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20/20 Hindsight: Temptation

Hindsight is 20/20

Life is full of lessons; we get new ones every day. I learned many of my lessons many years after the teaching event. In other words, I learned my lessons too late to help myself, and only after deep reflection on past events. I have a lot of these, as I am past retirement age.

We started a company in 1978 to sell Enterprise Resource Planning (ERP) software to manufacturing companies, with implementation and training services as our value add. At the time, the transition from service bureaus to mini-computers had just begun, and we intended to take advantage of the trend. A typical sale in those days was a bundled package of hardware, software, and professional services. Before we started operations, we had executed a reseller agreement with Digital Equipment Corporation (DEC) for hardware, and licensed a complete set of accounting software from Mini Computer Business Applications (MCBA). We could not find manufacturing software that met our needs, so we became a software development firm as well, and built a development staff soon after startup.

As with any startup, nothing was more valuable than a sales prospect. We directed our marketing entirely at manufacturers. From time-to-time, DEC would refer a distribution prospect to us. We sold several of these and developed the distribution functionality they needed. This digression did not dilute our efforts since manufacturers needed the additional distribution functionally as well.

About two years after we began operations, a big opportunity — or temptation, depending on your point of view — arrived. Our DEC salesperson called and asked if we would take a lead in the vending industry. While a vending company is a distributor, they have routes that serve mini retail stores (a.k.a., vending machines). They require unique software. We had a meeting with the prospect and found that he also had friendly relationships with vending companies in other cities. We took the plunge, sold the prospect, and developed the software. We quickly got other vending customers and became a presence in the vending software business. We spun the business off, and the company is still in business today. Sounds like a success story, right?

The manufacturing software company also grew rapidly, making the Inc. 500 list in ’84 and ’85. It acquired venture capital in ’88 went public in ’94. Finally, after 21 years of operations, a European ERP company acquired it in ’99 during the great ERP consolidation. Sounds like a success, right?

Here’s where the hindsight comes in.

The lost opportunity was in the manufacturing software company. If the vending customers had been manufacturing companies, our manufacturing customer base would have been almost 40% larger. We could have invested more in the manufacturing software earlier, resulting in increased competitiveness, and consequently, even more customers. The manufacturing software company would have gone public at a higher valuation. The vending software opportunity, even though it became a new business, was a diversion that decreased total value.

Increasing product lines or expanding into new markets is a temptation that is difficult to resist. I have spoken with many entrepreneurs who were trying to do too much. I cannot remember any that were trying to do too little. Focus has to be on the minimum number of products and the minimum number of markets that still enable you to attain your financial goals. Anything else can create diversions that increase risk and reduce your overall financial success.

Avatar for Tom Dykstra

Tom Dykstra

Tom has over thirty years of business experience including co-founding two ERP software companies one of which appeared on the Inc 500 twice, acquired venture funding, and was taken public. Tom has an MBA from the University of Chicago. View details.

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  1. That’s a great point, Tom. What are your thoughts on how an entrepreneur can tell the difference between an opportunity they should pursue and one they should pass up?

  2. Ask what current product line or target market you would give up to release resources to pursue the new opportunity. If the answer is none, then take a pass. If you are willing to give up products or markets, write a business plan for the new opportunity to determine what resources it will require. Map the resource requirements onto your current plan to determine what you need to eliminate to get the resources. Compare the losses in your current plan to the gains of the new opportunity. All ties go to the incumbent.

  3. Hi Tom, thank you for the insights and I really like to ask your professional advise whether or not you considers below as temptation or opportunity for me. First of for your kind info, I have started a company in 2006 targeted for youth and educational institutions. However in late 2008, the company folded due to lack of capital but luckily we have completed our contract successfully. It was a very devastating moment for me because I was just started to grasp the business nitty gritty and found opportunity to develop the company to the next level. In short, after it folds I have decided to find strategy to raise funds for business capital plus buy back the shares from the shareholders as one of them requested it to be paid back. In that effort, I was forced to find ways that I can do by myself and utilizing whatever resources I have; that was why throughout the entire year and a half since September 2008 up to just recently a month ago, I’ve opened up myself to study all kinds of business opportunities to conduct fund raising…yet only to realized that my passion grew stronger in the line of business I’ve chosen in 2006 and that’s just my dream, Sir, to make my vision a reality. Therefore, with the thought of my previous market and resources, I have decided to switched the business to eCommerce. And to rebuild the company again, I am now in action to find the capital for the entire year…I am looking very much forward to receive your feedback. Thank you and have a blessed week:))

  4. From your post, I know:
    1. You enjoy having your own business,
    2. You now have the experience to run a business,
    3. You have expertise in youth and education,
    4. You have a passion for youth and education,
    5. Your former business folded in late 2008 when the economic climate caused many businesses to fold,
    6. You have decided to switch the business to eCommerce.

    Here are some things I would like to know:
    1. What eCommerce business are you considering?
    2. What eCommerce experience do you have?
    3. Is this eCommerce for youth and education products?

    Here are some questions I think you should ask yourself:
    1. Do you know more about eCommerce than youth and education?
    2. Do you have more passion for eCommerce than youth and education?
    3. Have you modeled both business alternatives to know the potential return of each alternative?

    The biggest risk anyone can take is trying to do two things at once.

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