Some of our more dedicated readers may remember me as that promising and talented new writer who disappeared after only a couple of months last fall. Or, alternatively, that moronic new writer who had no idea what he was talking about. But, I’m just going to go ahead and assume it was the former in order to protect my ego. In either case, if you remember me at all, you may have wondered why I left. Was it cholera? Was I drafted into a top-secret CIA program? Did I join a circus as a fledgling trapeze artist?
No, it was none of that. That would be absurd. What would make you think I had any trapeze skills at all, much less circus-worthy ones? The truth is a lot more straightforward, but was also a lot scarier (and more exciting) for me — I started a business. The astute readers among you have probably already put the dots together and figured out that I failed. The title was a pretty strong hint, right? This isn’t a story of bootstraps-pulling success, or a heartwarming underdog tale. This is an opportunity for me to talk about the lessons I learned as I failed, and to give the entrepreneurs out there something to consider when they start their businesses. We’ll laugh together, we’ll cry together, and maybe we’ll even learn something together. Ready? Alright, let’s dive right into the heart of it, starting when I was seven years old…
Entrepreneurial Spirit and The Hustle
The first time I remember embarking on a money-making endeavor, I was seven years old. It was the mid-nineties in California, and roller blades were finally on their way out. Everyone had a pair or two sitting unused in their garage. A friend and I, in a fit of boredom, decided to take a pair apart, and found that it was fun to see how far we could get the “blade” portion to roll with the boot removed. For some reason, we thought other kids at our school might want to do this too. So, we offered to provide a roller blade boot removal service for the nominal fee of $5. Somehow, I think we even managed to sell our services to a few of our friends.
Obviously, our silly little business venture went nowhere. But, I’m willing to bet a large portion of you have similar stories. Maybe you had one of those quintessentially American lemonade stands (maple syrup stand for you Canadians?). Maybe you mowed your neighbors’ lawns in the summertime for some spending money. Or, maybe you had a more adventurous business plan. Whatever the case, if you’re reading this there is a very good chance that you chuckled at my roller blade conversion business in commiseration, because you’ve got a similar story yourself.
Like me, as you got older your ideas grew more sophisticated and took increasingly more knowledge and skill. As a Hackaday reader, you probably looked to your tech skills. I’ve started more websites than I can remember, offered computer repair services via Craigslist, and tried my hand at making computer games and apps. And, once again, I’m confident a lot of you have to.
I bring all of this up to illustrate the point that entrepreneurial spirit seems to be an innate trait in a lot of us. It’s constantly in the back of our minds, flooding our thoughts with potential business ideas, products, and inventions. More importantly though, it drives us to action. We may do it out of necessity, but sitting in a cubicle making someone else money can never satisfy us. And so, we act.
Taking Action
It was this situation that I found myself in last October. I was in the middle of a divorce, and was finding myself increasingly disinterested in the daily grind of office work. I had a good job and was well into a secure career. But, I couldn’t concentrate on my daily tasks – I was simply burned out. I yearned to go out into the world and see what I could accomplish. I wasn’t quite sure what I was going to do, but knew I couldn’t continue with the 8 to 5 office life.
And so, without really having a plan, I told my boss that I was sorry, but I couldn’t continue to work there. I wasn’t satisfied with my own productivity, and that was the best choice for myself and the company. Luckily, it was right after I made that decision that I received an email from Hackaday’s Mike Szczys, offering me a job as a contributor here. I immediately jumped at the opportunity, and got to writing.
The house my ex-wife and I had lived in was put on the market and quickly sold (thanks to Denver’s insane real estate market). She and I were each able to walk with a little bit of money, and no debts. Of course, I did what all entrepreneurs do when they find themselves with some money: I started tossing around business ideas. I formed an LLC, threw together a business plan and a website, and on New Years Day of 2016, I started a lease on an office and shop space.
Making Mistakes
This was my first “real” business, one that wasn’t just run from my home. And, the mistakes started immediately — beginning with the lease on my office. In future articles on this subject, I’ll go into more detail about what you should look for in a business lease, and what you should avoid. But, suffice it to say that I really had no idea what a good and fair lease looks like, and so I signed a lease without really knowing what I was getting into. As it turns out, not all business leases are created equal, and mine essentially gave away all of my rights as a tenant.
Aside from not understanding the legalese of what I was signing, I also leveraged myself too far. In the beginning, I had a decent chunk of money, and felt that I could afford a decent size space (1,800 sq. ft.). I thought I’d need the space eventually, and figured it’d be best to just go ahead and get it. In retrospect, I should have kept my overhead as low as possible and leased a space that was as small as I could get away with.
Which bring us to my next mistake, and this one is a doozy — I really didn’t have a clear idea of how I was going to be creating revenue. I had a business plan, and a vague idea about providing design and prototyping services. My background, after all, was in mechanical design, CNC programming and operation, and 3D printing. It seemed like a good fit, and I figured the details would fall into place once I actually got started.
That plan, however, ended up being short-lived. Prototyping services are generally only contracted by large companies who want to outsource that work, and those companies want to work with proven companies and not startups. My goal was to target other small companies and startups, but that plan was flawed (those companies generally can’t afford services like that). So, I shifted my focus to what I dubbed “designer fabrication,” which to me meant fabrication services that went further than normal “job shops,” and into the territory of custom one-off design and fabrication.
In an effort to jumpstart that plan, I purchased a lot of equipment and tools I thought I was going to need, which ended up being my next mistake. This one probably seems obvious, but there is really no reason to buy a tool or piece of equipment before you have a proven need for it. Even if a customer’s project demands a certain tool, you’ve still got to weigh the return on purchasing that tool. It might make more fiscal sense to simply subcontract that part of the job, rent the tool, or turn down the project altogether. But, of course, tools are toys for grownups, and I wanted some new toys to play with!
So, I found myself in a big shop, full of shiny new tools, and no client contracts to use them for. I was three months in before I even had my first paying contract, and had already burned through all the cash I had started with. I was already taking on debt — after all I had rent to pay at my apartment, food to buy, car payments to make, bills to pay, a business lease to cover, and materials to buy for the projects.
As time when on, this problem just got worse. I had contracts coming in here and there, but they weren’t enough to cover my business and personal expenses, and my debt was mounting. Of course, I didn’t want to give up. A combination of the sunk-cost fallacy and simple stubbornness kept me going, even when I should have either cut my losses or re-evaluated my business plan. I was still clinging to the hope that I’d turn a corner, get more contracts or come up with a lucrative product to sell, and that I could still succeed.
Taking the Hint
This was the situation I found myself in about a month ago: I was completely out of cash, I had maxed out every credit card I had and couldn’t get more, no one would approve a business loan for a business with negative cash flow, and I had borrowed what I could from family. I was broke, in a mountain of debt, and in a constant state of panic. How could I have let it get that bad? Why hadn’t I just worked harder? Why had I made so many stupid decisions?
I spent the first two weeks of this month trying to figure out some sort of solution. I found someone to split my shop space with me, cutting my rent in half. I sold everything I could that I didn’t actually need. I started looking for part-time work to supplement the meager income from clients. But, with even more expenses mounting, I knew I had to call it quits.
A week ago, I decided I’d have to close the doors on my business. And, at least temporarily, on the idea of being a business owner. That brings us to today. I’ve been scrambling to sell off my equipment by the end of the month (taking heavy losses, of course), in order to pay back open client contracts and other financial commitments. And, in general, just to figure out how to move on.
Luckily, the fine folks here at Hackaday have welcomed me back as a contributor. I’ve got a long road ahead of me, with a pile of debt to start chipping away at, ruined credit to rebuild, and security to regain. But, I’ll tell you a secret: that entrepreneurial spirit hasn’t left me. I don’t regret trying to make this business happen. Sure, I wish I had gone about it differently, but I know I never would have been satisfied with not trying. I’ll almost certainly try again at some point.
If you’ve read this far, you probably have that same spirit, and that need to start something. You may have even related with my story, and nodded along as you read about my mistakes. Or, maybe you’re simply thinking about starting your own business, and want to read about what not to do. So, stick around and keep a look out for future articles, where I’ll go into more depth on how to avoid the pitfalls I fell into. I’ll talk about what I did right, and what I did wrong. And, most importantly, I’ll let you laugh at my mistakes, as you breathe a sigh of relief knowing that we entrepreneurs may screw up a lot, but at least we try.
Select large cookie sheet, spread out credit cards in an even layer. Preheat oven to 350F, then bake credit cards for 45 minutes. Moral of the story: plastic stinks.
Fail. Rinse. Repeat. Moral of the story? You only need to succeed once.
“You only need to succeed once.” *like*
“that moronic … writer who had no idea what he was talking about.”
You mean Benchoff?
“Fail. Rinse. Repeat.”
You mean Brian too right?
Pro tip – you don’t need office / work space for something you can do in your livingroom / back garden / garage / bedroom.
I know a fair few software and small hardware (as in small bits of hardware) startups that rent office space when they can easily work out of a starbucks for the price of about £10 a day with wifi included… At least untill the cash flow starts coming in.
But fuck, i mean at least you gave it a go, right?
Absolutely true. If I did it again, I would try to find a shared work space or something along those lines.
Mad respect to you for making the effort.
We tried this once with a small company, and had nothing but issues with shared spaces (Hack spaces / Maker Spaces share this problem). A production facility stalls when component stocks are lifted by employees, customers, or other struggling business folks. You should have 1080p video cameras on, and make sure you keep it streaming on the PVR in your office. It is perhaps I am a poor judge of character, but we find someone will try to rip you off eventually if you hire a large team…
Nice offices usually are full of posers putting on a show for investors and customers…. If you are industrial, than you will need an area zoned for that kind of work, and note it will not be next to some posh investment property.
Rule#1, customers should never be allowed into the production areas — take a lesson from hot-dog manufacturers.
Rule#2, You are curious what we do? if you are not a customer, than piss off… ;-)
We started out by contracting a good lawyer for our area, and the finest corporate accountant we could find (we owe her much for our success). The only time we expand our offices is to provide seating for contractors on a given project, and we fire quickly if the project trajectory looks problematic. You’ll understand my perspective if you burn $60k a month on people who try to leverage your business for their own needs… or outright screw you over… why you may ask? In my opinion… I’ve found money makes people do stupid things, and it only takes one laggard on a project to drag everyone down.
Our small hardware company has been in operation for over 5 years, but we still love posting BS samples on our website/share for some uncreative competitive ass to steal and compete themselves into bankruptcy. We successfully use the fact socio-paths are unable to change their nature to our advantage, and love talking to them at conferences (it is kind of like silence of the lambs for nervous posers). The African Folk tale now has racist connotations, but its lesson is clearly missing from modern culture: https://en.wikipedia.org/wiki/Tar_baby . Note, that due diligence is more of an art these days, and most people want volume pricing when ordering under 10k pcs. You need to develop the power of telling customers No, Not-now, and Not-ever… and make sure you get paid up front, as some people are literally insane.
Tip #1: if a customer is overly interested in your process, than chances are they will outsource your design to a China factory anyway. I actually had a guy trying to bid down production costs by insulting our team, and I really feel sorry for the other factory that has to deal with these kinds of clowns.
Tip#2: Never make what you can already buy… its expensive because it was hard to make.
Tip#3: Never own what you can rent… a local machinist with CNC equipment is about $100/hr in my town… Trust that tooling up with labour will cost more than you guess, will not get product out the door, and will ultimately cost more in time.
We only talk to the customer base about our products, anticipate their future industrial needs, and spend 80% of our time invoicing people. If there is no money left in the budget, than the team will get fired… people who go into debt trying to invest their way out of a defective business process are missing the point.
I always think about this scene when dealing with legal bureaucracy:
https://www.youtube.com/watch?v=pWS8Mg-JWSg
Started 6 businesses. 2 failed after 6-12 months with no sales. 1 sold nicely. 1 lasted 3.5 years and sold >$2.6M in product. 1 lasted 12 years. 1 current running. Manufacturing. service. software.
General advice to anyone thinking of starting their own business…
– never start a business because you want more money because it will find what you have like a heat seeking missile and spend it on an overpriced education
– in spite of point #1 above, for a business, making money better be goal #1 for that business at least
– startups are more likely to fail because they had too much money early on. innovation occurs in a low calorie environment (“be hungry” oh and http://www.brainyquote.com/quotes/quotes/e/efschuma148840.html)
– ignorance plus determination is better than some knowledge plus fear. too many experienced people say it won’t work. they are right >98% of the time. This is hard for people to accept because we were taught the opposite (makes us better employees). remember knowledge works best on things people are already making money at, determination works better on everything else. just understand that determination will rob you of all of your money 98% of the time like an unreliable bomb. Keep trying. you will get better at spotting lemons.
– I can’t tell you if your business will succeed. you will reach desperate times in your business where you are the only one that cares. Everybody will tell you to quit.
– if you are hoping to get lucky, go to the casino. the odds are much better
– successful businesses are out of space, crowded, dependent on old tools (that work), employees who complain that their boss is a tightwad
– isn’t it odd how many unsuccessful businesses cost $100k? just saying.. The cost to start a business varies depending on how much there is lying around at start. I started my first business with a huge pile of ignorance and $500. Sold it, lived like a bored little prince for years. the businesses I started during that period both failed fairly quickly
– business plan. not optional. it should be about 30-40 pages long as rough draft. I am serious. this separates the people who always seem to have some scheme for making money from those who are willing to work through the heartburn. the plan should have a cash flow section. competitors. marketing. etc. get to the point that writing a business plan feels good. comforting. warm…
– better to work on your idea when you are single without kids and very little expenses. also helps if you are not yet used to the safety and comfort of a steady income. If you are married and/or have kids. take care of them first!
– ideas are not monogamous. they will leave you for someone hotter in a second. ideas emerge out of the environment (although you can prepare the soil a little bit) and not so much because you are special. you have a narrow window to make that idea work before it appears with someone else no matter how much you try to keep it a secret. “obvious to those skilled…”
-patents are hell. try your hardest to not rely on them. they are for big companies to play with. stories of someone inventing something, patenting and making millions are about as common as a white boy practicing basketball and becoming a big star.
Thank you Cameron for getting the conversation going. We need more startups. they are were it happens. jobs. growth.
I respectfully disagree, and invest on unique meaningful Patents critical to a given product.
This allowed us to ban import of the clones from China, and go after local retail distributors.
Retailers are so use to getting cheated by middlemen that they focus on cutting out everyone from the supply chain to minimize costs (or as I stated, will just take a product sample to an offshore cloner factory).
If you are small, and have a high labour cost… you will be pushed out of the market very quickly.
The mistake people often make is trying to handle the work themselves. Trademarks are also helpful in some cases, but will cost more than people expect.
Example: We despise the kids on corporate domain typos trying to leverage years of other peoples work for a fictional market position. Ignorant people assume every market is like Microsoft/Apple ( https://en.wikipedia.org/wiki/Zero-sum_game ), and in their desperation will devalue what you do as well.
Rule #0: Don’t compete to be at the bottom… innovate, and you will always lead the markets…
Trust that millions of poor people living in dirt will do the kind of work you wouldn’t want…
I have visited these places, and would never wish any human to live like that…
Note, Google’s plan for 2 million Android developers in India will not change this dynamic, but it will make their product toxic for domestic businesses. I now advise kids to go into plumbing instead of software, and learn about the investment ecosystem early in life.
…
Rule #3: Marketing looks at a products novelty, utility, and uniqueness.
If you are trying to convince the sceptical world of anything it will be difficult given the ambient volume of BS.
And telling a customer why they want a product is rarely profitable.
To summarize: sell useful stuff to people, focus on being useful as a company, and don’t be a douche.
“Money” is a side effect of understanding a very old concept: https://en.wikipedia.org/wiki/Quid_pro_quo
But it is everything to poor people that don’t have it…
I completely agree. HOWEVER (and there’s always a “however” in life), some clients won’t work with someone who works out of their house or coffee shop because “it isn’t professional enough” for them. Also, in the States at least, certain municipalities don’t allow commercial/industrial activities out of the home.
That may be true. However, our IRS allows us a tax exemption for operating a home office. Our municipalities may have ordinances against operating a commercial operation in a area zoned for residential only. That is circumvented by only using your home office for administrative purposes.no client visitations, and no fleet trucks parked in your driveway, etc. Otherwise, you probably need a zoning variance which would increase your local taxes. It is better to meet new clients at hotel or business conference centers. Starbucks and coffee shops are not bad either. We Yanks LOVE coffee, I did one at Panera Bread and it went very well. Free wi-fi is a plus too. I had to buy them lunch with coffee (which I expensed). We got the deal…
> I bring all of this up to illustrate the point that entrepreneurial spirit seems to be an innate trait in a lot of us.
I think this may be a cultural thing in the USA. Neither myself nor any of my friends recall anything like that in our childhoods. In fact, I still consider money to be kind of a dirty thing, and I do everything to not have to deal with them (mostly by having enough).
If you want to cleanse your soul, I am willing to take all that “dirty” money off your hands.
It is pretty deeply ingrained in our culture. The whole “American Dream” and all that jazz.
Right- America invented business and capitalism. Are you a member of a hunter gatherer group living hand-to-mouth? No? Then there are entrepreneurs in your culture, too, making all the things your society relies on. You’re just one of the hangers-on living obliviously from the sweat of others.
This is something I haven’t seen before. A capitalist calling the proletariat “hangers-on living obliviously from the sweat of others”. Interesting class analysis.
well then you should try running a business. It starts to feel that way. Entrepreneurs are not necessarily oligarchs.
but once you see the money come in and then go out, there are a lot of fingers in the till, and most of them threaten you with severe assrape if you don’t pay up. Your piece of the pie gets a lot smaller.
It is ingrained in our culture. If you think about it, everyone in the US is made up from people who decided to risk it and move here.
Right, I was thinking the same thing. Over here (Germany, that is) if Teenagers want to make some money of their own, they usually have to take on small time-limited jobs like doing inventory or working part-time as a cashier or something… Children usually don’t have a lot of choice (mostly I think because of the huge number of rules and regulations we have concerning child labor) so it usually amounts to mowing lawns or delivering newspapers. This whole lemonade-stand thing that seems to be an integral part of American culture just isn’t a thing over here, at least not in my (or any of my friends’ or family’s) case.
I blame it America’s insistence that in order to be successful you must work full-time, pay you own health expenses, and never take a vacation day. Modern American entrepreneurialism is as much an attempt at creating something yourself as it is the desire to tell “the man” to eff off. Many small business owners end up working far more in the average week than the average employee, but the hope is when your business runs itself (if it ever does) you get to reap the rewards. As an employee, if you die of cancer when you’re 40 after working for 20 years with only a few weeks to see the world, well then better luck next time. Europe is much more understanding of personal time and the work/life balance. It means people can still work their entire careers, see the entire world, have a good retirement as well, and often get decent healthcare along the way. Employees are more invested in the success of their employer’s business when the business is more invested in the well-being and personal happiness of the employee.
Sounds like your idea of a business came from South Park
Step 1. Form LLC
Step 2. ???
Step 3. Profit!
Honestly, not too far from the truth. The idea was only half formed, and I thought I’d figure it out as I went along.
Midlife crisis can be expensive if they result in hasty behaviors and decisions. “This isn’t my life! I want out! How did I get here! Something needs to change! I want a refund!”
Good idea or bad idea?
Cash out 401(k) and invest in Iraqi Dinar
The correct answer is bad idea, but when you’ve just gotten out of a failed marriage it’s easy to make decisions while you’re emotionally compromised.
To anyone reading this who thinks it couldn’t happen to them: they haven’t been there…
In retrospect, it did have the feel of a midlife crisis (though I’m only 27).
https://en.wikipedia.org/wiki/Quarter-life_crisis
Thank you for being brave enough to post this Cameron. Your story shares quite a few similarities (mistakes!) to my adventure in business a few years ago taking on a shop front (which ultimately was too big, too expensive and too early).
I left the idea of running my own business in that shop and thought that I would never want to do that again. However, fast forward a couple of years and some employment with a large local ISP and I’m about to start up a new business and give it another go – hopefully learning from all of the mistakes the first time around.
Thanks for the kind words, and good luck!
Yes! I was surprised at the bravery of this post. The Internet has become the place where you only post the best side of you (e.g. Facebook) and if any sign of weakness is shown, the backseat drivers, Monday morning quarterbacks, and trolls come out in force. To publicly post something like this takes a big slice of humble pie and some thick skin. More power to you, Cameron!
Thanks! Luckily, the response here generally seems to be positive. I was hoping the readers here would understand the feeling, and it seems that they do!
Nthing this. I come here to learn new stuff. This may be a Hackaday FAIL but hey I’ve posted one of those too, maybe not quite as spectacular, but as a HaD reader I don’t think I can do better than getting the experience of someone else’s FAIL without having to go through the pain of it myself. Thanks much for posting this Cameron and better luck on your next endeavour.
So you did all that in 7 months? New Years 2016 was the start? Wow. Thanks for sharing.
Fact is most businesses take 5 years to show a profit.
And many more years before you are making more than what a day job would offer.
If you still have that Entrepreneurial Spirit, do not, I repeat, do not get a brick and morter building of any kind. The overhead will kill you (as you discovered). I’ve studied this and lived it for years. I’ve helped others grow successful and seen many fail. I’ve lived it myself.
I’ve concluded there are basically two paths to choose from:
Online sales is the low cost way to get started and grow. A website is necessary but you need traffic so EBay, Amazon, Etsy, etc. are where you sell. They have worked to create the traffic for you. Then start selling using that traffic. Find the products you want to sell at the best price possible and keep doing that over and over again.
And if you want to build stuff, then get a partner who is good at keywords, promotion and marketing because making a product and selling it takes all your time with design fixes and warranty issues and product improvements to stay ahead of the competition.
If you want a services business where you take on custom design work, then plan on 80% of your time tracking down new jobs because they rarely come to you. Plan on far more than a 40 hour work week as that remaining 20% of your time is under a deadline so you spend a lot of nights working to not fall behind.
You learned a very valuable lesson but obviously it cost you a lot but then so does any education. Many successful people will fail three times before success happens so hang in there. It’s tough to put a failure story out in public but you probably just helped many others learn from your experience. I look forward to the future stories of your entrepreneurial endeavors and future success.
Thanks Chuck, this is all great advice. I was trying to do everything to run the business, which you’re right just divided my time up too much. Anyway, thanks for understanding!
me and my brothers 4 year old company can just barely pay for one of us and that is in good months.
we do however both have alternatives and we are very flexible, something our clients appreciate.
couple that with having no loans in either ourselves or the company plus our now sizable collection of tools and equipment which is all paid means that suddenly a true in the black profit with all of the manpower paid isn’t that important, we can sacrifice our time for the company when needed.
as a certain advisor told us,
“we have hundreds of employees in any one area you are involved in, of course you cant compete, but you will have made a decision before we have even notified half of our people”
Thanks for this artical, I am a fan of HackaDay’s trend of showing “failure.” Seeing how others fail can only help those who are paying attention. The proportion of “failures” to “success” is pretty heavy in the “failure” side, but as a maker/hacker/creater who looks at this sort of thing, you don’t see enough of that “failure.” I put all of this in quotes because they are all learning moments and can ruine ones credit.
Things I have learned from projects and whatever I try to do usually are the following two:
-You gain experience only AFTER you need it.
-The first thing you need on a project, is a plan.
That first one is a doozy, always gets me. The second one seems so obvious, but it’s just as true. And it’s easy to think you have a plan, when it’s really not fully formed.
“Good judgement comes from experience. Experience comes from bad judgement.”
Paradox is while not a prerequisite, a certain amount of experience is helpful in undertangwhen to plan and, what to plan for, to what degree planing is sufficient.
I went to freelance programming on oDesk upwork about 8 years ago, and I made the transition slowly over 5 months or so. This may not be possible for everyone, but my boss at my current day job was happy to accomodate that. It worked better for both of us that way, boss had time to find and train other help instead of being suddenly out of an employee, and I had time to ramp up. Also, I just work out of the house. I had rented an office for about 2 months but it was a waste of time and money. I used old junk computers to start instead of shelling out for fancy dual monitor workstations and server systems. Servers you can rent by the hour anyway on amazon.
You also mentioned a divorce — this probably affected your judgment as there are emotions that always go with that. There can be a “screw everything and start over” attitude that leaves a person reeling and unstable, unable to make sound judgments about career changes etc. It might not even be too late to humble down and go back to the old job and see what can be done to salvage the career path.
Congratulations on the freelance work going well! That’s awesome.
Yup, went through a divorce which probably made me a lot more willing to take risks. Luckily, I’ve got other work (Hackaday and some other PT work) to keep me afloat for now. To be honest, I’m not interested in going back to my career, at least not right now.
The irony was my divorce made me less risk tolerant, but i suspect getting custody of two girls was a huge factor.
Yeah, if I had kids then taking a risk like this certainly wouldn’t have been on the table.
Congratulations on getting custody though, I know that’s not always easy to pull off.
Sorry to hear about your failure. Your’s is misleadingly optimistic though. After all, the mistakes you made are easy for future entrepreneurs to fix. I’ve got a bigger one for you.
My father owned his own business for years. He played it smart by keeping is overhead extremely low. He did everything make to order, he even lived in a pretty cheap apartment. He did that for nearly 2 decades. Sometimes his sales were good, sometimes bad. But on the average he was poor but not so poor as to be forced to quit. How does one even learn a lesson from that? At what point is it time to throw in the towel? Do you poor money into advertising and hope for a miracle? Maybe if it’s a novel product. For an established market, advertising could easily be worthless.
That’s a very good point. Knowing when to call it quits is really hard. For your father, it sounds like it’s a choice between continuing to try (knowing it may never get back), vs quitting. If he never ended up bringing in more money, would that still be better than quitting?
It’s easy to grow stagnant in business. People get into a mode where they merely maintain instead of moving forward. They’re too scared to take risks because they feel they aren’t making enough to allow them to recover in case they fail. Before you know it you’ve blown all your money and over extended your credit and you’ve taken few or no risks at all. Obviously Cameron is on the opposite side of the spectrum because he took a bunch of risks without first proving a method of making money.
A big part of the equation you are missing to allow an informed response is – was he happy with his life.
Many 10-99 employee business owners I’ve met say they regret moving out of the mom and pop size of their business The reality is that, percentage wise, most small businesses stay small and find success on a small scale- that scale being determined by the ability to raise a family.
Some people don’t start a business for grandeur and riches, they want to be their own boss and do their own thing.
Success does not equal wealth in all men’s eyes.
Maybe your father was different than that, but maybe growing up you only saw him complain, but that doesn’t mean inside he would have changed a thing.
This is exactly what I was thinking. Some people don’t work to get rich. They work to support their families and maybe have a little left over when they die for the next generation to be able to continue.
What was his marketing strategy?
What metrics did he use to track the most effective deployment of his money while implementing the strategy?
Who were his competitors?
Why did they own a space in the same market?
What was their appeal to customers?
Was his market share growing or shrinking, why?
You can apply the above to any business.
Thanks for the tale. I’ve wanted to work for myself for a while, but I’m not bold enough (fiscally) to leap without looking. I’ve told myself I’d transition to self-employment when I found something I could do on the side that pulled me into full time. I’d love to have a shop to build prototypes and just invent stuff. Now… if I could figure that last bit out!
Right? I think that was about half of my motivation – I wanted a shop with cool tools and such. Of course, just joining a hackerspace is probably a lot smarter.
THANK YOU for posting this story!
(yes, it was hard getting through the text, as I neither could believe what you wrote nor was its narrative really “captivating”, but that’s really because you still must be under extreme pressure! I mean … from your story you basically were a kid when you got married AND divorced, you did everything wrong one can do wrong with building a business, seemingly not having searched for any help anywhere and now are left to your own devices, no wonder you are exhausted!)
I *love* the spirit of biting the bullet and start again!
What puzzles me are all those articles I keep reading about American startups, in most cases, failing far more often and considerably harder than anywhere else in the world. I wonder if there can be *too* *much* of that “you only have to succeed once” approach? Maybe accepting some advice at least every now and then *might* not be that bad after all.
All the best wishes from someone who fails professionally. But, so far, hasn’t gambled away his credibility, has been married for over 25 years to the same spouse, raised a kid that must be your age and still isn’t rich :-)
“What puzzles me are all those articles I keep reading about American startups, in most cases, failing far more often and considerably harder than anywhere else in the world.”
I think it has something to do with our culture. From birth we’re all kind of raised with the idea that you can succeed as long as you work hard. Obviously, that idea gain more finesse as we get older, but I think deep down we have the ingrained idea that we can just pull ourselves up by our bootstraps and do well.
Quoth the Picard, “One can commit no errors and still lose. That is not weakness, that is life.”
Working hard leading to getting ahead is a major fallacy. 95% of all businesses fail within the first five years.
If you sit down at the poker table and you expect to win every time then you are in for a big surprise. For every big winner there is a table FULL of losers.
Buying lottery tickets isn’t a business plan to success. Yes some people win playing the lottery but most lose. Its irrational to think otherwise.
You need a little luck to be at the right place at the right time with the right skills. Otherwise you are just beating your head against the wall.
For all you wannabe entrepreneurs remember CASHFLOW IS KING. If cash flow going out is bigger than cash flow coming in then you are in major trouble. In that case you might be better off standing on a street corner handing out $5 bills – it might save you a lot of money.
The only problem with trying to run a business out of your house is that in some areas it’s illegal. In most areas your neighbors will think you are a drug dealer or fencing stolen gear. Clients also tend to have less respect for someone without a genuine commercial space. If you live in a rural area, expecting people to come to you is often out of the question. Getting your family to get onboard to pay 3x more for 3x less space to move to the city may not happen either.
I tried running a business from home and rarely got beyond the “Check it out honey, I paid the electric bill!” phase. I didn’t lose much but I certainly killed vehicles quickly and banks wouldn’t talk to me since I had crappy personal credit.
I’ll try again but next time I’m not playing the game with my own money.
Sad story that took a lot of bravery to write. To share some of my thoughts, I will firstly say that most of the small businesses fail. Secondly, I tried many things myself, and got burned, but luckily, with much smaller sums of money. One sure way to financial independence is mentioned by author himself: “The house my ex-wife and I had lived in was put on the market and quickly sold (thanks to Denver’s insane real estate market).” THAT is it: buy land and/or houses, when you can afford them. Then sell them for profit. Rinse and repeat. As Mark Twain said: “Buy land. they are not making it any more.” Either that or an undertaking business: people are sure to die, whatever happens. And then, when you are rich, you can do what you WANT to do.
I founded three start-ups which did not make much money. I gave up a VP position in technology and would have been better off if I had just stayed with the big company. Having said that, I would not change a thing. It was a lot of fun.
There are several things to bear in mind:
– Start when you are very young with very little to lose or when you are older, and have no kids to support and (hopefully) some money to spare. High school is not too early and retirement is not too late.
– Try, try and try again. You will not suceed first time unless you are very lucky.
– Do not overcommit such that you can’t afford to try, try and try again. Optimism is good, unrealistic expectations are not.
– Know the difference between a hobby and a business. Know how you will make money. Have a business plan
– If you do not want to focus on making money, start a non-profit and don’t give up your day job just yet
– Don’t do it alone. If you can’t find at least one partner, maybe it isn’t a good idea.
– Get a mentor. Someone, anyone, who has experience and will make sure your plans are realistic. SBA has such programs
– Have fun. If it isn’t fun don’t do it
Based on the post, I would suspect that the author was more interested in making a clean break from their prevoius life than in making money. For me, I buy tools and hardware like some people buy ice cream. When I feel down, a small packet from China or Digikey or Mouser is a real pick-me-up.
This is all great advice, thanks! I especially agree with:
“Do not overcommit such that you can’t afford to try, try and try again. Optimism is good, unrealistic expectations are not.”
I wish I had known to reevaluate the situation much sooner…
Good points but I will add one other having worked for start ups and running a side business. Keep a close eye on cash flow. That is what kills most small companies. Even profitable ones can starve from lack of an adequate positive cash flow.
Most technical people don’t have a very basic idea of finance, accounting, etc. Take course or at least read a book on the money side of running a business.
That was a big problem for me. I grossly underestimated the difficultly of the “business” side of things. But even just managing my day to day activities and setting priorities ended up being hard for me to figure out. I had read a couple books on business in the past, but they were more philosophical (like The 4 Hour Work Week), and didn’t even directly apply to the kind of business I was trying to run.
My basement shows that we have pretty much the same view of a “small packet from Digikey”.
Did something similar in college – Co-Op’ed at a start-up company. Learned a lot about technology and learned that picking the right mix of people to start a company is key. Beware the one toxic coworker who owns many key tasks.
I walked after months of 80 hour weeks at a couple of bucks above minimum wage hourly rate. Learned a lot though!
Testify brother! Testify! It is always a toxic coworker who owns key tasks! These type know that people can’t stand them and they become skilled at hoarding information and seek out key tasks to take over to make themselves indispensable.
I think it’s best when you are going through an intensely painful and emotional time to limit your life changes as much as possible. My most disastrous decisions have been made when my emotional state was volatile.
And I think there is a good reason many businesses start in the garage. Landlords are the enemy of financial success. I think most people that I know that have started a business that failed could point to their lease as a major cause of their failure.
I encourage you to write about your experience, but also to try to find someone else that has started a similar business that was successful and compare their process with yours.
“Landlords are the enemy of financial success”
You forgot to add Insurance Companies, Accountants, Lawyers, and Government Officials and Taxes.
Don’t forget
leechesemployeesI would imagine it is in large part due to the fact that rent is typically your largest and fixed expense. And when you can’t make rent, you know it is over.
http://qz.com/455109/entrepreneurs-dont-have-a-special-gene-for-risk-they-come-from-families-with-money/
Really cool article! Thanks for sharing the link.
Only skimmed it, but I certainly didn’t come from money. That said, like I mentioned in the article I got some money from selling my house.
I just looked at the article and thought it was a putrid pile of crap. Most likely the writer has a BA in Women’s Studies (which is a Karl Marx groopie degree). That is not to say that some people don’t start with money, but I think the intent is to condition people to envy those that succeed, that they are not deserving their success. Or should share their rewards more evenly. After all, you didn’t build that business on you own….
I know many entrepreneurs personally who mortgaged their homes and worked 16-hour days. As a contract manufacturer we work with a number of start-ups, most are cash-starved. And not all will succeed.
Sorry about the rant. I feel better now.
This is a great idea for a series! I am looking forward to the next articles.
Considering the high cost of health care in the US, it actually surprises me this type of entrepreneurial spirit is still alive. I imagine you gave up a good health care plan when you quit your job. It doesn’t take much to drive you into bankruptcy if heaven forbid you land in a hospital without health insurance. I suppose it is a lot easier to take this kind of risk when you don’t have any kids though.
Yup, gave up my health care plan. Definitely scary, especially when you’re working with big power tools that would be happy to remove an appendage.
Like you say though, no kids. If I had kids, that would have changed everything.
Plastic does not stick, but you need to know how to use it. You also need to learn how to leverage everything that you already have and get the first few jobs done with the stuff you already have. Don’t get intoxicated by having cash coming in. There will be long dry spells and you need to have a reserve. Grow your equipment slowly and carefully. Try not to buy stuff at the expensive part of the depreciation curve. Learn to be handy. Unlike the popular mindset, this is not a be in the poorhouse or be the next Bill Gates type of deal. If you develop the right skill set you hopefully will be able to support yourself and save for your retirement while doing something you enjoy. You probably will not change the world, but hopefully you will get by.
the advice here is sound – if you can’t afford a huge risk, then you have to start with minimal expenses and grow slowly.
but as for avoiding brick and mortar investments, i’ve seen another approach…depending on your location and your needs, a lot of times it is possible to OWN some commercial property where the monthly expenses are basically nill (because you paid it off while you were employed, or because you’re renting out the upstairs as apartments, or so on). i’ve seen a lot of really marginal businesses survive for decades because the real estate cost was worked out to 0 in the long run. of course then you have to think of yourself as a property manager first.
This is something I wish I had done. Real estate in Denver is such that I could have bought a building, rented out units, and made enough to cover the cost of a small unit for myself. Plus, you have appreciating value on the building itself. But, unfortunately, I didn’t do that.
I (and some others here) think that a part of the problem is cultural.
“USA is the land of opportunity, anyone can make it if they just work hard and belive it”.
Sure, it is a good thing to be positive and give kids a postive start in life, but someone must tell them the truth too.
If you always are late to school/work, never pay your bills on due date but always tree days late, and never turn in your projects in time, you are probably not going to make it.
If you never cut the grass untill someone tells you to, never take out the garbage in time and never make a new pot of coffe at work when it’s empty, you are probably not going to make it.
If you own a lot of gadgets, but always are short on cash, you are probably not going to make it.
If you start a lot of projects, but rarely gets 100% done with one before you start a new one, you are probably not going to make it. (jeesus, I know I never finish anyth
I have a friend, who is all of the above, but still made it, he dreams up a new project every week, works like 14h a day, get it to work with a bunch of cables hanging out from a breadboard and no cabinet and the occasional bluescreen and reboot.
The only reason he made it was that he found people that doesn´t have the ideas, but are hard workers that never quit until it is perfect to finish his projects, make a case for it, and run through his dirty code to kill those last pesky bugs.
He dreams up the products, make them sorta work, and then he markets them while his workers still is working out the last bugs, and they have sucseeded every time.
He knows this, and he pays and treats his workers well (more then well, noone has ever quit so far) and when a product is getting too big for inhouse production, he either sells the product to another company or contracts someone to make it for him.
He made his first million $ before he was 30, sold the company and started a consulting buisness, where he works as much as he feels needed to not have a negative cashflow and the rest of the time he travels the world with his wife and kid.
Thanks for sharing your story, that’s incredibly brave! I think there are four key points here to underscore:
– a divorce might be an emotionally non-ideal point to start a business
– don’t start a business without a clear product and an idea, how to monetize it
– don’t go in head over heels and spent money before earning some
Especially the last one might be important: the best point to start a business is when there is a financial backup available. As soon as it becomes all or nothing, things get dangerous.
Those are all very true. I’ve never been particularly risk-adverse, but after getting divorced I felt like I didn’t really have much to lose. Turns out I did (a decent chunk of cash, perfect credit, etc.), but that wasn’t how I thought of it. Hindsight is 20/20 and all that!
Thank you for sharing and being brave enough to hang it out there for the world to see. You’re brave for doing so. I received value and I have no doubt others have as well. Good luck to you and you’ll be on your feet in no time.
Thanks, I appreciate that!
Learning to fail as cheaply as possible is a lesson I wish I had learned sooner than I did. I genuinely got sympathetic twinges reading your article.
Exactly. I could have failed just as much for a lot less money if I had been smart about it, haha.
Well they say you need to get past those first few failures… I’ve got a good cheap one for your next, try selling clothes pins to pigeons. Only investment is one package of clothes pins…. and the associate package for only $299 which includes marketing materials, samples of the deluxe range, a self help video, a copy of dummies guide to network marketing, and an attaboy ribbon from the regional vice president when you sell 10 units.
I am, slowly but surely, trying to build a small hardware business, and one of the best pieces of advice I got was to think carefully, and ahead of time, about your definition of success.
It’s easy to buy into the notion that success looks like a big financial upside. Unfortunately, many startups / small businesses do not succeed by this measure, so it’s important to consider whether you’d still get into it if you knew you weren’t going to make money. What else are you going to get out of it?
For me, I’ve learned an incredible amount over the last two years, and believe that the experiences have been “worth” the cost (both in real money paid in, as well as the opportunity cost of lost wages). But the minute I think that balance is tipping the wrong direction, you can be sure I’ll reconsider the business.
A commenter above linked to an article that says many startups come not only from a willingness to take risks but from an abundance (or over-abundance?) of money. It’s true that if you’re in a position to quit your job and start a new venture, you are likely in a privileged place. But that inherently doesn’t make it “wrong” or “evil” or really anything at all.
Most people implicitly and explicitly make decisions about their lives, career paths, and the best way for them to spend their resources. The more explicit you can make that process, the better you can anticipate how things will go, and the easier it will be to evaluate whether the outcome lines up with your goals.
That’s a good point. For me, making a bundle of money was never the goal (and probably will be). The goal was to make enough to survive on, and essentially fund the shop. The motivation for me is always learning and tinkering, and I was hoping this business would allow me to do that while supporting my (very basic) lifestyle. Which ended up being part of the problem — I was more interested in trying new things and learning than I was in sticking to what I knew in order to bring in steady income.
Cameron Coward – I read through your article. Very well written and interesting. A few ‘take-aways’ for me is that the paths you took all seemed to not have a helluva’ lot of, little, or no forethought, reflection, or consideration of the consequences of your actions.
For instance:
· You entered into a brick & mortar lease with a landlord which you admitted was fraught with ‘gotchas’. You never consulted with a financial planner nor an attorney before signing.
· You quit your job BEFORE having gainful employment in-hand. Why? Because you were “burnt-out”. Translation?: “BORED”.
· I can’t see where you did any ‘market research’ to see what was in demand and what business models work. I can’t understand why you didn’t just work for someone else in your desired field until you could branch off into your own thing. The new boss may have been willing to entertain some sort of career promotion for you or maybe even to help you do some sort of startup subcontractor business for helping himself and others.
· Outlaying so much cash for items you really didn’t need baffles me.
· Selling your house instead of just you staying there and using it as a home office seems to me not well thought out.
· Before getting into such a huge debt and getting your credit score lowered, you could have pitched your idea to a SBL lender. I think the federal govt in USA still does that, not sure.
· Why didn’t you seek out partners like you did when you were a kid? Smart partners are good to brainstorm with. They also may be willing to put up their own cash to help too.
· I saw you photo up there and I do not judge people who like body enhancements. Hey, in some venues that is a plus. However, some other venues it is a turn-off to the “suits” who are loaning you money or giving you business. Also this life style means you need a professional looking front-man or salesman to be your company’s image.
So making a cursory analysis of you, I’m going out on the limb to say I think you have serious issues with “impulse control”. Please don’t take that as an insult. It’s just my opinion. There are ways of dealing with impulsivity that involve talking with a professional or even in some cases medication. I just hope the irreconcilable differences between you and ex-Mrs. wasn’t related to your situation. That would be unfortunate for both of you as it could have been avoided. Hey but that’s now water under the bridge.
I hope your future is brighter and more successful. Thank you for sharing your pain as we all gained from the sharing.
SOTB
P.S. – I was tickled about your first paragraph to explain your earlier disappearance. It’s funny about your secret program comment. IMO I just don’t think ‘they’ are recruiting in that venue just yet. IMHO you don’t ‘blend’ well with your non-chameleon features.
“So making a cursory analysis of you, I’m going out on the limb to say I think you have serious issues with “impulse control”. Please don’t take that as an insult. ”
Not at all, I don’t take it as an insult — it’s very true. I’ve always been that way. The trouble is that I can’t decide if its something I like or dislike about myself, haha. On the one hand, I like that I’m a “doer”. So many people talk about doing things they never do, and I like that I actually do them. Usually that works out for me, but of course the flip side is that it sometimes backfires big time (like this business). So you’re completely right, I could have (and should have) spent a lot more time thinking things through before doing them.
“I can’t see where you did any ‘market research’ to see what was in demand and what business models work. ”
I did, but unfortunately by business skills are lacking, and my research was fraught with assumptions. I simply didn’t know the “right” way to go about doing market research. Again, this relates to the last point, I should have made sure first.
“Why didn’t you seek out partners like you did when you were a kid? Smart partners are good to brainstorm with. They also may be willing to put up their own cash to help too.”
I was talking to a couple people about this, but was too impatient to wait, to be honest. Kind of goes back to the first point again. I was ready to “do” and didn’t want to wait for someone else to get on the boat.
“I saw you photo up there and I do not judge people who like body enhancements. Hey, in some venues that is a plus. However, some other venues it is a turn-off to the “suits” who are loaning you money or giving you business. Also this life style means you need a professional looking front-man or salesman to be your company’s image.”
Luckily, I don’t think this was much of an issue. With a suit, all my tattoos are covered up, and I generally look professional. Meeting with clients, I think it actually was a selling point. People see the tattoos and think “artist” or something, which helped in some ways. I’m not certain it did, but I don’t think it hurt.
“I hope your future is brighter and more successful. Thank you for sharing your pain as we all gained from the sharing.”
Thanks, I appreciate that! And I appreciate the advice. Obviously my mistakes were many, and it took a lot of self-reflection to even begin to recognize them. I’m just hoping I’ll be smarter next time.
Cameron – I’m glad you took that well. That means you are at least 50% on your way to a solution by acknowledging the problem. I would only recommend that you seek counsel on all your future endeavors. Even an attorney would have helped you on your lease, contracts, and even a better divorce deal. The advice from someone here to avoid brick & mortar was a wise one.
I assume your in a rental apartment now. If you decide to buy another house think about a ample garage, attic, or basement space to do your hobby/entrepreneur pursuits. I assume your rental apartment doesn’t afford you any such space. You might think about joining a local MakerSpace. I am seeing (incidentally in my future one here in town) they are allowing entrepreneurial activities using their tools. You could donate some of your tools that weren’t repo’d or sold off. Some seem to say go and work on your idea in the space, market it, do your sales and return some of the proceeds via a charitable donation to them, which is only fair.
I’ve also have seen a lot of entrepreneurs looking for refurbished factory lofts to move into as residential dwelling AND use the same space for commercial. The rent may be reasonable as those neighborhoods are usually depressed and most affluent people would never live there. Only the brave, which I think you are. Just setup good locks & alarms on car and the loft and maybe get a big dog (with no known bite record for the insurance company). You might even allow a MakerSpace use part of your loft if it’s big enough. Artists like you love lofts right?
The body art? Yes you can cover it up. However, your instincts were correct. Some people do have serious hangups about such stuff and may even be prejudicial about it. I’m glad you look good in a suit. That will help you. With me I’d be totally into your ink trying to analyze it. I did that to a pretty girl the other day by complimenting her ink. It was impressive. She said thanks but moved on too quickly. I loved her piercings too.
I inspected a tattoo parlor the other day for an insurance company. I could have sat there all day in his cushy leather couches just watching the pretty girls get their tats. Unfortunately, I had more inspections to do. So I had to go. I like my job as I am a IC. I make my own hours and appointments. I meet all sorts of people and see venues of all kinds. Some of them not so expected but I get through it quickly without too much pain. I’ve even inspected shops like yours.
I know your doctor would never condone this but have you ever thought of self-induced aversion therapy for your impulsivity? The actor Dennis Weaver put a pebble in his shoe to remind him to limp for his part in the US TV show Gunsmoke as Chester Goode, who was supposed to limp all the time. Every time you are about to even think about something impulsive without good professional consultation, cause yourself some sort of localized pain like Weaver did for his role. Your mind will start associating uncomfortable feeling with your lack of impulse control. At least your memory will kick in when you see that really cool whizbang gadget that only costs $3,000 but your bank account only has $2,500. You could ask your parents for the difference — OUCH! (memory kicks in – don’t do it! You will regret it later! Do I really need that thing NOW?)
What do I know? I’m a “waco”! :-)
Oh, I forgot to respond to the house part: I had to sell the house because of the divorce (she got half, of course). Which is unfortunate, because that house had a nice big shop in the backyard, which was half the reason I had wanted to buy it in the first place.
Think about moving into a refurb’d factory loft. Check Apartments dot com or something like Loopnet dot com. Loopnet will tell you where all the old factories are that are ready for sale. Do a drive-by and see who bought it and what they are doing to renovate the space. Before you know it they will be looking for renters, Those places are so big you can move in all your furniture, they already have kitchens and bathrooms, Your sleeping area can be partitioned off by thin partitions to separate your mercantile or commercial area. You can set up a work area, and a lobby area for visitors (which is actually your living room). A mezzanine is great for a sleeping area. Make sure the freight elevator works and the landlord has good fire control systems. A bay-door is good but mans you would need a 1st floor loft. They are not cheaper than the above floor lofts. The loft’s steel access sliding doors are large enough to allow wide loads to be brought in with a forklift if needed. I think you can rent large tools like that from Taylor Rental.
Then look at all those good and crazy new ideas at start up funding spaces. Must seem to fail but still get a substantial amount of followers, enough to pocket a nice sum for an idea but the idea was only to pocket the money. Even though going on for a while, the simplest projects seems to fail. This way seems like a much better option than starting a company. If managing to get the product through public funding, even better, a succes…or what is the story about publicicly funded projects anyway. Most seem to fail. Having a business, seems easier, but costly by doing and having the knowledge doing everything oneself. But thats why we learnt to read. And now we have internet. So we can easily teach ourselves nowadays. Different in the Commodore times….
I enjoyed this article. I might even learned something with it and I think you did too. Now the best way to get it right is trying again(and this time without money, to make it a challenge) and post here your success story.
Thanks!
This article took courage and success stories are of little value, so first of all, thanks.
That said, these are mistakes of passion and belief in an idea, not lack of information, foresight or flaws in the implementation.
Again, thank you for sharing though. It is appreciated.
Oh, there were plenty of mistakes in both areas. I definitely make the “tech guy” mistake of thinking that running a business is a simple prospect of just ensuring you have enough profit.
Thanks for the kind words!
Glad to hear you’re getting back on your feet. I’m in a very similar position, I started a concrete polishing business and started fabricating my own dust collection equipment with hopes of becoming a manufacturer in the future. Almost a year later and about to start looking for an actual job again as I’m not getting enough business to stay afloat and pay my bills. It’s really a demoralizing situation, reading your story has helped bring my spirits up. Thank you and good luck to you.
Good luck to you too! You’re right, it is very demoralizing. Making that decision feels like giving up, but sometimes it’s necessary.
I got taught a lesson like this early on in business when I ran my own company. First lesson, small businesses have no money. Even when they want what you have, you have to factor in the amount of pursuing you have to do to actually get that invoice settled once its due, and you end up wasting most of your time doing management, invoice chasing and marketing. My first real business sank under costs and inability to get the money in on time because all the sme’s I had as my target market had as many cash flow problems as I did. I just wanted to make cool stuff, not all that stuff that comes with it.
I’m fortunate in that my wife is really hard headed and business like and is a ex managing accountant so takes no prisoners over things that don’t earn their keep, so she’s ran over my ideas and got me to cost out if they’ll make enough to survive. She knows I have plenty of skill and enthusiasm, but without that cold hard inspection I might have taken the leap too many times already. Its really good to have someone who’s not got their head in your clouds to give a cold perspective on it. Or I’d just fill the shop with new toys that wouldn’t earn their keep too!
Sometimes a business fails, but what you earn from the activity the most is the experience you gain, I’m still using things I learnt from my first business to earn a decent living now 18 years later even though it sank.
Look forward to seeing you help others so they can learn by your experience rather than their own, which is always the best way.
“I just wanted to make cool stuff, not all that stuff that comes with it.”
This is so, so true. I really didn’t (and still don’t) care about getting rich, or the “status” aspect. I just wanted a business that let me make cool stuff, using the kinds of tools that generally don’t fit in a spare bedroom.
My ex-wife played the role that your wife does — kept me from doing too many stupid things. But, of course, she’s an ex now (thought we stayed on good terms the whole time).
My company is still alive, but I can relate on so many stuff you said. Looking forward on lessons.
Great article.
I don’t know how much you lost exactly, but I suspect you easily (EASILY!) could have lost more money by staying in an unhappy marriage, having a couple kids, a dog, maybe splurging money on yearly Carribean vacations chasing happiness, etc.
Maybe one could argue you should have spent the money on an MBA instead of the business just to learn the basics, but even that is suspect in utility if you ask me.
I learned this… (As book learning, plus multiple experiences of family and acquaintances, some endeavors in which I was involved, to drum it in through the years)
First year: You keep the business.. It’s going to suck cash, plan enough to keep the lights on, plus whatever minimal amount you can live off, if you’ve already got a family this is hard, you can’t do single bedsits or couch crashing if it gets real tough.
Second year: Business keeps itself, meaning it’s at least paying its utilities and materials, whatever other inputs. You still need have saved enough to provide your own needs.
Third year: Business keeps you. Yay, finally, profit, modest at first, but you can finally buy some new clothes. Growth from here on if you keep at it.
Yes, this all means you have to plan how you’re going to get quite a large chunk of change, bootstrapping from your garage is a very hairy way to go. However it is possible to do it with a “second” job, preferably something that doesn’t suck mental energy, through years one and two to feed yourself with.
Allow me to translate….. What it’s like to quit your job and start a company and find out there is no profitable market for what you produce and marketing and niche still trump technical abilities and wisdom.
Thanks, I like your version better!
Lean production [or similar buzz word] anyone?
Production efficiency and design quality mean crapola if what you’re selling doesn’t sale at a rate that has a working profit-margin for growth and sustainability. This is the point of failure that nobody talks about and just assume it was technical failure because that’s easier to comprehend than economics..
Very sad story, but i’m sure you don’t regret trying it.
I personally also failed a couple of times, in smaller scales fortunally. Since 2007 i design i build my own bicycle parts, but due my lack of machine-tools i couldn’t progress much. Outsourcing cnc work it’s quite expensive and take all th profit for me.
I’m currently trying again to get back in the bussines and i hope some day i can build/buy my own manual and cnc machines.
CNC is one of my specialities. That big blue VMC in the photo only cost $1,600 (plus $800 for delivery by riggers). It’s an older machine (made in 1990), but still works beautifully. If you can manage the space, look for something like that at local industrial auctions. They’re so big that nobody has the space for them, and they generally go significantly cheaper than a much smaller Bridgeport or something. They’re also generally 3-phase, so you’d need a phase converter if you don’t have 3-phase available. But even with that, it’s still significantly cheaper.
I wouldn’t recommend building one though. I’ve done that too, and it can be a fun project. But, for making real metal production parts, you need a big, heavy, rigid machine. And features like tool changers are extremely difficult to add to a homemade machine.
if i had space to put one of those things in (which i hope to have some day), i’d pay you to find me a deal like that.
hell, i’d pay someone to convert all these comment section statements of “pfff, just go to your X that sells crap for cheap and buy a Y for $Z” into simple $Z+$100+delivery orders i can place without figuring out where industrial auctions happen, and then getting to them by 7AM every weekend until the thing i want turns up.
might i suggest that as a thing you could do on the side? perhaps with a helping of “so what do you want to do with your mill when you get it? CNC-ify it? i could do that for you. no? ok. what are you doing to make? yeah? sure you don’t want me to just make you that part? ok. well, let me know how the project goes.” and then when they’re stuck CNC-ifying it, offer your services. or when they’re all fed up with the situation, offer to buy the mill back (to sell to the next guy with ideas bigger than his ability to execute), and offer to translate what they want made into an order with a machine shop you’re familiar with (for a small fee).
Might I suggest reading The E-Myth by Michael E. Gerber. I found the book VERY informative. It highlights the major pitfalls of being an entrepreneur and how to avoid them. I witnessed my father fall victim to the Friday syndrome as mention in the book. That’s where you have reached a point in growth and need help. You unknowingly put more and more of your business in their hands…
I really appreciated the honesty of your article, I feel the positive response from other readers is because of that as well. I’m working for my computer science bachelor’s right now, and took away a lot from your article (and the comments too!)
-Even if you have the funds, stick with the smallest work place possible
-Business plans are a must, even with a passionate idea
-It usually takes a few years before businesses return a profit
Thank you for your article! As a daily Hackaday reader, this is one of the very few I took the time to respond to.
:,) and still not regretting a single bit, and being in mexico still worst, sometimes just being able to pay the rent for the last couple of months, but the experince of being your own boss, being creative to create and hack, with little to no money,nice article by the way, and still pushing foward.
Thoroughly awesome of you to share your story. Keep the faith.
A wise Jewish former employer who I greatly respect once told me that there are basically only two ways to make money in a business venture–you can drive sales, or you can control costs. He subsequently elaborated that it was far easier to increase sales, than to achieve perfect cost control.
A well written and informative article. I can certainly relate, as my little company has had many ups and downs over the years. I don’t know if anybody would consider me a success, but I’m still at it, so I guess that counts for something. Here is my (possibly terrible) advice:
1) Never go into debt. Your company can live forever if you just never go into debt. “Too small to fail!” is my mantra.
2) Eliminate as many recurring costs as possible. Even when Nintendo required me to have an office outside my home, I found ways to accomplish that without spending any money.
3) Borrow rather than buy. Need a fancy and expensive tool for a job? The cost of purchasing and maintaining the tool and the place to keep it might not be worth it. Can you use it at your local hackerspace? Or a farther one? It might be worth a month’s membership fee if the job is paying for it. Or maybe you know somebody with the facilities and can borrow some time on theirs?
4) Own rather than rent. Sometimes, the cash outlay is low enough and the reuse is high enough that it is more advantageous to just buy outright. This also falls under “eliminate recurring costs.” These days, it becomes harder and harder to do, as more software moves to a cloud based business model and is only available for rent, but sometimes a license for older software that you can use “forever” is a better deal long term.
5) Marketing is the hardest part of your job. Seriously. Figure out how you are going to sell it (wherever “it” is) before you make anything.
6) Deduct everything. Get a good tax guy. Get a business bank account. Charge anything business related to the company card. At the end of the year, you will have a nice list of everything spent on your business. Sort it out and hand to the tax guy, who will tell you what you can and can’t write off. And you can write off a lot!
7) Be flexible. My company has programmed videogames on many different platforms, built websites large and small, done freelance IT work, provided SEO services, hung out a shingle for random tech support work, done audio and video production, streaming video, taught classes, built hardware, and played music in bars and clubs. Not all of these things paid well, but many of them paid some, and one certainly never gets “burned out” when the work is so varied.
8) Don’t work for anybody. Work with them. Respect them and respect yourself. You are the equal of your clients. They might be paying the bills, but you are working together to accomplish their goals. Instead of thinking in tiny tasks and getting blindsided when they suddenly come back with more requirements, consider their overall task and see if they will let you give them what they need, rather than what they are asking for.
9) Don’t get desperate. That means both to make sure that you have enough of a safety net that failing is not a catastrophic event, but also to panic or show outward signs of panic when things are not going well. Sometimes succeeding is more about marketing the results than achieving the outcome.
10) Get paid. Read your contracts and make them remove the BS. Never take work that has to be “approved” to get paid. Make sure IP is never assigned until payment in full is received. Don’t start work until the contracts are signed. Get paid every 2 weeks like everybody else. If they ever miss a payment, walk away and let them know they don’t own the IP you did already until you get the final payment. Bid what you need to make or it to be worthwhile, not the time it will take you to do it. If they say “well, the Indians would charge less”, just leave. If getting paid is a hassle, don’t do business with them again. Fire bad clients.
tl;dr Get paid, don’t spend money, work with mutual respect, never let them see you sweat.
+10
Thank you for sharing your story. It must have taken a lot just to realize that the business was failing, and then having the guts to write about it publicly… As Denis said in a comment above, it’s easier to brag these days, than to post about your failures — but failures are at least as important to hear about.
It looks like what happened to you was a somewhat expensive life lesson. At least you learned something (many things?) from it!
Welcome to my world! Only I failed twice! There is no fault in failing providing you learn from your failure, but I do have issues with failing and not trying again. The third round seems to be working for me.
We started out selling homebrew (beer) supplies on the internet and I grew until my Wife pushed me out of the house. Understand that my Wife is a very tolerant person and by the time she pushed me out of the house my business had consumed 2 bedrooms, the dining room and living room. So I moved into an office suite and immediately started losing money. But I was so focused on generating sales I did not know I was losing money. Then I hired my youngest son and started losing money faster. Sales that year were $336,000 and we probably lost about $30,000. Two years later I was out of cash and out of options – I had failed.
You have plenty of time to analyze things when you fail, and being a Engineer I systematically analyzed what went wrong. I made two gross mistakes in business. The first was I tried to be all things homebrew, If it was for sale to the homebrew community I sold it. The second mistake was I was always the cheapest on the net. When I failed I had over 700 line items and I was losing money on about half of those items. Some were a surprise to me. For example I was selling grain at a 100% mark-up and losing money after factoring in inbound shipping, shrinkage, the cost of the floor space I was consuming and spoilage from bugs.
I was fortunate enough to have enough inventory after I failed to have a fire sale, and the fire sale generated enough cash to survive. At the same time I negotiated 1/2 rent with my landlord for 8 months. This funded my second failure, which by the way was not my fault. I concentrated on only items that were profitable from the previous business and reached the point where about 70% of my business was manufacturing and shipping custom CO2 regulators. I was generating cash, paying bills and putting a little away in the bank when hurricane Sandy hit. We were not affected by Sandy here in North Alabama but our regulator body manufacturer sure was. They are located on Long Island and were shut down for 7 months, and their shut down put an end to 70% of my business cash flow.
My third start focused on stir plates I was already building and on home brewery boil and mash controllers I had started designing about a year before hurricane Sandy hit. I had built stir plates throughout most of this adventure but not enough to pull me through failure #1. But this time stir plates were generating enough revenue to scrape through failure #2. By the spring following hurricane Sandy I was making a little money and the business has grown since.
Will I fail again? Maybe. But I’ve learned to see signs ahead of time – I’m smarter in business now. I also have a good understanding of cash flow. Almost all of my business is based on products I’ve designed and we manufacture which helps hold off competition. Also I’ve continuously improved our controllers. We have diversified but at the same time I’ve killed off items that were not profitable, and I have done a good job of managing cost.
all you need is basic accounting/math skills marketing is what made you fail. A flawless business model can’t carry a bad niche or shaky service-industry
I failed for a lot of reasons:
Listening to local customers.
Assuming a set markup was ‘enough’.
Not understanding cash flow.
Trying to grow beyond my ready cash.
Not understanding or planning for all of my business expenses.
Not watching the bottom line!
Those aren’t flaws. They are all things that are necessary but broken by lack of adequate client aquisition(the soul source of cash flow) which is from a bad market or marketing; probably bad market.
“all you need is basic accounting/math skills marketing is what made you fail. A flawless business model can’t carry a bad niche or shaky service-industry”
Obviously said by a pundit who has never run a real business. Success is driven by cash flow. Cash flow can be quickly killed by deadbeats who don’t pay and/or hang on to your money for 180+ days interest free. I know of several successful companies put out of business after signing big “contracts” with the likes of W@lmart and HomeDespot.
Would you give me $1.00 if I said I could repay you in 75 years? Then don’t buy F@cebook stock because it doesn’t generate sustainable cash flow. If FB didn’t have a bunch of speculative suckers funding it it would have gone bankrupt years ago. Magic math and accounting practices don’t make it a good business. Just ask Enron investors.
Don’t confuse success and speculation.
if you like what you do you cant fail. why you decided to put your eggs in one basket instead of transitioning slowly is beyond belief, like the bit in a movie where you’re screaming at the tv for how dumb someone is being.
look on the bright side, you got a divorce in your twenties, you’re still in the age bracket of being attractive to teens.
As long as you get over the wanking phase, it’s all good really…
No offense, but could it just be your last name?
Well I guess the famous NOEL COWARD had an awful time of it ( https://en.wikipedia.org/wiki/No%C3%ABl_Coward ) /sarc