Running a business can be hard. If you start out to turn a hobby or a special interest into a business, you will face a whole lot of challenges.
Even as you start to gain momentum and create success, there will be things that can derail your effort.
One of the biggest and most complex of these challenges is the need to properly evaluate “opportunity.”
Let’s face it. If a potential customer shows up and says “You do XYZ very well. I like what you’re doing there. But I need an ABC version.”
What will you do? Most hungry entrepreneurs respond by saying “Sure, let me see what I can do.”
Do this a few times and pretty soon you have too many plates spinning in the air. You’re off your core game. Resources get spread thin. Frustration can creep in. And worse still, you start losing money.
It’s a Tricky Balance
The hard part is knowing which opportunity to take and which ones to avoid. All too often the big opportunity with a large client turns out to be a train wreck that can take you way off your game.
How do I know? It happened to me.
In 2003 I created a business process outsourcing company that served the mortgage banking industry. My team created some technology that made us one of the first in the industry to offer document scanning at a large scale. Today that sounds ridiculous, but then it was a pretty big deal.
We didn’t just scan capture the hundreds of pages that went into a single mortgage loan file, but we automatically indexed the documents so an intelligent search could be made for specific content without paging through the whole blob of documents. Prior to this development, scanning was done but you got a really big file that was hard to review much less manipulate for intelligent access at the page level.
My company’s process allowed the images to be shared with secondary market trading partners who were buying the loans from the mortgage originators. By having the electronic version of the files available (we hosted the file storage too), purchase reviews and decisions could be made many days ahead of schedule thus expediting the whole loan sales process.
This created a significant financial gain for the companies originating the loans because sales would settle faster giving them more cash sooner to do more loans.
Plus by using my services, companies could eliminate large back-office operations. It was a win-win for all parties.
Playing The Momentum Game
My company had experienced steady growth for several years when a big whale landed on my doorstep. The owner of a mortgage company I knew pretty well showed up and told me he had this very special opportunity brewing.
Supposedly, he was talking to the Secretary of HUD, the U.S. Department of Housing and Urban Development. He alleged he had been promised (in writing) a lucrative lead on a national program HUD wanted to sponsor. One catch was that he had to demonstrate the ability to ramp quickly and make it big. He had roughly 90 days to prove that out.
He and I negotiated a deal, but in hindsight, it wasn’t a good deal for me. It relied exclusively on all the promised volume, sort of a contingency deal, with not even a single extra loan coming through the pipeline.
I bit. I met with my landlord and commissioned some adjacent space on the floor in the office building I occupied. The buildout began within days.
I was on the hook for an extra 3,000 sq ft of class A space without a single transaction to help pay for it.
You guessed it. The whole deal fell through for my client. He got nothing. I got nothing except a much bigger rent check each month.
You might ask, why did I bite? Would you have taken the deal at face value? Well, the honest answer was several reasons.
First, I knew the guy who came to me. He was a credible and respected company owner. Secondly, a law firm we both did business with was involved and vouched for the deal (but didn’t commit resources).
Next, my company had been on a steady growth path but had not experienced a “home run.” I thought this could be it. You might say I was greedy, but I think of it as being confident in our process and my team. (Insert laugh track here).
Nonetheless, it really set me back. The momentum I had generated for the first few years in operation all washed away overnight. It was a tough pill to swallow.
You Can Do Better
My simple advice is to stay the course. Yes, you can make some leaps of faith along the way, but do much more than I did to evaluate the opportunity. Ask an advisor or the Board if you have one. Get outside opinions about the so-called opportunity.
Simply don’t be too greedy or eager to grab what sounds like a big deal just to make that leap forward. You might be taking many steps backward.
Leave a comment. This article first appeared at DougThorpe.com