James is a IT professional who decided to start a business on a “IT-manager-for-hire” type model. He built the company with really few resources and tools and started looking for clients. At peak, he was earning £2,500, but after some years, he had to shut down as he realized his business model was completely broken.EnglandTechnologyBusiness Model
Founder of a failed startup.
November 7, 2018
That you can’t always get where you want to be in one go. You have to start lean, and then there will be time to grow and scale.
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I’m an IT professional. I guess the closest description I could give you would be “systems administrator”, though I’ve never had that as a formal job title.
Let me just clear something up: I don’t like the term “startup” because to me it conjures ideas of a trendy firm in a fashionable city like London or San Francisco burning through cash like it’s going out of fashion, with wild projections of how much money they’re going to make Real Soon Now ™.
But 99% of new businesses aren’t that. They’re started up by one or two people who are more interested in paying the mortgage than they are in being the next Google. And so, it was for me - sure, I entertained visions of making an income far greater than I could as an employee, but that was as high as I dreamed.
The business model was simple: take what I already did for a living and turn it into a freelance “IT-manager-for-hire” type model. That’s one thing I was always very clear on: I wasn’t interested in doing PC troubleshooting for individuals.
Honestly, my options were a bit thin on the ground.
I’d moved to a new town with limited opportunities for my skillset; my employer was happy to let me work from home but shortly after that they made me redundant.
Realistically, my options in the locality were to take a 30% pay cut or start my own business. And if I was taking a massive pay cut anyway, I wasn’t going to answer to some other bastard!
I grew up the son of a self-employed accountant; most of my mum’s clients were themselves self-employed. In those days, a small business owner could (with enough sacrifice) put a child through a private school. So many of my friends growing up came from families that had a business of some sort.
So, I didn’t perceive it as being particularly risky; I just saw it as another way to earn a living.
I knew my employer needed me occasionally - but the keyword here is “occasionally”. They certainly didn’t need me full-time. In that respect, their decision to make me redundant was absolutely correct. So, I offered to take redundancy and contract back to them on the understanding that I was free to seek other clients when I wasn’t dealing with them. They accepted this offer, became my first (and, for that matter, biggest) client and that gave me a basic income to get started.
I cringe as I write this because looking back I recognize a whole heap of massive mistakes I made. What I am about to write is an object lesson in “how not to start a business”, and I would implore anyone reading this takes note because you’d probably be best advised to do the exact opposite!
My working hypothesis was simple: my current employer needs a competent IT person, but they only need them for a handful of hours a week. There must be other businesses in a similar position - find them and work for as many as you can find.
Sounds beautifully simple, doesn’t it? I didn’t even need a product; my experience would make me a valuable asset that any company would delight in getting for a fraction the cost of a full-time salary. Put up a website, sort out a phone line, sit back and wait for the calls to come in. (Okay, you can stop laughing now. I actually did this).
I think I spent a few weeks on making sure I had all the technology in place to support clients and that was pretty well it. Once it was in place, I was straight to work. The initial idea was simple: get yourself an IT support contract and get professional support in minutes.
This was my first mistake, and one I never really rectified.
One of the first things I did was engage a marketing professional to help me research the market. It didn’t really do me any good - I paid £400 to be told “I’m sure your business idea is viable - I know a chap doing something very similar - but I haven’t been able to find anyone who might be a potential client! Most of the people I’ve spoken to have been extremely rude in telling me they weren’t interested.”
In retrospect, I should have taken this as a warning.
A few things:
I’m sure you’re hoping I’ll list off a range of “idiot’s guide to marketing” books, but the truth is I didn’t find any of these particularly helpful. Most of them would have been great at providing inspiration for someone who already knows a bit about marketing, but they were lousy for someone who doesn’t know enough about business to even know that a marketing strategy should exist, let alone what it should look like.
“Product”s a bit of a strong word in this context; quite simply, there wasn’t one.
The website, however, looked cheap. Because it was cheap. I had zero contact from it and in retrospect, I’m not surprised. It didn’t start to look good until I bought a proper theme for it and paid someone to write some copy.
I did, but in retrospect, that’s because I was deep in Dunning-Kruger territory. I had absolutely no idea of the depths of my ignorance; if I had, I’d have been paralyzed with fear.
I advertised in the local press, bought ads on Google and generally did everything I could think of to make a splash.
It was a disaster. I had no concept of a sales funnel, little idea of conversions, A/B testing, market research, positioning within a market…. the list goes on and on. I tried to appeal to everyone and in the process appealed to no-one; anyone with any business experience will tell you this is a recipe for disaster; I started from there and it didn’t get much better!
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I don’t think I’ve made clear how ignorant I was.
I knew literally nothing about marketing or sales. I read marketing books, I spoke to marketing experts but all of this expertise had one thing in common: it assumed a certain amount of understanding of the basic subject matter. Books seemed to concentrate on “101 ideas to market your business!”; experts simply nodded, smiled and took lots of money from me.
It took me the better part of two years to recognize that marketing was different from sales and business strategy was different from both. Before that, I was just throwing ideas around and seeing what would stick.
I did, however, pick up a few important things. Any experienced business owner will probably read every one of these and say “no kidding”, but here goes:
Directly, my first and biggest client went into administration. (I believe the US term is “bankruptcy protection”, though there are some differences).
However, this wouldn’t have been a problem if I’d been able to establish a decent number of clients; really, the cause was that my business model was completely broken.
I did figure out how small IT consultancies get started - typically, they approach individuals and small businesses and accept they’ll be doing simple work at a low margin for a couple of years until they’ve built up a reputation and can drop the individuals - but I tried to bypass that part of the process. By the time I realized what a disastrous idea this was, it was far too late.
My biggest client going into administration left me in an impossible position. By this time, I did have some other clients, but nowhere near what I needed. If I’d had another year or two, I could probably have developed the business into something viable - but I’d have the cash in the bank to pay the mortgage and bills for two years. I didn’t like the chances of getting a loan and in any case, I now had a hole in my books that would have ensured I couldn’t make repayments on a loan.
Around the time my biggest client went into administration, I contacted a number of people to ask if they knew of anyone who might need my services. One person - a former manager - emailed me back and said that while he didn’t, he might have an opportunity if I was looking for a new job. I was looking at a £2,000 tax bill that would have collapsed the business and resulted in me letting my clients down. So, I took the opportunity and negotiated an overlap so I could close my business down over the course of the first couple of months with my new employer.
I could have kept the business going for maybe 2-3 months - but if I’d done that, I wouldn’t have been able to pay the tax man. I’d have had to invite the tax authorities to wind the business up - which would have meant letting an administrator call my clients and tell them their IT support had vanished overnight - and I’d have been breaking the law because I’d have been trading while insolvent.
Being as about the only thing I had left at this point was my integrity, I couldn’t let that happen. So instead I executed a very carefully controlled shutdown process to ensure everyone had plenty of notice and any outstanding debts - including that tax bill - were paid.
A combination of relieved and sad. Relieved, because I no longer had to worry about paying the bills. Sad, because it meant I’d had to relinquish dreams.
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Far and away the biggest challenge was finding prospective customers. Experienced salespeople will explain the concept of a sales funnel to you and honestly, most of that isn’t rocket science, but they won’t tell you how to find prospects to go in the top.
I was selling a service my prospects didn’t want to a target market that was mostly in survival mode and would have seen me as a frivolous expense (at best) and a waste of time that they didn’t have (at worst).
I assumed that my prospects would recognize the value I could offer straight away. This, it turns out, was wrong. Towards the end, I started to look at other businesses in the area and I noticed that they almost invariably had one thing in common: the product or service they could offer, and the benefits thereof, were immediately obvious. I found precisely one business that wasn’t in this position, and in that case, it had taken the owner about eight years to make it work.
The second mistake I made was I put precisely the wrong amount of money in.
If I’d started out the business with nothing, I would have recognized immediately that I needed to work hard to get some money in.
If I’d started out the business with a very large sum of money, I could have spent that on growing the business more quickly.
Instead, I put £5,000 in. Which, it turns out, was enough to leave me thinking “Hey, I’ve got loads of cash in the bank, I don’t need to worry!” but not enough to engage the sort of professional help I needed.
I never actually lost that much money - maybe only a couple of thousand pounds altogether.
You can’t always get where you want to be in one go. Sometimes you have to make lots of small steps to get there.
The business you’re looking to set up is one such example: most of the successful IT support companies that started small targeted individuals as well as businesses and only dropped individuals from their portfolio when they’d established a sufficient reputation.
I’ve decided that running an IT support business isn’t for me. The sort of work involved and the risk/reward ratio simply doesn’t add up.
However, I’m open to discussion for others who want to avoid making the same mistakes; email email@example.com.
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