I Built and Ran a Startup
By: Carol Lennox
Tags: Partnerships, Economy, Business Strategy, Education, Startup Lessons

I Built and Ran a Startup

Here are the mistakes I made, so you can avoid them.

Photo by Oscar Nilsson on Unsplash

Here are the mistakes I made, so you don’t have to make them. Some mistakes could have been avoided. Others were unpredictable, much like the current impact on businesses, and particularly startups, during the COVID-19 pandemic.

There’s a listicle below if you prefer to scroll down. I know how impatient entrepreneurs are. So was I. But here’s the background of what created issues after the third year into my Startup.

I started an advertising, marketing and public relations business with two partners. My husband of the time was our financial officer, so between us, we owned 50% of the company.

The other two partners were my friends. One had been a friend for a few years. The other became a friend, after I hired her at the previous Ad Agency where the first friend and I worked.

Photo by Disruptivo on Unsplash

Debt owed to investors is a huge reason Startups fail today.

We were underfunded. On the other hand, we didn’t go into debt. Debt to investors is a huge reason Startups fail today. Venture capitalists put up obscene amounts of money, and Startups spend it like it will never run out. It often does. Investors get their money first when companies go under. Plus, they can write it off.

It seemed like a wise move at the time.

We didn’t pay ourselves first. We rented space, hired graphic artists and designers, a secretary/receptionist, and a part time accountant. My two partners and I were the account exectives. I was also the copywriter. But we only paid us three working partners an equal, minimal salary for three years. It seemed like a wise move at the time.

We diversified, but not enough. Yes, niche marketing is a thing. But Ad agencies need a variety of clients. As an entrepreneur, you need more than one type of client or product too. So that when the economy tanks, you don’t have all your eggs in one basket. Our basket was primarily real estate.

We didn’t take into account what would happen in a recession. Like the one we are all facing now, worse than the one that hit my company. Now for the listicle:

Mistake number one; always own 51% or more of your company. I knew to do this, but assumed having 50% in the family would suffice. It didn’t. At the end, my husband voted against me with my partners to close the business. Don’t partner with friends and spouses. It makes the “break up” that much harder. Plus, sometimes the end of the business can end the friendships. In my case, it also contributed to the end of my marriage. Don’t overspend. I still see entrepreneurs do this today, on an even grander scale. I have gone into Startups to counsel employees being laid off. I’ve been led to well stocked kitchens to get a bottle of water, or coffee, among the rows of free liquor. I’ve held meetings in their private cafeterias. I’ve passed foosball tables on the way to my assigned space to do the counseling. All great for corporate culture, but not so great for the bottom line. Pay yourself, as the boss, only what you actually NEED to make, until there’s enough profit. Not more or less. Some entrepreneurs pay themselves way too much at the beginning. We paid ourselves much less, and that’s what drove my partners to vote to close the business. We quit too soon. It takes a company approximately five years to be truly successful, and to be able to pay the partners more. Mine voted to close after only three years, even though we were profitable. We didn’t focus enough on diversification. Depending on one type of client for your services or products portends disaster. Which leads to number seven; Have a safety net, or a slush fund. When oil prices bottomed out, down to $10 or less a barrel, residential and corporate real estate suffered a huge hit. Mortgage companies and Savings and Loans went under, partly due to illegal activities, and partly due to defaulted loans from builders and home owners. A lot of our clients were builders and other real estate companies. See number six. Have a backup plan. I didn’t, but eventually went back to school for a Masters in Counseling. I became a therapist, and also began writing more than just advertising copy and press releases.

Photo by Tim Mossholder on Unsplash

The recession we are all facing today is potentially worse than the one we faced then. Yet, companies who are already diversified, or can diversify to meet ongoing needs, will still survive.

Also, the ones that tighten belts while still taking care of valuable employees will do better in the long run. Pay yourself first, if you can, but take care of your people, too, even if you have to lay them off.

Today that might look like not challenging unemployment claims, and continuing health insurance as long as possible. Maybe you furlough employees, rather than fire them. You will need to hire again when the economy recovers, so don’t burn any bridges. Take care of your employees, to the best of your ability.

If you’re already an entrepreneur, look for ways to diversify, and to provide services or products that will stay in demand during the worst recession. Own at least 51% of your company, so you have the deciding vote. Partner with people who are not your close friends. Don’t overspend either your money or your investor’s money. Pay yourself first, but only as much as you need, for the first five years. Keep a slush fund. And have a back up plan.