Business Advice

Four stupid business decisions that burnt through $1 million

Ian Whitworth /

disruption old business quiz

Scene Change co-founder and Motivation for Sceptics blogger Ian Whitworth. Source: supplied.

Sounds strange, but eventually you realise happiness comes from making more and bigger business mistakes.

By the time I quit my comfortable executive job to set up my own place, I’d been flatlining for a few years. It was a great job. I could handle everything adequately. I knew how to deal with all the situations.

I was bored out of my mind.

I needed higher highs and lower lows. Otherwise, life is like a movie where the characters drift along doing not much for two hours, then there’s a happy ending. How much would that movie suck?

Danger and pain make the good bits so much better, even if that mindset also killed Michael Hutchence.

Straight into Compton

Six months later, I spent a week in a seedy $49-a-night motel in the city of Rancho Dominguez, a corner of LA with strong carpark shootout vibes not far from Compton. I was pitching my advertising services to a client in the area. I practised my pitch late into the evenings, breathing a mist of burned fat particles from the Carl’s Jr next door.

Damn it was exhilarating.

A world of options for the ashtray connoisseur.

I won the client and it was the best feeling ever. (Partly because we got paid in US dollars with the Australian dollar at an epic low of 48.5 cents *smiley face*).

So, to this day, I enjoy the skanky flavour of American filter coffee, even though it tastes like a warthog’s bathwater, because it takes my subconscious brain right back to the thrill of undercover business missions in the ‘land Of freedom’.

You cannot enjoy the peak of success mountain without having climbed up out of some dark, dirty trough, and that journey will involve stupid business mistakes.

I could crank out a fat book called ‘my stupid business mistakes’, but to keep it shorter, I’ll restrict it to the $100,000-plus fuck-ups threshold.

By the way, the figures I speak of aren’t abstract sums we raised from VC creeps. This was all our own cash. Money we could have spent personally on, say, lobsters.

1. That time we bought a building

We had a windfall profit in our Tasmanian business one year, and we thought, ‘let’s buy our own warehouse like Mr Monopoly would’.

A second warehouse on the right seemed like a good idea at the time.

Within two years we’d outgrown it and that was acting as a massive brake on the business. So we had to rent a twice-the-size space in the same complex, so we could see the ‘for sale or lease’ sign on our old place, fading as seasons rolled by with no enquiries.

It sat empty for two years until we sold it for a solid capital loss. Nice work, investment wizards.

Owning buildings limits your business to that space, and what’s right now isn’t right in the future.

Our Sydney office has moved four times in our 12-year history and each was the right space at the right time. We could have kept that business as a nice goldfish, but with bigger bowls, then ponds, it’s grown into a handsome Koi carp.

Also, if you can’t earn a higher return on your capital from your business than from a building, you’re not very good at business.

If your business is commercial real estate then buy buildings. If you’re OK with your business staying the same size forever, and you can use the pension fund tax lurks, buy a building.

But generally, the real returns come from doing what you’re good at.

2. Not being paranoid about your tax liabilities

One year we got to #43 on one of those BRW Fast100 lists. Not a bad achievement for a non-digital, high-CapEx business. It felt like we’d arrived somewhere.

As we grew, we were being (we thought) prudent about our tax. A couple of the businesses across the country were nearly at a size where they’d have to pay payroll tax. We were ready.

Then I get a call from our accountant, saying the tax office had been in touch. Turns out, for reasons too boring to describe here, we should have already been paying payroll tax. In fact, we should have started paying it 18 months previous.

We had a tax bill of $120,000. Due in two weeks.

I have only yelled at people like a psychopath twice in the history of our business and that was one of them. You had one job, accountant.

Turns out it all came from some tax office guy reading the BRW list.

I’d suggest avoiding any of those lists.

More importantly, stay on top of your tax. I’ve seen the Grim Reaper come for a lot of businesses, and when the end comes it’s almost always the tax office under those black robes. And fair enough, pay your damn tax.

‘Please remit the overdue amount.’

3. Ignoring balance sheets

Sorry, this is boring. If you don’t own a business, skip it. If you do, it’s essential.

Side note, as an ad writer, you really learn your craft on boring products. It’s easy to write a great ad about Porsches or Cristal. Harder to bring out the magic of professional indemnity insurance or tyres. That training comes in handy when you need to convey the upside of bin chickens.

Creative director skills. Don’t try this at home kids.

Now I’m going for the top step of the dull topic podium by talking up my favourite financial statements. So here it goes.

For years I was a profit and loss guy. That’s the sexy-ass side of town, with its flashing scores lit-up after the full-time siren, the proof you crave that your rewards are now decoupled from the puny ceiling of your hourly wage.

Some months there are unexpected whuppings, but they make the glorious victories even sweeter.

I ignored the frumpy old balance sheet, like those periodic blood-screening tests you never quite get round to. They move so slowly, why bother looking? Then, because you weren’t paying attention, some stony-faced professional informs you that you have a potentially terminal condition.

Balance sheets speak the truth you may not want to hear.

If you look at your profit figures and think, ‘sweet, I can pull out that much cash’, there will be tears. We have had businesses go into the Intensive Care Unit like this.

I haven’t the space for a balance sheet lesson, so I’ve linked to this handy explanation from a random Kiwi accounting firm. Cheers Bellingham Wallace. You need to be across this stuff.

4. Keeping chronic underperformers

This is the big one, the Moby Dick of business mistakes.

It’s harsh but true. The most expensive thing you can do is keep people who you deep-down know can’t do the job. It’s just that they can seem so … nice.

It’s hard to put a figure on it but I’m confident it’s cost us millions.

We have a pretty supportive environment, although working in our industry can involve some brutal hours and deadline stress. Over the years we’ve assembled a team that makes me glow with pride.

It’s an insult to a team like that to burden them with a few village idiots to make up the numbers. It says, ‘thanks for all your heroic efforts but it’s also OK to be a lazy fool because, hey, it takes all kinds’.

That’s the primary site of demotivation cancer that spreads through your entire business.

There’s a strong mythology that you can’t remove staff due to legislation or whatever, but it’s not true. There are ways. It might cost you money to move people on, but the cost of doing that is always less than the long-term damage they will do to your business in lost clients and irritated co-workers.

Cliche conclusion about the value of business mistakes

I don’t need to tell you this. If you make no mistakes then you aren’t risking enough and you’ll end up unsuccessful and unfulfilled.

If you aren’t prepared to put up with random lightning strikes of extreme bad news, don’t go into business. It’s just going to happen regardless of your skills or experience. You just have to shrug your shoulders and think ‘oh well, move on’.

On the upside, each decade of mistakes gives you one week of blog content. Even if it ends up costing about a thousand bucks a word. So I hope you enjoyed our kind, seven-figure sponsorship of this week’s episode. Buy us a drink some time.

This article was first published on Motivation for Sceptics.

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Ian Whitworth

Ian Whitworth is a reformed branding and advertising creative director turned entrepreneur, who co-founded corporate audiovisual company Scene Change.

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