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If You Had It to Do All Over Again, What Would You Do Differently?

Inc. asks experienced entrepreneurs to share what they've learned from some of their biggest mistakes.
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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."


CEO Patrick Thean, 36

Company
MindBlazer, a $500,000 provider of Web-based training in Charlotte, N.C.

Prior Company
Metasys, a $14-million transportation- and logistics-software maker in Charlotte. Merged with warehouse- and inventory-management-software provider Optum in 1998.

What I'd do differently
"I'd draw more of a line between friends and employees."

Moral
Sometimes you need to fire people -- and fast. Don't make it harder than it is.

Mistake
If you think programmers have all the leverage over employers today, you should have seen Metasys in the early 1990s. Lacking the "professional distance" he has with employees now, Thean hesitated to terminate unsatisfactory programmers who were pals with him and other company executives.

Consequence
Thean told himself that firings would only slow production at his already-swamped company. So instead of firing, he hired fast, thinking he'd gain efficiency. He didn't.

Lament
"It was 24-7, and I had no time for you if you weren't in the company," Thean says. "I didn't subscribe to the idea of a balanced life. I believe, though, that if I'd spent more time outside the company, things would've been much better. I wouldn't have made everyone at Metasys a friend."

Upshot
At MindBlazer, Thean has sacked two employees within four months of their hirings. He swears by personality testing and group interviews. And he seldom works weekends.


CEO Kevin McNulty, 50

Company
Endless Games, a maker of board games in Hoboken, N.J.

Prior Company
The Games Gang, a $155-million board-game maker in New York City. Sold the rights to the games to Western Publishing in 1991.

What I'd do differently
"I wouldn't let a money guy be in charge."

Moral
Investors might think more in the short-term than you do.

Mistake
When McNulty and four cofounders began the Games Gang, in 1985, they installed as CEO the colleague who put up a third of the money. Strategic issues weren't discussed.

Consequence
Maybe you've heard of the Games Gang's first two releases: Pictionary and Balderdash. The company exploded to $155 million by 1988. McNulty and another partner, in their thirties, wanted to build the next Hasbro. The other three partners, in their sixties, persuaded the younger men to cash out while the going was good.

Upshot
McNulty made a fortune. After working as a sales rep for Starting Nine, he set up Endless Games in 1996 "to battle" the Hasbros of the world.


CEO James Carney, 42

Company
Bidder's Edge, an online-auction portal based in Burlington, Mass.

Prior Company
Workgroup Technology Corp. (WTC), an $8 million software developer in Lexington, Mass.

What I'd do differently
"I'd spend more time on long-term direction."

Moral
Don't get mired in the day-to-day.

Mistake
Carney had built WTC by selling installation-based software. In 1997 the industry's gradual migration to Web-based software began -- and WTC didn't react. Had he spent more time "delving deeper" into the sea change, Carney feels he could have guided WTC through it.

Consequence
Carney believes "sales would've been much greater" had WTC successfully switched to Web-based software earlier on. But the company stagnated, too busy with its then- current customer base to look ahead.

Lament
"Where you find your initial success may not be where your future success is coming from," says Carney. "You need to get to the point where you're devoting 20% to 30% of your time to asking if where you're going still makes sense."

Upshot
WTC still doesn't have a completely Web-based product. Since its splashy initial public offering, in 1996, the stock has gone nowhere. Today it's valued at less than $1 a share.


CEO Charlie Pesco, 57

Company
Cap Ventures, a $10 million telecommunications research and consulting firm in Norwell, Mass.

Prior Company
CAP International, an $8 million research and consulting business in Marshfield, Mass. Sold in 1998 to a division of NYNEX.

What I'd do differently
"I wouldn't focus so exclusively on growing sales."

Moral
Revenues aren't always a realistic yardstick of a company's health.

Mistake
As a first-time entrepreneur, Pesco ran his business by "sacrificing everything else" for the sake of growing revenues. But when he reached the $4-million mark and brought in a Big Five auditor, he got a rude awakening.

Consequence
As it turned out, Pesco had been counting six digits' worth of accounts receivable he should have written off long ago. He'd also miscalculated the impact a European division had had on revenues. "You find out you're actually losing money, and it hurts you in the marketplace and with bankers," he says.

Lament
"When you're driven by the top line, you just want it to look good. You're not realistic and quick to write off what you should write off," says Pesco.


Please e-mail your comments to editors@inc.com.

Last updated: Mar 1, 2001




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