In March 2001, just over a year after founding VXR Enterprises, a marketing-and-public relations firm based in Los Angeles, I landed a contract that put us in the big leagues. It was for $250,000. A month later, we moved into much larger quarters and by the summer, banks were competing to lend to us.
Sweet, indeed, was this second year, as it is for many entrepreneurs. You've landed clients and begun to build a reputation. Good things start to snowball. However, so, too, does stress. Suddenly, clients - pleased with the job you've been doing - demand more without necessarily wanting to pay more. A lot of work must go into figuring out whether projects are cost effective - and into how to say no if they aren't. Smaller contracts may no longer entice, yet turning down business is tough.
Then there is your staff. Are your people up to the task of growth? Are they the thinkers you will need, workers who are able to run with projects without always having to ask you for direction?
After the Start Up
So you thought you had made it through the hard part, which you had figured was getting the business launched. Surprise! Year two comes with its own set of challenges. It is the time during which you must become among the fittest who alone will survive over the long haul.
You realize that a business is much like being a member of a fraternity or sorority, in which you must pay your dues before reaping the benefits. You also realize that in this early growth stage you are still paying rather than reaping. The demands are greater; the pace has accelerated. You must step up and deliver even faster and better than before just to remain competitive.
What follows is a look at the major issues you'll face in this make-it-or-break-it stage.
Cash Flow Is King
Let's start with the money, because so much starts there. Operating under the merchant's mantra, "go big or go home," you'll learn that you'll have to do something you might find unnerving: take other people's money. In order to add staff and equipment and move into expanded space, a growing company shouldn't be afraid to borrow money or use lines of credit. The issue becomes which types of funding to take and how much.
Consider the balancing act for VXR Enterprises. Shortly after landing the big contract, we pursued bank lines of credit from Wells Fargo Bank and other banking institutions because we wanted to diversify. We took close to $100,000 from the other lenders. A venture capitalist expressed interest. We said no. With business loan rates at seven percent and our clients paying within 15 to 45 days, it didn't make sense to give away equity in our company.
The balancing act extends to another major money issue: realizing that time is money. When satisfied clients pressed for more work from us without wanting to pay more, we could no longer automatically say yes. We needed to do a cost analysis to consider whether we would be profitable if we invested the time in the additional work. Similarly, when a $75,000 contract presented itself, we could no longer express knee-jerk excitement. We needed to ask whether it would be worth our while to accept a modest piece of business with so many demands.
In short, the bottom line in the second year involves making the adjustments necessary to assure that you're turning a profit on your products or services.
You Can't Do It Alone Anymore - Get Help
Another issue to consider is who does the work. It shouldn't be you anymore, or at least not you exclusively. Growing up means that a business moves out of the house (in which it was likely launched), and also begins to add staff. Increasingly, the owner's role becomes not doing the work per se, but overseeing people who can execute competently.
At VXR Enterprises, we have the same number of people as before - two employees and about 10 contractors - but we don't have the same people. During our critical second year, I couldn't tolerate having to tell someone six times to print on to scratch paper first before getting it wrong on labels that were costing us $40 a box. I needed people who could figure that out on their own.
My role, in turn, became building and maintaining relationships with clients, financiers, the media and other outsiders, as well as pursuing new ones. In short, I had to become the public face for the company, assuring that we were well positioned to acquire more business and leverage key relationships.
What happens if you don't make this fundamental shift? A local courier that is one of our vendors wanted to stay small and thus refused to hire help. Soon the company began running late on deliveries, and its reputation suffered. That led to a downturn in business and a corresponding blow to cash flow. Facing up to the "go big or go home" mantra, the owner was finally forced to hire help or risk going out of business.
Need Inspiration? You're Not Alone
Into my second year, the stress and the need to replace staff took a toll. A crisis involving stolen checks zapped my time and energy. Computer woes were recurring; only recently did we replace our aging system with new leased machines. When I received a job offer that paid as much as the total amount of some contracts, I was tempted.
The lesson: year two is when you'll wonder what possessed you to take on such an awesome endeavor in the first place. Working 60 to 80 hours a week will zap your energy. What got me over the hump was realizing that I had responsibilities - to my clients and to the staff that was depending on me for their livelihoods.
Realize that you'll have your moments. Also realize that you're not alone - other entrepreneurs have them as well.
Yes, You Have a Real Business - Now What?
The sweet spot of year two is realizing that you've made it past year one. You're part of an elite group of risk takers that didn't merely talk about starting a business but actually did it and survived.
Now, as your company begins to grow, realize that survival means assuring a place for yourself among an even more select group of founders whose businesses have become established. You can't run a $1 million company as you would a $100,000 company, a friend once told me, so brace yourself for the daunting challenges of this next phase. Then use the faith and courage that got you to this point to make the necessary changes.
Valencia Roner Founder VXR Enterprises