Finally taking our business to the next level- nervous about taking a step backward

[thefed]

Some of you may have seen me talk/ask about 'the next level'. What IS the next level? I'm not so sure I know. It my mind's eye, it is taking a business which is totally reliant on ME and MY labor- and turning it into a self-sufficient business. No more ME as the most important factor....operating procedures in place, employee handbooks, formal policies for every situation, very clear and detail-oriented financials etc.

Right now, I operate 3 very successful businesses, but have never really been able to get out of the 'rut' of being the #1 and only factor in their success. This spring, things will change.

I have decided to take on a partner for an expansion of our inflatable rental business....with a goal of creating a franchise within 3 years (we are building a very unique product that sets us apart from EVERY inflatable company we've seen. It is revolutionary in the party rental industry in general- and especially our area). We had a very successful first season, and this season showed 150% growth. I have worked with my partner in the past in our real estate ventures- I trust him and have known him for a long time. He is very financially savvy - a retired commercial real estate investor at the age of 45. I've always believed that you should surround yourself with those you'd like to emulate- and I'd certainly like to be in his shoes in 18 years.

The part that is killing me is that financially, it appears I will be taking step sideways or backward for one to two seasons based on our projections. Luckily, I have blown every projection this far out of the water, but I prefer to be conservative. I keep reminding myself that sometimes it takes a step sideways or backwards before you can take several steps forward. He is investing a lot of money in the new venture, so a repayment of capital eats into the profits for the first few years...just as any large expansion might.


Have you ever been faced with such a situation? You HAVE to take a step or 2 back with the hopes of ten steps forward? How'd it work out?

[brewer12345]

Sure. We pretty much starved for three years while DW and I were going through grad school and working at the same time. Worked out great.

[Gone4Good]

Yup. Graduated from undergrad school in to a bad economy (although not this bad) and had to take a job pretty deep in back office operations. Most people just accepted that as their career fate and worked toward moving up, oftentimes jumping to a competitor for a bump in pay. Instead of doing that, I put my efforts into moving somewhere where I could get on the career path I wanted. It took two lateral moves to get where I wanted to go, and initially set me back in pay, but it made all the difference in the world.

Keep your eye on the prize and always push toward the big picture. It doesn't always work out, but it's better than settling.

[Nords]

Quote:

Originally Posted by thefed Some of you may have seen me talk/ask about 'the next level'. What IS the next level? I'm not so sure I know. It my mind's eye, it is taking a business which is totally reliant on ME and MY labor- and turning it into a self-sufficient business. No more ME as the most important factor....operating procedures in place, employee handbooks, formal policies for every situation, very clear and detail-oriented financials etc. Have you ever been faced with such a situation? You HAVE to take a step or 2 back with the hopes of ten steps forward? How'd it work out?

I've never personally had to make a profit, and I can't claim to have the answers, but I've studied people trying to do this and I've heard a lot of the questions. You know the odds and yet you feel you're able to somehow overcome them. Perhaps it's a better use of your time & efforts to (1) not have to face the odds by not doing this at all or (2) putting your focus on minimizing the bad stuff instead of maximizing the opportunities.

It's possible that this sort of success requires an amazing combination of knowledge/skills coupled with a huge ego and blissfully-oblivious self-confidence. In other words, the person most likely to succeed at this type of plan would never have thought of posting their questions to a discussion board-- they would have just gone out and done it.

But here are some thought experiments with no particular correct answers:
- You seem to be very good at starting businesses yet not so excited about this "next level". Why mess with success? Why not sell the businesses after you get them started, let someone else deal with the employee handbooks, and stick to what you seem to enjoy most? Will the "next level" accelerate your ER plan, or is this about exploring how far you can take your business-building skills? Will it take more time away from your family? You might be able to balance all these goals but this discussion board tends to be more focused on the exit.

- I read and sit through a lot of business-plan presentations. When I encounter "very unique product that sets us apart from every other..." and "revolutionary" my eyes roll and I start looking for the escape hatch. I think those terms should be reserved for products that let you cut your costs by 75% or that at least don't require investing new capital. "Cheap"-- that's revolutionary. "Don't need your investor/partner money to grow my business"-- that's unique.

- If this product is so unique & revolutionary then why are you running an inflatable-rentals business? Why not start manufacturing or reselling the product to all the other inflatable-rentals businesses? Then you don't have to build a franchise system.

- No investor wants to have to pay the costs of persuading customers to change their behavior. You want the products that consumers are clamoring to buy without you needing to educate them, and they care about having it cheap & reliable for the next party. You're in a business that's very sensitive to consumer optimism-- they'll never pay up for quality but they'll slam their wallets shut as soon as the economy hiccups.

- Do you need to take this "step back" with debt and repayment? Can you do this slowly from your company revenues or is this a case of "move fast before everyone copies us"? Why is there a need to take this risk just to get to the "next level"? The way this frequently works out is that you invest a lot of money to leapfrog the competition, then they go out and invest a lot of money to leapfrog you, then you all start a vicious price war that only the customers win. The guy who has the best combination of cheap and reliable "wins" with 0.05% profit margins, and everyone's exhausted, and the customers have no loyalty to anyone but price/reliability. This is essentially the story of Buffett spending 20 years and billions of dollars to shut down the Berkshire Hathaway textile factories.

- What happens if you conservatively spend the money, the business starts to grow in a decent manner, and the black swan shows up? (Whatever that may be.) How do you handle the repayment terms? In other words how are you protecting yourself from the debt downsides that you can't predict? You probably already know that at a minimum you'd want to legally separate this venture from all your other businesses and shield your personal assets.

- If I was your investor/partner, I'd be mildly concerned about how you manage the demands of the other businesses and keep them from interfering with this venture.

- IMO only thing that sucks worse than owning a franchise license is being the business that sells them and has to manage them. Look at the experiences of Cardude and 73SS with their dealerships. You see yourself enhancing your streams of passive income, I see you building a massive infrastructure to educate & inspect your franchisees... and then having to deal with their rebellions. Reading "McDonald's: Behind the Arches" will send you running away screaming from the franchise model...

Despite all my apparent negativity, you might succeed. You might be the person who works through the obstacle course and wins the race. But there will be demands on your time and energy (as well as on your family & finances)... unless this "next level" dramatically improves your life then there may not be any reason to mess with the status quo. Why do you need to do this? What does your family think of your "next level" plans?

Maybe it's best to just keep doing what you already seem to enjoy doing until you don't enjoy it anymore, and then sell it to someone else who wants to build the next galaxy-dominating empire...

But again, I think that the personality most likely to succeed at this type of plan is the one who blithely ignores all this thread's commentary to just go out and do it. The catch is that it usually also requires an extraordinary sacrifice of time, money, and family.

[Meadbh]

You are at a pivotal stage in the development of your business. This is a well recognized transition point where many businesses fail.

Here's a book I recommend you read:

Amazon.com: The Entrepreneurial Venture (Practice of Management Series) (9780875848921): Howard H. Stevenson, Michael J. Roberts, Amar Bhide, William A. Sahlman: Books

It's based on articles published in Harvard Business Review some years ago. Section C is called Managing the Growing Enterprise. Chapter 20, by Michael J. Roberts, is called The Challenge of Growth.

Here's a quote from the chapter introduction:

"....growth drives a tremendous increase in the amount of managerial work. To accomplish this work, the entrepreneur must develop new tools for accomplishing the key managerial tasks."

In other words, you must become a big picture person. Taking on (the right) partner is one way to approach this. But you will need to put systems in place that will not require you to micromanage as you expand. For example, as your employees increase, you will need accounting and HR services. You may need marketing, etc, etc.

Good luck!

[Texas Proud]

Wow.... Nords has given you a lot of good advice... way to go...


From me... Like Nords, I rolled my eyes with your words on your inflatable business.... how unique can you be And if it can not be protected with patents or other legal ways and it IS like you describe... everybody else will be doing it your way quickly...


But my main advice is that you will NOT be able to get your businesses to a point that they take care of themselves... it just does not happen that often.. you have employees.... they do not have the same financial incentive to make your business grow at the rate that YOU do... if they become very good, then at some point in time they say 'I can do this without giving half my income to thefed'.... and then you have to find another employee to train etc. etc.....

You will probably be involved as much or more than you are now... and not in creating revenue...

This does not mean you should not pursue 'the next level'.... just don't think that you will sit back and have the checks show up...

[thefed]

Quote:

Originally Posted by Nords I've never personally had to make a profit, and I can't claim to have the answers, but I've studied people trying to do this and I've heard a lot of the questions. You know the odds and yet you feel you're able to somehow overcome them. Perhaps it's a better use of your time & efforts to (1) not have to face the odds by not doing this at all or (2) putting your focus on minimizing the bad stuff instead of maximizing the opportunities. It's possible that this sort of success requires an amazing combination of knowledge/skills coupled with a huge ego and blissfully-oblivious self-confidence. In other words, the person most likely to succeed at this type of plan would never have thought of posting their questions to a discussion board-- they would have just gone out and done it. But here are some thought experiments with no particular correct answers: - You seem to be very good at starting businesses yet not so excited about this "next level". Why mess with success? Why not sell the businesses after you get them started, let someone else deal with the employee handbooks, and stick to what you seem to enjoy most? Will the "next level" accelerate your ER plan, or is this about exploring how far you can take your business-building skills? Will it take more time away from your family? You might be able to balance all these goals but this discussion board tends to be more focused on the exit. I am very excited about this step. But I have never taken a guaranteed step back to try to move 10 steps forward. Let me elaborate: we profited more in the last 6 months than I've made in a full year with any other business. Next year, I will certainly PROFIT about 50% more if I dont change a thing. That is enticing! Going through with this expansion will put me at a similar take-home next year as I was at this season..maybe a touch less. So my instincts are saying "ugg...wouldnt you like those BIG paychecks next season? BUT, I know they will get much much much BIGGER when this takes its course. It will take more family time - which is a concern. I have a person in place to oversee about 10-15 hours/week in my landscaping company to help ease that strain - I read and sit through a lot of business-plan presentations. When I encounter "very unique product that sets us apart from every other..." and "revolutionary" my eyes roll and I start looking for the escape hatch. I think those terms should be reserved for products that let you cut your costs by 75% or that at least don't require investing new capital. "Cheap"-- that's revolutionary. "Don't need your investor/partner money to grow my business"-- that's unique. Oh it's unique, and for my area it is revolutionary. Maybe not revolutionary...but nobody within 150 miles has one. There will be a huge demand for this rental item based on my market research. I have customers ready to rent after showing them pictures. If it is not in as much demand as I suspect, it will double as a the most eye-catching advertisement my money could buy. - If this product is so unique & revolutionary then why are you running an inflatable-rentals business? Why not start manufacturing or reselling the product to all the other inflatable-rentals businesses? Then you don't have to build a franchise system.That is one of my ideas as well. There are other companies manufacturing this item, but I think we can build a superior product at a lower cost. If it rents well, I intend to build the item, couple it with a successful business system, and either 'franchise' or open other locations in other markets. If building these things proves to be a better use of my time, you better believe I'll build em! - No investor wants to have to pay the costs of persuading customers to change their behavior. You want the products that consumers are clamoring to buy without you needing to educate them, and they care about having it cheap & reliable for the next party. You're in a business that's very sensitive to consumer optimism-- they'll never pay up for quality but they'll slam their wallets shut as soon as the economy hiccups.Believe it or not, customers ARE clamoring to rent inflatables. It's mind boggling. They are also DYING to find something to do for their kids' parties in the winter. And I'm sorry to tell ya Nords', cutting off the kids' fun in a bad economy doesnt seem to be an issue. People will keep their school aged kids happy for their birthdays, regardless of economic times. If they HAVE been cutting back, watch out for THEFED when this economy turns around!! - Do you need to take this "step back" with debt and repayment? Can you do this slowly from your company revenues or is this a case of "move fast before everyone copies us"? Why is there a need to take this risk just to get to the "next level"? The way this frequently works out is that you invest a lot of money to leapfrog the competition, then they go out and invest a lot of money to leapfrog you, then you all start a vicious price war that only the customers win. The guy who has the best combination of cheap and reliable "wins" with 0.05% profit margins, and everyone's exhausted, and the customers have no loyalty to anyone but price/reliability. This is essentially the story of Buffett spending 20 years and billions of dollars to shut down the Berkshire Hathaway textile factories. The step back is basically a result of this new item costing me $60k, and my desire to expand our inflatable inventory and geographic reach to a new city. My ROI is so high right now where I'm at, there seems to be no reason to duplicate it in the next major city. - What happens if you conservatively spend the money, the business starts to grow in a decent manner, and the black swan shows up? (Whatever that may be.) How do you handle the repayment terms? In other words how are you protecting yourself from the debt downsides that you can't predict? You probably already know that at a minimum you'd want to legally separate this venture from all your other businesses and shield your personal assets. Always working on contingencies. Legally, of course, this is a new entity. These unknowns are what make me nervous! - If I was your investor/partner, I'd be mildly concerned about how you manage the demands of the other businesses and keep them from interfering with this venture. He's seen firsthand how I handle things as we are already in business together, but I know it does concern him (and me!). - IMO only thing that sucks worse than owning a franchise license is being the business that sells them and has to manage them. Look at the experiences of Cardude and 73SS with their dealerships. You see yourself enhancing your streams of passive income, I see you building a massive infrastructure to educate & inspect your franchisees... and then having to deal with their rebellions. Reading "McDonald's: Behind the Arches" will send you running away screaming from the franchise model... Yeah, a franchise per se isnt necessarily the route I want to go...but I need to investigate this more thoroughly. In theory, I'd like to find someone person to invest and duplicate our efforts in another market. I would be able to provide proven and refined operation systems, back-end management,sales assistance, marketing, leads, purchasing power, etc. The nice thing about my partner is he can easily bring another 500k or more to the table if so desired. Of course, we need to work through this next transition before thinking about that. Despite all my apparent negativity, you might succeed. You might be the person who works through the obstacle course and wins the race. But there will be demands on your time and energy (as well as on your family & finances)... unless this "next level" dramatically improves your life then there may not be any reason to mess with the status quo. Why do you need to do this? What does your family think of your "next level" plans? I TRULY believe this will take me from upper middle class to whatever the next level is. It will be a few years, but it will happen. My wife is excited, which is new. EVERY business venture so far I show to her and my family has been shot down in some manner or another. Each has succeeded. I think they are all finally seeing that I have a knack for making these things work...so I hope they are right. I am tentative...but confident. Maybe it's best to just keep doing what you already seem to enjoy doing until you don't enjoy it anymore, and then sell it to someone else who wants to build the next galaxy-dominating empire... The problem is, *I* want to build that empire! But again, I think that the personality most likely to succeed at this type of plan is the one who blithely ignores all this thread's commentary to just go out and do it. The catch is that it usually also requires an extraordinary sacrifice of time, money, and family. I am already committed to doing it, but was just hoping for a little reassurance that a step back can often result in several steps ahead. Thanks for the bid of confidence buddy ;-)

Thank you for spending so much time with your response. I truly appreciate it.I have responded in bold. At first glance it seems I am 'fighting' your points but these responses truly reflect where I'm at. I enjoyed this little exercise as I am now feeling even more motivated and more anxious to get the ball rolling!

[thefed]

Quote:

Originally Posted by Texas Proud Wow.... Nords has given you a lot of good advice... way to go... From me... Like Nords, I rolled my eyes with your words on your inflatable business.... how unique can you be And if it can not be protected with patents or other legal ways and it IS like you describe... everybody else will be doing it your way quickly... But my main advice is that you will NOT be able to get your businesses to a point that they take care of themselves... it just does not happen that often.. you have employees.... they do not have the same financial incentive to make your business grow at the rate that YOU do... if they become very good, then at some point in time they say 'I can do this without giving half my income to thefed'.... and then you have to find another employee to train etc. etc..... You will probably be involved as much or more than you are now... and not in creating revenue... This does not mean you should not pursue 'the next level'.... just don't think that you will sit back and have the checks show up...

Oh I know I wont be sitting back collecting checks...I'm not the type. I hope though to be able to remove myself more and more from the micromanagement. Hope....

RE: employees, I think you have that in any business to some extent. The thing with this industryis that there is a pretty significant financial barrier to entry. With that being said, employees are my biggest concern!

[Nords]

Quote:

Originally Posted by thefed Thank you for spending so much time with your response. I truly appreciate it.I have responded in bold. At first glance it seems I am 'fighting' your points but these responses truly reflect where I'm at. I enjoyed this little exercise as I am now feeling even more motivated and more anxious to get the ball rolling!

I know you're not looking for more investors and your town doesn't seem to be a hotbed of angel investors or VCs anyway, but if you really want to give a business plan a good scrub then you could run it by your local business schools. They might have MBAs or undergrads looking for projects like this, and they're certainly tapped in to other sources of capital.

[thefed]

Quote:

Originally Posted by Nords I know you're not looking for more investors and your town doesn't seem to be a hotbed of angel investors or VCs anyway, but if you really want to give a business plan a good scrub then you could run it by your local business schools. They might have MBAs or undergrads looking for projects like this, and they're certainly tapped in to other sources of capital.

Well, a start might be the results of an SBA loan application we are submitting next week. The loan officer requested our business plan, which I had with me, and we should hear something in the next week or 2. Not sure how much the scrutinize the biz plans for SBA backed loans....but we shall see.

For the record, we decided to apply just for shits and giggles. We are fully funded, but leverage and flexibility doesn't hurt. It's actually a LOC, not a loan

[BigNick]

Quote:

Originally Posted by thefed Believe it or not, customers ARE clamoring to rent inflatables. It's mind boggling. They are also DYING to find something to do for their kids' parties in the winter. And I'm sorry to tell ya Nords', cutting off the kids' fun in a bad economy doesnt seem to be an issue. People will keep their school aged kids happy for their birthdays, regardless of economic times. If they HAVE been cutting back, watch out for THEFED when this economy turns around!!

When you're a very small fish, you're not so dependent on the size of the pond. The success of a one- or two-person business in a reasonably-sized market depends much more on the people than the market. The bigger you get, the less that holds true (ask anyone with creative ideas who's stuck in office 4097.283 in a Megacorp).

Taking Mickey D's as an example again, I'd bet that their sales growth is at least as much affected by macro-economic and social factors, as by whether they launch a new sandwich or not. Mom and Pop's burger joint, however, stands or falls on the quality of the burgers and the sincerity of the banter.

So it could be that your current business is recession-proof at its current size, because those people who haven't downsized the kids' party budget are coming to you because of your excellent service and competitive prices. That only gets you so far when you start to be able to see the sides of the aquarium.

[brewer12345]

Thefed, I think that the bottom line is that you should jump in with both feet because if you do not you will always have regrets. That is why I took an insane commute, high stress, but extremely high paying job 6 years ago. If I passed it up I would always have regrets, even though I knew it was risky and likely would not last more than a few years (and I was right in that assessment).

Having said that, just make sure you do not sink so much of your capital and life energy into this venture that you would be badly hurt if it went wrong. Safety and soundness first, my friend.

Have you thought about pulling together a board of directors/advisors? Stocked with the right people, this could provide you with some extremely valuable expertise on the cheap as well as potentially a source of capital.

[thefed]

Quote:

Originally Posted by brewer12345 Have you thought about pulling together a board of directors/advisors? Stocked with the right people, this could provide you with some extremely valuable expertise on the cheap as well as potentially a source of capital.

No I have not. I wouldnt know where to begin or what that would even entail.

[brewer12345]

Quote:

Originally Posted by thefed No I have not. I wouldnt know where to begin or what that would even entail.

You might consider networking among the business community or associated groups (investor groups, SCORE types, local business school, etc.) and see if you can get people interested in being members of your board of directors/advisory board. There are peope out there with oddles of experience and knowledge who would be willing to share it. Think of it as a more pointed version of the FIRE board with a tighter focus, less discussion of granny porn/macroeconomic hogwash/fat camps, and no ads for annuities.

[thefed]

Quote:

Originally Posted by brewer12345 You might consider networking among the business community or associated groups (investor groups, SCORE types, local business school, etc.) and see if you can get people interested in being members of your board of directors/advisory board. There are peope out there with oddles of experience and knowledge who would be willing to share it. Think of it as a more pointed version of the FIRE board with a tighter focus, less discussion of granny porn/macroeconomic hogwash/fat camps, and no ads for annuities.

sounds like a good idea.

With that being said, a big part of why I took on a partner is his experience in several businesses , connections, and such. I think I could do this on my own, but am trying to learn how to bring people in that can do certain things better. For example, he is more detail oriented when it comes to accounting methods. He has the ability to raise huge amounts of capital. He knows everybody everywhere...he was already able to get us a steal on a warehouse as he ended up knowing the property management company. He's very very very thorough and thinks everything through 1000x and weighs all options with a very open mind...unlike me who think it through 1000x and gets tunnel vision. So I am seeing the benefits already

I will look into some of those organizations soon...I like the idea. Thanks Brewer

[Bestwifeever]

There will always be the next big thing, including for kids' parties. Good idea to try to stay ahead in the field--inflatables will be so over sooner or later and you don't want to be stuck with them.

[thefed]

Quote:

Originally Posted by Bestwifeever There will always be the next big thing, including for kids' parties. Good idea to try to stay ahead in the field--inflatables will be so over sooner or later and you don't want to be stuck with them.

I feel the same way...or I should say I FELT the same way...but I think it's a long ways off. I personally never even heard of them til 3 years ago. A guy down the street has been running an inflatable business for 18 years....some of the first for residential use were introduced in the 70's. It's a multi-billion dollar industry. I dont think it will disappear very soon....kids like to go wild!

But...with that being said...diversification can't hurt. Although this new concept is geared toward slightly older kids all the way to adults