The first Success in Failure post gained a lot of attention so I’m really glad to have another story of valuable lessons learnt in failure to add to the series so soon.

This episode is written by Paul McKey.

“Paul McKey is an internationally recognised authority in the area of business improvement through organisational learning and performance support”. You can read more about Paul and his incredibly interesting past here.

Now onto Paul’s story, in his own words…

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BigTree Online started in the mid-nineties as one of Australia’s first online learning companies. Based upon a regular and ongoing contract with Apple Computer to manage its Certified Apple Engineer program BigTree zoomed along until a combination of factors brought it down. And that was probably a good thing! Why? Because knowing when to cut your losses, and leave with your experiences and reputation intact is far more important than flogging a dead horse.

Big Tree had the one big client syndrome and needed to diversify. That strategy was fundamentally correct yet the tactics were flawed. Expansion away from and beyond your ‘one good idea’ is risky. We get over confident and think I did it once I can do it again. Maybe.

Here are some of the traps we found waiting when we moved from early startup to growing the business:

First lesson - Keep your eyes on the game not the scoreboard. ( Or when any market is booming keep your money in your pocket.)  As we know from those great historians at South Park, in the late 1990s everyone was collecting underpants with great success. The Internet was booming. Phase 1 - Collect underpants. Phase 2 - ? Phase 3 - Profit! Even when the market is in a frenzy for anything online (as it is again ten years later) it does not mean you should stop market research - particularly before launching a new venture. Ask real people real questions like “Do you intend to spend money on this product/service in the next six months? How much?”

Second Lesson - What in the %$#@ are we selling here? Sometimes you have to ignore the noise that customers make. Focus on one primary market - are you about lowest cost, delivering the best product or providing a great customer experience? While all three are important you must know which game you are in. You can’t satisfy all three profitably. Dell are in the Cost game. Apple concentrate on Product design. IBM focus on the Customer.
See more on this at http://www.bizsum.com/thediscipline.htm

Third Lesson - Developing your own software is fun but expensive. We are sort of excused for this one since we were pioneers in many areas. We developed our own learning management system (LMS). I later went on to another company and we spent several million dollars building a bigger and better LMS. I would never do that today. Open Source and a community committed to an application is a very valuable asset. Use it where possible and then customise your front end.

Fourth Lesson - An idea without legs is a legless idea! Do your biz plan. Double the amount you need to raise. Take the extra 50% of your cash and give it to the hardest bastard you know and implore them to not let you have it back until you have exhausted every other possible revenue stream. Lack of capital kills over 80% of startups. Make sure you have a reserve source. Just when we had an opportunity to expand we ran out.

Fifth Lesson - We had a strong community but didn’t realise its value. We were too busy chasing new customers. Initial sales are thrilling and happy customers let you sleep at night. Yet leaving them alone and not bringing them even closer is business negligence. People drift away if they aren’t getting love. Love hard!

Final Lesson - A ‘failure’ is not a dead end. Serial entrepreneurs tend to build on both successes and failures. If I hadn’t had the opportunity to learn with BigTree I wouldn’t have gone on to found the world’s first global online learning business which raised US$15m in capital. But that’s another story…

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Once again, Thanks to Paul for being brave enough to put his story of failure out there. Hopefully some of you will gain from his experience.

And don’t forget to check out the Success in Failure page to learn more about the goals of the series and how to get your story included.