AN UNFORGIVING STRATEGY
There has never been, nor will there ever be, a shortage of new business ideas or aspiring founders willing to commit time, sweat, and tears to bring them to life. Unfortunately, many of these ideas, perhaps the vast majority, don’t represent achievable business opportunities. Jeff Cornwall, director of the Center for Entrepreneurship at Belmont University, estimates that 40 percent of startup failures are simply due to businesses that should never have been launched in the first place.5 John Osher, successful, serial entrepreneur and creator of hundreds of consumer products, goes even further. He has developed a well-circulated list of classic mistakes that he and other entrepreneurs have made, and first on his list is what he considers the most important mistake of all. “Nine of ten people fail because their original concept is not viable,” he says. “They want to be in business so much that they often don’t do the work they need to do ahead of time, so everything they do (going forward) is doomed.”6
Because early ideas are so frequently off the mark, surviving and thriving as an entrepreneur means treating the startup journey as an exercise in uncertainty. The future is unknowable. No matter how thoroughly you research your target market, or how rigorously you plan your startup launch, your first strategy will most likely be wrong. So, too, will your second. In the few weeks, months, or years it takes to launch your product or service, the world will change. New obstacles and opportunities will appear as you accelerate along your learning curve. Unpredictable events will occur, some good, some bad, and highly anticipated outcomes may never materialize. For this reason, startup success requires that you allow for quick, early failures as you put your ideas into action. This means building plenty of flexibility into your business model so that you can integrate relevant lessons and adapt to new conditions.
Unfortunately, passionate and overconfident founders sometimes put the lion’s share of their available resources into a singular, high - cost strategy, leaving no cushion or wiggle room for things to go wrong, or to go differently, as they inevitably will. This bet-the-farm approach can require major outlays of capital before key assumptions can be tested in the real world. All the eggs are in a single basket, and few good options remain when the basket hits the ground.
When bulldozers first began clearing and grading The Ivey’s future site, Lynn Ivey believed that her prime location and the high quality of her planned facility, surrounded by thousands of wealthy, aging households, would prove to be the cornerstone of her dream. The building was carefully designed and custom built from the ground up. Every brick, curtain, color, and piece of furniture conformed to the greater ideal. But constructing the facility and getting a full staff in place required a $4.5 million capital commitment that would, over time, weigh Lynn down like an anchor around her neck. In addition to building and maintenance costs, zoning and regulatory factors constrained her ability to use the building for other commercial purposes, with the notable exception of hosting weekend events like wedding receptions and retreats.
It seems Lynn was caught in a classic unforgiving strategy: Large upfront capital requirements had used up most of her “dry powder” and incurred a heavy debt burden, all before her basic concept could be tested. She lacked a viable contingency plan for revenue shortfalls, which proved to be severe, and, other than approaching friends and family for private loans, she found few options when her money began to run out. She considered opening The Ivey to all older adults, creating a kind of “well seniors club,” but worried that the concept wouldn’t mix well with her mission of serving cognitively challenged older adults. The lack of members eventually forced her to bring her prices down by nearly 70 percent, to a level equal to other adult daycare centers (many of them nonprofits with dramatically less overhead). This increased the number of members slightly, but put The Ivey further into a financial hole. She would need to find a consistent, high-level revenue stream if The Ivey was to survive.
New businesses that call for heavy investment in facilities or infrastructure before the first offering of a product or service incur much greater risk than most other startups. Lynn Ivey did consider, very early in her planning process, the idea of leasing temporary space in order to test her concept with a lower expense base, but she determined that available spaces wouldn’t allow for her envisioned atmosphere of luxury and comfort.