My team took a consultant's report very personally and couldn't focus on improvement

In my corporate life we used consultants. I always felt they told me what I already knew but they provided authority and helped with politics. They were also expensive

When I started my business, I vowed not to use consultants but we didn’t have a lot of bandwidth and needed to do some process mapping of our logistics as we grew.

I decided not to use a firm and found a local person with an MBA who was a logistic specialist. I briefed her and she started her assignment.

She presented her report to our senior team. What she showed was that we weren’t communicating with one another and that the systems had big holes in them. We had too many manual interventions and the data entry was inaccurate.

My reaction was this was great as these were easy problems to fix. Dealing with these issues would improve productivity and customer service.

The reaction from our team was quite different. Team members started to blame one another and everyone was critical of the IT people. Tempers flared. I tried to calm everyone down and show them that this was good news as we could easily fix everything. It didn’t matter of who was at fault; it was an issue of growing pains that needed to be dealt with.

The fact that all of this became interpersonal was unsettling for me. I had a lot of work to do to bring this team together.

I signed off on a contract without realizing costs had increased

I ran the farming operations and production facilities in Ghana while my cofounder and partner did sales and marketing from Washington DC. When we started the business, we shared all the decision-making and everything worked well.

As the business grew we were making more decisions and making them faster. The flow of information was just enough to get by, but things started falling between the cracks.  Our roles and responsibilities were getting blurred. The worst example was when our largest customer visited Ghana. They wanted to talk about a long-term contract and wanted a quick decision. If we did not do business with them they would find someone else while they were there.

They laid out terms that seemed reasonable to me. They were higher than we were getting and it was for a year. I did not see any problem with signing there. That night, I updated my cofounder. She was shocked because it was way too low and didn’t  include the cost of customs clearance. Now we would lose money on every delivery. I told her I thought we were making money from them and she said we were, but that the cost of clearance was going up and we needed a 2% increase to cover the cost of currency movements.

After a lot of heated discussion we agreed we needed to meet face-to-face. We needed to set out our role and responsibilities and who makes what decisions. We needed to talk more often.

We expanded without thinking about margins and cash flow

Our sales growth was rapid and very quickly we found that we were doing a lot of business in a city 60 miles away. The transport and service costs were high so we opened a depot there.

We only had 12 people in the company. One person moved and we hired two more. The extra salary and rent meant that all the operations in the new town were unprofitable. We needed more sales quickly. I sent our best sales person there and we saw a 20% increase in volume but the margins were low. At the same time sales in our home market stopped growing. 

By the third month with the new depot, the pattern got worse with an actual decline in the home market and only 5% growth in the new market. We weren’t covering our operating cost and the cash flow turned negative. I closed the new depot, which meant writing off our investment and closure costs. It took us three months to regain our sales momentum and we will lose money this year.

There were some clear lesson here, sales without margin are useless, margin is necessary to cover fixed costs, and start up cost for a new depot take more cash than you ever anticipate.


 

We didn't have an accounting system in place from day one and now things are a mess

We reached $1M in sales by bootstrapping and working long hours. We didn’t have a lot of processes in place and our systems were fragmented. We couldn’t tell what was going on. We all agreed that we needed new systems. We asked around and found a lot people were using XYZ Clouding Accounting for their accounting. We thought it was a good system but we had multiple sites and wanted to open a new business in another country. We also needed integrated stock systems, etc., so we chose ZZZ Cloud Accounting.

We didn’t have any problems setting up the system. Problems started with data entry. We entered all the data we had from our existing systems. Since the data sources weren’t integrated and reconciled, we immediately ran into problems. There were large discrepancies with the stock (finished and raw materials). We couldn’t reconcile the bank statements with the balance sheets, and sales and discounts looked off.

We quickly concluded that the data we entered was flawed and there were problems  going back to when we started the company. The company that sold us the new software said we should stop what we were doing and create a ‘newco’ which would use data from today onward. We should then go back and sort out the old data even if this meant having a third party reconstruct the accounts, etc. We followed their advice. It took months to sort out the old data. When we did, we found we were losing, not making money. We had discounted 70% of our product, not the 50% we planned, and our overhead was understated  by 20% because we have not entered the invoices for electricity and local taxes. All of this meant we had to postpone any fundraising and revise our pricing.

I realized I didn't want to build and grow a business, I just wanted enough income to live comfortably

I love dance and music.  My idea was to start a performance school for teenagers and then franchise it in Lagos. I rented the space and started advertising on social media. I was surprised by the reaction; within a couple weeks, I had three full classes.

The economics meant that each full class generated about $3000. So if I have 10-12 classes I would be able to live very well and I would be working less than 25 hours a week. I could use the rest of my time to write songs.

My uncle offered to lend me $25K to open more studios. I thought long and hard about it. I realized that I didn’t really want to build and grow a business. What I wanted was income that would allow me to do the things I loved. My parents were upset. They called it a hobby and not a job. In the end, I was very happy with a hobby. I didn’t have the passion or will to start a business that would take over my life.

The business was running me

The business was growing quickly. Everyone was working longer hours but things were chaotic and I could feel we were losing control. It was growing too fast, if that’s possible. I was really outside my comfort zone but I didn’t want anyone to lose confidence in me, so I didn’t say anything to anybody.

Everyday there was a different opportunity and I found that exciting. I followed most of them. They usually were deadends, but I love the chase. While we were we growing rapidly it began to emerge that some markets where we had early success were either cooling off or going to decline. I didn’t have time to fix them- I didn’t have the analytics to tell me what was going wrong.

In December we still didn’t have a plan for the next year. I didn’t see any way to reach our 25% growth target as the early markets were now in decline. The business was running me. I wanted to go into a room a scream.

We didn't want to sacrifice our principles for growth

Our business was doing $5M in annual sales and we were making $800K pre tax. We were growing at 15% per year and had 25% operating cash flow. We were the market leader in our segment and enjoyed an excellent reputation as an employer. Our CFO went back to his grad school to speak at a conference. When he came home he said we had to grow faster. Growth is the most important thing and we should aim for $30M in sales in the next three years.

None of us agreed with this. It would change the whole company, put the company at risk, and destroy our culture. The CFO wouldn’t give in and had his professor visit us. He was really nice but spent all his time telling us to grow faster. He told us we could grow to over $125M in sales if we followed his plan. He would be happy to become our advisor and had great connections all over the world.

When he left we were all exhausted and confused. We went to a bar to talk. None of us wanted to follow this path. This wasn’t who we are and not why we started the business. We wrote to the professor to tell him; our CFO said he would quit if we sent the letter.

We stuck to our plan and today, sales are $8M, margins remain high, cash flow is positive, and we stuck to our principles.

The first three years were exciting; now I'm getting bored

For three years we had relentless focus on the core business. We were really good at what we did and resisted any suggestions that we do something new. I got bored and started to look for new business areas for us. Everyday I would come up with something new and race around trying to get everyone excited about it. Each new idea was rebuffed and people told me to get focused and move the business forward so we could get to the point where we could sell it.

I decided to look for potential buyers. I came up with long lists and then talked to everyone about them. Everyone said this was premature and a waste of time and bandwidth.

I can’t get myself refocused on the business. It is boring and I am doing to same thing over and over again.

There was a lot of change when the investors replaced the Founder with a new CEO

The new CEO is very smart and had a good education but doesn’t have a clue about how to run a business. The new investors replaced the founder in order to allow the business to grow. The founder was bored by the day-to-day and had a new business idea.

We’ve been working in an open plan co-working space, but the new CEO insisted we also get an office. He also wanted to get a receptionist/bookkeeper. He commissioned an agency to look at our logo and branding. This alone was going to cost $12K, which is more than we had spent on anything so far.

What seemed like trivial expenditure to him seemed like a fortune to the rest of us. He also wanted us to do an 18-month rolling cash flow forecasting. None of us really knew how to do this and it took a lot of time. He would call a meeting to review it and this would take more time. None of us were sure what we suppose to learn from this.

He kept telling us these were things we needed to do to grow. But we were only 18 months old, our cash position was marginal, and we were barely coping with our day-to-day obligations.

No matter what we said, the new CEO refused to engage in the daily operations. We needed help and all we had was more things to do. It is OK to add new things, but surely we should stop doing some other things.

Even though I started the company, maybe I'm not cut out to be a manager

Managing a team is a pain in the ass. Everyone is so self-centered and needy. It takes all the energy out of me. As the company grows it is becoming more difficult to get people to work together. Why should I be spending my time on this? I should be out getting more business.

Yesterday a team member resigned. She was the first person to leave the company. She said it had nothing to do with money or status. She loved the product couldn’t work with a dysfunctional team and leader.

It wasn’t fun to come to work. There was no clear direction. Priorities changed day-to-day and people didn’t support one another. She looked me straight in the eyes and said there is no leadership. She told me I was in over my head and didn’t realize it.

Did I know, she asked, that I had not spoken to her in three months and there are only 15 people in the company? Did I know her mother had died? Did I care? I told her this was not intentional and I was sorry. She said that was the problem.