$100,000 Mistake - What I Learned
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- čas přidán 2. 07. 2024
- So, I made a mistake. A big mistake. A $100,000 mistake. Here's the story.
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A few years ago, I wanted to roll out a new paid traffic initiative at Social Triggers, and I had… I thought… a simple problem.
I wanted to track whether or not my ads were actually turning a profit.
I talked to several software vendors, but none of them could accomplish would I needed them to accomplish.
So, I did the only logical thing…
I put together a team of people to create something in-house. I hired CRM experts. I hired developers. I hired analytics experts. I threw money at the problem.
When it was all said and done, I had built custom tracking software. I had Google Analytics set up perfectly. I had everything I needed.
Except there was on problem.
NONE OF IT WORKED.
What happened?
Well…
I didn’t fully understand the problem.
I thought I did.
The experts thought they did.
But no one actually did.
Watch the video to learn more.
I lost a quarter of a million with my restaurants. They were built and then run for years on a shoestring and became successful. Then I dumped a load of cash into expanding the mothership. True to form the build out took longer and cost more and was out of money by the time we opened with a $10k electrician bill. I spent all my own money, no outside investments, and I was tapped.
I worked out a deal with the sparkys to pay them back over 10 months and was so successful I did it in two. Then Lehman Brothers shit the bed and suddenly a destination restaurant with 60 wines by the glass in the suburbs was no longer a prime use of discretionary income.
Here’s the error I made - I decided to keep doing the same. I was too emotionally involved and told myself I couldn’t use cheaper ingredients or less labor and maintain my integrity. Thus I made some bad financial decisions.
I finally converted the place into a woodfired pizza and handmade pasta joint. I never made that much of a profit percentage in the previous 9 years. The thing threw cash. But I had built too much debt to service with the contribution amount so I was underwater. Add in a pregnant girlfriend and exhaustion and I finally put an end to it. I closed that one, sold the catering company’s assets and ending up selling the bar. Bankruptcy and foreclosure followed. Yes - the American Dream.
But now that experience taught me to never get emotionally attached to my business. I run the food service for an oceanfront resort in Hawaii and we make money because I am not afraid to try new things. Break things and try to put them together better. But always with an eye on ROI. Always setting metrics and measuring before, during, and after. Sometimes I get rightfully accused of ready, fire, aim but that is because in giant corporations minor decisions can take months and homey don’t play that.
So yes there is a part of me that misses having my own places and Lord knows I hate working for the man. (Hence starting my own online business.) But I have learned some hard damn lessons that made me a much better business person, not just a creative.
I remember your personality test! I thought it was a great idea but you make an amazing point. We all have ideas that are going to revolutionize the world, but it's important to keep perspective and think about what it takes to make it actionable and profitable.
It ended up generating close to 75,000 or so optins if i remember right. Still wasn't worth it.
I made the mistake of throwing way too much advertising money out the window in the past, too, Derek! My international Montessori school was starting some new classes, so we wanted to spread the word all over town. Turns out, we got more new students from simply asking current families for referrals (which was FREE!) than from all the slick new magazine photos, newspaper ads, and online links we boosted combined. Lesson learned. Putting a body on it before bothering with fancy automation from now on!
Thanks for being up front and forthright about your failures, Derek. Very encouraging.
Nothing like creating software and apps to spend up a bunch of money! I've worked for 2 software startups. The dedication needed just to get a MVP (minimum viable product) out is insane. And yes, the market research that is often skipped is the killer! I wasted $3000 (which was like $100,000 for my family) on Facebook ads, even with the help of an expert, and got an instant email list of 400+ - great results! But then with zero launch/buildup time, I tried to sell them my $197 online coached course that I had built without doing any real market research. I sold 3 slots, and my husband lost his mind at my failure and waste of money. But like you say, it's not a failure if you learn from it. I learned to give time for market research and a proper launch!
I worked my way up the design industry through a bootstrap process - starting with what I have and then growing my systems as I go. However, there was a time where I was feeling so burnt out so I thought automating systems was a cheaper and easier alternative. Looking back, instead of investing in subscriptions that I didn't end up using, I should have just hired another designer or an account manager to help me out with the business. Feedback is really so crucial at the beginning of any project, so that issues are early to spot and resources aren't put all in one basket. Thank you for sharing this Derek!
The desire to be perfect. Faaaaack I know that tendency.
So many great points here Derek. We need to know if a project is gonna work or not FIRST. Minimize upfront costs as much as possible. Amen.
Rule #1: Put a body on it. Go get a feel for it. This makes so much sense.
Im going to be reality testing a paid service this week.
This is SUCH valuable advice! I too have made this mistake (thankfully not quite at the scale you managed. LOL!) and have worked for companies big and small over the years that have fallen into this trap as well. It reminds me of the web design company 37Signals which famously preached a message of "fewer features, more basic, make it simple, fast, and cheap" as they developed websites and apps. We can always go back and improve, add features and functionality and "polish the doorknobs" if it's successful... but if it's not... at least you haven't wasted a bunch of time and money making the most beautiful looking failed product or service around. Thanks for the reminder, Derek!
Great that you can SMILE while sharing your loss, Derek! I did your free assessment quiz a few years back and it was amazing! You're absolutely right about minimizing upfront costs for 'ideas'. Reality Testing, YES!! Thanks for sharing this story.
Your wit and delivery is getting so good. thank you for letting us learn from your mistakes that is very generous of you. One of the things that I bought online was an e course -the problem was I wasn't ready for that stage yet and I probably shouldn't have gotten the course until I was ready to implement it. I didn't even have a website or a business idea yet so I don't know why I paid for that entrepreneurial training course for people who already have a product or service. It would be a great tool in a year or two but I bought it too soon.
It's kind of like buying a car for your 14 year old in anticipation of their 16th birthday. Better to get them a bike and let them gain independence and motor skills that way! Work their way up. Get them driving classes. And then maybe the third gift could be the car. So I'm trying to take baby steps now and give myself training wheels when I make purchases- especially large ones.
I spent last fall trying to put together an online course, while list building to get people who would want to buy it. I did grow my email list and learned a lot, and luckily didn't invest a huge amount of money. What I ended up deciding is that I would be better off working one on one with clients for six months or a year, and then automate it into an online course. It's so easy to try to skip steps.
This video is a perfect followup to yesterday's video about listening and building what your costumers want instead of what you want. This second part shows another business truth: as much your costumers might actually think they want something you'll never know for sure until you put your content in front of them and test the hell out all of the possibilities and improve from that first prototype. I want to build a blog about learning skills and have been procrastinating because I kinda want it to be perfect from the beginning too and that was a kick in the ass to start with as little as I can ASAP. Thank you so much Derek.
The story you tell is a classic of when we are invested in the idea rather than a viable opportunity. Thanks for sharing. I am sure we can all relate to it although not on the $100,000 scale!
Wow such awesome advice. And listening to your story, knowing how it was going to end, was stressful 😳 ‘reality test’ - I am going to remember that phrase!
Awesome lesson. I definitely have a regular tendency to "go big" before testing my ideas out. This was definitely a helpful reminder to start where you are and validate the idea first. Thanks! :D
Watched two of your videos. You got a new fan! Just subscribed and click the bell
I wasted money on advertising a parenting program that no parent would buy because I didn't yet know that help-seeking behavior is not something parents initiate on their own. It's only after parents encounter a big problem with their children about which they are unprepared to handle that parents seek help. I know that now through my dissertation research.
Wasted money on youtube and facebook advertising but you just fixed that with the last videos I seen!! Thank you
Thanks for sharing this! Success stories are so common that failure stories always get my attention.
I do have a question, however:
Are you sure the failure is due to the quiz itself? Ramit Sethi switched to a quiz as his primary opt-in, and he's been using it for a while, so that probably means it's working. However, Ramit also mentioned that his advertising return was very poor, especially for a contest he ran which resulted in less than 5 buyers after having spent 10s of thousands of dollars. So the lead quality was the problem. Maybe the quiz works well as a general opt-in (to people who organically find your content). (don't know if you've tested this)
Wow! That was a big lesson! Thanks for sharing the importance of using no or low cost methods to evaluate success before making a huge time or financial commitment.
Personally, I have never been brave enough to spend much money on my business unless it was educating related. The main lesson for me in this realm is to not overeducate to avoid actually doing what could create momentum in my business. Uhh. That lesson.
I had such a great idea to get leads...
Offering guest posting on my DA 35 site...
Not one person submitted anything for guest post.
Luckily I only spent 10 bucks on it and a day of work to set it up... not a big loss.
But validating a "bright idea" is always very important.
Spent time and energy, health and relationships for 3 years on something that just didn't turn out the way I thought! I've made some pretty awful mistakes as well.
Dramatically lost weight, felt sick on regular intervals, broke relationships and in the end? It wasn't what I thought it would be.
That really hurts!
Very cool.. THANK You!
I am working on a few businesses and one is a brand new one.. This has opened my eyes!
I will focus on the 2 current ones and get them more successful. Shelve the third - well, I will do the "get a client and do the work for free" - to flush out the viability of the idea...
Great info, perfect timing. This will open up a little time...
Thanks again!
Peace,
-Dennis
Super Awesome advice, but i have one note, I think It's better to be risky sometimes rathar than being scared all the time and not taking any risks.
His advice is to be smart, not scared.
I remember my first and I paid £500 for a website that was going to be my big break but that was all in my head, on the other hand even though £500 was a lot to me back then and I wasted it all with no return I felt happy because I instantly started to see my mistakes so as I noticed I failed and I’ve glad to say I’ve never made them same mistakes again.
Yeah man! It’s sooo tempting. Luckily I’m a cheapo dude now that believes in the feedback loop of marketing.
I haven’t had any situations similar to yours but I am cognisant of it.
Sir! Awesome.
I seriously had heart palpitations listening to this story 😳 OMG...what a crazy story. I guess I am looking forward to having the resources to test these things...but perhaps not to the tune of $100 grand.
Its easy to blow money on something - especially when staffing is involved.
5:24 OMG!!! Ugh that hurts 4 Sales :(
26k leads you recoup your spend on those users didn’t you? And since they were quizzes The leads were a little better.
No: I didn’t. And the leads were so bad we deleted them.
Derek Halpern ouch :-(
Great advice today. I've invested time and money in loads of stuff before I needed it because that's what muliple 'experts' advised. I'm savvier now about what advice to take and who from.
The Question No One Is Asking Is: How Did You Make $100,000 In Order To Make Such A Mistake?
I wonder what happened to you Derek? Are you still around?
Hey but still... you got 20k+ new leads. That's $5/lead. Not bad... riiiiiiight?
Your story made me nauseous. That’s a lot of money to lose.
Yeah the niche I chose and am still working with has not proven to be profitable. They tend to either not want to spend money on a quality website and/or they make their own using one of the DIYs. Obviously it’s not completely bad but I put a lot of eggs in this basket to become an insider. The ROI just isn’t there.