LegendaryLife Blog

From my extensive business experience, if there is any one thing that leads to a slow (sometimes quick) demise of a startup or an established company, more often than not, it can be traced to greed.

The root causes of greed

When you first start a company, the pricing is usually insanely competitive even to the point of undercutting your main competitors. Many people believe that price, and price alone is the way to compete directly against the “big boys”. While this does work for a certain period of time, and can actually be profitable, eventually, overhead such as staff, phones, office space etc. all begin to take their toll leading to you having to raise your prices just to break-even. The root cause of greed for most companies starts-up this way, simply trying to stay afloat… I have yet to meet an entrepreneur who got greedy out of desire. It’s usually caused by something far more urgent, survival!

When greed gets out of hand

Alright, you have a rather new company, you hiked prices and can now afford to pay yourself somewhat of a living wage… great! This should be where things stop but inexperience (myself included) makes you wonder, “hey, that went so well, let’s hike things up a bit more so I can buy xyz”. Your clients grumble but the costs involved with leaving your company for another aren’t large enough to warrant a new fishing expedition. Hey, you got away with it! Hmmm… let’s do it again!

Greed catches-up with you sooner or later

Alright, you are living “large”, move to new offices, hire a bunch of new staff, get a new car, start-up some new (expensive) hobbies and life is amazing! What you fail to realize is that you are slowly pricing yourself out of a market that you helped develop. Sooner or later, the contracts that use to be “guaranteed” begin going to other companies, out of desperation, you match their price but in reality, you cannot. You see, your overhead has taken a toll on how “low” you can go while still breaking even! You have nice new offices, guess what, your clients notice this as well and if “entrepreneur to entrepreneur” you see this, you quickly realize that you, as the client, are the one paying “extra” for these digs. Most entrepreneurs are cheap when it comes to spending money, they have no problem buying a plane and other gadgets but when it comes to business, every penny counts! This is when things begin to go downhill.

Excuses Excuses

First you realize that your sales staff is spending A LOT of time on the road trying to close deals that just aren’t going the way you had hoped or experienced in the past. Your subcontractors, realizing you got a bit of money, begin hiking their prices (making your prices higher) and worse, you begin living project by project. You hear all the excuses but they always seem to come down to price and customer service. You want to hire more people to handle the work flow but your overhead is already too high, you want to fire some people but cannot afford the severance, you need to give your sales staff higher commissions but with lower prices, you are being squeezed from all sides. Throw-in a natural disaster and you are really screwed big time!

What to do?

Well, the above happened to me, it took me years to recover but I wouldn’t have wanted things to happen in any other way. The lessons I learned from my past failures have made me who I am today, far smarter with my money, far more efficient with my time and a miser when it comes to Return On (potential)Investment. Well, how do you avoid a business and the personal failure that comes with it? Here are some tips:

• Only hire staff you absolutely need and not before you have at least a few months salary to cover them in your bank account, in other words, don’t count your eggs before they have hatched.
• Subcontract as much as you can, I have found that you will always PROFIT from subcontractors, when you don’t have a project, they don’t cost you anything and when you do, you will always make a net profit at the end of the day.
• Sales people, unless you can afford otherwise, should have the vast majority of their compensation based on commission, sure you can help with gas and other expenses but it’s up to them to make a living off your product/services, not you.
• Learn from your failures and try to constantly improve not only yourself but how things run in general. I believe in a constant improvement philosophy and it has served me very well in both up and down times.
• Listen to your clients and always try to ask a “lost” client why you aren’t working for them anymore or why a negotiation for a new one didn’t go anywhere. Knowledge is power, especially when it can have a very large impact on your bottom line.
• Accept that chance will play an ENORMOUS role in whether your enterprise succeeds or fails. Entrepreneurs who say they are successful or wealthy because of them and had nothing to do with luck are so full of shit that they can build a mud house out of it. Just about every entrepreneur (successful and otherwise) has been deafly affected by luck.
• Don’t give up! If there is one thing you remember from this blog posting it is that you should NEVER GIVE UP on your dreams. Hope, no matter how small, is still hope. The minute you give-up the only guarantee you will have is failure! Sometimes it is good to refocus your energies elsewhere, learn from your mistakes and move on… but never loose hope on the bigger picture to improve the lives of you, your family and those you care about.

The Bottom Line

Greed is one of those dragons that every entrepreneur has to learn how to slay.