By Ed McLaughlin with Wyn Lydecker
In 1991 I started two businesses at the same time, USI Companies Inc and Sigma Communications. One went on to become a roaring success and the other a failure. Looking back, I realize these experiences gave me special insight into succeeding vs. failing.
Sigma was a unique real estate information company that published a high-end quarterly journal, The National Register of Commercial Real Estate. The centerpiece was a The Commercial Property Exchange, featuring surplus commercial real estate property listings, which were for sale, for lease, or for sublease.
While the publication met a real need in the market, our problem was how to make enough money by filling that need. As countless publishers and online businesses have discovered, creating useful content and then making money from it through subscriptions, advertising, and fees does not always add up to a bankable business model.
No one wants to kill their own business. But after two and a half years of losses, I began to weigh the pros and cons of keeping my company, Sigma Communications, alive. Sigma was draining focus, cash, time, and brain power away from my other business, USI Companies Inc.
To me the purpose of a business is to generate a profit. With no interest from investors and a quarterly cash drain of over $100,000, I decided it was time to pull the plug on Sigma.
Looking back, I realize that Sigma’s main business was manufacturing a product – not creating a source of information and bringing buyers and sellers together. Producing inventory and shipping it out on a regular basis – even in the form of a magazine – required a constant flow of cash and countless hours of direct and indirect manpower. This was not a model I was used to managing. My expertise lay in running a service business. USI Companies Inc., on the other hand, was a real estate services outsourcing business, and I knew the business model intimately.
Once we had decided to close down Sigma, we had to take several steps to unwind the business and “fail gracefully.”
- · We had to advise our customers that we would be shutting Sigma Communications down. In some cases we had to refund unfulfilled contract commitments.
- · We had to make sure that the employees in our small company understood the situation, and we offered them positions with our other (successful) business, USI.
- · We needed to inform our suppliers and make sure that all of our contracts and commitments were fulfilled, including payment of outstanding invoices.
- · We needed our attorney to help us unwind the legal aspects of Sigma Communications carefully and with full compliance with all regulations.
Here’s what I learned about entrepreneurial failure vs. success:
· Don’t follow your passion. Follow your expertise. I had always wanted to be the publisher of a high-end journal. That was my passion. I tried to make up for my lack of expertise in publishing by working harder. All my waking hours were at the office, building two businesses. But it wasn’t enough. My real expertise lay in real estate services, and that was the business that thrived.
o Expertise is not as sexy and exciting as passion. But starting a business in which you have specialized knowledge and a track record of accomplishment will give you a much greater chance of being successful.
· Focus on success: Shutting down Sigma enabled us to focus on our winning business, USI. Within a year of shutting down Sigma, USI’s growth accelerated. We were signing a new contract every day. One of our competitors saw me at an industry conference and said, “You win every time.” Eventually, we graduated from having the mid-market Fortune 1000 companies and the smaller subsidiaries of larger companies as our customers to winning Fortune 500 business.
I explore entrepreneurial failure and success in depth in our upcoming book, “The Purpose Is Profit: Secrets of a Successful Entrepreneur from Startup to Exit,” which I’m co-writing with Wyn Lydecker and Paul McLaughlin.
Copyright © 2014 by Ed McLaughlin All rights reserved.