Sunday, August 31, 2008

An Entrepreneur's Lessons Learned

It’s been about a year since I closed up my consulting shop – Economic Information Services. The company provided business consulting services, focusing on Central Asia and Ukraine. Basically, our job was to develop local projects in these regions and find investment capital for them from international sources.

I occasionally find myself comparing work with my current company with my previous venture. Over the last couple of weeks, I’ve been recording retrospective thoughts about how I’d do things differently, and wanted to document them so my readers might pick up a useful tip or two. So here goes…

Understand the concept of “search”

Clients find you when they have a question. One aspect to my business about which I was certain – I knew as much or more than anyone about how business in these parts of the world was done. I attended conferences and events talking to companies considering overseas projects and partners. But I never put myself in a position to display my market knowledge to any of these people until I was engaged in a conversation with them.

I chose to build a traditional website (a.k.a. “a completely worthless use of time and resources”) and spent about $2000 to develop and launch an online marketing brochure that no one read, visited, or could find. Any time that I wanted to update the site’s content, I sent the new content to my web developer, waited a few days (or weeks) for the update, then paid an invoice for anywhere from $250-$500. Not too bright.

I set up Google Ads for key terms such as “Kazakhstan economy” and “Kazakhstan investment.” After 3-4 months of $300+ billing, I saw absolutely no ROI. This doesn’t mean Google Ads doesn’t work. It means that I didn’t know how to use the application effectively. I didn’t use Google Analytics to track incoming clicks. I never thought to research what keywords people searched. I hoped, and thus wasted about $1500 on this failed effort without ever understanding what I was doing wrong.

Had I built my website around a blog, I could have updated the site daily with new content - articles, commentary, observations, essays, and on-the-ground observations from my business travel there. Content, content, content. Given the relative obscurity of companies focusing in this part of the world, my company’s search result rankings could have been among the top in Google.

I failed to embrace search, and as such, I was the one searching for clients instead of the clients searching for me.

Skip marketing. Proceed with selling.

Forgive me Father, for I have sinned. I spent $6000 to host a cocktail hour at an investment conference organized by the Embassy of Kazakhstan.

I thought that this was the way to build a brand – show strength, success, and deep pockets. Hosting a cocktail party is a great way to waste $6000. You can’t possibly talk to everyone that attends. Inevitably, uninvited guests will show to poach free food. The important people that you want to talk to already have a line of people also waiting to talk to them. But you leave the event feeling like you made progress because people know who you are now. Fact is, they don’t even remember that you were there, let alone were responsible for the shrimp cocktail and bruschetta that they downed all night.

Small consulting companies don’t have time to build a brand. The clock is ticking – find clients that are willing to pay for your services.

Charge for services earlier in the client relationship

I was a busy guy. I was up at 5:00 AM nearly every day to talk to our local office in Kazakhstan about what happened that day or what projects they uncovered. I would spend my day translating business plans for local projects; setting up meetings with business organizations, investment promotion agencies, and government contacts for upcoming travel; and providing research to US companies I’d met at conferences and seminars that were interested to learn more about the region and business opportunities.

But I never asked for the business. When someone asked if I “could find out this and that,” I never told them the price or sent an invoice. I put myself in a middle-man situation – representing projects for local clients that couldn’t pay, and talking to potential investors that didn’t want to pay. I did sign some contracts and make some money, but some self-assurace could have improved the revenue flow substantially.

One of the most challenging aspects to consulting is converting a non-paying contact to a paying client. While you need to establish confidence with the client early in the relationship’s development, you also need to be firm about the way that you make money with the client. If they can’t understand it early in the relationship, then they never will.

It’s hard for firms to find good people to do good work. I was both and never leveraged this opportunity to develop clients for myself.

Consulting is not scaleable

I occasionally contacted a friend of mine, an entrepreneur in the technology sector that successfully exited a company that he started. He’d often give me some general pointers on developing my business that were helpful, but I ignored the most important advice he gave. Early on, he looked at my website and asked me if there was something I could do to make the company more scalable - maybe offer some sort of service or product through my website. At the time, I said to myself – “doesn’t he know that I’m in the consulting business?”

Looking back, he knew exactly that I was in the consulting business, and that’s why he asked if there was a way to scale somehow.

Given the depth and breadth of my market information, there was an opportunity to develop a simple project database or a series of industry overview reports. Had I understood the concept of search, those looking for “investment projects in Kazakhstan” or “telecommunications Kazakhstan” would have found my company and possibly purchased access to the reports or project database. At a minimum, setting up a more functional website would have help with client lead development. These aren’t products that would tally much per month in revenue, but in could have provided some minor cash flow, and could have given me a way to qualified leads for myself.

See how this is all related? I do. Now.

Convert Visitors to Leads

Related to the previous point, I could have developed a clear value-proposition on my company website – such as offering a free report by industry (which I developed for a conference and never used otherwise), and perhaps I could have grabbed some contact information from those directly interested in business opportunities in this part of the world. Giving away a market report isn’t going to get you a six-month consulting contract, but at least it would have enabled me get in touch, begin the process, and most importantly, expand my network of contacts.

Developing this process also enables a clear ROI for marketing and sales efforts, to understand more on what gets you clients and what doesn’t.

Accounting Good, No Accounting Bad

Keep better accounting records. Like most entrepreneurs, the mind-numbing activity of tracking receipts and expenses every month lacked the glamour that I sought in running my business. My solution? Ignore it. And at the end of every year, I scrambled to organize my receipts, enter my expenses into Quickbooks (okay, so my wife did all the Quickbooks work….), and crank out some semblance of a balance sheet for my accountant. No methodology for understanding how and why I spent money, and how to determine its return.

When the audit came around from the IRS, I scrambled to prepare (and thankfully passed). When it came time to apply for a home mortgage last month, I was nearly dead in the water. (We’re still working out the details of the loan, but it’s looking positive...)

Know when to quit.

I know - not something you hear often.

Write down your dropout clause at the same time as your business plan. You owe it to yourself and your family to avoid the double-down philosophy of the Atlantic City gambler. Be responsible. Objectively find the point in your venture when you know you’ll stop, and stick to it. I know that there are successful entrepreneurs out there that have cashed in their 401k savings (yes, I considered it), maxed out credit cards, tapped friends and family for loans, and gone to other extreme measures to overcome a dearth of failures. Remember that you only hear about the successful ones. BusinessWeek and Wired don’t write articles about the other 99% that are still paying off their debts from failures past.

Two years into my venture, I reached a decision point brought about by financial constraints (read: “running out of money”). These two years included several trips to Kazakhstan (with a six-month stint to get things going there), meetings, bids on government contracts, meetings with government officials, conferences in Washington D.C., meetings with local project owners, subs-contractor submissions through beltway bandits, meetings with contractors, and a few meetings. (Did I mention the number of meetings that I had?) This activity resulted in a couple of small, sporadic contracts, but nothing that provided long-term financial stability.

An angel investor who believed in me and my company, decided to front the cash for another six months of operations. During that period, we won a sizable local project sponsored by the Kazakhstan government. “Yippee!” I thought. When that project was finally finished about a year later, I was faced with the same financial constraints. We couldn’t find new projects because we were tied up with the first one, local market dynamics didn’t change much, and our ill-conceived method of client development described in detail above left us without the next income source. It was then that I decided to close the doors.

Usually, you’ll hear from successful entrepreneurs that the mistakes were the most beneficial to their long term growth. That’s sort of true. It’s not the mistakes that offer the opportunity for growth, but the acknowledgement and deconstruction of mistakes.

There’s a difference between believing in something, and knowing it. (I once believed in the Easter Bunny...) Blind faith is important – you must always believe in yourself or your idea. Being blind to the obvious signs that your venture isn’t working is downright foolish.

I believe in myself, and that’s why I decided to close the shop. Good entrepreneurs know that there’s more than one good idea. Let the failures work for you, not against you.



Johnathan the "Nazarian" said...

Great article. You know, it's easy to admit the great things that happen in any venture, it takes courage to admit the mistakes. However,only the courageous make it out alive and learn from those mistakes to build their next great venture. I'm reminded of good ole Abe Lincoln - who failed multiple times in politics before he became one of the most significant presidents of our country. Just as entrepreneurship is adequately leveraging risk...success comes from adequately learning from mistakes.

Scott Sambucci said...

Hi Johnathan - Thanks for your comments. Figured I'd try to share the knowledge and maybe it'll help someone save some time for their own work. Of course, I'm back at it with Altos Research - helping to build this company instead of one I founded. Still challenging, rewarding, and refreshingly exhausting!

skmurphy said...

Scott, thanks for your candor, this is a good write-up. It's hard to slice your expertise up into bite size pieces that allow prospects to pay you a small amount to get to know you better, but if you can I think it's a better way to jumpstart a consulting shop.

When you helped us you were able to put a value on it, I wonder if you were "elephant hunting" in this venture and might have been able to do some "small consultations" that would have potentially primed the pump for more work.

Scott Sambucci said...

Hi Sean - Thanks for the note. Great to hear from you! I think elephant-hunting was part of it, and part of the issue was a misunderstanding on my end that I would be able to sell the value of a firm like mine. Consulting is always tough slogging, and in this particular case, felt like running uphill in the mud while dragging a concrete block....

Dezmon Landers said...

Hey Scott,

I have to agree that this is a great article! It really puts in perspective the decisions that an entrepreneur should and should not make. I have run into the same issue as you with clients i.e "Not asking for the business" as if I felt ashame. Obviously there are right and wrong ways to do it and while I believe we were both genuine in our "middle man" approaches it gets to a point where we've gotta start collecting checks. Again, this was a very insightful post, please continue sharing your entrepreneurial experiences.

One last question:

Besides utilizing technology are their other areas that could make consulting scalable?

Scott Sambucci said...

Hi Dezmon - If you consider your consulting practice as knowledge development, you could look at developing webcasts & webinars for a of key topics where clients are willing to pay a few. This gives you a one-to-many environment. Though not perfectly scalable b/c you'll need to limit attendees, it's a model that does work. Domus Consulting is a group that works with real estate agents. They have agents pay membership/subscription to a series of webinars that they host.

Aside from that, the "per hour" or "per project" makes it more difficult to scale unless you can add consultants to your roster and assign them to projects at a lower rate than you are collecting from the client. Companies like Booz Allen Hamilton work this way, but it takes quite a bit of recruiting and trust development to effectively hand off projects to others since it's your company's name on the contract...