Starting a business? Don’t make these three mistakes I made.
Hi! A little disclaimer before I write the rest of this post. I am not a guru. I am not a super entrepreneur. I am not a rock-star and I’m certainly not a certified business adviser.
What I am is a small business owner —my company sells digital marketing services to other small businesses and have been doing so for almost three years. The operation went from two to nearly fifteen team members in a relatively short amount of time and we currently turn over more than 1MM per year. We get paid in monthly retainers.
There will come a time when your business starts running at capacity and at that stage you’re probably going to be looking to add team members to your company in order to keep up with demand and hopefully grow.
Here are the three biggest mistakes I have personally made along the way and I hope this will be useful to someone like you. I don’t want you to lose hope :)
I started off with the wrong business partner and didn’t really worry about a shareholders agreement.
Starting the business was so exciting! All I cared about was to start attracting our first clients (AKA cash-flow) and get our brand out there. I took the easy route to get a business name and entity sorted out by a third party. My attention was all focused on what to call the business and how to market ourselves.
Getting little things done like setting up bank accounts and insurance policies were a pain in the ass. A shareholders agreement seemed like a huge pain in the ass, and besides, we were in this together and were going to take the business world by storm, right? Right? Wrong!
Just when we were starting to do nicely in terms of profit, my business partner (at the time) had a sudden change of heart and wanted out. Things turned ugly and it ended up costing me more than I had made over the course of 8 months. Between us, there were three options put on the table.
- Either slowly bleed the business to death by losing most of our clients over the course of 4–6 months because I wouldn’t be able to fulfill our service to them by myself.
- I could have walked away and taken 95% of the clients with me to a new company because I was the one who brought them in.
- Pay way too much money to my ex-business partner, suck it up for nearly another 6 months and push forward.
I chose the latter because both option 1 or 2 are unethical and I were never really an option.
This could have all been avoided if we would have signed a shareholders agreement from the very start. For this reason, I highly recommend you do this and hope you’ll never have to use it.
I didn’t see the company as a multi-million dollar company, so I never planned for it, thereby limiting its growth potential in a shorter amount of time.
This is something that came to me almost as an afterthought. To be honest, the business was more profitable early on due to lack of significant overheads and this lured me into a false sense of security. Only once we had to start adding more people to the team, move to a bigger office space, spend more money on tools, equipment, cars, laptops, phones (and contracts) etc, I found out that there’s a fine line between top-line and bottom-line revenue.
The cost for one additional staff member is about 3 to 4 average paying clients per month just to break even. I didn’t start a business just to break even!
If I would have properly done calculations in the beginning, factoring in growth phases, I would have priced our services differently from day one.
We’re currently revising pricing structures and service offerings to help us scale and make sure we have enough capacity to deliver the service our clients pay for.
The most important area of improvement we are working on is processes, procedures and automation. Staff members are incredibly expensive and probably 50% efficient on a good day (even if they don’t think so :)).
A lot can be fixed by making sure everyone follows certain workflows and procedures and that if there’s a task that can get automated, we do it. Tools like Zapier and IFTTT can be hugely beneficial for anyone who is trying to streamline activities and lower the need of human input.
This can be something as simple as getting a notification on Slack once a client has uploaded a design brief in Google forms, without having to wait for an email from the client that says they uploaded it. The tiny amounts of time saved everywhere on every project and minimising the margin of error really add up to days saved every month! It also reduces stress and frustration within the team which ultimately leads to better work.
Over time some accounts became so big that 20% of our clients were responsible for 80% of our cash-flow. And then, you guessed it — we lost a big one.
This was a very tricky situation and the solution is almost counter intuitive because you want to spread the weight of income, which means you’ll need to balance the books better by either dropping the 20% clients prices down (no) or lifting the other 80% clients up on the revenue scale (yes).
Of course, just when everything was going great, there was a downturn in the marketplace in which our biggest client played. Their first cost-cutting exercise unfortunately included all their marketing and we lost them to no fault of our own. This made me realise that no matter how good your work is, there’s always a change of an external event happening to screw you out of a great client. It can and will happen to the best of us.
This is a shit situation — people on the team had worked full-time on the account and did some great work. Now, they were practically without any work because a lot of the other accounts were new to them and they had to get up to speed which caused frustration both internally and externally.
I don’t think there’s a clear solution for this problem; you’re not going to say no when a client wants to add a few extra 0s to their monthly payments. Just make sure you don’t rely on that income and stay frugal with your spending!
Business life has been a real roller coaster for me so-far but I love it — even if it keeps me up some nights. There’s nothing better than the feeling of knowing you’ve created something out of thin air and that you’re helping your clients with their businesses, your staff with jobs and growth opportunities and you can support your family.
One last tip I’d like to pass on; Love what you do. Don’t do it for the love of money. If you love what you do, own it, do it and teach it. Money and success will follow.
Here’s to your new business!