What to Consider When Starting a Services Company
Intelligent Product Solutions CEO and co-founder Mitch Maiman shares his experiences over the last decade in starting and growing his start-up.
It has nearly been 10 years since my business partner and I decided to start our product development professional services firm. By all measures, Intelligent Product Solutions (IPS) has succeeded well beyond our initial vision. With this milestone approaching, it is worth recounting some of the important “lessons learned” along the way.
What have we learned?
There are many lessons learned, and we continue to learn every day. Here are a few:
1. It takes a lot more capital than you think. Anyone who thinks they don’t need a lot of ready cash behind their business is sadly mistaken
2. Related to #1, it takes a lot longer to get paid than you can imagine. You want those nice, big Tier #1 clients? Great. So does everyone else. Realize that payment terms can be 60 days or longer (sometimes much longer). In a services business, it means you pay a staff member this week and you might invoice two weeks later. Then it takes two weeks for the manager at your client to approve payment. Then you wait 60 days for the client to pay (who sometimes will only start the payment process in 60 days). Then, be prepared to wait several days for the check to clear. Engineers and other skilled workers are expensive. Better have a lot of money in the bank or a hefty line of credit behind you.
3. Not all clients are ethical. In 30+ years working inside big companies, with very rare exceptions, if a vendor did the work, they will eventually get paid. However, there are a lot of unethical small/mid-size businesses out there who, as a matter of practice, will try to stiff their vendors/suppliers out of payment. Be prepared to spend a lot more time with attorneys than you might have imagined.
4. Landing new clients takes a lot more time than you think. Furthermore, the bigger they are, the longer it takes. We recently did work for awell-known cellular service company. We spent almost two years trying to land this client and get on their “approved vendor list.” (I am still not sure it was worth our time investment, by the way.)
5. You need a strong internal team to whom you can delegate responsibility — and you have to be willing to delegate. I can’t stress this enough. You will fail if you do not have a very capable team with the various skills needed to build and run your company. I am fortunate in having a great business partner with whom I have a very natural division of labor. Without a great partner (or partners), I can tell you that it will get very lonely at the top. We also have a powerful team in all the functional areas of the company including finance and legal. We delegate responsibility and authority and hold people accountable. If you bring in a team you that you cannot trust to take charge, and can’t empower them to do so, you have the wrong team.
6. Whether you are selling shoes or you are selling high end services, realize you are selling to people. You have to be open, honest and engaging. Even in the era of social media, rampant electronic messaging and online shopping, when it comes to services, people buy from people. Your customers always have options. If you are going to grow your business your customers have to want to work with you.
That’s it in a nutshell. Starting a new business is not for the faint of heart. You need courage and stamina, and for most of us, it is a marathon and not a sprint. You also need a lot of self-confidence and a winning business model. You must be “all in.” That is, be prepared to do anything and everything to make your business a success.