How my company survived a near-death experience

Many of Australia’s best businesses have had to get through some tough, almost terminal, experiences before making the Smart50. JAMES THOMSON reports on the lessons they learnt on their way to the top.

By James Thomson

Many of Australia’s best businesses have had to get through some tough, almost terminal, experiences before making the Smart50. We report on the lessons they learnt on their way to the top.

Every entrepreneur knows the feeling. The bills are starting to mount up, the staff need to be paid and the rent money’s due next week. Only problem is, nothing is going right – customers aren’t paying on time, the sales guy is having a bad run, you’ve just raided the petty cash tin for the fifth time this week. You lie awake at night thinking – is this the end?

Even the most successful businesses go through near death experiences, including the members of SmartCompany’s Smart50 list. Indeed, one award winner – who asked not be named – quietly admitted at the Smart50 awards night that there had been 24 separate occasions when he thought he would have to close the doors.

As part of our extensive survey of the Smart50, we asked every company to nominate their near-death experiences and explain how they were able to work through these difficulties. Nearly every company ‘fessed up to having at least one moment where their business teetered on the edge of oblivion.

Not surprisingly, the majority of near-death experiences related to cashflow problems, particularly in the early stages of these companies’ lives. It seems that no matter how good your product is, how robust your business model is, or how smart your people are, the challenge of turning sales into actual dollars is universal.

The other problem that caught many of these fast-growing companies out was an over-reliance on one or two large customers. In the early stages of a company’s life, the thrill of winning a big contract or sale can quickly fade if the amount of work required to service a major customer starts to destabilise the business. Many of the Smart50 had to learn the hard way not to become reliant on one customer, and that sometimes you must be prepared to say goodbye to a contract to save your business.

Here we look at the near-death experiences of three members of the Smart50 and how they overcame their problems. Over the next few weeks we’ll bring you a different near-death story every week – each one is a great lesson on how to avoid a company-killing issue.

How our customers’ unrealistic demands almost killed us

Managing the demands of your customers is a challenge for any business. When you can meet and exceed those demands, you’ve got a great business. But when customers’ demands become unrealistic, you’ve got a problem.

This was the challenge facing Combo, an IT services business company based in Melbourne. The company ranked in 14th place on the Smart50, with average annual revenue growth of just under 80% and turnover of $2.4 million in 2007-08.

Combo founder David Markus, aged 40, started the company in 2002, after recognising the opportunity to bring corporate-style IT services to SMEs. But around 2005, Markus made a troubling discovery when he attended a course called Love Your Business; his customers were taking him for a ride.

“We did a lot of work with clients who did not share our values and demanded solutions that were not realistic and could not be provided for the price,” Markus says. “We spent a lot of time justifying why we should be paid for the work we had done, because the clients did not value our efforts highly enough.”

Part of the problem was that common trap many young companies fall into – taking each and every client on board in the desperate battle to grow. “We took the jobs because our business was small and new and we thought we needed the work to survive,” Markus admits.

After attending the Love Your Business course, Markus made a decision. “We declared that if it did not turn around in six weeks we would close the doors and take real jobs. We took a stand to remove ourselves from these clients and only accept clients who shared our values.”

There was plenty of pain associated with this strategy. The company shrank from eight to four staff, and suffered large financial losses as it backed out of bad jobs as gracefully as possible. Combo also disassociated itself from less than reputable software companies. “We stood our ground for values-driven business and quality solutions,” Markus says.

After the initial downturn in business, the company took off and started growing extremely quickly, with annual revenue jumping from $540,000 to $2.4 million in just three years and the number of staff increasing from six to 24.

The lesson? “Never lose sight of core values,” Markus says.

Near-death by supplier

Taranto Windows & Glass is a thriving construction business based in the Victorian town of Leongatha. The company, which ranked 27th on the Smart50, is enjoying average annual revenue growth of 47.55%, with sales of $2.5 million in 2007-08.

The company has just opened a second manufacturing facility and growth is getting an extra kick from increased interest in sustainable building practices and the use of energy efficient materials.

Growth has really accelerated since the company started ramping up the manufacture of windows and doors back in 2005. Things were going swimmingly until the company’s key supplier, Capral Aluminum, went through a series of big changes, including the relocation of its manufacturing plant from Sydney to Queensland. Capral’s move didn’t go so well and the problem was quickly transmitted down the supply chain to Taranto Windows & Glass.

“Our supply chain almost dried up,” co-founder Kevin Taranto says. “We were having serious issues supplying our windows within promised lead times.”

Material eventually began arriving, but due to the supplier’s new transport arrangements, the goods were turning up damaged. Not surprisingly, customers were getting unhappy.

“We had more problems than we knew what to do with,” Taranto says.

He describes the three to six months that it took to sort the mess out as a nightmare – even when the correct material was received, the company still had to chase and process all the relevant credits associated with the damaged material.

Taranto says it taught him a few valuable lessons. “Mainly, you are responsible for your own business – you cannot rely on suppliers to do as they say they will do or hope to do. And you need to have an accurate paper trail to show where material is at all times.”

Still, not all bad came of the disaster. “Looking back it probably saved our business, as prior to that we did not have good procedures in place. It made us develop and we sought professional advice to help us to put these strategies in place. The outcome has been amazing – organisation is the key to business.”

How our main competitor tried to kill us

When Les Katz founded Lift Shop in 1996, he says the residential lift market was dominated by one big company.

“The prices [of residential lifts] had fallen internationally, but the clients were being ripped off quite badly by the existing incumbent in Australia who enjoyed a monopoly position,” Katz says.

“The niche was wide open to anybody half good.”

Naturally, when Lift Shop arrived on the scene, Katz’s big competitor was not happy. Katz says the competitor threw everything at him, bad-mouthing him to customers and using its pricing power and established market position to undercut him wherever possible.

With his business on the line, Katz decided to fight fire with fire. He went to his competitor’s home state of Victoria and set up shop – right next door to the competition’s showroom. To ram his “no surrender” message home and get ahead of the competition, Katz built a flash showroom complete with working lifts. It was a massive investment, but Katz said it paid dividends.

“It instantly established us as a credible brand. We were so successful, that our competitor moved out,” he says. “It saved our business and established us at the same time.”

Katz’s big tip? Don’t be afraid and stand up to bullies. “Business is no different to a playground some days.”

Read more about the Smart50 for 2008