... but few people share the emotional and story of success and failure. With that, I know we all need the, "so what do I do now" content. And my hope is that you will ask questions throughout each lecture and I will add that content as requested.
There are a million practical pieces I learned, and would get lost trying to determine what and what not to share. I will let you determine what is important and add content accordingly.
I will also be updating videos monthly on my progress and what I am doing now, so stay tuned!
Thank you for trusting me and going on this journey with me. I can't wait to hear more of yours!
I am bryan j noel and I am an aspiring serial entrepreneur.
Though I was unaware of the terminology, I have been an entrepreneur since high school. With our own resources (not our parents), a couple of poor kids built a recording studio that ended up being 5 rooms recording artist from all around the state. Since then I have moved around but have had the incredible opportunity to serve startups to international brands with operational and creative strategy.
Along the way, I share stories of gratifying hope and crippling self-doubt. I live in constant war between the problems I see and the rate in which solutions can be developed to solve them.
I have launched successful and unsuccessful businesses and love to share everything I can to help others NOT make the same mistakes I have.