June 8, 2009

Knowing when to pull back

Sometimes the hardest thing for me, and I’m sure for many others, is to pull back cold turkey on a business which I have become emotionally or financially invested in. Thankfully that is exactly what I managed to do just a few days ago.

I was planning on purchasing a music portal. Music is a logical business extension for me and the portal was an easy start. One of my long time business partners, Aron Kerr, would also be involved. Sure we were going to spend around double the asking price to renovate the site, bring it back up to our standards, add some features and encourage the current user base (with less than 7% of it being active) to return to the website. Still, we liked the company, the script and connections were a good start and we figured that bringing back just 20% of the users would make the investment worthwhile.

Sadly, the asking price then doubled. A new buyer had joined the bidding process. Quickly we clamored back together to increase our bid – but before submitting it I decided to take advantage of the 8 hour window and sleep on it. After the heat of the moment was gone we changed strategy and ended our bidding. A small increase in price was acceptable for our plans but doubling meant that the entire nature of our strategy had changed. It was hard – we were both very emotionally invested in the company and knew we could do well with it. But with the upfront cost doubling, and us still needing to pitch in another 50% to change the site fundamentally, the company no longer held a value for us. Yes, there are still sore spots but ultimately we made the right call, buying a business while on an emotional high is never a solid idea.

Just remember, every time something changes don’t immediately adapt. Sit back and think ‘is this now something I want to be involved in?’.

What has happened on our end? We had the connections and a solid business plan, coupled with a passion. For the price we were going to spend on a poor design and an inactive user base we are now able to:

  • Get our own custom portal developed, with all of the changes we wanted
  • Have the Iphone and Facebook applications we wanted developed
  • Design the logo and website
  • Incorporate the new company
  • Make contact with the people we need to contact
  • Place 30 classified ads to attract those who read newspapers
  • Place a full colour, half page ad in Guitar World (US)
  • Run Google Adwords and Facebook Ads for a month to continue attracting customers

For the same money beforehand, we were buying 400-500 active users, a renovated website and a half built facebook application. All in all I say stepping back was well worth it.