March 2010

Here’s a question I received in an e-mail (edited to hide the sender’s identity):

“The major question I have is how you found the courage to pull through when the times were tough? I know that is a very generic question. but it’s what I am going through right now . . . [omitting the author's personal information, a description of a tough business situation]. I guess I want to know, when you were at your lowest point and everything seemed to go against you, how did you find the will to keep going? What caused you to keep pushing yourself past your limits?”

Courage is a flattering word. Saying we had no choice is more accurate. And not something I recommend for anybody.

I mistrust the “rah-rah” stories about entrepreneurship that make it about courage and pushing past limits. You should plan, reduce uncertainty, and go ahead with caution and awareness, not courage. And never bet what you can’t afford to lose.

Yes, there was a point in the history of Palo Alto Software at which my wife and I had three mortgages and $65,000 in credit card debt. Suffice to say that one thing worse than not getting your products into the retail channels is getting them into the channels, with all the associated costs, and then having them not sell.

Point No. 1: It wasn’t just me; it was my wife and me together.

Point No. 2: We did have a plan. I wouldn’t recommend doing what we did, because we bet more than we could have afforded to lose, which is dumb. We were painted into a corner, which is also dumb. But we did have a plan instead of just wild guessing. Dull and boring packaging had been identified as the problem, but instead of just repackaging the products we had, we decided to improve the product at the core. We did spend money we didn’t have on new packaging. More important, we contracted programmers for monthly minimums plus a percent of future revenue, to create a much better product. We didn’t just hope. We had reason to believe we could get through it by introducing a new product and getting that into the channels, with better packaging as well.

Ironically, the worst financial problems came after the product had taken off in channels. This is typical in small business–growth can cause cash-flow problems. We were really broke, but we had money owed to us that would eventually be paid.

Point No. 3: We had no choice. That’s not something we’re proud of. We had moved from Palo Alto, Calif., to Eugene, Ore. We’d been in our own business for more than 10 years. Entrepreneurs with 10 years’ or 15 years’ staying power aren’t considered great hires by many companies, and Eugene didn’t have a lot of jobs.

If our business plan hadn’t worked, we would have had to sell our house to pay the debts. We would have had to pull three children out of private colleges. We put that off, increasing the risk with borrowed money and, happily, the result was Business Plan Pro. It became No. 1 in its category within seven months of initial release.

This story is dangerous because it seems to imply that business is about persistence in the face of very high risk. In fact, in front of groups, when this comes up, I say, “Do as I say (better planning, to avoid ever having no better alternative), not as we did.” Take a good hard look at your business and your other alternatives and keep your options open. We survived, but don’t think courage and the will to keep going will ever substitute for a realistic business plan, sales, customers and capital. Used wrong, you can end up digging yourself deeper into a hole.

(Image: Mare Salerno/Shutterstock)

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