I recently read a quote passed on by [NY Times best-selling author on leadership] John Maxwell through his Twitter feed:
“Don’t be afraid to ask dumb questions. They’re easier to handle than dumb mistakes.” ~ William Wister Haines
I then read this Proverb:
Enthusiasm without knowledge is no good; haste makes mistakes. ~ Proverbs 19:2
These words of wisdom are nothing new. They weren’t new to me, and they probably aren’t new to you. However, I (and maybe you) too often ignore these warnings when analyzing a business opportunity.
We get too worried about missing out – not getting in on the ground floor. Let me tell you, it’s not worth the pain. Let me share a part of my story.
In 2005, I started a business with my wife and her parents targeting portrait photographers who specialize in high school seniors. We had a great idea, and we moved forward quickly making small steps. The business grew. Fast. Little did I realize at that point how many businesses were growing quickly and easily in those ‘golden’ years.
In January of 2008, we held our 3rd conference and outgrew our conference facilities months before the conference even began. We grew so fast that we lost out on potential clients because the hotel couldn’t handle the requests for registration. We literally lost tens of thousands of dollars.
Heading into the 2008 conference we were simultaneously juggling these overflow problems while negotiating for the 2009 conference at a different, bigger location. Here begins the problems. Here is where I wish I had headed the advice above. I should have slowed down.
Long story short. We didn’t foresee the economy collapse of late 2008 and early 2009. We were in a hurry to have the details done before our 2008 conference. We entered a contract assuming the same growth we had seen in previous years. Once that contract was signed, we were on the hook for 50% of all projected revenue. By the time of the crash in late 2008, we were liable for 100% of the projected revenue. There was no backing out.
We lost over $100,000. None of us had $100,000 to lose.
Honestly, I was uncomfortable entering into the agreement with the hotel for the 2009 conference. It was simply such a huge number and a equally huge risk. But I was also worried about missing out on growth for our business. I have no excuse, I signed the papers.
Ask Yourself Hard Questions
This is the constant struggle all of us as small business owners and entrepreneurs face. Taking a risk and along with it the potential of huge reward (growth) versus reservation and the potential of missing a wonderful opportunity. Now on the other side of those mistakes, I look back and see where I erred. I can see where I didn’t ask myself and the others around me hard questions. These are the hard questions I should have asked. These are 3 hard questions you should ask yourself before making major business decisions.
1. What’s the cost?
This question actually is the total of several smaller questions. Counting the cost involves more than just your finances. It involves your emotions, your family, your body.
- Financial. I’ve become a fan of Dave Ramsey. As a businessman he’s not afraid to take calculated risks. He advises making no financial risk larger than what you have in the bank to pay for. This means if you can’t pay for the camera/computer/spec job AND have safety reserves, then don’t commit to it.
- Emotional. Taking big risks is not for the faint of heart. Not seeing money coming in can send you spiraling, while nailing the perfect job can shoot you through the roof. You try to tell yourself to stay steady, but it’s just not easy. If you can’t handle the pressure, don’t enter the agreement.
- Physical. Your dream may take long hours, working 2-3 jobs at a time, and even hard physical labor. Are you willing to do what it takes? Can your body handle it?
- Family. Your family has the potential to lose the most in any risk you are contemplating. They are the ones who may be without mom/dad/husband/wife for days or weeks on end. They are the ones who may have to go without if your risk falls through.
Don’t look at just the potential giant reward or the “if it all goes down the drain,” but somewhere in the middle too. In my story, we could have lost much more than $100K. We had over 400 attendees and 100 vendors. It could have been worse.
Is it still worth all the trouble? The truth is that it very well may be. Just be willing to do all that it takes.
2. Do I completely believe in this opportunity?
This is the most important questions to ask if you are working with a partner – including your spouse. If you don’t really believe in the decision being made you will be resentful if it fails (and not nearly as excited if it succeeds). There is no one else who can answer this question for you. You are the one person who truly knows how you feel. The key is to give yourself time to reflect on what you want for yourself, your business and your family. Once you know how you feel, then you must give yourself permission to move forward with that in mind.
You should expect to receive the respect of your partner if you are not in full agreement. You may need to wait or simply not move forward at all. You also need to show this same respect if your partner cannot settle on a decision. In my story, I didn’t fully believe in the decision to go with such a large space, and I was pressured by circumstance as much as anything or anyone else. I didn’t stop, listen to my gut, and say the tough word, “Wait.” I regret that (non) decision now.
3. What do others say?
Whether this is a formal advisory board, a group of trusted friends, a mentor or someone else, you need outside influence on your major business decisions. I didn’t go to others asking their thoughts on what we should do. I relied on anecdotal help from people saying how the business was going to explode and continue to grow, but they didn’t see the entire picture. They definitely didn’t see the potential risk.
Life comes so fast at us. It’s not easy to slow down. Take the time to ask ourselves these questions, and wait for the answers.
No matter what major decisions you are faced with in your business, and I can guarantee you will be facing something major this year (if you haven’t already), go slow. Ask questions, especially dumb questions.
Don’t make dumb mistakes. Take your time.
Andy co-founded and directed Senior Portrait Artists (spa) for 6 years before founding The Collective in 2011. Along with blogging on The Collective and other industry blogs, Andy plays and coaches soccer, creates art with his iPhone, roots for the Kansas City Royals (despite their serial ineptitude), spends inordinate amounts of time on his iPad, and torments his children with bad jokes.