[Welcome to the near failure experience, a 4 part series about pulling back from the worst type of failure]
Summer 2015. Our company had a record month. More collected sales and new revenue than we’d ever had before by a big stretch.
It almost killed us.
It has taken a year to dig out from the mess I made. All of the problems were my fault.
It’s really hard for a company of any size to say no to people waving $10k at you. Even if it looks like it’s going to be a challenge to do the job. Even if you have no business taking it. Even if you don’t have the time or the staff. That’s $10,000 man. That’s a lot of money. Hard to say no.
They need it when? Fine. We’ll find a way.
You need it to kick off some tradeshow? Sure. We’ll do it. Yeah, 2 weeks, no sweat. We’ve got a good crew.
Those delusions sent us down a bad path.
Anatomy of a Death Spiral
Of course, we said yes. Over and over again.
Even though we were above capacity. Even though we were holding on with white knuckles to get the jobs we had out the door. Yes, yes, yes was the answer. We’ll send a proposal.
My ego required that it runs a 7 figure business.
Even though we were shuffling through the summer without a creative director. People wanted to pay us? Hard to say no. Especially when we had an overhead problem. A mouth to feed, in addition to the wage bill.
So we had to expand our team fast. And “Pick Any Two” surely applied.
I: Speed Causes Compromise
To fill the jobs, we had to lower our standards – in many areas – because there was a financial gun to our head. We needed people that could do the work. We didn’t have time to make sure they were a great fit or they could do it well. We didn’t have time for a huge search, we had orders to fill right now. So we wound up bringing in people that we wouldn’t have generally worked with, not understanding their contributions.
A double whammy, we didn’t have time to bring these designers up to speed or set proper expectations. So the work was rougher than usual, and we weren’t totally fair to the people that showed up.
We had to “feed the monster” and show progress to clients earlier than normal with rougher work than normal. I hated presenting or defending work I didn’t love, it was hell. Every project was impacted.
II: The Compromise Causes Financial Problems & Waste
Our clients noticed. We had to spend more on revisions than ever before. Jobs that used to take 3-4 weeks took 6. Every job suffered. We were technically compliant with almost all of our contracts, but it felt awful doing work that should have been better for clients that trusted us.
My reputation suffered with my clients, and more importantly with my designers. Relationships were wrecked because of financial problems. What had started out as administrative issues (that nagged me) became us having to wait to pay good people that did good work till we got paid, and since every “delivery check” was coming slowly it took forever.
All the while, I’m optimistic. I believe, man. Because any time I want to, it’s simple enough for me to go sell new work. It’s always possible. And we had a 6 year old company with decent leadflow.
III: Waste Create Business Issues
Previously, virtually everyone we worked with rehired or referred us to new work. Our Net Promoter Score would have made Apple drool. Everyone was referring or rehiring us.
After this? Let’s put it this way: I was preventing my network from working with my own company. To protect them. Long term, I didn’t want to hurt my customer base. I wasn’t promoting us because I was gunshy, I couldn’t take more of this tactical hell.
When we knew it was tough, I was rejecting referrals. Accepting strangers.
The real, core problem was not having a growth plan in place.
Part IV: False Recovery
You’ve all heard of the cancer that comes back? That’s what happens when you sell a lot of stuff and don’t deliver it. In about November of last year we sold a ton of work. And for a while, things were better because cash always helps.
But to sell that “ton” of work, we compromised pricing. We became cash strapped, so we sold a lot of low margin (or even unprofitable) deals that brought is “right now” revenue.
Like a junkie, we needed the money to cover the mistakes. And I was stressed, but I didn’t want the team to really know. Because I didn’t want the people we had to leave and leave me trying to solve an impossible problem. So I took cash, and it solved some problems.
We got the money. That’s my magic power. For some weeks, things felt better. We caught up our contractors. The cash was definitely helpful, but the low-margin jobs just kicked the problem down the road farther. We had to deal with the stress later.
We were using new deals to fund past obligations. That meant we were, really, a ponzi scheme.
Part V: Reality Hits
We kept slogging through. Enough profitable enough business kept me from addressing reality. There was always a justification, or a hope waiting in the wings. A good month, a couple of deals that would be profitable on paper (except that we were operationally stressed, so we’d waste our margins).
Since selling is easy for me, I could always go find a client to solve the current problems (not where we are now, and certainly not where we want to be). After moving into a new house in January, in early February, I got sick, really sick. Pneumonia so bad it landed me in the ER and I had injured my ribs from a coughing fit. Days are passing and jobs are sort of getting done, sometimes not. I’m trying to put on a brave face.
But I realize: if after all this time, that an ill timed sickness can put me out? I was never really sick, and if I got sick one time in 6 years it could literally cost $100,000 in missed revenue? That was an insanity.
So as we got into March, things got much worse.