Even the most successful small businesses have faced their fair share of challenges. The issue isn’t always how to avoid challenges, since some are inevitable. The key is figuring out what to do when you come face-to-face with one.
For this post, we asked real small business owners to share some of their biggest challenges, including how they overcame them.
Contractual Hell: Remember to Read before You Sign
We’ve probably all heard this adage: don’t sign anything you haven’t read and understand. It’s simple, straightforward advice, yet even those who are typically cautious when it comes to contracts can sometimes fall victim to contractual headaches.
Just ask David Mark who runs a mining exploration company called Geotronics Consulting Inc., which has been in business for over 45 years. Mark explains, “We were offered a chance to bid on a fixed-price job, which we’d normally avoid, but the property was beautiful and fairly flat (steep properties can make jobs much more difficult) and having our company name on that project could bring in some more work. So we figured it was worth the gamble, bid on the job, and won the bid. Boy was that a MISTAKE!”
Mark explains that the property ended up being much steeper than anticipated, and it was covered in thick bush to boot, which made access challenging at best. There was little Mark could do. His attempts at negotiating with the client didn’t work out (a fixed-price contract puts the onus on the vendor, not the client). Mark had to honor the contract, and, as a result, the company lost real money on the job.
Mark says, “It was incredibly frustrating because it was both avoidable and unnecessary. Our egos and ambition had gotten the better of us and had hurt our company.”
So what’s Mark’s advice to other business owners? Understand every element of the contract and its potential ramifications. Mark says, “The first piece of advice would be to avoid fixed-price contracts. That might sound obvious given our experience, but fixed price puts all the power with the client. If you need to renegotiate, they are often unwilling because unlike in a variable price contract, they’re completely protected. If you must take a fixed price, such as if it’s the norm in your industry, make sure to include provisions that protect you from cost overruns. Often, even if the price is fixed, there are a hundred other variables in a job contract that can be negotiated, if you’re just willing to try.”
Julie Austin echoes Mark’s advice regarding contracts. Austin is the inventor of swiggies, which are wrist water bottles for adults and kids. She, too, had a bad contract experience. Austin recounts this challenging time: “There have been many challenges, but one of them was when I signed a contract with a con artist. The guy came recommended and had worked with several celebrities, so he seemed to be okay. After the contract was signed, it was like Jekyll and Hyde! I ended up having to hire an attorney, but in the meantime my business was shut down during the busy season.”
Today, Austin is extremely wary and skeptical of all contracts, preferring to do business with an old-fashioned handshake. Would she ever sign a contract again? She says, “It would have to be a very large deal or a very simple contract for me to do that again. What I know now is that you never sign a contract you don’t fully understand. Having a personal referral isn’t enough, as I found out. Use your gut instinct when going into business with people. I really ignored mine. Have your own simple contract drawn up and insist on using it. Do a test with distributors before doing anything exclusive. Never give an exclusive without getting something in return. Most people are honest. It’s just the few that aren’t who can bring down your business.”
Building Teams: Choose Wisely
Dealing with unwieldy or unfair contracts isn’t the only frustration that can plague a business owner. So, too, can finding a team of people you can rely on and trust, as Lori Cheek, founder and CEO of online dating site Cheek’d, discovered.
Cheek was new to the entrepreneurial world, having worked as an architect for over a decade. After she came up with the initial idea for Cheek’d, which has been described as the next generation in online dating, she spent a year walking around “in circles” trying to figure out how to turn her idea into a viable business. During that time, two people came on board to help her, but they weren’t the right fit (for one thing, their skill sets were the same). Today, they’re no longer with the company, but they still own nearly 20% equity.
Cheek reflects on this hard lesson: “Team is EVERYTHING. I just wish someone had told me the importance of having the right team surrounding me. The technical aspect of my business has been one of the bigger challenges I’ve faced and it’s the one thing I definitely would have approached differently from day one. I needed a CTO.”
Paige Arnof-Fenn, founder and CEO of Mavens & Moguls out of Cambridge, Mass., learned a similar lesson. She explains, “My biggest challenge as an entrepreneur is not getting rid of weak people earlier than I did in the first few years of my business. I knew in my gut they were not up to snuff, but out of loyalty to them I let them hang around much longer than they should have. It would have been better for everyone to let them go as soon as the signs were there. They became more insecure and threatened as we grew, which was not productive for the team. As soon as I let them go, the culture got stronger and the bar higher.”
Funding Pitfalls: Learn What You Can Do on Your Own
You’ve probably heard the pithy saying “you need to spend money to make money.” What this old saw doesn’t offer is what to do when your seed funding either runs out or gets pulled before you develop any momentum.
Matthew Reischer, CEO of LegalAdvice.com, explains how he dealt with this dilemma. “After having spent over $350,000 in the first two years primarily on product development and securing intellectual property, we ran out of capital. We had not launched any marketing initiative and saw no solution for
attaining new capital. Moreover, all the solutions that were offered were onerous and involved saturating our business with debt. I was depressed for a full 15 months and our company essentially ground to a standstill because we had no working capital.”
Reischer did eventually pick himself up and soldier on by focusing on affordable guerrilla marketing tactics that he could execute himself. He learned a valuable lesson in the process: a big public relations and marketing budget is a luxury, not a necessity.
Reischer says, “Having capital merely buys you a knowledge base and the capability for other people to do work for you. If you are intent on learning how to execute marketing initiatives yourself, there is no need to pay for public relations. I have now learned how to do outreach to reporters myself and realize there are many things that can be done to promote your business without capital.”
Cheek learned this lesson the hard way as well. She says, “I launched my business in May of 2010, had hired a PR firm a couple of months before launch and got a couple of articles written. After paying them nearly $10K, I realized I had more passion for the subject, had tons of connections to start out and could do what they were doing and decided to go for it. I’ve been doing my own PR for the past 3 1/2 years. Ten thousand dollars lighter and a few years wiser, I’ve been covered in just about everything from The New York Times to Tech Crunch and Forbes. Our press has extended internationally now and we currently have customers in 47 states in America and 28 countries internationally.”
Kenny Kline is the founder and CEO of Slumber Sage, which he describes as the premier resource for sleep on the web. He offers some good advice regarding funding that dries up or disappears unexpectedly. It’s based on the unfortunate experience he had launching his business earlier this year.
Kline says, “Two months into starting, our main funding pulled out, and we were unable to secure money to continue the operations. We had already put a lot of work into preparing for the launch, and we didn’t have time to approach new investors. We had put our eggs in one basket, and it fell through.”
Luckily, Kline and his team were able to pool their own personal resources, allowing them to launch. Today, they’re bringing in enough revenue to sustain the business and themselves.
Kline acknowledges the important lessons he learned, specifically about diversifying investors. Kline says, “We were lucky in that we were able to achieve some financial success quickly after launching, but this isn’t the case for every business. Investors get cold feet for a variety of reasons, and you need to have a back-up plan. Even doing a smaller friends/family round to give ourselves more time to get a bigger round of funding would have been prudent.”
Kline also recommends having best and worst case financial projections and always being prepared for the worst. “Don’t put yourself in a position where you need outside investment to continue the business, if possible,” he says.
Parting Advice from Those Who Have Been There, Done That.
Two of the best pieces of advice come from Reischer and Cheek. Reischer reminds us to face an important reality regarding the almighty buck. “Money is not the solution to every problem,” he says.
Cheek adds, “My advice for others in the entrepreneurial world is if you truly believe in your idea, give up excuses and doubt, surround yourself by a trusted and talented team, bulldoze forward and DON’T. LOOK. BACK.”
What business challenges have you faced and overcome? Let’s commiserate in the comments section below.