Business #1 was in the exciting, creative, highly visible sign industry and seemed like it would be a perfect fit for my young, entrepreneurial spirit. Little did I know that creative really meant hard-to-manage. The sign industry was inherently flawed with companies scrambling to understand the right business model. On top of this, the economy was working against me.
My mentor entered the sign business because of the lucrative opportunity to lease signs to business owners with very profitable terms. Sign companies would build up a sizable portfolio of leases which provided excellent long-term income streams. To our disappointment, many big financial players entered the leasing game with better terms than we were offering. This greatly diminished the financial incentive of being in the sign business. Understanding the changing climate, my mentor was willing to sell me the equipment and some national accounts for what seemed like a very low price. I started the business under a new name, eager to continue the battle. A battle it was. Competition and low margins continued to be the norm. The influx of new competitors came from the lack of significant barriers to entry—for less than $10,000 someone can buy a metal brake and a band saw and start making signs.
By the numbers, this was a 65/15/10/5 company: 65% cost to build the product, 15% to sell the product, 10% general operating expenses, and 5% net profit if everything goes right. When you are undercapitalized in a custom business, 5% net is not going to get it. For 5 years I was a slave to this business. Trying to manage a business with low margins and keep money in the bank was a near-impossible task.
I aged fast as a 22-year-old father trying to keep my first business afloat. I worked for the business; the business never worked for me. After many quarters of disappointing sales, the salesmen proposed entry into the strip club/casino sign business. While that did represent an opportunity, the head designer and I could not use our creative energy and talents to deal with the seedy side of the business. If I didn’t have enough problems, one of my employees was murdered and I had to go identify the body. Another employee was a suspect. It was a scary time. I learned at a young age exactly what I don’t want a business to look like.
My first business left me broke and in debt. In talking to my mentor he reminded me he had both successes and failures. He assured me this was a good thing. He told me you always learn more from failures than successes. I closed that business. I traded my beautiful, silver Mercedes for a used Ford Fiesta and started charting a course to business #2.
Keys to Success
- Pay attention to industry metrics and know that a 5 to 7% net income in a custom business leaves no margin of error.
- Understand the competition and position your company appropriately in the marketplace.
- Be aware of changes on the horizon. Trade magazines could have tipped off my mentor and me of the challenges big financial heavyweights would pose for the leasing arena. These days, trade magazines, blogs and other social media are great ways to stay on top of future trends.
- At the end of the day you want to have a business that you are proud, one that represents your morals and values.
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