“There were three things I would have done differently,” Jake told me as we were driving to the trail on a recent backpacking trip. “First, I would have moved most of my staff offshore; US employees are too expensive. Second, I would have niched down. Third, I wouldn’t have leased out that expensive space. Am I wrong? What do you think?”
We were discussing the business situation of another friend of ours, Ehsan, who we were meeting at the trailhead.
Three years ago, Ehsan had purchased a digital marketing agency. He’d hired additional staff and signed a ten-year lease for a new office space downtown at the rate of $20,000 a month. He’d put $250,000 into escrow as part of an agreement with the bank to back the landlord’s investment remodeling it into a fancy office space.
Initially, the business was growing and he was making a tidy profit. But the last year he’d been hammered with setbacks:
- A key manager abruptly left. In the aftermath, Ehsan discovered that the manager was harming the business- ultimately costing him one of his best clients.
- The bank didn’t want to release his money in escrow after the build-out was completed and put him in a cash-flow crunch.
- And the software market that formed the bulk of his revenue vanished with the collapse of Silicon Valley Bank.
“I don’t know,” I told Jake as I thought about Ehsan’s situation. “I agree with your points, but for an agency of his size, his strategy might be different than for a smaller agency. Ehsan pursues larger deals. His clients might expect fancy office space and a US staff. That might tell them that his company is a low-risk, established, agency for them to purchase from. Additionally, Ehsan is excellent at building systems and teams that are all in the same physical space. And while his company isn’t tightly positioned to one market, he does have a heavy focus on serving software companies.”