23 Years Later: Lessons Learned to Prevent Business Failure

Twenty-three years ago today, Peter Wyatt and I co-founded CadmiumCD . It has since merged with four other companies and been rebranded to Cadmium . According the the Bureau of Labor Statistics, only 25% of businesses make it to 15 years or more. I feel fortunate every day that Peter and I were able to overcome many of the top 6 reasons why businesses fail:

https://www.investopedia.com/financial-edge/1010/top-6-reasons-new-businesses-fail.aspx

I thought I would share what we did when we encountered similar problems.

1. Not Satisfying a Need

CadmiumCD's first product was CD-Roms that were handed out to conference attendees with copies of the speakers handouts/slides pre-loaded on the CD. They replaced a traditional binder for many reasons including cheaper, faster and more environmentally friendly. It was not long before technology grew and they have since been displaced by websites and native apps, which we later expanded to included in our business model.

Take-away lesson: someone is always working on disrupting your business model. Make sure you are willing to evolve and change with market advances and changes in technology.

2. Business Plan Problems

CadmiumCD initially started as a part-time business (i.e. side hustle) while Peter and I both worked full time jobs. It wasn't until 2009 that the business was large enough to financially support both Pete and I working full time in the business. This was also the year we managed to move it out of our basement and leased professional offices. One of the biggest challenges we initially encountered was the seasonality of conferences - most of them occur in the Spring and Fall. It wasn't until we were able to add additional products that were used year round that we start to see significant growth (and cash flow) that could support both of us.

Take-away lesson: Seasonality affects many businesses; expanding your product line and adding additional services is a great tactic for reducing the impact of seasonal sales.

3. Too Little Financing

This is an area that I think we could have been a lot smarter with the business. We boot-strapped the company until it hit just under $10M in sales before looking for a private equity investor...shortly before 20 years in business. We took on a huge amount of personal risk, taking out business loans that were guaranteed with our home in addition to reducing our salaries and putting a ton of debt on our credit cards. Fortunately, the risk paid off but I frequently wonder if we had received financing earlier what the company would like today.

Take-away lesson: Financing a business with personal guarantees and debt can be done, but at huge risk for your family. Make sure you have enough confidence in your business plan and model or look for investors that share your vision. These investors might also help to propel the growth of your company.

4. Bad Location, Internet Presence, and Marketing

As a technology company, CadmiumCD was not heavily reliant on foot traffic but I believe that if we had been located closer to Washington DC (where many of our Association clients are head-quartered) rather than a Baltimore suburb, it would have been easier to meet with clients. Recruitment and attracting employees with knowledge of meetings and events would have also been easier. The challenge, however, is that salaries and cost of living would have been much higher and would have potentially limited our growth. Fortunately, with today's business tools and digital presence, Cadmium is now able to recruit employees all over the world. Of course, that brings its own set of time-zone issues...

Take-away lesson: Location is still a critical component of attracting employees and working with clients. Make sure that your location is flexible enough to deal with both needs.

5. Remaining Rigid

I don't think there has been another time in the past 100 years that businesses have had to flex as much as they did during Covid. Prior to the pandemic, our business was almost exclusively focused on face-to-face events. Fortunately, we were able to pivot and launched a number of virtual event tools that helped our clients continue to present engaging content. Many of our competitors, however, were not able to pivot as successfully and subsequently failed. Today, its important for meeting planners to have both in-person and virtual options depending on their business needs and being able to provide both solutions is a huge benefit to both the client and the business provider.

Take-away lesson: Hopefully, the world will not be exposed to such an extreme case for another hundred years or more, but there numerous small challenges that will continue to affect your business. Being able to have a broad number of clients across a wide array of industries in one way to try to mitigate risk.

6. Rapid Expansion

One of the biggest challenges that we had in managing and growing CadmiumCD was the volume of products that we offered. These products were created based on client feedback and demand, but it was a challenge to continue to keep them up-to-date and best-in-class. During the pandemic, we were fortunate that we grew 50% in 2020 and again in 2021. The challenge that we, as well as many other companies saw is that this growth momentum was not sustained once the pandemic ended. Separating true growth from something created by extenuating circumstances can be challenging, and figuring out how to adjust hiring plans and product launches around it is something most businesses struggle to execute effectively.

Take-away lesson: Numerous businesses are built around a fad and making sure that it is sustainable for the long term by adjusting with other market fads continues to be challenging.