If you're inexperienced at business, you can forget how important it is to go with your gut feelings.
It's a cliché for company owners to talk about going with their gut feelings. But if you're inexperienced at business, you can forget how important that is
It's been a little over two years since I was forced to sell my first company. The experience of running that company taught me volumes, but two important lessons were (1) be careful whom you hire as the company grows; and (2) be damn careful where you get your money. What got me into the most trouble, and what led to my mistakes in hiring and choosing investors, was that I didn't stick to my gut feelings. I didn't know how much I knew about running my company, how good I was at it. As it took off, I ended up deferring decisions to more-experienced businesspeople, believing they knew more than I did. That proved to be my downfall. Here's the story:
On July 4, 1986, at my family reunion, my cousin Adrian was visiting from England and showed me a brochure of, of all things, toilet partitions -- the ones you see in public buildings. They were beautiful and didn't look like anything I'd seen here. Adrian and I talked about introducing the product in America. That was the start of a great adventure. (See "With a Little Help from His Friends," April 1989, [Article link].)
Coming from the entertainment industry, as an actor, I found myself naïve about business, or so I thought, when I started Braendel and Associates, in November 1986. (We did business as Thrislington Cubicles.) But as I found out later, it was an entrepreneur's dream to find a revolutionary new product and introduce it into a dinosaur industry. Not only were those partitions beautiful; they were indestructible.
From the start we broke all the rules. Everyone told me I was crazy to go national right away, for example. But the product was so great, I was afraid somebody else would step in and take away the market. So we went national. At the trade shows, we didn't have pretty women sitting around our booths to bring buyers in. Instead we were slamming the hell out of the partitions with a hammer. We were spraying them with graffiti and having a great time. And it worked.
Experienced businesspeople said many things to me in my first year in business. One was, "Don't give the product away." Well, that's crazy. Every city I went to, people asked, "Where are your partitions installed here?" I said, "OK, you give me the worst situation you've got in the worst school in your city, and I'll put one in for free. I'll prove to you how good these partitions are." And we did that. We even gave a 10-year guarantee, which was unheard of in the industry. We were onto something big.
Halfway through our second year, our sales were on track to increase by 300%, and it looked as if we'd continue that pace for several more years. A partner in a Big Eight accounting firm (now a Big Six firm) came to see us and signed us up at a substantial discount for our audits in the coming year. Members of the firm also became our business consultants. It was so overwhelming and so exciting that someone that powerful would come in to help our little company.
I realize now that that's when I began to lose my momentum. I did it. It wasn't them. All along I had been asking people to poke holes in my ideas, which we then worked to fill. Now the consultants were poking holes and asking me questions I didn't understand. They asked for my business plan, and I didn't know what they were talking about. I was really impressed. (In retrospect, I did have a business plan in my head, and we were following it. I just didn't know the terminology.)
Since I thought the experts knew more than I did, I listened to what they said, even when it went against my gut feelings. That was my fault, not theirs. They had every intention of helping me, and they believed in me, but they were applying their big-company experience to a company that wasn't even up to $1 million in sales yet. I wanted to step down as president, for example, and get somebody in there who really knew how to run a fast-growing company. I'm good at going out and making something happen, creating something. I'm not good at making it run. Well, they said, no, absolutely not. That anybody who was going to invest in our company -- we were looking for investors at that time -- would invest in me.
So I thought, well, they're right. They're a Big Eight accounting firm. (Their business plan, by the way, came at the bargain price of $10,000!) That was when I first started to relinquish control without understanding, without going with my own feelings. Until then I had disregarded advice that didn't make sense to me. We'd thrived by breaking the rules.
I made the same mistake in a couple of hiring decisions. I knew whom I wanted to hire. But my consultants recommended M.B.A.'s, people with big corporate ideas. It was like mixing water and oil. We were an entrepreneurial company, and now we were getting people working for us who didn't have a clue what we were about. A lot of damage was done before I fired them.
At the time, though, I was seeing a dream come true. Customers loved our partitions. And we had so much fun. We were establishing a product in a lethargic industry. Our receivables were never over 45 days; most were under 30. We were 100% on time. (We maintained our receivables schedule and our 100% on-time delivery the entire five years we had the company.)
By the spring of 1989 our sales were going sky-high. We were making quotes all over the place. But after that first quarter, we began to slow down. We were running low on money, and I was scared. A lot of my fear was for the investment my parents had made. I just couldn't lose that.
In June we found a family foundation that was interested in giving us about a million and a half dollars, with a draw on another million and a half, for more than 50% of the company and a buyback program. Within a few days a Fortune 500 company that had been following us from the beginning was offering $3 million outright for 30% of the company's common stock. And it would get the money to us within two or three weeks.
I was most excited about the business guidance the big corporation would be able to give us. I had no intention of staying in this thing myself forever; I wanted to go out and make films, and I wanted to make the company really successful so I could afford to do that.
I decided against the family foundation and made a deal with the large corporation at the end of July, expecting the money in a month at the latest -- we'd projected we would run out of cash by September. In October the company gave us just enough to pay off vendors and pay salaries. In the meantime we couldn't afford to advertise. We didn't have the money for brochures. We couldn't travel to visit sales reps around the country. We finally got the balance the last week in December. It was going to take us four to six months simply to catch up.
The expertise didn't turn out to be what I expected. Too much of our time was spent responding to the board's questions -- checking on the markets and all that crap, which we hadn't done before and which didn't need to be done then. The thing that needed to be done was to go out and get sales. Instead we had to spend money on consultants and come up with answers to the two corporate board members' questions, because they owned 30% of the company. The board meetings were horrifying. It was unbelievable. Every board meeting was an attack on me. Worst of all, I was beginning to question myself, wondering if I was in over my head.
Finally, I came to my senses and took back the reins. I hired a president. In the last year, we managed to get the company profitable. Although we didn't have enough capital to keep it going ourselves, we were close. And in the end we were able to sell it to a competitor. I still think we could have pulled it out, but we were too tired. We were too beaten down -- but that's another, longer story. At least we were able to pay off our investors, our vendors, and our lenders -- and, most important to me, my parents.
People say that the worst thing in starting a company is to be undercapitalized. Well, that's not true. The worst thing is listening to the wrong people and not going with your gut feelings when you make your final decisions -- and then losing your enthusiasm. That's the worst thing. I am absolutely certain I would still be in business if I had stuck with my own intuition, my own vision for Thrislington.
I'm starting a new company in the educational field now. I'm sure I'll make mistakes, but I will never stop trusting my instincts. It's a hell of a lot of fun to be more confident -- in large part that's because of the lessons I learned the first time around.* * *
Gregory G. Braendel is writing a book about his initiation into the business world. Its working title is There Are No Handouts in Survival Training.