I am a Smart Entrepreneur Who has Made Some Dumb Mistakes

Posted on January 11, 2010. Filed under: Other | Tags: , , , , |

To me, writing blog posts are kinda like writing in a journal.  It’s a nice release from the daily stressors.  It’s no secret that my blog is my hobby.  And it’s really enjoyable to know that others have an occasional interest in my ramblings.  In making plans and developing strategies for 2010, I’ve had some folks who know me quite well throw out the idea of me writing a book. But that isn’t gonna happen.  Okay, never say never.  But it isn’t gonna happen in 2010. 

But it did get me to thinking.  If I were to write a book and I could write about anything I wanted (not worrying about who would buy it and read it), what would I want to write about?  I think I would want to write about my mistakes as an entrepreneur… my errors in judgement… the poor choices I made which seemed to me to be so right at the time.  It amazes me how most people are reluctant to talk about their business mistakes.  While I am far from being proud of my past mistakes, I know that my “good decisions” today come as a result of making the wrong decisions in the past and learning hard lessons.

I have enough examples of past mistakes to fill a book but today I’ll mention just one.  I started out buying products wholesale and then, as a result of some really creative marketing strategies (a story for another time), I earned a distributorship with a solid company very quickly.  And then I earned the honor of being labelled their “fastest growing distributor of all time”.  And before I realized it, my business was built almost exclusively on reselling their product.  I still sold other product but 90% of my sales came from one manufacturer’s product.  And that was because I was doing incredibly well with the line and so I kept expanding and kept investing more time and money into the line.  But I forgot one very important thing and that is my success depended on their success and I had zero control over their success so, in essence, I had zero (or almost zero) control over my own success.  It’s easy to look back and say “What the heck was I thinking?” but, at the time, it seemed like the good times would never end… especially because they were such incredibly good times.

But one summer, the new product arriving from China slowed to a crawl and for a few months the company said they had container problems for their items coming out of China.  Given the world events at the time, it seemed like a plausible explanation.  Much later, however, we learned the truth which was that the company was experiencing financial problems.  At the time, before it was sold to a much bigger company, the manufacturer was a privately held company so we didn’t have access to their financials to be forewarned. 

After several very lean months of selling current inventory and not having anything new (which, in the toy / collectible business is like the kiss of death), we flew to the company’s headquarters to have a meeting with the manufacturer.  We were shown the new product that had just arrived and, while we were there, trucks were dispatched to our warehouse with tons of new product.  And I truly mean tons.  The day after we arrived back to our business, the trucks began rolling in and didn’t stop.  We had 4 months worth of new product arriving as well all the holiday items which we had ordered in very large quantities.  I remember one evening trucks arrived after hours and we didn’t have any more room in our warehouse so the trucks had to offload pallets of product in our parking lot where it sat overnight. 

We began the process of filling retail preorders and wholesale preorders.  One wholesaler we supplied, for example, had $12,000 (wholesale) worth of product awaiting shipment — 10 weeks worth of product at $1200 a week.  He gave us authorization to charge his credit card and ship as did most of the other wholesalers.  Everyone had been waiting for product for so long that they were excited to receive it.  We realized that we were using our credit card processor at a volume that was unusual so we called our processor in advance and explained the situation.  They said they understood and it was not a problem so we proceeded with charging cards and shipping product.  We had so much product going out that we worked in shifts around the clock for days.  Unfortunately for us, our credit card company decided that our unusual spike (which was known by them in advance) worried them.  Never mind that we had been in business for more than 3 years and had not had even one chargeback.  Never mind that we had excellent credit.  The credit card processor was one we had been with since the beginning and they were not used to handling charges from mail order companies (the riskiest type of business for merchant processors) and they definitely were not used to handling the volume of transactions we were generating.  So, they immediately held back an outrageous amount of money as well as 20% of our daily receipts.  So the lean months were followed by an unexpected and severe cash flow crunch that crippled our business.

Now, we did survive.  We got a new credit card processor company and eventually got back all the funds held from the previous processor and we did ultimately expand the other product lines we were carrying and we took on new product lines.  But to get there, my partner and I spent a lot of sleepless nights working at the business.  I remember many nights when I brought the kids in with me and rolled out sleeping bags for them to sleep in while I worked around the clock.  And I have absolutely nobody to blame for this rough time except myself.  It does seem so easy to say “Don’t rely on one manufacturer” or “Don’t rely on only one venue” but while you are in the process of building your business day-to-day, you don’t always see the dangerous path you are heading down.  But it only took one time of making that big mistake.  I guarantee you that we don’t rely only on one venue or one product line or one anything anymore.

I’ll never forget one employee that we had who made a very costly mistake his first month on the job.  He was packing up his things to leave mid-afternoon when I caught up with him.  I asked what he was doing and he told me that I didn’t have to go the trouble of firing him because he was quitting.  He had arrived to work every day on time and had obviously given the job his full effort but he made a mistake…. a costly mistake.  I told him that I wasn’t firing him and had no intention of firing him.  The look of shock on his face was absolutely priceless.  I then told him that I had just invested a great deal of money in “training and educating him” as a result of that costly mistake and that it would be crazy for me to fire an employee who wasn’t ever going to make that mistake again and that I didn’t want to hire a replacement who I would then have to train… at great expense.  As he realized what I was saying, he smiled and I actually thought he was going to cry.

Even smart and educated people make mistakes and have errors in judgement.  But the smartest folks of all realize that making mistakes, even costly ones, are just a form of education and learning.  It isn’t cheap to get a college education and can get expensive to buy and read lots of books about customer service and marketing.  It also costs money when you make mistakes in business.  But sometimes the school of hard knocks teach the most valuable lessons of all.  It’s really all in how you take what you’ve learned to use it and go forward that makes it a worthwhile expense or not.

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5 Responses to “I am a Smart Entrepreneur Who has Made Some Dumb Mistakes”

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Great post. It should be read by every small business owner, but especially online sellers.

Thanks Randy. That means a great deal coming from you.

Hard knocks are where the real lessons are learned.

Hey look at the bright side: it wasn’t your decision to move Leno to 10pm, implement the Top Seller Rating, or troop surge Afghanistan. Ideas are free but tough decisions have to be made every day. No one can predict the future.

Surviving mistakes make us stronger in the face of unrelenting global competition. Conversely, it also means we are gluttons for punishment!

[…] of making the wrong decisions in the past and learning hard lessons."Read the rest of the post here: Just my […]

(OT) Lost sales siphoned off.

10.4% of Shopping.com’s referral traffic originates on Ebay

http://siteanalytics.compete.com/shopping.com/?metric=uv&months=12


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