First Person: Our Small Business Was Too Far Ahead of the Times
Author: C.J. Mackey
Years ago, long before it became a commodity service, my husband and I recognized the value of providing off-site data backup for home and small business users. We both worked in the technology field and had seen the cost of storage go way down, and recognized we could offer the service at a low cost. We incorporated our business, purchased hardware and started marketing. The business ultimately closed at a loss 2 years later, but the lessons we learned were well worth the cost, and proved invaluable to us in our other business ventures.
Have Enough Funding to Weather the Startup
Some small business owners make the mistake of only gathering the money necessary to open the doors of their business and count on sales revenue to cover operating expenses. It takes time to build up a client base or to gain exposure, even with aggressive sales and marketing.
For us, our issue was not so much capital start up costs; we didn’t require a store front, simply an internet site with back end hardware. However, we needed enough funding to gain market share and loyalty early on, so that we could fend off the competition a year and a half later when other competitors recognized what we had and started to gain entry into the marketplace.
Create a Business Plan
Business plans, even when they aren’t used to acquire funding, are a great tool to get you to think through all aspects of your future business, such as what will differentiate your product from others? What will the competition look like? Is your pricing model returning enough profit? Going through the process of documenting your intentions not only helps clarify them, but will also prepare you for such a time when you do want to speak to investors and get more funding.
Understand Your Break Even Point
Many small business owners don’t invest enough time to understand their costs and their break even points. Because of this they price the product improperly. My husband worked for a small business that sold software. Every time they made a sale they got an influx of large amounts of cash and thought that they were financially sound. When they finally got someone to document the business model, expenses and cash flow, they determined that they were actually losing money over time. The more software they sold the less money they made.
For us, the break even point for this type of service was too high because of our marketing costs. We we’re ultimately done in by companies that could offer the service at an extremely lost cost, one that was cost prohibitive to us.
Sometimes You Can be Too Ahead of Your Time
Time and time again I’ve seen fabulous ideas come out too soon for the public to understand why they need it, or for the infrastructure to be there to support it. I worked for an Internet Hosting Provider that had online shopping, at a time when people only had dial-up connections to the Internet. By the time DSL, Fios and Cable came into place for homes the company was long gone.
For our small business, trying to get people to believe they needed to backup their data at a time before people were really using digital cameras and doing all their bills and checking online, was too difficult a sell. You do want to be ahead of the curve in recognizing an upcoming need, but if we had spent more time on the bullet items above, we would have spent the time acquiring more money for marketing, and come into the marketplace in just the right time.
While shutting down a business you put your heart and soul into is gut wrenching, it provides you priceless business experience. I am a firm believer that you learn more from your failures than your successes, and this event definitely put us in shape to succeed in our next venture.