Mistakes: Everyone makes them. In the business world, how well you recover and learn from them is often the difference between survival and failure.
SBN asked several of the area’s top entrepreneurs to share their worst business blunders with us in hopes that others could learn from their mistakes. Many not only agreed to participate in this project, but were refreshingly open about the missteps and scuffed knees they experienced on the road to success.
We hope this collection of stories will help others avoid similar situations and offer some comfort in knowing that even the best entrepreneurs make mistakes, too.
No time to be lax
Charles Penzone, founder and president of Charles Penzone Inc., made a mistake in the late ’80s that nearly cost him his then-20-year-old salon business. He became too comfortable with the success of his company and took his eye off the ball.
“I had quit paying attention and just thought things were hunky dory,” Penzone explains. “I was acting more as an absentee owner than I should’ve been.”
Penzone was largely preoccupied at the time with college-level humanities courses he’d elected to take, figuring he was safe to focus on such novelties while his thriving business ran itself. In reality, he’d left a still-small staff with far too much to handle as his multimillion-dollar company continued to grow.
“I had an accountant, an in-house person, who nearly cost me my business,” Penzone says. “I had a person responsible for certain things within the company who was overwhelmed and wasn’t able to do the job that needed to be done. There was a person in charge that shouldn’t have been. It was my fault in that I wasn’t paying attention.”
In fact, Penzone was so oblivious to the problems brewing at his business that he might not have discovered them until it was too late if it weren’t for a consultant he hired in 1989 to network together records and other data from the company’s multiple locations.
“The consultant brought it to my attention that something was awry here,” Penzone recalls. “It was an absolute shock to me because I wasn’t paying attention. I was studying Greek tragedy and Shakespeare at the time instead of pouring over balance sheets and tax reports.
“Honest to goodness, it was the most terror-ridden time of my life. When it all came to a head, I had five or six companies at the time and I didn’t know if any of them were even viable.”
Penzone quickly summoned the cavalry.
“I called my lawyer, my accountant and my banker and said, ‘I think I have a problem here.’ It took lots of work on the part of a very talented law firm and accounting firm to put us back on track.”
It also took a personal toll on Penzone.
“It did so much damage to me physically and psychologically,” he says. “It was the most grueling nine months of my life. As a result of that, I realized how absolutely precious my business is to me and how meaningful a relationship I have with it.”
Having survived the near-demise of his company, Penzone considers himself much wiser and quite a bit more humble for the experience.
“What I learned from it was don’t get caught up in ‘hubris,’” he says. “In every Greek tragedy, hubris is when the king thinks he’s above the gods; when he becomes so full, so sure and so confident of himself that he quits paying attention.
“I don’t think I’ll ever make a mistake again because I’m not paying attention. I’m certainly going to continue to make mistakes. I seem to be able to do that on a regular basis because we’re constantly changing, constantly trying new things. But it won’t be because I’m not paying attention.”
Penzone’s 31-year-old company also has more checks and balances in place today to prevent similar problems.
“The first 20 years, I was just operating in a very casual way,” he says. “We were just doing stupid things. That [crisis] made our company a more disciplined company. It taught me to hire professional people really top-notch professional people. Hire people smarter than you and take care of your business.
“Don’t ever become complacent with your success,” he concludes. “Stay on top of it like it’s the first week in business.”
Keeping the cookie from crumbling
Five years into her business, Cheryl Krueger-Horn was making great strides.
So the founder of Cheryl’s Cookies, as the company was then known, decided to seek a national presence beyond the stores she had in Ohio and New Jersey. Her first stop: New York City.
She opened a store in Hearld Square in the mid-’80s, investing a quarter-million dollars in equipment and improvements to the prime space that would get her exposure alongside other great national retailers such as Ann Taylor and Gap Inc.
It wasn’t long before she learned a difficult lesson a lesson that would change the entire direction of her company.
The center was closed down by the federal government, Krueger-Horn says, amid word that Imelda and Ferdinand Marcos, accused of diverting to their own benefit money earmarked for the Philippines, were allegedly involved in the building. She never did learn the whole story but there was nothing she could do about the shutdown.
“They sequestered all the assets,” Krueger-Horn remembers. “We were relatively small, and in those days we only had retail. We didn’t have Internet or catalog. To take a quarter-million dollars loss in one year’s time was a big blow for us.”
She’d had no signs there was a problem with the building; in fact, she’s not even sure the leasing agents knew whether the Marcoses were part of the project.
“We thought it was a good solid project,” she says. “We didn’t know until the federal government intervened what a tangled web it was.”
Her attention turned to cutting expenses to make up for the loss to her company, which had sales of about $5 million at the time.
In addition, she put more emphasis on sales and set off to do things differently in the future.
Now she conducts more due diligence when looking for space, a process she also uses when choosing vendors.
“We usually run credit checks on the companies,” she says. “Information is so much more readily available today through the Internet and all. And a lot of those companies that own these buildings are now public. If we don’t like what we see, we just walk away from the project.”
She’s not had a similar problem since.
More than just showing the importance of due diligence, however, the mistake gave Krueger-Horn the impetus to start thinking about her business in a different way. She started wondering if she could reposition her company in the gift business. After all, she’d heard customers ask, ‘Don’t you have a tin to put these in?’
With the help of a project conducted by students of Ohio State University marketing professor Roger Blackwell, she researched the idea and opened her first gift prototype store at the corner of Broad and High streets in 1986.
She’s also branched into the catalog arena and selling her products on the Web. The catalog business has been her fastest growing segment since she opened it 10 years ago. She’s seeing similar success on the Internet, expecting sales of $3 million there this year with the less capital-intensive operation.
Her entire company, since renamed Cheryl&Co. to reflect her offerings of a variety of gourmet baked goods and gifts, has grown in volume to $34 million.
Looking back, Krueger-Horn sees the closing of the Hearld Center store as a blessing of sorts.
“I was glad we learned our lesson young in life, because it forced us to be more creative and have more discipline throughout the company,” she says. “It made us a better company because of that.”
Cameron Mitchell, president of Cameron Mitchell Restaurants, knows a lot about raising capital. After all, he’s secured private financing for all seven restaurant concepts he’s debuted in Central Ohio. That’s no small feat, considering restaurants, in general, are usually considered extremely risky if not foolhardy investments.
Still, Mitchell’s seemingly golden touch has not come without some fretful moments.
“One of the lessons I learned early on was when raising limited partnership funds, don’t count a check or an investment until you have it in your hand,” he says. “I’ve had lots of investors say, ‘I want to invest,’ or, ‘Count me in.’ Then I don’t hear from them again.”
That’s particularly troublesome in Mitchell’s case because of the way he structures his financial deals.
“When you’re in a limited partnership, you need to raise XYZ to spend the money, so if I’m doing a $400,000 offering and raise $350,000 in checks, I can’t cash those. I have to have all of it in hand.
“It’s put me in some tight positions,” he adds, noting that counting his chickens before they hatch has, in some cases, caused him to overextend himself for three or four weeks until the remaining funding can be secured.
“The last 10 percent is the hardest to raise,” he says. “It always works that way. I don’t know why, but it always does.”
For that reason, Mitchell now knows he must be patient as well as persistent in his fund-raising efforts.
“It just takes longer than you think always. I just keep pushing and pushing until it’s sold. I can’t stop soliciting for investors until we’ve raised all the funds that we need.
“I have 125 limited partners,” he continues. “I’ve done a lot of offerings over the years. And it’s easy to say you want to invest. It’s much harder to write the check. A commitment is one thing; a check is another.”
Chasing dead ends
Curtis J. Moody, president and CEO of Moody/Nolan Ltd. Inc., was confident as he branched into business on his own in 1982.
Perhaps a bit too confident.
“As an architect I had worked with many other firms and basically felt I knew the business well enough that all I had to do was start the company, go out and get some clients, and that’s all I needed to do,” he says.
That’s exactly what he did do without a business plan of any sort.
“What happened as a result is any and all projects that come along you believe you need to take because you want to be busy and you want to hire people,” Moody says. “You see an opportunity, and you go after it and try to win it. In my case, I didn’t assess whether I had all the qualifications necessary to compete.”
That meant he lost many of the contracts he pursued a mistake that could have been costly for a young
entrepreneur who didn’t have the resources to hold him over between jobs.
“I would say at least one-third of my time in the beginning start-up years was just seeking dead-end kind of opportunities,” Moody says.
He still came out on the plus side about $300,000 in revenue the first year. However, after a few losses, he had to sit back and reassess his business.
He saw that many of the projects he should never have pursued in the first place. Instead, he should have determined, based on the work he’d already done, what experience he had to offer so he was a more valid competitor. He had been too concerned with getting lots of business and thought he shouldn’t pigeonhole himself into a certain type of project.
After about three years in business, he discovered another reason he should have had a business plan: Lenders were demanding one when he went to borrow money. That forced him to devise a generalized plan, which he refines yearly.
“We now have a year-end retreat at which we establish company goals, and we establish goals not only for our headquarters here in Columbus but for the branch offices,” Moody says.
He has set marketing goals to determine the strategy of the company, and includes goals for internal improvement and overall financial fitness.
Another benefit: “It adds to your confidence, and I can’t overstate that in an architectural firm,” he says.
“We have a unique challenge and that is, being an African-American owned business, before us there was already an attitude about what the capabilities are of historical African-American firms. We had to build a level of confidence to overcome an attitude that existed in the marketplace.
“If we would come in and act like we hope we could do this project, that wouldn’t fare well. We had to totally convince ourselves we are the best for the job,” he says.
Moody/Nolan which now has revenue of $14 million and 135 employees carved out its niche by focusing on educational facilities, as well as sports, recreation and wellness projects.
“That came along after we started finding we were doing so many of those that we should have a group that specialized in those,” Moody says. “There’s nothing wrong with someone saying, ‘They’re a noted sports and recreation designer.’ In the beginning, we didn’t want to be known as experts in certain areas.
“Those things weren’t part of our original business plan and should have been.”
Standing your ground (even if it hurts)
Harley E. Rouda Sr., chairman of HER Inc., Realtors, knows you don’t have to make a mistake to learn an important lesson about doing business.
Still riled about it 40 years later, Rouda tells of his dealings with a certain Columbus suburb and a decision he made just five years after he’d founded his company.
He planned to purchase property in this suburb, which he declines to name, as a way to enhance the company’s assets and financial position for the future.
For four months, he worked with the local planning commission and gained unanimous approval to purchase a vacant piece of land on which he’d hoped to build 40 apartments that he’d later sell off as condominiums. He expected to make more than a half-million dollars on the resale alone, not counting what he would have earned on the rentals during the 15 to 20 years he’d intended to hold them.
The only task remaining was to get the nod from city council, a step he thought would be easy considering the reaction of the planning commission. The night before the council meeting, however, he got a call from the city’s mayor.
“He said, ‘Harley, if you don’t give Mr. A your insurance business and you don’t give Mr. B the air conditioning and furnace work and Mr. C all your promotion and PR and marketing, those three are going to vote against you at the council meeting,’” Rouda says.
The three demanding the work also had promised they’d pull in the one remaining vote they’d need to make him lose the property.
Rouda thought about it all night. He consulted with his wife and business confidant, Marlese, who was just as upset as he was. She agreed with his final decision: “She said, ‘You’ll never live with yourself if you do this,’” Rouda remembers.
He called the mayor back the next day and told him he wouldn’t guarantee the men the work; he’d consider them if they submitted fair bids. That night he lost the issue, as forewarned, with four votes against him.
“I just didn’t want to do business that way, so I lost everything, and to this day that land still sits vacant. It has never helped the community,” Rouda says.
Instead, he bought another piece of land in Northwest Columbus and sold the nearly 100 lots there.
“But we would’ve done both,” he points out.
He thought later about reporting the situation to somebody, but he knew everyone involved would deny it. If it happened today, he says, he’d call all three of the council members, which he didn’t do then, and tell them personally: If they wanted the business and met the bids fairly, he’d give it to them.
“I was 31 years old,” Rouda says. “I just thought, ‘This isn’t the way the world is run. I’ve been fair; everybody’s been fair all my life.’ I was so incensed to see somebody try to pull something like that they had the public trust.”
Still head of the company that’s grown to 100 employees, 475 real estate agents, $1.5 billion in real estate sales and $40 million in gross revenues, Rouda says he did learn from the loss.
“I’m glad I didn’t sacrifice or give up the morals and the ethics I had in business and I wouldn’t give them up even though there was money involved,” he says. “I still sleep every night. I still close my eyes and six, seven hours later I’ve had a wonderful night’s sleep. I never have to worry that I did something wrong.”
Getting ahead of himself
In hindsight, Jack Ruscilli wishes he’d done things differently.
The chairman, president and CEO of Ruscilli Construction Co. knows his company misses out on opportunities now because he failed to keep one foot firmly planted in the past as his company raced toward the top of the Central Ohio construction industry.
“We’ve found ourselves abandoning profitable markets,” Ruscilli says, noting his company has evolved from being primarily a concrete contractor when his father and grandfather founded the business in 1945, to being one of the first to construct pre-engineered buildings, then to being a pioneer of the design-build construction concept, and now, to being a very large regional construction management firm.
“During each of these periods, Ruscilli Construction achieved a level of dominance and profitability,” he says. “As we went through each of these cycles, however, each level required a slightly different skill set, a slightly different approach. As our company grew and moved to the next level, often we’d lose focus on several of the profitable markets that many times we pioneered.”
That left a void which other competing construction companies quickly filled, he says. Now, Ruscilli Construction often isn’t thought about when it comes to smaller projects.
“They think of us for the COSIs, the big schools, the big manufacturing plants,” Ruscilli laments. “The client loses the perception that you can do other things.”
That makes it difficult for Ruscilli to land some of the more profitable, smaller jobs in Central Ohio.
“As the firm grows and moves into new markets, they look more exciting to you,” Ruscilli admits. “But large volumes don’t necessarily result in higher profits for your company.”
“In looking back,” he continues, “I should’ve kept people specifically focused on some of the areas we pioneered so we didn’t lose our place in the market. Instead, we’ve tended to totally focus on the next new opportunity we saw. And as we’ve done larger and larger projects, our profit percentage definitely erodes.
“The bigger the project, the less the margins are. When you look back on the big picture, you could do half the volume and make twice the money and have twice the fun.”
Ruscilli is starting to learn from his mistake. He recently hired a salesman whose sole job is to solicit work on pre-engineered projects, such as warehouse and distribution centers. Another salesman has been assigned to looking only for larger construction management projects.
“I’m also starting to put specific people VPs and senior project managers in charge of different markets and different opportunities,” he says. “They’re going to make sure we maintain our interest in those areas. I’m making them separate profit centers.
“We’ve always tried to stay ahead of the curve and look for the next wave and we’ll continue to do that. You need growth; growth breeds opportunity for associates. It makes them want to stay with your company. It creates lots of excitement.
“But, in the same breath, if you’ve got something good, don’t lose sight of that. In other words, don’t forget where you came from.”
Nancy Byron (email@example.com) is editor and Joan Slattery Wall (firstname.lastname@example.org) is associate editor of SBN Columbus.