How I Failed #1: Borrowing From Peter To Pay Paul

A famous quote we all know from Marcus Cicero on the concept of borrowing money from one to pay another... a concept that makes sense when it comes to bank loans but is a horrible business practice. One that I regretfully used.

There are 2 mistakes I made in my business when running my PR firm, and both relate to the "Borrow from Peter to pay Paul" business model. Below are the actions I took that were contributors to my fall from the top of the mountain to the bottom of the river.

Mistake #1: Overpromise, Underdeliver

Of course I didn't go into business with this intention. Every mistake I made in my business was truly that... a mistake. This was one of the many mistakes I made while scaling a 7 figure business in just 12 months.

Building a PR firm and focusing on Entrepreneurs trying to build personal brands was a challenge at first. Most PR firms offer no guarantees, you're paying for their time, their expertise and their connections. However most entrepreneurs I spoke to didn't want to invest the kind of money I was charging unless there were promises attached to it. So that's what I did.

I guaranteed a minimum of two mentions a month in a media outlet. This guarantee is what led to many sales. This is something we were actually able to accomplish often, so I felt like it was a good promise. The only problem is I was making a promise on something I had no control over. I couldn't control when a media piece would go live, when an interview would happen or how it would turn out.

We were able to follow through on this promise for some, but we were not able to accomplish that for others. This led into people requesting refunds, which led into the second mistake.

Mistake #2: Borrowing From Peter To Pay Paul

The money our clients paid us went towards our bills. Paying my team, paying for rent and covering other business related expenses. It was also used to cover flights to speaking engagements, booths at shows and other business growth related expenses. This means just as quickly as their payment came in to the bank account, it left the bank account.

So, when clients were upset because we weren't able to keep to our promise of the 2 mentions a month, they wanted a refund. The problem we faced is the money they paid had already been used towards bills. We had to find a way to refund them or pay the consequences of legal actions and reputation damage.

I didn't have good credit to get loans, so to refund one customer I would make another sale. Often times I would make 2-3 sales at a discounted rate just to be able to cover the cost of refunding the one customer. This means that sale had absolutely no profit to cover any expenses. I was just digging myself into a deeper hole.

The problem wasn't just that I wasn't making a profit, it was that out of those new sales some would end up asking for a refund as well.

Can you guess what I did?

Yep, went and made more sales to cover the cost of that refund. The cycle continued and ultimately was a major contributing factor to my failure.

Lessons Learned

There were two main lessons I took from this when looking back at my mistakes. By the way, yes.. I felt extremely stupid talking about the actions I took and looking back at it. In the moment you're so focused on surviving that you don't think about tomorrow. Your mind is stuck on making it through today.

The first lesson I learned was to not make promises that you could not uphold. It's always better to underpromise and overdeliver. There is absolutely no negative consequences to doing it that way. Also, don't make promises just to make a sale. Suffer through the low-income times and wait for the right customers insteading of trying to offer whatever you need to get the sale.

The second lesson I learned was to ALWAYS have a reserve bank account for refunds. Put any profit you can to the side for the moments that a refund is needed. We never want a dissatisfied customers who needs a refund, but in business it's going to happen. It's better to refund them and have them quietly disappear instead of not have the money to refund them which leads to legal actions and/or a damaged reputation online.

P.S.

As you probably know by now, I am working on my comeback journey to the PR world. In a different way, we won't be offering agency work anymore. For those on your path forward and currently succeeding in your business, pay attention to these mistakes.

Every business owner fails at some point, but some failures are much harder to recover from. Damaging your trust with the public by implementing practices like I did above is much harder to recover from. Just like cheating on a spouse, earning the trust back from the public is going to take a lot of work.