Lessons from a recession veteran: Why business expansion isn't always positive

It is possible, even desirable, to start up in tough times, but your chances of success increase if you are prepared to listen to entrepreneurs who have been there before and survived. StinkyInk.com's John Sollars is in his second recession and his third business; the first two failed but the third is thriving.

In a series of articles, the entrepreneur highlights the lessons he has learnt. The first focused on cashflow, the second gave advice on understanding profit, the third looked at recruitment and the fourth piece covered outsourcing. 

In the fifth and final article below, Sollars reflects on what he learnt from implementing a new business model that went wrong.

"When the going gets tough, the tough get going" to quote a well known song. But when the going gets tough in business, where do the tough go?

Your business is going down the pan, sales are on the slide, your best customer has just gone bust and you are having to face the unpleasant reality that you need to reduce your overheads and the only one that is not fixed is your staff costs. The prospect of making staff redundant looms, or is there something else you can do?

In these circumstances it is very easy to be seduced by thoughts of increasing sales by changing your product mix. Or perhaps starting a totally new business and utilising existing resources to save money and also defer those very difficult job termination conversations. Let's just examine the opportunities and pitfalls that are available to us.

Spreading the net

I recently had a brilliant idea, we currently sell printer ink on the web and therefore it should be very easy for us to sell something else online - shouldn't it? So, full of conviction and creative verve we created a new website to sell consumable widgets.

We bought appropriate domain names and spent months on creating the site and a database of products. As these were totally different to the core business, we had to have a brand new database created and then eventually we launched the website. In the interim, for at least four months, my website team had been distracted from their day job of maintaining and improving my existing website; my marketing team had been distracted from their role of improving our rankings for our chosen and niche key terms in Google search; and finally I had been distracted from managing and running my business. So for a third of the year my business suffered as key people weren't focused onto its core purpose: selling ink.

After 18 months, I regretfully took the domain down and closed the site. The issue I had was that as a small business we just didn't have the resources to establish and drive the business forward. I should have recruited a team specifically tasked to focus onto selling these new consumable widgets and driven them as hard as I drive my Stinkyink team to maximise revenues selling ink and toner cartridges. That is of course very difficult when times are hard, cash is tight and you are trying to reduce rather than increase costs.  

What I learned

In my opinion the biggest issue is distraction. Distraction from the things that are working and making you money; distraction of your team from your core business; and distraction of cash needed in the daily grind.

So in conclusion, attempting to diversify cost me a lot of time and hard cash and brought no benefits at all. In my experience when things get very tough, it's better to focus back onto what you are good at. Keeping your resources focused and not being distracted by new 'opportunities' is much better than wasting time and money on a project that may never give you a payback.  Having said all that I suppose the nature of an entrepreneur is that if you spot an opportunity you want to go for it with very little regard for the implications down the line. But my advice is to be wary.

The best definition of an entrepreneur I have seen comes from Harvard Business School. It was conceived 37 years ago by HBS professor Howard Stevenson. I came across it in the book Breakthrough Entrepreneurship by Jon Burgstone and Bill Murphy, Jr. Here it is: "Entrepreneurship is the pursuit of opportunity without regard to resources currently controlled.”Of Stevenson’s definition, Burgstone says, "people often need to say it out loud 50 or 100 times before they really understand what it means". 

I have to be honest, that statement just about sums up my attitude and therefore if I spot another 'opportunity' I will disregard all that I have just written. However, next time I will trial it, rather than going full belt at it like I used to do. You have to learn from your mistakes, which is another positive!

John Sollars is the owner and MD of Stinkyink.com selling printer ink cartridges online. He’s passionate about business and regularly blogs his views and advice on BusinessZone.co.uk.