That's the question we asked a collection of serial business founders. This is what they said
Steven N. Kaplan, a professor at the University of Chicago's Graduate School of Business, almost hung up on me recently. I'd called in a vainglorious attempt to debunk that oldest of business-world clichÉs: that experience matters. I wanted to offer an encouraging message to all those entrepreneurs in Inc.'s readership who didn't have experience to boost them. I even wanted to find specific examples of when experience had undermined a venture. Was it not possible that repeat entrepreneurs committed sins of overspending and overconfidence?
I badgered the professor with my theory. But he was having none of it. So I began interviewing repeat entrepreneurs who had started yet another gig. And here's what I encountered: a group of affluent, assured individuals who no longer obsessed 24-7 about their companies. These were people who, yes, still erred this time around but had meatier mistakes to share from their early forays.
The bulk of their blunders involved human resources: waiting too long to hire executives, hiring executives who overspent or underperformed, and waiting too long to fire executives. The lessons, inevitably, were similar. Have a hiring process. Delegate it. Don't get cowed by corporate rÉsumÉs.
Mind you, those are some of the strictly business lessons the group had to offer. Just as cogent were their personal parables. If they had it to do all over again, most of the group would have spent more time away from their first companies, hanging with the family, schmoozing up other CEOs, and pondering the long-term picture. All of which begs the question: Back then, before they were loaded, could they have afforded all that free time? The almost uniform answer was, Maybe not.
In off-the-record conversations, talks turned to tales of mismatched partners and inept employees -- none of which we could print. The best of the stories we could publish, however, are charted on the next page. Consider the advice a way to learn from others' mistakes. Speaking of which: I think I owe Professor Kaplan an apology.
What I'd Do Differently
CEO Dan Schley, 46
Company
Financial Fusion, an Internet financial-services company in Westport, Conn.
Prior Company
MECA Software, in Fairfield, Conn. Sold to H&R Block for $40 million in 1994.
What I'd do differently
"I'd hire due-diligence professionals instead of using my own organization."
Moral
Before acquiring, seek outside opinions.
Mistake
Schley got burned when MECA bought Great American Software. For $4 million, he thought he was adding complementary products, fat customer lists, and prized source codes for upcoming releases. MECA's three meetings with Great American didn't change his opinion.
Consequence
In fact, Schley had bought a cash "sinkhole." "The code, which was supposed to be ready, was a year away. The customer list was 0.4 x instead of x, the tech-support burden was 2 y, not y," says Schley.
Lament
By using his own organization to perform due diligence, Schley failed to remove emotion from the decision. "We wanted it to happen," he says. "You see the downsides, but you start saying this or that is not such a big deal -- when it is a big deal."
Upshot
All told, "we lost $8 million over the course of a year," recalls Schley. MECA sold off Great American in 1993.
CEO Mike DiManno, 33
Company
Onvoi Business Solutions, a human-resources-services provider in Rancho Cordova, Calif.
Prior Company
DiManno Hansen Insurance, a $3-million benefits brokerage in Sacramento, Calif. Sold for about $6 million in 1998.
What I'd do differently
"I'd pay more attention to our valuation early on."
Moral
Think equity-building and exit strategies from day one.
Mistake
"We didn't look at corporate earnings as important," says DiManno. "You just pay taxes on them, we figured. So we never reported more than $50,000 in profits. We just piled all the money back into the business after taking out for our salaries."
Lament
"My partner and I were young; we were both 25. We didn't have aspirations to be as big as we got. We'd both come from sales jobs that we didn't enjoy. We just wanted to earn an income, so we didn't take it so seriously," says DiManno.
Upshot
DiManno believes that his old company is now grossing $6 million annually. He thinks he'd have gotten a better price for the company if he'd been able to show a history of increasing margins.
CEO Sharon Whiteley, 52
Company
Whiteley & Co., a one-year-old Boston-based consulting company specializing in start-ups.
Prior Company
Peacock Papers, a $15-million manufacturer of gifts, apparel, and party goods in Boston. Whiteley sold her interest in 1998.
What I'd do differently
"I wouldn't fall in love with my inventory."
Moral
When it comes to inventories, cut your losses. Don't hold on to them.
Mistake
"We kept inventory past the end of a season instead of selling it at cost," Whitely says. "The thinking was that we wouldn't have to remanufacture it next year."
Consequence
Whitely estimates that she could have added as much as $250,000 to the bottom line some years had she sold off 15% of her seasonal inventory at cost. In other words, a lot of would-be cash sat on the Peacock floors year after year, consuming precious square footage and managerial energy.
Lament
"We were still doing well, which is why it didn't get as much attention as it should have," says Whitely. "The inventory was a product we created. It was painful to think about selling it at cost. We'd rather have given it to charity. Which is why I use the words, 'Don't fall in love with your inventory."
