Want to hear about somebody else's business regrets? Seven Inc. 500 company founders tell all.
Behind every successful CEO probably lurks at least one regret -- the one strategic move he should have made earlier, the one project she should have bid for more aggressively, the one person he should never have hired. The best, or the luckiest, CEOs learn from their mistakes and get an opportunity to rectify them. But as we learned from the stories that company founders shared with us, even the ones who get a second chance can still feel the repercussions from their moves for years afterward. And the lessons they gleaned stay with them and influence their business decisions in sometimes surprising ways.
Regret 1: Being distracted by a buyout proposal
Company: SmartDM (#127), in Nashville
Business: Direct marketing on- and offline
CEO: Richard Maradik
"It was a classic story," says Richard Maradik. "It was a great offer. We were strapped for cash." In 1997 the direct-marketing company that Maradik and his partner, Jay Graves, had started was only two years old. It had just $1.8 million in sales and 10 employees, but already a large multinational company had come along, eager to take a large equity stake in the young business. The suitors promised growth capital, a guarantee of a working line of credit at the bank, and other much needed financial support.
The partners, exhausted after two years of 15-hour days and an uncertain future, were ecstatic. "I think every entrepreneur is lying if they say they're not working toward an exit," says Maradik. "We jumped at the term sheet." That's also when they began taking their eyes off the ball, he adds.
Caught up in the impending merger, "we began to assume we were part of them," recalls Maradik. He and Graves attended corporate meetings and began to ready their systems for integration with those of the acquirer. They also went over the financials with the suitor's executives. "We spent a lot of time looking at the books," says Maradik, "but not at the business."
As the merger talks dragged on, the partners began to neglect their core business. "We ignored sales, we ignored margin, we ignored cash flow -- because we assumed the deal would go through," says Maradik. "We spent too much time working on the deal we thought was going to happen. It almost killed us."
Before the partners knew it, they were in the hole for almost $200,000 and were having difficulty making payroll. At the 11th hour, when Maradik and Graves thought they were about to sign on the dotted line, the suitor changed the terms of the agreement. Suddenly, Maradik says, "they wanted to buy us out entirely. We'd be just employees. We were in a weakened position. They knew it. We knew it. We had two choices: we could fight or we could cave."
The two men took a deep breath, rejected the offer, and went back to the drawing board. They tapped their already drawn-down savings accounts and took no salaries for six months. This time around they were determined to do things right. "Exercising all my humility," Maradik says, "I'll admit we were running the business wrong," even before the brush with the acquirer. He was 25 when he started the company; his partner was 23. "We didn't really know anything about P&Ls, cash management, balance sheets," says Maradik. "We didn't know how a valuation was done."
After their near-death experience, "we gained a healthy respect for the numbers," he says. "We put in internal controls and clearer goals to profitability. We're always monitoring our numbers to spot trouble."
Clearly, the partners are doing something right now. This year the company, which has branch offices in Atlanta and Las Vegas and employs some 40 people, will have revenues of more than $9 million. And Maradik and Graves have raised $5 million in venture capital and are on the cusp of a second round of financing.
"We really learned what drives the value of the company," says Maradik. "It was a bittersweet lesson."
Regret 2: Not seeking financing sooner
Company: Granite Systems (#77), in Manchester, N.H.
Business: Designing software products for the telecommunications industry
CEO: John Borden
"I regret not having stepped on the accelerator a little earlier," says CEO John Borden. He started Granite Systems in 1993 as a consulting group, after having served as a consultant with the Boston-based Yankee Group during AT&T's divestiture. But about two years later, when the opportunity came along to develop and sell a new software product, his customers offered to give him funding for it. Borden then got so absorbed in running the business that he just never got around to looking for any further financing.
Borden and his chief technology officer were managing everything. "We were very caught up with solving the problems of our customers, and the business was doing well. There's only so much that two people can do," he says. "But then we stepped back and realized that we had to make the choice between having a lifestyle company or really growing the company."
If only I'd gone for outside financing sooner.
At that point Borden was financing the company solely with operating cash. And although he is sorry he didn't seek investment funds sooner, he says the emphasis on cash flow "gave us healthy habits" and a workable business model. "By year three or four, we probably could've been ready to go out and do a first round," he says. But he waited until October 1998, when the company raised $2 million. "If we had gotten money sooner, we would've been able to set up a sales and marketing operation and develop a diversified product line," Borden says. And indeed, as soon as he got the first round of financing, he brought in a solid management team, focusing on sales and marketing. "It's made all the difference," he says.
This year Granite Systems has attracted nearly $23 million in a second round of financing and has 96 employees, up from 25 in 1998. And despite the pride Borden feels about his company's self-sufficient early years, he is more confident now. "I don't lose as much sleep at night over meeting payroll," he says.
Regret 3: Not trying to go public sooner
Company: TelStrat International (#232), in Plano, Texas
Business: Adding remote capabilities to telecommunications systems
CEO: Bob Carroll
Bob Carroll is an entrepreneur who values his independence. The CEO of TelStrat, who had years of experience in engineering and management and another start-up under his belt, was determined to keep the business in the family. In 1993 he'd "started it as a private company," he says, "and I wanted to keep it that way. I wanted the autonomy."
He brought his two adult children into the business two years later and, he says, "the plan was to have them take over." But within the past six months, all that has changed. "With all the dot-com competition, it's hard to motivate and retain good talent," says the 56-year-old Carroll. "They've got stars in their eyes about stock options." So he now has to switch directions and head for the public markets. "If I had decided to do this from the start, it would have been easier," he says.
Carroll has been working almost exclusively with one customer, telecommunications giant Nortel, in designing, manufacturing, and private-labeling added capabilities for the company's systems, but he now feels he must expand his customer base. That will cost him in terms of profitability because of the investment he must now make in marketing, and in research and development for individual customers.
Mostly, though, he feels he may have missed the best initial-public-offering market for a long time to come. "Had I positioned myself to go public, I could've gone public one or one and a half years ago. I missed a great window," says Carroll. "We had a 200% growth rate, and we had a lot of cash. All I really needed to do was to have a good story. It would've been an easy sell." Instead, he now plans to go public in two or three years, depending on what the market looks like when he's ready.
So why didn't Carroll go public when he could have? "I had been part of public companies before and knew the pains you have to go through. I wasn't willing to make the trade-offs," he says. In 1987 he had started another business, Digital Techniques Inc., which became part of a public company. "I had the experience of dealing with shareholders, with a board. I had enough of that. Now I'm chairman of TelStrat. For a while I was the only officer. Then I added my kids and my president. And that's it. There's a minimum amount of interference," he says wistfully.
Regret 4: Not going to college
Company: Ecocrete (#154), in Chula Vista, Calif.
Business: Manufacturing modular schools and classrooms
CEO: Keith Christian
"I didn't pay much attention in high school," Keith Christian says ruefully. "My pager kept going off." That's because he had started his first company, a janitorial-services business, when he was 15. He managed to graduate, albeit with poor grades, but his business was doing so well that he never bothered with college. And now, years later, despite having started three successful companies, "I think I would be a better CEO if I had more education," he says. He feels that lack of education most acutely in the areas of finance and accounting, where he has to rely on his employees to monitor the bottom line.
In his 41 years, Christian has never worked for anyone. Now that Ecocrete -- which owns a patented formula for reinforced concrete that it uses in construction -- is seven years old and has some 300 employees, he wishes he had had a role model earlier in his life. "I wish I had worked for a more mature company that had a backlog and inventory. I wish I had worked for a company that got it right," he says. "I could have learned how to manage a business. In a start-up, you're always in crisis mode."
If only I'd gotten a college education.
As part of the consolidation in his industry, Christian is acquiring a dealership that has been the intermediary between Ecocrete and its customers, the school districts. With expansion on his mind and recognizing his own limitations, he has decided to make the head of the dealership, Richard Koch, his new CEO. The strikingly modest Christian believes that Koch -- who has 15 years' experience in the business and a degree in accounting from the University of California, Berkeley -- "will make a better CEO."
Despite his regrets, Christian, who will remain chairman, says he has no plans to go back to school anytime soon. But he is strongly encouraging his two kids to stick it out. And it's perhaps only fitting that he is finally hitting his stride in a business devoted to building space for students.
Regret 5: Hiring the wrong executive
Company: Alogent Corp. (#281), in Norcross, Ga.
Business: Designing and installing payment-processing software
CEO: Brian Geisel
"It was a desperation move," says Brian Geisel, referring to his decision to hire a key manager. The fact that the man he chose was a bad fit was one thing, but what Geisel regrets most is that he'd allowed himself to get backed into a corner in the first place. "My biggest mistake was to let myself get into a situation where you need to solve issues immediately, in desperation," says Geisel, who founded his software company in 1995. "I didn't have the resources to let me do due diligence. I didn't have a board. I didn't have a human-resources department. I didn't have the depth of management to use the managers as a sounding board."
As a result, Geisel hired someone without thoroughly checking his background and references. "And boy, did I pay for it," he admits. "There's a tremendous investment of time and effort to bring somebody to a level where they can add value." It took a year before Geisel finally realized that this new hire was not the right man for the job. He was "unable to handle the complexities of dealing with large projects and large clients," the CEO says.
At the time Geisel, whose background was in information technology, didn't have any real experience as a manager. He was looking for a senior executive who would have the sales and organizational management experience to complement his own skills. "I was looking for balance," he says. "I got that, but there was no overlap." In terms of skills, style, and strategic goals, Geisel says, the manager he hired "was too far on the other side." The executive left the company by mutual agreement.
Now, with 52 employees and a stronger management team, Geisel uses an outside agency to screen potential senior hires. And he has learned to rely on advisers for input on candidates as well. In retrospect, he can easily see how his management style led to problems with his first big hire. "I've always kind of carried things on my own back," he says. His company remains 100% employee owned, without any outside investors.
Regret 6: Not hiring an in-house recruiter
Company: T2 Systems (#394), in Avon, Ind.
Business: Designing software that tracks parking tickets
CEO: Mike Simmons
For the first four years after its founding, T2 Systems doubled its revenues every year. In 1998, however, its growth reached critical mass, and CEO Mike Simmons found himself needing to double the number of employees, which then stood at 12. Lacking any kind of human-resources department and faced with the "exorbitant fees" of outside recruiters, Simmons charged his three managers (and himself) with recruiting their own workforce. It was, he admits, a costly mistake.
"There were not enough people to do all the work there was," recalls Simmons. The recruiting process made matters worse because, he says, "it took the managers out of the work process." Instead, they were busy screening résumés, checking references, and traveling around the country to find qualified employees in the company's high-tech niche. "The talent pool for us is very small," Simmons explains. The ideal potential employee needs to know software plus the principles of the parking business.
Simmons did use several professional recruiters, who, for a total of $50,000 to $60,000 in fees, yielded only two or three hires. He realized he could have hired a full-time recruiter for that amount and gotten more bang for the buck. Finally, last year, he did just that, tapping one of the few outside recruiters who had really impressed him.
After his entire management team had spent a year hiring 12 people, the recruiter was able to match that number in about seven months. The company now has 44 employees. As soon as he had hired a recruiting manager, "our sales went up, our customer service went up, and our hiring became more efficient," says Simmons. "Most of all we had suffered because of the burnout factor for managers."
The recruiter, at his own request, has since moved over to a sales position. Simmons is going out for a round of additional funding and promises that one of his first hires after he gets that money will be a new in-house recruiter.
Regret 7: Charging too little for too long
Company: Synergy Investment (#219), in Framingham, Mass.
Business: Designing and retrofitting energy-efficient lighting systems
CEO: Daniel Gould
Daniel Gould went into the lighting business on his own in 1994, when he was all of 25, and created a niche for himself with few, if any, real competitors. He was constantly hustling, offering his customers what he calls "the Wal-Mart attitude: give them rock-bottom prices all the time." But at the end of the day, he says, "I didn't have much to show for it. Basically, I was giving it away."
If only I hadn't charged so little for such a long time.
He also found that he would give his customers estimates up front, and even if he found the work more time-consuming or more expensive than he had expected, he didn't adjust his fees accordingly. "I had to figure out how to tell them I had to charge them more," says Gould. And that was something he was loath to do, because he both wanted to honor his commitments and feared losing customers.
As he gained more experience and more regular customers, he began to get a sense of the true market value of his work, which is a highly specialized combination of consulting and contracting. He realized, belatedly, that "I could've charged more, and people wouldn't have blinked."
Gould thinks he's been "continually behind the curve for pricing compared with the market," though he has gradually raised his prices over the past few years. He remains "the low-cost provider," he says. "When I started the business, I was happy just to draw a salary," he explains. "It's been a slow awakening to what I needed to charge to be slightly profitable by the end of the year."
Rifka Rosenwein is a senior writer at Inc.
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