A new venture is much like a newborn: so tiny and fragile and in constant need of your time and affection.  Along that same pattern of thinking, a new entrepreneur is much like a new parent with the same passion and protective instinct that comes with caring for a newborn.  Unfortunately the same instinct that allows the entrepreneur to grow a seed of an idea into something tangible and growing has the power to totally disrupt the entrepreneur’s life balance.

The 9 to 9+

During the early days of KappaStone I would find myself waking up at 8:30, grabbing a quick snack and then wandering two rooms over to my workspace.  If I was feeling ambitious I would change into real clothes or sit down for a real breakfast.  Lunch time would come and go and often I wouldn’t leave my workspace except for bathroom breaks, getting water or late in the day when my wife would start yelling up the stairs to come have dinner.  Generally that was the only real break I would have during the day.

At this point I would come downstairs to eat and watch TV with Erin.  This accounted for maybe an hour worth of time off overall.  Was the day over?  Hardly.  At 8 PM I would head back upstairs and continue working until midnight.  Sometimes Erin would still be awake by the time I ended my day.  Most of the time she was long since asleep.  This went on for several months.  Fortunately I have no children or I would have been neglecting them on top of my health, my wife and my friends.

Space

The first big break that came was the decision to move the business out of the house.  We had a couple employees by this point, both of whom were working from the house, and our neighbors were suspecting us of running less than legitimate operations in our quiet residential neighborhood (no joke.)  A couple weeks of hunting on Craigslist for cheap space, cheap office furniture and cheap moving help later, we moved into our current offices on West Fifth Avenue.

Immediately the line between business and personal life was defined again.  No more documents scattered around the kitchen, the living room or the bedroom.  No more makeshift workspace setup on our coffee table from days when the heat was too much to tolerate in our spare bedroom.  No more sitting around in my flannel pajama pants all day long.  No more employees stashing food in our refrigerator or leaving their equipment setup on our kitchen table.

Having a separate, dedicated space outside of the house finally forced me to define clear operating hours and boundaries.  It forced me to have a little bit of faith in the business fending for itself outside of 9 to 5 or days when I’m too sick to go in.  Most importantly, it forced me to have a life again.

Taking that last call

One boundary issue that remained for me even after the move to a dedicated space was that of the cell phone.  During the course of time while the business operated out of my house, my cell phone was my business line.  Our 800-number was just a simple forwarding number to my personal cell phone and many of our customers also had my direct number.  I grew so accustomed to taking calls at all odd hours of the day and being accessible to my customers that business didn’t necessarily end when I left the office.

The problem really became apparent when we began servicing clients outside of the country.  All of a sudden a late call went from 7 pm to 10 pm or later.  After several years of having the same number, I had to make the tough choice of getting a separate personal cell phone number and eventually retired my business cell phone in favor of directing all business calls to dedicated VOIP lines.  Now I can read emails and listen to voicemails at my convenience and decide for myself is something is an emergency.

Remote access

To this day I maintain a remote access portal to gain access to resources on my workstation from home or on the road if absolutely necessary.  This does present a certain temptation to return to my old ways; I could so easily open a project from the house, so easily answer an email that should wait until the next morning, so easily write up a proposal at 1 AM.  Fortunately there’s just enough of an inconvenience factor to working on my laptop versus my workstation that I can resist the urge most of the time.

Nevertheless, it is nice to have the option to work remotely on snow days, days when I’m less than well or times when I just need a change of scenery.  I can choose to unpack the laptop at the house or setup for an afternoon at a coffee shop.

Remain aware

The biggest favor you can do for yourself as a new or seasoned entrepreneur is to constantly and objectively evaluate your life balance.  Sacrifices are necessary at times but you should always take note of these sacrifices and know when it’s time to take a step back and actually enjoy your life, your family and your friends.

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Any successful entrepreneurial venture involves investment– an investment of time, an investment of labor, an investment of passion and, most of all, an investment of money.  In times of recession, managing a venture’s finances are more critical than ever.  It is all too easy to fall into the trap of reckless spending without any cash flow.

The Three Phases of Entrepreneurial Finance

Typical successful ventures, particularly under the guidance of inexperienced entrepreneurs, will generally go through three distinct phases of financial management:

1. Inadequate Spending. Too often first-time entrepreneurs are afraid to put adequate skin in the game, not only in terms of money but also in time and passion.  They will start their ventures without proper marketing, without the proper tools and unprepared to pull the trigger on critical investments to take that next step.  Many ventures wither and die at this phase as a direct result, or at the very least will never see any growth.
2. Reckless Spending. If a venture escapes phase 1 alive and kicking, the tendency is for an entrepreneur to get a little too comfortable with the idea of business expenses, write-offs and luxuries.  The problem is especially prevalent during times of prosperity and growth as reckless spending is hidden behind profit.  The same risk-taking spirit that drives the entrepreneur can drive a young venture into debt, particularly if there is a sudden drop in sales revenue.  It happened at the end of the dot-com bubble.  It happened at the end of 2008.  Many promising and fast-growing ventures end up vanishing after a string of credit line defaults and maxed out plastic.
3. Justified Spending. To survive the long haul, entrepreneurs and their ventures must adopt a policy of justified spending.  Carefully gauge growth and opportunities and weigh risk appropriately.  Make capital investments in assets with direct returns rather than new couches and desks for the office.  Don’t be afraid to pull the trigger on the tools you need to take you to the next level but don’t automatically upgrade all your workstation displays to 24″ flat panels.  Resist the temptation to loosen your spending habits when there are surpluses.

Change your Habits

While entrepreneurial ventures are especially susceptible to poor financial management, they have one key strength: nimbleness.  Established corporations may be able to ride out smaller financial recessions or bad decisions relatively unscathed, but they have a lot of trouble adapting to longer-term changes in the environment.  If you notice that your venture has bad spending habits (on the low or the high side), don’t be afraid to do something about it.  It’s your skin in the game, after all.

• Focus your Investment. Rather than dumping cash, time and resources into secondary revenue streams, focus on what turns a profit.  If you’re offering your clients the world on a silver platter and only one or two services or products result in take-home profit, consider consolidating or shifting your offerings.  Likewise, your cash cow a year ago might not be as profitable as it once was; perhaps there’s more competition or your clients’ spending habits have changed.
• Project a ROI for All Spending. The concept of justified spending becomes much more tangible when you start projecting a return-on-investment for all spending decisions.  It is healthy to occasionally splurge when times are good, but you better be able to realize a return on the other 90% of your spending.  Unless image is particularly critical for your industry, you can get away with used furniture and you probably don’t need that cappuccino machine.
• Control Growth. Growth is a wonderful thing as long as it is measured and controlled.  Uncontrolled expansion can bury a venture just as easily as reckless spending.  Just because sales are way up this quarter doesn’t mean the trend will continue next quarter.  It is a lot harder to shrink back down gracefully than it is to control growth in the first place.

Make the Tough Choices

Sometimes entrepreneurs can find themselves in a bad position no matter how diligent they have been about their spending or how well they have managed growth.  Competitors can spring up without warning.  Clients can change their spending habits.  Lenders can tighten credit line terms.  Any of these events can put a real dent in your revenue and profits and endanger the venture.  Can you afford to wait out the bad times?  Will revenue ever come back to prior levels?  Unfortunately times like these usually call for unpleasant actions.

• Reduce Monthly Overhead. Are you subscribed to premium-tier internet service?  Do you have monthly or quarterly membership dues in trade associations or chambers of commerce that add little to your bottom line?  Are you subsidizing any non-standard employee expenses?  Reducing or eliminating unnecessary monthly expenses is the first and least painful step in helping your venture stay afloat during tough times.
• Consolidate Space. Do you lease your office space?  Talk to your landlord about scaling back to a smaller unit or subletting portions of your space to a third party.  Chances are they would rather move you into a less costly unit versus losing you as a tenant entirely if you close your doors.
• Liquidate Non-essential Assets. Take stock of your venture’s assets.  Are there underutilized pieces of equipment (particularly ones that are financed or leased) that could be sold or transferred without severely impacting company operations?  You will probably take a net loss but this may outweigh on-going operating costs and loan or lease payments.
• Renegotiate Salaries or Reduce Staff. Sometimes you have no choice but to reduce payroll.  If the alternative is possible unemployment, you may have luck renegotiating employee salaries as a team.  This tends to work better in smaller, newer ventures versus established companies.  If that proves unsuccessful, you may be faced with layoffs.  This is still better than everyone, including you, being out of a job.

Prosper

With all of these tips in mind, don’t forget to enjoy the good times.  You didn’t choose the most risky and stressful possible career path without expecting some kind of reward.  Just remember to enjoy those rewards in moderation.

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KappaStone this past month finally reached a major milestone: a $0 marketing budget.  What do I mean by this?  We are receiving a sustainable level of new business exclusively from repeat customers, referrals and reputation.  We are spending $0 on AdWords.  We aren’t investing in trade journals.  We’ve discontinued our subscriptions with freelance work sites.  That may not seem huge on the surface, but consider this:

• Quoting work for repeat customers and referrals takes us, on average, less than half the time of new customer quotes. We don’t have to sell ourselves.  We merely have to sell the job. Additionally, customers tend to be more forthcoming with information when they know you.
• Our closing rate for repeat customers and referrals is, on average, at least twice as high as other quotes. Customers will always opt for familiarity, even if the business relationship was less than perfect.
• We can focus on high-quality, interesting projects. Whenever dealing with a new customer, there’s a chance you won’t get along.  Personalities can clash.  They can have unrealistic expectations.  They might not pay you on time or at all.  Not only does your customer know you but you know and (hopefully) trust the customer.

All of this adds up to a huge reduction in costs to close a project and boosts overall margin and efficiency.  Bottom line: invest the time and effort in building a quality client base up front.

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