Valuable personal lessons learnt from a spectacular mistake
It was a typical San Francisco Bay morning, cool, bright and sunny, that day in the spring of 1999. I was on a yacht at the Half Moon Bay yacht club with my business partner John Thiele. With us was Dinesh Khurana, my other co-founder and business partner.
As fellow founders of my e-learning start-up, we were discussing our equity structure, preferred shareholder rights, stock option plan, our employees and the potential management team we could get on board. We were also discussed at length the implications of the proposed commercial model and were gleefully contemplating an IPO exit strategy.
As I look back, I am stupendously flabbergasted by the audacity of my idea. I had just resigned from my well-paying expatriate job in Tokyo, Japan. With my resignation went my very generous salary, bonuses and stock options. My wife Carol had to adjust back to life in the Bay area. On top of that, she was expecting our third child who was conceived in Tokyo. I had to buy a house and two cars at the same time – one for my family’s use and the other for mine. We also had to settle our kids back to school in the United States. Yes, on top of all this, I was crazy enough to invest over $600,000 in cash and kind into a business to be launched in Osaka, Japan.
As I think about this last chapter, I can’t but help remember the dots that I then spectacularly failed to connect. Yes indeed, my partners and I had a purposeful exit strategy. But come to think of it now, it was a pie-in-the-sky dream.
I had a business plan ande was able to raise more than $3 million in funding from individual investors. My partners and the majority of the top management team that I hired were dedicated and superbly competent idividuals.”john lincoln, author
The dots that I did not connect!
Flat rate and high-speed internet access was nascent in Japan at that time. This was a pre-requisite to ensuring that my customers could enjoy unfettered online access. On top of that, we had developed 150 lessons for the Japanese market. Hindsight is certainly 20/20. I should have just developed about five or 10 lessons and gone after the B2B market versus trying to build a consumer brand with the paltry start-up
capital that I had.
Instead of spending all our funds developing those lessons, I should have hired two or three competent sales account managers to target the human resources function in large companies. Had I done that, I would, in all probability, have sustained and grown the business.
I again failed to connect the dots as I should not have hired many teachers to handle the calls from students in my call center. I had miserably failed in my forecasting and planning – and therefore, in my cash management.
I certainly should not have hired one useless Chief Technology Officer who personally contributed to about eight months of delay to my launch plan. This particular person was competent in his function. He absolutely had no idea on how to manage a team.
The infighting and backstabbing in his team was unbelievable. I should have hired his replacement, Kristina Sterling, much sooner. Further, I should not have hired all the artists and Flash programmers, but rather
brought them on as contractors on a variable scheme. I should have fired at least two of my top management team who were just sucking up my bandwidth with their incompetency.
I should have stayed focused on the core basis of the business model, developing the e-learning content, rather than trying to create a world-famous learning portal with games, exam preparation classes and auction and others. In hindsight, I should probably have not gone and entered into contracts with
incompetent and unscrupulous vendors and offshore partners who kept changing my cost model.
Last but not least, I personally should have stayed away from the business once the funding and management team was in place. As the single largest investor, I let my ego and emotions overcome the better of me!
The dots that I connected well
However, I did connect some dots well. I had a business plan and was able to raise more than $3 million in funding from individual investors. My partners and the majority of the top management team that I hired were dedicated and superbly competent individuals.
We had proper administration, accounting and legal contracts. This is not a trivial issue, as when we decided to shut the company, we paid off all the preferred shareholders $0.13 on the dollar for their investments. We renegotiated with all our creditors and probably paid about $0.20 to the dollar on moneys owed to them.
As common stock holders, my two partners, John and Dinesh, and I did not get a single cent back. On top of that, John and I had forgone our entire salaries for stock options that were worthless. But in the end, we were able to walk out of it cleanly.
We filed all the necessary papers and kept our records for 10 years (although California law only required us to keep records for seven years). We retrenched our employees in Osaka, Japan and in Foster City California. This was all done legally. You see, when I had this great idea for the business, nothing could have stopped me from jumping into this bubbling frying pan. Despite my international experience of being a successful commercial manager and marketer, someone who had even been a protagonist in a major business school case study, I made colossal mistakes.
I certainly hadn’t connected all the dots. In hindsight, I wish I had.
This entrepreneurial experience taught me many valuable lessons on human frailties, market, completion, branding, commercial models, equity structuring and others. So how do you reach nirvana on sustaining and growing your business? Is the profit bliss achievable? What are the dots that an entrepreneur or an SME owner or investor must connect before venturing into the perilous world of entrepreneurship? How do you reach that beatific “seventh heaven”?
The ultimate guide
There are many dots that you will have to connect to sustain and grow. Some dots just cannot be disconnected! Here are the 30 dots that MUST BE CONNECTED!
- What are your exit strategies? Are you positioning yourself to be acquired? To be sold? Do you have plans for an IPO?
- Do you have a multi-scenario business plan?
- Do you have adequate funding? What are your sources of funding?
- Have you considered alternative methods of funding?
- Do you know who will be your primary source of funding at every stage of your business?
- How is your cash flow managed? Do you have a daily view of your cash situation? Do you have enough money to pay your employees, rent, critical suppliers and bank obligations? Have you stress-tested your cash flow situation? Can you survive in the worst-case scenario? If not, do you have contingency plans?
- Are you over-dependent on a single or a few customers? Is this over dependency acceptable risk for your business?
- Are your key employees emotionally intelligent to deal with the “white water” environment of your small business?
- Do you know your market and industry structure?
- What are your incremental value proposition and differentiation relative to your competition?
- Do you have a purposeful pricing strategy and tactic?
- Have you designed the end-to-end intentional experience across all touchpoints that your customers will interact?
- Do you have a branding strategy that all stakeholders of your company can relate to?
- Do you know how you will engage in a price war if there is one in your industry or market?
- Are your sales and marketing folks competent to meet your business growth plans?
- Are your sales teams’ compensated to drive wins from your competition?
- How will you reach the market? Is there an opportunity to create demand through channels other than your sales team?
- Have you segmented your target customer base? Do you have differentiated propositions and communications for the different segments?
- Do your marketing communications address the vulnerabilities of human beings? Is it a conscious decision or is it an afterthought?
- Do you have a purposeful strategy to target women? Is it differentiated from your other marketing efforts?
- Have you considered the end-to-end operations of your business?
- Do you have policies, procedures and processes that drive productivity in your business?
- Do you have effective information and telecommunications systems?
- Do you know where 80% of your cash flow and profits come from?
- Do you have good, truthful and useful managers?
- Are you conducting yourself as a leader or are you just a taskmaster?
- Do you know the set of activities that accentuate your business performance?
- Do you know the set of activities that diminish your business performance?
- Do you know how much your business is potentially worth today? Do you know the key variables that drive the value of your business?
- Is this business really for you?
JohnLincoln.one –The business growth hacker