My biggest business mistake (and surprising good fortune)

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South Carolina Construction News
The latest issue of South Carolina Construction News

In 2000, after what I perceived to be a successful expansion of my Ottawa-based business to Toronto, I began thinking of the next place for growth. Vancouver seemed logical — after all, I grew up there, and a then-business service partner suggested co-operation might be possible on the west coast. But this is a five-hour flight, each way, and we had a young son. Extensive transcontinental travel did not seem to be a good idea.

So I looked south, and decided to start up in Washington, D.C. This seems to be an audacious move — what is a Canadian guy with a rather small business doing setting up shop in the U.S. capital city? — but the idea grew on me. I could, at least in theory, fly down in the morning and return home for dinner. (I ultimately solved the flight cost challenge by causing havoc with Air Canada’s Aeroplan program — but that is another story, or perhaps is part of my biggest mistake.)

Regardless, I had some luck. Someone introduced me to someone who thought it would be fun to be a local publisher for a new start-up without any money. And the new publisher knew someone from her former employer who would be really good at sales. We started pulling the threads together. I obtained a L1A visa/work permit (available under the North American Free Trade Agreement for businesses expanding cross border) and the new publisher started selling ads.

Wow. Two months later, we published our first issue of Washington Construction News. We produced and printed the paper in Canada and our printer mailed it at the Ogdensburg, New York border town post office.

I thought I had struck gold. My prices were the same as in Canada and most of my costs were Canadian, but everyone paid in U.S. funds, and the U.S. dollar was trading at more than $1.50 to $1.00 Canadian at the time. We were rocking. After my first year in business in the U.S., as we prepared to publish the largest single revenue generating issue ($60,000 US or $90,000 Canadian), I began planning our expansion.

The U.S. publisher/salesperson suggested Baltimore. Seemed good to me. He would pioneer the new market from his home in southern Maryland, and he said he knew someone who he said would be good ?to take over for him in the ?Washington publisher’s job. We hired her. I also hired a second editor, so now we had four employees in the U.S., all drawing salaries and health benefits. But, heck, the business was spitting out money.

The “most profitable” issue turned out to be the one we produced in August 2001, just in time for the 9-11 terrorist attack.

Things started going downhill from there.

The Canadian dollar started rising against the U.S. It wouldn’t reach parity for some years, but the golden days of $1.50 for $1.00 soon expired.

The Baltimore market didn’t work. No matter how hard my formerly successful sales rep tried, he couldn’t crack it. Advertisers weren’t interested.

Meanwhile, the newly hired Washington publisher had nowhere near the sales skills of her colleague. She wasn’t the brightest light in the world either.

And, of course, I had doubled my overhead/salary costs.

What to do . . .?

Well, maybe Baltimore was just an unfortunate market choice. Perhaps we could try another city. I looked at Atlanta. Fearful of adding more expansion overhead costs, I decided to test the waters. One of my Ottawa representatives would phone Atlanta-based prospects, while our Washington publisher would fly to Atlanta to see the people he needed to see.

Within a month, we had sold enough ads to produce a profitable issue. Then a second. And a third.

Aha, I thought. Maybe Baltimore didn’t work, but we could certainly make a go of things in Atlanta. I decided to try some more systematized approaches to evaluating and hiring the new local rep there (remembering the mistake I had made in Washington), and we finally found someone who seemed good.

Sales immediately dropped like a lead balloon.

Now my costs were even higher — and I was spread apart in three U.S. markets, all not doing very well.

My Washington publisher insisted we try another city. His motivation: He had been earning extra income from the Atlanta expansion, and didn’t want to see that dry up. So, even though we were rapidly digging a very big grave, I gave in and he started work ?in North Carolina.

This proved to be a bigger struggle than Atlanta, but we put out a couple of marginal issues. Unfortunately, while the Washington rep was increasing his income slightly with the extra sales, he was splitting them over two publications, with all the extra costs. We were bleeding dry.

The four-letter-word hit the fan. Losses were mounting, debt levels were going through the roof, and the business was in dire straights.

I started retrenching, cutting staff, closing publications, and doing everything I could to bring costs down. Morale suffered. Good employees left and bad ones barely held on. In 2005, as things were reaching a critically bad stage, I decided to try working with commission reps. We found someone in Atlanta, and much to my surprise, in North Carolina. The Atlanta rep flamed out in two months.

As things worsened, I dismissed my Washington publisher and prepared to close the once-lucrative newspaper there. We had failed to build lasting trust, worthy relationships, and respect within the industry, which increasingly saw the business as a money-grubbing scam.

The downward spiral continued. As the overall business neared collapse in 2006, I called our North Carolina commission-based publisher, and told him I would not be able to support any expenses or extras, and could only pay pure commission based on performance. He said: “No problem, I’ll stick with you.” Fortunately Bob Kruhm had other income sources and interests, and so could carry on. We continued publishing North Carolina Construction News.

With some serendipity, and good fortune, and consulting advice on how to properly manage a business, I survived the crisis, digging my way out. This blog started about that time. We changed our focus to a much more client and community-centric model, and adopted basic business systems such as regular brief meetings, accountability reports, and structured process manuals.

Bob carried on — even when things turned rather difficult in North Carolina as the 2008/09 financial crisis and recession took hold.

The irony is that the now very viable market in North Carolina (with a new publication in South Carolina) only occurred because of one of the worst business decisions I could ever make — the initial expansion there in 2004. However, with the legal and accounting framework in place, it didn’t take much in sales to maintain the business, and keep our U.S. enterprise alive.

I’ll be heading to North Carolina in a few weeks to see Bob, connect with some association/community activities, and possibly meet someone who will carry the torch after Bob retires.

I’m also thankful for my surprising good fortune. How could one of my stupidest business mistakes — expanding a business into a downturn without any operating systems or protocols — ultimately result into a sustainable, viable and growing enterprise? I don’t know. I must simply have had some very good luck.

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