Forums: Discussions for entrepreneurs and small business.

I have been working with a software startup in Tampa, Florida for the past several years. I was with them from the idea phase and have helped them develop a strategy, fine-tune their product offering, and have even designed several marketing pieces for them, including a new logo and a website.

They are a bootstrapped company and have no outside investors other than the original founders. The first year of their operations they did an amazing job and were able to turn a profit off of booking roughly $1.5 million in revenue. They tripled the number of employees adding a dozen or so developers and were keeping each of them busy with well paying projects.

Around November of last year they became a little concerned that they were growing too fast. They had over a half dozen projects that looked like they were all going to go through. The combined revenue for those projects was double the revenue of their entire previous year and they would all need to be completed within the first 4-5 months of the new year. The rapid growth presented a serious problem as they felt they would not be able to maintain the company`s integrity and fulfill all of the projects even by hiring as fast as possible.

Then they committed the unpardonable sin. They took their foot off the gas.

Realizing that they couldn`t possibly fulfill all the promises they had made and recognizing the strong possibility that all of the outstanding contracts were likely to be signed and executed within the next 30 days, they stopped pushing marketing efforts and told their sales team to hold up and wait to see what would happen with the current contracts before pursuing additional opportunities.

In the end, none of the contracts were signed. Each potential client offered a unique excuse and by the end of the year, they had no signed contracts, no work for their employees, and nothing in the pipeline to produce new leads. Even worse, they had to begin filling the pipeline in one of the slowest times of the year.

As a result, they lost a few key employees, had to lay off a few more, gave away some profits by lowering new bids and were eventually able to sign a few smaller contracts to keep them busy while they were looking for larger opportunities. Their company is back down to the size it was 18 months ago and they look like they might be able to repeat the revenues from their first full year of operations.

In any bootstrapped startup venture you must remember that Cash is King! You must run every facet of your business with that thought in mind. Billing, sales, and contracts are important, of course, but none of them replace cash and you need to make sure you have enough cash on hand to make it to the next payroll cycle. Promises of cash and a log jam of potential contracts are not enough.

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Young Entrepreneurs of America is a non-profit dedicated to educate and motivate the next generation of entrepreneurs. Our focus is on entrepreneurs under the age of 19. For entrepreneurs over the age of 19 visit www.ascendsix.com, consulting for startups.

Okay, but what if the alternate scenario had happened. All the contracts were signed, then they couldn`t meet their deadlines? How do you balance the two?

They are right, especially when it comes to software.  You cannot take your foot off the gas or you will lose.  Be there, done that, don’t want to go back.  The secret is in how you manage your contracts and your customers expectations.

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Bert at Harvey Software, Inc.
Multi-Carrier Shipping Software and Supply Chain Solutions for Internet Retailers

Also a provider of free shipping information and resources at Harvey Software`s Parcel Shipping Blog along with free tracking solutions at TrackingPage.com...

CraigL,
I agree with you... What if things did go the other way? How were they going to  handle all those accounts? What if they couldn`t deliver the software to the clients as promised? What if the customer gave them a down payment and since they didn`t deliver on time they canceled the order?
I think that it was a wise decision for the owners to take their foot of the petal. In business you need to know when to press the gas and when to let go and take in as much as you can, there is enough for everyone out there.


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Edgar Monroy
Web Developer / Owner / Consultant
When starting your own business the need to "know-how" is greater than money!
http://www.nuevolution.net

My past experience says they all will not turn at the same time even though sales says they will, but that is another subject.  Lets look at this another way.  It sounds to me like the real problem is they were not using the price of their custom projects help to control their job load.  It is always better to have potential customers leave the table because they could not afford it.  And if they cut the deal with any of them they will have the money to increase their staff to handle the load.  Use supply and demand to help you grow and prosper.  This is what I meant about using the contracts to control things better.  I just was not clear.  Custom software is much different that off-the-shelf software.

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Bert at Harvey Software, Inc.
Multi-Carrier Shipping Software and Supply Chain Solutions for Internet Retailers

Also a provider of free shipping information and resources at Harvey Software`s Parcel Shipping Blog along with free tracking solutions at TrackingPage.com...

Who says you have to completely take your foot off the pedal? Sure, ease
up some but it was not a good decision to put a hold on ALL marketing
and sales efforts. That was the mistake. Why would a company even do
that? Stop marketing because things are going well? Ha!

There are other solutions to managing inconsistent work loads. Bert
made an excellent comment about price adjustments. If prospective jobs
are coming in at an alarming rate, then the company is in demand. They
could have used that demand to their advantage by raising their rates.

Or maybe it wasn`t good rates that seduced these possible new clients.
Perhaps it was promised turn-around time. They could have given
themselves longer to work on the projects and though some clients might
jump ship, others might not.

My point is that the company should look at themselves and understand
what aspects are causing the growth that they perceive as being
unmanageable. Rates are often the best way to adjust for it but it might
be something else. Maybe they were too aggressive in their marketing
for what they could handle. But then the answer is not to stop marketing
altogether. The answer is to adjust their marketing more appropriately
while exploring ways to handle the new growth.

The question was brought up that what if they did get all those jobs.
That`s a good problem to have. They could have outsourced some of the
work with independent contractors and freelancers. Then if the pace of
this new growth was sustainable, they could hire more people and grow
the company to handle a bigger workload.

I agree, don`t take your foot off the gas. But you need to adjust your
speed here and there, and shift into different gears to get somewhere.

Interesting problem with the latest pet food recall. A small company in the Chicago area`s been making natural pet food for about 25 years. With the recalls on the commercial product, they`re suddenly inundated with orders.

To meet the demand, they`re doing whatever they can to persuade their existing employees to come in on weekend, at night, and whatever. They`re open 24/7, and their supply orders have jumped from crates to palettes worth of goods.

I think there`s a difference between a company that`s already delivering product who suddenly get a massive increase in orders, versus a company that`s trying to get orders in the first place.

If the software company already had contracts, and suddenly received 10 new contracts, they could go out and hire additional programmers. But since they had no (or only a few) contracts, I see nothing wrong with being concerned at getting in too deep.

It`s a shame none of the contracts closed, but that`s a separate issue than the growth curve a company sets in place, in my opinion.