Lifespan decisions
Wednesday, 3 September 2008
By Brendan Lewis
The other week I discussed one of the major problems I had with my IT services business Edion, the issue that the business wasn't scalable. Another issue we had is that my concept of its lifespan was wrong.
As anyone who goes into business for themselves is aware, no business lasts for ever; in fact 95% of ventures are gone by the end of year two. Generally though we tend to work with this fact by simply reassuring ourselves that things will be different for us. Maybe though, we should take a different tack.
Edion was started after we picked up a two year contract to support a lot of very large computers for a bank. Sweet! I then set about trying to grow Edion past this contract. Initially we had a lot of wins but things generally got harder and harder. Two and a half years later the bank was still 40% of our billings. Things then got really tough when the contract finished.
My partners and I spent a lot of time fighting over direction, and some of the fighting was reasonably vicious. I wanted to build a McDonald’s, they wanted to build a boutique restaurant. Turns out we were both wrong.
Hindsight, because it’s such a beautiful thing, showed me the truth. We should never have tried to turn Edion into a business with a future. We would have been best suited if we had looked at it as the vehicle we were running a lucrative project out of.
A finite lifetime business!
Property developers do it all the time, film makers too. Lots of other industries have companies that are setup just to do a project. In fact it is the norm in joint ventures in mining and research. Problem was it wasn't the norm in IT, therefore it never occurred to me at the time.
Some of the benefits of this approach I think are obvious:
- You get to maximise your profits as you don't waste anything.
- You don't get headaches as you can have simple goals agreed to upfront.
- Your partners are selected to take advantage of a specific opportunity, and you’re not stuck with them for future opportunities.
- You don't have the stress of trying to adapt to changing market conditions, especially when all stakeholders aren't aligned.
- You don't have entanglements when wanting to take advantage of other opportunities.
Of course there are some downsides as well, especially if you are the guy your partners dump at the end of the project.
However in terms of the big questions you should ask yourself before taking advantage of an opportunity (such as what's my exit) maybe you should also ask yourself: "Is this a business, or simply a project?".
The lifespan of Edion turned out to be about two and a half years. If I had recognised that at the beginning, I could have made a hell of a lot more money out of it.
Brendan Lewis is a serial technology entrepreneur having founded : Ideas Lighting, Carradale Media, Edion, Verve IT, The Churchill Club, Flinders Pacific and L2i Technology Advisory. He has set up businesses for others in Romania, Indonesia and Vietnam. Qualified in IT and Accounting, he has also spent time running an Advertising agency and as a Cavalry Officer with the Australian Army Reserve.
To read more Brendan Lewis blogs, click here.
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