When I was young and full of ideals (6 years ago) I had every step of my business plan worked out. I knew every detail for the next two years and putting it on paper was easy. This was because every night as I lay in bed I spent a good amount of time envisioning my success before fading into sleep. In those days, business was simple and straight forward.
Then came the year in which I planned to realize my well laid plans for growth. At the beginning of the year I researched my data for the previous four years in relation to growth. I analyzed my sales numbers as my cold contacts worked their way down the pipe to converted customers. I analyzed my per customer numbers. I analyzed everything I needed in order to be sure that come our sales season in March our audacious marketing program would be a success.
In the previous four years we had continued to increase our “direct samples” program in which we sent free samples directly to the active professor teaching the relevant courses related to our products. We continued to reach out to additional regions of the country and continued to see the same numbers. In the end, for every ten samples we sent out we would gain two sales. Each sale would average 50 units a year with a tidy $10/unit profit. With these numbers holding consistent over various regions and over time we felt confident of doing a ‘Great Push’ for the coming Spring. We sent out over 500 samples. We anticipated the following:
500 sample contacts/1 x 2 conversions/10 sample contacts x 50 units/conversion x $10 profit/1 unit = $50,000.00 profit
Considering our current sales were roughly 3,000 units for the year previous, we expected a 167% growth in revenue! We were excited to finally make the push.
Here is where things began to fall apart based on the naivete of the optimist.
We were eager to avoid debt. Therefore, we threw all of our resources into the program and into building the needed inventory for the estimated sales. It was only at this point that we, falling short of resources, looked outside for help in funding our guaranteed venture. Institution after institution refused our requests for capital. Why? Couldn’t they see the obvious? This was a sure fire plan backed by hard data. They could all see that we were all in, that we had confidence.
Turns out we had it exactly backwards. First, when asking for a loan you need collateral. By using our resources FIRST we effectively had no collateral. Second, when loans ask for data and estimates it is only a formality and means nothing. Everyone knows that numbers come from thin air. Your numbers, as were ours, may come from recent data or be made up based on a daydream. It does not matter! To the group issuing a loan it is still only an estimate. Especially when the estimate is indicating different numbers than previous quarters. This was the case for us as we were anticipating a whopping 167% growth. So, to the lending institutions we looked like poor, daydreaming, clueless fools.
We became more and more desperate. We committed the necessary resources for the ‘Great Push’ in March. And now here we were trying to build the inventory in June for the sales in August. In the end, we were not able to originate the necessary capital to service the estimated sales. We were frightened we would have to turn down sales with our new university clients. After working so hard to convert them to our product, peeling them away from our competitors, and convincing them to trust us we would need to tell them we were out of product.
For many reasons, that Fall was difficult…..painfully and embarrassingly difficult. We grew by 10% that year and completely avoided a marketing program the following year to give ourselves a chance to recuperate.
Here is the moral of the story. You can take the world by storm, but it must be a steady and consistent storm deliberately and wisely pushing steadily ahead. There are too many variables in this world (do not make me relate the time that our shipment was held in port in China for three weeks by two consecutive typhoons!) that make being a naive optimist too costly a proposition.