I wish I could thrill you with the lessons I learned in my first year of business. The truth is, my first year was defined by tough, blue-collar labor and reckless youth. I was 18 years old when I started California Closets. I had hair half way down my back, I was partying like crazy, and the first time I made $500 in a day, I felt like I had won the Lottery.
I had just graduated from high school, and I decided not to go to college. My brother on the other hand was in chiropractic college. Needless to say, my parents were horrified by my choice. I was raised in a Jewish family, so not going to college was about the worst sin I could commit. When my mom asked me what I wanted to do I told her, “I want to be a carpenter.”
It’s true that I started California Closets as a carpenter, but I didn’t remain one for long. I had to become a businessman in order to take this company to new heights.
The fundamental reason why California Closets became successful is simple: It was a good idea. People have been organizing closets since the Stone Age. The difference was nobody had ever made it into a business before I did.
|Organization Direct's Balter Tells What's New|
But the value of my story doesn’t come from that first year of business. It comes from the wisdom I have since gained—what I call the 20,000-foot view. And that’s what I would like to share with you. I’ll be candid about my mistakes and I’ll call out the pitfalls hoping you won’t fall into them, too. Where do entrepreneurs make their mistakes? Why is the failure rate of new businesses so high? What are the common denominators? Here’s my take.
Mistake No. 1
People talk the talk but they don’t walk the walk. They say, “I’ll do whatever it takes to be successful,” and they are for the first three-to-six months. They come into their business all revved up. They think they’re going to be the honchos behind the desk pushing all the buttons and smoking the big cigar. If it was easy to be an entrepreneur, everybody would do it. It’s not. It requires long hours, hard work and usually lousy pay at the beginning.
Here’s how I spent my first high-power year in business. I spent it rummaging through people’s houses installing particle board in their closets. Of course only after constructing the shelves outside in a carport with plastic hanging down the sides to protect the materials from the weather. Pretty glamorous, huh?
So let me ask you: Are you prepared to work your tail off and make little to no money for a whole year? It’s a pretty safe bet that’s how it will be. Most people get tired of working six and seven days a week with little return. Eventually, they give up. And that’s one reason why businesses fail. You’ll find as I did, that starting a new business takes a huge long-term commitment. It requires planning, and realistic expectations don’t hurt either particularly early on.
Still on board? Okay. Time for mistake No. 2.
Mistake No. 2
New businesses are almost always under-capitalized. As a result, it takes longer to make things happen. Not only are you making less money than you thought you would initially (see No. 1), you don’t have the money to invest in building your business. The reason is you either didn’t have enough or acquire enough money to begin with.
I discovered when it comes to raising money; always raise more than you need. If you think you need $100, get $150. If you think you need $200,000, get $300,000. You never get in trouble being over-capitalized. I’m not even sure that’s a word, but you get my point. Remember that cash is king.
Mistake No. 3
When you’re young and you have enormous success early on, you get this feeling of invincibility. Your ego gets really big because people keep putting you up on a pedestal and you believe all the hype. I never got that really big knock on the head until after I sold California Closets, but that experience with my first CEO was certainly a wake-up call. Everybody can fail.
Now that I’ve told you what not to do, let me suggest a few things you should do.
No. 1 Hire people better than you
Strong-willed entrepreneurs have a tendency to want to make every decision. They don’t like bringing in smarter people. It bruises their ego. You’re supposed to be the smartest guy in the room, right? The one with all the brilliant ideas. It doesn’t work that way. Nobody is good at everything. I wasn’t good at everything. You’re not good at everything. There’s always someone smarter than you. The person who makes every decision in the business can never grow the business. Do this and you are training your employees to defer to you; you’re training them to fear risk.
At some point, after you’ve hired the right people, you have to let them do their job. You can’t be over their shoulder every minute, second-guessing their work. Criticism crushes enthusiasm. If every so often your people stub their toes, so what? Let them learn from it and move on. I’ve always believed my job was half cheerleader. I’ve never wanted to be the big, bad guy. Instead, if I have a problem with someone, I just kill them with guilt. What can I say? I was raised Jewish.
On the flip side of the coin, if you make a bad hire, and you will, cut the cord quickly. You’ll find yourself falling into the same trap most entrepreneurs fall into, they hire someone who isn’t working out after a couple months. Despite the fact that the employee is not cutting it, you’ll think, “Well, maybe if I give him another month or two” and you just keep hoping the employee will come around. Here’s the bottom line: If you’ve truly given the employee the tools to succeed and the person is still not any good at the end of the second month, the person is not going to be any good at the end of the third month or the fourth. And when you look at the cost of it all, the deeper and longer you go, the more it costs you and your company.
The same applies for business in times of economic hardship. I saw this current recession coming a few months before it arrived, so when it did, I laid off a bunch of people. Then I got everyone else together and said, “Listen, we just had to lay a bunch of people off, but we’re not laying anyone else off. Don’t worry whether you’ll still have a job six months from now. You will, so just do your job.” If you have constant turnover in your business, people will always worry about security, rather than doing their job. So when you need to, make the cuts and make them deep so you only have to make them once. (Look for more blogs on this topic.)
No. 2 It’s what and who you know
When California Closets started growing by leaps and bounds and we were franchising all over the world, we could have gone into kitchens and bathrooms, too. Before I tell you I never thought about it, let me reveal one of my failings. Every time I try to expand into something other than core strengths, I might as well just be giving my money away. It never works out. I know how to make money in the closet business because I’ve experienced this business from the ground up. If I get outside of it, who am I? I’m just another guy in the vending machine business, or the flooring business.
I think you can be more successful when you’re known for something. I still have outside forces pulling at us to try other ventures, but closets are our niche so we stick to what we know, rather than trying to be all things to all people. Find a niche, fill it, learn it inside and out, and do it better than everybody else.
No 3. Seek out mentors
While you’re filling that niche you’re going to experience some roadblocks. I was fortunate that in every instance when I needed guidance to take California Closets to the next level, I found it.
If I hadn’t had the series of mentors I had, I never would have been successful.
My best friend’s dad financed me to get me into business, then helped me get the word out with small-scale advertising. Another mentor took me to that next level by getting me to clean up my look, franchise and advertise, and my final mentor, Bill Levine, taught me how to manage my finances. So don’t be afraid to ask for help. If you don’t, you won’t get it. If you do, it just might help you succeed beyond your wildest dreams.
When I started California Closets I was an original, but the closet business is part of our culture now. My $2,000 investment has turned into a billion dollar industry and I have sold franchises in New Zealand, Japan, Australia, Canada, and a lot of other places.
The failure rate for new businesses may be high, but so is the reward if and when you succeed. In fact, building a business from the ground up is one of the most fulfilling achievements you’ll ever experience.
Like I wrote in my book, The Closet Entrepreneur: If I can do it, so can you!