"We've learned to pilot things," says Alan Khazei, who with cofounder Michael Brown runs City Year Inc., a nonprofit urban peace corps for 17- to 22-year-olds in greater Boston. The venture was originally approached as a nine-week summer pilot rather than a yearlong project. And changes in the program have been tried in small groups before being launched full-scale.
"We've really tried to build in time to evaluate what we've done," says Khazei. He and Brown hope to take their volunteer-for-a-year concept nationwide but don't plan to expand until they've honed the program a few more years in Boston.
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If You Don't Have Experience, Buy It
The strongest companies were led by people with experience in their industries. Companies started by people new to their fields didn't fare as well. It's all about respecting the marketplace -- why waste time and money managing from ignorance? You have to know your business, and if you don't, you'd better find someone who does.
ACT, Rusmar, and The Plastic Lumber Co. have all carved out somewhat comfortable niches for themselves. ACT founder Wallace C. Leyshon says experience has made the difference. "Most of us here have been at this business a decade," notes Leyshon, who was business director of a division of Motorola Inc. before starting ACT. "We probably have a little higher probability of developing proper strategies than people who thought out their businesses over a shorter period of time."
Rusmar, the landfill-foam company, was founded by a scientist who was quick to bring in another chemist with experience in marketing and sales. Founder Paul A. Kittle also hired Arthur Andersen Co.'s emerging-business group as a resource. As a team, they brought revenues last year to a profitable $1.5 million. Similarly, the founder of Plastic Lumber (a manufacturer of "faux wood" lumber products) hired a key technical specialist in plastics manufacturing right at the start. Today Plastic Lumber is negotiating with some large companies that would, in return for processing, provide it with capital, long-term raw-material contracts, or technical assistance.
When expertise was needed, smart companies didn't just make educated guesses or even turn to consultants. They made seasoned people part of their crews. Those that didn't hire the necessary know-how -- including Video's 1st, Sieben's River North Brewery, Oualie, and Landmark Legal Plans, all of which are now dormant -- didn't fly.
Your Competitors Aren't Dumb
Smart founders knew that starting out without the benefit of experience would hurt them. They also recognized that competitors are to be respected. Because even if you'll be pushing a product or service that represents an improvement on what's out there, your competitor still has one thing you don't: a viable business. When start-ups ignore that, they turn arrogance into red ink.
When our expert panel reviewed the plan for Sieben's River North Brewery Inc., for instance, one competitor cautioned that food at the Chicago restaurant should be kept simple. Another warned that unless one person took responsibility, details such as "making sure the salt-and-pepper shakers aren't greasy" would be missed.
Sieben's shut down this past September. Cofounder Bill Siebel concedes the main mistakes were underestimating the challenge of running a restaurant properly, and not having a restaurateur for a partner. "There were 180 people working on the restaurant side, and one on the brewery," he says. "That's how our headaches balanced out."
When we talked to our experts about the Queen Anne Inn Ltd.'s prediction of reaching 80% occupancy in its third year, four of them said it was unrealistic for the Denver operation to base its profit-and-loss projections on such high occupancy. Four years later the inn is finally profitable at nearly 70% occupancy -- after raising its prices each year.
Richard N. Keener and Leif Blodee, founders of furniture manufacturer Keener-Blodee Inc., in Holland, Mich., thought they could sell $1.7 million worth of chairs their first year. But one analyst said, "For them to expect to be able to whack 7,100 units out of somebody else's hide is a gross miscalculation." This past December the bank auctioned off the company's equipment. "We overextended ourselves," says Blodee. "We tripled the size of the plant and then tried to build sales, and the sales didn't arrive."
The point is, all these companies should have learned more about what was coming down the pike by studying the competition -- really studying what worked, what didn't work, what expectations other players had developed about the market. There rarely is a reason to think life is going to be easier for a new business just because it's new. "What would make companies smarter? Look at the examples of others, and don't assume those companies make mistakes," reflects Buddy Systems' Tom Manning.
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It Isn't the Sales. It's the Sales Cycle
No founder has ever overestimated the amount of capital necessary to get started or the amount of time it will take to be legitimated by the marketplace. You know that; it's boring. But what a lot of companies repeatedly miscalculated was the sales cycle -- the length of time between the first sales pitch to the customer and that customer's actual purchase.
Robert P. Bennett, founder of Micro-Fridge and a management novice when he started out, was caught off guard when sales to hotels didn't take off as he'd anticipated. Bennett proposed that they test the company's units in their lobbies and survey their patrons. Bennett found that 80% of those who tested the MicroFridge ordered within 45 days -- faster than expected -- but the test period still added an unplanned month and a half to his sales cycle.
Says Frederick A. Cardin, founder of the O! Deli Corp. chain of franchised delicatessens, "Our growth was substantially slower than I had hoped, because it can take a long time to get stores up and running in an office building." Landlord negotiations took longer; sites in new buildings had to wait until the facility was built and leased before opening; units replacing existing delis had to wait until leases either ran out or were bought out by the landlord.
