This is a continuation of my analysis of past business endeavors. If you haven’t read about my first business, PJ Hauling, check it out here https://www.thefastlaneforum.com/general-business-discussion/30970-analysis-failure-p-j-hauling.html . I want to apologize now for this being a super long post, but this was my biggest business and I learned the most from this experience.
My second business was The WoodShed Firewood Products. While running P J Hauling I had decided that the business wasn’t going to get me to my goal. So I began actively looking for my next venture. I thought up quite a few different ideas and the best ones I wrote a business plan for (at the very least I did the financials). None of the business ideas made sense financially. Some of them on the surface would have worked out, but again they wouldn’t get me closer to my goals.
I was talking with my friend one day (He’s also a business owner and one of my advisors) and he told me about a guy he knew who just sold his firewood business. The guy had invited him to come take a look at the operation. I went with him and we looked at how he ran the business.
The guy explained to us how he got into the business and how everything worked. (That’s a long story as well; it’s not integral to this post so I won’t elaborate here, if you want to know I’ll post it later) In short his business was to make firewood, bundle it up, and sell it. He had gotten a contract with a company that supplied Wal-Mart, Home Depot, and several large chain stores. So as he put it, he had an endless demand for all he could supply. The guy was very open in everything that he did with the business, which was surprising as the firewood industry is fairly closed off and scared of competition.
As we talked about the business it came up that the deal he had to buy the business had fallen through and he was looking for a new buyer. A light bulb went on in my head. I could do this! The guy wanted $500,000 for the real estate, equipment, contract, and several seasons’ worth of logs for firewood. It was a turnkey operation. Now $500,000 was a lot of money, I’d only ever made maybe $30,000 a year with P J Hauling. But I figured that with a turnkey business, and almost that much in collateral that I’d find someone to loan me the money.
So I set out and wrote up a business plan. Even with the debt load of the acquisition price, the business would be profitable almost immediately. I finally had the idea that would get me to my goal! I took my business plan to banks, friends, family, and investors. No one would bite. I’m not exactly sure why. I think it was mainly because it was such a large sum of money, my age and lack of experience, and not approaching the right person with the idea.
Even though I couldn’t get anyone to invest in my idea, I didn’t let that stop me. I decided that since I couldn’t get that much money and people wanted experience, that I would start out small and build it up to a big business. I scaled everything down to where I could manage it. I wrote a business plan to work out how I could scale it up to at least the size of the other operation and the numbers still worked.
I had some of the equipment necessary from P J Hauling so I just started making firewood. That worked for a little while but I found that in order to scale up I’d need to be able to buy more logs and process them faster. I approached another friend of mine and told him what I was trying to do. I think he saw that I was ambitious and driven to succeed. He loaned me $2,000 to buy logs and fuel. I went out and made firewood.
I started selling in bulk, but I realized that the way to make really money was in the value added. The smaller amounts of firewood in easier to handle bundles made almost 4x the profit than bulk. I rigged up a crude bundling rack and began bundling the firewood. I knew that I wasn’t going to be able to sell bundles directly to consumers but I found that I could sell large quantities to stores and campgrounds who would then sell it to the end users. When I wasn’t making and bundling firewood, I was hitting the pavement selling to the local stores.
It went well for a month or two but again I realized that it was taking too long to ramp the operation up to where I wanted it to be. I needed to be able to focus on the production side and not have to worry about the sales (even though that’s what I enjoy.) or I had to hire people to focus on production while I focused on sales. It occurred to me that since the original operation that I looked at wasn’t producing any product (the guy had shut it down since he thought it was sold) that maybe I could make the bundles and sell it to the distributor through him.
I called up the distributor (I had spoken with him during my due diligence on the original operation) and asked if I could sell him small amounts (small to him, but large to me) of product either directly or through the original guy. The distributor said that he was always looking for more wood producers since he was always expanding his distribution network. He told me that we could work together and that what he’d like to do was meet with me and sign a contract. The distributor was based in Texas and I was in New York so I got on a plane and flew to meet with him.
The distributor showed me his operation and gave me some history on how he got started. We sat down and went over the standard contract. (Fairly open, pretty much it just said that he agreed to buy from me and I agreed to sell to him.) We signed the contract and I flew home with a purchase order for over $150,000 worth of bundled firewood. Now I didn’t have to worry about sales, I could focus on the production.
When I got home from Texas I immediately started making firewood like mad. Within several days I was out of logs. I needed more logs and some more equipment. I went back to the friend who lent me the $2,000 and told him about my contract with the distributor and my new capital needs. He agreed to loan me an additional $25,000. It wasn’t enough but it was a good start. I thought that with the purchase order and contract that maybe the bank would fund me the rest of what I needed. I thought wrong. Quickly I learned the way banks operated. They didn’t invest in startups; they wanted a proven track record. I didn’t let that stop me.
I used the loan from my friend to buy more log inventory and to buy materials to build some equipment. I needed a more efficient way to bundle the firewood and I wasn’t going to spend $10,000 on a single piece of equipment for that. It was fairly simple so I built it. I was running my operation on my friend’s property which is anything but flat ground, so I bought a big tractor with a loader to move logs and pallets of product. I ate, slept, dreamt firewood.
One day I was taking a lunch break and reading the local paper when I saw an ad that read something like: “Local investor looking for existing business to invest in.” I stopped eating, dropped the paper, and immediately called the number in the ad. The guy told me that he lives in Florida now but he grew up in the area and he had built then sold several businesses in the area. I told him about my business and what I was looking to do. He agreed to meet me in a couple of weeks when he came up to visit family.
I immediately rewrote my business plan and figured out what I would need to make the business scale to a good size. I figured at most I’d need $150,000. When I finally met the guy, we talked about the business and I told him what I was looking to get for an investment. I was so anxious to get the money to buy equipment and supplies. He asked me what the very least I could thought I could get started with. [Side note: Here is a big lesson. Either stick to your plan, have a plan B (or C,D,E,F…) or at least have a good understanding of what you need.] I have no idea why but in the matter of minutes I mentally chopped the plan down and told him $60,000. (I don’t really know how I rationalized that.) He asked me what he would get in return for his investment. I didn’t really know what to offer so I told him 10% interest over 5 years. He agreed but went on to say that he’d want 50 percent of the business as well. I told him that I wouldn’t give up control of the business and counter offered at 49%. He agreed. [Again I think that you really need to go into negotiations with a set plan and stick with it. Also do your research on standard procedures.]
Within a couple of days we had a contract drawn up and signed. He then wired the money in a couple of hours. Off I went to buy more equipment and really get the business off the ground.
My friend’s wife started to get uncomfortable with me running my firewood operation out of her house. She decided that it was too messy and didn’t want me to run it there anymore. Ugh… Another setback. I looked around for a couple of weeks and finally found a place to rent with some level ground and easy access for tractor trailers; only $600 a month, with the option to buy. (But it was another $600 I hadn’t planned for.) [Here’s another lesson: when bootstrapping, don’t try to make everything perfect right at the start. Just work on the product and fix things as you go along.]
The property needed some work to make it more amendable to my needs. Roughly $5,000 later I had made the property I was leasing perfect for my operations. [Another lesson: don’t spend money improving other people’s property. I don’t know what I was thinking.] So approximately 4 or 5 months after signing the contract with the distributor and 2 or 3 months after getting the investment I was ready to start making firewood on a large scale.
Here is probably the only place I’ll delve into my personal life because it had a big impact on my business. Even though I had some setbacks in building my business, at this point I kind of felt like everything was going good. I was working on my business and I had some money. I thought that it was time to start having a personal life. (Big mistake! If things are going well, you’re not seeing things right.) I started hanging out at the bar on Friday and Saturday nights. I was having fun, getting drunk, and checking out the girls. I call this a mistake because for one I was spending money (alcohol isn’t cheap, especially when buying drinks for more than yourself.) and also because it was a distraction from my focus on business. Anyway, I started dating a girl and my entire focus went out the window. I started staying out late, waking up late, being distracted by going places and doing things. Needless to say my business was put on the back burner for several months. Don’t get me wrong I was still working but it was more of a couple hours a day instead of 16 hours a day.
Several months in and we broke up. I woke up and realized that the last few months were a blur of activity unrelated to furthering my business. I found that while I was having fun and enjoying life, the time was passing by quickly. I didn’t have any truck loads of wood shipped out or even ready to be, and the season was quickly coming to an end. (The market for bundled firewood is year round but it is busiest in the winter months.) I had gotten letters and phone calls from my distributor but had just postponed shipment due to not being ready. I was still supplying my local customers but that’s not where the money was.
So it was coming into spring and I hadn’t shipped out any product. The distributor said that it was ok; we’d just start again the following season. Well my partner, who also had been calling to see the progress and I just get putting him off, finally called one day and said that he wanted out. He felt he had made a mistake with getting involved and wanted his money back. (This was also around the time when the recession just started to hit, and the financial markets nose dived.) I told him that the business would pick up and that I could still sell to campgrounds and local places. That smoothed him over for a couple of months. Then I got an email from him demanding repayment, with a reference to an attorney.
That was the end of the business. I got a lawyer and for the next year we went back and forth with the dissolution of the partnership. I had put all I had into the business in the beginning and pledged everything as collateral. When all was said and done, I was left with nothing but debt. All my trucks, trailers, and equipment both from P J Hauling and The WoodShed were auctioned off.
I was left with no choice but to get a job.
Reasons why I think this business failed: (In no particular order.)
DISTRIBUTION
I had the entire infrastructure in place to work mainly with the one distributer. The numbers didn’t work with the overhead for selling just to the locals. I was relying on one channel to make 99% of revenue. Even if other things didn’t come into play first, this would have crippled the business.
PARTNER
I didn’t do any due diligence on my partner. I didn’t know what kind of person he was or what his background was in. I was focused on money and he had it.
CAPITAL
I short changed myself with dropping from $150k to $60k I didn’t make a plan for how I would use less money to get started. I didn’t take into consideration the cost of the money. Quite frankly, I didn’t spend it wisely.
EXECUTION
While I had a plan, I was making good progress. Once I hit roadblocks, I adjusted course but without a plan. I didn’t have an alternate plan. When I hit a roadblock I should have stopped, made a plan, and adjusted accordingly. “If you don’t know where you’re going, you might end up somewhere else.”
LIFE
Don’t let it get in the way of success. I didn’t have the necessary balance between work and play. My judgment was clouded by a pretty face (not really but we’ll go with that for now).
FOCUS
Once you lose focus you’re doomed for failure. I should have made plans and small milestones to keep my focus on the business and my main goals.
PERFECTION
Once I had the money to do so, I was too much of a perfectionist. Because I didn’t have to make products in order to pay bills, I kept making things work perfect. (EXAMPLE: I put a conveyor into the building so that I could bundle wood inside, but before I could do that I had to build an office under the conveyor. Before I could move office furniture in I had to finish the office i.e. paint. I needed an office so I could have the orders come in by fax. ) In retrospect all I needed to do was make firewood, put it in a big pile, bundle it, palletize it and ship it out. I could have done all that in just an empty lot.
I did a lot of right things in this business, but the few wrong ones were really big. I learned a lot and lost a lot. Hopefully you can learn from my mistakes and not lose.
If you guys have any questions, feel free to ask.
My second business was The WoodShed Firewood Products. While running P J Hauling I had decided that the business wasn’t going to get me to my goal. So I began actively looking for my next venture. I thought up quite a few different ideas and the best ones I wrote a business plan for (at the very least I did the financials). None of the business ideas made sense financially. Some of them on the surface would have worked out, but again they wouldn’t get me closer to my goals.
I was talking with my friend one day (He’s also a business owner and one of my advisors) and he told me about a guy he knew who just sold his firewood business. The guy had invited him to come take a look at the operation. I went with him and we looked at how he ran the business.
The guy explained to us how he got into the business and how everything worked. (That’s a long story as well; it’s not integral to this post so I won’t elaborate here, if you want to know I’ll post it later) In short his business was to make firewood, bundle it up, and sell it. He had gotten a contract with a company that supplied Wal-Mart, Home Depot, and several large chain stores. So as he put it, he had an endless demand for all he could supply. The guy was very open in everything that he did with the business, which was surprising as the firewood industry is fairly closed off and scared of competition.
As we talked about the business it came up that the deal he had to buy the business had fallen through and he was looking for a new buyer. A light bulb went on in my head. I could do this! The guy wanted $500,000 for the real estate, equipment, contract, and several seasons’ worth of logs for firewood. It was a turnkey operation. Now $500,000 was a lot of money, I’d only ever made maybe $30,000 a year with P J Hauling. But I figured that with a turnkey business, and almost that much in collateral that I’d find someone to loan me the money.
So I set out and wrote up a business plan. Even with the debt load of the acquisition price, the business would be profitable almost immediately. I finally had the idea that would get me to my goal! I took my business plan to banks, friends, family, and investors. No one would bite. I’m not exactly sure why. I think it was mainly because it was such a large sum of money, my age and lack of experience, and not approaching the right person with the idea.
Even though I couldn’t get anyone to invest in my idea, I didn’t let that stop me. I decided that since I couldn’t get that much money and people wanted experience, that I would start out small and build it up to a big business. I scaled everything down to where I could manage it. I wrote a business plan to work out how I could scale it up to at least the size of the other operation and the numbers still worked.
I had some of the equipment necessary from P J Hauling so I just started making firewood. That worked for a little while but I found that in order to scale up I’d need to be able to buy more logs and process them faster. I approached another friend of mine and told him what I was trying to do. I think he saw that I was ambitious and driven to succeed. He loaned me $2,000 to buy logs and fuel. I went out and made firewood.
I started selling in bulk, but I realized that the way to make really money was in the value added. The smaller amounts of firewood in easier to handle bundles made almost 4x the profit than bulk. I rigged up a crude bundling rack and began bundling the firewood. I knew that I wasn’t going to be able to sell bundles directly to consumers but I found that I could sell large quantities to stores and campgrounds who would then sell it to the end users. When I wasn’t making and bundling firewood, I was hitting the pavement selling to the local stores.
It went well for a month or two but again I realized that it was taking too long to ramp the operation up to where I wanted it to be. I needed to be able to focus on the production side and not have to worry about the sales (even though that’s what I enjoy.) or I had to hire people to focus on production while I focused on sales. It occurred to me that since the original operation that I looked at wasn’t producing any product (the guy had shut it down since he thought it was sold) that maybe I could make the bundles and sell it to the distributor through him.
I called up the distributor (I had spoken with him during my due diligence on the original operation) and asked if I could sell him small amounts (small to him, but large to me) of product either directly or through the original guy. The distributor said that he was always looking for more wood producers since he was always expanding his distribution network. He told me that we could work together and that what he’d like to do was meet with me and sign a contract. The distributor was based in Texas and I was in New York so I got on a plane and flew to meet with him.
The distributor showed me his operation and gave me some history on how he got started. We sat down and went over the standard contract. (Fairly open, pretty much it just said that he agreed to buy from me and I agreed to sell to him.) We signed the contract and I flew home with a purchase order for over $150,000 worth of bundled firewood. Now I didn’t have to worry about sales, I could focus on the production.
When I got home from Texas I immediately started making firewood like mad. Within several days I was out of logs. I needed more logs and some more equipment. I went back to the friend who lent me the $2,000 and told him about my contract with the distributor and my new capital needs. He agreed to loan me an additional $25,000. It wasn’t enough but it was a good start. I thought that with the purchase order and contract that maybe the bank would fund me the rest of what I needed. I thought wrong. Quickly I learned the way banks operated. They didn’t invest in startups; they wanted a proven track record. I didn’t let that stop me.
I used the loan from my friend to buy more log inventory and to buy materials to build some equipment. I needed a more efficient way to bundle the firewood and I wasn’t going to spend $10,000 on a single piece of equipment for that. It was fairly simple so I built it. I was running my operation on my friend’s property which is anything but flat ground, so I bought a big tractor with a loader to move logs and pallets of product. I ate, slept, dreamt firewood.
One day I was taking a lunch break and reading the local paper when I saw an ad that read something like: “Local investor looking for existing business to invest in.” I stopped eating, dropped the paper, and immediately called the number in the ad. The guy told me that he lives in Florida now but he grew up in the area and he had built then sold several businesses in the area. I told him about my business and what I was looking to do. He agreed to meet me in a couple of weeks when he came up to visit family.
I immediately rewrote my business plan and figured out what I would need to make the business scale to a good size. I figured at most I’d need $150,000. When I finally met the guy, we talked about the business and I told him what I was looking to get for an investment. I was so anxious to get the money to buy equipment and supplies. He asked me what the very least I could thought I could get started with. [Side note: Here is a big lesson. Either stick to your plan, have a plan B (or C,D,E,F…) or at least have a good understanding of what you need.] I have no idea why but in the matter of minutes I mentally chopped the plan down and told him $60,000. (I don’t really know how I rationalized that.) He asked me what he would get in return for his investment. I didn’t really know what to offer so I told him 10% interest over 5 years. He agreed but went on to say that he’d want 50 percent of the business as well. I told him that I wouldn’t give up control of the business and counter offered at 49%. He agreed. [Again I think that you really need to go into negotiations with a set plan and stick with it. Also do your research on standard procedures.]
Within a couple of days we had a contract drawn up and signed. He then wired the money in a couple of hours. Off I went to buy more equipment and really get the business off the ground.
My friend’s wife started to get uncomfortable with me running my firewood operation out of her house. She decided that it was too messy and didn’t want me to run it there anymore. Ugh… Another setback. I looked around for a couple of weeks and finally found a place to rent with some level ground and easy access for tractor trailers; only $600 a month, with the option to buy. (But it was another $600 I hadn’t planned for.) [Here’s another lesson: when bootstrapping, don’t try to make everything perfect right at the start. Just work on the product and fix things as you go along.]
The property needed some work to make it more amendable to my needs. Roughly $5,000 later I had made the property I was leasing perfect for my operations. [Another lesson: don’t spend money improving other people’s property. I don’t know what I was thinking.] So approximately 4 or 5 months after signing the contract with the distributor and 2 or 3 months after getting the investment I was ready to start making firewood on a large scale.
Here is probably the only place I’ll delve into my personal life because it had a big impact on my business. Even though I had some setbacks in building my business, at this point I kind of felt like everything was going good. I was working on my business and I had some money. I thought that it was time to start having a personal life. (Big mistake! If things are going well, you’re not seeing things right.) I started hanging out at the bar on Friday and Saturday nights. I was having fun, getting drunk, and checking out the girls. I call this a mistake because for one I was spending money (alcohol isn’t cheap, especially when buying drinks for more than yourself.) and also because it was a distraction from my focus on business. Anyway, I started dating a girl and my entire focus went out the window. I started staying out late, waking up late, being distracted by going places and doing things. Needless to say my business was put on the back burner for several months. Don’t get me wrong I was still working but it was more of a couple hours a day instead of 16 hours a day.
Several months in and we broke up. I woke up and realized that the last few months were a blur of activity unrelated to furthering my business. I found that while I was having fun and enjoying life, the time was passing by quickly. I didn’t have any truck loads of wood shipped out or even ready to be, and the season was quickly coming to an end. (The market for bundled firewood is year round but it is busiest in the winter months.) I had gotten letters and phone calls from my distributor but had just postponed shipment due to not being ready. I was still supplying my local customers but that’s not where the money was.
So it was coming into spring and I hadn’t shipped out any product. The distributor said that it was ok; we’d just start again the following season. Well my partner, who also had been calling to see the progress and I just get putting him off, finally called one day and said that he wanted out. He felt he had made a mistake with getting involved and wanted his money back. (This was also around the time when the recession just started to hit, and the financial markets nose dived.) I told him that the business would pick up and that I could still sell to campgrounds and local places. That smoothed him over for a couple of months. Then I got an email from him demanding repayment, with a reference to an attorney.
That was the end of the business. I got a lawyer and for the next year we went back and forth with the dissolution of the partnership. I had put all I had into the business in the beginning and pledged everything as collateral. When all was said and done, I was left with nothing but debt. All my trucks, trailers, and equipment both from P J Hauling and The WoodShed were auctioned off.
I was left with no choice but to get a job.
Reasons why I think this business failed: (In no particular order.)
DISTRIBUTION
I had the entire infrastructure in place to work mainly with the one distributer. The numbers didn’t work with the overhead for selling just to the locals. I was relying on one channel to make 99% of revenue. Even if other things didn’t come into play first, this would have crippled the business.
PARTNER
I didn’t do any due diligence on my partner. I didn’t know what kind of person he was or what his background was in. I was focused on money and he had it.
CAPITAL
I short changed myself with dropping from $150k to $60k I didn’t make a plan for how I would use less money to get started. I didn’t take into consideration the cost of the money. Quite frankly, I didn’t spend it wisely.
EXECUTION
While I had a plan, I was making good progress. Once I hit roadblocks, I adjusted course but without a plan. I didn’t have an alternate plan. When I hit a roadblock I should have stopped, made a plan, and adjusted accordingly. “If you don’t know where you’re going, you might end up somewhere else.”
LIFE
Don’t let it get in the way of success. I didn’t have the necessary balance between work and play. My judgment was clouded by a pretty face (not really but we’ll go with that for now).
FOCUS
Once you lose focus you’re doomed for failure. I should have made plans and small milestones to keep my focus on the business and my main goals.
PERFECTION
Once I had the money to do so, I was too much of a perfectionist. Because I didn’t have to make products in order to pay bills, I kept making things work perfect. (EXAMPLE: I put a conveyor into the building so that I could bundle wood inside, but before I could do that I had to build an office under the conveyor. Before I could move office furniture in I had to finish the office i.e. paint. I needed an office so I could have the orders come in by fax. ) In retrospect all I needed to do was make firewood, put it in a big pile, bundle it, palletize it and ship it out. I could have done all that in just an empty lot.
I did a lot of right things in this business, but the few wrong ones were really big. I learned a lot and lost a lot. Hopefully you can learn from my mistakes and not lose.
If you guys have any questions, feel free to ask.
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