My Mistakes: Episode 14. How do you make money?

If you are a regular reader of my blogs, you're aware of a common theme.  What is it that people pay you for?  Or put another way,  how do you make money?  It is a question with many layers.  Whether you are already in business, or just thinking about starting a business, this question really needs to be thought through.

In 2009, just when I thought I was smart enough to understand the question, I went and made another mistake.  I'll admit, it wasn't that big of a mistake, and we recovered from it. But it was a mistake for sure.

I started a business in 1986 that made signs, decals, and tags for industry.  We sold to a lot of big industry.  Telephone, Electric Utility, Municipal Governments, and Pipeline companies.  By 2009, we were doing pretty well, and I felt like we were on top of things, generally making good decisions.

Then along came an opportunity.  A neighboring company was available to purchase.  They made signs, decals, and tags primarily for municipal governments.  They had a long, rich history, and the products were very similar to what we made and sold.  It seemed like they were in the very same business that we were.  Plus, they had fallen on hard times, and the owner was motivated to sell.

So I made an offer.  It was accepted, and we bought the company.

What was the mistake?  It was in thinking that they were in the same business I was in.  The product was the same, but the way they went to market was totally different.  They were a mail order catalog business.  They sold small orders to huge numbers of customers, while we were selling large orders to a limited number of customers.

Here's an accurate comparison.  We were like a successful butcher.  They were like Omaha Steaks.  Yes, the end product delivered to the customer was very similar. But the way it was done was so different that it was almost like a completely different business.

The whole situation was compounded by the fact that the mail-order business model was dying due to Amazon and the online sales world.  

We slowly recognized this and modified the company to be more like ours.  After a few years, we became profitable and recovered.  In hindsight, I should have recognized this issue and adjusted more quickly.  That was my mistake.

So what is the lesson?  It is this:  A business is defined by what they sell.  How they get the product to sell.  And how they sell it.  Any one of these could make a business significantly different than what you were expecting.  

The purpose of this blog is not to scare you away.  I just want you to think it through as deeply and thoroughly as possible. I didn't do that, and it cost me a lot of money and time.  That's a lesson you can learn from my mistake.