When Entrepreneurial Success Requires Throwing Your Business in the Garbage
Gallup says risk takers are enthusiastic about taking on challenges, have a highly optimistic perception of risk, yet take a rational approach to decision making in order to mitigate risk.
If you've ever watched programs like Property Wars or Flip This House, you'll have some idea of the risk baked into Spartan Value Investors' everyday operations. Company representatives turn up on the courthouse steps in Birmingham, Alabama, and bid aggressively on foreclosed properties. "We are fighting with competitors, hollering and getting into arguments, bidding competitively, and you have to pay cash," says CEO Clayton Mobley. "You buy property with all encumbrances. So inherent in the whole model is risk."
Mobley took his first big risk when, at 24, he founded Spartan after leaving a large corporation through whose hierarchy he was rapidly rising. "I was giving up a six-figure salary, so I did my homework," says Mobley. All that research didn't prevent the foreclosure market from drying up just as he was making the jump. Mobley and his wife endured six months of Campbell's Soup and Ramen dinners before the supply of foreclosed properties revived. Until then "I was working 100 hours a week, doing anything I could to make a deal," says Mobley.
For four years, Spartan hummed along, buying properties, fixing them up, and reselling them to move-in-ready buyers. Annual growth was a healthy 79 percent, with profits of $249,000. Eager to expand, Mobley began investigating other markets, such as Memphis and Atlanta, growing frustrated when he discovered his metrics there weren't the same. But during his travels, he came across a company with a different model: buying properties, renovating them for rental, and selling them to investors while continuing to manage them.
By adopting that model "we could quadruple our growth rate," says Mobley. "You could do the math sitting at your desk five minutes and go 'Holy crap, this could be phenomenal.' "
But the risks were enormous. The new model would require retraining most of the staff. The customer base would change completely, from local consumers to investors based out-of-state or in other countries. Spartan would need to master entirely new skills, such as leasing and property management. Marketing costs would rise from nothing to $20,000 a month. Overall, expenses would rise 322 percent. "We had to spend more money on one quarter than we were spending in an entire year," says Mobley.
"The upside was we would be able to grow our business and have a more sustainable, long-term model providing better benefits for investors and employees," says Mobley. "The downside was, if we couldn't do it right in six months, it could have shut us down."
True to his nature, Mobley embarked on nine months of intensive research. "I had all these questions...I needed to know what we were getting into," says Mobley.
Finally, in 2012, Mobley pulled the trigger. Thanks to the new model, growth shot up to 440 percent. Profits rose 138 percent.
"You do all this research, study on it, stay awake at night," says Mobley. "You do everything you can to stay objective and make the right decision. But at the end of the day, you have to make a bet on yourself."