More lessons from entrepreneurial failure


Sydney AustraliaDon’t bite of more than you can chew..

If you read my previous post “lessons from entrepreneurial failure” you may recall I said “you will fail” and most of the lessons will not be fatal to your business. They may hurt or bruise the ego but you will learn something and move on much wiser and more experienced.

In this post I want to share some lessons that were very close to fatal. Each individually were not critical, however they all occurred on one large project that came extremely close to being a Titanic disaster and sinking my business.

Having established my contracting business for a number of years and having built up our credibility on quality and service, we were invited to tender for a larger project. One of a size we had not attempted before. As a matter of fact one about 10 times the size of anything we had undertaken previously. Yes we had our concerns and did analysis on impacts and risks but in the end we were fairly confident that we could pull it off and come out with some good profits. The project was also an opportunity to showcase what our business could do and I guess we felt establish us as a major player in the market.

We had the skills and confidence, and we could build up our capabilities as we went along. So we did the maths and our tender was accepted. This was to be a 4 month project with agreed progress payments making it easier to manage the cash flow which was going to get stretched. All the installation materials needed to be ordered up front and we got most of them on accounts with our suppliers. We increased the number of staff to ensure that the work would get done in the required timeframe and got to it.

This is where the trouble started. Ramping up with new staff and providing limited training due to time constraints, the quality of the work went down. In turn there was rework and of course that eats into the anticipated profits for the project. I think you get the picture. We ended up diluting and modifying the structure of our teams and mixed some of the more experienced members with the newer members. Although this adjustment reduced the quality delivery risk, it also reduced the overall productivity as some of the newer members had not completed their training. Looks like a vicious spiral. For a while it was.

Lesson 1.

  • If you are taking on larger projects, don’t take anything on that is a major multiple of the scale you are used to. Don’t go out and try and prove a point like we did. Better to incrementally increase the size of your projects rather than take a large risk. Keep your ego out of the equation.

Having diluted our teams in itself posed some issues. New members are learning to work with each other and the experienced guy’s are getting frustrated as it’s taking longer to get the jobs done and reworked. Not only were we struggling on the new major “showcase” project, but also on smaller projects where our customers had come to rely on our services and trust our quality. All our customers had heard or been informed of the large project win, but some were getting frustrated that it was taking us longer to get to their work and were handing it over to our competition. Not that our competition were any better than us in price or quality, but for the fact they were more available when required.

Lesson 2.

  • If you do take on a larger project that will tie up your resources, make sure that your current customers are looked after first else they may go to the competition and it will be much harder to get them back. Any large project will substantially stretch your available resources.

My time with the larger installer group was fully devoted to the major new project and I was relying on a small team to service our existing customers. As you would expect (but I didn’t at the time) there were construction delays overall and with the additional QA we had to do, our cash flow projections for the project were thrown out the window. Firstly although we had in place an agreement for progress payments it was all tied in to completed and tested work. Because of the scale of the project and the expenditure up front of staff and some materials costs it became increasingly difficult to stay cash flow positive and meet payments.

Lesson 3.

  • No matter what projections you put in place for your cash flow, there is a high probability that if you undertake a major project they will all be irrelevant when you are in the middle of the job. Taking on any large project will stretch your capabilities and capacity. You need to be sure that you have enough funds to be able to work effectively. You need to plan for unforseen delays.

So far it was getting tough and the stress levels were piling up, and some days it certainly felt like we had bitten of more than we could chew. And then there are days where if it can go wrong it does. Near the end of a tough project that put a huge strain on the business, my family and me, I find that stock has gone missing from the lockup. The project is in its completion stages and we have no way of finishing it. Essential components are gone. In essence the insurance policy will cover the value of the stolen goods, but that still leaves us out of pocket for air freighting replacement items at short notice. Because of an unethical employee, this inconvenience required some Herculean efforts to complete the project. I distinctly remember doing a ridiculous 36 hour shift to achieve on time handover.

Having completed the project and handed everything over, processed the final invoices we were done. The last issue ended up being payment. The final payments took forever to receive. The builder was in no hurry to finalise payments and we were just one of the many contractors waiting in line. The 90 day wait for final payment. As you can imagine, we were at breaking point. The overdraft facility was maxed out and the bank manager is calling every couple of days. Suppliers are also calling for payments on materials we had purchased. All employees had been paid, but we still had tax obligations. We had limited choices. What would you have done?

The easy thing to do was just walk away. Give up. Put it down to experience and get a job. Many including trusted advisors suggested just that. For me that was not an option.

Lesson 4.

  • At the completion of any project there are often delays in receiving the final payment. It can be anything from rework, verification of completed work or variations or even the head contractor awaiting payment before settling the remaining accounts. Progress payments can be delayed as well. It is your hard earned revenue. You need to chase payment. Just like my bank manager was hounding me, you need to keep the pressure on for the payments you are owed.

I didn’t walk away. I got on the phone. I talked to our suppliers, the bank and the taxation office. I simply laid it out on the line. I gave all of them 2 options. These being I could walk away and declare bankruptcy or they could work with me, by giving me some time and I would clear my debts. The choice was theirs. The reality was they had nothing to lose by giving me the opportunity to clear the debts that had built up through a difficult project.

Lesson 5.

  • Don’t give up!
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