Justin Cooke

July 27, 2012

It’s often easier to blame our failures on situations or circumstances that are beyond your control than it is to objectively look at our role in the failure.  On the sliding scale from horrible to excellent, most of us would rate ourselves at above average or better on most things.  (The things that matter, anyway)

Quick Question: Who reading this thinks they’re a bad driver?  Exactly…but I’ll bet you KNOW a few bad drivers, eh?

Don’t worry, you’re not alone.  I do this too….

But…I’m going to try to get over that for the next few hours so that I can honestly share with you some of our most costly mistakes in business over the last 8 years.  It’s going to be painful…some of the problems here are personal and have affected me deeply…but I figured it’s worth a bit of my discomfort if I can help you to avoid some of these awful, painful, and costly mistakes yourself.

Alright…here we go!

Competing On Price Sucks…

Joe and I had been offering mortgages directly for a few years when we decided to setup our mortgage company with a third partner.  We’d made quite a bit of money selling the loans ourselves, but were aware that the majority of the money made on the completed loans went to the company or the broker that we worked for.  Our plan as a broker was to offer much higher “splits” to guys and gals who processed their loans through us to attract better talent and to make our money at scale.  While most companies or brokers were making 50-60% on each loan that went through, we thought we could make it work at 20-30%.  Instead of having to focus on selling mortgages (Joe and I really wanted out of direct sales) we thought we could instead focus on recruitment and service delivery for our clients.

While we increased the amount of money coming through our business, we realized that our margins were so small that the profits we were generating were significantly less.  Ultimately, we ended up working harder for less money and were not able to deliver nearly as much value for our Loan Officers as we would have liked.  While we were able to recruit quite a few Loan Officers to work for us we had problems keeping them onboard as we weren’t able to deliver the level of service we would have preferred had we been in their shoes.

Takeaway:

Looking back, we might have been better off giving industry standard splits and over-delivering on service in terms of quality leads, extremely competent loan processors, etc.  Our better margins would have given us the breathing room to do this and turn enough of a profit to make it worth our time.  We may have recruited less Loan Officers to work for us, but I believe many of them would have stayed with us longer, improving our “Lifetime Value” of each Loan Officer we successfully recruited.

“A Rising Tide Lifts All Boats” – But The Reverse Is True As Well

The mortgage business was extremely profitable through 2005/2006 and almost everyone in the business was making a ton of money.  While business was booming, it became apparent that this continued growth was unsustainable.  Joe had gone through the dot-com bubble of 1998-2001 and we regularly discussed the similarities.  (i.e. undeserving business/individuals getting investment, crazy valuations, and loans)

When it crashed, almost everyone was decimated including us.  The many brokers/lenders that were going out of business were documented and reported online and it was a real shake-up for the industry.  While things had gone well in previous years, we quickly found ourselves heading down with the ship.  While our business model was shaky to begin with, we also saw companies that were previously doing extremely well close their doors.  We ended up hanging on WAY too long and it cost us quite a bit…

Takeaway:

There are successful industries even with a down economy, but it’s MUCH harder to build a successful business in a withering industry.  (We’re talking to you print media!)  We would have been much better off reinvesting previous profits into a new niche rather than trying to hang on to the one we were in.  That mistake cost us dearly…

Competition To Work LessPlaying The “Who Can Work Less” Game

This problem might be a bit unique…we’ve discussed it with other people who are in partnerships and they haven’t dealt with this before.  There were three of us in the partnership with our mortgage company: Joe, myself, and a relative of mine.  There was a problem regarding balanced workload early in the business, but this was less of a concern as the business continued to do well.  Once things started going downhill our third partner significantly backed away from the business and was doing very little work at all.

We discussed this at length, trying to encourage him to get back on track but it wasn’t working.  We split the business equally paying ourselves the same amount whether we were meeting our individual obligations or not.  This obviously led to serious conflict and ultimately, led Joe and I down the same path.  Rather than competing to see who could accomplish more and driving each other, it became a game of who could do the least and get paid the samea horrible downward spiral.  This was never resolved and we continued down this path until we had to shut down the company.

Takeaway:

Unfortunately, I don’t really have a great answer to this problem…it’s something that still pops up and is discussed today.  There are three pieces of advice, though, that I think can help:

  1. Partner with someone whose goals are aligned.  More than the end-goal, I’m talking about similar thoughts and feelings on how to get your business from Point A to Point B.  It helps to be brutally honest early on…better to cut through the BS and get to the heart of it early.
  2. Have individual responsibilities documented.  This can be difficult as some jobs are more easily defined than others, but have a basic structure in place that defines the minimum amount of work required of the partners.
  3. Review both goals and responsibilities at least every six months.  Goals change.  Individual motivations change.  It’s good to check in, make sure you’re on the same page, and review individual responsibilities to make sure everything is working out.

Finish Testing Before Scaling

Joe and I both worked for an internet marketing company that had gone through a recent growth spurt in sales and was still reeling operationally and trying to keep up.  The sales team was looking to capitalize on our growth and proposed a plan to offer new clients a free trial for 30 days.  We decided it would be better to have a legitimate credit card on file, so we agreed to charge them $1.00 for the first 30 days, full price at the end of the first month, and their monthly fee each month thereafter.

We decided to test through 50 of these sales and they all came in the first day.  Everyone was fairly excited and we decided to extend the test to 500 sales…which then turned into our new price point for the next several months.  This led to triple the sales we were getting before and that led to a hiring frenzy.  We added massively to our team which, of course, significantly increased our costs.  The problem?  Less than half of them were paying at the end of 30 days, our lifetime value per (this type of) customer was horribly low, and we were WAY upside down on our customer acquisition cost.  Ultimately, this mistake cost our business more than $1MM in capital, requiring us to again go on the road to raise more money in one of the worst economies we’ve ever seen…ouch!

This problem continues to follow us, it seems.  We’ve failed at this more recently with linkbuilding to our niche sites and testing with IntelliTheme and we’re dealing with those repercussions as I write this…

Takeaway:

When it comes to your core business, make sure to set and STICK to the limits or parameters of your test and be sure to allow enough time to review the success or failure of that test.  This can be particularly difficult (and less applicable?) in a start-up environment as there are often large-scale changes happening on a regular basis, but separating out the tests to core and non-core can keep you on track.

Own A Smaller Niche“Middle Of The Road” Sucks In Business (It’s Better To OWN A Smaller Niche)

When we created our outsourcing company, we didn’t really put much thought into the uniqueness of our offer.  We knew there was a need for outsourcing and VA’s in medium sized businesses and figured we could do well in the space.  We created an average, corporate website.  We put up safe blog posts, outsourcing much of the content.  We charged our clients an “industry standard” amount.  Guess what happened?  Not nearly as much as we would have liked…

Sure, we got some leads through the website and we were even able to close enough of them to turn this into a real business.  (Turns out, it IS unique to be an American on the ground running your own outsourcing company in the Philippines…some of our clients really appreciate that.)  Still…I do feel that it had more to do with being in the right place at the right time and the rising tide that really helped build our outsourcing business.

One last point here – We didn’t do a great job of screening clients at first.  We ended up taking on clients that weren’t necessarily a good fit.  Transcription services?  Yep, we can do it!  Calling local businesses in the US?  Of course!  Social Media management?  You betchaOf course we could do all of those things…the problem was that we didn’t specialize in any of them.

Takeaway:

It’s much easier to be a purple cow and stand out in a smaller niche.  Embrace that and work your ass off to be #1.  It’s often better to be #1 in one niche than #3 or #4 in several.  It’s ok to turn away clients if it’s not a great fit, but when it IS a good fit, you’ll know it and they’ll feel it…

This list is certainly not exhaustive.  We’ve made many more mistakes than this, but I thought I would share these as they’re so applicable to Internet Marketing.  It’s a little embarrassing…but hopefully sharing this will give you some insight and help you avoid some of the problems we came across and bad decisions we’ve made.

Now…over to you!  We’d love to hear about any of your business failures that you’ve learned from and can share.  Have anything you’re struggling with now?  Let us know in the comments below!


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  1. […] covered some of these in a blog post on failure quite a while back, but I thought diving into these topics on a podcast would force us to face them […]

  2. Steve Eason says:

    My biggest mistake would be not following through to the end. Especially early on with my online business, I was constantly looking at another idea or another niche. I’ve done a better job recently of being focused on one particular area and settling in for the long haul. The new site, Ingenious Internet Income, is a culmination of that process. I fight DAILY with myself to keep focused and on the same track.

    If nothing else you guys have a track record of going out there and trying. So many people haven’t even tried. You have the wealth of experience to learn from and move forward. But most importantly, you keep trying. Great job.

  3. Daryl Mander says:

    Great post guys, hearing about other’s failures is just as important and useful as hearing about their successes

  4. […] I sent Joseph an email about contributing, he told me that Justin had just published a post on this very topic. He told me which part was his favorite and I told him that I would paraphrase […]

  5. DylanC says:

    After looking at you guys’ successes, it’s great to hear some of your failures once in a while :)

  6. […] it’s easy to be open, public, and honest when things are going great…but what about when you make mistakes? What about when you screw things up? Being anonymous can make the temptation to fudge things that […]

  7. Lee Sheppard says:

    Very good read

  8. Thanks for sharing the blunders. I think we could consider our first 45 sites that we built a failure. Out of the 45, only 2 went on to do well. However, after taking the loss we were able to learn from what we did wrong and we capitalized on what we did right. Now we’re back on track!

    I also remember playing the who can work less in some college projects… didn’t really work out very well back then either.

    • JustinWCooke says:

      Ouch, Josh, thanks for sharing.

      It sucks that the first sites you build are likely to do the worst, right? There’s not much of a barrier to entry to this, but the frustration of not having it work at first probably keeps quite a few people from doing the hard work and keeping it going after that first failure, heh. Cool to see you guys have definitely pulled through!

      • Yea, I think a lot of people try one site, fail, and then assume the entire system doesn’t work.

        Luckily for those 45 sites we did, we stopped building after we noticed problems with the first 16… so we never ordered content the other 29 domains. Financially we saved ourselves from any significant damage before it got out of hand.

  9. Nice read, guys. It’s nice to know that everything you touch doesn’t turn to gold…jealous :-)

    Love the transparency!

    • JustinWCooke says:

      Thanks, Mike!

      Turn to gold…bleh…I wish! Sounds like a good domain, though… NicheSiteAlchemy dot com, hehe.

  10. Frank says:

    Great Post and Thanks for sharing.
    I’m new to internet marketing and I’ve spent alot in logos, crappy, overpriced content, domain names with no chance of ranking etc etc. I learned a lot and can implement much faster if i decide to keep building niche sites. Love the podcasts and your advice! keep up the great work guys!

    • JustinWCooke says:

      Hey Frank…thanks for the comment!

      Spending alot in logos, content, and domain names? Sounds familiar! hehe We got our logo for $5 on Fiverr when we first started…it was quite a while until we ponied up the money for a real logo and we STILL haven’t revamped the site! (Something we’re working on now) We believe strongly in testing through something before throwing money at it…only because we’ve done it the other way and have lost some serious cash, heh.

  11. Good read. I had some of the similar experiences myself. “Who can work less game” actually was one of the main reasons my business partner and me, decided to start two separate companies and work together in opposed to starting one company together. We were afraid that we will spend too much energy comparing who gives more/less.

    • JustinWCooke says:

      The “who can play less game” can be really frustrating. Our negative experience with this affects our business today, unfortunately. Interesting perspective and action you took there….you can still do JV’s with your business partner, but you both own your own future individually. That’s interesting!

  12. Ben Krahne says:

    All you can do is risk it, though I wish I would have played it safe , but thats life

    • JustinWCooke says:

      Hey Ben,

      I’m not terribly conservative when it comes to risk and not sure I agree. “Reaching” and taking risks helps you expand your boundaries and learn more than you might have otherwise.

  13. Ben Krahne says:

    You guys are smart you’ll be flying high

  14. Dave says:

    Great post guys. You guys need to find out how to packaged and sell this stuff. I find your blog one of the most honest and helpful stuff around. Thanks again.

    • JustinWCooke says:

      Hey Dave!

      We’ve (in practice) made a commitment to not sell information. We’d rather give everything away for free and sell actual products and services around the information. It’s giving it away for free that’s gotten us readers, listeners, and has helped us make some amazing connections from those within and outside our audience.

      Thanks so much!

  15. I failed in the price competition too. In addition, I didn’t choose my market properly and ended up being driven out of business by larger companies. The business lasted 4 years and I didn’t get much money out of it, but at least I learned something…

    • JustinWCooke says:

      Hey Ricardo,

      The “Race To Free” is a dangerous game to be in. It’s almost always better to go upmarket and deliver a better product, better service, etc.

      • bluroze says:

        It took me a while to learn that lesson. I grew up very poor, so all I really understood was price. I started a body jewelry company online a few years ago. Figured I could survive with a $1 profit on every jewelry piece. Would have worked if I had sold large volumes, like a McD’s. I’ve since learned that people will pay for uniqueness, service, and quality.

  16. Marc Ashley says:

    Making mistakes are just as important as being successful guys! We all learn from mistakes, but we need to close out emotions and turn them off. If your other partner didn’t work then nobody should have tried to do the same. Emotions stop us from seeing things the way they are. Believe me, everything is for a reason because we choose everyday how we want to live! I once had a ‘larger’ ecommerce site with 2 other partners that drank prosecco the whole day and played high life, while I was working my ass off, 18 hours! I closed that company because I had achieved my goal, but when I think about it now, maybe I should have stayed in the game and communicated with them better and simply kicked them in their butt and motivated them. In fact I’ve made loads and loads of mistakes but, strangely I’m actually happy with each and everyone of them. It’s simply made my vision clearer and made me realize that I’m not in this for the money, but instead I’ve been put here to help and so have you guys and those mistakes just make you more human like the rest of us!

    • JustinWCooke says:

      Thanks for the share, Marc!

      It’s great when a failure turns into a learning experience and it actually makes it better. Some of the most successful people I know REALLY focus on that. I try to, so it’s extremely frustrating when I find myself making the same mistakes again…ugh! :-)

      I definitely have some regret about decisions and mistakes made, but who knows where I would have ended up if my path would have dramatically changed, eh? I can honestly say I’m happy where I’m at right now and that’s no small feat!

      • Marc Ashley says:

        I’m sure many of us remember playing super mario from the first level. To save the princess and make it to the last level we all made thousands of mistakes along the way! But to win and beat the game, you couldn’t give up, and just as you thought you’d got through that castle with spitting fire, you had to defeat an even bigger monster than the previous ones! Life is a video game, just the same and if you think about it in a fun way, it’s actually quite simple!

  17. Hi Justin,

    So i ran a system company with my business partner, we specalised in a vertical market and were a one stop shop for our clients. they ranged from 2 people up to 400 people size companies.

    Having been very succesfull for a few years and making a very healthy post tax profit we looked for other ways to expand our company without the directors being core (almost pasive income yer right)

    We found a business in a related niche that we fully understood and started due diligence. Our accounts were luke warm but had nothing bad to say, our bank manager was happy to trust us.

    After 3 month of trading it became obvious that the staff were at best average and at worse incompetent. The old owner had clearly been doing 95% of the profitable work himself..

    Cost to us to absorb the lost investment pay off the staff and lease, close the business $185,000

    Take a ways:
    1) if the advisers don’t love it walk away.
    2) stick with the core business random diversification is bad.
    3) make sure that everybody involved is 100% committed
    4) stick with the golden egg and protect/develop it..

    • JustinWCooke says:

      Hey, Steve…thanks for sharing!

      Pretty painful, man…ouch! Both #2 and #4 are applicable to us right now, I think and we’ve definitely struggled with #3 before in the past, hehe.

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