Thank you to all the humans who gave me the courage to write this article.
Building a business is easy to romanticize. Here is what it looked like from the inside, including the decisions I’d make differently.
My first business bought and sold high-quality, tested, used electronics, and over time we sold millions of dollars of them to customers in almost all 50 states and more than 15 countries. I’m proud of what we built. But the mistakes were real, some of them were expensive, and I think they’re more useful to share than the wins.
1. Accounting. Accounting. Accounting.
From the outside, selling used phones sounds simple. You buy them, you sell them.
In practice, accounting and quality control was one of the hardest parts of the business.
We weren’t tracking one product. We were tracking an enormous number of variations of the same product.
Take a single iPhone model. It could be on AT&T, Verizon, Sprint, or T-Mobile. It could be 16, 32, or 64 GB. It could come in black, gray, silver, and more. And each of those could be in one of four or five conditions, from brand new to heavily used. One phone model could easily become 20 or 30 distinct items to price, track, and sell.
Not only that, but we were operating on thin margins and the difference between a perfect phone and a near perfect phone was almost all the profit.
Layer in multi channel sales distribution. And then you have to account for returns which is a whole different monster.
Managing that by hand wasn’t an option if we wanted to keep processing thousands of phones a month. So I implemented a high-end inventory management system along with cutting edge diagnostic software.
Looking back, it was the right decision but it should have been planned and executed better combined with more capital behind it.
Some problems can’t be solved by working harder. They have to be solved with better systems.
2. Raise more than you think you need
If your business runs out of capital it dies.
My strategy was to build the infrastructure first: the systems to process and sell tested, used electronics at high volume, plus the supply and distribution channels to support it. I figured if I could build a better pipeline then I could figure out how to get cheaper oil later. And before you call me out on this as a stupid strategy just know I had a plan and knew exactly how to acquire cheaper oil, it just required more bargaining power.
I focused on growing volume so the systems would be in place, rather than on the bottom line. I did this because the systems and pipeline were the competitive advantage and the only way to perfect the pipeline and the systems was through volume.
The plan was essentially volume first -> secure pipeline -> increase pipeline efficiency -> profit.
Anyways, I still think that was the right strategy, because we were early relative to how mature this industry was and if I accomplished my goal of having the highest quality devices along with the best customer service we would have won a lot of market share from our competitors which ultimately would have led to a healthy bottom line.
But being early has a price, and we didn’t raise enough to pay it. I believe that if we had raised roughly four times more money at the start, we would have been fine. The idea was sound. The funding wasn’t enough to carry it.
At the time I was not looking for capital to grow my business but people kept offering it to me. In retrospect, this phenomenon is typically a good sign you as a founder are on the right track with your idea.
My first private investor told me that he could supply all the money we would need as long as the right opportunities were present. I didn’t realize how much of an advantage this was at the time.
I should have been more considerate of the opportunities right in front of my face but I just didn’t have enough life experience and self awareness yet. Only time could have solved this problem.
3. Capital needs a plan, not just a pulse
Raising money is only half the problem. The other half is knowing what you’ll do with it.
My focus was almost entirely on increasing revenue and figuring out everything else as we went.
I see now that I had the right strategy but the wrong execution because focusing on the top line only matters if you achieve the goal you are after which then allows the bottom line to follow.
4. The partner decision that cost me the most
Early on, I had the chance to go down two different paths. One was the familiar path, a partnership with a friend or family member. The other was with someone who had far more business experience, specifically in electronics.
At the time, I actually knew what I wanted to do. But for whatever reason, I let my emotions take over, and I made the wrong decision.
I think it cost me millions of dollars, if not tens of millions. To be quite frank, if I had made that one simple decision differently, I would probably be retired by now.
The lesson is to trust your gut, not your emotions. When you already know the answer and choose the other one anyway, that’s worth paying attention to.
5. Convenience is a costly way to hire
As we grew, we needed to hire more people, and one of my mistakes was convenient hiring: bringing in friends and family to work for me.
They didn’t do anything wrong. But they may not have taken the work as seriously as they should have, and when someone you love works for you, the stakes change.
If something goes wrong in the business, you’re not only at risk of losing an employee. You’re at risk of losing a friendship or a family relationship.
I’ve lost a few people from my life because of this and I don’t think the juice is worth the squeeze.
6. One person, one role
This is super obvious in theory but not so obvious when you are building something you’ve never built before and it is growing faster than you originally thought possible. This is also the lesson I’d most like early-stage founders to hear.
In a startup, one person should strictly have one role.
If you hire Jane, give Jane one job. If that job is shipping, all Jane does is ship. If it’s packaging, all Jane does is package. It sounds almost too simple, but it does two things.
First, it makes failure points easy to find. When one person owns one function, you know exactly where a breakdown is happening, and you can fix or replace that piece quickly.
Second, it makes scaling a math problem instead of a guess. If Jane can ship 1,000 orders a day and you want to reach 2,000, you don’t need a big strategy meeting. You need one more Jane.
If you don’t believe me on this one just ask Peter Thiel who famously said,
“The best thing I did as a manager at PayPal was to make every person in the company responsible for doing just one thing. Every employee’s one thing was unique, and everyone knew I would evaluate him only on that one thing. I had started doing this just to simplify the task of managing people. But then I noticed a deeper result: defining roles reduced conflict.”
For example in my own business, we had two people managing invoicing and accounting. Because of this, a $50,000 accounting error was made and when you flip +$50,000 to -$50,000 there is a $100,000 difference which can make a big difference when it comes to budgeting and planning expenses.
If one person was responsible for invoicing and accounting, this probably would have never happened.
7. Win your backyard before you go global
I wanted to buy as many used phones as possible, sell as many as possible, and build better infrastructure than anyone else. In pursuit of that, I was throwing stuff at the wall when it came to finding customers and suppliers.
The one thing I am proud of is that our customers and suppliers trusted us because we always paid on time and always shipped product when we said we would, without fail.
A better approach would have been to start local: take over one market, make a lot more in-person visits to customers and suppliers, and let that region prove itself. Once it generated a reasonable amount of revenue, I could have expanded strategically, one market at a time.
Ironically, selling in 15 countries is the part I’m most proud of, and focus might have gotten me there with fewer scars along with a lot more EBITDA.
8. You are the business
The last lesson is the one I wish I’d learned first.
As a founder, your business is a reflection of you. If you aren’t healthy mentally, physically, and spiritually, there’s a good chance your business won’t be either.
OBVIOUSLY THERE ARE EXCEPTIONS TO THIS RULE LIKE ELON MUSK AND MR. BEAST. MOST OF US AREN’T SUPER HUMAN LIKE THEM SO ITS IN OUR BEST INTEREST TO TAKE CARE OF OUR HEALTH.
I should have spent far more time working out and doing the things I love, like biking, hiking, and traveling, and more time with friends and family. I believe that if I had taken better care of myself, I would have made much better decisions than I did.
These are the main lessons I learned from selling millions of dollars of electronics to customers in 15 countries. I hope they help you avoid a few of the mistakes I made.
Everything makes sense looking back, and I’m glad I gained the experience and learned the lessons I did.
Never Perfect
Dan
PS. Thank you to all the humans who gave me the courage to write this article.