It has been 11 years since TechShop, a membership-based, do-it-yourself workspace, first welcomed customers. During that time, for an annual $11,000 fee, TechShop members were able to use the company’s sewing machines, welding gear or woodworking equipment. But, recently, the company closed its doors nationwide.
While at first glance, the yearly fee might seem steep, membership dues weren’t enough to cover the business’s operational costs. Each of TechShop’s locations officially closed in November due to the company’s bankruptcy. TechShop certainly drew in customers, but its business model couldn’t adapt as necessary for long-term success.
And that’s a shame for both TechShop and the many companies like it that sink because they lack flexibility: Anyone at the helm of a startup, after all, knows how frustrating it can be to have to justify every decision to everyone, especially those with financial pull. But warning signs can’t be ignored.
Sometimes changing course is the best way to save your sinking ship.
Building a solid ship
Even as startups reach that symbolically important fifth year, open-minded leadership is critical for weathering rough patches. And business models without the capacity to change remain at risk.
A lack of flexibility — meaning sole reliance on a specific customer or set of rules — makes it likely a business will capsize before its first wave of revenue. Without room to change a product or service, a business might fall too far behind the competition to recover in the next fiscal year.
Customers, after all, expect businesses to be prepared to change: According to Salesforce, 51 percent of consumers it surveyed assumed that by 2020, companies would be able to predict what they want and suggest options before they, the customers, even initiated contact.
Similarly, if a business’s prowess at innovation is limited to one specific product, chances are that the trend that initiated that product will fade — along with sales. Entrepreneurs must be ready to take “next steps” with their products to keep up with the competition and consumers’ needs.
When I originally acquired Quote.com, I wanted to drive traffic to the site by offering consumers the ability to get quotes for everything from insurance to hotel stays.
I aimed high, but I quickly realized it made no sense to invest the time and equity necessary to sustain my initial plan. I had to be patient, start with one initiative, tackle it with the right level of resources, then scale to other services as we grew. I knew we couldn’t afford to get stuck, so I altered our business plan and started moving forward in a whole new direction.
If you too want to keep your ship afloat, pay attention to these important moves.
Chart a course for success.
All this means is that companies need to set aside time for their employees to think creatively and come up with new offers and solutions to customer problems. Time is the one measurable resource that cannot be renewed. If business models don’t prioritize planning time,the business won’t have a future. How time is spent can be a vital predictor of future success.
Even if an entrepreneur didn’t focus early on, on developing an adaptable business model, it’s still possible to prep business to stay afloat even in the roughest waters:
1. Be all in.
I am never offline — seriously. To keep track of whether your company is on course or veering into uncharted waters, you need to understand every aspect of the businesses and be able to spot mishap from a mile away. There is rarely a time I’m not involved in a project 100 percent to help steer us away from potential disasters.
Grant Cardone, a multimillionaire and New York Times bestselling writer, told CNBC that he pulled himself out of debt and made his fortune with his constant focus. “Most people work 9-to-5,” he he said. “I work 95 hours [per week].”
And Cardone isn’t the only one. Other millionaires, like Gary Vaynerchuk, follow this same advice, working more than 12 hours a day to stay on top of any issues that might crop up for their companies.
2. Recognize when a certain kind of customer is a bad fit.
Just because an industry is doing well doesn’t mean every company in that industry will follow suit. There is a reason Target and Walmart both exist and thrive. Each superstore attracts a different type of consumer. Any entrepreneur needs to clearly identify his or her ideal consumer. This will simplify the products that will then get developed, the marketing campaigns that will get deployed and the sales goals that will get set.
When Gil Sadis founded Licensario, the goal was to perfect pricing plans, boost conversions and optimize revenue streams for software-as-a-service companies. But the startup failed because, as Sadis noted, “Our messaging was too broad.”
He said his team feared missing out on potential customers with messaging that wasn’t broad enough to reach everyone. So, know which customers of yours are the right fit, and don’t be afraid to turn away those who aren’t.
3. Know when less is more.
No matter how amazing their equipment is, how creative their staff and how fantastic their product, startups can’t risk letting their innovation and product development teams fall behind. That might mean reevaluating whether 500 employees are really needed when 250 spend half their day checking social media.
Startup Beepi, for example, began with a great mission: to provide a marketplace for customers to buy and sell previously owned and reliably vetted cars. For a while, Beepi floated along on its great customer service, but the company’s business model failed to pivot.
While it had started off at a $560 million valuation, with funds from 35 investors, the company ultimately folded in February 2017 after spending about $7 million each month on its 300 employees.
Similarly, TechShop might have started with a great idea that reeled in customers, but its business model ultimately failed to yield sustainable growth. Don’t join these failed companies’ ranks; stay the course in the face of obstacles.
A flexible business model will allow any startup — including yours — to stay afloat; just follow these three steps to achieve success.