Rather than burying my thoughts in the comments of last week’s post on MWI’s 2006 financials I decided to create a new post because I think there are some things that may be of interest to other entrepreneurs. As I’ve had a chance to reflect on the MWI experience of 2006 there are a few things I’ve realized:
1. It wouldn’t have been that hard for me to have ended the year with a decent net income.
2. Nothing risked nothing gained, but take smart risks.
3. $5K in the red vs. $5K in the black feels like a much bigger difference than $10K.
A positive net income might be easier than you think. In looking over the financials for the last year, I started thinking to myself “Ok, if I hadn’t done that, I could have saved $20K, and if I hadn’t hired that person I could have saved another $50K and we probably would have gotten by ok…” etc. When I totalled everything up, there was probably $120K worth of expenses that were a total loss as far as return on investment, or could at least be debated as being a total loss. What else could I have done with that $120K? I could have paid off debt, paid myself, bought a nice steak dinner, or what have you. Or I could have invested back in my company.
Feeling risky? Yeah, I would say I’m fairly non-adverse to risk. I’m willing to try just about anything when it comes to improving my business. So where did that $120K go? Some of it went towards experimentation, and some of that experimentation went towards hiring people. But some of the people I hired didn’t need to be hired. In one case I hired two developers when in reality I probably could have gotten by with one. In another case I hired an employee but a month later found a contractor who could handle the same amount of work for a fraction of the price.
I believe it was Yogi Berra who said something about the difficulty of making predictions, especially about the future. The challenge of being in business, or taking any sort of risk in life, is that you don’t know what’s going to happen to the environment in which you operate that may nullify the effectiveness of the actions you are taking today. From my perspective at the time, the decisions I made which resulted in a net loss for the year were the wisest decisions that could be made, and even in retrospect there are some decisions I made that, even with the knowledge I have now, I would probably make again if I were in the same situation, because the risk of not being ready for certain opportunities is larger than the risk of gearing up and having the opportunity not work out in spite of being ready for it.
But there are risks I took which, in retrospect, weren’t the smartest and I should have known better. Those are the lessons I try to learn from so that I don’t repeat the error in the future. My mom keeps telling me there are only 120 cold viruses in the world and once you get them all you won’t get colds any more. I figure with running a business there are only so many mistakes you can make and so once you’ve made them all you’ll always be successful, right? Except there are a lot more mistakes to make than colds to catch.
Patient for growth, impatient for profit. I recently finished reading The Innovator’s Solution by Clayton M. Christensen and this is one of the lessons pounded in at the end of the book that I believe applies to what I’ve been doing. In the past I’ve gotten too excited about growing every aspect of the company other than profits. More employees, more revenue, more office space, more mini-fridges–but I took it easy on growing profits. Why? Because if I put everything in place, the profits will work themselves out, right? There are plenty of businesses that take huge risks and succeed, but I think they’re in the minority. I do think there is something to be said for growing your business within your means and being ruthless when it comes to being profitable as fast as possible.
MWI is in much better shape than it was a year ago for producing profits, and while I wish I could say that was due to my foresight and genius, it has more to do with being forced into it by circumstances. But now that I’m here, I realize how much better of a place it is to be. Instead of hiring a lot of full time employees and a few contractors we’ve switched to using more and more contractors, and we’ve been lucky enough to find some who are incredibly talented. This has cut our monthly costs by 20% or more. We’re also working on new internal projects that appear likely to provide a level of stability, profitability, and scalability I’ve never known before.
It doesn’t hurt to have a little luck as well. Right now it looks as though we may end up doing collecting almost 20% of the total revenue we had in 2006 by the end of this month, and the trend appears ready to continue for the next few months at least. Expenses down, profits up…I wonder what experimentation I could do with all that money. I think I might experiment with paying off debts and creating a healthy bank account this year.