The Difference Between Efficiency and Starving
There’s something romantic in American culture about the concept of starting and running your own company. We all dream about that day when we can walk away from our day job and dive into finding ways to make money doing what we’re passionate about.
If you are one of those brave few who have actually followed through and left behind the safety, comfort, and network of your profession, you know exactly what I’m talking about. That day you announce to your boss and your peers that in two weeks, your life will be all about following a dream.
Being highly efficient with your resources and finding cash to keep going can quickly spiral into a messy business model.
In 2009 I became hell-bent on starting a new company. I knew that the Defense Department needed to find better ways to get their soldiers to interact with technology, and Steve Jobs had made a device that would do this. Apple may call it an iPhone, but it wasn’t the phone that I cared about. It was the powerful handheld computer with a revolutionary new user interface – multitouch – that I knew would change the way soldiers interacted with technology.
While we built the product, however, we knew that we had to keep the lights on and the employees paid. We raised about half a million dollars, which wasn’t nearly enough to reach our goals. So we provided consulting and work-for-hire to all sorts of military, commercial, and advertising customers to pay the bills.
Here’s the problem. The more of this “making payroll” work we did, the less focused on building our product we became.
And one day, I realized that I was running a job shop, not a product company.
Starving vs. Eating the Wrong Food
None of us could really afford to go without a paycheck. We burned through the equity we had raised – which wasn’t much – and knew that we needed to bring in money somehow. Slowly, over time, we were able to build a prototype unit. But by the time we got it really going, the market started to change. Our opportunity was starting to slip away. The longer it took, the less buzz we had.
While trying to find a partnership to help fund the productization, we continued to grow our fee-for-service business. We were making web pages for NFL stadiums, ads for flea-and-tick companies, monitor-and-control software, applications to control satellite modems…you name it we were doing it. We even got into digital marketing and website optimization.
Now doing all of this web work, fee-for-service work, and even digital marketing made sense in the long-run – if you think about what a product company needs inside of it. We had all of the parts to be a superstar product company, but very few people inside the company thought about our superstar product. We were too busy doing 30 other things.
Beyond our fee-for-service business, our R&D guys – being brilliant people – came up with dozens of other brilliant ideas. A secure mobile app store for SOCOM. A situational awareness suite to replace a multi-billion-dollar product used by the Army. A rugged smartphone case that securely shuts down the radios in a smartphone and makes it into a tactical handheld computer.
Now instead of focusing on one product, we were “focusing” on 8 products, 4 lines of business, and an ever-growing fee-for-service job-shop business.
We weren’t exactly starving, but we were eating all of the wrong foods.
I got a lot of great advice starting our company, but I realized – far too late – that all of this advice came from people who understood the economics of service businesses. I came from a service background, as did all of my co-founders.
With this product, however, I knew exactly what we needed to do. But we never had enough money to do the things we needed. And since all of us – I mean all of us – in the company were familiar with fee-for-service, that’s how we made money. Building the product was – at first – why we did the fee-for-service work. But somehow over the years it became an afterthought and not as important to everyone anymore.
Being efficient with your resources and finding cash to keep going can spiral into a messy business model.
Stay The Course
It’s really hard to know when to stay focused on one idea and when to invest time and money into other ideas. Especially when your engineers and designers start showing you things that you know could change the world, and they are going to spend their time working on it anyway. In my case, it wasn’t a choice between two good ideas, it was a choice between 5 great ideas.
I wish I had raised the right amount of money in the first place. I wish I had kept us entirely focused on doing one thing great. I really wish I had not been so quick to hire the whole team. And I wish I had better outside counsel from people who had done the very thing we were trying to do – create a world-class product. We had an opportunity to change the world one box at a time, but instead we started boiling oceans. Our “fee-for-service to feed the products” business model was bleeding us dry, and wore all of us down. But it was a drug we couldn’t shake.
I wanted to get back to the core of why we started – to make a great product. But in the end, there was no way to do this without ripping the company apart, and nobody else had the time or vision to even think about it. One co-founder told me he didn’t want to talk about anything that didn’t involve a project deadline in the next 30 days. I also knew that those same superstars – now full of great ideas and enough customer interest to avoid killing the ideas – would never fit back into the box of focusing on one product.
If you really, truly, believe in your product, and your customers are banging down your door to get you to finish it, figure out how to stay focused on it. Don’t let the temptation of money from the wrong places wreck your business. Otherwise, you’ll one day realize you’re running the wrong company.